Q1 2024 Nuveen Churchill Direct Lending Corp Earnings call
Hello, and welcome to the Nuveen Churchill direct lending Corp, first quarter 'twenty 'twenty four earnings call. If anyone should require operator assistance. Please press star zero on your telephone keypad.
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Speaker Change: It's now my pleasure to turn the conference over towards waterborne It sooner investments driving yes. Please go ahead alone.
Speaker Change: Good morning, and welcome to intervene Churchill direct lending Corp, first quarter 2024 earnings call.
Ken Canfield: Today, I'm joined by MCT else, Chairman, President and CEO, Ken can sell and Chief Financial Officer, and Treasurer shy this is falling.
Speaker Change: Following our prepared remarks, we will be available to take your questions.
Ken Canfield: Today's call May include forward looking statements.
Such statements involve known and unknown risks uncertainties and other factors and undue reliance should not be placed there on these.
Ken Canfield: These forward looking statements are not historical facts, but rather are based on current expectations estimates and projections about the company.
Ken Canfield: Current and prospective portfolio investments, our industry, our beliefs and opinions and our assumption is.
Ken Canfield: These statements are not guarantees of future performance and are subject to risks uncertainties and other factors some of which are beyond our control and difficult to predict.
Ken Canfield: Actual results may differ materially from those expressed or forecasted in the forward looking statements.
We ask that you refer to the company's most recent filings with the SEC for important risk factors.
Ken Canfield: Any forward looking statements made today do not guarantee future performance and undue reliance should not be placed on them.
The company assumes no obligation to update any forward looking statements at any time.
Earnings release, 10-Q, and supplemental earnings presentation are available on the Investor Relations section of our website at N C. D L dotcom.
Ken Canfield: Now I'd like to turn the call over to Ken.
Ken: Thank you Elena and thank you everyone for joining us on the call today.
Ken: In the first quarter, we completed our IPO to list N C D. All on the New York Stock Exchange.
Ken: As such we understand that some of you may be new to our platform.
Ken: Welcome to both existing and future investors, we are thrilled that you're here with us today.
Ken: Today I'm going to provide a brief snapshot of our performance in the quarter.
Ken: I think it worthwhile to briefly cover who we are and C. D L.
Ken: What our strategy is and the broader investment environment, we are operating it.
Ken: Then I'll turn it over to Shai for more detailed discussion of our performance.
Shai: I'm pleased to share that we delivered a strong start to the year.
Shai: Carries on the momentum since our last call.
Shai: And C D. All reported solid first quarter results supported by strong net investment income performance.
Shai: The net asset value robust investment activity and an attractive first quarter dividend, representing an annualized dividend yield of nine 9%.
Shai: I will briefly cover our corporate structure, which demonstrates churchills longstanding focus on financing and investing in leading U S. Middle market companies are differentiated investment approach.
Shai: Unique sourcing model that seeks to partner with best in class private equity sponsors in the middle market.
Shai: Chuck Real asset management is the exclusive U S middle market private capital manager for T. I a N V.
Shai: T I E. Our parent company and largest investor is among the highest rated insurance companies in the U S.
Shai: One of the largest private credit investors in the world with a 50 year history.
Shai: Best thing in the private markets.
Shai: Levine as T I, a asset manager and Churchill sits within the B 1.2 trillion dollar asset management business.
Shai: Structural is a strategically integrated middle market private capital platform and collectively we manage approximately $50 billion of committed capital.
Shai: Key to our strategy is our significant commitment to U S middle market private equity funds.
Shai: For many of which we said on their fund advisory boards.
Shai: Focus underpins all of our direct investment activity and senior lending junior capital and equity co investments.
Shai: Today Churchill has commitments doorbell 300, leading U S middle market private equity funds and sits in over 240 Advisory reports.
Shai: Over 70% of our private equity fund commitments are to top quartile sponsors.
Shai: These L P relationships provide a number of distinct advantages.
Shai: Putting a deal sourcing advantage and an information advantage, which ultimately contribute to high quality deal flow for our investors.
Shai: They've been Churchill direct lending Corp is our blue chip private credit BDC, which began investing over four years ago.
Shai: Successfully completed its IPO on the New York Stock Exchange on January 25th.
Shai: Our one $8 billion investment portfolio is highly diversified.
Shai: With 195 portfolio companies and our top 10 portfolio positions accounted for only 12, 6% of the entire portfolio at quarter end.
Shai: With an average annual EBITDA of our portfolio companies of 77 million. Our focus is on traditional U S. Middle market companies that are like <unk>.
Shai: Market, leading businesses with a solid history of financial performance.
Shai: We are focused exclusively on private equity backed businesses, which benefit from the capital support and capabilities provided by leading private equity firms.
Shai: First lien loans.
Shai: Up 89% of the portfolio.
Shai: Along with a small mix of junior debt and equity co investments in.
Shai: In fact, 85% of our investments across strategies have at least one financial maintenance covenant in place.
Shai: Looking at key credit metrics N C D. Our core middle market portfolio has net total leverage of only four eight times and a very strong interest coverage ratio of 2.2 times for first lien loans, reflecting our selected and conservative investment approach.
Shai: There are several important factors that differentiate us and position us for continued future growth.
Shai: First.
Shai: And C D S corporate structure that I've, just described is a real strength.
Shai: Investing alongside a premier institutional private credit manager.
Shai: And with the backing of a large scale global asset management franchise, we believe N C. D. L offers an attractive and unique investment opportunity.
Shai: Second we believe we are one of the largest bdcs focus on the core middle market.
Shai: Our consistent dedication to this space helps to insulate investors from the volatility and competitive dynamics currently at play in the broadly syndicated loan market.
Shai: Sorry.
Shai: We are among the most diversified bdcs in the marketplace.
Shai: We have constructed a balanced portfolio by sponsor position size and industry.
Shai: This has been our disciplined approach for the last 18 years and it has proven to be critical to our successful long term track record.
Shai: Fourth.
Shai: Our origination and sourcing model is highly differentiated.
Shai: Our strong private equity L. P relationships are grounded in the fact that our investment team has worked and invested with many of these firms for nearly 20 years.
Shai: In turn these partnerships drive strong deal flow and have allowed us to maintain a high level of investments so activity.
Shai: And lastly, we have a rigorous investment process focus on overall credit quality.
Shai: We underwrite we look for companies with leading market positions and high barriers to entry, which are very important for establishing pricing power and higher margins.
Shai: Moreover, we are mindful of the higher interest burden pacing, both our existing portfolio of companies as well as new borrowers.
Shai: Something that influences, our conservative and disciplined approach to structuring new transactions with overall lower leverage more equity in the capital structure and tighter covenant packages.
Shai: It should rates come down sooner than expected the new deals we are underwriting in this environment will look even more attractive.
Shai: Once we've made an investment we remain proactive in how our teams managed portfolios communication and a culture of no surprises are two of the biggest qualities we value in our approach.
Speaker Change: Before I pass the call over to Shai I wanted to talk a little bit about what we are seeing in the current market environment.
Shai: In the first quarter.
Shai: The syndicated loan market returned in full force.
Shai: As a result larger companies gain greater access to a broader range of financing options that they had available to them in the prior 18 months.
Shai: This led to renewed competition between the public debt markets and the banks that underwrite those deals and the direct lenders that focused primarily on the upper middle market.
Shai: As competition drove a material tightening in spreads in the upper middle market.
Shai: We had M. C. D. L. However have remained somewhat insulated from this dynamic given our primary focus on the core middle market, where the limited number of larger scale direct lenders and the relation base and relationship based nature of the market have made the impact more muted.
Shai: With all in yields in the core middle market is still in the 11% range. We believe the risk adjusted returns in our target market remain very attractive.
Shai: And are still wide relative to historical averages in the asset class.
Shai: When deciding between option sponsors will be faced with an execution tradeoffs cheaper pricing and looser terms of the BSL market versus the faster commitments and closings as well as the longer term partnerships that come with private credit.
Shai: In part why we still believe strongly in the fundamentals and attractiveness of private credit.
Shai: Particularly in the traditional middle market.
Shai: Leading private credit managers with scale and differentiated sourcing can still offer private equity sponsors speed.
Shai: Certainty of execution.
Shai: Potentiality, while maintaining the historical 100 to 200 basis point premium in pricing.
Shai: And overall M&A activity remained solid in the first quarter as price discovery began to unlock deal activity with private equity firms eager to put dry powder to work make distributions and drive exits for their Lps well.
Shai: While deal flow increased in the first quarter quality was more mixed as companies that were sidelined are now being sold or refinanced in the liquid credit markets.
Shai: As a result, so activity and credit discipline are absolutely key.
Shai: We expect the balance of 'twenty 'twenty four to be more of the same against the backdrop of higher for longer interest rates.
Shai: As we navigate the evolving credit landscape, we believe N C. D. L is well positioned for success.
Shai: Our focus as a leading private credit provider to the core middle market enables us to be more insulated from the pricing and structural pressures and overall market volatility faced by direct lenders that are more focused on the upper middle market or B S. L market.
Shai: Our scale and over 300 private equity L. P relationships have combined to position us as a lender of choice to the private equity community.
Shai: Drive significant deal flow.
Shai: Enabling us to remain very disciplined and selective in our approach with total leverage sponsor equity contributions and underlying structural protections in our investments remaining very stable.
Shai: And finally, our large and growing portfolio of over 450 U S. Middle market companies continues to drive significant refinancing and growth financing opportunities with companies that have a proven track record of financial performance and market leading business models.
Shai: We have a high degree of conviction in our ability to deliver strong risk adjusted returns for our investors. Today's current investment environment, we are strategically well positioned to source attractive investments across the core middle market and overall yields and structures. They remain at compelling levels and we are.
Shai: Committed to maintaining a high level of discipline and selectivity as we evaluate our strong ongoing pipeline of investment opportunities.
Shai: And now I'll hand, it over to Shai.
Shai: Thank you Ken and thank you all for joining us to review our first quarter results.
Shai: For the quarter, we earned 56 cents of net investment income per share and in April we paid a regular dividend of <unk> 45 per share, which equates to an annualized dividend yield of approximately nine 9% based on our quarter end anyway.
Shai: We had one of net realized and unrealized gains, bringing our total net income for the quarter to <unk> 57 per share.
Shai: Looking forward our board has declared a regular dividend for the second quarter 2024 of 45 per share payable on July 29 to shareholders of record as of June 28, 2024.
Shai: In addition to the regular dividend. Our board has also declared a special dividend of <unk> 10 cents per share payable together with our Q2 dividend to shareholders of record as of May 13th.
Shai: There's 10 special dividend is the first of four special dividends that we declared at the time of our IPO with record dates of 105, 195, 285, and 380 days post IPO.
Shai: As a reminder, we intend to operate with a supplemental dividend program that sees us paying out a portion of the excess earnings over and above our regular dividend, allowing us to deliver the benefits of higher returns in the current environment to shareholders as well as grow our NAV.
Shai: Okay.
Shai: Our debt to equity ratio at the end of the quarter was 2008, two times modestly below our target range of one point out to one five times as we repaid borrowings with a portion of the proceeds of our final private capital call, an IPO, which together totaled approximately $242 million.
Shai: We remain on track to re lever the portfolio over the course of 2024 with the goal of ending the year within our target leverage range of one point out to one point you've sometimes.
Shai: Okay.
Shai: Our net asset value per share increased to $18.21 per share from $18.13 per share at the end of the prior quarter.
Shai: This increase was again driven primarily by our net investment income earned over and above our regular dividend as well as a modest increase in valuations as we saw market spreads tightened further relative to the fourth quarter.
Shai: This increase in valuations was offset by unrealized losses, including on one portfolio company, which we placed on non accrual during the quarter.
Shai: Yeah.
Shai: Turning to the portfolio, we had an increase in the fair value of our assets quarter over quarter of approximately $153 million.
Shai: This increase was largely attributable to new originations, which accounted for 23 of the transactions done during the quarter totaling approximately $131 million.
Shai: We continue to benefit from the growth within our scaled and mature platform, which brought in 11 deals in the form of incremental transactions for existing portfolio companies totaling approximately $44 million.
Shai: In addition, we saw drawdowns of roughly $29 million on our delayed draw term loans as our portfolio of companies continue to be active in growing the acquisitions.
Shai: Prepayment activity moderated somewhat during the quarter.
Shai: We had full prepayments on five deals totaling $34 million and partial repayments for another $5 million.
Shai: As we've talked about our position as the incumbent lender. It gives us a great look at ongoing financing opportunities for our portfolio companies.
Shai: Prepayments in the first quarter totaled two 2% or 50% reduction from the four 4% we saw in the fourth quarter and below our ongoing assumption of 5% per quarter.
Shai: Overall, our portfolio grew to 195 names as of quarter end and it remains very well diversified with the top 10 positions, representing only 12, 6% from the fair value of the portfolio and our largest exposure in only one 6%.
Shai: While new originations were down compared to the fourth quarter Q1 is typically a seasonally slow quarter.
Shai: We are pleased to report that the slowness that we saw in the first quarter of 2023 was not repeated in the most recent quarter as we saw volumes grow to $207 million in par amount of new originations across 34 investments this quarter from the $91 million and committed to in the first quarter of 2023 and.
Shai: And as I discussed we continue to benefit from the incumbent seen our portfolio, which is driving a meaningful amount of deal flow.
Shai: In terms of asset selection and mix at the end of the quarter. The portfolio remains heavily weighted towards senior loans, which represented 89% of the portfolio.
Shai: One 8% of the portfolio at fair value was an equity co investments and the balance in junior debt.
Shai: As I mentioned during our last quarterly call, we expected the allocation of senior loans in the portfolio to increase modestly as we invested the proceeds of our final capital call and IPO more readily into senior loans, including more liquid upper middle market transactions.
Shai: This played out during the quarter as we saw the allocation of senior loans increased by 2% from the 87% we reported at year end.
Shai: We remain committed to our target allocations that we communicated at the time of our IPO in our last call with roughly 85% to 90% of our portfolio allocated to senior loans with the balance in junior debt and equity co investments with equity staying in the single digit percentage range.
Shai: Okay.
Shai: Roughly 40% of the investments that we made during the quarter were in the upper middle market as we opportunistically deployed some of the capital that we raised from the IPO.
Shai: As Ken mentioned spreads were tighter there than the traditional middle market segment.
Shai: However, we saw a number of attractive investment opportunities in the secondary market that we were able to acquire below par.
Shai: In aggregate the weighted average interest rate on new origination came down approximately 95 basis points with the majority of that tightening coming from the upper middle market investments made during the quarter.
Shai: Spreads tightened in the traditional middle market as well by roughly 50 basis points, but remain attractive relative to historical averages.
Shai: In terms of the credit quality of the portfolio, our weighted average internal risk rating remained steady quarter over quarter at 4.1.
Shai: The percentage of the portfolio on our watch list, which we define as assets with a numerical risk rating of six or worse grew slightly to four 3% of the portfolio at fair value from four 2% of the portfolio.
Shai: With one portfolio company added to the watch list during the quarter and one resolved.
Shai: One junior capital investment was put on non accrual during the quarter.
Shai: This investment is our only portfolio company on non accrual status and represents just 0.13% of the fair value of the portfolio.
Shai: Overall the portfolio remains in very good shape with our watch list percentage at historically low level.
Shai: Turning to our liability activity during the quarter, we remained active in the secured debt markets.
Shai: During the quarter, we closed our third CLO, Adam and CDL we.
Shai: We discussed this transaction on our last call as we had priced the transaction subsequent to the end of Q4.
Shai: And C D. L. CLO three at a weighted average cost of debt of sofa, plus 211 basis points and fits well within our other debt financings, which carry a weighted average pricing a sofa plus 219 basis points.
Shai: Looking forward, we expect to continue to optimize our liability structure by accessing the unsecured debt market. During the course of this year as market conditions continue to stabilize and that market becomes more attractive.
Shai: We remain focused on ensuring that we have a diversified set of financing arrangements in place with no near term maturities.
Shai: Lastly, and just as a reminder, some of the key terms of our IPO, we put in place a thoughtful staggered lock up release for our pre IPO shareholders, coupled with special dividends payable over four quarters.
Shai: Affiliated shareholders were locked up for a full year and non affiliated pre IPO shareholders were locked up for 90, 180 and 270 days.
Shai: With the first 15% tranche of our lockup coming off on April 23, we have nearly doubled our public float.
Shai: Additionally, we implemented our share repurchase program that commenced 60 days post IPO.
Shai: Through may three we have utilized approximately $2 1 million, leaving approximately.
Shai: $97 $2 million remaining under the program.
Shai: I'll now turn it back to Ken for some closing remarks.
Ken: Thank you Shai.
Ken: Before we get to questions I, just want to thank our team here at Churchill.
Ken: Their hard work and dedication are outstanding.
Ken: They are a key reason why N C. D. L is off to such a great start as a public company.
Ken: It's been nothing short of exceptional.
Ken: We're excited about the first quarter and what it represents for N C B L.
Ken: And we have really appreciated your engagement and are looking forward to continuing our ongoing dialogue.
Speaker Change: I will now turn the call over to the operator for Q&A.
Speaker Change: Thank you well now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
Ken: Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
Ken: For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one one moment. Please while we poll for questions. Our first question is coming from Vilas Abraham from UBS. Your line is that right.
Vilas Abraham: Hey, everybody and thanks for the question you commented on the deployment into them into the secondary market. As you guys ramp up can you just put that in context to the $200 million in new fundings what portion of that was so just how are you how are you.
Ken: Thinking about rotating out of that over the next several quarters into.
Ken: Into the core middle market direct coupons that youre focused on thanks.
Speaker Change: Yeah <unk>. Thanks for the question Yeah. So the upper middle market deals that we bought in the secondary it represented about 40% of the origination during the quarter and again as we talked about that was sort of opportunistically looking at assets in that space that we can acquire.
Ken: On average at a discounted price to par and again, we really did not invest really at all in the broadly syndicated market.
Ken: We sort of think about relative value on a daily basis looking at.
Ken: Again, what's accretive to the BDC.
Ken: Obviously, you're being very sensitive to purchasing assets are much above par in the current environment that Mike that'd be refinanced out so again that that 40% was deployed into more liquid upper middle market transactions as opposed to kind of full.
Ken: D S L liquid loans. The second part of your question in terms of our plans to sort of rotate that was always on the on the agenda right in terms of putting cash to work.
Ken: The proceeds of our final capital call as well as the IPO and then rotating overtime as we talked about we continue to have a very robust pipeline and feel good about our ability to fully ramp.
Ken: If you go into the traditional middle market over the course of this year.
Speaker Change: Okay. That's helpful.
Speaker Change: And then just maybe just a higher level question just given your line of sight into the sponsor world just hoping that you could comment a little bit on the on the debt.
Speaker Change: Deal activity is really going to pick up here over the coming quarters I'm you know it feels like that's been an.
Speaker Change: Occasion for it for a little bit now with some disappointment in Q1, maybe just kind of sector wide, but it wasn't a little bit stronger than it turned.
Speaker Change: So it turned out to be so I'm just curious your thoughts there looking forward.
Speaker Change: Yeah, It's a it's Ken and great great to hear from you on it. So it's interesting we we actually saw pretty pretty solid order last quarter. If you look at.
Ken: Our overall platform origination activity or if you look at stats across.
Speaker Change: Certainly across that the traditional middle market deal activity relative to a year ago Q1 was actually up quite a bit now. What's interesting is you know a good portion of that was not new deal M&A related it was a much bigger increase in refinancing activity. We saw a fair amount of activity coming out of our portfolio So add on.
Speaker Change: Financing activity, but overall, we saw I would say we felt that this was a very solid first quarter now deal activity was not as is as active as the fourth quarter, but that's not surprising our fourth quarter is typically our most active quarter, but first quarter to first quarter comparing 24%.
Speaker Change: Three we were up pretty significantly year over year, and we would expect that as the year goes on to continue to to improve in terms of new deal activity certainty regarding interest rates not going up further I'd say as you know is it.
Speaker Change: Certainly the consensus view.
Speaker Change: <unk> rates may not be declining as rapidly as expected and I think we went from six cuts to four cuts to two cuts.
Speaker Change: And maybe no cuts this year I would say that certainty around interest rates stability. There I think as private equity firms look out over the course of the year, we would ask that we would expect deal activity to modestly.
Speaker Change: Increase.
Speaker Change: There is obviously a significant amount of private equity dry powder out there.
Speaker Change: Private equity firms that you know that we deal with as you know we're also through our private equity and junior capital team, a big L. P and many private equity firms funds.
Speaker Change: That dynamic certainly telling us that private equity is anxious to get back in.
Speaker Change: And and deploy capital and so we would expect deal activity to continue to improve.
Speaker Change: During the course of the year as more certainty regarding rates tends to normalize.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you I just a reminder that star one to be placed in the question queue. Our next question is coming from Brian Mckenna from citizens JMP. Your line is that right.
Brian McKenna: Okay, great. Thank you I hope everyone is doing well, maybe just a question on credit quality non accruals remained very low in the absolute when you get out of one company to nonaccrual during the quarter. So can you just talk a little bit more about this and then you have been able to resolve a couple a couple of other non accruals over the past 12 months to 18 months. So what's the what's that.
Brian McKenna: Patients with a positive resolution on its new non accrual.
Shy: Yeah, Hey, Brian it's shy. Thank thanks, a lot for the question.
Shy: Yeah, obviously, we did add the one <unk>.
Shy: To the nonaccrual list this quarter I mean, it is the only non accrual in the portfolio. So again, you know you think about the hallmarks.
Speaker Change: So the strategy diversification at the physician level is one of them. So when we have a problem obviously, it's a manageable problem.
Speaker Change: This position was in our in our junior debt portfolio.
Speaker Change: So just to defer for what that's worth.
Speaker Change: Yeah, you know like we do with all of our positions right we work them.
Speaker Change: Through these trade these transactions with the sponsors we have dedicated resources focused on getting us to the best resolution possible. So it's early days here, but we continue to work through the situation.
Speaker Change: Obviously with the goal of maximizing value for shareholders.
Speaker Change: One comment just on on the junior part of our portfolio right. When you think about how we invest obviously, we winning very fully into the private equity sponsor relationships that we have as an L. E N.
Speaker Change: A very large number of leading private equity firms. If you think about our activity. The majority of our activity. The vast majority in our senior lending business is with private equity firms, where we have that help your relationship. When we go further down in the capital structure, so into our junior debt investments, it's virtually 100%.
Speaker Change: With private equity sponsors that we know well the same is the case with this investment. So we think that gives us obviously an advantage when working through troubled situations like this one.
Speaker Change: That's all I'll say now I mean, obviously, we our hope is that we're gonna upward recover here maximize value.
Speaker Change: But but not much more to say right now.
Speaker Change: Ian It's Ken I would I would just add to that just to give you a sense of of what we're seeing more broadly.
Ken: Across our portfolio as you know we have both senior loan investments as well as junior capital.
Ken: And in private equity so a very large portfolio of middle market companies, we believe credit quality remains quite good.
Speaker Change: We are certainly there are isolated examples of situations, but overall, what we're seeing no evidence of deterioration or any any any significant concerns and I would certainly say N C. L. As a good example of that very isolated situations and.
Speaker Change: In very rare so we feel very good about credit quality right now.
Speaker Change: Okay. That's great very helpful. And then Ken just a bigger picture industry question, you've been on the road a bunch.
Speaker Change: A number of events and conferences. So what are some of the recurring themes or questions <unk> been receiving is there anything in particular that stands out within that and then just based on some of the.
Ken: The dynamics are used in the market how is <unk> positioned to perform and ultimately take market share within the industry over time.
Speaker Change: Yeah, no. That's a great. It's a great question. Thank you I would say a couple of themes that I've seen.
Speaker Change: It was just just thought at milken in and obviously lots of other credit managers. There and then you had a chance to dialogue with many large scale institutional investors and questions regarding some of the types of things, we're seeing I'd say a couple of themes overall and I think they all point very positively for US one is on.
Speaker Change: Scale has become a very big issue now.
Speaker Change: I get lots of questions about new managers, and I think actually most of the institutions I talked to kind of know the answer the reality is that today, if you're not scared a scaled platform with the ability to to you know to commit to and invest 250 million 500 million per.
Speaker Change: And in the traditional middle market very difficult to be able to provide full solution and to be at the top of the queue. If you will or for new transaction opportunities and frankly, there are only a handful of firms today that can really do that so I would say scale is an increasing theme so raising new capital is very important to that.
Speaker Change: And obviously in order to do that you need to demonstrate a strong track record right. So track record Begats capital raising begets new deal opportunities. So scale is a big deal and obviously, we continue to have great success from a capital raising standpoint, we're on track to have yet another very solid year in terms of raising capital from.
Speaker Change: Both institutional and retail investors feel very good about that.
Speaker Change: Second thing I would say the medically is differentiated sourcing.
Speaker Change: You know if you're just out trying to find deals out of a one off basis and you don't really have a built in advantage from a sourcing perspective very difficult to compete I would say if anything our 300 plus L. P investments are 250 advisory board seats.
Speaker Change: Huge advantage for us right now not.
Speaker Change: Not just in terms of the ongoing relationship with the fact that we can be very selective and if we turned down three or four deals in a row.
Speaker Change: For various reasons industry leverage whatever you know the odds are very high that we will see that fifth deal that cyclical because of the connectivity and the L. P relationship. So it gives us the ability to be very selective.
Speaker Change: I mean as an example, if you were affirmed that didn't have that kind of relationship you might turn for deals down and they might conclude there's really not a good fit and you may not get the call on the fifth deal, whereas in our case that deal flow continues to be very consistent so.
Speaker Change: <unk> sourcing as a theme and how do you find deals and what drives that deals and then lastly, I would say a pronounced dispersion regarding credit quality you see that in some of the research reports that a ton of Moody's and Fitch and we're seeing it across the Bdcs, which are really a mirror.
Speaker Change: Sure.
Speaker Change: <unk> credit quality across the portfolios youre seeing a range of certain managers that are showing zero non accruals and other managers that are showing five or even 6% non accruals. So there's a broad range and I would say there's a great research report that Moody's came out with our last week that talks about that dispersion among.
Speaker Change: Managers and so I think from our perspective, that's a good thing right because investors are really getting a look at you know who has been very focused and very selective and very diversified.
Speaker Change: And that's something that we're very proud of and I would say that that is leading to increased fundraising which is driving obviously the scale and the ability to deliver for our clients.
Speaker Change: That's great. Thanks, Ken I'll leave it there and congrats on another great quarter.
Scott: Thank you Scott.
Speaker Change: Thank you as a reminder, that star one to be placed into the question queue. Our next question is coming from Mark Hughes from <unk> Securities. Your line is now live.
Mark Hughes: Yeah. Thank you a good morning.
Mark Hughes: Related to the comment you just made about the credit quality and the dispersion.
Mark Hughes: How much of that has to do with our industry selection, perhaps you had mentioned.
Mark Hughes: I mentioned earlier that the.
Mark Hughes: Quality of the opportunities it was more mixed in the first quarter. I think you said you expected that to continue.
Speaker Change: Is that mix, having to do with the end market or quality of the company. So a.
Speaker Change: Couple thoughts together, there, but any comments would be helpful.
Speaker Change: Yeah. So you know I think one of the things that's driving that is that with the resurgence of the BSL market and even the upper middle market.
Speaker Change: Obviously CLO formation as return in earnest.
Speaker Change: And and and as well as you know funds flows into the various.
Speaker Change: Of funds that invest in V. S. L. So the BSL market has really come back full force and I think what that's done is it's broad companies to the market that may be more repair financing or you know debt refinancing that is really designed to address issues in the portfolio. So we've got more liquidity right.
Speaker Change: Now companies have two options really they have private credit they have and certainly for the more larger businesses B S. L and so I think what that's done is it's brought issuers to market, particularly on the refinancing side. It may may may have had a tough time going lender given our posture regarding.
Speaker Change: What we're willing to live with from a leverage and an industry standpoint. So I think that you know that that brand has led to more of a mixed deal flow now that being said I certainly don't think that our deal flow and the deals. We've chosen to do is mixed at all in fact, I would say we've stayed in the core middle market.
Speaker Change: <unk>, where we had been largely insulated from those dynamics. So as you get larger and larger I think you'd start to see more of that pushing it in terms of leverage levels pushing it in terms of new deals for example that are being done, but only work because theres a pick component to the deal and <unk>.
Speaker Change: Deals that are being done that are really more refinancing of problems I would say from our perspective by staying in the core middle market by sticking to our knitting in terms of.
Speaker Change: The you know the quality deals that are being done with significant equity contributions.
Speaker Change: That's our that's our sweet spot and we've stayed there and I think by by sticking to our core focus on the middle market, we've been able to continue to see excellent opportunities to invest without maybe some of the noise that.
Speaker Change: That you might see in the direct lenders that have been playing in that upper end of the market that that was a very good place to be six 912 months ago. When you had no P. S. L alternative now that Dsos back.
Speaker Change: I would say that that.
Speaker Change: You know that world of kind of larger direct loans tends to be a bit more challenged we really haven't gone there and as a result, you know we're still very active in our core world and as I look out over the next several quarters. You know, we certainly see deal flow continuing to be very good and the quality very good for the kinds of deals that we're investing.
Speaker Change: And I will say as a practical matter.
Speaker Change: If you do the math.
Speaker Change: And you want to stay invested in quality structures in quality companies in the right industries and the right.
Speaker Change: Dynamics around equity support.
Speaker Change: It's difficult to get your head around transactions with much more than five times leverage and we have generally taken the approach that that's kind of our that's kind of our.
Speaker Change: Outer limits as we look at deals you know, we we occasionally see deals.
Speaker Change: That debt for good reasons, maybe slightly above that but I would say overall, we're not seeing six times levered deals, we're not seeing transactions certainly in our universe.
Speaker Change: That would be pushing the envelope on leverage so we feel very good about where we're at we're seeing not only good quality from an industry perspective, but also straw.
Speaker Change: Structurally and from an equity support standpoint.
Speaker Change: I appreciate that detail on the.
Speaker Change: The number of new deals I think you did 23 this quarter 13 last quarter.
Speaker Change: Is that partly a reflection of the investment in the upper middle market the assets or is that a totally different.
Speaker Change: Yeah, Yeah, Hey market shy, yes, that's right I would say in terms of quarter over quarter from us.
Speaker Change: Direct origination core middle market focus, it's probably fairly flat and the upside there is from the secondary purchases.
Speaker Change: Understood. Thank you no real themes in terms of volume, Yes, you know what.
Speaker Change: One of the big drivers overall for US which continues to be an important component is our portfolio.
Speaker Change: And frankly, not just our senior lending portfolio, which is about 200 5300 games, but also our private equity investments right. So all across the entire firm we've.
Speaker Change: We've got over 600 positions in our portfolio. So there's a lot of activity that goes on that may maybe related to senior but it also may be a situation, where we're co investor on the equity side and that drives an investment or a financing opportunity as well so having a large portfolio is a real advantage right now for us.
Speaker Change: Thank you we've reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
Speaker Change: Thank you everyone for joining us on our call today.
Speaker Change: We appreciate all of your support.
Speaker Change: We certainly enjoy the dialogue in both on the call and as we moved through the quarter. We appreciate your checking in in and having those conversations and certainly look forward to providing to providing our Q2 results in August thanks again.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.
Speaker Change: Yeah.
Speaker Change: Okay.