Q1 2024 Barings BDC Inc Earnings Call
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Speaker Change: At this time I would like to welcome everyone to the Barings BDC, Inc Conference call for the quarter ended and year end March 31st 2020 for.
All participants are in a listen only mode. A question and answer session will follow the company's formal remarks, if he would like to ask a question at that time. Please press star one on your telephone keypad. If you should require operator assistance during the event. Please press star zero on your telephone keypad.
Today's call is being recorded and a replay will be available approximately two hours. After the conclusion of the call on the company's website at Www Dot Barings BDC Dot com under the Investor Relations section.
At this time I will turn the call over to Joe Mazzoli head of Investor Relations for Barings BDC.
Joseph Bernard Mazzoli: Good morning, and thank you for joining today's call. Please note that this call may contain forward looking statements that include statements regarding the company's goals beliefs strategies future operating results and cash flows.
Speaker Change: The company believes these statements are reasonable actual results could differ materially from those projected in forward looking statements. These.
Speaker Change: These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled risk factors and forward looking statements in the company's quarterly report on Form 10-Q for the quarter ended March 31st 2024, it's filed with the <unk>.
Speaker Change: <unk> and Exchange Commission Barings BDC undertakes no obligation to update or revise any forward looking statements unless required by law.
Speaker Change: Now I'll turn the call over to Eric Lloyd Chief Executive Officer of Barings BDC.
Eric J. Lloyd: Thanks, Joe and good morning, everyone. We appreciate you joining us for today's call. Please note that throughout today's call, we'll be referring to our first quarter 2024 earnings presentation. That's posted on the Investor Relations section of our website.
Eric J. Lloyd: On the call today I'm joined by Barings, Bdc's, President, Matt Flynn, Chief Financial Officer, Elizabeth Murray, and Barings head of global private finance and D BDC portfolio manager, Brian Hi.
Matt Flynn: We were happy to be in a position to share a variety of positive performance metrics at the BDC for the March quarter, but I'll also spend a moment speaking of some of the developments at our manager Barings LLC that have occurred during the quarter.
Matt Flynn: First let me begin with Bdc's performance.
Matt Flynn: <unk> exhibited stability and strong operating results during the quarter ended March 31st our focus on the top of the capital structure investments and sponsor backed issuers continues to serve investors well.
Matt Flynn: Our our portfolio was predominantly sponsor back and is complemented by a selection of non sponsored and platform investments our portfolio strategy as outlined in greater detail on slide five.
Matt Flynn: This strategy served as our guiding light as we continued to successfully invest throughout the market and deliver compelling returns to our shareholders.
Matt Flynn: Net asset value per share was $11 44 compared to the prior quarter of $11 28.
Matt Flynn: Reflecting a year over year increase of one 4% and this is the highest nab the portfolio has exhibited in the past two years.
Matt Flynn: Net investment income for the quarter was 28.
Matt Flynn: And out earned our quarterly dividend by seven 6%.
Matt Flynn: Perhaps most importantly in a metric that we're particularly proud of our non accruals during the quarter declined to 0.3% of the fair market value of the portfolio.
Matt Flynn: A level, we consider to be best in class and especially in light of the inconsistent economic backdrop.
Matt Flynn: Our performance is the result of our focus on the top of the capital structure and within more defensive industries. We believe <unk> remains well positioned for any further volatility and uncertainty in the market going forward.
Matt Flynn: As our shareholders know, we're actively working to maximize the value and the legacy holdings acquired from MPC capital in Sierra income and rotate them into compelling bearings originated positions non bearings originated assets now only amount to 11% of the portfolio at fair value down from 24% at the beginning of 2022.
Matt Flynn: And potential losses from these assets are protected by credit support agreements limiting downside risks for BDC investors.
Matt Flynn: Our best our investment portfolio continued to perform well in the first quarter. There is no substitute for fundamental credit analysis, which has been core to barings underwriting style since the early 19 nineties.
Matt Flynn: What's in the health of the D. B D C portfolio today, including the acquired Sierra and MCC assets. Our total non accruals are industry, leading 0.3% on a fair value basis, and one 5% of the portfolio on a cost basis. This is down from one 5% on a fair value basis, and two 5% on a cost basis.
Matt Flynn: As of December 31, 2023.
Matt Flynn: Turning to the earnings power of the portfolio. The increase in base rates has largely been reflected within the portfolio with weighted average yields on a fair value basis stabilizing of 11, 3%.
Matt Flynn: Substantially comparable to the prior quarter's figures, we remain conservative on our base dividend policy and our board declared a fourth quarter dividend of 26 cents per share consistent with the prior quarter on an annualized basis, the dividend level equates to a nine 1% yield on our net asset value of $11.44.
Matt Flynn: We believe the best measure of the portfolio's performance non accruals net asset value and NII were extremely compelling for the March quarter, and anticipate continued strength in the quarters ahead.
Matt Flynn: I would now like to take a moment to acknowledge the recent developments at bearings, but before I do so I want to begin by highlighting several key points first barings is a global asset management firm with more than $400 billion of assets under management as of March 31, 2024 second bearings directly employs more than 1800 professionals.
Matt Flynn: Dedicated to investing in our core strategies and driving long term value for our clients and sponsors.
Matt Flynn: Third we were a wholly owned subsidiary of mass mutual and they are investing in private credit on its behalf for more than three decades.
Matt Flynn: I want to emphasize that when it comes to private credit specifically the BDC is just one part of the Barings Global platform, which also includes its other bdcs and the entire private assets business, and which bearings remains fully committed to actively investing in.
Matt Flynn: As you may be aware on March eight 2024 bearings receipt resignations of a number of members of the investment team within their global private finance organization.
Matt Flynn: Six of these individuals were focus on the North American strategy out of a total of North American investment team of 56.
Matt Flynn: We have successfully executed a retention strategy across the entirety of the remaining global investment team B.
Matt Flynn: The BDC investors know that the principal investment strategy for the BBC portfolio include sponsored investments non sponsored investments and platform investments. Furthermore, b BDC status as a business development properly regulated under the 1940 Act has always necessity that the portfolio adult primarily towards North American assets.
Matt Flynn: As a result of the overwhelming stability of the global private finance North American investment team and under uninterrupted focus on North American investment opportunities and in combination with the fact that the deep BDC resource assets.
Matt Flynn: Variety of other investment teams within Barings BDC management believes we are well positioned to deliver a compelling risk adjusted returns for shareholders in the quarters ahead.
Matt Flynn: The stability offered by the current team is important but we also plan to augment this to you by making strategic hires in the quarters to come our hiring efforts will target experienced origination professionals, who maintain existing sponsor relationships and possess a strong fundamental credit approach. We look forward, we look forward to sharing more as we recruit and onboard these hires in.
Matt Flynn: The quarters strong.
Matt Flynn: Like us massmutual. It takes a long term view when it comes to the asset class into business Massmutual intends to continue to actively invest with bearings in the middle market direct lending sector, reflecting their ongoing confidence in both the value and performance of the asset class and our capabilities.
Speaker Change: With that said, we know that many of you have reached out with questions regarding the personnel changes as we look ahead, we see incredible opportunity to leverage the strength of our scaled private credit franchise and leveraging the resources that support more than 300 billion of credit investments, our investment process and philosophy remains unchanged and our deep.
Speaker Change: Talent continues to leverage our originate our origination network and deploy capital consistent with our stated strategy. Most importantly, our commitment to our investors is unwavering and is as strong as it's ever been I will now turn the call over to Matt.
Matt Flynn: Thanks, Eric to begin discussing market activity I would first like to give an update on inbound deal volumes post. The resignations that were received on March eight I'm happy to share that over the past two months, we ever seen received inbound deal volume in line with the level of experience historically.
Speaker Change: Moving to specifics during the quarter, the bdc's portfolio increased to $23 million on a net basis during the quarter with gross fundings of $142 million offset by $119 million of repayments.
Speaker Change: Activity broadly remained tempered during the quarter, but directionally comparable to the immediately preceding quarters much unchanged from last quarter and based on recent conversations investment bankers have reiterated their expectation to LBO activity is expected to meaningfully increase in the quarters to come our sponsor issuer clients have expressed the same anticipated uptick in transactions.
Speaker Change: However, while we have seen an uptick in the number of early stage opportunities the conversion rates to closed transactions are trending towards historic lows.
Speaker Change: Or do you continue to execute add ons for companies already within their portfolios, which makes logical sense.
Speaker Change: People are below the original platform purchase prices in effect, enabling sponsors to reduce their cost basis and hedge against any compression in exit multiples investors and barings BDC benefit by having a season portfolio that provides opportunities to deploy capital into issuers, we already know well.
Speaker Change: While new L. B O S are below historical averages refinancing activity has increased which started in a liquid market in early 2024.
Speaker Change: The recent wave of refinancings is not solely isolated to the broadly syndicated markets. We are starting to witness the competitive dynamics in the direct lending ecosystem as well, though it appears most acute for issuers and EBITDA of $75 million and above at the moment.
Speaker Change: <unk> commitment to the core of the middle market is anticipated to serve investors as well as the terms of large issuers gravitate towards the terms offered by broadly syndicated markets and were able to preserve some pricing protection and the core of what we focus on.
Speaker Change: Turning to our current portfolio 72%.
Speaker Change: Turning to the current portfolio, 72% of our investments consist of secured investments with approximately 66% being first lien securities Bvd.
Speaker Change: <unk> experienced a stabilization of interest coverage during the quarter and finished the quarter with a weighted average interest coverage of 2.2 times in line with the fourth quarter.
Speaker Change: Fair to say that the full impact of an increase in the interest rates have now been reflected within the cash flow metrics at the portfolio. It's.
Speaker Change: The stabilization of the interest rate coverage at the high end of our previous guidance ranging between two and two and a quarter times sort of another data point of the strong credit quality within the book.
Speaker Change: Our avoidance of various industries prone to economic volatility oil and gas restaurants retail metals among them have proven to be a sound strategy against the backdrop of less economic predictability combined with what we believe are reasonable going in leverage multiples. The median gross margin in the North American global private finance portfolio a portfolio similar to bvd.
Speaker Change: D stood at 50% up from 48% one year earlier and gives us confidence that our issuers is absolutely pushing through price increases to combat inflationary pressures in their businesses.
Speaker Change: Adjusted EBITDA margins for the same samples that were 21% and unchanged from the prior year's period.
Speaker Change: The portfolio composition remained highly diversified with the top 10 issuers accounting for 22, 6% of the fair market value.
Speaker Change: Call that the top two positions within the portfolio eclipsed business capital and rotate holdings, our platform investments originating middle market loans. These positions have a number of underlying issuers.
Speaker Change: Assets included in the other classification within our materials include structured positions and certain acquired positions that will not be originated on a new issue basis going forward.
Speaker Change: Erik highlighted we anticipate rotating out of these physicians as market conditions allow and the quarters to come.
Speaker Change: Greetings exhibited minimal movement during the quarter as our issue was exhibited at our issuers exhibiting the most stress classified as risk weightings for in five or 8% on a combined basis quarter over quarter, while non accruals accounted for only 8 million of fair market value within the portfolio and 30 basis points of assets Encouragingly. We also experienced some positive movement.
Speaker Change: Nishu its performing consistent with expectations as underwriting have outperformed in the recent quarter, we remain confident in the credit quality of the underlying portfolio.
Speaker Change: The uncorrelated nature and associated value of investments in eclipse and brocade continued to provide exposure.
Speaker Change: Two additional middle market lending markets with an industry is not suited well to conventional cash flow loans.
Speaker Change: D. C is committing committed to delivering an attractive risk adjusted return to shareholders over the long term.
Speaker Change: We are investors in middle market companies, our goal, our global reach and significant scale across asset classes gives D. V. D. C. A unique ability to select risk and return compared to other managers, but at our core middle market credit is what we do I'll now turn the call over to Elizabeth.
Elizabeth A. Murray: Thanks, Matt on Slide 15, you can see the full bridge of NAV per share in the first quarter NAV per share was $11 four as at March 31st which is an increase of one 4% over the prior quarter and an increase of 2.4% year over year our net.
Elizabeth A. Murray: Investment income exceeded the 26 cents per share dividend by seven 6% net unrealized depreciation from investments CSA and FX lifted NAV per share by 34.
Elizabeth A. Murray: Which was offset by net realized losses on the portfolio and FX.
Elizabeth A. Murray: For sure and that realized loss on the portfolio, that's predominantly due to the restructuring of our investment in core scientific and resolute investment managers.
Speaker Change: It's primarily reclassified from unrealized depreciation.
Speaker Change: The valuation of the credit support agreements decreased by approximately $6 3 million, which is driven by unrealized appreciation in the underlying portfolio and an increase in the applicable discount rate during the quarter, thereby CSA.
Speaker Change: CSA decrease.
Speaker Change: $40 5 million in the fourth quarter to $35 4 million as of March 31st during the first quarter of this year portfolio had sales and repayments of approximately 15 million and we have 36 positions remaining in the portfolio.
Speaker Change: A N D. Ccs a decrease from $17 3 million to $16 1 million with four positions remaining in the portfolio and anticipate the sale of M. D. C. On it in the second half of this year.
Speaker Change: Net investment income was 28 cents per share for the quarter compared to 31 cents per share in the prior quarter and 25 cents per share for the first quarter of two.
Speaker Change: 2023 investment income in the quarter was primarily driven by the continued benefit of a higher base rates, partially offset by lower dividends from our investments in eclipse capital and C. R. J D. The increase in NAV driven by portfolio appreciation was accompanied by an increase in incentive fees earned by the manager or the incentive fees.
Speaker Change: Look back calculation.
Speaker Change: Net leverage ratio, which is defined as regulatory leverage net of unrestricted cash and net unsettled transactions was 1.17 times at quarter end up modestly from 1.15 times at the quarter ended.
Speaker Change: December 31st and currently sits within our long term target <unk> nine to 125 times.
Speaker Change: Finding mix remains highly defensible Beth in terms of seniority and asset class, including a significant level of support provided by the unsecured debt in our capital structure.
Speaker Change: At March 31st or unsecured debt accounted for 1 billion of our funding and equated to 70% of our outstanding debt balances as you may recall during the first quarter of 'twenty 'twenty four barings BDC.
Speaker Change: 300 million.
Speaker Change: Senior unsecured note to enhance the flexibility of our capital structure and that issuance was significantly oversubscribed and has positioned bvd see the significant operating flexibility in the quarters to come we continue to maintain significant flexibility in our capital structure with the next bond maturity in the second half of 2025 and maintain a ladder.
Speaker Change: With maturities out to 2029.
Speaker Change: Barings BDC currently has 215 million of unfunded commitments to our portfolio companies as well as 65 million of outstanding commitments to our joint venture investment we have available cushion against our leverage limit to meet the entirety of these commitments are called upon.
Speaker Change: As mentioned earlier the board declared a second quarter dividend of 26 cents per share a nine 1% distribution on net asset value and is consistent with our first quarter 2024 dividend during our earnings call in February we disclosed the board authorized a $30 million share repurchase plan for 2024, we continue to be active.
Speaker Change: These are some of our share repurchase plan. The first quarter was no exception as we repurchased more than 115000 shares during the quarter and exhibited continued momentum of repurchase activity. After purchasing one 8 million shares in 2023, our focus on share repurchases is one example of bvd seats thoughtful approach July.
Speaker Change: Our interest of shareholders.
Speaker Change: I'll wrap up our prepared remarks with a note on our investment pipeline. Thus far in the second quarter, we have made $11 million of new commitments and funded $9 million.
Speaker Change: With that operator, well open the line for questions.
Speaker Change: Thank you, ladies and gentlemen, we will now be conducting our question and answer session. We ask that you. Please limit yourself to one question and one follow up if you would like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Our first question is coming from the line of Finian O'shea with Wells Fargo. Please proceed with your question.
Speaker Change: Alright.
Finian O'shea: Hey, everyone. Good morning.
Speaker Change:
Finian O'shea: Eric So a couple of the opening.
Finian O'shea: Remarks on strategic changes.
Finian O'shea: Can you.
Eric J. Lloyd: Update us on the LP is a funds business I think it was reported that you.
Speaker Change: You voluntarily halted and investing there.
Speaker Change: If that's still the case and ultimately how the conversations are going with.
Speaker Change: Existing and new Lps.
Speaker Change: For.
Speaker Change: The GPM for direct lending business.
Speaker Change: That'd be too thin so we did so when the reservations came in that Friday.
Speaker Change: Leadership Executive leadership here at Barings made the decision to pause investing in certain accounts.
Speaker Change: We didn't have to pause the investing in those accounts, but we decided to do that because we've always remind ourselves right. It's not our money. It's other people's money that from an investing perspective, so we decided to make that pause and then have communications with investors.
Speaker Change: Theres kind of two a couple of different buckets from those Lp's perspective, there are things that are F. N as our funds have won.
Speaker Change: That are our more bespoke discussions that we have with that one counterparty.
Speaker Change: And then there's really the co mingled funds. So funds that might have 10 2030 investors in there that have things like <unk> and other things that we have to manage through that have different kind of timelines in times, we cure things from a key person perspective, what I can represent to you is that a number of our funds.
Speaker Change: One or SMA arb allowed us to continue to invest at this point in time and also can represent to you that our hold level in North America is generally consistent today with what it was prior to the events of marks the eighth and that whole level allows us to continue to lead deals in our core middle market franchise between $15 million and 70.
Speaker Change: $5 million of EBITDA.
Speaker Change: Certain other vehicles are continuing to go through their normal process as far as cure periods with key persons and we're working with that LP base.
Speaker Change: Along those lines.
Speaker Change: But again a number of the funds of one in SMA, we continue to invest in.
Speaker Change: Okay.
Speaker Change: Thanks, that's helpful and a.
Speaker Change: Small follow up.
Speaker Change: I got to throw in there it looks like Joe Kathy has.
Speaker Change: Blow down or stopped investing is that the case.
Speaker Change: Well, Joe Kathy in the BDC.
Speaker Change: Yeah.
Speaker Change: Our our relationship with <unk> partner is very constructive and it's.
Speaker Change: It's one that we believe we will continue to be an important part of the BDC, but that's kind of a discussion we've had with them and we feel good about where that relationship is.
Speaker Change: Okay. Thanks.
Speaker Change: Actually one more if I may sorry.
Speaker Change: It sounded like in the.
Speaker Change: The staffing or hiring part.
Speaker Change: This would be on adding originators and just seeing if that implies that the the repositioning.
Speaker Change: Of the leadership and investment committee and so forth. The BDC you have an outside.
Speaker Change: Thus far.
Speaker Change: <unk> is expected to be five minutes and that's all for me. Thanks.
Speaker Change: So the investment committee that we have stated is a permanent investment committee.
Speaker Change: We have also stated that we expect to add to that investment committee over time.
Speaker Change: North American investment Committee is for individuals as it sits today. Our prior committee was six the number or along those lines would be something we could look at over time as we add people I would say the hires origination is something I highlighted but I wanted to take a step back and say the most important thing for us to on the hiring perspective.
Speaker Change: <unk> is making sure we find a the right cultural fit and we don't rush and do any type of hires we don't need to make hires to fill in some kind of gap or some kind of shortfall that we have here, we wanted to make conscious deliberate hires that fit our culture and our credit philosophy first of all and then secondly.
Speaker Change: All that bring originations sponsor relationships that are additive to the existing platform that we have today.
Speaker Change: With highlighted I mean, we've seen a number of deals over the course of the last past two months from sponsors those relationships have been incredibly constructive and I think youll see some hires here in short order that will be able to announce and I think that one of the things that's been humbling and this process has been the amount of people who have reached out to us that interest in joining.
Speaker Change: The platform because of the strength of the platform.
Speaker Change: If I may Eric.
Speaker Change: The BDC management team as it sits today is substantially unchanged from where we were a year ago and thats whenever we put in place the kind of refined.
Speaker Change: Go forward investment strategy that has been consistent for the past 12 months I would say that in light of the fact that the overwhelming majority of the investment team is unchanged. We have no reason to change our strategy on a go forward basis, and so while there may be some.
Speaker Change: The management modifications throughout our manager it's important to note that we don't have reason to change our strategy and feel like the strategy. We put in place is an incredibly productive one with respect to our shareholders.
Speaker Change: Thanks, everyone.
Speaker Change: Thank you. Our next question is coming from Kyle Joseph with Jefferies. Please proceed with your question.
Speaker Change: Hey.
Kyle Joseph: Good morning, guys. Thanks for taking my questions.
Kyle Joseph: Kind of shifting back to the model are Elizabeth I think you mentioned this but just wanted to talk about that.
Kyle Joseph: Decline in investment income in the quarter I know you know there is some portfolio there as it looks like yields are stable that kind of just fee income driven is that timing of deployments and repayments or and then I think you did mention.
Kyle Joseph: Eclipse dividend income and impacting that as well.
Speaker Change: Sure. Thanks Kyle.
Kyle Joseph: Yes, and interest income was down slightly quarter over quarter and that really was related to the fact that we had late fourth quarter sales and repayments early first quarter repayment and then we redeployed those later in the first quarter.
Kyle Joseph: So that was more of a timing issue from the interest income perspective. In addition dividend income was down quarter over quarter due to eclipse. We also have lower dividend income at Sierra JV.
Kyle Joseph: For the Sierra JV, we decided to take some of the proceeds from.
Kyle Joseph: Investment income and repayments and pay down part of the leverage facility. We have there. So you can expect that the Sierra dividends should be more normalized throughout the remainder of 2024.
Kyle Joseph: But I just want to highlight the lack of or decrease a dividend off of eclipse is not anything related to performance of our clubs. It continues to be an incredibly strong performer for us it's just timing of distributions.
Kyle Joseph: Yeah, you should see it back at a more normalized level for the second quarter.
Kyle Joseph: Yes.
Kyle Joseph: Yes.
Speaker Change: And then a follow up.
Kyle Joseph: For me probably for Matt I appreciate the the.
Kyle Joseph: The margin commentary.
Matt Flynn: Dave but yeah.
Matt Flynn: And from our side, we've been seeing different headlines about banks exiting the space from battle at the end game or getting back N V. S. L, but just give us a sense for it.
Matt Flynn: Competitive trends, you've been seeing recently and kind of.
Kyle Joseph: We talked about yields being say stable they give us the breakdown between.
Kyle Joseph: Base rates and the spreads you're even seeing in recent quarters.
Speaker Change: Yeah happy to comment on it and so I think that what we're observing in the marketplace.
Speaker Change: A bifurcation based on size and so.
Speaker Change: The first group of issuers that I think has been more substantively impact is going to be the larger into the ecosystem and I would tell you that our larger competitors, who are competing squarely against the banking institutions are frankly have a more a more robust opportunity set from an issuance perspective than they have over the past few years and so.
Speaker Change: As we think about your 120 $850 million EBITDA platform that is kind of deciding between broadly syndicated execution or a privately placed solution those terms and in our experience are looking closer and closer to parity than they have over the past few years now whenever we start looking at the core of the market in which we participate call it.
Speaker Change: 50 of EBITDA I think the median issuer in the portfolio is just over 30, yeah that isn't really a competitive threat that the banks don't provide a competitive threat to the same degree.
Speaker Change: Be very candid with you, though we are seeing more private credit fund formation and so we are aware that that may provide some competitive.
Speaker Change: Competitive headwind here in the quarters to come but based on what we experienced during this particular quarter, we feel very encouraged and so as we kind of set our path forward for the balance of 2024, I think that what we're anticipating is to see a highly competitive environment on the larger end of the ecosystem.
Speaker Change: And perhaps a little bit more kind of price stability as it were with respect to what we define as the core of the middle market.
Speaker Change: And Carlos Eric If you think of kind of supply demand right. Just there is a increase of private credit managers in general over the last couple of years and M&A activity is lower than what it was two years ago that is just generally going to lead to some form of spread compression and some short.
Speaker Change: A return period of time, but over time, we're seeing kind of reasonable stability and kind of what that spread level is because there's an absolute return that needs to occur for private credit investors overall.
Speaker Change: Very helpful. Thanks for answering my questions.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is coming from Robert Dodd with Raymond James. Please proceed with your question.
Robert James Dodd: Good morning, everyone and thanks for all the color about the events of marks on just one quick one from me, Matt you mentioned that conversion rates close rates for transactions.
Robert James Dodd: Tending towards historically can you give us any color on the drivers there.
Robert James Dodd: Well bid asks on valuation.
Speaker Change: Actions, you know not cut it.
Robert James Dodd: So this is an important cause the last minute as it.
Robert James Dodd: Failures in due diligence as you get more imbalanced I mean any color you can give us on.
Robert James Dodd: What's the driver.
Robert James Dodd: Yeah.
Robert James Dodd: The most common response that we're getting is that there just seems to be a bid ask differential that I think a lot of folks anticipated a reduction in interest rates would have helped bridge and so.
Robert James Dodd: I'm sure everyone knows that these processes take between three and six months by the time you launch a transactions and when you actually close that we're somewhere to the middle of the beginning are somewhere between the beginning in the middle of that process and so as these kind of sell side transactions have evolved you get part of the way through and you recognize that your cost of capital isn't.
Robert James Dodd: I'm familiar what you had budgeted for and I think that that creates some downward revisions on enterprise values.
Robert James Dodd: As we think about it that obviously impacts the equity pretty substantially but it but we generally feel pretty comfortable regardless of whether someone is paying call. It 10, 10 times or 12 times.
Robert James Dodd: And so ultimately our view on the credit profiles don't often change.
Robert James Dodd: There, obviously is some capital below us and when that cost of capital has changed.
Robert James Dodd: Creates revisionists expectations with respect to underlying EV. So.
Robert James Dodd: That's our leading contender right now of course, there are going to be transactions, where they they ultimately fall apart over kind of creditor or otherwise other performance metrics, but I think overwhelmingly it's been a cost of capital discussion and Miss it Miss alignment of expectations on the bid ask spread.
Speaker Change: Got it thank you.
Speaker Change: [noise].
Speaker Change: Thank you we have no additional questions at this time, so I'd like to pass the floor back over to management for closing comments.
Speaker Change: Well first I want to thank everybody for dialing in and taking the time to listen to what we communicated today to extent you have follow up questions or conversations you'd like to have please make sure you reach out to us and the team we want to make sure we're transparent and communicative as we go forward over the course of the next quarters. Thanks, so much.
Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.
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