Q4 2024 Goldman Sachs BDC Inc Earnings Call

Unknown Executive: Today's remarks may include forward looking These statements represent the company's disbelief regarding future events that by their nature are uncertain and outside of the company's control. The company's actual results and financial condition may differ, possibly materially, from what is indicated in those forward-looking statements as a result of a number of factors.

These statements represent the Companys this belief regarding future events that by nature by their nature are uncertain and outside of the company's control.

The company's actual results and financial condition may differ possibly materially from what is indicated in those forward looking statements as a result of a number of factors.

Unknown Executive: Including those described from time to time in the company's SEC files This audio cast is copyrighted material of Goldman Sachs BDC, Inc. and may not be duplicated, reproduced, or rebroadcasted without our consent.

Including those described from time to time in the Companys SEC filings.

This audiocast is copyrighted material of Goldman Sachs, BDC, Inc, and may not be duplicated reproduced or rebroadcast without our consent.

Unknown Executive: Yesterday after the market closed the company issued an earnings press release and posted a supplemental earnings presentation Both of which can be found on the homepage of our website at www.goldmansachsbdc.com under the investor resources section. and which include reconciliations of non-GAAP measures to the most directly comparable GAAP These documents should be reviewed in conjunction with the company's annual report on Form 10-K filed yesterday with the SEC.

Yesterday after the market closed the company issued an earnings press release and posted a supplemental earnings presentation.

Both of which can be found on the homepage of our website at www Dot Goldman Sachs BDC Dot com under the Investor Resources section and which include reconciliations of non-GAAP measures to the most directly comparable GAAP measures.

These documents should be reviewed in conjunction with the company's annual report on Form 10-K filed yesterday with the SEC.

Unknown Executive: This conference call is being recorded today, Friday, February 28, 2025, for replay purpose.

This conference call is being recorded today Friday February 28th 2025 for replay purposes.

Alex Chi: I'll now turn the call over to Alex Chi, Co-Chief Executive Officer of Goldman Sachs BDC, Inc. Thank you, John. Good morning, everyone.

I'll now turn the call over to Alex Chi Co Chief Executive Officer of Goldman Sachs BDC, Inc.

John.

Alex Chi: And thank you for joining us for our fourth quarter and fiscal year end 2024 earnings conference call. I'm here today with David Miller, our Co-Chief Executive Officer, Tucker Greene, our Chief Operating Officer, and Stanley Matuszewski, our Chief Financial Officer. I'll begin the call by discussing our 2024 activity, providing a brief overview of our fourth quarter results, and then discussing strategic actions we took this quarter to best position GSBD for the long run.

Everyone and thank you for joining us for our fourth quarter and fiscal year end 2024 earnings conference call.

Speaker Change: I'm here today with David Miller, our co Chief Executive Officer, Tucker Green, our Chief operating Officer, and Stan Nice Yassky, our Chief Financial Officer.

I'll begin the call by discussing our 2020 for activity.

Speaker Change: Providing a brief overview of our fourth quarter results and then discussing strategic actions. We took this quarter the best positioned U S. P D for the long run.

Alex Chi: I'll then turn the call over to David and Tucker to describe our portfolio activity and performance in more detail, before handing it off to Stan to take us through our financial results.

Speaker Change: Then turn the call over to David and Tucker to describe our portfolio activity and performance in more detail before handing it off to Stan to take us through our financial results and then finally, we'll open the line for Q&A.

Alex Chi: And then finally, we'll open the line for Q&A.

Alex Chi: A direct lending platform had another strong year in 2024, which directly benefited GSBD. For the year, our Direct Lending Americas platform committed a total of approximately $13 billion and deployed approximately $10.8 billion, which is more than double the activity in 2023, all the while remaining selective and disciplined in our approach in spite of a tepid M&A market. While larger cap opportunities are experiencing greater pressure on spreads and terms given robust conditions in the public credit markets and increased competition, the breadth of our platform allows us to seek attractive risk-adjusted returns for GSBD and other vehicles through our middle market origination capabilities, which also benefits from the differentiated origination capacity of being part of Goldman Sachs.

Speaker Change: I direct lending platform had another strong year in 2024, which directly benefited G. S. P D.

Speaker Change: For the year, our direct lending Americas platform committed a total of approximately $13 billion and deployed approximately $10 $8 billion, which is more than double the activity in 2023, all the while remaining selective and disciplined in our approach in spite of a tepid M&A market.

Speaker Change: While larger cap opportunities are experiencing greater pressure on spreads in terms getting robust conditions in the public credit markets and increased competition. The breath of our platform allows us to seek attractive risk adjusted returns for G. S. P D and other vehicles through our middle market origination capabilities, which also benefits from there.

Speaker Change: Differentiated origination capacity of being part of Goldman Sachs.

Alex Chi: Along those lines, the fourth quarter marked another effective quarter for GSBD with respect to both new investment commitments and harvest activity. We continue to increase the percentage of first-lien positions in the portfolio, moving away from second-lien, unsecured debt, and preferred equity, while dramatically reducing exposure to annual recurring revenue levels. As we recycle older vintages, we've increased the percentage of first lane positions, including first lane Elasta Unitron positions, from 89.4% in December 2021 to 96.3% at year end 2024.

Speaker Change: Along those lines the fourth quarter marked another effective quarter with E. S. P D with respect to both new and existing commitments and harvest activity.

To increase the percentage of first lien positions in the portfolio moving away from second lien unsecured debt and preferred equity while dramatically reducing exposure to annual recurring revenue allowance.

Speaker Change: As we recycle older vintages, we've increased the percentage of first lien positions, including first lien last out unitranche positions from 89, 4% in December 2021 to 96, 3% at year end 2024.

Alex Chi: Turning to our fourth quarter results. Our net investment income per share for the quarter was $0.48, and net asset value per share was $13.41 as of quarter end, a decrease of approximately 1% relative to the third quarter NAV, which is largely due to net realized and unrealized losses in the quarter. Now, with respect to the strategic actions that we...

Speaker Change: Turning to our fourth quarter results.

Speaker Change: Our net investment income per share for the quarter was 48 cents and net asset value per share was $13.41 as of quarter end, a decrease of approximately 1% relative to the third quarter, NAV, which is largely due to net realized and unrealized losses in the quarter.

Speaker Change: Now with respect to the strategic actions that we took.

Alex Chi: Our dividend has been set at a fixed $0.45 per share rate since our IPO in 2015 and was paid consistently over the past 39 quarters. While our net investment income for the quarter continues to exceed our $0.45 per share distribution, we have evaluated changes to our dividend policy and incentive fee structure to adapt to market dynamics, including the current base rate and credit spread environment. Considering these factors, our Board of Directors have approved the following changes to our dividend structure and incentive. First, beginning with the first quarter dividend of 2025, and on an ongoing basis, we are resetting the quarterly dividend to a base of $0.32 per share and introducing supplemental variable distributions each quarter in an amount of at least 50% of the company's NII in excess of the amount of the base dividend.

Speaker Change: Our dividend has been set at a fixed 45 cents per share rate since our IPO in 2015 and was paid consistently over the past 39 quarters.

Speaker Change: While our net investment income for the quarter continued to exceed our 45 cent per share distribution.

Speaker Change: We've evaluated changes to our dividend policy and incentive fee structure to adapt to market dynamics, including the current base rate and credit spread environment.

Speaker Change: Considering these factors our board of directors have approved the following changes to our dividend structure incentive fee.

Speaker Change: First beginning with the first quarter dividend at 2025 and on an ongoing basis, we are resetting our quarterly dividend to a base of 32 cents per share and introducing supplemental variable distributions each quarter and an amount of at least 50% of the company's NII in excess of the amount of the base dividend.

Alex Chi: Moreover, with an approximate current balance of $152 million in undistributed taxable income or spillover, as of the end of the fourth quarter, the Board of Directors has declared a special dividend of $0.16 per share payable to shareholders of record as of March 31, 2025, and has authorized two additional $0.16 per share special dividends, which you expect to pay in the second and third quarter of this year. For more information visit www.FEMA.gov This results in a per share dividend of at least 48 cents per share for the next three quarters before any supplemental dividend. Second, we will continue to maintain a shareholder-friendly incentive fee structure, including the current three-year look-back.

Speaker Change: Moreover, with an approximate current balance of $152 million in undistributed taxable income or spillover as at the end of the fourth quarter. The board of directors has declared a special dividend of <unk> 16 cents per share payable to shareholders of record as of March 31, 2025 and has authorized two additional.

Speaker Change: <unk> 16 cents per share special dividends would you expect to pay in the second and third quarter of this year.

Speaker Change: This results in a per share dividend at least 48 cents per share for the next three quarters before any supplemental dividends.

Speaker Change: Second we will continue to maintain a shareholder friendly incentive fee structure, including the current three year look back.

Alex Chi: However, we are amending the incentive fee to permanently reduce the quarterly incentive fee and cap on both income and capital gains from 20 percent to 17.5 percent for periods beginning with a calculation for the quarter ending March 31, 2025. Importantly, we anticipate making these distributions while aiming to remain below our targeted debt-to-equity leverage ratio of 1.25 times.

However, we are amending the incentive fee to permanently reduce the quarterly incentive fee and cap on both income and capital gains grew 20% to 17 and a half per cent for periods beginning with the calculation for the quarter ending March 31st 2025.

Speaker Change: Importantly, we anticipate making these distributions while aiming to remain below our targeted debt to equity leverage ratio of one and a quarter times.

Alex Chi: Looking ahead, while first quarter deal activity overall has remained relatively muted from our vantage point, we do expect an increase in deal volumes as 2025 unfolds, driven by continued deployment of private equity dry powder and pressure by GPs to distribute capital to LPs.

Speaker Change: Looking ahead, while first quarter deal activity overall has remained relatively muted from our vantage point, we do expect an increase in deal volumes as 2025 unfolds driven by continued deployment of private equity dry powder and pressure by G p's to distribute capital to L piece.

David Miller: With that, let me turn it over to my co-CEO, David Miller. Thanks, Alex. In 2024, GSBD committed its highest level of capital since the integration of the BDC complex three years ago, with approximately $1.3 billion in new commitment. This is three times more than new investment commitments of $423 million made in 2023. Of the commitments made to new portfolio companies during the year, GS played a lead role in approximately 71% of the deal.

Speaker Change: With that let me turn it over to my co CEO David Miller.

David Miller: Alex in 'twenty 'twenty four G. S. P D committed to its highest level of capital since the integration of the BDC complex three years ago with approximately 1.3 billion new commitments.

David Miller: This is three times more than new investment commitments of 423 million made in 2023.

David Miller: The commitments made to new portfolio companies during the year. She has played a lead role in at approximately 71% on the deals.

David Miller: Not only were new investment commitments the spotlight, but we also had the highest repayment years since integration. totaling $858.8 million. Of the investments in the portfolio companies that were fully repaid or exited, approximately 82% were 2021 or older than it. which allowed us to harvest older vintage investments and recycle into new origination.

David Miller: Not only were new investment commitments of spotlight, but we're also have the highest prepayment ear since integration totaling $858 8 million.

David Miller: But the investments in the portfolio of companies that were fully repaid or exited.

David Miller: Proximately, 82%, we're 2021 or older vintages.

David Miller: Which allowed us to harvest the older vintage investments and recycle into new originations.

David Miller: During the quarter, we made new investment commitments of approximately $173 million across 18 portfolios. comprising of six new and 12 existing portfolios. 99.9% of our originations during the quarter were in first lien loans, which continues to reflect our bias, and primarily maintaining exposure to investments that are higher up in the capital.

David Miller: During the quarter, we made new investment commitments of approximately $173 million across 18 portfolio companies.

David Miller: Pricing of six new and 12 existing portfolio companies.

David Miller: 99.9% of our originations during the quarter were in first lien loans, which continues to reflect our buyers and primarily maintaining exposure to investments that are higher up in the capital structure.

David Miller: During the quarter, we acted as co-lead arranger in the acquisition of Pressimac by Center Pressamac is a leading manufacturer of medium to high-precision components to industries in the aerospace, defense, and semiconductor industries. We also served as Administrative Agent, Lead Arranger, and the Largest Lender in ArcLine's acquisition of Rotating Machinery Services. This is an illustration of the credit platform's deep sponsor relationships that generate repeat deals. Rotating Machinery Services is an independent provider of aftermarket repairs and engineered solutions for the turbo machinery equipment.

David Miller: During the quarter, we acted as co lead arranger in the acquisition of Pressmark by Centerbridge.

David Miller: Mac is a leading manufacturer of medium to high precision components to industries in the aerospace defense and semiconductor industries.

David Miller: We also served as administrative agent lead arranger in the largest lender in the arc lines of acquisition of rotating machinery services.

David Miller: This is an illustration of the credit platforms deep sponsor relationships that generate repeat deal flow.

David Miller: Rotating machinery services as an independent provider of aftermarket repairs and engineered solutions for the turbo machinery equipment.

David Miller: Sales and repayment activity totaled $187.5 million during the quarter. primarily driven by the full repayment and exit of our investments in nine portfolios.

David Miller: Sales and repayment activity totaled a $187 5 million during the quarter.

Primarily driven by the full repayment and exit of our investments in nine portfolio companies.

David Miller: Turning to portfolio composition, as of December 31, 2024, total investments in our portfolio were $3.48 billion at fair value. Comprised of 97.6% senior secured loans, including 91.5% first lien, 4.8% first lien last out unit.

Turning to portfolio composition as of December 31, 2024 total investments in our portfolio worth 3.48 billion at fair value.

David Miller: With 97, 6% senior secured loans, including 91.5% first lien.

David Miller: Four 8% in first lien last out unit tranche.

Tucker Greene: 1.9% in a combination of preferred and common stock, 1.3% second lien debt, as well as a negligible amount of unsecured With that, let me turn it over to our Chief Operating Officer, Tucker, to discuss portfolio fundamentals in a credit Thanks, David. At the end of the fourth quarter, the company held investments in 164 portfolio companies operating across 39 different industries. The weighted average yield of our investment portfolio at amortized cost at the end of the fourth quarter was 10.1% as compared to 10.9% from the prior quarter. The weighted average yield of our total debt and income-producing investments and amortized cost at the end of the fourth quarter was 11.2%, as compared to 11.8% at the end of the third quarter.

David Miller: 1.9% and a combination of preferred and common stock, 1.3% in second lien debt as well as the negligible amount of unsecured debt.

David Miller: With that let me turn it over to our Chief operating officer Tucker to discuss portfolio fundamentals and our credit quality.

Tucker: Thanks, David at the end of the fourth quarter. The company held investments in 164 portfolio companies operating across 39 different industries.

Tucker: The weighted average yield of our investment portfolio at amortized cost at the end of the fourth quarter was 10, 1% as compared to 10, 9% from the prior quarter.

The weighted average yield of our total debt and income producing investments.

Amortize cost at the end of the fourth quarter was 11, 2% as compared to 11, 8% at the end of the third quarter <unk>.

Tucker Greene: Importantly, our portfolio companies have both top-line growth and EBITDA growth quarter over quarter and year over year on a weighted average basis. The weighted average net debt to EBITDA of the companies in our investment portfolio decreased slightly to 6.2 times during the fourth quarter compared to 6.3 times during the third quarter. At the same time, the current weighted average interest coverage of the companies in our investment portfolio at quarter end increased to 1.8 times in the fourth quarter compared to 1.7 times during the third quarter.

Tucker: Importantly, our portfolio companies have both top line growth and EBITDA growth quarter over quarter and year over year on a weighted average basis.

Tucker: The weighted average net debt to EBITDA of the companies in our investment portfolio decreased slightly to $6 two times during the fourth quarter compared to $6 three times during the third quarter at.

Tucker: At the same time, the current weighted average interest coverage of the companies in our investment portfolio at quarter end increased to one eight times in the fourth quarter compared to 1.7 times during the third quarter.

Tucker Greene: And finally, turning to asset quality. During the quarter, Bayside OpCo LLC, doing business as ProPT, first lien senior secured debt position was restored to accrual status due to improvement in performance. At the end of the fourth quarter, investments on non-accrual status decreased to 2% of the total investment portfolio at fair value.

Tucker: And finally, turning to asset quality.

Tucker: During the quarter. Besides the Opco LLC doing business as pro P. T. First lien senior secured debt position was restored to accrual status due to improvement in performance at the end of the fourth quarter investments on nonaccrual status decreased to 2% of the total investment portfolio at fair value.

Tucker Greene: from 2.2% as of September 30th, 2024, and remained at 4.5% of the total investment portfolio at amortized costs. The same as last quarter.

Tucker: From 2.2% as of September 30th 'twenty, 'twenty, four and remained at 4.5% of the total investment portfolio at amortized cost, which is the same as last quarter.

Tucker Greene: We are cognizant that recent headlines on tariffs between the U.S. and various countries have been top of mind for investors. While there are plenty of uncertainties regarding the implementation and ultimate impact of tariffs, our preliminary analysis of borrower exposure in the GSBD portfolio reflects low or limited potential exposure on a dollar basis.

Tucker: We are cognizant that recent headlines on tariffs between the U S and various countries have been top of mind for investors. While there are plenty of uncertainties regarding the implementation and ultimate impact of tariffs our preliminary analysis of borrower exposure.

Tucker: And the G. S. P D portfolio reflects low or limited potential exposure on a dollar basis.

Tucker Greene: A vast majority of our portfolio companies are domiciled in the U.S. and serve U.S. customers with muted exposure to global supply chains.

Speaker Change: As majority of our portfolio companies are domiciled in the U S and serve U S customers with muted exposure to global supply chains, I will now turn the call over to stand amount of chefs gate to walk through our financial results.

Stanley Matuszewski: I will now turn the call over to Stan Matuszewski to walk through our financial results. Thank you, Tucker. We ended the fourth quarter of 2024 with total portfolio investments at fair value of $3.5 billion, outstanding debt of $1.9 billion, and net assets of $1.6 billion.

Speaker Change: Thank you Tucker we ended the fourth quarter of 2024 with total portfolio investments at fair value of $3 5 billion outstanding debt of $1 9 billion and net assets of 1.6 billion, our ending net debt to equity ratio as of the end of the fourth quarter was 1.17 times, which continues to be below our target leverage of one <unk>.

Stanley Matuszewski: Our ending net debt to equity ratio as of the end of the fourth quarter was 1.17 times, which continues to be below our target leverage of 1.25 times. At quarter end, approximately 65.1% of our total principal amount of debt outstanding was in unsecured debt.

Speaker Change: Two five times.

Speaker Change: And approximately 65, 1% of our total principal amount of debt outstanding was an unsecured debt.

Stanley Matuszewski: On February 7, 2025, GSBD borrowed $365 million under its Senior Secured Revolving Credit Facility. The proceeds were used to repay $360 million in aggregate principal amount outstanding, plus accrued an unpaid interest on its 3.75% senior notes, which matured on February 10, 2025.

Speaker Change: February seven 2025 G. S. P D borrowed $365 million under its senior secured revolving credit facility. The proceeds were used to repay $360 million in aggregate principal amount outstanding plus accrued and unpaid interest on its $3, 75% senior notes, which matured on.

Europe 10 to 2025.

Stanley Matuszewski: The repayment resulted in full satisfaction of the company's obligation under the note. Following this drawdown, the company has approximately $626 million of borrowing capacity remaining under the revolving credit facility.

Speaker Change: The repayment resulted in full satisfaction of the company's obligation under the notes.

Speaker Change: Following this draw down the company has approximately 626 million of borrowing capacity remaining under the revolving credit facility.

Stanley Matuszewski: If you recall, GSBD issued a three-year unsecured note in March of 2024 to take advantage of the attractive rate environment and to further diversify our financing sources. Given the current active market, we continue to assess opportunities for potential future issuances based on market conditions.

Speaker Change: If you recall G. S. P. D issued three year unsecured note in March of 'twenty 'twenty four to take advantage of the attractive rate environment and to further diversify our financing sources given the current active market, we continue to assess opportunities for potential future issuances based on market conditions.

Stanley Matuszewski: Before continuing to the income statement, as a reminder, in addition to GAAP financial measures, we also reference certain non-GAAP or adjusted measures.

Speaker Change: Before continuing to the income statement as a reminder, in addition to GAAP financial measures. We also reference certain non-GAAP or adjusted measures. This is intended to make our financial results easier to compare to results prior to our October 'twenty 'twenty merger with Goldman Sachs Middle market lending Corp, or and then they'll see these non-GAAP measures remove.

Stanley Matuszewski: This is intended to make our financial results easier to compare to results prior to our October 2020 merger with Goldman Sachs Middle Market Lending Corp., or MMLC. These non-GAAP measures remove the purchase discount amortization impact from our financial results. For the fourth quarter, gap and adjusted after-tax net investment income were $56.6 million and $55.6 million, respectively, as compared to $68.2 million and $67.2 million, respectively, in the prior quarter. On a per share basis, GAAP net investment income was $0.48. Excluding the impact of asset acquisition accounting in connection with the merger with MMLC, adjusted net investment income for the quarter was $0.47 per share, equating to an annualized net investment income yield on book value of $14.0 per share.

Speaker Change: The purchase discount amortization impact from our financial results.

Speaker Change: For the fourth quarter GAAP and adjusted after tax net investment income were $56 6 million and 55.6 million, respectively, as compared to $68 2 million and $67 2 million respectively in the prior quarter.

Speaker Change: On a per share basis GAAP net investment income was 48 cents.

Speaker Change: Excluding the impact of asset acquisition accounting in connection with the merger with M. MLC adjusted net investment income for the quarter was 47 cents per share equating to an annualized net investment income yield on book value of 14.0%.

Stanley Matuszewski: Total investment income for the three months ended December 31, 2024 and September 30, 2024 was $103.8 million and $110.4 million, respectively. We also note that we saw PIC as a percent of total investment income increased to 15% for the fourth quarter and to December 31st 2024, from 9% in the third quarter of 2024.

Speaker Change: Total investment income for the three months ended December 31, 2024, and September 30th 'twenty 'twenty, four was $103 8 million and 110.4 million respectively.

Speaker Change: We also note that we saw pick as a percent of total investment income increased to 15% for the fourth quarter ended December 31, 2024 from 9% in the third quarter of 2024 of note. There was a one time adjustment for two portfolio companies. Excluding these one time adjustments Q4, 'twenty 'twenty four.

Stanley Matuszewski: Of note, there was a one time adjustment for two portfolio companies. Excluding these one-time adjustments, Q4 2024 PIC income as a percent of total investment income would have been 12%. Our undistributed taxable net investment income or spillover as of 12-31-2024 is approximately $152 million or $1.30 on a per share basis.

Speaker Change: Pik income as a percent of total investment income would have been 12%.

Speaker Change: Our undistributed taxable net investment income or spillover as of 12 31, 'twenty 'twenty four is approximately $152 million or $1.30 on a per share basis.

Stanley Matuszewski: As Alex mentioned earlier in the call, we plan to distribute $0.16 per share in each of the next three quarters.

Speaker Change: As Alex mentioned earlier on the call we plan to distribute 16 cents per share in each of the next three quarters.

Alex Chi: With that, I'll turn it back to Alex for closing remarks. Thanks, Stan. And thanks, everyone, for joining our earnings call. We're optimistic about a more active deal environment in the year ahead, and remain focused on investing in new, attractive opportunities using the full breadth of the Goldman Sachs platform.

Alex Chi: With that I'll turn it back to Alex for closing remarks.

Thanks, Dan and thanks, everyone for joining our earnings call.

Alex Chi: We're optimistic about a more active deal environment in the year ahead and remain focused on investing in new attractive opportunities using our full breadth of the Goldman Sachs platform. So with that let's open the line for Q&A.

Alex Chi: So with that, let's open the line for Q&A. Thank you.

Alex Chi: Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Unknown Executive: If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question.

Anne: Anne Please press star one to ask a question.

Unknown Executive: We'll pause for just a moment.

Alex Chi: Pause for just a moment.

Finian O'shea: We'll go to our first question from Finian O'Shea with Wells Fargo Securities. Hey, everyone. Good morning.

Speaker Change: Well go to our first question from Finian O'shea with Wells Fargo Securities.

Yeah.

Speaker Change: Hey, everyone. Good morning.

Speaker Change:

Alex Chi: Alex, can you, I think you had a comment on. on reducing your target leverage or running lower for a while. Can you expand on that? You know, sort of the why and and, you know, how much I think.

Speaker Change: Can you I think you had a comment on it.

Speaker Change: On reducing your target leverage or running lower for awhile can you expand on that you know sort of the why and and you know how much. Thanks.

Speaker Change: Okay.

Alex Chi: Yeah, hey, Finn. Thanks for joining the call. Thanks for the question. Look, with respect to our leverage, my reference there was just to make sure that we're monitoring it closely. In context of the spillover, our target leverage, as you know, has always been one and a quarter times, we finished a quarter at 1.17 times, and we don't anticipate any meaningful increases from there.

Speaker Change: Yeah, Hey.

Speaker Change: Thanks for taking the call. Thanks for the question.

Speaker Change: With respect to our our leverage my reference there was just to make sure that we're monitoring it closely.

Speaker Change: In context of spillover.

Speaker Change: I talked about average as you know has always been one and a quarter times, we finished the quarter at what 0.17 times.

And we don't anticipate any meaningful increases from there.

Finian O'shea: Okay, but yeah, I just my, you know, trying to I guess think about the new the new 32 cents, right? You probably run with a little bit of headroom to that. you know, your target leverage, you've kind of generally run with a little bit of headroom to that too anyway.

Speaker Change: Okay. Yeah, I, just my you know trying to.

Speaker Change: I guess thinking about the new the new 32 cents right, you probably run with a little bit of headroom to that.

Speaker Change:

Speaker Change: Your target leverage you've kind of generally run.

Speaker Change: With a little bit of headroom to that too anyway. So it's a I'm getting at is is leverage going to become meaningfully.

Alex Chi: So it's a getting at is leverage going to become meaningfully more conservative than that target and drive, you know, say earnings closer to that, that 32 cents, seeing if we should, we should think that way. That's a good question, Finn. We don't anticipate that. We don't feel that we need to meaningfully increase that leverage in order to meet our dividend. Again, we restructure our dividend with a new base of $0.32 per share, again, just reflecting the current environment with expected base rates and spreads. And that's a dividend that we believe will be stable over time.

Speaker Change: More conservative than that target and drive you know say earnings closer to that that 32 cents I'm seeing if we should we should think that way.

Speaker Change: That's a good question and we don't anticipate that we don't feel that we need to meaningfully increase our leverage in order to meet our dividend.

Speaker Change: Again, we restructure our dividend within your base.

Speaker Change: Per share again, reflecting the current environment with respect to base rates and spreads and that's a dividend. We believe it will be stable over time, So we'll supplement that.

Finian O'shea: And so we'll supplement that with supplementals, as we described. And then we have the next three spillovers. And so having additional leverage capacity is just one component of it. We'll continue to also just meet that with the repayments and also with some additional leverage capacity, as you said. But again, we're not planning to increase our target leverage at all. Okay, no, that's helpful.

Speaker Change: Supplemental unless we described and then we have the next three quarters are still over so having additional leverage capacity is just one component of it.

Speaker Change: We'll continue to also just meet that waste of the payments and then also with.

Speaker Change: Some additional leverage capacity that you said, but again, we're not planning to increase our target leverage at all.

Speaker Change: Okay No that's helpful.

Alex Chi: Can you give a picture on like say how many names or, or what, what portion of the book that you are seeking to rotate out of or access? Yeah, with respect to just the overall portfolio. about 60% of our portfolio, if you just look at it from a vintage perspective, is from 2021 and earlier. We've been very focused on harvesting that portion of the portfolio and redeploying it into newer vintage investments. As you heard from David's comments, about 80% of the repayments that we had in the quarter, again, were from that earlier vintage. So even within that 60%, it's still a high quality portfolio.

Speaker Change: Can you give a picture on <unk>.

Speaker Change: Like say, how many names are.

Speaker Change: Or what what portion of the book that you.

Speaker Change: Hugh.

Speaker Change: Or seeking to rotate out of or exit.

Speaker Change: Yeah with respect to just the overall portfolio.

Speaker Change: About about 60% of a portfolio. If you just look at from a vintage perspective is for 2021 and earlier, we've been very focused on.

Speaker Change: Harvesting that portion of the portfolio and redeploy it into newer vintage investments.

David Miller: As you heard from Davids comments of about 80% of the repayments that we had in the quarter again work from that earlier vintage so like even within that 60%. It's still a high quality portfolio. There are a number that we're monitoring that we'll look to continue to rotate out of.

Finian O'shea: There are a number that we're monitoring that we'll look to continue to rotate out of, but we don't have a specific percentage target that we're actively looking to exit from. Okay, very well, thanks. Thanks, man. You're welcome.

David Miller: But we don't have a specific percentage targets that we're actively looking to exit from.

David Miller: Okay very well thanks.

David Miller: Yeah.

David Miller: That's fine.

Robert Dodd: We'll go next to Robert Dodd with Raymond James. Hi guys. Just going back to that dividend for a second. On the 32, I just want to, you mentioned obviously you plan on that to stay stable. When you pick that level, I mean, did that take into account not just spread, success, etc., but I mean, you've got the 26 notes that when they mature, your borrowing costs are going to rise, etc. I mean, is all of that, that's not always taken into account when people adjust dividends. But, you know, can you give us any color on, is it, it factors in all of that, including the refinancing, increased costs that's going to come?

David Miller: Well go next to Robert Dodd with Raymond James.

Robert Dodd: Hi, guys I'm, all just going back to that dividend for a second on the 32 I just want to you you mentioned, obviously that should stay stable. When you pick that level I mean did that take into account not just scratch etcetera, etcetera, but I mean, you've got the 'twenty six notes when they mature your borrowing cost.

David Miller: That's gonna buys et cetera, I mean, there's all of that.

David Miller: That's not always taken into account when people adjust dividends, but.

David Miller: Is there any color on is it in fact is in all of that including the refinancing.

David Miller: Increased talks that's going to come.

Robert Dodd: you know, when when that one matures.

David Miller: You know when that one matures.

David Miller: Yeah.

Stanley Matuszewski: Hey, Robert, thanks for the question. It's Stan. Yes, when we modeled that to, you know, assess our ability for the fund to cover that, we did model in, you know, some recycling in the portfolio, for example, at lower spreads, the base rates, the curve, as well as any changes in our cap stack as well. So, yes, those are considered. And we also modeled in some additional, we also modeled in some additional flexibility to the extent that we have any additional realized-unrealized losses. But again, we spent a significant amount of time factoring in all the different considerations, including the maturity next year.

David Miller: Hey, Robert Thanks for the question, it's Dan Yes, when we modeled that to assess our ability for the fund to cover that we did model N.

David Miller: Some recycling in the portfolio for example at lower spreads the base rates are they the curve as well as any changes in our cap stack as well so yes, they're all considered.

David Miller: Oh, sorry.

David Miller: The only additional we also modeled in some additional flexibility to the extent that we have any additional.

David Miller: Realized and unrealized losses, but but again, we we spent a significant amount of time factoring in all the different considerations, including the maturity next year.

Robert Dodd: Got it. Thank you for the clarity on that.

Speaker Change: Got it thank you for the clarity on that.

Speaker Change: That you gave us a little bit of color on on on tablets.

Robert Dodd: You gave us a little bit of color on tariffs. Do you have exposure to government contracting, etc.? Obviously, I don't think you have a lot of direct, but there are software businesses in there and some of those deal with the feds. So, I mean, do you have any thoughts on DOJs separate from tariffs? Do you have potential exposure to that side of policy changes in DC right now?

Speaker Change: Do you have exposure to government contracting.

Speaker Change: You know.

Speaker Change: I don't think you have a lot of direct but our software business is 11 some of those deal with pets. So I mean, you do any thoughts on.

Speaker Change: It does yes.

Speaker Change: Separate from parents C. Do you have do you have potential exposure to that side of.

Speaker Change: Policy changes in D C right.

Tucker Greene: And it's a great question. It's something that we've been very focused on. So we did conduct a name-by-name analysis of our entire portfolio across our direct lending platform. But it's impossible to know for sure what the exact impact is going to be. We did look at specific government contract exposure, supply chains. Our analysis of any first order or second order effect is that a low to mid-single-digit percentage of our portfolio has exposure to any potentially meaningful impact. Just as a reminder, this is a predominantly U.S. portfolio doing business with U.S. customers, primarily software services-oriented businesses.

Speaker Change: It's a great question, it's something that we've been very focused on so we did conduct a name by name analysis of our entire portfolio across our direct lending platform.

Speaker Change: But.

Speaker Change: It's impossible to know for sure what the exact impact is going to be we did it we did look at specific government contract exposure of supply chains.

Speaker Change: Our analysis of any first order or second order effect is that a low to mid single digit percentage of our portfolio has exposure to any potentially meaningful impact.

Speaker Change: Just as a reminder, this is a predominantly U S portfolio doing business in the U S customers, primarily software services oriented businesses.

Tucker Greene: So we don't have any significant supply chain exposure to the countries on the spotlight, nor do we have any significant exposure to government contracts. Got it. Thank you.

Speaker Change: So we don't have any significant supply chain exposure into the countries on the spotlight nor do we have any significant exposure to government contracts.

Speaker Change: Got it. Thank you and then just one quick one on the picks a pick up from nine to 15 12, if we normalize for them.

Robert Dodd: And then on, just one quick one, on the PIC, so PIC up from nine to 15, 12 if we normalize some things, but that's still an increase. And we'll assume that increase is not because you originated a lot of PIC first liens in the fourth quarter or third quarter. So that would imply that that's loan modifications.

Speaker Change: Some things, but that's still and increase.

Speaker Change: Well it seems that increases not because you originate a lot of pick first liens.

Speaker Change: And in the in the fourth quarter, well Kirkwood, so that would imply that that loan modifications. So can you give us any color. There on why you said the only see your weighted average revenue and EBITDA are growing.

Tucker Greene: So can you give us any color there? And while you said, obviously your weighted average revenue and EBITDA are growing. You know, is there an increase in struggling companies within the portfolio? Can you give us any thoughts? Now, I think if you look, you know, Robert, at the concentration of the investments that are that are picking from a from a pure numbers perspective, I would say it's not a broad swath of the portfolio. I mean, certainly, if you look at, you know, the risk ratings where we describe the risk of either repayment or not being able to be paid interest or principal on these loans, that rating three and four has actually come down quarter over quarter from around, you know, nine and a half percent for both buckets to 6.8 percent.

Speaker Change: Yeah.

Speaker Change: Is there less of an.

Speaker Change: An increase.

Speaker Change: An increase in struggling companies within the portfolio can you give us any.

Robert Dodd: No I think if you look you know Robert.

Robert Dodd: The concentration of the investments that are that are picking from it from a pure numbers perspective, I would say, it's not a broad swath of the portfolio I mean, certainly if you look at you know the risk ratings, where we describe.

Robert Dodd: The risk of either a repayment or not being able to be paid interest or principal on these loans.

Robert Dodd: <unk> rating three and four has actually come down quarter over quarter from around 95% for both buckets to six 8%.

Tucker Greene: You know, and if you look at the metrics such as leverage and interest coverage, we've seen some slight improvements in those as well. So I'd say generally, you know, credit health of the portfolio broadly is, you know, is stable to improving. And the other thing I'd just point to is that where we see PIC even in these instances of either amendments or restructurings where there may be some liquidity shortfall at these portfolio companies or tight liquidity in the near term, those are often accompanied by, you know, either Sponsors putting in or other concessions such as tighter covenants and things like that that we're getting.

Robert Dodd: And if you look at the metrics such as leverage and interest coverage, we've seen some slight improvements in those as well. So I'd say generally you know credit health of the portfolio broadly is a you know it is stable to improving and the other thing I'd just point to is that where we see them pick even in these instances of.

Robert Dodd: Either amendments or restructurings, where there may be some liquidity shortfall of these portfolio companies were tight liquidity in the near term those are often accompanied by you know either.

Robert Dodd: Uh huh.

Robert Dodd: Apple that sponsors putting in or other concessions such as tighter covenants and things like that that were getting so we think we do have a tighter control over those portfolio of companies as well.

Robert Dodd: So we think we do have a tighter control over those portfolio companies as well. Got it. Thank you.

Robert Dodd: Got it thank you.

Unknown Executive: Thanks Robert. We're doing it.

Speaker Change: Thanks Robert.

Mark Hughes: We'll go next to Mark Hughes with Truett. Yeah, thank you. This is a related question. And I missed some of the earlier calls. So I apologize. But I think you said you had a desire to reduce your exposure to ARR loans. I think what about 20% of the portfolios and software? Can you talk about the ARR exposure now and where you would like that to go to? Yeah, I mean, we don't disclose that exactly. But you know, it's the right software. During revenue exposure of the last year or two, it's less than half what it was when we integrated the platform.

Speaker Change: Well go next to Mark Hughes with choice.

Mark Hughes: Yeah. Thank you. This is a related question and I.

Mark Hughes: I missed some of the earlier calls so I apologize, but I think you said.

Mark Hughes: You had a desire to reduce your exposure exposure to air our loans I think what about 20% of the portfolios and software can you talk about the air exposure now and where you would like that to go to.

Mark Hughes: Yeah, I mean, we don't disclose that exactly but yeah, that's right. So.

Mark Hughes: Burning revenue exposure over the last year or two.

Mark Hughes: Less than half what it was when we integrated the platform. So it's a focus of ours. In addition to that I'd say, we're being very selective on what we choose to do on a going forward basis, you know across the platform. For example, we continue to be active participants in that space, but these are very high quality companies.

Mark Hughes: So it's a focus of ours. In addition to that, I'd say we're being very selective on what we choose to do on a going forward basis, you know, across the platform. For example, you know, we continue to be active participants in that space, but these are very high quality companies, you know, average rule of 50 plus. And, you know, when you say, well, what would chin the bar from a recurring revenue perspective is certainly over that rule of 50. And we only did two of them on the platform last year. So it's a very selective bias, which is resulting in a much lower exposure in GSBD from a recurring revenue perspective.

Mark Hughes: Rule of 50, plus and when you say well we.

What would the bar from a recurring revenue perspective is certainly over that rule of 50, and we only did two of them on the platform last year. So it's a very selective bias, which is resulting in.

Mark Hughes: Much lower exposure in GSP from a recurring revenue perspective.

Mark Hughes: Very good. And then When you look at the spreads, maybe a spread compression over the last two, three quarters, is any of that due to more competition from new or other direct lenders? Or is that more just broader market forces? Concepts, BXL Market etc. Yes.

Mark Hughes: Very good and then.

Mark Hughes: When you look at the spreads maybe spread compression over the last two or three quarters.

Mark Hughes: Is any of that due to more competition from new or other direct lenders.

Mark Hughes: Or is that more of just broader market forces.

Mark Hughes: BSL market et.

Mark Hughes: Et cetera.

Mark Hughes: Yeah.

Mark Hughes: I think you had to split it into large cap and middle market. No question we've seen spread compression, which say that it's both the result of just the ongoing supply, demand and balance with significant capital flowing into the direct lending private credit space without the corresponding M&A flow. And then the large cap space, yes, we have seen much more robust activity and demand in the BSL space. But having said that, we remain optimistic about a pickup of activity later in the year. All the ingredients are still there, significant private equity dry powder that needs to be deployed, DPI pressure from sponsors to sell companies, return capital to their investors.

Mark Hughes: I think he had to split it into large cap and middle market. No question, we've seen spread compression, let's say that it's both a result of just the ongoing supply demand imbalance with significant capital flowing into the direct lending private credit space without the corresponding M&A flow and then the large cap space.

Speaker Change: Yes, we have seen much more robust activity and demand in the BSL space.

Speaker Change: <unk> said that we remain optimistic about a pick up of activity later in the year. You know all of the ingredients you still are significant private equity dry powder that needs to be deployed DPI pressure from sponsors to sell companies return capital to their investors.

Mark Hughes: Remember, we do have the advantage of having the ability to speak to the M&A side of the house. There are a significant number of companies that are on the runway ready to be sold. We just think that given the uncertainty of tariffs and the regulatory environment, sellers are just waiting for a clearer picture. And it just gives them time to post another quarter or two of good performance, which really just helps them maximize value when they do finally decide to pull the trigger and sell the companies. And so. And by the way, to that point, I don't think any of them are concerned about the financing markets being there for buyers later on.

Speaker Change: Remember, we do have the advantage of having the ability to speak to the M&A side of the house. There are significant number of companies that are on the runway ready to be sold but we just think that given the uncertainty of tariffs in the regulatory environment sellers are just waiting for a clearer picture and it just gives them time to post another quarter or two it could perform.

Speaker Change: It's really just helps them maximize value when they do finally decided to pull the trigger until the company's itself.

Speaker Change: And by the way to that point I don't think any of them are concerned about the financing markets being there for buyers later on so like we're hopeful that that'll help it spreads I'm, we're not going to sit here and say, where we think the spreads are going to go up, but but but clearly with more M&A flow that'll that'll help the <unk>.

Mark Hughes: So we're hopeful that that'll help with spreads. We're not going to sit here and say we're we think the spreads are going to miraculously go up. But but but clearly with more M&A flow, that'll that'll help the the the dynamic there.

Speaker Change: The dynamic there.

Mark Hughes: And then could you talk about the prospect for repricing activity, how much you've already seen in the portfolio, how much perhaps is left to be done the portfolio companies that are ripe for repricing. Yeah, I mean, if you take a look at the book, we think the bulk of the repricing activity has happened in the portfolio over the last, you know, 12 to 18 months, as you've seen that come down. Look, there could be select instances on a going-forward basis where stuff gets repriced. But generally, where you're seeing that today is some sort of credit-enhancing event.

Speaker Change: And then could you talk about the prospect for repricing activity, how much you've already seen in the portfolio how much perhaps is.

Speaker Change: Left to be done the portfolio companies that are ripe for repricing.

Speaker Change: Yeah, I mean, if you take a look at the book, we think the bulk of the repricing activity has happened in the portfolio over the last 12 to 18 months as you've seen that come down, but there could be select instances on a going forward basis, where stuff gets repriced, but generally where you're seeing that today has some sort of credit.

Speaker Change: Enhancing event you know either you know the.

Mark Hughes: You know, either, you know, the company has continued to perform well, they're selling the division, paying down some of the debt, so leverage is going down. In exchange for that, they're asking for a repricing. But I think the bulk of it has happened in the book today.

Speaker Change: Company has continued to perform well or sell into division paying down some debt. So it leverages going down in exchange for that they're asking for re pricing, but I think the bulk of it has happened in the book today and if you look in the fourth quarter and look at the use of proceeds try and deployment activity more than half of it was actually four new deals.

Mark Hughes: And if you look in the fourth quarter and look at the use of proceeds from deployment activity, more than half of it was actually – were new deals for leveraged buyouts, acquisition financing. And just about a third of it was related to refinancing and repricing.

Speaker Change: Buyouts acquisition financing and just about a third of it was related to refinancings and repricing.

Mark Hughes: Appreciate that. Thank you. Thanks, Mark.

Speaker Change: I appreciate that thank you.

Mark Hughes: Thanks Mark.

Unknown Executive: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. We'll pause for just a moment.

Speaker Change: As a reminder, if you would like to have like to ask a question.

Speaker Change: Please press star one on your telephone keypad.

Speaker Change: Well pause for just a moment.

Unknown Executive: We'll go next to Derek Hewett with Bank of America. Good morning, everyone. Most of my questions were already addressed, but could you talk about the incentive fee and if credit remains relatively stable from here, will the kind of the full load of the incentive fee be in the first quarter numbers? Yeah, so, you know, I would say, in terms of the incentive fee, as you noted in our remarks, and in our press release, right, we are reducing that from 20% down to 17.5%. But we are also maintaining the look back, you know, as we think that's shareholder friendly.

Speaker Change: Well go next to Derek Hewett with Bank of America.

Derek Hewett: Good morning, everyone.

Derek Hewett: Most of my questions were already addressed but could you talk about the incentive fee and if credit remains relatively stable from here.

Derek Hewett: Kind of the full load of the.

Derek Hewett: We tend to see be.

Derek Hewett: And in the first quarter numbers.

Derek Hewett: Yes.

Derek Hewett: I'd say in terms of the incentive fee.

Derek Hewett: <unk> noted in our remarks and in our press release right.

Derek Hewett: We are reducing.

Derek Hewett: Reducing that from 20% down to 17, 5%, but we are also maintaining the look back as we think that's a shareholder friendly and so with a look back.

Derek Hewett: And so with a look back, as you're well aware, right, there's variability over time. So certainly, I think that with the upcoming quarters, You know, we have the ability to earn that that full fee, obviously subject to the cap or the look back over time, as well as, you know, any future kind of gains or losses as well. But it will it will fluctuate right over time as a result of the look back is I'm sure you're I'm sure you're aware Okay, thank you.

Derek Hewett: You're well aware right there's variability overtime.

Derek Hewett: So certainly I think that with the upcoming quarters.

Derek Hewett:

Derek Hewett: We have the ability to earn that that full fee, obviously subject to the.

Derek Hewett: The cap or the look back over time, as well as any future kind of gains or losses as well.

Derek Hewett: But it will it will fluctuate over time as a result of a look back as I'm sure you're I'm sure you're aware.

Speaker Change: Okay. Thank you.

Unknown Executive: This does conclude the question and answer portion of today's call.

Speaker Change: This does conclude the question and answer portion of today's call. At this time I would like to turn the back call back over to Alex Chi for any closing remarks.

Alex Chi: At this time, I would like to turn the call back over to Alex Chi for any closing remarks. Well, thank you everyone for joining our call and we look forward to speaking with you all next quarter.

Speaker Change: Okay, well. Thank you everyone for joining our call and we look forward to speaking with you all next quarter.

Unknown Executive: This does conclude today's conference call. You may now disconnect. Goodbye.

Speaker Change: This does conclude today's conference call you may now disconnect.

Speaker Change: Goodbye.

Speaker Change: [music].

Speaker Change: Yeah.