Q4 2024 Crescent Capital BDC Inc Earnings Call
Thank you for standing by my name is Janine and I won't be your lead operator for today's call. At this time I would like to welcome everyone to the Q4 question Capital BDC, Inc. Earnings Conference call. All lines have been placed on mute to prevent any background noise and after today's presentation, there will be under but you need to ask a question.
To ask a question you May press star one on your touched on phone into withdraw. Your question. Please press star one again I will now turn the call over to Dan head of Investor Relations. Please go ahead.
Speaker Change: Good morning, and welcome to <unk> Capital BDC, Inc. Fourth quarter and year ended December 31, 2024 earnings conference call.
Please note that Crescent capital BDC may be referred to as seek out crafting D D C or the company throughout the call.
Speaker Change: Before we begin I will start with some important reminders.
Speaker Change: This has made over the course of this conference call and webcast may contain forward looking statements and are subject to risks and uncertainties.
Speaker Change: The companys actual results could differ materially from those expressed in such forward looking statements for any reason, including those listed in its SEC.
Speaker Change: SEC filings.
Speaker Change: The company assumes no obligation to update any such forward looking statements. Please also note that past performance or market information is not a guarantee of future results.
Speaker Change: Yesterday after the market closed the company issued its earnings press release for the fourth quarter and year ended December 31 2024.
Speaker Change: Posted a presentation to the IR section of its website at Www Dot Crescent BDC Dot com.
Speaker Change: Presentation should be reviewed in conjunction with the company's Form 10-K filed yesterday with the SEC.
Speaker Change: As a reminder, this call is being recorded for replay purposes.
Jason Brown: On today's call will be <unk>, Chief Executive Officer, Jason Brown.
Henry Chung: President Henry Chung.
Speaker Change: Chief Financial Officer, Erhard Lombard with that I'd now like to turn it over to Jason.
Speaker Change: Thank you Dan Hello, everyone and thank you all for joining us.
Jason Brown: I'll start today's call by highlighting our fourth quarter results.
Jason Brown: Follow that with some thoughts on our investment approach and touch on our portfolio.
Jason Brown: In terms of fourth quarter earnings we reported NII of <unk> 55 per share, which translates into an annualized NII return on equity of 11%.
Jason Brown: The 55 compares to <unk> 64 in the prior quarter and 61 in the fourth quarter of 2023.
Jason Brown: This quarter's NII decline was driven by the impact of a lower investment portfolio yields as base rates at the end of 2024 or roughly 100 basis points lower than where they were at the end of 2023.
Jason Brown: Additionally.
Speaker Change: Lower levels of nonrecurring income in the fourth quarter impacted this quarter's results as Gary Hart will touch on.
Speaker Change: We have prioritized based dividend coverage since <unk> inception, and we note that our NII is well in excess of our base dividend at 131% coverage in the fourth quarter.
Speaker Change: Our net asset value decreased 22 to $19 98 per share during the quarter.
Speaker Change: Driven primarily by changes in unrealized marks.
Speaker Change: On a year over year basis, our NAV per share was down <unk>, 3%.
Speaker Change: Let's shift gears and discuss the investment portfolio.
Speaker Change: Please turn to slides 13, and 14 of the presentation, which highlights certain characteristics of our portfolio.
Speaker Change: We ended the year with approximately $1 6 billion of investments at fair value across our highly diversified portfolio of 185 companies with an average investment size of approximately 0.5% total portfolio.
Speaker Change: Our top 10 largest borrowers represented 15% of the portfolio as we are believers in modulating credit risk through position size, which we believe is sir crescent well in previous credit cycles.
Speaker Change: We have deliberately maintained an investment portfolio that consists primarily of first lien loans collectively.
Speaker Change: Representing 90% of the portfolio at fair value at year end unchanged from the prior quarter.
Speaker Change: We continue to focus our investing efforts on non cyclical industries and remain well diversified across 20 broad industry categorizations.
Speaker Change: Our investments are almost entirely supported by well capitalized private equity sponsors with 99% of our debt portfolio at sponsor backed companies as of year end.
Speaker Change: Please turn to slide 17, which shows the trends in internal performance ratings overall.
Speaker Change: Overall, we have been pleased with the fundamental performance of our portfolio.
Speaker Change: Our weighted average portfolio a grade of two one remains stable quarter over quarter.
On the right hand side of the slide you will see that one and two rated investments.
Speaker Change: Representing names that are performing at or above our underwriting expectations continue to represent the lion's share or 87% of our portfolio at fair value.
Speaker Change: The yellow segment of the chart, which represents our four and five rated investments.
Speaker Change: As a de minimus portion of our portfolio at less than 1% of fair value.
Speaker Change: Where we did see an increase quarter over quarter was our three rated investments.
Speaker Change: I would stress that our philosophy is to be proactive with our portfolio companies we.
Speaker Change: We don't want to be slow in anticipating challenges or potential obstacles that werent heightened focus.
Speaker Change: We do not for example, wait until there is a covenant breach before moving an investment that may be experiencing headwinds down the risk rating scale.
Speaker Change: In Q4, we added seven names to the watch list collectively marked at 97% of their combined cost basis.
Speaker Change: We believe that our tenure in the direct lending space robust investment process and focus on the core and lower middle market will continue to drive strong credit performance for CECO.
Speaker Change: We continue to lead the majority of our transactions drive stringent documentation and maintain our underwriting focus on strong cash flow generating companies.
Speaker Change: All of this has led to a portfolio today that had non accruals below the industry average.
As of year end non accruals represented <unk>, 9% of total debt investments at fair value.
Speaker Change: Two 2% of cost respectively.
Speaker Change: Moving on to our dividend.
Speaker Change: We declared a first quarter 2025 regular dividend of <unk> 42 per share.
Speaker Change: C cap has been paying stable or increasing regular quarterly base dividend since its inception in 2015.
Speaker Change: This dividend is payable on April 15, 2025 to stockholders of record as of March 31.
Speaker Change: We also announced a series of special dividends.
Speaker Change: Given the measurement test that we applied to our supplemental dividend, we have not declared a supplemental distribution of our excess NII this quarter.
Speaker Change: Gerard will provide additional details on both in the latter part of our prepared remarks.
Henry Chung: I'd now like to turn it over to Henry to discuss the market.
Henry Chung: Our Q4 investment activity in the portfolio.
Henry Chung: Great.
Speaker Change: Thanks, Jason deal activity continues to pick up in the fourth quarter, driven by a combination of lower borrowing costs due to base rate cuts and an upbeat economic outlook. We are anticipating that LVL volumes and overall deal flow will continue to pick up through the first half of the year and beyond resulting from a more favorable growth outlook regulatory.
Speaker Change: For M&A and available private equity dry powder, coupled with a growing demand for private equity limited partners for distributions.
These are several other factors we are monitoring that we believe will increase the momentum and the LBO activity that we've seen in recent quarters.
Speaker Change: We continue to believe direct lending delivers a compelling value proposition for our sponsors and lower our core middle market, given the benefits of our expertise, including speed and certainty of execution and flexibility and the ability to serve as a true partner in developing this fell capital structures.
Speaker Change: Please turn to slide 15, where we highlight our recent activity.
Speaker Change: Gross deployment in the fourth quarter totaled $127 million as you can see on the left hand side of the page.
Speaker Change: 98% was in first lien investments during the quarter, we closed 14, new platform investments totaling $64 million.
Speaker Change: These new investments were loans to private equity backed companies with a weighted average spread of approximately 510 basis points. We continued back well capitalized borrowers with a significant equity cushion and the weighted average loan to value of our new investments for the quarter was 38%.
The remaining $63 million came from incremental investments in our existing portfolio of companies.
Speaker Change: Were a strong source of capital to finance, our 2024, as we saw high levels of opportunistic refinancing and accretive M&A add on opportunities within our existing borrower universe.
Speaker Change: $127 million in gross deployment compares to approximately $106 million in aggregate exits sales and repayments, resulting in net deployment of approximately 21 million for the fourth quarter.
Speaker Change: Turning back to the broader portfolio. Please flip to slide 16.
Speaker Change: You can see that the weighted average yield of our income producing securities at cost came down quarter over quarter to 10, 9% primarily due to a reduction in base rates. This metric represented by the dark Blue line at the top of the chart includes the impact of income producing equity investments.
Speaker Change: As of December 31, 97% of our debt investments at fair value of our floating rate with a weighted average floor of 79 basis points, which compares to our 66% floating rate liability structure based on debt drawn.
Speaker Change: <unk>.
Speaker Change: Overall, our investment portfolio continues to perform well with year over year weighted average revenue and EBITDA growth.
Speaker Change: Weighted average interest coverage of the companies in our investment portfolio at year end improved to one nine times as compared to one eight times and one seven times. The prior two quarters. As a reminder, this calculation is based on the latest annualized base rate each quarter.
Speaker Change: In terms of managing fixed operating costs, approximately 66% of aggregate revolver capacity was available across our portfolio as of year end. So our portfolio companies in the aggregate remained well positioned to address fixed charges with operating cash flow and available balance sheet liquidity.
Speaker Change: Our portfolio continues to benefit from the substantial amount of equity invested in our company's most of its applied by large and well established private equity firms with whom we've had long standing relationships and have partnered with multiple transactions and we know that the weighted average loan to value of the portfolio at time of underwriting approximately 40%.
Gerard: I will now turn it over to Gerard.
Gerard: Thanks, Henry and Hello, everyone.
Gerard: As Jason noted our net investment income per share of <unk> 55.
Gerard: For the fourth quarter of 2024 compared to 64 cents per share for the prior quarter and 61 per share for the fourth quarter of 2023.
Gerard: Total investment income of $46 4 million for the fourth quarter compares to $51 6 million for the prior quarter.
Gerard: Recurring interest income declined from $40 4 million to $37 7 million quarter over quarter.
Gerard: Reflecting the impact of fed rate cuts.
Gerard: It's worth noting that all else equal we expect interest income to decline further in Q1 to reflect the full quarter impact of rate cuts in the fourth quarter.
Gerard: <unk> nonrecurring investment income, which consists of accelerated amortization fee income and common stock dividends decreased from $3 3 million to $1 2 million quarter over quarter.
Gerard: We had abnormally high levels of onetime prepayment income and accelerated OID from refinancing activity during Q3.
Gerard: As we noted on last quarter's call.
Gerard: Our GAAP earnings per share or net income for the fourth quarter of 2024 was 27.
Gerard: As net investment income of 55 was offset by 28 per share of net unrealized and realized losses.
Gerard: As of December 31, our stockholders' equity was $741 million.
Gerard: Resulting in net asset value per share $19 98.
Gerard: Now, let's shift to our capitalization and liquidity I am on slide 19.
Gerard: On last quarters call I noted that we were evaluating strategies to extend the maturity dates and our debt capital stack in a measured manner.
Gerard: In December we amended the terms of our SMB CLEC revolver decreasing the size of the facility from 385 million to $310 million and pushing out the maturity from October 2026 to December 2029 <unk>.
Gerard: Additionally, we priced $115 million of new senior unsecured notes broken down into two tranches $35 million of senior unsecured notes due February 2028.
Gerard: And $80 million of senior unsecured notes due February 2030.
Gerard: As you can see on the right hand side of the slide $297 million or 25% of total committed debt now matures in 2026.
Gerard: A figure that was 58% in the prior quarter. So we're pleased with our progress here.
Gerard: The weighted average stated interest rate on our total borrowings was 638% as of year end down from $6 five 9% in the prior quarter due primarily to base rate declines.
Gerard: This does not reflect the borrowing costs on the new unsecured.
Gerard: Notes, which funded this month.
Gerard: This quarters positive net deployment brought our debt to equity ratio up from 115 times in the prior quarter to $1. One nine times, which is within our stated target leverage range of $1 one to one three times.
Gerard: With $338 million of Undrawn capacity subject to leverage borrowing base and other restrictions and $39 million in cash and cash equivalents as of year end, we have sufficient liquidity to fund further investment activity, while maintaining a debt to equity ratio inside our target range.
Gerard: Yes.
Gerard: As Jason noted for the first quarter of 2025, our board has declared a regular dividend of <unk> 42 per share.
Gerard: We've also announced a series of three <unk> per share special cash dividends related to undistributed taxable income. The first special dividend will be paid on March 14th with the second and third payable in June and September respectively.
Gerard: It's worth noting that our existing variable supplemental dividend framework remains in effect as well since announcing this framework in mid 2023 fee.
Gerard: <unk> has paid 54 per share cumulative supplemental.
Gerard: Jacob will not pay supplemental for Q4 as the measurement test cap exceeded 50% of this quarter's excess available earnings and with that I'd like to turn it back to Jason for closing remarks.
Jason Brown: Thanks Gearhart.
Jason Brown: As we look forward over the remainder of 2025, we believe we're operating in an attractive environment for increased M&A, given the significant amount of dry powder on the sidelines AG.
Jason Brown: <unk> private equity portfolios and a regulatory environment more conducive to dealmaking.
Jason Brown: Key economic indicators remain relatively healthy and the market outlook suggests more stability around near term base rates, which we view as a positive for broader LBO activity.
Jason Brown: We continue to apply our disciplined credit underwriting with a focus on capital preservation.
Jason Brown: <unk> free cash flow generation and robust debt service coverage.
Jason Brown: We believe the growing dispersion of performance and returns across managers will continue to accelerate as rates stay elevated.
Jason Brown: We believe Crescent and C cap will continue to be on the right side of this performance dispersion spectrum, and we look forward to delivering on that in quarters to come.
Jason Brown: As always we thank you for joining our call today and look forward to connecting with many of you soon and.
Jason Brown: And with that operator, we can open the line for questions.
Thank you.
Jason Brown: Ladies and gentlemen, we will now begin the.
Speaker Change: A question and answer session.
Jason Brown: Should you have a question. Please press star one on your Touchtone phone and you will hear pumps with Dr. Han has been raised.
Jason Brown: Should you wish to withdraw please press star one again.
Speaker Change: They are using a speaker phone please Mr handset before pressing any.
Speaker Change: Our first question comes from the line of Mr. Robert Dodd from Raymond James. Please go ahead Sir.
Speaker Change: Hi, guys.
Speaker Change: Just wondering.
Speaker Change: Couple of questions about the increase and the related asset. So you say you added 700 names.
Speaker Change: Do you want to be proactive about it and not wait too late.
Speaker Change: But with that Annie.
Speaker Change: A common theme.
Speaker Change: <unk>.
Speaker Change: That drove that and then are any of it.
Ed: Oh, Ed any of those.
Speaker Change: Starting with physical limit any other areas of the port Colborne.
Ed: Hey, Robert It's Jason I think.
Speaker Change: The seven new names I would say they all have company specific challenges.
Speaker Change: That said.
Ed: We are paying close attention to potential thematic.
Ed: Industry indicators I think maybe Henry you want to comment on that yes, I would say, there's a handful of beams.
Ed: We are noticing that we certainly want to provide some.
Ed: Additional color on a few subsectors that we found of just then.
Ed: Quite a bit more challenged.
Ed: One of them is third party logistics.
Ed: There has been broader compression in freight rates across the industry as a whole.
Ed: That have created some topline pressures.
Ed: Companies that deal within that specific sub sector.
Ed: Further we have been keeping a close eye on is <unk>.
Ed: Packaging there has been some destocking trends in certain end markets that were certainly keeping a close eye on but thats.
Ed: A dynamic that hasnt, yet returned to I'd say historical norms.
Ed: And then the last kind of sub sector that we're particularly focused on is.
Ed: Businesses that are indexed to kind of early stage med Tech biotech development.
Ed: Those sectors have been quite a bit more impacted by just overseeing and rates as a whole.
Ed: Given access to capital at the end customers there so.
Ed: Say that those three are smaller subsectors collectively less than about 4% of the portfolio that.
Ed: We are certainly keeping a close eye on are the last note that I will leave you with here is what to watch list as a whole what we're noticing more broadly and this isn't necessarily for the new names are routed to the loss of this quarter is on businesses that are indexed to consumers.
Ed: As the end user of the product or service.
Ed: In the event that those companies are on the watch list and they are taking longer to recover than what we've seen traditionally or historically in the watch list. Overall, so I would say that those are certainly exhibiting a longer road.
Ed: Then then what we are seeing kind of more broadly across.
Ed: The portfolio.
Ed: Got it got it I appreciate that color I mean, just kind of following onto that I mean.
Ed: Have you got any preliminary thoughts on exposure risks from like <unk>.
Ed: <unk> or who should government contracting and cost cutting anything what's your.
Ed: Do you have.
Speaker Change: John Youre relative potential exposure.
Jason Brown: Thanks, Robert Jason here, it's definitely a topic that we're spending a lot of time thinking about it seems to be in the news every day.
Jason Brown: Probably a little premature to get into specifics, but if tariffs do become meaningful.
Jason Brown: In reality I think it certainly has an impact on U S companies.
Henry Chung: We've we've tried to drill down into our portfolio a bit in terms of thinking about specific exposures. So maybe maybe Henry you want to touch on that as well, yes, I'll start with the tariff piece of it so what we've really looked at our companies.
Henry Chung: They are sourcing a material portion of their cost of goods sold from <unk>.
Henry Chung: Foreign suppliers and we're looking at this.
Henry Chung: I'd say a much more broader basis, so looking at it based on three categorization as a whole that given how service oriented our portfolio as is.
Henry Chung: Is a pretty small percentage of our portfolio roughly around 12% of fair value. Today. If you just kind of look at industry categorization that do procure materials from foreign suppliers on the second part of your question around Doge. We also looked at companies that derive.
Henry Chung: Majority of the revenue directly from the government the primary sector, where we have that dynamic president is within software where there is a government agency that is the end user of that product or service.
Henry Chung: Overall in terms of the total of our portfolio is less than 5%. So overall I would say on both of those fronts. We're looking at.
Henry Chung: Minority of the portfolio that has and I really want to kind of underscore this potential exposure to some of the actions that we're seeing on both the tariff side as well as the broader REIT.
Henry Chung: The reduction in overall in government agencies.
Henry Chung: Got it I appreciate that color.
Henry Chung: One long ago, I expect I mean.
Henry Chung: That has been re pricing activity.
Henry Chung: Al-qaeda et cetera.
Henry Chung: Table, but.
Henry Chung: How much of the.
Henry Chung: The back book in the portfolio if you will.
On the Gulf.
Henry Chung: Pricing yet.
Henry Chung: Yes.
Henry Chung: Do you think that some rent.
Henry Chung: Yes.
Henry Chung: Bob.
Henry Chung: Wes.
Speaker Change: What portion of portfolio bulk sorting market today, and it's a business that could be.
Henry Chung: Potentially.
Henry Chung: We price over the next call it 12 months.
Henry Chung: Yes.
Henry Chung: I'll start off by commenting on I think the repricing dynamic we saw it all throughout last year.
Henry Chung: In the event that.
Henry Chung: LBO volumes, which I think folks are generally expecting to return to.
Henry Chung: More historical levels on to the extent that that dynamic does not come to fruition I think the repricing risk remains heightened.
Henry Chung: It's really a function of broader.
Henry Chung: Anemic deal activity on the new LBO front.
Henry Chung: So I'd say, it's a little bit of a chicken and egg question, where if we do see volumes kind of come back.
Henry Chung: On the new LBO front I.
Henry Chung: I would expect that repricing dynamic too.
Henry Chung: Certainly subside from what we've seen last year.
Henry Chung: However.
Henry Chung: We do see kind of sluggish <unk> zone, it's likely that we will continue to be repricing in the portfolio loans. So I think it's really just going to be.
Henry Chung: Oral areas, what's happening broadly more broadly with deals.
Robert Dodd: I'll jump in there as well Robert.
Robert Dodd: I think the fund raising environment certainly plays a factor in that repricing dynamic and.
Robert Dodd: A lot of the capital being raised that needs to get deployed right away as in the non traded space on the wealth side.
Robert Dodd: That market is.
Robert Dodd: Gives me.
Robert Dodd: Generally seeing flows of $2 billion to $3 billion a month.
Robert Dodd: When you segment that market into sort of.
Robert Dodd: Managers that.
Robert Dodd: Our generally targeting the upper mid market and we would define that as north of a couple of hundred million dollars of EBITDA.
Robert Dodd: We think thats about 90% of the <unk>.
Robert Dodd: Flows that are coming into the market today.
Robert Dodd: So as you think about it and as we think about where the pressure.
Robert Dodd: It's concentrated I think its more concentrated at the upper end of the middle market.
Robert Dodd: Because of those flows and certainly the broadly syndicated loan alternative.
Robert Dodd: That issuers have.
Robert Dodd: When they get larger in size.
Robert Dodd: Okay.
Robert Dodd: Yes.
Robert Dodd: I appreciate that thank you. Thank you.
Robert Dodd: Our next question comes from the line.
Robert Dodd: Mickey Schlein from Leiden. Thanks, Sir Please go ahead.
Speaker Change: Yes, good afternoon, a lot of good questions already asked I was just hoping you could.
Speaker Change: Breakdown at least at a high level you are what drove the realized and unrealized gains and losses for the quarter.
Speaker Change: Thanks, Mickey on the unrealized side.
Speaker Change: We certainly had some individual movers.
Speaker Change: Washers watch lists related.
Speaker Change: We did have a pickup in non accruals as well so we had some movement in some isolated names.
Gary Hart: Gary do you have any other color for making that yes. It's.
Speaker Change: Good question.
Speaker Change: We did look at this heading into the cold there or no.
Speaker Change: Significant.
Speaker Change: Individually material movers in that unrealized bucket.
Speaker Change: It's really attributable to two.
Speaker Change: Some of the comments, we made on the on the.
Speaker Change: Prepared remarks, which is <unk>.
Speaker Change: Slight increase in the three rated assets. So as we saw the watch list names increase the watch list would redefine three four and five rated from a risk perspective, there is really a migration.
Speaker Change: Of about I want to say about $40 million or so 40 million of the increase quarter over quarter and.
Speaker Change: That's really what drove the higher unrealized versus individual.
Speaker Change: Credit deterioration.
Speaker Change: Okay. Thank you for that that's my only question this afternoon.
Speaker Change: Thanks Mickey.
Speaker Change: Again should you have a question. Please press star followed by the number one.
Speaker Change: Yes.
Our last question comes from the line of Paul Johnson from K B W. Sir. Please go ahead.
Paul Johnson: Yes. Good afternoon, thanks for taking my questions.
Speaker Change: On the new non accruals this quarter.
Speaker Change: Lending Mary Cow Mann Lake.
Speaker Change: Are those are those crescent originated investments or are those legacy investments from acquisitions.
Paul Johnson: One of the three was crescent the other two were legacy Paul.
Paul Johnson: Okay, and then I mean in terms of.
Paul Johnson: The new non accruals and maybe kind of talking about the watch list names three rated investments.
Paul Johnson: The majority of these investments does crescent have are these crescent led deals where there is there is a controlling stake.
Paul Johnson: That the advisor has in these loans.
Henry Chung: Yes. The majority this is Henry on the majority of the name that are on the watch list.
Henry Chung: Our crescent originated and they are.
Tranches that we either agents or control or both.
Henry Chung: I think the other side of the question, which is what percentage of these are <unk>.
Henry Chung: Acquired assets.
Henry Chung: So roughly.
Henry Chung: Just around 20% of the watch list or getting the assets in.
Henry Chung: Accordingly on a fair value basis are assets that were.
Henry Chung: Acquired through.
Henry Chung: Both <unk> first Eagle.
Henry Chung: Okay. Thanks for that that's helpful.
Henry Chung: And then.
Henry Chung: Just on Mickey's question I Didnt catch it if you said it on the end, but on the realized loss portion what was the driver of this this quarter it looked like a fairly big.
Henry Chung: Big realized loss was crystallized was there anything in there that was exited.
Henry Chung: Yes.
Henry Chung: The primary driver there was.
Henry Chung: The restructuring of the portfolio company that is on nonaccrual last quarter CECO.
Henry Chung: So that slipped from unrealized to realize in the quarter we completed.
Henry Chung: Our restructuring there and as a result.
Henry Chung: Incurred a realized loss related to that position.
Henry Chung: Okay. Thanks for that.
Henry Chung: And then.
Henry Chung: Just kind of looking at some of the new investments this quarter.
Henry Chung: I saw several $4 75 below 500 basis points spread would you say that's kind of where the market is at today, where spreads are now kind of pushing below that 500, mark in the lower core kind of middle market or.
Henry Chung: Was this more of a maybe a phenomenon kind of out of the fourth quarter were <unk>.
Henry Chung: A large number of investments were funded at a lower spread.
Henry Chung: I would say it certainly at least for Q4 specifically.
Henry Chung: It seems to be the latter just kind of looking at where we are in Q1.
Henry Chung: For the quarter as a whole the weighted average spread of our investments was right around that five handle. So we are still seeing deals that come within that band that are within the core lower middle market and we've certainly seen deals that are priced tighter than that and I think where we are today.
Henry Chung: And we're continuing to hold our pricing discipline.
Henry Chung: In line with where we have been over the last several quarters, but but certainly.
Henry Chung: I think its indicative, particularly of larger borrowers that are more within our core middle market spectrum of size.
Henry Chung: And also kind of more kind of touch upon a deal size, where the tranches are larger and more relevant for some of the new capital that's come into the space.
Henry Chung: Youll see us get below that 500.
Henry Chung: Thresholds.
Henry Chung: Paul It's Jason the other thing that I would just add to that is that.
Henry Chung: Yes.
Speaker Change: When we think about the structure.
Speaker Change: We generally tightened terms and tightened leverage the smaller of the issuer is and so.
Speaker Change: Most of the time when we're underwriting in the lower mid market with companies that are $10 million to $20 million of EBITDA, we're not stretching too deep into the capital stack it looks more like a traditional first lien.
Speaker Change: Which for Q4 represented about 20% of.
Speaker Change: Of deployment.
Speaker Change: But with the lower leverage.
Speaker Change: And that lower middle market segment. We are we are certainly seeing transactions getting done in the.
Mid to high fours in terms of spreads.
Speaker Change: Got it thanks, thanks for that detail that's very helpful.
Speaker Change: You also gave some pretty pretty good information in terms of.
Speaker Change: Your thoughts on tariffs exposure or potential exposure, there, but I'm also curious I mean traditionally the portfolio.
Speaker Change: For yourself as well as private credit broadly portfolios had been primarily services.
Speaker Change: Business focused and.
Speaker Change: I'm just curious with all the discussions on.
Speaker Change: Tariffs I mean does that in any way I guess change.
Speaker Change: The opportunity for more manufacturing type of business is capex heavy type of business is there a changing opportunity there at all.
Speaker Change: I think.
Speaker Change: Henri speaking and Jason can chime in if he has other thoughts but.
Speaker Change: Going back to our inception, we've really shied away from businesses that have a heavy kind of fixed charge in capex or capital need.
Speaker Change: For the reasons that we are very focused on how much cash flow. There is from the underlying portfolio companies to service our debt service.
Speaker Change: And whether they whether this is the materials are procured abroad or domestically and that dynamic really doesn't change.
Speaker Change: The environment, where we had tariffs and where we don't so I think what youll continue to see even in this environment is we're going to stick to our knitting in terms of where we're focused.
Speaker Change: In terms of how the businesses are capitalized what their operating models are and I don't necessarily see us leaning more into.
Domestic businesses that have.
Speaker Change: Higher capital needs and heavier capex requirements.
Even even though more broadly across the the macro or the U S economy, and maybe opportunities there.
Speaker Change: Got it. Thank you that's all for me.
Paul Johnson: Thanks, Paul.
Speaker Change: Thank you that concludes our Q&A session I will now turn the call back to our CEO Kieran Bell for closing remarks.
Paul Johnson: Yes.
Kieran Bell: Okay well. Thank you everyone for your continued interest and your questions on C. Cap, we look forward to speaking with you all soon.
Paul Johnson: That concludes.
Paul Johnson: Our conference call for today, you may now disconnect.
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