Q1 2024 Stellus Capital Investment Corp Earnings Call

Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. At this time, I would like to welcome everyone to Stellus Capital Investment Corporation's conference call to report financial results for its first fiscal quarter ended March 31, 2024. This conference is being recorded today, May 10, 2024. It is now my pleasure to turn the call over to Mr. Robert Ladd, Chief Executive Officer of Stellus Capital Investment Corporation. Mr. Ladd, you may begin your conference.

Good afternoon, ladies and gentlemen, and thank you for standing by at this time I would like to welcome everyone to Astellas capital Investment Corporation's Conference call to report financial results for its first fiscal quarter ended March 31st 'twenty 'twenty four.

This conference is being recorded today may 10th of 'twenty 'twenty four it is now my pleasure to turn the call over to Mr. Robert Ladd, Chief Executive Officer, Astellas Capital Investment Corporation. Mr. Ladd you may begin your conference.

Robert T. Ladd: Thank you, Kelly, and good morning, everyone. And thank you for joining the call. Welcome to our conference call covering the quarter ended March 31st, 2024. Joining me this morning is Todd Huskinson, our Chief Financial Officer, who will cover important information about forward-looking statements.

Robert T. Ladd: Thank you Kelly and good morning, everyone and thank you for joining the call and welcome to our conference call covering the quarter ended March 31 2024.

Robert T. Ladd: Joining me. This morning is Todd House can set our chief financial Officer, who will cover important information about forward looking statements.

William Todd Huskinson: Thank you, Rob. I'd like to remind everyone that today's call is being recorded. Please note that this call is the property of Stellus Capital Investment Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using the telephone number and PIN provided in our press release announcing this call. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking information.

Todd House: Thank you Rob.

Todd House: I'd like to remind everyone that today's call is being recorded. Please note that this call is the property Astellas capital investment Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited.

Todd House: A replay of the call will be available by using the telephone number and pin provided in our press release announcing this call.

Todd House: Also like to call your attention to the customary safe Harbor disclosure in our press release regarding forward looking information.

William Todd Huskinson: Today's conference call may also include forward-looking statements and projections, and we ask that you refer to our most recent filing with the SEC for important factors that could cause actual results to differ materially from these projections. We will not update any forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.stelluscapital.com under the Public Investors link or call us at 713-292-5400. Now, I'd like to turn the call back over to our Chief Executive Officer, Rob Ladd.

Todd House: Today's conference call May also include forward looking statements and projections and we ask that you refer to our most recent filing with the SEC for important factors that could cause actual results to differ materially from these projections.

Todd House: We will not update any forward looking statements unless required by law.

Todd House: To obtain copies of our latest SEC filings. Please visit our website at Www Dot Astellas capital Dot com under the public investors link or call us at 700 329 to $5 400.

Todd House: Now I would like to call turn the call back over to our Chief Executive Officer, Rob Ladd.

Robert T. Ladd: Thank you, Todd. We'll begin this morning by discussing our operating results, followed by a review of the portfolio, including asset quality. I'll then talk about dividends and outlays.

Robert T. Ladd: Thank you Todd will begin this morning by discussing our operating results followed by a review of the portfolio, including asset quality I'll, then talk about dividends and outlook.

Robert T. Ladd: In the first quarter, we more than covered the dividend of $0.40 per share with Gap Net Investment Income of $0.42 per share. Core Net Investment Income was $0.44 per share, which excludes estimated excise taxes. Net asset value per share increased $0.15 during the quarter as a result of net unrealized appreciation on our investment portfolio, as well as generating NII in excess of the dividend.

Robert T. Ladd: In the first quarter, we more than covered the dividend of <unk> 40 per share with GAAP net investment income of 42 per share core net investment income was <unk> 44 per share, which excludes estimated excise taxes.

Robert T. Ladd: Net asset value per share increased 15 cents during the quarter as a result of net unrealized depreciation on our investment portfolio as well as generating NII in excess of the dividend.

Robert T. Ladd: Life to date review Overall, since our IPO in November 2012, we've invested approximately $2.5 billion in over 190 companies and received approximately $1.6 billion of repayments while maintaining stable asset quality. We've paid over $252 million of dividends to our investors, which represents $15.35 per share to an investor. Now, turning to portfolio and asset quality We ended the quarter with an investment portfolio at a fair value of $876 million across 94 portfolio companies, up from $874 million across 93 companies at December 31st, 2023.

Robert T. Ladd: Life to date review overall since our IPO in November 2012, we have invested approximately $2 $5 billion and over 190 companies and received approximately $1 $6 billion of repayments, while maintaining stable asset quality.

Robert T. Ladd: We've paid over $252 million of dividends to our investors, which represents $15 35 per share to an investor.

Robert T. Ladd: IPO in November 2012.

Robert T. Ladd: Turning to portfolio and asset quality.

We ended the quarter with an investment portfolio at fair value of $876 million across 94 portfolio companies up from $874 million across 93 companies at December 31 2023.

Robert T. Ladd: During the first quarter, we invested $23.8 million in three new portfolio companies and $5.8 million in other investment activity at par. We also received two full repayments totaling $26.2 million and $5 million of other repayments, both at par, resulting in net portfolio growth of $1.4 million, including the impact of net unrealized gains of $3.1 million. As of March 31st, 99% of our loans were secured, and 98% were priced at floating rates

Robert T. Ladd: During the first quarter, we invested $23 8 million in three new portfolio companies $5 $8 million and other investment activity at par.

Robert T. Ladd: We also received two full repayments totaling $26 $2 million and $5 million of other repayments.

Robert T. Ladd: At par, resulting in net portfolio growth growth in value of $1 4 million, including the impact of net unrealized gains of $3 1 million.

Robert T. Ladd: At March 31, 99% of our loans were secured and 98% were priced at floating rates. The average loan per company is $9 $9 million and the largest overall investment is $19 5 million both at fair value.

Robert T. Ladd: The average loan per company is $9.9 million, and the largest overall investment is $19.5 million, both at fair value. Substantially, all of the portfolio companies are backed by private equity. Overall, our asset quality is slightly better than planned; 25% of our portfolio is rated at 1 or ahead of plan, and 19% of the portfolio is marked in an Investment Strategy, Investment Act category of 3 or below, meaning not meeting plan or expectations. Currently, we have four loans on nonaccrual, which comprise 2.1% of the fair value of the total loan portfolio. And with that, I'll turn it back over to Rob to discuss dividends and the overall outlook.

Robert T. Ladd: Substantially all or substantially all of the portfolio companies are backed by a private equity firm.

Robert T. Ladd: Overall, our asset quality is slightly better than plan, 25% of our portfolio is rated a one or ahead of plan and 19% of the portfolio is marked at an investment strategy investment category of three or below meaning not meeting plan our expectations.

Robert T. Ladd: Currently we have four loans on nonaccrual, which comprised two 1% of the fair value of the total loan portfolio.

Robert T. Ladd: And with that I'll turn it back over to Rob to discuss dividends and the overall outlook.

Robert T. Ladd: Yes, Thank you John.

Robert T. Ladd: As a reminder, part of our investment strategy has been to invest in the equity of our portfolio companies in a modest way in order to generate realized gains sufficient to offset losses over time, although we did not have any realizations in the first quarter. So far in the second quarter, we have realized one equity position and expect to realize one more, which will mean combined proceeds of about $5.3 million and is expected to generate $3.8 million of realized gain and a slight uptick in NAB.

Robert T. Ladd: As a reminder, part of our investment strategy has been to invest in the equity of our portfolio companies in a modest way in order to generate realized gains sufficient to offset losses over time.

Although we did not have any realizations in the first quarter. So far in the second quarter, we have realized one equity position and expect to realize one more.

Robert T. Ladd: Which will mean combined proceeds of about $5 3 million.

Robert T. Ladd: And expected to generate $3 8 million of realized gains and.

Robert T. Ladd: And a slight uptick in NAV.

Robert T. Ladd: It's worth noting the combined multiple of these two realizations is just over three times our original cost basis. At the end of the quarter, we had $60.6 million of equity investments at cost that were marked at $74.9 million. Our historical performance would indicate that the ultimate realization for this portfolio would be greater than two times our portfolio's cost basis. Of course, however, the ultimate performance of our current equity positions will depend on a variety of factors, including, among other things, the Economic Environment and Sponsors' Exit Strategy.

Robert T. Ladd: Is it worth noting the combined multiple of these two realizations is just over three times, our original cost basis.

Robert T. Ladd: At the end of the quarter, we have $60 6 million of equity investments at costs that were marked at $74 9 million.

Robert T. Ladd: Our historical performance would indicate that the ultimate realization for this portfolio would be greater than two times, our portfolio is cost basis.

Robert T. Ladd: Of course, how are the ultimate performance of our current equity positions will be depend on a variety of factors, including among other things <unk>.

Robert T. Ladd: The economic environment and sponsors exit strategies.

Robert T. Ladd: Now it's about dividends. As you can see, we continue to pay our dividend of $0.40 per share per quarter. And to this end, looking forward to Q3 of 2024, we expect, subject to our Board of Directors' approval, to continue our monthly dividend of approximately $0.13 per share, resulting in aggregate dividends of $0.40 per share for the third quarter, and Nada out. Since quarter end, we have funded $10.9 million in two new and two existing portfolio companies at par.

Speaker Change: No no it's about dividends.

Speaker Change: You see we continue to cover our dividend at <unk> 40 per share per quarter.

Speaker Change: And to this and looking forward to Q3 of 2024, we expect subject to our board of directors approval to continue our monthly dividend of approximately <unk> 13 per share.

Excuse me, resulting in aggregate dividends of <unk> 40 per share for the third quarter.

Speaker Change: And now to outlook.

Speaker Change: Since quarter end, we have funded $10 9 million in two new and two existing portfolio companies at par.

Robert T. Ladd: Additionally, we did receive one repayment of $11.4 million at par and one equity realization. As previously noted, proceeds for that were approximately $3 million, which resulted in a realized gain of two. You then combine this activity with our other net funding of about $2.8 million. This brings our total portfolio to approximately $875 million at fair value with 95 portfolio companies. Again, this is as of today. Now looking forward to the balance of the quarter, we are expecting a meaningful increase in funding and no known loan repayment. As a result, we expect to end the quarter with a portfolio in excess of $925 million. In other words, $50 million higher than where we are today.

Speaker Change: Additionally, we did received one repayment of $11 4 million at par and one equity realizations. Previously noted proceeds for that were approximately $3 million, which resulted in a realized gain of two.

Speaker Change: You then combine this activity with our other net funding of about $2 8 million. This brings our total portfolio to approximately $875 million at fair value with 95 portfolio companies again this is as of today.

Now looking forward to the balance of the quarter.

Speaker Change: We are expecting a meaningful increase in fundings and no known loan repayments.

As a result, we expect to end the quarter with the portfolio, which will be in excess of $925 million in other words 50 million higher than where we are today.

Robert T. Ladd: And with that, I'll open it up for questions. Kelly, if you would begin the Q&A session, please.

Speaker Change: And with that I'll open it up for questions Kelly, if you'd begin the Q&A session. Please certainly the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question. Please pickup your handset with listing on a speaker phone to provide the optimum sound corny. Please hold just.

Operator: Certainly. The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, please pick up your handset, if listening on a speakerphone, to provide optimum sound quality. Please hold just a moment while we poll for questions. Your first question is coming from Christopher Nolan on Ladenburg-Solomon. Please pose your question; your line is

Kelly: The moment, while we poll for questions.

Okay.

Kelly: Your first question is coming from Christopher Nolan with Ladenburg Thalmann. Please pose your question your line is live.

Christopher Whitbread Patrick Nolan: Good morning, Chris.

Christopher Whitbread Patrick Nolan: Okay.

Christopher Whitbread Patrick Nolan: Hey guys, hang on. Were the realized losses from new met machining? Yes, they were. That was the position that had been marked at zero.

Christopher Whitbread Patrick Nolan: Hey, guys Hey, Doug.

Christopher Whitbread Patrick Nolan: Where are the realized losses from new met machining.

Christopher Whitbread Patrick Nolan: What's unclear to me.

Robert T. Ladd: They were. That was the position that had been marked at zero for some time, and that was the final realization, but it had no impact on it.

Christopher Whitbread Patrick Nolan: They were.

Christopher Whitbread Patrick Nolan: Was the position had been marked at zero for some time and that was the final realization, but no impact on NAV.

Speaker Change: Chris are you still there.

Operator: It looks like Chris has left the queue.

Speaker Change: It looks like Chris has left the queue.

Robert T. Ladd: In other words, why don't we go on with our next call and then our question, and then we can come back to Chris when he comes back?

Speaker Change: Okay.

Why don't we go to.

Speaker Change: Call and then a question and then we can come back to Chris when he comes back on.

Operator: Okay, there are actually no further questions in queue at this time.

Speaker Change: Okay. There are actually no further questions in queue at this time.

Robert T. Ladd: Okay, good. We'll wait just a second. Let's see if Chris comes back. Sure. We do have a question.

Speaker Change: Okay, Okay, good well wait a second Chris comes back.

Operator: Sure, we do have a question from Bryce Rowe with P. Reilly. Please post your question. Your line is live.

Speaker Change: We do have a question from Bryce Rowe with B Riley. Please pose your question your line is live.

Bryce Wells Rowe: Thanks, Good morning.

Bryce Wells Rowe: Rob, I wanted to just kind of ask about market conditions, if you wouldn't mind. You know, you just talked about some good activity here that is expected in the second quarter, especially from here to the end of the quarter. Can you talk about, you know, what pricing is looking like, any kind of dynamics from a competitive perspective that you're seeing with these transactions that would compare to, you know, others in the portfolio?

Bryce Wells Rowe: Hey, Rob I wanted to just kind of asking about market conditions. If you if you wouldn't mind.

Bryce Wells Rowe: You just talked about some good good activity here.

Bryce Wells Rowe: Yes that is expected in the second quarter and especially from from here to the end of the quarter I can you.

Bryce Wells Rowe: Can you talk about.

Bryce Wells Rowe: What what pricing is looking like.

Bryce Wells Rowe: He kind of dynamic from a competitive perspective that youre seeing with these transactions that would compare to.

Bryce Wells Rowe: Others in the in the portfolio.

Robert T. Ladd: Yeah, sure, Bryce. So, and thank you for joining us. So, going back to our last earnings call, I'd indicated that we were slower in terms of activity but that we thought the activity would pick up in the second half of the year. Well, it turned out that it picked up in the second quarter. And more recently, and again, this is the M&A activity we were expecting that would start coming back, which it has.

Speaker Change: Yes, sure Bryce so thank you for joining.

Speaker Change: So.

Going back to our last earnings call I had indicated that we were slower in terms of activity, but we thought the activity would pick up in the second half of the year will turn out and picked up in the second quarter.

Speaker Change: And recently.

Speaker Change: So and again this is the M&A activity, we were expecting that would start coming back which task. So I'd say that in terms of the competitive dynamics and maybe overall market conditions.

Robert T. Ladd: So I'd say that in terms of the competitive dynamics and maybe overall market conditions. So all the transactions we're looking at are the same type of not overly levered. You know, leverage is typically four times or less, and all have covenants.

Speaker Change: So all of the transactions, we're looking at our same type of not over Levered Leverages typically four times or less all have covenants.

Robert T. Ladd: Most have equity co-invest. So the typical thing, the one thing that has changed in the market is a little bit less spread than you think of it in, you know, three or four months ago, you know, in the sixes overall, and we've seen spreads come down 50 basis points or a little bit more over time. That's the only change we've noticed, but again, quite a bit of pick-up and activity. And the other thing I wanted to note is...

Speaker Change: Most of equity co invest so the typical thing the one thing that has changed in the market is a little bit less spread.

Speaker Change: Thank.

Speaker Change: Think of it isn't.

Speaker Change: Three to four months ago.

Speaker Change: <unk> overall, and we've seen spreads come down 50 basis points or a little bit more over time.

Speaker Change: That's the only change we've noticed but again quite a bit of pickup in activity.

Speaker Change: And the other thing I wanted to note is.

Robert T. Ladd: I talked about the equity gains that are expected, one that's already occurred, another expected this quarter or could, you know, could slip into the first month of the following quarter, but I did learn about recently. We have a couple of more that we are hearing might come in the fourth quarter. So this would be an indication on both sides. On the new deal front, M&A activity is picking up, and on the existing portfolio side, M&A activity is picking up, resulting in more gains for us later in the year.

Speaker Change: I talked about the equity gains that are expect one that's already occurred another expected.

Speaker Change: This quarter.

Speaker Change: Slip into the first month of the following quarter, but.

Speaker Change: Did learn about recently we have.

Speaker Change: A couple of more that we are hearing might come in the fourth quarter.

Speaker Change: So this would be an indicate <unk> on both sides on the new deal front M&A activity picking up and down the existing portfolio side M&A activity picking up resulting in more gains for us later in the year, Okay and Rob when you. When you think about you know you just said that.

Bryce Wells Rowe: Okay. And Rob, when you think about, you know, you just said that.

Robert T. Ladd: Some of the activity got pulled forward from what you thought to be the second half of the second quarter. Is there still a pretty active pipeline beyond what you see here coming in the second half of the second quarter?

Speaker Change: Some of the some of the activity got pulled forward.

Robert T. Ladd: From what you thought to be second half the second quarter is there still.

Robert T. Ladd: Pretty active pipeline beyond what you see here coming in in the second half of the second quarter.

Bryce Wells Rowe: Yes, so wouldn't expect anything to change there for the balance of the year. It's picked up meaningfully.

Robert T. Ladd: Yes, so I wouldn't expect.

Robert T. Ladd: Anything to change there.

Robert T. Ladd: For the balance of the year, it's picked up meaningfully.

Robert T. Ladd: Okay, and then when we think about funding the new activity, you know, how should we think about that? I mean, obviously, you have some room on your credit facility, and I guess with the benefit of visibility here towards what can close in the back half of this quarter, how do you think about, you know, using equity versus debt to fund that?

Robert T. Ladd: And then when we think about.

Robert T. Ladd: Funding funding the new the new activity.

Robert T. Ladd: How should we think about it about that I mean, obviously you had some room on your credit facility.

Robert T. Ladd: And I guess with with the benefit of visibility here towards what can close in the back half of this quarter.

Robert T. Ladd: How do you think about using equity versus versus debt to fund that.

Robert T. Ladd: Yes, so I'd say that relative to equity, you know, our stock price has come back some, so as we were active last year with our ATM program, we would certainly look at that this year, again, really driven by the pipeline. But I think it would be more likely in that form than in kind of any larger offering.

Robert T. Ladd: Yes, so I'd say that.

Robert T. Ladd: Relative to equity.

Robert T. Ladd: Our stock prices come back some so as we were active last year with our ATM program. We would certainly look at that in this year again really driven by.

Robert T. Ladd: The.

Pipeline.

Robert T. Ladd: So, but I think that would be more likely in that form than and kind of a larger offering so think of the ATM being something we would use this year.

Robert T. Ladd: So, think of the ATM being something we would use this year. But then, overall, I think it'd be helpful that, from a leverage perspective, as you pointed out, we have quite a bit of capacity in our bank facility. And we have quite a bit of cash in our SBIC, that is from repayment. So, as an example, we have quite a bit of capacity to get beyond the 925 I indicated as a likely number and certainly the 950 or more. So, I think we're in good shape. But again, overall capital is good, and we could see some activity in the ATM. Okay.

Robert T. Ladd: But then overall I think it would be helpful that.

From a leverage perspective as you pointed out so we have quite a bit of capacity in our bank facility.

Robert T. Ladd: We have quite a bit of cash in our SBA IC entities that is from repayments.

So is.

Robert T. Ladd: As an example, we have quite a bit of capacity to get beyond the 925 I indicated is likely.

Robert T. Ladd: Likely number and certainly to $9 50 or more so I think we're in good shape, but again.

Robert T. Ladd: Overall capital is good and you.

Robert T. Ladd: Could see some activity in the ATM.

Bryce Wells Rowe: Okay, last one for me, just in terms of kind of internal risk ratings, you know, there was some movement from the December quarter to the March quarter. It looks like, you know, Category 3 bumped up a bit. Can you talk a little bit about, you know, kind of the dynamics driving that?

Speaker Change: Last one for me just in terms of kind of internal risk ratings.

There is some movement.

Speaker Change: From the December quarter to March quarter, it looks like in category three bumped up a bit can you can you talk a little bit about kind of what the dynamic driving that.

Robert T. Ladd: Yeah, just looking at the changes. I'd say normal evolution in the portfolio over time, nothing that we would characterize as overly concerning. You know, you'd have to get to a four where we would, that's where an investment, a loan investment, would be considered non-accrual. So three would be operating below plan. And I just would note that we had some upgrades, which again would be normal too. We had a couple of positions move to one, and a three moved to a two.

Speaker Change: Yes, just looking at the changes.

Speaker Change: I would say normal evolution in the portfolio over time.

Speaker Change: Nothing that we would characterize as overly concerning.

Speaker Change: You'd have to get to a four where we would yeah, that's where.

Speaker Change: And investment alone investment will be considered non accrual so three would be.

Speaker Change: Operating below plan.

Speaker Change: And then I just would note that we had.

Speaker Change: Some upgrades, which again would be normal to we had a couple of.

Speaker Change: <unk> moved to a one.

Speaker Change: <unk> moved to it too so, but overall I'd say not worrisome.

Robert T. Ladd: So, but overall, I'd say not worrying, and so we look at the entirety of the portfolio, and our average weighted risk rate is, as Todd mentioned, a little bit less than two, which means better than planned. Excellent.

Speaker Change: And so we look at the entirety of the portfolio and our average weighted risk grade as it is.

Speaker Change: Todd mentioned is a little bit less than 2%, which means better than plan.

Bryce Wells Rowe: Okay. Thanks for taking the time. It's good to talk to you. Thank you.

Speaker Change: Excellent okay. Thanks for taken taking the time to talk to you.

Speaker Change: Thank you Bryce.

Operator: Your next question is coming from Erik Zwick with Hope Group. Please close your question. Your line is live.

Speaker Change: Your next question is coming from Erik Zwick with hub group. Please pose your question. Your line is open.

Erik Edward Zwick: Thank you. Hello everyone.

Erik Edward Zwick: Thank you Hello, everyone I wanted to start good morning here a little bit on.

Erik Edward Zwick: Morning in.

Erik Edward Zwick: In terms of your comments about so far in the second quarter are not seeing any any repayment from.

Erik Edward Zwick: I wanted to start a little bit on, in terms of, you know, your comments about, so far in the second quarter, not seeing any repayments. You know, from a number of the other BDCs that have reported this quarter, repayment activity has been pretty high. I know it's tough to have a certain high degree of certainty in your outlook over probably the next couple months or so. But do you think there's, you know, something inherent in your portfolio that's, you know, resulting in lower repayments today, or is this just kind of, maybe, a temporary lull in what we're seeing this quarter?

Erik Edward Zwick: From a number of the other bdcs that have reported this quarter repayment activity has been pretty high and I know, it's tough to have a.

Erik Edward Zwick: A certain high degree of uncertainty in your outlook over probably the next couple of months or so but do you think there is something inherent in your portfolio, that's resulting in lower repayments. They are just kind of maybe a temporary lull here.

Erik Edward Zwick: We're seeing this quarter.

Robert T. Ladd: Yeah, I think it's that, Erik. It certainly ebbs and flows, but as I mentioned, we recently learned about a couple of companies that are going to come to market in the third and fourth quarters, and they would result, in addition to an equity gain, would result in some good repayments. So I think we've just gotten to a little bit of a low point here.

Speaker Change: Yes, I think it's that Eric had certainly ebbs and flows and.

Speaker Change: But as I mentioned.

Speaker Change: We recently learned about a couple of companies that are going to come to market in the third and fourth quarter in and they would result in addition to an equity gain would result in some good repayments. So I think we've just gotten too.

Speaker Change: A little bit of a low point here.

Erik Edward Zwick: And the only other question I had was, I was just curious, given the fact that rates have kind of these rates have remained high now for a while, and they seem to kind of be staying here and probably not, in the near term, the probability of them going materially lower as you're underwriting loans and, you know, potentially negotiating floors in there. Has there been any ability to increase those floors at all? Or are they still kind of sticking around at the levels that we've seen for the past number of years?

Speaker Change: Yes that makes sense and the only other question I had I was just curious given the fact that rates have kind of base rates have remained high and now for a while and they seem to be staying here and probably not any near term.

Speaker Change: Probability of them going.

Speaker Change: Cereal are lower as you're underwriting.

Speaker Change: Potentially negotiating floors and there has there been any ability to increase those those floors at all or are they still kind of sticking around to the levels that we've seen for the past number of years.

Robert T. Ladd: Yes, so we've always been focused on floors and, you know, generally they vary between one and two percent. We think of ourselves as being closer to two percent.

Yes so.

Speaker Change: We've always been focused on floors and.

Speaker Change: Generally they vary between 1% and 2% and think of us as being closer to 2%.

Erik Edward Zwick: Thank you. That's all I had today. I appreciate it.

Speaker Change: Thank you that's all I had today I appreciate it.

Speaker Change: Yes. Thank you.

Operator: Your next question is coming from Christopher Nolan with Aladdin Bird Filament. Please pose your question. Your line is live.

Speaker Change: Your next question is coming from Christopher Nolan with Ladenburg Thalmann. Please pose your question your line is live.

Christopher Whitbread Patrick Nolan: Hey, I'm back. Okay, good. Yeah, no, my phone works now.

Christopher Whitbread Patrick Nolan: Hi, I'm back okay. Good curve.

Christopher Whitbread Patrick Nolan: You have some maturities coming up on your SBA loans next year and then the following after that. And I know the amount of money maturing in 2025 is only around $12 million or so, but it starts to step up after that. And the cost of that debt seems to be really low at this point. What are your options? I mean, can you refinance it with the SBA and get similarly low-cost funding, or... a bank facility?

Christopher Whitbread Patrick Nolan: Now my phone works out.

Christopher Whitbread Patrick Nolan: You have some maturities coming up on your SBA loans next year.

Christopher Whitbread Patrick Nolan: Just following after that.

And I know the amount of maturing in 2025, it is only around $12 billion or so but it starts to step up after that and the cost of that debt is seems to be really low at this point.

Christopher Whitbread Patrick Nolan: What are your options I mean can you refinance it with the SBA and get similarly, low corresponding or.

Christopher Whitbread Patrick Nolan: Is this something that you're going to have the.

Christopher Whitbread Patrick Nolan: Bank facility refinancing.

Robert T. Ladd: Yes, so the, it's a good question. So we do have, as you know, two SBIC licenses, and the first of those licenses, the debentures will start to come due in March of next year, and then they're spread out over a number of years. And so we are in the process of applying for a third license.

Speaker Change: Yes, so the it's a good question.

Speaker Change: <unk>. So we do have as you know <unk> licenses in the first.

Speaker Change: Of those licenses.

Speaker Change: Benches will start to come due in March of next year, and then they are spread out over a number of years.

Robert T. Ladd: So this would think of us as going forward, and this is a normal evolution in terms of the SBA process. And then a follow-up thought would be that many of those debentures were struck at a lower interest rate environment, as you're pointing out. And the debentures are priced off the 10-year treasury plus a market premium, which is typically less than 1%. So our cost of funding, if things don't change by next year, we will be borrowing at a somewhat higher cost through the SBA, but I would think of it as at the 10-year treasury, which is now under four and a half percent, or at least it was yesterday.

Speaker Change: So we we are in the process of applying for a third license. So this should think of as going forward and this is a normal evolution in terms of the SBA process.

Speaker Change: And then a follow up thought would be.

Speaker Change: They are many.

Many of those debentures was struck at a lower interest rate environment as you are pointing out.

Speaker Change: And the debentures are priced off the 10 year Treasury, plus a market premium which is typically less than 1%.

Speaker Change: So our cost of funding if things don't change by next year, we will be borrowing at somewhat of a higher cost of the SBA, but I would think of it is.

Speaker Change: If the 10 year Treasury, which is now under four 5% or at least it was yesterday.

Robert T. Ladd: And so add a premium, so you're probably in the five. But that would compare it to a regular bond offering of similar duration in the eighths or higher. So, still very, very favorable rates, but, but yes, higher than we currently are.

And so at a premium so your prior year in the fives, but that would compared to a regular way bond offering similar.

Speaker Change: <unk>.

Speaker Change: In the eights are higher so it's still very favorable.

Rates, but yes higher than we currently have.

Christopher Whitbread Patrick Nolan: Thanks Rob. And then, I guess more of a strategy question, you get some other BDCs which, well, I guess I noticed that you had a management fee waiver this quarter, but your leverage is so low. And you had a management fee waiver last quarter, and I'm just thinking, why don't you just lever up a little bit more if there's, I mean, I don't know why that's going on because you're earning pretty good.

Speaker Change: Thanks, Rob and then I guess more of a strategy question you get some other bdcs, which well I guess.

Speaker Change: I noticed that you had a management fee waiver this quarter, but youre leverages so low.

Speaker Change: And you had a management fee waiver last quarter and I'm, just thinking watches lever up a little bit more if there is I mean, I don't know why that's going on because your earnings seem to be pretty good.

Robert T. Ladd: Yes, so this, I think you're referring not to a management fee waiver but an incentive fee waiver, and this is just a function of our 12-quarter test. Not all BDCs have this, but we have a 12-quarter test where you look back on historical performance. So, we have had a little bit of waiver in the first quarter, and may have a little bit more this year, but that's just a function of that. Okay, great.

Speaker Change: Yes. So this is I think youre, referring not to a management fee waiver better the incentive fee waiver.

Speaker Change: This is just a function of our 12 quarter test not not all bdcs have this but we have a 12 quarter test where you look back for historical performance.

Speaker Change: So we have had a little bit of a waiver in the first quarter may have a little bit more this year.

Speaker Change: That's just a function of that test.

Christopher Whitbread Patrick Nolan: Okay, great. Thank you very much.

Speaker Change: Okay, great. Thank you very much.

Speaker Change: Yes, Thank you Chris.

Operator: There are no additional questions in queue at this time. I would now like to turn the floor back over to Mr. Robert Ladd for any closing remarks.

Speaker Change: There are no additional questions in queue at this time I would now like to turn the floor back over to Mr. Robert Ladd for any closing remarks.

Robert T. Ladd: Okay, yeah, thank you Kelly, and thanks again everyone for being on. Thank you for your support, and we look forward to reporting the second quarter in August. Take care. Enjoy the summer.

Robert T. Ladd: Okay, Yes, thank you Kelly and thanks again, everyone for being on thank you for your support and we look forward to reporting the second quarter in August.

Robert T. Ladd: Care enjoy the summer.

Operator: Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.

Thank you everyone. This does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.

Robert T. Ladd: Thank you Kelly.