Q1 2024 Sixth Street Specialty Lending Inc Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the 6th Street Specialty Lending Inc. Q1 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Cami VanHorn, Head of Investor Relations. Please go ahead.

Okay.

Speaker Change: Good day and thank you for standing by welcome to the sixth Street Specialty lending Inc. Q1, 2024 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated.

Speaker Change: Message advising that your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker can't be van Horne head of Investor Relations. Please go ahead.

Cami VanHorn: Thank you. Before we begin today's call, I would like to remind our listeners that remarks made during the call may contain forward-looking statements. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guaranteed future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Sixth Street Specialty Lending Inc.'s filing with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statement.

Speaker Change: Thank you before we begin today's call I would like to remind our listeners that remarks made during the call them. They contain forward looking statements.

Speaker Change: Other than statements of historical facts made during this call may constitute forward looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties.

Speaker Change: <unk> results may differ materially from those in the forward looking statements as a result of a number of factors, including those described from time to time in <unk> specialty lending Inc. Filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward looking statements.

Cami VanHorn: Yesterday, after the market closed, we issued our earnings press release for the first quarter ended March 31, 2024, and posted a presentation to the investor resources section of our website, www.sixthreetspecialtylending.com. The presentation should be reviewed in conjunction with our Form 10-2 filed yesterday with the SBC. Sixth Street Specialty Lending Inc.'s earnings release is also available on our website under the investor resources section. Unless noted otherwise, all performance figures mentioned in today's prepared remarks are as of and for the first quarter ended March 31, 2024. As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Joshua Easterly, Chief Executive Officer of Sixth Street Specialty Lending Inc.

Speaker Change: Yesterday after the market closed we issued our earnings press release for the first quarter ended March 31 2024.

Speaker Change: This decision to the Investor resources section of our website www dot fixtures specialty lending dot com.

Speaker Change: As inflation should be reviewed in conjunction with our Form 10-Q filed yesterday with the SEC.

Speaker Change: Specialty lending Inc. Earnings release is also available on our website under the Investor Resources section unless noted otherwise all performance data as mentioned in today's prepared remarks are as of May for the first quarter ended March 31, 2024. As a reminder, this call is being recorded for replay purposes, I will now turn the call over to Joshua easterly Chief Exec.

Joshua Easterly: They've officer at six three specialty lending Inc.

Joshua Easterly: Good morning, everyone, and thank you for joining us. With us today are our president, Beau Stanley, and our CFO, Ian Simmonds. For our call today, I will review our first quarter highlights and pass it over to Bo to discuss activity and the portfolio. Ian will review our financial performance in more detail, and I will conclude with final remarks before opening the call to Q&A. After the market closed yesterday, we reported first quarter adjusted net investment income of $0.58 per share, or an annualized return on equity of 13.6%, and adjusted net income of $0.52 per share, or an annualized return on equity of 12.3%.

Joshua Easterly: Good morning, everyone and thank you for joining us with US today are president both family and our CFO Ian Simmonds.

Joshua Easterly: As presented in our financial statements, our Q1 net investment income and net income per share, inclusive of the unwind of the non-cash accrued capital gain incentive fee expense, were a penny per share higher. The difference between this quarter's net investment income and net income was driven by $0.09 per share of net unrealized gains from the impact of tighter credit spreads on the valuation of our investments. $0.14 per share on net unrealized losses from portfolio company-specific events and $0.03 per share of unrealized losses from the reversal of prior-period unrealized gains related to investment realizations and $0.03 per share of realized gains from investment savings.

Joshua Easterly: For our call today, I will review, our first quarter highlights and pass it over to Bo.

Joshua Easterly: <unk> activity in the portfolio and will review our financial performance in more detail and I will conclude with final remarks before opening the call to Q&A.

Ian Simmonds: After the market closed yesterday, we reported first quarter adjusted net investment income of 58 per share or an annualized return on equity of 13, 6% and adjusted net income of 52 cents per share when annualized return on equity of 12, 3%.

Ian Simmonds: Presented in our financial statements. Our Q1 net investment income and net income per share inclusive of the unwind of the noncash accrued capital gains incentive fee expense or a penny per share higher the difference between this quarter's net investment income and net income was driven by <unk> <unk> per share of net unrealized gain.

Ian Simmonds: <unk> from the impact of tighter credit spreads on the valuation of our investments.

Ian Simmonds: <unk> per share of net unrealized losses from portfolio company specific events.

Ian Simmonds: <unk> per share of unrealized losses from the reversal of prior period unrealized gains related to investment realizations in <unk> per share of realized gains from investment sales.

Joshua Easterly: With these results in mind, I'd like to start by circling back at two remarks I made on previous earnings calls. First, the BDC sector is at peak earnings, and second, the tail within portfolios is getting longer. On the first comment, we reported another strong quarter from an earnings perspective as net investment income continued to benefit from higher interest rates. However, Q1 was the first time in eight quarters or since the start of the rate hiking cycle that we experienced a modest decline in the weighted average reference rate resets on debt and income-producing securities of five basis points.

Ian Simmonds: With deep UV is also in mind I'd like to start by circling back to remarks I made on previous earnings calls.

Ian Simmonds: In February <unk>.

Ian Simmonds: The BDC sector is at peak earnings.

Ian Simmonds: The tail within portfolios is getting longer and the first comment we reported another strong quarter.

Ian Simmonds: The earnings perspective, as net investment income continue to benefit from higher interest rates Q1 was the first time in eight quarters or since the start of the rate hike cycle that we experienced a modest decline in the weighted average referenced rate resets, our debt and income producing securities of five basis points.

Joshua Easterly: That said, the strength of the recent economic data and the higher for longer shape of the forward interest rate curve continue to support net investment income. Since our last earnings call, the forward curve has shifted towards higher for longer, with year-end base rates estimated to be 4.9%, which is up from 4.2% as of our last earnings call. [inaudible] We anticipate the current environment will likely drive a dispersion between operating and gap earnings, as higher base interest rates may ultimately lead to credit deterioration and potential losses, as we previously discussed.

Ian Simmonds: That said the strength of the recent economic data and the higher for longer shape of the forward interest rate curve continues to support net investment income.

Ian Simmonds: Since our last earnings call. The forward curve has shifted towards higher for longer with year end base rates estimated to be four 9%, which is up from four 2% as of our last earnings call. In February we anticipate the current environment will likely drive a dispersion between operating and GAAP earnings is higher.

Ian Simmonds: Higher base interest rates may ultimately lead to credit deterioration and potential for losses as we previously talked about.

Joshua Easterly: On my second comment, we're adding a nuance to the view that we took this quarter, which is that the tail is growing on the margin. While we're seeing evidence of idiosyncratic credit issues arising across the private credit sector, we remain optimistic about the ability of private credit portfolios to withstand the headwinds of today's macroeconomic environment for a couple of reasons. First and foremost, private credit managers underwrite investments with the intent of holding that risk until maturity, given the largely illiquid nature of the asset.

Ian Simmonds: My second comment, we're adding a nuance to the view that this quarter, which is at the tail is growing on the margin.

Ian Simmonds: While we are seeing evidence of idiosyncratic credit issues arising from.

Ian Simmonds: Across the private credit sector, we remain optimistic about the ability for private credit portfolio to withstand the headwinds of today's macroeconomic environment for a couple of reasons first and foremost private credit managers underwrite investments with the intent of holding that risk until maturity given the largely illiquid nature of the asset class for us.

Joshua Easterly: For us, this means extremely thorough due diligence and bottom-up analysis on every credit we undertake, coupled with active portfolio management through the life of the investor. We have demonstrated selectivity in our portfolio by avoiding cyclical businesses, staying away from certain industries, and leaning into specific sector themes. This optionality differs from the public debt market, which is forced to hold a much broader range of sector exposures, including those that we have to deliberately avoid.

Ian Simmonds: Extremely thorough due diligence and bottoms up analysis on every credit we retain coupled with active portfolio management through the life of the investment and second private credit managers have the ability to be selective in terms of sector exposure we.

Ian Simmonds: We have demonstrated activity in our portfolio by avoiding cyclical businesses and away from certain industries and leaning into specific sector themes.

Ian Simmonds: This optionality differs from the public debt.

Ian Simmonds: That market, which are forced to hold a much broader range of sector exposures, including those that we have deliberately avoided.

Joshua Easterly: It is important to note that both of these benefits to private credit are not given and ultimately rely upon active management. Having the ability to determine when to invest as well as what to invest is a feature of our business model and a core principle of operating our business within a capital allocation business. Turning to our portfolio specifically, the difference between this quarter's net investment income and net income highlights our point about the growing tail. Individual portfolio company specific events resulted in 14 cents per share net unutilized losses in Q1.

Ian Simmonds: It is important to note that both of these benefits to private credit or not given and ultimately.

Ian Simmonds: Rely upon active management.

Ian Simmonds: Having the ability to determine when to invest as well to what invest.

Ian Simmonds: As a feature of our business model and our corporate swap of operating our business with capital outlook within our capital allocation discipline.

Ian Simmonds: Turning to our portfolio specifically the difference between this quarter's net investment income and net income highlights I'd point on the growing tail individual portfolio company specific events resulted in 14 cents per share net unrealized loss losses in Q1.

Joshua Easterly: A significant portion of this, or $0.11 per share, was related to the markdown in our investment in Astra Acquisition Corp. At quarter end, we transferred this investment to non-accrual status, driven by continued underperformance of the company. While this is evidence that the tail is growing on the margin, we remain focused on the bigger picture, which is our ability to grow net asset value over the long term despite idiosyncratic issues that have existed in our portfolio.

Ian Simmonds: A significant portion of this or 11 cents per share was related to the markdown and our investment in Astra acquisition Corp.

Ian Simmonds: Quarter end, we add this investment to non accrual status driven by continued underperformance of the company.

Ian Simmonds: While this is evidence that the tail is growing on the margin. We remain focused on the bigger picture, which is our ability to grow net asset value over the long term. Despite idiosyncratic issue has existed in our portfolio we have.

Joshua Easterly: We have steadily and consistently grown net asset value over the 12 and a half years since we started, this business represented by three and a half percent annualized NAV growth before special and supplemental dividends since inception. We feel confident in our ability to continue this growth in the future, which we believe will result in outperformance relative to the sector. Turning now to the broader portfolio, credit quality remains strong, with non-accruals limited to 1.1% of the portfolio at fair value.

Ian Simmonds: Consistently grow net asset value over the $12 five years since we started.

Ian Simmonds: This business representing represented by a three 5% annualized NAV growth before special in supplemental dividends since inception.

Ian Simmonds: We feel confident in our ability to continue this growth in the future, which we believe will result in outperformance relative to the sector.

Ian Simmonds: Turning now to the broader portfolio credit quality remains strong with non accrual is limited at one 1% of the portfolio by fair value revenue and EBITDA growth continued for another consecutive quarter. Several of our portfolio companies have started to see cost saving initiatives flow through the P&L resulted in margin expansion and positive.

Joshua Easterly: Revenue and EBITDA growth continued for another consecutive quarter. Additionally, several of our portfolio companies have started to see cost-saving initiatives flow through the P&L, resulting in margin expansion and positive EBITDA. All things considered, our underlying portfolio companies have shown resilience, which we believe is reflective of our disciplined credit selection and effective portfolio management. Yesterday, our board approved a base quarterly dividend of 46 cents per share to record to shareholders of record as of June 14th, payable on June 28.

Ian Simmonds: EBIT trends.

Ian Simmonds: All things considered our underlying portfolio companies have shown resilience, which we believe is reflective of our disciplined credit selection and <unk>.

Ian Simmonds: Portfolio management.

Ian Simmonds: Yesterday, our board approved a base quarterly dividend of 46 cents per share to record to shareholders of record as of June <unk> payable on June 28.

Joshua Easterly: Our board also declared a supplemental dividend of six cents per share related to our Q1 earnings to shareholders of record as of May 31st, payable on June. Our net asset value per share pro forma for the impact of the supplemental dividend that was declared yesterday is 1711. And we estimate that our spillover income per share is approximately $1.60.

Ian Simmonds: Our board also declared a supplemental dividend of <unk> <unk> per share related to our Q1 earnings to shareholders of record as of May 31 payable on June 20.

Ian Simmonds: Our net asset value per share pro forma for the impact of the supplemental dividend that was declared yesterday 17 11 and.

Ian Simmonds: And we estimate that our spillover income per share is approximately $1 <unk>.

Joshua Easterly: Before passing it to Bo, I would like to note that on March 26, Fitch Ratings Agency published their annual review for the BDC sector, and we are pleased to note that 6th Street Specialty Lending's rating of BBB-flat was revised from a stable to a positive outcome for the 22 firms in their rated universe. TSLX is one of two BDCs to hold a rating with a positive outlook from. With that said, I'll now pass it over to Bo to discuss this quarter's investment activity. Thanks, Josh.

Ian Simmonds: Before passing it to Bo I would like to note that on March 26.

Ian Simmonds: Fitch ratings agency published their annual review for the BDC sector and we are pleased to note that fixed refresh trailing needs rating of Triple B flat was revised.

Ian Simmonds: From a stable to a positive outlook of the two.

Ian Simmonds: 22 firms and they're rated universe Tfl acts as one of <unk> to hold the rating with a positive outlook from Fitch with that ill now pass over to Bo to discuss this quarter's investment activity.

Robert Stanley: I'd like to start by sharing some observations on the broader market backdrop, and in particular, the purpose and importance of direct lending in today's investing landscape. Through the first quarter of 2024, public and private debt markets welcomed an increase in demand for financing solutions after a historically low level of transaction volume in 2023. Access to the broadly syndicated market has improved, providing some borrowers with an option between public and private financing. With both markets open for business, competition has generally increased compared to this time last year.

Bo: Thanks, Josh I'd like to start by sharing some observations on the broader market backdrop.

Bo: Particular, the purpose and importance on direct lending and today's investing landscape.

Bo: Through the first quarter of 2020 for public and private debt markets welcomed an increase in demand for financing solutions.

Bo: Historically low level of transaction volume in 2023.

Bo: Access to the broadly syndicated market has improved providing some borrowers with an option between public and private financing solutions.

Bo: With both markets opened for business competition is generally increase compared to this time last year. However, we remain highly selective in where we transact to make certainly over earn our cost of capital.

Robert Stanley: However, we remain highly selective in where we transact to make certain we over earn our cost of capital. Our omni-channel sourcing capabilities have contributed to a robust and building pipeline of opportunities that rely on the structures and features available only in the private credit market. We believe the current environment underscores the value proposition of private credit for borrowers looking for more than the cheapest cost of financing. Direct lending provides creative solutions, certainly in price, stability through market volatility, and structural flexibility, such as delay drop. All of these components differentiate the private credit markets from the BSL market and reinforce the importance of solutions we provide to the middle market.

Bo: Our omnichannel sourcing capabilities has contributed to a robust and building pipeline of opportunities that rely upon the structures and features available only in the private credit markets. We believe the current environment underscores the value proposition of private credit for borrowers looking for more than the cheapest cost of financing.

Bo: Direct lending provides creative solutions certainty in pricing.

Bo: The ability through market volatility and structural flexibility such as delayed draw features.

Bo: All of these components differentiate the private credit markets from the BSL market and reinforced the importance of solutions, we provide to the middle market companies.

Robert Stanley: Our investments in Equinox during the quarter highlight our differentiated capabilities as we stepped in to provide an alternative solution to a company with a complicated capital structure. As part of the transaction, Sixth Street led and agented a $1.2 billion first lien term loan and, to a lesser degree, participated in a $575 billion second lien term loan. SLX committed $47.9 million and $2.1 million in these loans, respectively, in support of the company's refinancing of existing debt.

Bo: Our investments in equinox during the quarter highlights our differentiated capabilities that we stepped in to provide an alternative solution to a company with a complicated capital structure as part of the transaction sixth Street led and agents had a $1 2 billion first lien term loan and to a lesser degree participated in that $575 million.

Bo: Second lien term loan.

Bo: <unk> committed $47 9 million and $2 1 million in these loans, respectively in support of the company's refinancing of existing debt.

Robert Stanley: This investment is also representative of the increase in opportunities we are seeing for companies with durable business models looking to restructure their balance sheets. In most cases, the complexity of these transactions requires a direct lender that is willing and able to structure and underwrite a creative solution.

Bo: This investment is also representative of the increase in opportunities we are seeing for companies with durable business models looking to restructure their balance sheets.

Bo: In most cases the complexity of these transactions require a direct lender that is willing enable to structure and underwrite a creative solution.

Robert Stanley: Given our extensive experience and dedicated resources across the six-week platform, we are well positioned to lead these opportunities. Additionally, the level of competition is lower for these investments compared to more traditional loan structures, which has contributed to our busy start to the year from an investment perspective, which I'll pivot to now. In Q1, we provided total commitments of $264 million and total funding of $163 million across nine new portfolio companies, in upsizes to five existing investors.

Bo: Given our extensive experience and dedicated resources across our fixed platform, we are well positioned to lead these opportunities.

Bo: Additionally, the level of competition is lower for these investments compared to more traditional loan structures, which has contributed to a busy start to the year from an investment perspective, what's helped pivot to now.

Bo: In Q1, we provided total commitments of $264 million and total fundings of $163 million across nine new portfolio companies and upsize to five existing investments.

Robert Stanley: We experienced $109 million of repayments from three full, seven partial, and 18 structured credit investment realizations, resulting in $54 million of net funding activity. Additionally, there was another strong quarter for Originations, with 95% of total funding for new investors. Investments, with 5% supporting upsizing to existing portfolios. This quarter's funding has contributed to our diversified exposure to select industries, with nine new investments across eight different industries. Consistent with a long-term approach of investing at the top of the capital structure.

Bo: Experienced $109 million of repayments from 347 partial and <unk> structured credit investment realizations result, again 54 million of net funding activity.

Bo: It was another strong quarter for originations with 95% of total funding new investments.

Bo: Best months with 5% supporting upsize, the two existing portfolio companies.

Bo: This quarter's funding has contributed to our diversified exposure to select industries with nine new investments across eight different industries.

Bo: Consistent with our long term approach of investing at the top of the capital structure, 95% of fundings. This quarter were in first lien loans, bringing our total first lien exposure to 92% across the entire portfolio.

Robert Stanley: 95% of fundings this quarter were in first lien loans, bringing our total first lien exposure to 92% across the entire portfolio. We continue to benefit from the size and scale of Sixth Street's capital base as we've participated in several cross-platform deals, including our largest new commitment during the quarter, which supported the TakePrivate transaction of Altura. In March, 6th Street arranged and closed on a senior secured credit facility as part of the $4.4 billion acquisition of Altyrex by Clear Lake Capital and Insight Partners.

Bo: We continue to benefit from the size and scale of <unk> capital base as we participated in several cross platform deals, including our largest new commitment during the quarter, which supported the take private transaction of <unk>.

Bo: At March 5th Street, aged and closed on our senior secured credit facility as part of the $4 $4 billion acquisition of Altera X by Clearlake capital and then type partners.

Robert Stanley: Our close relationship with both sponsors, combined with our ability to commit to the deal and size, was key to securing our leading role in the debt finance industry. Moving on to repayment activity, our two largest exits during the quarter, Aseo and Bill Highway, were older vintage assets that were driven by refinancing. These investments generated a weighted average asset level gross IRR of...

Bo: Our close relationship with both sponsors combined with our ability to commit to the deal and size are key to securing our leading role in the debt financing.

Bo: Moving on to repayment activity, our two largest exits during the quarter, our Fayetteville highway where older vintage assets that were driven by refinancings.

Bo: These investments generated a weighted average asset level gross IRR of 12, 2% for us Alex shareholders.

Robert Stanley: IRR of 12.2% for SOX shareholders.

Robert Stanley: Beyond refinancing, another notable area of repayment activity during the quarter was in our structured credit portfolio. As a reminder, we purchased approximately 54 million of COO liabilities at a significant discount to par during the market volatility that occurred in Q2 and Q3 of 2022. Rather than holding excess capital or deploying capital into investments that do not exceed our cost of capital, we leverage

Bo: Beyond refinancings. Another notable area of repayment activity during the quarter was in our structured credit portfolio.

Bo: As a reminder, repurchase approximately $54 million of CLO liabilities at a significant discount to par during the market volatility that occurred in Q2 and Q3 of 2022.

Bo: Rather than holding excess capital or deploying capital into investments that do not exceed our cost of capital.

Operator: https://www.tpg.com.au

Bo: Leverage the experience across the sixth street platform to Opportunistically invest in Triple B double B CLO liabilities that presented an efficient use of shareholder capital.

Robert Stanley: Double B CLO liabilities that presented an efficient use of shareholder capital. Since then, we have watched our investment thesis play out as we've rotated out of approximately 85% of our CO level liability exposure today. We purchased those securities at a weighted average price of $88.5 with a three-year discount margin of approximately $880, and we exited at a weighted average price of $98.5 with a three-year discount margin of approximately $535. For Q1, these exits resulted in approximately $0.02 per share of realized gains for SLX shareholders.

Bo: Since then we have watched our investment thesis play out as we've rotated out of approximately 85% of our CLO liability exposure today.

Bo: We purchased securities at a weighted average price of $88 five with a three year discount margin of approximately AED and exited at a weighted average of $98 five with a three year discount margin of approximately 35.

Bo: For Q1. These exits resulted in approximately <unk> <unk> per share of realized gains for <unk> shareholders. We expect to continue rotating out of the structured credit portfolio to crystallize. The returns we've generated and will opportunistically come back to this theme in moments, where it presents an efficient use of capital based on the return profile.

Robert Stanley: We expect to continue rotating out of the structured credit portfolio to crystallize the returns we've generated and will opportunistically come back to this theme in moments where it presents an efficient use of capital based on the return profile. From a portfolio yield perspective, our weighted average yield on debt and income-producing securities at an unattached cost decreased slightly quarter over quarter from 14.2% to 14.0%. This decline reflects the combination of 10 basis points of spread compaction from lower spreads on new investments and 5 basis points from the decline in reference rate reset. New investment spreads were lower.

Bo: From a portfolio yield perspective, our weighted average yield on debt and income producing securities that amortized cost decreased slightly quarter over quarter from 14, 2%, 2% to 14.0%. This.

Bo: This decline reflects the combination of 10 basis points of spread compression from lower spreads on new investments and five basis points from the decline in reference rate resets.

Robert Stanley: Q1, largely driven by roughly two-thirds of our fundings, including an upside of us, falling into what we call our lane one box. Lane one has extraordinarily been about 65% of our total investment activity, and generally includes regular way financing to sponsor that company. In Q1, this includes investments in high-quality companies such as Alteryx and Clearance Technologies, which are scaled businesses with attractive financial profiles. The other.

Bo: New investment spreads were lower.

Bo: In Q1, largely driven by roughly two thirds of our fundings, including an upside of this falling into what we call our all in one bucket.

Bo: <unk> has historically been about 65% of our total investment activity and generally includes regular way financings to sponsor backed companies.

Bo: In Q1. This includes investments in high quality companies, such as <unk> and clearance technologies, which are scale businesses with attractive financial profile files.

Robert Stanley: Third, a third of our funding activity was in more complex Lane 2 buckets, which typically include higher yielding assets represented by our investment in Equinox during the quarter. As an illustration of the difference in yields, our new Q1 investments in Lane 1 had a weighted average yield and amortized cost of 11.3% compared to 14.0% for our investments in Lane 2 assets. On a consolidated basis, the weighted average yielded amortized cost of new investments, including upsizes, for Q1 was 12.2% compared to a yield of 14% on fully exited investments.

Bo: The other.

Bo: Third of our funding activity was a more complex weighing two buckets, which typically includes higher yielding assets represented by our investment in equinox during the quarter.

Bo: As an illustration of the difference in yields our new Q1 investments and weighing one that had a weighted average yield at amortized cost of 11, 3% compared to 14.0% for investments and waiting to access.

Bo: On a consolidated basis, the weighted average yield at amortized cost of new investments, including Upsizing for Q1 was 12, 2% compared to a yield of 14% on fully exited investments.

Robert Stanley: Moving on to the portfolio composition and credit stats, across our core borrowers for whom these metrics are relevant, we continue to have conservative weighted average attach and detach points of 0.7 times and 4.9 times, respectively. And our weighted average interest coverage remains constant at 2.0. As a reminder, interest coverage assumes we apply reference rates at the end of the quarter to steady-state borrower EBITDA. As of Q1 2024, the weighted average revenue in EBITDA of our core portfolio companies was $275.5 million and $92.5 million, respectively.

Bo: Moving on to the portfolio composition and credit stats across our core borrowers with whom these metrics are relevant and we continue to have conservative weighted average attach and detach point of 0.7 times and four nine times respectively.

Bo: Our weighted average interest coverage remained constant at 2.0 acts as a reminder, interest coverage assumes we apply reference rates at the end of the quarter to steady state borrower EBITDA as of Q1 2024, the weighted average revenue and EBITDA of our core portfolio companies was $275 5 million and $92 $5 million respectively.

Robert Stanley: Finally, the performance rating in our portfolio continues to be strong, with a weighted average rating of 1.15 on a scale of 1 to 5, with 1 being the strongest, representing improvement from last quarter's rating of 1.16 given by growth in the portfolio from new investors. As Josh mentioned earlier, we added one new company, Astra.

Bo: Finally, the performance rating of our portfolio continues to be strong with a weighted average rating of one five on a scale of one to five with one being the strongest.

Bo: Representing improvement from last quarter's rating of one six driven by growth in the portfolio from new investments.

Bo: As Josh mentioned earlier, we added one new company after acquisition Corp to non accrual status at the end of the quarter.

Robert Stanley: Astra Acquisition Corp. Phenomenal Cool status at the end of the quarter.

Ian Simmonds: resulting in two portfolio companies on non-accrual across the entire portfolio. With that, I'd like to turn it over to my partner, Ian, to cover our financial performance in more detail.

Bo: Resulting in two portfolio companies on non accrual across the entire portfolio.

Speaker Change: With that I'd like to turn it over to my partner <unk> to cover our financial performance in more detail.

Ian Simmonds: Thank you both. For Q1, we generated adjusted net investment income per share of $0.58 and adjusted net income per share of $0.52. Total investments were $3.4 billion, up 3% from the prior quarter as a result of net funding activity. Total principal debt outstanding at quarter end was $1.9 billion, and net assets were $1.6 billion, or $17.17 per share prior to the impact of the supplemental dividend that was declared yesterday. Since the start of the rate hiking cycle two years ago, we have successfully grown net asset value per share by 5.6% from a trough of $16.27 in Q2 of 2022 to $17.17 at quarter end.

Speaker Change: Thank you Bob.

Speaker Change: For Q1, we generated adjusted net investment income per share of 58, and adjusted net income per share of <unk> 52.

Speaker Change: Total investments with $3 4 billion up 3% from the prior quarter as a result of net funding activity.

Speaker Change: It'll principal debt outstanding at quarter end was $1 9 billion and net assets were $1 6 billion or $17 17 per share prior to the impact of the supplemental dividend that was declared yesterday.

Speaker Change: Since the start of the rate hiking cycle two years ago. We are successfully growing net asset value per share by five 6% from a trough of $16 27 in Q2 of 2022 to $17 17 as of quarter end. Additionally, net asset value per share is now back above the pre rate hike level.

Ian Simmonds: Additionally, net asset value per share is now back above the pre-rate hike level of $16.88 as of March 31, 2022 and is a penny below our historical high of $17.18. It has been a very busy year at the start of the year, as we completed several capital markets transactions, including a bond offering, an equity raise, and a revolving credit facility extension.

Speaker Change: $16 88 as of March 31, 2022, and is a penny below our historical high of $17 18.

Ian Simmonds: Starting off in early January, we improved our funding mix and liquidity profile through a $350 million long five-year bond offering. In March, we executed a small equity raise to take advantage of attractive new investment opportunities while remaining below the top end of our target leverage range of 1.25 times debt-to-equity. Consistent with the framework we've outlined in the past, we issued equity above net asset value and deployed the new capital raised into assets generating estimated returns that exceed our calculated cost of capital.

Speaker Change: It has been a very busy start to the year as we completed several capital markets transactions, including a bond offering an equity raise and our revolving credit facility extension.

Speaker Change: Starting off in early January we improved our funding mix and liquidity profile through a $350 million long five year bond offering.

Speaker Change: In March we executed a small equity raise to take advantage of attractive new investment opportunities while remaining below the top end of our target leverage range of one five times debt to equity.

Speaker Change: System with the framework, we've outlined in the past, we issued equity above net asset value and deploy the new capital raised into assets generating estimated returns that exceed our calculated cost of capital.

Ian Simmonds: We'll spend a moment to walk through this map, starting with the assumption that our cost of equity is 9%, which we've sourced from Bloomberg. Based on this assumption, we can back into the required return on new assets by applying the cost structure of our business, including the marginal cost of leverage, fees, estimated credit losses, and other expenses to our unit economics model.

Speaker Change: I will spend a moment to walk through this map starting with the assumption that our cost of equity of 9%, which we saw from Bloomberg. Thanks.

Speaker Change: Based on this assumption, we can back into the required return on new assets by applying the cost structure of our business, including the marginal cost of leverage.

Speaker Change: <unk> estimated credit losses, and other expenses to our unit economic model.

Ian Simmonds: This calculation results in a 10.6% return on assets, inclusive of credit losses, required to generate a 9% return on equity. In our case, we deployed the new equity capital into investments with an average asset level yield of 12% to 13.5%, depending on the assumed weighted average life, resulting in an estimated ROE range of approximately 11.5% to 14% for the capital deployed, well above our estimated equity cost of capital. Shareholder returns continue to be our priority, and we strongly believe that our ability to access additional equity capital allows us to generate attractive risk-adjusted returns for our investors.

Speaker Change: Calculation resulted in a 10, 6% return on assets inclusive of credit losses required to generate a 9% return on equity.

Speaker Change: In our case, we deployed the new equity capital into investments with an average asset level yield of 12% to 13, 5% depending on the assumed weighted average lives, resulting in an estimated ROE range of approximately 11, 5% to 14% for the capital deployed well above our estimated equity.

Speaker Change: Cost of capital.

Speaker Change: Shareholder returns continue to be a priority and we strongly believe that our ability to access additional equity capital allows us to generate attractive risk adjusted returns for our investors.

Ian Simmonds: Post-quarter end, we further enhanced our debt maturity profile by closing an amendment to our revolving credit facility. Additionally, with the ongoing support of our bank group, we amended our $1.7 billion secured credit facility, including extending the final maturity on $1.5 billion of these commitments through April 2029. We are pleased with the outcome of this transaction as we successfully converted a legacy non-extending lender to an extending status and accepted an incremental commitment from an existing lender.

Speaker Change: Post quarter end, we further enhanced our debt maturity profile by closing an amendment to our revolving credit facility.

Ian Simmonds: There were no new non-extending lenders as part of this amendment, and we maintained the existing pricing and terms on the facility. The combination of the January bond issuance and the closing of the amendment to our credit facility extended the weighted average maturity on our liabilities to four years, which compares to an average remaining life of investments funded by debt of approximately 2.5 years. This element is important to our asset liability matching principle of maintaining a weighted average duration on our liabilities that meaningfully exceeds the weighted average life of our assets funded by debt.

Speaker Change: With the ongoing support of our Bank group, we amended our $1 7 billion secured credit facility, including extending the final maturity on one 5 billion of these commitments through April 2029, we.

Speaker Change: We are pleased with this outcome of this transaction as we successfully converted a legacy not extending lender to extending status and accepted an incremental commitment from an existing lender.

Speaker Change: There were no new non extending lenders as part of this amendment and we maintain the existing pricing in terms on the facility.

Speaker Change: The combination of the January bond issuance and the closing of the amendment to our credit facility extended the weighted average maturity on our liabilities to four years, which compares to an average remaining life of investments funded by debt of approximately two five years.

Speaker Change: Element is important to our asset liability matching principle of maintaining a weighted average duration on our liabilities that meaningfully exceeds the weighted average life of our assets funded by debt.

Ian Simmonds: All three of our capital markets transactions bolstered our balance sheet by enhancing our liquidity profile. As of March 31, we had $1.1 billion of unfunded revolver capacity against $260 million of unfunded portfolio company commitments eligible to be drawn. In terms of capital positioning, our ending debt-to-equity ratio from the balance sheet decreased quarter over quarter from 1.19 times to 1.14 times. The decrease was driven by the equity raise in February combined with repayment activity, which was partially offset by portfolio growth from new investors.

Speaker Change: All three of our capital markets transactions bolstered our balance sheet by enhancing our liquidity profile as of March 31, we had $1 1 billion of unfunded revolver capacity against $260 million of unfunded portfolio company commitments eligible to be drawn.

Speaker Change: In terms of capital positioning our ending debt to equity ratio from the balance sheet decreased quarter over quarter from $1. One nine times to 114 times. The decrease was driven by the equity raise in February combined with repayment activity, which was partially offset by portfolio growth from new investments.

Ian Simmonds: As for upcoming maturity... We have reserved for the $347.5 million of 2024 notes due in November under our revolving credit facility. After adjusting our unfunded revolver capacity as of quarter end for the repayment of the 2024 notes, we continue to have ample liquidity of $764 million, representing 2.9 times the amount of our unfunded commitments eligible to be drawn. Additionally, the repayment of the 2024 notes will have an economic impact in 2025 as the implied funding mix shift will lower our weighted average cost of debt. Pivoting to our presentation materials, slide eight contains this quarter's NAV bridge.

Speaker Change: As for upcoming maturities.

Speaker Change: Have reserved for the 347 $5 million of 2020 notes due in November under our revolving credit facility. After adjusting our unfunded revolver capacity as of quarter end for the repayment of the 2024 notes, we continue to have ample liquidity of $764 million representing.

Speaker Change: Two nine times the amount of our unfunded commitments eligible to be drawn. Additionally, the repayment of 2024 notes will have an economic impact in 2025.

Speaker Change: The implied funding mix shift will lower our weighted average cost of debt.

Ian Simmonds: In addition to the items Josh walked through earlier, the equity raise resulted in a $0.14 per share uplift to NAV and Q1. Moving on to our operating results detail on slide 9, we generated $117.8 million of total investment income for the quarter, down 1.5% compared to $119.5 million in the prior quarter. Interest and dividend income was $112.1 million, down slightly from the prior quarter, driven by the marginal decline in interest rates off of peak levels experienced in Q4.

Speaker Change: Pivoting to our presentation materials slide eight contains this quarter's NAV.

Speaker Change: In addition to the items Josh walked through earlier the equity raise resulted in <unk> 14 per share uplift to <unk> in Q1.

Ian Simmonds: Other fees, representing prepayment fees and accelerated amortization of upfront fees from unscheduled paydowns, were lower at $1.5 million compared to $3.5 million in Q4, driven by lower coal protection from payoffs of older vintage assets during the quarter. Other income was $4.3 million compared to $3.9 million in the prior quarter. Net expenses, excluding the impact of the non-cash reversal related to the unwind of capital gains incentive fees, were $65.4 million, up slightly from $65 million in the prior quarter.

Speaker Change: Moving onto our operating results detailed on slide nine we generated $117 8 million of total investment income for the quarter down one 5% compared to $119 5 million in the prior quarter.

Ian Simmonds: Our weighted average interest rate on average debt outstanding decreased from 7.8% to 7.6%, driven by the marginal decline in reference rates. Before passing it back to Josh, I wanted to circle back to our ROE metric. In Q1, we generated an annualized ROE based on adjusted net investment income of 13.6% and an annualized ROE based on adjusted net income of 12.3%. This compares to our target return on equity on adjusted net investment income of 13.4% to 14.2% for the full year, as articulated during our Q4 earnings call. And we maintain this outlook heading into the rest of 2024. With that, I'll turn it back to Josh for his concluding remarks. Thank you, Ian.

Speaker Change: Interest and dividend income was $112 1 million down slightly from the prior quarter driven by the marginal decline in interest rate off of peak levels experienced in Q4.

Speaker Change: Other fees, representing prepayment fees and accelerated amortization of upfront fees from unscheduled pay downs were lower at $1 5 million compared to $3 $5 million in Q4, driven by lower coal protection from payoff of older vintage assets during the quarter. Other income was $4 3 million compared to.

Speaker Change: $3 9 million in the prior quarter.

Speaker Change: Net expenses, excluding the impact of the noncash reversal related to unwind of capital gains incentive fees was $65 4 million up slightly from $65 million in the prior quarter, our weighted average interest rate on average debt outstanding decreased from seven 8% to seven 6% driven by the marginal decline in.

Speaker Change: The reference rates.

Speaker Change: Before passing it back to Josh I wanted to circle back to our ROE metrics in Q1, we generated an annualized ROE based on adjusted net investment income of 13, 6% and an annualized ROE based on adjusted net income of 12, 3%.

Speaker Change: This compares to our target return on equity on net investment income of $13 four to 14, 2% for the full year as articulated during our Q4 earnings call and we maintain this outlook heading into the rest of 2024.

Speaker Change: With that I'll turn it back to Josh for concluding remarks.

Joshua Easterly: Thank you, Wayne. I'd like to close our prepared remarks today by encouraging our shareholders to participate and vote in our upcoming annual and special meetings on May 23rd. Consistent with previous years, we're seeking shareholder approval to issue shares below net asset value, effective for the upcoming 12 months. To be clear, today we have never issued shares below net asset value under prior shareholder authorization granted to us for each of the past seven years. We have no current plan to do so.

Josh: I'd like to close our prepared remarks, thereby encouraging our shareholders to participate and vote for upcoming annual and special meeting on May 23rd consistent.

Joshua Easterly: Consistent with previous years, we are seeking shareholder approval to issue shares below net asset value effective for the upcoming 12 months.

Josh: To be clear today, we have never issued shares below net asset value under prior shareholder authorization granted to us for each of the past seven years, we have no current plans to do so we really view this authorization as an important tool for value creation and financial flexibility in periods of market volatility.

Joshua Easterly: We merely view this authorization as an important tool for value creation and financial flexibility in periods of market volatility. As evidenced by the last 10 plus years since our initial public offering, our bar for raising equity has only been raised when trading above net asset value on a very disciplined basis. So we would only exercise this authorization to issue shares below net asset value if there are sufficiently high-risk adjusted return opportunities that would ultimately be accretive to our shareholders through over-rearing our cost of capital in any associated dealership.

As evidenced by the last 10 plus years since our initial public offering our bar for raising equity is high we've only raised equity when trading above net asset value on a very disciplined basis. So we would only exercise this authorization to issue shares below net asset value. If there are there are sufficiently high risk adjusted.

Joshua Easterly: Opportunities that would ultimately be accretive to our shareholders through over our cost of capital and any associated dilution.

Joshua Easterly: If anyone has questions on this topic, please don't hesitate to reach out to us. We have also provided a presentation which walks through this analysis in the investor resources section of our website. We hope you find the supplemental information helpful as a way of providing a clear rationale for providing the company with access to this important tool.

Joshua Easterly: If anyone ask the questions on this topic, please don't hesitate to reach out to us.

Joshua Easterly: We have also provided a presentation, which walks through then this analysis in the Investor resources section of our website.

Joshua Easterly: We hope you find the supplemental information helpful.

Joshua Easterly: As a way of providing a clear rationale for providing the company. This access to this important tool.

Joshua Easterly: As a final comment for today's call, I wanted to share my thoughts on a recent press focus on the perceived systemic risk in private credit. I would suspect that this narrative largely comes from participants that have lost market share and the associated fee streams from the growth of private credit. Clearly, private credit has been a disruptive force to the incumbent business model in non-investment grade corporate credit, which is banks acting as an intermediary, which we have called the moving business, sitting between issuers and ultimate holders of risk and collecting an economic grant. Private credit is no doubt disruptive to this model. The criticism of private credit is that it's taking a more risk on the asset. However, the historical data doesn't support this argument.

Speaker Change: As a final comment for today's call I wanted to share my thoughts on the recent press focus and the perceived systemic risk in private credit.

Joshua Easterly: I would suspect that this.

Joshua Easterly: Negative largely comes from participants that have lost market share and the associated fee streams from the growth of private credit clearly private credit has been a disruptive force to the incumbent business model and the non investment grade corporate credit space, which is banks acting as an intermediary, which we have called the moving business sitting.

Joshua Easterly: Between issuers and our ultimate of holders of risk and collecting in economic rent.

Joshua Easterly: Private credit is no doubt disruptive to this model the criticism of private credit as that is taking more risk on the asset side. However that circle data doesn't support the targeted according <unk> direct lending index tripling has had annualized losses in line with the GPM leveraged loan index and significantly less than the high yield over the.

Joshua Easterly: According to Cliff Waters' Direct Lending Index, Direct Lending has had annualized losses in line with the JPM Leveraged Loan Index and significantly less than the high yield over the past 1, 5, 10, and 20 years. In addition, any systemic risk must be in the context of the business model of the business model, and we believe private credit has a superior business model and LightBank. Where the business model is lending long and funding short, private credit is match funded.

Joshua Easterly: One 510 and 20 years.

Joshua Easterly: In addition, any systemic risk must be in the context of a business model of the business model and we believe private credit has.

Joshua Easterly: A superior business model.

Joshua Easterly: Unlike banks, where.

Joshua Easterly: Where the business model of lending loan and financial private credit is match funded.

Joshua Easterly: As students of all types of models and financial services, the tail risk typically comes from liquidity issues and, in its core, a poor asset liability matching model. This was a parent in a regional banking industry. Furthermore, unlike banks that have some protection through the FDIC program, a taxpayer put doesn't exist for private credit. And finally, we can't ignore the differences in capitalization, and risk-bearing capital. Inside Banks, the rate is somewhere between 9 to 12% versus private credit between 25 and 50%. That being said, we are sure there will be dispersion and results in private. Dispersion, however, shouldn't be conflated with systemic. With that, I thank you for your time today. Operator, please open up the line for questions.

Joshua Easterly: Students of all types of models and financial services.

Joshua Easterly: Tail risks typically comes from liquidity issues.

Joshua Easterly: Thats core of poor asset liability matching model.

Joshua Easterly: This was apparent in our regional banking crisis.

Joshua Easterly: Furthermore, unlike banks will have some protection through the FDIC program, a taxpayer put I think that for private credit vehicles and.

Joshua Easterly: And finally, we can't ignore the differences in capitalization risk bearing capital and fad basis somewhere between 9% to 12% versus private credit between 25% and 50%.

Joshua Easterly: That being said we are sure there will be dispersion.

Joshua Easterly: And results in private credit.

Joshua Easterly: Persian however, shouldn't be conflated with systemic risk with that thank you for your time today operator. Please open up the line for questions certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

Operator: Certainly. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question will come from Brian McKenna of Citizens J&P. Your line is open.

Brian J. McKenna: And our first question will come from Brian Mckenna.

Brian J. McKenna: Citizens JMP your line is open.

Brian J. McKenna: Okay, thanks. Good morning, everyone.

Brian J. McKenna: Okay. Thanks. Good morning, everyone. My first question is on the trajectory.

Brian J. McKenna: My first question is on the trajectory of adjusted NII. It stepped down $2.5 million sequentially in the quarter. So what was the biggest driver of that? I know you added one company to non-accrual status during the period. So did that contribute to the step down at all? And then how much did tighter spreads impact it on a per share basis? And, you know, I'm just trying to get a sense of a good jumping off point for NII and QQM.

Brian J. McKenna: Adjusted NII, it stepped down to $5 million sequentially in the quarter. So what was the biggest driver of that I know you added one company to non accrual status. During the period. So did that contribute to the step down at all and then how much did tighter spreads impacted on a per share basis, and I'm just trying to get a sense of a good jumping off point for NII.

Joshua Easterly: Yeah, hi. Great. Thanks for the question. It's a good question.

Brian J. McKenna: In Q2 and beyond.

Speaker Change: Yeah, great. Thanks. Good question good question.

Joshua Easterly: So, the non-quote was at the end of the quarter, so it had very little, no impact on NII. I think the drivers of NII, Ian let it out, had a small impact on... I would call it three things.

Speaker Change: The non accrual was as of the end of the quarter. So.

Joshua Easterly: Very little or no impact on NII I think the drivers are at 11.

Joshua Easterly: And whether that was a small impact.

Joshua Easterly: One is base rates were down five basis points, a small amount, quarter over quarter. So, the curve, although the curve is up and higher for longer, is still downward sloping. So, that's a piece of it.

Joshua Easterly: I would call three things one is as rates were down five basis points, a small amount quarter over quarter. So the curve although occurred.

Joshua Easterly: As higher for longer and the coverage so downward sloping.

Joshua Easterly: Have a piece of it.

Joshua Easterly: Spreads had a very small impact as well. So, yield and advertised investments went from, I think it was down to 20 basis points, quarter over quarter, which five of that was base rates, the impact of base rates. So, 15 basis points. And then the rest was just kind of episodic feed, which I think Ian laid out. So, when we think about our business, I think we're still very comfortable with our guidance on adjusted NII for the year, which was in... That was 13.4, 14.2.

Joshua Easterly: I just had a very small impact as well, so jan and advertising investment.

Joshua Easterly: Okay.

Joshua Easterly: I think it was down 20 basis.

Joshua Easterly: Quarter over quarter, which five of that.

Joshua Easterly: Great impact.

Joshua Easterly: Impact of base rate.

Joshua Easterly: A few basis point and then the rest of it was just kind of episodic fees were Japanese game laid out.

Joshua Easterly: So when we think about our business I think we still feel.

Joshua Easterly: Very comfortable with our guidance.

Joshua Easterly: Adjusted NII for the year, which was.

Joshua Easterly: That was $13.

Joshua Easterly: Yeah.

Speaker Change: Got it.

Joshua Easterly: Yes.

Speaker Change: Got it okay, yes, that's helpful.

Joshua Easterly: Jeff.

Joshua Easterly: Hi.

Brian J. McKenna: Yes. Got it. Okay. Yeah, that's helpful. 227.

Ian Simmonds: Sure Kevin.

Joshua Easterly: So I think we still feel very comfortable with that. Okay. Got it. Thanks.

Brian J. McKenna: So.

Joshua Easterly: We still feel very comfortable with that.

Brian J. McKenna: And then maybe just some follow-up. So, you know, spreads have clearly tightened here over the past several months. And if I look at new floating rate commitments in the quarter, spreads declined about 100 bits on average from the fourth quarter. So, yeah, I guess my question is the bigger picture around originations and just where spreads are and more liquidity broadly in both public and private credit markets. You know, how are you making sure you're getting the right economics for the risk you're taking today, specifically as we move further into the current cycle?

Speaker Change: Yes, Okay got it thanks.

Brian J. McKenna: And then maybe just a follow up so spreads has clearly tightened here over the past several months and if I look at.

Brian J. McKenna: Look at new floating rate commitments in the quarter spreads declined about 100 bps on average from the fourth quarter. So I guess my question is bigger picture around origination and just with spreads where they are in.

Brian J. McKenna: Our liquidity broadly in both public and private credit markets. How are you, making sure you're getting the right economics for the rest of you are taking today.

Joshua Easterly: Yeah, again, I think these are really good questions. I think the easiest way to see the economic value of what we're providing to shareholders is actually to look at it in the equity rates this quarter. So, yields this quarter, I think we went through the math clearly, but yields this quarter were somewhere between yield average life of 11.5% and 14% on an average life basis with the SWOT curve, and that will bring ROEs into that range compared to our cost of equity of nine. For a tiny environment, you've seen, I think, value to our shareholders vis-a-vis our cost of equity. Look, we were clear.

Brian J. McKenna: Typically as we move further into the current cycle.

Joshua Easterly: Yes.

Joshua Easterly: These are these are really good questions I think the easiest way to see the economic value more variety and its shareholders.

Joshua Easterly: Actually uhm.

Joshua Easterly: The equity raised this quarter. So yields this quarter I think we went through the math clearly but yields this quarter.

Joshua Easterly: We're somewhere between yoga average life.

Joshua Easterly: 11, 5%, 14%.

Joshua Easterly: Average lagging basis with the swap curve.

Joshua Easterly: And.

Joshua Easterly: That will bring Roe.

Joshua Easterly: We're in that range.

Joshua Easterly: Third our cost of equity of nine so even in this.

Joshua Easterly: Tightening environment.

Joshua Easterly: The.

Joshua Easterly: You're seeing I think value to our shareholders view of your cost of equity.

Joshua Easterly: I think the good news for our shareholders is we were one of the few, you know, public BDCs that had capital available to invest in the last vintage. And most definitely because of that, we're going to have a portfolio that kind of over-earns. But even in this, even in this most recent quarter, we have the ability to significantly out-earn our cost of capital.

Joshua Easterly: And I think the good news for <unk> shareholders as we were one that few.

Joshua Easterly: Public Bdcs that had capital available to invest in the last transaction.

Joshua Easterly: Most definitely because of that we're going to have a portfolio that kind of over earnings but even in.

Joshua Easterly: This most recent quarter vintage.

Joshua Easterly: We are we have the ability.

Joshua Easterly: Our cost of capital.

Joshua Easterly: And provide value to our shareholders.

Joshua Easterly: Yeah, okay, I'll leave it there. Thanks, Josh.

Speaker Change: Yes, Okay I'll leave it there thanks Josh.

Joshua Easterly: John.

Speaker Change: Let me round out the point, but I think it's helpful. Chuck.

Joshua Easterly: Just because spreads have declined doesn't mean that we're not providing significant value to our shareholders. You can clearly see that even in this quarter's vintage. Uh, um, given our

Joshua Easterly: Spreads have declined doesn't mean that we're not providing significant value to our shareholders. You can clearly see that even in this quarter's vintage.

Joshua Easterly: And given our cost of equity.

Operator: Yep, got it. Thank you. And one moment for our next question. Our next question will be coming from Maxwell Fitcher of Truist. Your line is open, Max.

Maxwell Fritscher: Yes got it thank you.

Maxwell Fritscher: One moment for our next question.

Maxwell Fritscher: Our next question will be coming from Maxwell Fitch.

Maxwell Fritscher: <unk> Your line is open Maxwell.

Maxwell Fitcher: Hi, good morning. I'm calling in from Mark Hughes. Kind of along the lines of Brian's question, with the higher competition and more capital being provided, are you seeing any companies becoming more comfortable with increasing their M&A activity? And if so, how do you see this shaking out throughout the year?

Maxwell Fritscher: Hi, good morning, I'm, calling in for Mark Hughes kind of along the lines of Brian's question.

Maxwell Fitcher: With the higher competition more capital being provided are you seeing any companies, becoming more comfortable with increasing there.

Maxwell Fitcher: M&A activity.

Maxwell Fitcher: So how do you see this shaking out throughout the year.

Joshua Easterly: Yeah, look, I would say...

Maxwell Fitcher: Yes.

Joshua Easterly: As the forward curve, I would expect activity levels generally to be up, so I don't think we saw a little bit of that in Q1. When you look at Alteryx, for example, which was a tank private equity firm, you saw... Truck Light Co., which was an M&A, which was a portfolio company, which was a strategic investor owned by a sponsor buying another strategic asset. So you saw a little bit of that this

Joshua Easterly: I would say.

Joshua Easterly: The forward curve.

Joshua Easterly: Activity levels generally to be up so.

Joshua Easterly: I don't think we saw we saw a little bit of that in Q1.

Joshua Easterly: When you look at.

Joshua Easterly: I'll check for example, which was obtained prior Ed.

Joshua Easterly: You saw.

Joshua Easterly: Right.

Joshua Easterly: No.

Joshua Easterly: Which one.

Joshua Easterly: M&A, which was a portfolio company, which was a strategic investor.

Joshua Easterly: The sponsor buying in another strategic asset for you saw a little bit of that this quarter I think as volatility in the rates markets.

Joshua Easterly: I think as volatility in the rates markets subsides, and as rates come down a little bit, I think you'll see more activity. And again, more activity will have two impacts on our business. One is it will hopefully increase portfolio churn on the margin, which will drive additional economics that we haven't seen. It's kind of, you know, dried up.

Joshua Easterly: And as rates come down a little bit I think youll see more activity I think that more activity will have.

Joshua Easterly: Two impacts our business, one and it will hopefully increase portfolio churn on the margin, which will drive additional economics that we haven't seen that Scott.

Joshua Easterly: It's been sort of a big driver of our return on equity. But I think you'll, if you look at activity levels, you'll see that portfolio churn, which will drive through economics for our business. And then there will obviously be more activity on the front end of things to do. So, Beau, anything to add there? No, I expect to see M&A activity continue to strengthen.

Speaker Change: Dry dock.

Joshua Easterly: For a big driver of our return on equity, but I think youll see activity levels, you'll see that portfolio churn, which will drive through economics of our business.

Beau: And then there obviously be more activity on the front end of.

Beau: Thank you.

Beau: So bo anything to add there.

Beau: I expect to see M&A activity to continue.

Robert Stanley: And after a pretty anemic couple of years, both because of better financing costs but also because

Beau: Strength after a pretty anemic couple of years.

Robert Stanley: Some of the reasons for the increase in equity are not just because of financing costs but also because equity valuations are coming in. There's more parity between buyers and sellers as public equity markets have strengthened. And also, a lot of businesses have grown into some of their valuations, so you're going to see better assets come to market over the next few quarters. And we're starting to see that in our pipeline today.

Beau: Because of better financing cost, but also because.

Robert Stanley: Equity evaluations are coming.

Robert Stanley: That's more parity between buyers and sellers as.

Robert Stanley: Public equity markets have strengthened and also a lot of businesses have grown into some other valuations or you're going to see better assets come to market.

Robert Stanley: Over the next few quarters, and we're starting to see that in our pipeline to that.

Joshua Easterly: Thanks, that's very helpful. And Josh, you mentioned last quarter, and correct me if I misunderstood, but you're hopeful for more opportunities in 24 to strategically invest in good companies with bad balance sheets. Any developments on this front thus far? Yeah.

Speaker Change: Thanks, that's very helpful and Josh you mentioned last quarter and correct me if I misunderstood, but you were hopeful for more opportunities in 'twenty forward to strategically invest in good companies with bad balance sheets.

Josh: Any developments on this front thus far.

Joshua Easterly: Yeah, we didn't even ask you to ask that question, not that we asked you to ask that question, but Equinox is a pretty good example of that. Equinox is a portfolio company of two strong sponsors, related, and similar partners. It was a company that was obviously COVID-impacted, but it's one of the, you know, premier companies in the fitness space. It really only has one competitor and is a great company with a great brand and great unit economics, but obviously COVID happened and impacted that business, and their balance sheet got complicated.

Joshua Easterly: Yes.

Joshua Easterly: We've been asking that question.

Joshua Easterly: Okay.

Joshua Easterly: Even after a pretty good example of that.

Joshua Easterly: EBITDA is a.

Joshua Easterly: Portfolio compared to strong.

Joshua Easterly: Foster.

Joshua Easterly: Related to avoid partners.

Joshua Easterly: It was a company that was obviously COVID-19 impacted but it was one of the premier companies in the fitness space and really only have one competitor.

Joshua Easterly: And.

Joshua Easterly: A great company.

Joshua Easterly: With a great brand and Great unit economics, but obviously COVID-19 happened.

Joshua Easterly: And then after that.

Joshua Easterly: Yes.

Joshua Easterly: And your balance sheet kind of complicated.

Joshua Easterly: And so we led $1.2 billion to your secured first link facility in connection with the new second link facility by the sponsor and others to refinance that, probably to get a loan capital structure. We held roughly half of the investment. And so we were in the lead, but we partnered with Aries and HPS. And so that was a business opportunity that we were super excited about. And then it was complicated with part of private equity due diligence and was kind of right in the middle of a good company, a bad balance sheet that needed, that was complicated.

Joshua Easterly: So we went up one <unk> growing dollar senior secured.

Joshua Easterly: Firstly facility.

Joshua Easterly: Connection with the new second lien facility.

Joshua Easterly: The sponsor and others to refinance that probably going to gamble on capital structure.

Joshua Easterly: Roughly half of the investment.

Joshua Easterly: <unk>.

Joshua Easterly: So we're looking at but we partnered with Aries and <unk>.

Joshua Easterly: And so that would be.

Joshua Easterly: An opportunity that works.

Joshua Easterly: Super excited about and then it was complicated.

Joshua Easterly: But equity due diligence.

Joshua Easterly: <unk>.

Joshua Easterly: We're kind of right.

Joshua Easterly: The middle of good company bad balance sheet that needed that was complicated, but we really like.

Joshua Easterly: But we really liked, you know, both the sponsors in that business who were big stewards of that business and supportive of it, and the management team, including the CEO. So we're excited. We think they're going to be, given the rate environment and the higher for longer narrative, there's going to be many of those same situations that I think go right in our wheelhouse where we're going to have to provide capital, where we have an opportunity to provide capital that generates strong risk-adjusted returns for our shareholders.

Joshua Easterly: Both of our sponsors are in that business, we're making in the stores without business and support.

Joshua Easterly: Management team and the management team.

Joshua Easterly: Okay.

Joshua Easterly: So.

Joshua Easterly: We're excited we think we're going to be given the rate environment and the higher for longer narrative. There is going to be many of those same situations that I think are right in our wheelhouse, where we're going to have to provide capital where.

Joshua Easterly: Where we have an opportunity to provide capital to generate strong risk adjusted returns for our shareholders.

Operator: And one moment for our next question. Our next question will be coming from Finian O'Shea of WFS. Your line is open, Finian.

Speaker Change: Great. Thank you.

Speaker Change: And one moment our next question.

Finian O'shea: Our next question will be coming from Finian O'shea of WSI. Your line is open.

Finian O'shea: Hey, everyone. Good morning.

Finian O'shea: Josh on your.

Finian O'shea: Sort of the segue there, but on your opening comments on the firming of the rate curve and.

Finian O'shea: The expected dispersion, we'll see.

Finian O'shea: Is that.

Finian O'shea: Happening in real time say in response to the rate curve or are you seeing.

Finian O'shea: <unk> and so forth and on.

Finian O'shea: In private credit and on the flip side should that translate to a more abundant deployment opportunity.

Joshua Easterly: Good to hear your work. I think, hopefully, you're on the east, but we're on the west, but we're kind of just waiting out here. But I think that's a good question. So I think our theme has been that higher longer is a, is, is, is, is, two kind of, there's two sides of that coin. The first side of that coin is companies are going, you know, some companies are going to have problems in that environment, both due to demand and monetary policy might impact demand for their products and services.

Operator: Yeah.

Finian O'shea: Okay Harrier Harrier.

Joshua Easterly: I think I'm, hoping rami on the web before kind of equation.

Joshua Easterly: Good question. So I think our team has been that higher longer.

Joshua Easterly: As.

Joshua Easterly: Eight two.

Joshua Easterly: To that point.

Joshua Easterly: Companies are going some companies are going to have problems.

Joshua Easterly: And that environment, both due to demand.

Joshua Easterly: Let me take a monetary policy.

Joshua Easterly: The second is their balance sheet and their cost, their cost of increasing, and most definitely their interest costs. And so there's most definitely going to be issues. Hopefully, I think in general, those will cause dispersion between NII and net income and total economic growth. And we've seen that a little bit on that margin.

Joshua Easterly: Demand for their products and services and the second is the balance sheet and their cost their cost are increasing definitely your interest cost and so there is most definitely going to be issues.

Joshua Easterly: I think in general those and that will cause dispersion between.

Joshua Easterly: And net income and total economic return.

Joshua Easterly: And we see that a little bit on that market.

Joshua Easterly: Astra, you know, we put it out there, like, non-accruals are going so low for us at fair value, 1.1%. Anthology, which is we hold a small tech lean position, we put a non-accrual, we took a mark down. That is still paying cash, by the way. And it will still pay cash, I think, through maturity. That will be the cash-on-cash return for, like, in the 30s compared to fair value. That should be a tailwind for that asset value as we're taking that into an amortized cost. But there will be small tails that pop up. But I think those tails will be manageable for the industry. And given how much capital the industry holds, it shouldn't create any existential risk.

Joshua Easterly: As a strategy we put it out there.

Joshua Easterly: So for us at fair value one 1%.

Joshua Easterly: Anthology produced.

Joshua Easterly: Paul.

Joshua Easterly: We put on non accrual we took a mark down that is still a cash by the way that we'll still pay cash I think to maturity.

Joshua Easterly: That will be a cash on cash return and then 30 odd compared to fair value that should be a tailwind to net asset value and we're taking that into amortize cost.

Joshua Easterly: But there will be small towns that will...

Joshua Easterly: All right well that pop up with input cost will be manageable.

Joshua Easterly: For the industry.

Joshua Easterly: Given how much capital they industry evolves.

Joshua Easterly: It shouldn't create any extra central risk for the industry on that on the fly.

Joshua Easterly: Yes.

Joshua Easterly: Providing a great opportunity for those who can deploy capital and grow the company is going to help facilitate those needs are those.

Joshua Easterly: Are those restructuring.

Joshua Easterly: Alright.

Joshua Easterly: I think it's a I think it would be.

Joshua Easterly: Doug.

Speaker Change: Sure I think already locked.

Joshua Easterly: You're good on credit, which we think we are and that we have capital deploy either because the market Trust you.

Joshua Easterly: We raised more capital, which gave us roughly half or excess balance sheet.

Joshua Easterly: You have the requisite skills to actually execute on transactions, which we most definitely have which will create good deployment opportunities and so that's the goldilocks. We think we're in that we think we have.

Joshua Easterly: All of those pieces of the Goldilocks.

Joshua Easterly: But we think it's going to be really interesting environment for the next couple of years, given the higher for longer.

Joshua Easterly: And capital allocated.

Joshua Easterly: <unk>.

Joshua Easterly: And somewhere given low rates that this will get good opportunity.

Joshua Easterly: Participating on todays that but I think you need capital, which allow the industry doesn't have given where trade you need the requisite skill set and then you need a clean portfolio.

Operator: Very good. Thanks. And a follow-up to the Looks like the last out leverage has been somewhat declining, you know, the last handful of quarters at least. See if this is market related or portfolio related, are you managing it down, and if we should expect that to continue and what it means for returns. Yeah, look at

Joshua Easterly: Yeah.

Speaker Change: Very good thanks.

Operator: A follow up.

Operator: It looks like the last out leverage.

Operator: It has been somewhat.

Operator: Declining over the last handful of quarters at least.

Operator: Youre seeing emphasis mercury related or portfolio related are you managing it down.

Operator: If we should expect that to continue.

Joshua Easterly: Yeah, look, what I would say is, um... We have, we think of the margin, there are the opportunities that are today in larger companies, with larger capital. And in those companies, you know, given how big those credit facilities are, it's hard to club together somebody taking a first out revolver. And so by number, my guess is that it's going down, given what we think the opportunity set is, but that will kind of go up and down. That's a combination of, I think, two things.

Operator: Means for returns.

Operator: Yes.

Joshua Easterly: What I would say is.

Joshua Easterly: We have we think on the margin there are there opportunities today and going to larger companies larger capital. So.

Joshua Easterly: And.

Joshua Easterly: And know the company.

Joshua Easterly: Given how big those credit facilities are as hard to club together somebody taking a first out of the revolver.

Joshua Easterly: And so my number my guess is that's going down.

Joshua Easterly: Given what we think the opportunity set is that that will kind of go up and down that's a combination of two things one of the large capital structure and the second thing is.

Joshua Easterly: One is the large capital structure. The second thing is banks are still capital constrained, and we see that with a lot of our bank partners on the margin. So it doesn't have a huge impact on economic returns, but those two things are where we see the opportunity set is and, you know, how banks are positioned.

Joshua Easterly: So capital constrained.

Joshua Easterly: And we see that.

Joshua Easterly: With a lot of our bank partners.

Joshua Easterly: Margin. So it doesn't have a huge drop and how it doesn't have a huge impact on economic returns.

Joshua Easterly: But it's really those two things, which is where we see the opportunity set is and how.

Joshua Easterly: How big the provisions.

Speaker Change: Thank you.

Operator: One moment for our next question.

Joshua Easterly: Yes.

Speaker Change: One moment for our next question.

Operator: Okay.

Robert James Dodd: And our next question will be coming from Robert Dodd of Raymond James. The line is: Hi, everybody. I hope you can hear me okay.

Operator: And our next question will be coming from Robert Dodd of Raymond James Your line is open.

Robert James Dodd: Hi, everybody.

Robert James Dodd: Hope you can hear me okay.

Robert James Dodd: The comment Joshua made: the tail's going to get fatter. I mean, the longer rates stay up, obviously, you know, it's going to get longer and fatter. I mean, but look at your portfolio. Pick went up a little bit sequentially. Looks like that was mainly new investments, though. Your unfunded commitments ticked up. Again, it looks like it was mainly new investments, but it's hard to tell. Can you give us any color on whether you are seeing incremental revolver draws more broadly?

Robert James Dodd: The comment you made.

Robert James Dodd: Retailers can get battle I mean, the longer stay up obviously, it's going to get longer.

Robert James Dodd: But looking at your portfolio of pick went up a little bit sequentially. It looks like that was mainly new investments, though your unfunded commitments ticked up again, it looks like that's where you can do the investments, but it's hard to tell.

Robert James Dodd: Can you give us any color on are you seeing incremental revolver draws more broadly I mean, obviously thats.

Robert James Dodd: I mean, obviously, there are a couple of assets, right? You know, Astro, for example, you just put on a call that has some idiosyncratic issues. But are there any emerging signs in the portfolio that this hire for longer is starting to create pressure in terms of liquidity and liquidity?

Robert James Dodd: A couple of assets right.

Robert James Dodd: For example that you just put on nonaccrual having some.

Robert James Dodd: Could you have some credit issues, but all of that are there any emerging signs in the portfolio that this higher for longer starting to create pressure in terms of liquidity and liquidity.

Joshua Easterly: No. Interest coverage is actually flattening out the increase. Earnings, I think, on a same-sort basis, grew about 10% quarter over quarter. And revenues grew by about 5%. I think the answer is no.

Robert James Dodd: No.

Joshua Easterly: And just the capex it actually flatten out that increase.

Joshua Easterly: Earnings at age on same store basis grew about 10% quarter over quarter revenues grew by about 5%.

Joshua Easterly: I think the.

Joshua Easterly: I think some of the unfunded commitment increase quarter over quarter was all tariffs, I think, where they're going through a process to negotiate with the bondholders to call those bonds in. But no, broadly speaking, we haven't seen that pressure. And then, obviously, from a... From an ALM perspective, we reserve for unfunded commitments and have close to three times the amount of liquidity for unfunded commitments. We haven't seen stress, like broad-based stress, interest coverage has kind of, you know, bottomed out on the rise given earnings growth plus a combination of the forward curve, although higher for longer, it's still declining. So, no.

Joshua Easterly: So the answer is no I think the I think some of the unfunded commitment increase quarter over quarter overall, Paris, I think where they are going through a.

Joshua Easterly: With regard to our process.

Joshua Easterly: Two.

Joshua Easterly: Negotiating with the bondholders.

Joshua Easterly: I would call those bonds.

Joshua Easterly: No.

Joshua Easterly: <unk>.

Joshua Easterly: Haven't seen that pressure and then obviously from a.

Joshua Easterly: From a.

Joshua Easterly: Al in perspective.

Joshua Easterly: We.

Joshua Easterly: Reserve for unfunded commitments.

Joshua Easterly: Close to three times post.

Joshua Easterly: Bob our bond maturity of liquidity for our Bank Amendment, So how does the <unk> like broad based.

Joshua Easterly: Interest coverage on it Scott.

Joshua Easterly: Bottomed out.

Joshua Easterly: As otherwise given the earnings growth plus the combination of the forward curve, although higher for longer and still declining.

Joshua Easterly: So no.

Speaker Change: Got it thank you.

Robert James Dodd: Got it. Thank you. On the other fee income, obviously, it was low again this quarter, not a huge surprise, but if we go higher for longer, if there's less activity there, are we in, do you think there's a risk that we're in for a relatively prolonged period of lower other fee income from the portfolio given obviously the less activity, the older the assets get, the older they get, the less fee income they generate if they do anything anyway So is there a little bit of a lull cycle here that could progress all the way through 24, maybe even 25, until the portfolio gets recycled, or is it just transitioning?

Joshua Easterly: Okay.

Joshua Easterly: Okay.

Robert James Dodd: Other fee income, obviously, lower again this quarter not a huge surprise, but.

Robert James Dodd: If we go higher for longer is if theres less activity there or do you think the risks for prolonged.

Robert James Dodd: Relatively prolonged period.

Robert James Dodd: Lower other fee income from the portfolio given obviously the less activity in the older the assets get the older. They get the less fee income they generate if they do anything anyway. So.

Robert James Dodd: They are a little bit of a lull cycle here that could progress all the way through 'twenty four maybe even 25 until the portfolio gets recycled or is it just transitory.

Joshua Easterly: Yeah, it's a great, it's a great question. Hard to model.

Speaker Change: Yes, I think as a group.

Speaker Change: Great that's a great question.

Joshua Easterly: What I would say is, I think there's us and the industry. First, historically, we've had more of this type of thing. Well, thank you. I think, so I think we can agree on that, so, but the question is, is it, how does that impact us? I think when you look at our portfolio, unlike the rest of the industry, we were actually able to deploy post-rate hiking cycles, and so we have more vintage in 22 and 23, and so, you know, and that was in the absolute higher spread environment, so I think you're gonna, either one of two things will happen is, one is we'll hold those assets for longer, which should over-earn, or those assets will churn, if we can all agree the spread is coming in a little bit, which will create income, so we have, you know, 43 of the percent of the portfolios invested in the second half of 2022, so I think we were, you know, given how we've managed the business, and how focused we've been on being good allocators of capital, the market has rewarded us with a, with a, the ability to give us more capital, which allowed us to, during this vicious cycle, it allowed us to invest in 22, 22, 23 vintage in a higher spread environment, which, my guess, will at some point, I think you have to split it out between the industry and us, and we just have more 22, 23 vintage and we can all agree it's present.

Joshua Easterly: Hard to model, what I would say is.

Joshua Easterly: I think there is us and the industry.

Joshua Easterly: First historically, we've had more of that type of income.

Speaker Change: Thank you.

Joshua Easterly: So I think we can agree on that.

Joshua Easterly: But the question is is it how does that impact us I think when you look at our portfolio. Unlike the rest of the industry, we were actually able to deploy post rate hiking cycle and so we have more of a niche.

Joshua Easterly: 'twenty, two and 'twenty three and so.

Joshua Easterly: Yes.

Joshua Easterly: That was in the half with a higher spread environment, So I think youre going to.

Joshua Easterly: Either one of two things were happening one is we're hopeful about that for a longer which would over earn.

Joshua Easterly: So although that before churn at all.

Joshua Easterly: <unk> Avenue, which will create income so we have.

Joshua Easterly: 43 of the southern portfolio was invested in the second half of 2022. So I think we were given.

Joshua Easterly: Given how we manage the business and our focus our focus we've been on be good allocators of capital the market has rewarded us with.

Joshua Easterly: With the.

Joshua Easterly: The ability to give us more capital, which allowed us to unit vicious cycle.

Joshua Easterly: Us too.

Joshua Easterly: 2022 'twenty, three vintage and a higher spread environment, which I guess will at some point churn.

Speaker Change: Got it right.

Joshua Easterly: So I can split out between the industry and us.

Joshua Easterly: And we just have more in 'twenty two 'twenty three vintage.

Joshua Easterly: And with respect to comment.

Speaker Change: Understood. Thank you.

Speaker Change: And one moment our next question.

Robert James Dodd: Yeah, understood. Thank you. And one moment for our next question. Our next question will be coming from Erik Zwick of Holt Group. Your line is open. Good morning, everyone.

Joshua Easterly: Our next question will be coming from Eric <unk>.

Erik Edward Zwick: <unk> group your line is open.

Erik Edward Zwick: Good morning, everyone. The first question is, maybe, a two-part question. You know, Bo noted that competition, and you guys have talked about it, you know, in subsequent answers. So competition has increased since last year, and I'm curious if that is manifesting primarily just in compressed spreads and on the pricing side, or if you're seeing anything on the structure side as well. So that's the first question, and I guess the second would be, you know, on one of your slides, you note that for the career portfolio, the weighted average number of covenants per credit agreement is 1.8, and I'm curious if that has changed over time or if that's been pretty consistent as well.

Joshua Easterly: It doesn't, and it most definitely will leak into the margins of the document. The documents are sold better than relatively K-level documents, but it doesn't just stop at the door of spreads, but we still feel comfortable with the overall package. And then I would say there is a little bit of a tail to cities. We most definitely have seen the opportunities at upmarket, and you know, on upmarket, those documents, there might be a few or fewer financial covenants, and so, but that is a choice between, a tradeoff between credit quality, size of the company, and protections.

Erik Edward Zwick: Good morning, everyone.

Joshua Easterly: First question is maybe a two part question.

Joshua Easterly: Bo noted that competition you guys have talked about it.

Joshua Easterly: Subsequent answer so the competition has increased since last year and I am curious if that is manifesting primarily just in compressed spreads and on the pricing side or if youre seeing anything on the structure side as well. So that's the first question and I guess, the second would be one of your slides you note that the beer portfolio the weighted average number of covenants.

Joshua Easterly: Per credit agreement has won eight I'm curious if that has changed over time or if that's been pretty consistent as well.

Joshua Easterly: Yes.

Joshua Easterly: Okay.

Speaker Change: Hey, Devin.

Joshua Easterly: Most definitely will on the margin and to the document documents or so better than broadly syndicated loan documents, but it doesn't just stop.

Joshua Easterly: The door.

Joshua Easterly: Brett so.

Joshua Easterly: But we still feel comfortable with that.

Joshua Easterly: The overall package.

Joshua Easterly: And then I would say there isn't a whole lot of a tale of two cities. We most definitely haven't seen the opportunities that are.

Joshua Easterly: Upmarket.

Joshua Easterly: And.

Joshua Easterly: On op market there is.

Joshua Easterly: Those documents there might be.

Joshua Easterly: A fewer less financial covenant and so but that is a we're making a choice between the trade off between.

Joshua Easterly: The quality and size of company and protection.

Joshua Easterly: And we think the relative value is still very good there. Just to size it up, you know, not everybody, there's a handful of people who can write $500 million checks. There's a lot of people that can write $40 to $50 million checks, and so, at this moment in time, it won't always be that case.

Joshua Easterly: We think the relative value we felt very good there just to size it up.

Joshua Easterly: Not everybody, there's a handful of people who can write $500 million check as a lot of people look at rate, 40% to $59 checks and so in this moment in time and are always won't be that case.

Joshua Easterly: We've moved up market. You can see that in our, I don't know my, even an average, even a portfolio company, that's the fine metric. I think it's gone from 35 a couple years ago to 90, Ian. What's the average now? I'm not sure. It's over 90. So anything to add there, Beau?

Joshua Easterly: We moved up market you can see that in our underlying EBITDA average EBITDA portfolio company.

Joshua Easterly: Yes.

Joshua Easterly: The final metric I think it's gone from 35 in a couple of years ago.

Beau: And what's the average now it's over 90 over 90 so.

Robert Stanley: No, the only thing I would add is, you know, we continue to only invest in situations where we have control or influence over the documentation. And, you know, with competition, you're going to see looser documentation, but we still, you know, have, we still control that, and tend to only invest in situations where we believe the document still has the protections that we need as investors. So we have seen, you know, a loosening of terms, certainly from 18 to 24 months ago when doctors got really tight, but there's still.

Beau: Anything to add there.

Robert Stanley: I would add is.

Robert Stanley: We continue to only invest in situations, where we have control or influence on the documentation with competition.

Robert Stanley: See you guys to see looser documentation, but we still.

Robert Stanley: Have we still control that and tend to only play in situations, where we believe the documents still have the protections that we need.

Robert Stanley: Even the investors so.

Robert Stanley: We have seen.

Robert Stanley: <unk> of terms certainly from 18 to 24 months ago, and that's got really tight but they are still they are still adequate to protect our capital.

Erik Edward Zwick: Thanks. I appreciate the detailed commentary there.

Speaker Change: Thanks, I appreciate the detailed commentary there.

Erik Edward Zwick: I guess just the only remaining question from Ian, you know, you just noted the ability to write large checks. And if I, you know, look at slide six and the average investment size in your portfolio, if I look at it, you know, excluding the structured credit investments, it's actually down a little bit year over year. However, if you then include structured credit, it's up year over year. So, just curious about kind of the divergence there and what's transpired on the structured credit side over the past year or so.

Speaker Change: And I guess, just the only remaining question for me.

Erik Edward Zwick: Just noted the ability to write large checks and if I look at <unk>.

Erik Edward Zwick: Slide six and the average investment size in your portfolio, if I look at it excluding the structured credit investments, it's actually down a little bit year over year. However, the then include the structured.

Erik Edward Zwick: Credit that it's up year.

Erik Edward Zwick: Year over year. So just curious about the kind of a divergence there and what's transpired on the structured credit side over the past year or so.

Ian Simmonds: Yeah, the divergence is, you know, we've increased diversity in our portfolio for sure over time, and our capital base is relatively fixed in SOX. And so it's participating in larger deals across the platform, but our capital base is relatively fixed in SOX, and we've been focused on increasing diversity. So I think I answered that question.

Ian Simmonds: Yes.

Ian Simmonds: Okay.

Ian Simmonds: We've increased diversity in our portfolio for sure.

Ian Simmonds: Over time, and our capital basis relatively flat and so.

Ian Simmonds: Participating in larger deals across the platform.

Ian Simmonds: But our capital base is relatively fixed and that's all that we've been focused on increasing diversity.

Speaker Change: So I hope.

Ian Simmonds: I think I got that question.

Ian Simmonds: Yeah, thank you. That's all for me. I appreciate the answers.

Speaker Change: Yes. Thank you that's all for me I appreciate the answers.

Operator: One moment for our next question. Our next question will be coming from Melissa Wedel of J.P. Morgan. Your line is open.

Speaker Change: Thank you so much.

Melissa Wedel: One moment for our next question.

Operator: Our next question will be coming from Melissa Wedel of Jpmorgan. Your line is open.

Melissa Wedel: Good morning. Most of my questions have already been answered, but I wanted to follow up on your comment, Josh, about the opportunities that you're really seeing right now with the larger companies and bigger capital structures. You know, based on Ian's comments, it seems to have a very detailed analysis of what the return threshold is for new investments and where you were able to source, what you were able to source in the first quarter.

Melissa Wedel: Good morning.

Melissa Wedel: Most of my questions have already been answered, but I wanted to follow up on your comment Josh about the opportunity set right now youre seeing it really with the larger companies and bigger capital structures.

Melissa Wedel: Based on an E&S.

Melissa Wedel: And very detailed analysis of what the return threshold is.

Melissa Wedel: For new investments and where you were able to source.

Melissa Wedel: Certainly, it looks like you're able to clear that threshold by a couple hundred basis points, at least in the first quarter. But as competition increases, I guess the question is, do you see the opportunity set evolving more in the more complex field? And he talked about a couple of those that you got done in the first quarter.

Melissa Wedel: What youre able to stores to end the first quarter certainly it looks like youre able to clear that threshold by a couple hundred basis points.

Melissa Wedel: At least in the first quarter, but.

Melissa Wedel: Competition increases I guess the question is do you see the opportunities that are evolving more and be more complex deal and you talked about a couple of those.

Joshua Easterly: Is that where the economics are? Is that where we should think about you being involved primarily in the next few quarters? Okay, let me tell you about the power.

Joshua Easterly: Got that in the first quarter is that where the economics are that where we should think about you.

Joshua Easterly: And involved.

Joshua Easterly: Early in the next few quarters.

Joshua Easterly: I think this is at the heart of our platform. I think this is at the heart of how we think about investing and how we build 6th Street. So I may go down a rabbit hole, and then you can pull me up first.

Speaker Change: Well, Jamie let me tell you that I think this is this is it.

Joshua Easterly: As a part of our platform I think this is and not part of how we think about it and Thats, how we picture. It. So I mean I may go down a rabbit hole I mean, you can program.

Joshua Easterly: So at Tixtree, I think people know $77 billion, so for $75 plus going on without the pre-management, 600 plus employees. We have people sitting across industries and verticals and focus on companies in all parts of their life cycle, and that includes by sector, by size, and then by where they are in their life cycle from growth to restructuring. And the power of our platform is that we can... go between on a relative value, go between.

Joshua Easterly: It's actually I think people know $77 billion over the first 75, plus cologuard without management.

Joshua Easterly: 600, plus employees, we have people sitting across industries and verticals and focus on the company's all types in all parts of their lifecycle.

Joshua Easterly: And that includes <unk>.

Joshua Easterly: By sector by size.

Joshua Easterly: And then by where they are in their lifecycle from growth.

Joshua Easterly: Restructuring.

Joshua Easterly: And the power of our platform is is that we can.

Joshua Easterly: So between on a relative value between.

Joshua Easterly: All of the sectors, from the size of the company to where they are in their life cycle, to what sectors we think are interesting, and at some point, sectors are thrown out for no reason, and we think they're interesting, and we can deploy capital there. Think of that as energy, where our returns have been very good. At one point, it was retail and consumer, and in software, we have a different creative view. And so we're really a relative value buyer across a big top of the funnel. That is what our business is. And so, the answer is, I don't know. The difficulty, the difficult part.

Joshua Easterly: All of those factors from size of the company to where they are in their lifecycle to west sectors. We think are interesting and at some point.

Joshua Easterly: Sectors are thrown out for no reason and we think very interesting and we can deploy capital there.

Joshua Easterly: That is energy, which our returns have been very good at one part of it was the retail consumer.

Joshua Easterly: And.

Joshua Easterly: And in software, we ever there were greater view.

Joshua Easterly: And so we're really a relative value buyer across a big top of the funnel.

Joshua Easterly: That is our business model and so the answer is I don't know the difficulty the difficult part of <unk>.

Joshua Easterly: Capitalism, if capitalism is working, is when there's excess returns, the capital flow is you kind of have to keep chucking and jiving through the opportunity set. That is the power of the business. And so, you know, it might be retail for six months or nine months. It might be software business services. It might be industrial. It might be energy. It might be small cap. It might be large cap.

Joshua Easterly: Capitalism with capitalism is working and when there's excess return.

Joshua Easterly: The capital flow as you kind of have to keep.

Joshua Easterly: Shucking and jiving through the opportunity set that is that is the power of the.

Joshua Easterly: <unk>.

Joshua Easterly: And so it.

Joshua Easterly: It might be retail for six months or nine months it might be software business services it might be industrials that might be energy it might be small cap it mainly large cap that power of the platform.

Joshua Easterly: The power of the platform that we're delivering to investors is our ability to cross those opportunities that where we have a culture and a platform where we can collaborate, where we can deliver that. And so that is what we've built for people. That's what we'll continue to lean on. And so I know across environments, across opportunities that we're just not a monoline business, and that is where the durability of the return has come from.

Joshua Easterly: What we're delivering to investors is there are.

Joshua Easterly: Ability to their crops.

Joshua Easterly: Those those opportunities that we have.

Joshua Easterly: Our culture, and our platform, where we can collaborate and deliver that to people and so that is what we have built for people and that's what we'll continue to lean on and so I know across environments across opportunities that were just not a mono line.

Joshua Easterly: And that is where the durability of the returns of the compound.

Joshua Easterly: Okay, I appreciate that overview and review of, you know, the opportunistic nature of what you guys are able to do. Maybe I should have reframed my question a little bit just in terms of really sort of the pipeline for complicated investments and that idea of the good company, bad balance sheet, and a hire for longer impairment. Are you expecting more of that? I would hope so.

Speaker Change: Okay I appreciate that overview.

Joshua Easterly: And reviewing them.

Joshua Easterly: The opportunistic nature of what you guys are able to do maybe I should have rephrased shrank question, a little bit just in terms of really sort of the pipeline and complicated than that.

Joshua Easterly: And the good company balance sheet.

Joshua Easterly: And a higher for longer environment.

Melissa Wedel: I would hope so. I mean, when I look back, my macro view is that it's difficult for the set to pivot.

Joshua Easterly: Expecting more of that.

Joshua Easterly: I would hope so.

Melissa Wedel: Look back my macro view of it is difficult for that type of pivot.

Joshua Easterly: We've been saying this for a long time, the Fed hasn't pivoted, and that's going to cause stress in capital structures. And so my hope is that it will be, you know, like Equinox, that will be interesting. We did a dip in Q1, which is public for 99 cents, which is a retail business. That liquidation is going very well. And so we like that opportunity. That is my hope. That is kind of right into the strike zone of the platform. Thanks. You got me all excited about what the platform delivers for value-add, so sorry, I had to go down the rabbit hole.

Melissa Wedel: We've been saying this for a long time, if I haven't pivoted.

Joshua Easterly: And that's going to cause traffic capital structures and so.

Joshua Easterly: My hope is that that will be that light equinox.

Joshua Easterly: That will be as Youll see we did that in Q1, which is public for 99 cents.

Joshua Easterly: Which is.

Joshua Easterly: Our retail business.

Joshua Easterly: That liquidation is going very well.

Joshua Easterly: And so we like that opportunity of that in my home values.

Joshua Easterly: Right into that.

Speaker Change: I can go now.

Joshua Easterly: Of the platform.

Speaker Change: Thanks, Josh.

Joshua Easterly: You've got to be all excited about what the platform delivers for value add so sorry, I haven't had to go down the rabbit hole.

Joshua Easterly: Okay.

Operator: And one moment for our next question, and our next question will be coming from Bryce Rowe of B. Reilly. Your line is open.

Joshua Easterly: Okay.

Joshua Easterly: And one moment for our next question.

Operator: And our next question will be coming from Bryce Rowe of B Riley Your line is open.

Bryce Wells Rowe: Thanks. Good morning.

Bryce Wells Rowe: I wanted to maybe just continue on this theme of churn within the portfolio and just churn generally within the industry. You all have clearly focused on putting money to work in 22 and 23 vintages and addressing any kind of maturities that you have in 24 and 25, and those are now kind of more limited. So if you could kind of talk about or size up the opportunity from an origination perspective versus what we might see from a repayment perspective within the portfolio and what that might mean for kind of net portfolio growth as we look forward, Out, out.

Bryce Wells Rowe: Thanks, Thanks, good morning.

Bryce Wells Rowe: Wanted to maybe just continue on this theme of churn within the portfolio and just generally within the within the industry.

Bryce Wells Rowe: <unk> is clearly focused on.

Bryce Wells Rowe: Putting putting money to work in 'twenty, two 'twenty, three vintages and addressing any kind of maturities.

Bryce Wells Rowe: That you have in 'twenty four 'twenty five and those are now kind of more limited. So if you could kind of talk about size up the opportunity from an origination perspective versus what we might see from a repayment perspective within the portfolio.

Bryce Wells Rowe: And what that what that might mean for kind of net portfolio growth.

Joshua Easterly: I would, on the margin, I would think net portfolio growth, and I guess it's hard because we're very kind of opportunity set driven, but I would say, on the margin, payments will increase because of our visitation 22 and 23. And I would say, on the margin, I would expect our balance sheet to remain stable, you know, and not grow as significantly as it did in the last, you know, 18 months. That would be my guess. We want to lean in.

Bryce Wells Rowe: As we look forward. Thanks.

Bryce Wells Rowe: Okay.

Joshua Easterly: On the margin I would think net portfolio growth.

Joshua Easterly: Again, it's hard because we're very kind of opportunistic opportunities that driven.

Joshua Easterly: I would say.

Joshua Easterly: On the margin payments will increase because of our access.

Joshua Easterly: Sure.

Joshua Easterly: Page 22 and 23.

Joshua Easterly: And I would say on the margin I respect our balance sheet.

Joshua Easterly: Stable.

Joshua Easterly: And not grow as significantly as it did in the last.

Joshua Easterly: 18 months.

Joshua Easterly: Yes.

Joshua Easterly: You might get.

Joshua Easterly: Yes.

Joshua Easterly: In environments where there are really, really high risk-adjusted returns, we can agree that with 22, 23 and grow the balance sheet. And not everybody can do that given their access to capital. But we did that.

Joshua Easterly: We want to lean in.

Joshua Easterly: And environments, where there is growing really high risk adjusted returns we can agree that 'twenty, two 'twenty three and grow the balance sheet.

Joshua Easterly: And not everybody can do that given their access to capital that we did that and then.

Joshua Easterly: And then, you know, which will mean that the portfolio term will increase on a growth basis. On that basis, the opportunity set is going to be marginally less. And so I think that means that our balance sheet will be, you know, relatively stable, maybe slightly growing. But it's not going to grow to the extent it did only last a few months.

Joshua Easterly: Which will be in that portfolio, which are more increase in the gross basis.

Joshua Easterly: The opportunity is is it going to be marginally less and so I think that means that our balance sheet will be.

Joshua Easterly: <unk> relatively stable, maybe slightly growing but it's not going to grow it may be sending data only last 18 months.

Bryce Wells Rowe: Okay. And then maybe one more from me on the capital structure. I mean, you've been opportunistic in terms of raising both debt and equity, and you've talked about kind of having pre-funded the 24 notes. Do you think about layering in another, I guess, another round of notes, given how open debt capital markets are today, just giving yourself that much more liquidity?

Speaker Change: Okay. Okay, and then maybe one more for me on the capital structure I mean, you've been opportunistic in terms of raising both debt and equity.

Bryce Wells Rowe: Yes.

Bryce Wells Rowe: And you've talked about kind of having free funded 24 notes do you think about layering in another I guess another round of notes.

Bryce Wells Rowe: Given.

Bryce Wells Rowe: How open debt capital markets are today, just given giving yourself that much more liquidity or available liquidity as we as we think about capital structure.

Joshua Easterly: Yeah, I think we talked about this a little bit. I think it's a good question.

Speaker Change: Yes, I think we talked about this a little bit I think that's a good question I actually think on the margin, we hope too much liquidity today.

Joshua Easterly: I actually think on the margin we hold too much liquidity today. So if you kind of think about, if you look at the post-refi, of the 24 nodes, we have about $750 million of liquidity, and we can't, given our, the constraint is debt-to-equity, which our range is 0.9 to 1.25, we can't really use that liquidity. Yeah, if you don't think we're growing the net asset value of the business to a new level.

Joshua Easterly: So if you kind of think about if you look at the post refi.

Joshua Easterly: Of the 24 no.

Joshua Easterly: We have about $750 million.

Joshua Easterly: Liquidity.

Joshua Easterly: We can given our constraint is debt to equity, which a range of <unk> 90 to $1 <unk>.

Joshua Easterly: Really to use that liquidity, yes. If you don't think we're growing net asset value of the business through new equity raises.

Joshua Easterly: And so if we were to, our choices would be to give back unfunded commitments to banks, which I don't think we want to do because that's the lowest-cost capital if we were to raise more bonds. I just don't see – we have – and that liquidity, I think, is very valuable and is really good insurance, but it's limited given the constraint of our 1.25 debt-to-equity and how much our capital is today.

Joshua Easterly: So if we were to <unk>.

Joshua Easterly: It would be to jump back.

Joshua Easterly: Unfunded commitments, the banks, which I don't think we want to do because that's the one.

Joshua Easterly: I'll start with capital.

Joshua Easterly: If we were to raise more more Bob.

Joshua Easterly: I hope the.

Joshua Easterly: We have and that liquidity I think it's very valuable.

Joshua Easterly: And as really good insurance.

Joshua Easterly: But it is limited given the constraint of our one five debt to equity and how much of our capital today, So I don't see us.

Joshua Easterly: So I don't see us – and it has an economic cost to shareholders – doing a bond deal unless we think we can grow assets, which would require us to grow through an equity raise because we just have a whole bunch of trapped equity that's an economic cost to shareholders.

Joshua Easterly: And that has an economic off the shareholders. So I don't see us doing a bond deal.

Joshua Easterly: And less.

Joshua Easterly: We think we can grow growth growth out there, which would require us to grow.

Joshua Easterly: Through an equity raise because we just have a whole bunch of trapped liquidity that an economic cost to shareholders.

Speaker Change: Got it okay.

Joshua Easterly: The color.

Operator: And I'm showing no further questions. I would now like to turn the conference back to Josh for closing remarks.

Joshua Easterly: And I'm showing no further questions I would now like to turn the conference back to Josh for closing remarks.

Joshua Easterly: Thank you. Look, I appreciate the time as people are heading into summer and the weather's changing. I hope people get to spend time with their families and enjoy their summer. We'll obviously be back in contact at 9-4 in August.

Josh: Great. Thank you.

Josh: I appreciate the time.

Joshua Easterly: People are heading in to cover the whether its journey.

Joshua Easterly: We will get to spend time with their families.

Joshua Easterly: And Jordan or some of our global obviously be back and get back more in August.

Joshua Easterly: Please vote in our shareholder meeting. It's a democratic process. As well, those democratic processes are really, really important. But thank you for your time, and we're always around to answer questions. And I thought today's questions were really, really good. So thanks to the analytics community for putting in the work.

Joshua Easterly: And our shareholder meeting.

Joshua Easterly: <unk> process.

Joshua Easterly: A relevant democratic processes are really really important.

Joshua Easterly: Thank you for your time.

Joshua Easterly: And we're always around to answer questions and I thought the questions were really really good things for the analyst community for putting in the work.

Operator: And this concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

Operator: Okay.

Operator: Okay.

Operator: Yes.

Operator: [music].

Operator: Yes.

Operator: [music].