Q1 2024 Fidus Investment Corp Earnings Call
Good day and welcome to the fight is first quarter 2024 earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on you touched on phone.
Operator: Good day, and welcome to the FIDUS first quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. And to withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Jody Burfening. Please go ahead, ma'am.
And so after all your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to MS. Jody <unk>. Please go ahead ma'am.
Jody Burfening: Thank you, Chuck, and good morning, everyone. And thank you for joining us for Fidus Investment Corporation's first quarter 2024 earnings conference call. With me this morning are Ed Ross, Fidus Investment Corporation's Chairman and Chief Executive Officer, and Shelby Sherard, Chief Financial Officer. Fidus issued a press release yesterday afternoon with the details of the company's quarterly financial results. A copy of the press release is available on the Investor Relations page of the company's website at FDUS.com. I'd also like to call your attention to the customary State of Harvard disclosure regarding forward-looking information included in today's call.
Jody: Thank you Chuck and good morning, everyone and thank you for joining us for <unk> Investment Corporation first quarter 2024 earnings Conference call with me. This morning are Ed Ross brightest investment Corporation's Chairman and Chief Executive Officer, and Shelby Sherard, Chief Financial Officer.
<unk> investment Corporation issued a press release yesterday afternoon with the details of the company's quarterly financial result.
Jody: A copy of the press release is available on the Investor Relations page of the company's website at S. P U S dot com.
Jody: Also like to call your attention to the customary safe Harbor disclosure regarding forward looking information included on today's call.
Jody Burfening: The conference call today will contain forward-looking statements, including statements regarding the goals, strategies, beliefs, future potential, operating results, and cash flows of Fidus Investment Corporation. Although management believes these statements are reasonable based on estimates and projections as of today, May 3, 2024, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Additionally, actual results may differ materially as a result of risks, uncertainties, and other factors, including but not limited to the factors set forth in the company's filings with the Securities and Exchange Commission. Fidus undertakes no obligation to update or revise any of these forward-looking statements.
Jody: The call today will contain forward looking statements, including statements regarding the goals strategies beliefs future potential operating results and cash flows by this investment Corporation.
Jody: Although management believes these statements are reasonable based on estimates.
And projections as of today May three 2024. These statements are not guarantees of future performance time sensitive information may no longer be accurate at the time of any telephonic or webcast replay.
Jody: Actual results may differ materially as a result of risks uncertainties and other factors, including but not limited to the factors set forth in the company's filings with the Securities and Exchange Commission.
Jody: If I just undertakes no obligation to update or revise any of these forward looking statements with that I would now like to turn the call over to Ed Good morning, Ed.
Jody Burfening: With that said, I would now like to turn the call over to Ed. Good morning, Ed.
Edward H. Ross: Good morning, Jody and good morning, everyone welcome to our first quarter 2024 earnings Conference call.
Edward H. Ross: Good morning, everyone. Welcome to our first quarter 2024 earnings conference call. On today's call, I'll start with a review of our first quarter performance and our portfolio at quarter end, and then share with you our outlook for the remainder of 2024. Shelby will cover the first quarter financial results and our liquidity position. After we have completed our prepared remarks, we'll be happy to take your questions.
Edward H. Ross: On today's call I'll start with a review of our first quarter performance and our portfolio at quarter end and then share with you our outlook for the remainder of 2020 for.
Edward H. Ross: Shelby will cover the first quarter financial results and our liquidity position.
Edward H. Ross: After we have completed our prepared remarks, we'll be happy to take your questions.
Edward H. Ross: As expected the first quarter shaped up to be a very active from a new investment perspective.
Edward H. Ross: As expected, the first quarter shaped up to be very active from a new investment perspective. While repayments were on the lighter side, we put a fair amount of capital to work, redeploying proceeds from the fourth quarter. With net originations totaling $85.7 million, the total portfolio, on a fair value basis, grew to over $1 billion. To put our investment activity for the quarter in perspective, originations of $145.9 million nearly equal the total amount invested in the first half of 2023.
Edward H. Ross: While repayments were on the lighter side, we put a fair amount of capital to work redeploying proceeds from the fourth quarter with net originations totaling $85 $7 million.
Edward H. Ross: Total portfolio on a fair value basis grew to over $1 billion.
Edward H. Ross: To put our investment activity for the quarter in perspective originations of $145 $9 million nearly equal the total amount invested in the first half of 2023.
Edward H. Ross: Consistent with our established practice, we grew the portfolio with a focus on capital preservation and the generation of attractive risk adjusted returns.
Edward H. Ross: Consistent with our established practice, we grew the portfolio with a focus on capital preservation and the generation of attractive risk-adjusted returns. We continue to invest in industries in the lower middle market we know well, leveraging our relationships with deal sponsors, in carefully selecting businesses with defensive characteristics and sustainable business models, and positive Long-Term Outlooks that generate cash to both service debt and support growth.
Edward H. Ross: We continue to invest in industries in the lower middle market, we know well.
Leveraging our relationships with deal sponsors and carefully selecting businesses with defensive characteristics and sustainable business models and positive long term outlooks that generate cash to both service debt and support growth.
Edward H. Ross: Our debt portfolio generated adjusted net investment income of $18 $1 million, an increase of 21, 8% compared to $14 $9 million last year.
Edward H. Ross: Our debt portfolio generated adjusted net investment income of $18.1 million, an increase of 21.8%, compared to $14.9 million last year, primarily reflecting higher interest income and fee income for the quarter, taking into account the higher average share count resulting from the equity raises over the past 12 months. Adjusted net investment income on a per share basis was $0.59 per share compared to $0.60 per share for the same period last year. In Q1, we paid a base dividend of $0.43 per share, plus a $0.22 per share supplemental dividend for a total distribution to shareholders of $0.65 per share.
Edward H. Ross: Primarily reflecting higher interest income and fee income for the quarter.
Edward H. Ross: Taking into account the higher average share count, resulting from the equity raises over the past 12 months.
Edward H. Ross: Net investment income on a per share basis was 59 per share compared to <unk> 60 per share for the same period last year.
Edward H. Ross: In Q1, we paid a base dividend of 40 <unk> per share plus a 22 cents per share supplemental dividend for a total distribution to shareholders or 65 cents per share.
Edward H. Ross: For the second quarter of 2024, the board of directors declared dividends totaling 59 cents per share consisting of our base dividend up <unk> 43 per share and a supplemental dividend of 16 cents per share equal to 100% of the surplus in adjusted NII.
Edward H. Ross: For the second quarter of 2024, the Board of Directors declared dividends totaling $0.59 per share, consisting of a base dividend of $0.43 per share and a supplemental dividend of $0.16 per share, equal to 100% of the surplus in adjusted NII over the base dividend from the prior quarter, which will be payable on June 26, 2024, to stockholders of record as of June 19, 2024.
Edward H. Ross: Over the base dividend from the prior quarter, which will be which will be payable on June 26, 2024 to stockholders of record as of June 19 2024.
Edward H. Ross: Net asset value grew three 2% to $608 $3 million compared to $589 $5 million.
Edward H. Ross: Net asset value grew 3.2% to $608.3 million compared to $589.5 million. On a per share basis, net asset value was $19.36 at quarter end, compared to $19.37 as of December 31st, 2023. As I mentioned earlier, Originations totaled $145.9 million for the first quarter. We stayed focused on investing in first lien investments, structuring investments with a high percentage of equity cushion, and co-investing in the equity of portfolio companies. That investment totaled $137.5 million, of which the first lien amounted to $96.1 million, or 70%, and equity investments totaled $8.4 million.
Edward H. Ross: On a per share basis, net asset value was $19.36 at quarter end compared to $19.37 as of December 31 2023.
Edward H. Ross: Yeah.
Edward H. Ross: Of the $145.9 million total in originations, $94.6 million was invested in seven new portfolio companies, which were added to the portfolio primarily through M&A transactions. Proceeds from repayments and realizations totaled $60.2 million for the first quarter, consisting of debt repayments of $57 million and proceeds from the sale of equity investments of $3.2 million, resulting in net realized gains of $1.7 million, primarily from the exit of Applied Data Corporation
Edward H. Ross: As I mentioned earlier originations totaled $145 $9 million for the first quarter we.
Edward H. Ross: We stayed focused on investing in first lien investments on structuring investments with a high percentage of equity cushion.
Edward H. Ross: I'm, calling that's been in the equity portfolio companies.
Edward H. Ross: Net investments totaled 137 $5 million of which first lien amounted to $96.
Edward H. Ross: $1 million or <unk> 70 per cent.
Edward H. Ross: Equity investments totaled $8 $4 million.
Edward H. Ross: Of the $145 $9 million total and originations $94 6 million was invested in seven new portfolio companies, which were added to the portfolio primarily through M&A transactions.
Edward H. Ross: Proceeds from repayments and realizations totaled $62 million for the first quarter, consisting of debt repayments of $57 million in proceeds from the sale of equity investments of $3 $2 million, resulting.
Edward H. Ross: Resulting in net realized gains of $1 $7 million, primarily from the exit of applied data Corporation.
Edward H. Ross: Our our portfolio of debt investments on a fair value basis was $916 $4 million or 87% of the total portfolio at quarter end.
Edward H. Ross: Our portfolio of debt investments, at fair value, was $916.4 million, or 87% of the total portfolio at quarter end. First lien investments are still the largest portion of the debt portfolio at 69%, including the fair value of our equity portfolio of $131.7 million. The fair value of the total portfolio at quarter end stood at $1.05 billion, equal to 102.2% of cost, and we ended the first quarter with 87 active portfolio companies.
Edward H. Ross: First lien investments are still the largest portion of the debt portfolio at 69%.
Including the fair value of our equity portfolio of $131 $7 million the fair value of the total portfolio at quarter end stood at $1.15 billion equal to 102, 2% of cost.
Edward H. Ross: And we ended the first quarter with 87 active portfolio companies.
Edward H. Ross: Our portfolio remains well structured but is positioned to produce high levels of recurring income and the potential for enhanced returns from the sale of equity securities.
Edward H. Ross: Our portfolio remains well-structured but is positioned to produce high levels of recurring income and the potential for enhanced returns from the sale of equity securities. Overall, our portfolio from a credit perspective remains solid with no change in the companies we have on nonaccrual from the fourth quarter. While the performance of the two operating companies on nonaccrual will continue to improve, each of them remains a higher risk situation.
Overall, our portfolio from a credit perspective remains solid with no change in the companies we have on non accrual from the fourth quarter.
Edward H. Ross: While the performance of the two operating companies on nonaccrual continued to improve each of them remain higher risk situations.
Edward H. Ross: As a percentage of the total portfolio on a fair value basis, non-accruals represented under 1% for the first quarter. The health of our portfolio is attributable to our strict underwriting disciplines focused on carefully investing in businesses with strong and sustainable cash flow generating business models and positive long-term growth prospects. With capital preservation in mind, we remain very deliberate in our investment selection process. As we look ahead to the remainder of 2024, we are positioned to continue to grow the portfolio.
Edward H. Ross: As a percentage of the total portfolio on a fair value basis, non accruals represented under 1% for the first quarter.
Edward H. Ross: The health of our portfolio is attributable to our strict underwriting disciplines focused focused on carefully investing in businesses with strong and sustainable cash flow generating business models and positive long term growth prospects.
Edward H. Ross: With capital preservation in mind, we remain very deliberate and our investment selection process.
Edward H. Ross: As we look ahead to the remainder of 2024, we are positioned to continue to grow the portfolio.
Edward H. Ross: Steel flow and M&A activity is at reasonable levels, slowly improving relative to 2023. That said, quality is spotty at the present time. As a result, originations for the second quarter are expected to be meaningfully lighter than the first quarter. Nevertheless, our portfolio is healthy and positioned to continue to generate adjusted NII well in excess of our base dividend to generate attractive risk-adjusted returns and grow net asset value over the long term. Now I'll turn the call over to Shelby to provide some details on our financial and operating results. Shelby?
Edward H. Ross: They'll flow in M&A M&A activity is at reasonable levels.
Edward H. Ross: And slowly improving relative to 2023.
That said quality is spotty at the present time as a result originations for the second quarter are expected to be meaningfully lighter than the first quarter.
Edward H. Ross: Nevertheless, our portfolio is healthy and positioned to continue to generate adjusted NII well in excess of our base dividend to generate attractive risk adjusted returns and grow net asset value over the long term.
Edward H. Ross: Now I'll turn the call over to Shelby to provide some details on our financial and operating results Shelby.
Shelby E. Sherard: Thank you, Ed, and good morning, everyone. I'll review our first quarter results in more detail and close with comments on our liquidity position. Please note I will be providing comparative commentary versus the prior quarter, Q4 2023. Total investment income was $34.7 million for the three months ended March 31st. A $1.7 million decrease from Q4, primarily due to a $1.3 million decrease in interest income, including PIC, and a $1.2 million decrease in fee income given higher prepayment fees in Q4.
Shelby E. Sherard: Thank you Ed and good morning, everyone I'll review, our first quarter results in more detail and close with comments on our liquidity position. Please note I will be providing comparative commentary versus the prior quarter Q4 2023.
Shelby E. Sherard: The decrease in interest and fee income was offset by a $0.1 million increase in dividend income and a $0.7 million increase in interest income on excess cash, which was due to the new investments in Q1 being back-end loaded as approximately 72 percent of invested capital in Q1 closed in March. Total expenses, including income tax provision, were $17 million for the first quarter, $2.3 million lower than Q4, driven primarily by a $1.4 million decrease in the capital gains fee accrual and a $1 million decrease in income taxes related to the annual excise tax accrual in Q4.
Shelby E. Sherard: Total investment income was $34 7 million for the three months ended March 31st a 1.7 million decrease from Q4, primarily due to a $1 3 million decrease in interest income including Pik.
Shelby E. Sherard: 1.2 million decrease in fee income given higher prepayment fees in Q4.
The decrease in interest and fee income was offset by a point 1 million increase in dividend income and a point 7 million increase in interest income on excess cash which was due to the new investments in Q1 being backend loaded as approximately 72% of invested capital in Q1 closed in March.
Shelby E. Sherard: <unk> expenses, including income tax provision were 17 million for the first quarter $2 3 million lower than Q4, driven primarily by a 1.4 million decrease in the capital gains fee accrual and a $1 million decrease in income taxes related to the annual excise tax accrual in Q4.
Shelby E. Sherard: We ended the quarter with $463 1 million of debt outstanding comprised of $175 million of SBA debentures $250 million of unsecured notes $22 5 million outstanding on our line of credit and $15 6 million of secured borrowings our debt to equity ratio as of March 31st was <unk> eight times.
Shelby E. Sherard: We ended the quarter with $463.1 million of debt outstanding, comprised of $175 million of SBA debentures, $250 million of unsecured notes, $22.5 million outstanding on the line of credit, and $15.6 million of secured borrowings. Our debt-to-equity ratio as of March 31 was 0.8 times, or 0.5 times statutory leverage excluding exempt SBA debentures. The weighted average interest rate on our outstanding debt was 4.6% as of March 31st, 2024. Net investment income, or NII, for the three months ended March 31 was $0.57 per share versus $0.58 per share in Q4.
Shelby E. Sherard: Our 0.5 times statutory leverage excluding exempt SBA debentures.
Shelby E. Sherard: Average interest rate on our outstanding debt was 4.6% as of March 31, 'twenty 'twenty four.
Shelby E. Sherard: Net investment income or NII for the three months ended March 31st was 57 cents per share versus 58 cents per share in Q4, adjusted NII, which excludes any capital gains incentive fee accruals or reversals attributable to realized and unrealized gains and losses on investments was 59 cents per share in Q1.
Shelby E. Sherard: Adjusted NII, which excludes any capital gains, incentive fee, accruals, or reversals attributable to realized and unrealized gains and losses on investment, was $0.59 per share in Q1 versus $0.65 in Q4, which includes an increase in the weighted average shares outstanding and a decrease in the capital gains fee accrual in Q1. For the three months ended March 31st, we recognized approximately $1.7 million of net realized gains, primarily related to the sale of our equity investments in Applied Data Corporation.
On 65 turns in Q4, which includes an increase in the weighted average shares outstanding and a decrease in the capital gains fee accrual in Q1.
Shelby E. Sherard: For the three months ended March 31st we recognized approximately 1.7 million of net realized gains primarily related to the sale of our equity investments and apply data Corporation.
Shelby E. Sherard: Turning now to portfolio statistics, as of March 31st, our total investment portfolio had a fair value of over $1 billion. Our average portfolio company, on a cost basis, was $11.8 million, which excludes investments in four portfolio companies that sold their operations during the process of winding down. We have equity investments in approximately 81.3% of our portfolio companies, with average fully diluted equity ownership of 3.5%. The weighted average effective yield on debt investments was 14% as of March versus 14.2% at year-end 2023.
Shelby E. Sherard: Turning now to portfolio statistics as of March 31st our total investment portfolio had a fair value of over $1 billion.
Shelby E. Sherard: Our average portfolio company on a cost basis was $11 8 million, which excludes investments in four portfolio companies that solve their operation during the process of winding down we have equity investments in approximately 81, 3% of our portfolio companies with average fully diluted equity ownership of three 5%.
Shelby E. Sherard: Weighted average effective yield on debt investments was 14% as of March versus 14, 2% at year end 'twenty to 'twenty three the weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original issue discount and loan origination fees, but excluding investments on nonaccrual.
Shelby E. Sherard: The weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original issue discount and loan origination fees but excluding investments on non-accrual, if any. Now, I'd like to briefly discuss our available liquidity. In Q1, we repaid the remaining $35 million of outstanding SBA debentures in our second SBIC fund, completing the wind-down of this fund. As of March 31, our liquidity and capital resources included cash of $27.1 million and $77.5 million of availability on our line of credit, resulting in total liquidity of approximately $104.6 million.
Shelby E. Sherard: Well with any now.
Now I'd like to briefly discuss our available liquidity in Q1, we repaid the remaining $35 million of outstanding SBA debentures in our second at the IC fun completing the wind down of this fund.
Shelby E. Sherard: As of March 31st our liquidity and capital resources included cash of $27 1 million and $77 5 million of availability on our line of credit, resulting in total liquidity of approximately $104 6 million now I will turn the call back to Ed for concluding comments.
Edward H. Ross: Thanks Shelby.
Edward H. Ross: Thanks, Shelby. As always, I'd like to thank our team and the Board of Directors at Fidus for their dedication and hard work, and our shareholders for their continued support. I will now turn the call over to Chuck for Q&A. Chuck?
Edward H. Ross: As always I'd like to thank our team and the board of directors that by this for their dedication and hard work and our shareholders for their continued support and I will now turn the call over to Chuck for Q&A Chuck.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Robert Dodd with Raymond James. Please go ahead.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press the star, then
Chuck: We will now begin the question and answer session.
Chuck: To ask a question you May press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys.
Chuck: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Chuck: And at this time, we'll pause momentarily to assemble our roster.
Chuck: [noise].
Chuck: And the first question will come from Robert Dodd with Raymond James. Please go ahead.
Robert James Dodd: Hi, and congratulations on the call. On several questions, on the deployment outlook, I mean you flagged Q2 will be down versus Q1, which is a very large number. What are your expectations kind of for the year? And obviously, it's hard to predict the further you get out. But is it, you know, could 24 be the first time you ever do, you know, 400 million in originations for a year, given the start you had this year? Or, you know, is that, perhaps, perhaps, would that be a reach too far? Are we still looking in the 300s for this year, kind of all?
Robert James Dodd: Hi, and congratulations on the quarter one on.
Some questions on the deployment outlook I mean, you you flagged Q2 will be down versus Q1, which are very large number.
Robert James Dodd: Sure.
Robert James Dodd: What are your expectations kind of crazy.
Speaker Change: And obviously, it's hard to predict.
Speaker Change: Get out but is it could 24 be the first time, we ever do 400 million in originations.
Speaker Change: The next time you had this year.
Speaker Change: Is that you have.
Speaker Change: Perhaps you know would that be a reach too far, but we still look at it.
Speaker Change: Just kind of ballpark.
Speaker Change: Sure.
Edward H. Ross: Great question. And as you know, originations and timing of deals are very hard to predict. I mean, yeah.
Speaker Change: Great question.
Speaker Change: And as you know our originations and timing of deals or are very hard to predict I mean, yeah.
Edward H. Ross: And what I would say, you know, we talk about Q1, we had a reasonable level of deal flow. We also had some holdover transaction opportunities from Q4, which helped the activity levels, if you will. So we were fortunate, right, to have a very strong corridor, which was great.
Speaker Change: Yeah, and what I would say you know you can talk about Q1, you know we are we had a reasonable level of deal flow.
Speaker Change: Also had some holdover transaction opportunities from Q4, which helped us.
Speaker Change: The activity levels, if you will.
Speaker Change: So we were you know we were fortunate right to have a very strong quarter, which was great. G. Q2 deal flow has been solid you know I would say.
Speaker Change: Quality has been a bit spotty, we do have an expectation that deal flow will pick up here a little bit.
Speaker Change: M&A, there's just a lot of discussion around it we think actually there is transaction activity that is starting to increase.
Edward H. Ross: For us, this quarter probably is going to be lighter than Q1, by a good bit. And that's okay.
Speaker Change: For us this quarter is probably as good as you know, it's gonna be lighter than in Q1 by its probably a good bet.
Speaker Change: That's okay.
Speaker Change: You know what I would say as our portfolio continues to be acquisitive. So that's part of our investments and then.
Edward H. Ross: What I would say is our portfolio continues to be acquisitive, so that's part of our investments. You know, new transaction activity. We're working on a couple deals very seriously right now. Don't know if they'll close or not, but that's our hope.
Speaker Change: You know new transaction activity, we're working on a couple of deals very seriously right now don't know if they'll close or not but that's our hope.
Edward H. Ross: So, we definitely are very busy, but it's not like Q1. And so, when I look out for the rest of the year, I expect an increase in activity levels over Q2. Do we get to 400 million like you asked? You know, there's a possibility of that. Over the last 12 months, I think we've been near that number. But, you know, that's a pretty aggressive number at the same time. So, I would guess something shy of that, but I'm, you know, it's also a distinct possibility.
Speaker Change: So we definitely are very busy but it's it's not like Q1, and so when I look out the rest of the year I expect an increase in activity levels over Q2.
Speaker Change: Do we get to 400 million like you you asked.
Speaker Change: You know theres a possibility of that over the last 12 months I think we've been near that number Ah, but you know that's a pretty aggressive number at the same time. So I would I would guess something shy of that but you know it's also a distinct possibility.
Edward H. Ross: On the repayment side, you have deployed a lot of capital over the last 12 months or longer, and a lot of the portfolio is relatively young as a result. You said Q1 repayments were light, and they were, but at the same time, should we expect that? to continue for a while, given how much the portfolio is relatively fresh, or do you think there's..., a different dynamic that's going to play out in
Speaker Change: Really understood right Yeah, no there's not a little hard to say all of the payment side I mean, you have.
Speaker Change: And a lot of capital.
Speaker Change: In the last 12 months, along with a lot of the portfolio is relatively young and that's all I mean, you said Q1 repayments were light.
Speaker Change: But at the same time.
Speaker Change: Should we what should we expect that.
Speaker Change: To continue who while given how much the portfolio is relatively fresh or do you think there.
Speaker Change: A different dynamic that's going to play out.
Speaker Change: Sure.
Edward H. Ross: Another great question. I wish I had a crystal ball. But what I would say is we do have several companies, probably more than several, that are evaluating strategic alternatives at the moment. It's unclear if any of those are Q2 or they kind of push into Q3, and which ones actually transact. The other piece of the puzzle is that some of those portfolio companies are equity-only investments and not the really large ones, for instance.
Speaker Change: Another great question I wish I had a crystal ball.
Speaker Change: But what I would say is you know that we do have several companies are probably more than several that are evaluating strategic alternatives at the moment.
Speaker Change: It's unclear if any of those or Q2 or are they kind of push into Q3, and which ones actually transact.
The other piece of the puzzle some of those portfolio companies or equity only investments in and not a real large ones for instance, and so you know I'm not at the moment expecting a real high level of of repayments here in Q2, the current expectation based on what we know.
Edward H. Ross: And so I'm not at the moment expecting a real high level of repayment here in Q2. The current expectation, based on what we know today, is probably less than in Q1. Having said that, we do have an expectation that repayments will pick up in Q3. As you know, the market is more aggressive, and we also see transactions from a realization perspective, company sale, M&A type stuff, taking place in Q3.
Speaker Change: <unk> today is it's probably it's less than than than Q1.
Speaker Change: Having said that we do have an expectation that the repayments will pick up in Q3 and Q4.
Speaker Change: As you know the market is more aggressive and and also we do see a we do see you know transactions from a realization perspective company sale M&A type stuff.
Speaker Change: Taking place in Q3 Q4 for us.
Robert James Dodd: Okay. That is very helpful. Oh, and one comment, if I can. Shelby, your color on 72% of capital was deployed in March is very helpful for figuring out, you know... direction of spreads, et cetera, et cetera. It would be really helpful if color like that was in the press release. Thank you.
Speaker Change: So hopefully that understood that.
Speaker Change: That is very helpful. Although one one comment if I can.
Speaker Change: Shelby your color on 72% of capital was deployed in March very helpful, particularly now yeah.
Speaker Change: Yeah.
Speaker Change: The directional spreads et cetera et cetera.
Speaker Change: Really helpful.
Speaker Change: Color like that was in the press release.
Speaker Change: Thank you.
Speaker Change: Okay. Thanks.
Speaker Change: Thank you I appreciate it good talking to you Robert.
Edward H. Ross: Thank you. I appreciate it. Good talking to you, Robert.
Operator: The next question will come from Mickey Schleien with regard to Lattenberg. Please go ahead.
Speaker Change: The next question will come from Mickey <unk> with Ladenburg. Please go ahead.
Mickey Max Schleien: Yes, good morning, everyone. Ed, LSEG is reporting that middle market spreads have declined about 50 basis points over the last year, but they're still above pre-COVID levels. So when we think about how resilient the economy has remained and the fact that there's plenty of, you know, debt capital available out there, you know, what's your outlook?
Mickey: Yes, good morning, everyone.
Mickey: And <unk> reporting that middle market spreads have declined about 50 basis points, a little last year, but they're still above pre COVID-19 levels. So when we think about how resilient the economy has remained.
Mickey: The fact that there's plenty of.
Mickey: Debt capital available out there, what's your outlook on spreads in sort of the.
Mickey: Bruce in your bread and butter business.
Edward H. Ross: Sure. It's a great question.
Speaker Change: Sure. It's a great question spread you know if you think about from a year ago.
Speaker Change: It's a bit of a night and day right.
Edward H. Ross: Spread, if you think about from a year ago, it's a bit of night and day, right? Banks were struggling. There was a banking crisis just 12 months ago. Today, banks are active, direct lenders are active, SBIC funds, BDCs, you name it. Everyone's pretty active today.
Speaker Change: The banks were struggling there was a banking crisis, just 12 months ago.
Speaker Change: Today banks are active direct lenders are active spic's funds Bdcs you name. It everyone's you know pretty active today and that's very different than it was 12 months ago and with that comes a decline in spreads also you know as you as you mentioned that the economy is showing up.
Edward H. Ross: And that's very different than it was 12 months ago, and with that comes a decline in spreads. Also, as you mentioned, the economy is showing a fair bit of resilience, and people are getting pretty comfortable with where we are. So spreads have declined. We, just given the uncertainty levels, have focused very much, as we always do, on quality.
Speaker Change: We're a bit of resilience and people are getting pretty comfortable with where we are so.
<unk> have declined we just given the uncertainty levels are focused very much and as we always do on quality with that's been some first lien.
Edward H. Ross: With that, there have been some first lien investments, $1.1. If you do $1.1, your yields are a little bit lower. So that's been a bit of a puzzle for us. But we're focused on quality and attractive risk-adjusted returns and not pushing the envelope, obviously. I would expect yields today to be, depending on the deal, 50 to 100 basis points lower than they were a year ago. And in the larger market, say the middle market and above, we're seeing spreads that are even, you know, narrower than that. You know, I'd say.
Speaker Change: <unk> dollar one with the you know if you do dollar one investments your yields are a little bit lower so that's been a bit of the you know the puzzle for us, but we're focused on quality and attractive risk adjusted returns and not pushing the envelope obviously.
Speaker Change: Would expect you know yields today or you know depending on the deal 50 to 100 basis points lower than they were a year ago.
Speaker Change: And in the larger market in say, the middle market and above.
Speaker Change: Seeing you know spreads that are even a narrower than that you know I'd say, even the 150 basis points and so it's much more aggressive in the upper market than it is where we are but spreads have come in and and you're seeing that in the originations of our.
Speaker Change: Our investments and if you think about last quarter and again it was weighted towards first lien are our.
Speaker Change: Originations were at yields that were equal to 12, 9%.
Speaker Change: And you know our or.
Speaker Change: Our repayments averaged more like 13, 7%. So that gives you a little color on why our yields declined.
Speaker Change: But you know I would so I would expect going forward our yields to be a stable to slightly declining just given what's going on in the marketplace today.
Mickey Max Schleien: That's really, really helpful, Ed. And if I could follow that up, you mentioned the, I don't know what you want to call it, frothiness in the upper middle market, but let's just say a very active upper middle market. I mean, part of your playbook is to invest in companies that will grow and succeed. And I imagine some of your portfolio companies have done that pretty well and could look to potentially refinance into the upper middle market. How concerned are you about the refinancing risk in your portfolio?
Speaker Change: And that's really really helpful Ed.
Edward H. Ross: And if I could follow that up you mentioned I don't know what.
Speaker Change: Do you want to call it frothiness in the upper middle market, but let's just say I'm very active upper middle market I mean part of your playbook is to invest in companies.
Speaker Change: That will grow and succeed and I imagine some of your portfolio companies have done that pretty well and it could look to potentially refinance into the upper middle market. How concerned are you about that refinancing risks in your portfolio.
Edward H. Ross: Not terribly. I mean, you know, those are investments. I think you're exactly right. We have some companies, and we continue to support those companies that are performing extremely well. And, you know, could they get refinanced at lower rates at some point in time in the future, in the next 12 months or so?
Speaker Change: Not terribly I mean, those are investment we I think you're exactly right. We have some companies and we continue to support those companies that are performing extremely well.
Speaker Change: And could they get refinanced at lower rates at some point in time in the future in the next 12 months or what have you the answer to that is yes.
Mickey Max Schleien: The answer to that is yes. I think, you know, at the same time, we add a lot of value to our portfolio companies. We've got strong relationships, but they're built on trust and adding value. And so your point's a good one. That is a part of the market today, and so it is our expectation that there'll be some of that activity, you know, whether it's Q3 or four or the next year. You know, that's a piece of the puzzle for sure. It's not alarming to us. It's just the, as part of the equation.
Speaker Change: I think you know.
Speaker Change: At the same time, we add a lot of value to portfolio of companies. We've got strong relationships, but they are built on trust and and adding value and so but your point's a good one that is a part of the market today and so it is Rx base expectation that there'll be some of that activity you know whether it's Q3.
Speaker Change: Or for or into next year.
Speaker Change: Yeah, that's a that's a piece of the puzzle for sure it's not alarming to us its just a its.
Speaker Change: It's part of the equation.
Speaker Change: I understand.
Speaker Change: And my last question regarding balance sheet leverage you're still below your target, which I believe is debt to equity of 0.82 up 1.1, I understand that that takes into account a lot of different moving parts, but.
Edward H. Ross: And my last question regarding balance sheet leverage. You're still below your target, which I believe is debt to equity of 0.8 to up to 1.1. I understand that that takes into account a lot of different moving parts, but with the discussion you just had about, you know, pressure on portfolio yields, are you open to increasing balance sheet leverage to continue to deliver financial performance at the BDC?
Speaker Change: With the discussion you just had about pressure on portfolio yields are you open to increasing balance sheet leverage to continue to deliver.
Speaker Change: Financial performance at the BDC.
Speaker Change: Great question Mickey.
Mickey Max Schleien: Great question, Mickey. You know, the answer to that is yes; we're trying to do what makes sense. You know, for our shareholders on a long-term basis, as you know, there's been some turmoil in the debt markets here recently, in particular, the unsecured and the treasury markets, which impact, you know, those markets. But we do have other ways to access capital, right? We have our revolver, which has a strong liquidity position. And then we also have the ability to increase the size of the revolver. I'd say if you look at our capital structure, the revolver is probably smallish in nature relative to most other BDCs.
Speaker Change: The answer to that is yes, or we're trying to do what makes sense you know.
Speaker Change: For our shareholders on a long term basis as you know theres been some turmoil in the the are the debt markets here recently in particular the.
Unsecured in the treasury markets, which impact those markets.
Speaker Change: We are we do have other ways to access capital right, we have our revolver, which has a strong liquidity position.
Speaker Change: And then we also have the ability to increase the size of the revolver I'd say, if you look at our capital structure, the revolvers, probably smallish in nature relative to most other bdcs. So and then we have the CIC application that we are obviously a flag for that in December and we knew it.
Edward H. Ross: So, and then we have the SPIC application that we obviously applied for in December, and we knew it was going to take a while. We were told that, and that continued; we continued to be in the queue there. But that'll be part of the equation for us as well. So the answer is, absolutely. But, you know, we're trying to do it in a methodical manner and do what's right for our shareholders over the long term.
Speaker Change: To take a while we were told that and that continues we continue to be in the queue, there, but that'll be part of the equation for us as well. So the answer is yes, absolutely, but you know we're trying to do it in a methodical manner and.
Speaker Change: And do what's right you know for the for our shareholders over the long term if that makes sense. Yeah I understand those are all my questions. This morning I. Appreciate your time. Thank you. Thank.
Mickey Max Schleien: Yeah, I understand. Those are all my questions this morning. I appreciate your time. Thank you.
Operator: Thank you, Mickey. It's good talking to you.
Speaker Change: Thank you you're making good talking to you.
Bryce Wells Rowe: The next question will come from Bryce Rowe with B Riley. Please go ahead.
Speaker Change: The next question will come from Bryce Rowe with B Riley. Please go ahead.
Bryce Wells Rowe: Good morning, Ed and Shelby Good morning, Brian Good morning.
Bryce Wells Rowe: Good morning, Ed and Shelby.
Bryce Wells Rowe: Good morning, Bryce. Good morning.
Bryce Wells Rowe: Hey, I wanted to maybe follow up just on those comments you made, Ed, about the SBA license and maybe expanding the credit facility. Any... Maybe any color around where you'd like to see the credit facility go in terms of commitment. And then I think last quarter you talked about the newer SBA license being in place by the middle of this year.
Bryce Wells Rowe: Hey, I wanted to maybe follow up just on those comments you made at about the SBA.
Bryce Wells Rowe: License and maybe expanding the credit facility any any.
Bryce Wells Rowe: Maybe maybe any color around.
Bryce Wells Rowe: Where you where you'd like to see the credit facility go in terms of commitment.
Bryce Wells Rowe: And then.
Bryce Wells Rowe: I think last quarter you talked about.
Bryce Wells Rowe: The SBA license that the newer one maybe being in place by you know by the Middle of this year is that still your expectation from a timing perspective.
Speaker Change: I think the SBA license is a tough one I think there you know I think the SBA. They told US it was going to take a while and it's just hard to predict.
Edward H. Ross: I think the SBA license is a tough one. I think there are, you know, I think the SBA, you know, they told us it was going to take a while, and it's just hard to predict. I think June, if I sit here today where I don't have any real new information, I'd say that's a little aggressive. I do think things are moving along, but timing is very tough to predict, and June is probably a little aggressive. I would assume Q3 or Q4 at this point.
Speaker Change: I think June if I sit here today, where I don't have any real new information I'd say, that's a little aggressive.
Speaker Change: I do think things are moving along but.
Speaker Change: Timing is very tough to predict in probably June is a little is a little aggressive.
Speaker Change: I would assume Q3 or Q4 at this point.
Edward H. Ross: You know, from a credit facility perspective, I don't know that we have a specific target, but I will say that we are looking to, and we're thinking about, as we sit here today, increasing the size of the facility. And I think that makes sense. And, you know, and going back to strategy from a capital structure perspective, I think diversity is important. So having secured, you know, a piece of the puzzle is important, you know, having unsecured being a, you know, a large piece of it, and that includes SBIC debentures. I mean, all of those are pieces of the puzzle that we like. And I think we've got an ability to increase leverage in all three areas. It's just a matter of how.
Speaker Change:
Speaker Change: From a credit facility perspective, I don't know that we have a specific target but.
Speaker Change: But I will say that we are looking to.
Speaker Change: Thinking about as we sit here today, increasing the size of the of the AR facility.
Speaker Change: I think that makes sense and you know going back to the strategy from a capital structure perspective, I think diversity is important.
Speaker Change: Having secured.
Speaker Change: You know piece of the puzzle is it is important you know have an unsecured DNA for you know a large piece of it and that includes Spi.
Speaker Change: SBA debentures I think all of those are.
Speaker Change: Our our pieces of the puzzle that we like and I think we've got an ability to increase our leverage.
Speaker Change: In all three areas, it's just a matter of.
Speaker Change: Kind of picking the picking the time, if you will yes, okay. Okay.
Bryce Wells Rowe: Yeah, okay, okay.
Bryce Wells Rowe: I wanted to maybe follow up on that, you know, that adjective you use, spotty, in terms of the kind of quality that you're seeing in the market today. What does that mean, in particular?
Speaker Change:
Speaker Change: I wanted to maybe follow up on that.
Speaker Change: Could you use spotty.
Speaker Change: In terms of kind of quality that you're seeing in the market today, what what what what does that what does that mean in particular.
Speaker Change: You know for US you know we were looking for you know pretty high quality high free cash flow generally high multiple.
Edward H. Ross: You know, for us, you know, we're looking for, you know, pretty high quality, high free cash flow, generally high multiple, you know, meaning EBITDA multiple transactions, so high value add businesses. And, you know, in terms of, you know, the stars aligning where the sponsor wins, and we're well positioned, you know, there's just less of those opportunities this quarter relative to last And so it's just, you know, it's a little bit of, it's just mixed, and I do think, you know, luck's not the right word, but sometimes it's just, you know, good fortune, things kind of fall in place, and other times they don't as much.
Speaker Change: Meaning EBITDA multiple transactions, so high value add businesses.
Speaker Change: And you know in terms of.
Speaker Change: The stars aligning where the sponsor wins and we're well positioned you know theres just less of those opportunities this quarter relative to last quarter.
Speaker Change: And so it's just it's a little bit of a shift mix and and I do think lux not the right word, but sometimes its just you know good fortunate things kind of fall in place and other times, they don't have as much but.
Edward H. Ross: But, you know, we are being very, very careful. We're looking at, you know, the cream of the crop from a quality and asset quality perspective, and there are fewer of those companies out there, and then if, you know, we don't have the right equation, if you will, whether the sponsor doesn't win, or we don't have the right financing facility, then maybe that transaction doesn't happen. And so, quality for us has always been a very important marker, but we are, we're sticking to our knitting of really focusing on those types of businesses. Hopefully that's helpful, but that's really what I'm getting at.
Speaker Change: So we are being very very careful we're looking at are the cream of the crop from a quality first.
Asset quality perspective, and there are fewer of those companies out there and then if you know we don't.
Speaker Change: Have the right equation, if you will whether the sponsor doesn't win or we don't have the right financing facility. Then maybe you know that transaction.
Speaker Change: It doesn't happen and so that's just the quality for us has been at a.
Speaker Change: A very important marker always but we are where we're sticking to our knitting are really focusing on those types of businesses.
Speaker Change: And.
Hopefully that's helpful, but that's really what I'm getting at.
Speaker Change: Yeah, and then maybe one one here on credit quality.
Bryce Wells Rowe: Yeah. Yeah. And maybe one here on credit quality, any way to kind of quantify where leverage in the portfolio is, weighted average leverage, and what you're seeing from a kind of weighted average loan-to-value perspective at this point, too?
Speaker Change: Yeah.
Speaker Change: Any any way to kind of quantify where leveraging the portfolio is weighted average leverage and what youre seeing from from a kind of a weighted average loan to value perspective at this point too.
Edward H. Ross: So leverage for our core, you know, lower middle market portfolio, absent a couple investments in the larger world, if you will, the BSL world, our leverage is at 4.37 times. I think DEDTAC, EBITDA, and..., and then interest coverage was at 3.1. What was the last question?
Speaker Change: Sure so leverage for our core lower middle market portfolio absent a couple of investments in the larger world. If you will be S. L World.
Speaker Change: Our leverage is at 4.37 times I think so that debt EBITDA.
Speaker Change: And then interest coverage was at 3.1.
Speaker Change: And what was the last question.
Bryce Wells Rowe: I think you've talked about the kind of loan-to-value within the portfolio in the past.
Speaker Change: You've talked about kind of loan to value within the portfolio in the past Yeah I love the value is pretty stable. It's just it's just under 40% okay.
Edward H. Ross: Yeah, London's value is pretty stable. It's just under 40%.
Alright.
Bryce Wells Rowe: I appreciate your time. It's good talking to you.
Speaker Change: I appreciate your time could talk here.
Bryce Wells Rowe: Likewise. Good talking to you, Bryce. The next question-
Speaker Change: While it's good talking to you Bryce.
Operator: The next question will come from Paul Johnson with KBW. Please go ahead.
Speaker Change: The next question will come from Paul Johnson with K B W. Please go ahead.
Paul Conrad Johnson: Yeah. Good morning, Thanks for taking my questions.
Paul Conrad Johnson: Yeah, good morning. Thanks for taking my questions. Yeah, it's kind of within the marks on the equity portfolio. You mentioned the one gain this quarter.
Paul Conrad Johnson: Yeah, it's kind of a thing.
Paul Conrad Johnson: The marks on the equity portfolio you mentioned the one gain this quarter that was nice but are there any other.
Paul Conrad Johnson: Significant.
Paul Conrad Johnson: Notable Ms marks.
Paul Conrad Johnson: The equity portfolio.
Speaker Change: Where there just want to make sure I heard you correctly, where there are notable mark.
Paul Conrad Johnson: Were there, I just want to make sure I heard you correctly, were there any notable mark changes? Is that the question, Paul? Yes. Yeah. Yes.
Speaker Change: <unk> the other question Paul.
Yes, so nothing I mean overall, the our equity portfolio performed quite well, we did have a write down in advance deal, which is our largest position and that company continues to kind of weather the pharma destocking.
Edward H. Ross: So, nothing. I mean, overall, the equity portfolio performed quite well. We did have a write-down in Fansteel, which is our largest position. That company continues to kind of weather the pharma destocking trend, but we're kind of at the end of that, we believe, and so we expect performance to start to improve. That continues to be a very high-quality business with a very good outlook. It's just, is going through this inventory destocking trend in the pharma space, and it's kind of at the tail end. The rest of the portfolio really is quite stable and, uh... was and performs well, I mean, I think the equity portfolio despite what
Trend, but we're kind of at the end of that we believe and so we expect our performance to us.
Speaker Change: Start to improve.
That continues to be a very high.
Speaker Change: High quality business with a very good outlook. Its just its going through this this inventory destocking trend in the pharma space and it's kind of at the tail end of that the rest of the portfolio really is quite stable and in was performed well I mean, I think the equity portfolio. Despite what I just.
Edward H. Ross: was and performs well. I mean, I think the equity portfolio, despite what
Speaker Change: Mentioned with fans steel appreciated.
Speaker Change: In the quarter as did the debt portfolio. So it was.
Paul Conrad Johnson: It was a good quarter, very stable and very solid. Thanks for that. And then, just, you know, in terms of, you know, the deal flow, you're seeing the market and just, you know, wondering, you know, trying to get your thoughts on kind of, you know, what you think of the relative value of, you know, the, you know, first lien sort of structure opportunities that you've seen, you know, versus any kind of subordinated opportunities that are out there today, if that's something that you're even seeing and if that makes sense.
Speaker Change: It was a good quarter very stable and very solid performance.
Yeah.
Speaker Change: Thanks for that.
Speaker Change: And then just you know in terms of the.
Speaker Change: The deal flow you're seeing in the market.
Speaker Change: I'm wondering you know trying to get your thoughts on kind of you know.
Speaker Change: What do you think of the relative value as you know the you know first lien.
Speaker Change: <unk> opportunities that you see you know versus any.
Speaker Change: And a subordinated opportunities that are out there today and.
Speaker Change: That's something that you can see that.
Speaker Change: That makes sense.
Edward H. Ross: Sure, sure. It's a great question. But it's a tough one, too.
Speaker Change: Sure sure Great question. It's itself one two I think you know the market as you well know has moved very much do more of a first lien solution, having said that you know mezzanine investments are still a you know.
Edward H. Ross: I think, you know, the market, as you well know, has moved very much to more of a first lien solution. Having said that, mezzanine investments are still a part of the market, a core part of the market. It's just, from a market share perspective, it's..., lower, and in today's, you know, world.
Speaker Change: Part of the market a core part of the market is just from a market share perspective, it's it's it's lower.
Speaker Change: And in today's you know.
Speaker Change: The World Mezzanine continues to show up for Us and so we've made two mezzanine investments last quarter and very high quality companies.
Edward H. Ross: Mezzanine continues to show up for us, and so we've made two mezzanine investments last quarter in very high-quality companies. And, you know, we're going to continue to look for those types of situations where we like the debt and the equity of those prospective portfolio companies. But what I would suggest is that the first lien solution is a large majority of the market, and I would also expect that to continue to be a large majority of our investments as we move forward. But we are actively looking for...
Speaker Change: And so we're going to continue to look for those types of situations, where we liked the debt and the equity of those.
Speaker Change: Prospective portfolio companies, but what I would suggest is the first lien solution is a is a large majority of the market and what I would and I would also expect that to continue to be a large majority of our investments as we move forward, but we are actively looking for.
Speaker Change: Our active mezzanine opportunities.
Speaker Change: Thanks for thanks for that and that's very interesting.
Paul Conrad Johnson: Thanks for that, Ed. That's very interesting.
Speaker Change: All for me.
Edward H. Ross: Okay. Thanks, Paul. Good talking to you.
Speaker Change: Okay. Thanks, Paul good talking to you.
Operator: The next question will come from Erik Zwick of the Hovde Group. Please go ahead.
Speaker Change: The next question will come from Erik Zwick with hub group. Please go ahead.
Erik Edward Zwick: Good morning, Ed and Shelby I wanted to first just start with a bit of a follow up you mentioned you know the active the market is fairly active at this point in the competition as you know.
Erik Edward Zwick: Good morning, Ed and Shelby. I wanted to first just start with a bit of a follow-up. You've mentioned the market is fairly active at this point, and the competition is, you know, I guess somewhat intense. It's impacting spreads. Curious if you're seeing any deterioration in the market.
Erik Edward Zwick: Yes, somewhat somewhat intense.
Erik Edward Zwick: Packing spreads curious if you're seeing any deterioration in the market.
Erik Edward Zwick: On the structure side, if you're finding that you're losing any deals where you're sticking to your guns. So to speak in terms of your credit quality standards and underwriting and in others, we're starting to bend at all.
Speaker Change: Sure Great question.
Edward H. Ross: Sure. Great question. You know, we haven't really seen structural changes. One of the things we like about the lower middle market is that we have real maintenance covenants. Many times, we have two covenants, both a leverage and a fixed charge. That's the large majority of our situations or our investments. And that's different than the upper market, if you will, the larger market, very. And I would say the spreads to those maintenance covenants are also narrower. So we like the ability to have a seat at the table.
Speaker Change: We haven't really seen.
Structural changes you know one of the things we like about the lower middle market as we have real maintenance governance. Many times, we have two covenants both the leverage on our fixed charge. That's a large majority of our our situations of our investments.
Speaker Change: That's different than the <unk>.
Speaker Change: The the upper market. If you will the larger market are very different and I would say the cousin the spreads to those maintenance covenants are also narrower. So we like the ability to have a seat at the table and we have not seen any real changes from that perspective.
Edward H. Ross: And we have not seen any real changes from that perspective. You know, clearly, pricing and spread narrowing is a part of the market and business today. But structures have not started to change yet, which is a good thing. And to be honest, in the lower middle market, you don't really see a deviation away from, you know, pretty strong structures at the end of the day. So again, it's one of the things we really like about the lower middle market and our risk-managed investment.
Speaker Change: Clearly pricing in and spreads narrowing as a part of the of the market in the business today, but structures have not started to change yet which is which is a good thing and to be honest in the lower middle market, you don't really see a deviation away from.
Speaker Change: Pretty strong structures at the end of the day. So again, it's one of the things we really like about the.
Speaker Change: The lower middle market and in our ability to to manage.
Speaker Change: Manage our risk manage our investments if you will.
Speaker Change: Thanks, Mike I agree with you that's a good good to hear.
Erik Edward Zwick: Thanks, I agree with you. That's good to hear. And then the last one for me, I think you mentioned in your comments for the two existing non-accounts that the situations there are improving but remain at high risk. I'm wondering if you could just maybe provide a little bit more color to the term improving, if it's kind of the underlying financial metrics and trends at the companies or just progressing towards some sort of resolution and what you're kind of referring to there with that comment.
Speaker Change: And then the last one for me I think you mentioned in your comments for the two existing non accruals. The situations there are improving but remain at high risk wondering if you could just.
Speaker Change: Maybe provide a little bit more color to that term and improving if its kind of the underlying financial metrics and trends at the companies or just progressing towards some sort of resolution on what you were kind of referring to you there with that comment.
Edward H. Ross: Sure. Great question.
Speaker Change: Sure a.
Speaker Change: Great question.
Speaker Change: What I'm, referring to there is really the EBITDA levels. So EBITDA levels in both cases are growing and improving on a car.
Edward H. Ross: What I'm referring to there is really EBITDA levels. So EBITDA levels in both cases are growing and improving on a current basis and on a last 12-month basis in a meaningful way. But at the same time, these businesses had some idiosyncratic issues that were meaningful as well. And so the EBITDA performance is improving. We do not expect any quick resolutions or anything like that in either case. And so we're just managing through the kind of situation, trying to work through, you know, an improved outlook.
Speaker Change: Current basis it on a last 12 month basis.
Speaker Change: And.
Speaker Change: And I'm in a meaningful way, but at the same time these businesses.
Speaker Change: Some idiosyncratic syncretic issues.
Speaker Change: There were no meaningful you know.
Speaker Change: As well and so.
Speaker Change: The EBITDA performance is improving we do not expect any.
Speaker Change: Quick resolutions or anything like that in.
Speaker Change: In either case, and so we're just managing through a kind of a situation trying to work through them.
Proved outlook in both cases.
Speaker Change: And I would say, we've got supportive equity sponsors in both those cases as well which is great.
Edward H. Ross: And I would also say we've got supportive equity sponsors in both those cases as well, which is great. There's a lot of work being done to try to improve the overall position of both assets, but we've got to wait.
Speaker Change: There's a lot of work being done to try to improve the overall.
Speaker Change: Position of both assets, but we've got a ways to go.
Speaker Change: I appreciate the update thanks for taking my questions today.
Erik Edward Zwick: I appreciate the update. Thanks for taking my questions today. Absolutely.
Speaker Change: Absolutely.
Speaker Change: Thank you.
Speaker Change: Again, if you have a question. Please press Star then one.
Edward H. Ross: Again, if you have a question, please press star, then 1. This concludes our question and answer session. I would like to turn the conference back over to Mr. Ed Ross for any closing remarks. Please go ahead.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mr. Ed Ross for any closing remarks. Please go ahead.
Edward H. Ross: Thank you Chuck and thank you everyone for joining us. This morning, we look forward to speaking with you on our second quarter call in early August 2024.
Edward H. Ross: Thank you, Chuck. And thank you everyone for joining us this morning. We look forward to speaking with you on our second quarter call in early August 2024. Have a great day and a great weekend. The conference is now concluded. Thank you for attending.
Edward H. Ross: Have a great day and a great weekend.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Edward H. Ross: [music].
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Edward H. Ross: Yeah.
Edward H. Ross: [music].
Edward H. Ross: Okay.
Edward H. Ross: [music].