Q1 2025 FS KKR Capital Corp Earnings Call

May 8, 2025

Your lines will be in a listen only mode. During the remarks by S case management at the conclusion of the company's remarks, we will begin the question and answer session at which time I will give you instructions on entering the queue. Please note that this conference is being recorded at this time and.

Speaker Change: Client <unk> head of Investor Relations will proceed with the introduction Mr. Klein you may now begin.

Klein: Thank you good morning, and welcome to <unk> Capital Corp, first quarter 2025 earnings Conference call.

Steven Lilly: The sum of these activities results in our March 31, 2025 net asset value per share of $23.37.

Klein: Please note that our first KKR capital Corp may be referred to as S. K the fund or the company throughout the call.

Good morning ladies and gentlemen, welcome to FS KKR Capital Corp, first quarter 2025 earnings conference call

Klein: Today's conference call is being recorded and an audio replay of the call will be available for 30 days.

Steven Lilly: From a forward-looking guidance perspective, we acknowledge the many factors currently affecting the U.S. economy. As a result, while we continue to provide guidance and an effort to be as transparent as possible with the investment community. there is the potential for greater variance within our guidance categories than in prior periods.

Klein: Replay information is included in our press release that <unk> issued yesterday.

Your lines will be in a listen only mode during the remarks by FSK's management.

Klein: In addition, <unk> posted on its website a presentation containing supplemental financial information with respect to its portfolio and financial performance for the quarter ended March 31 2025.

At the conclusion of the company's remarks, we will begin the question and answer session, at which time I will give you instructions on entering the queue.

Please note that this conference is being recorded. At this time, Anna Kleinhenn, Head of Investor Relations, will proceed with the introduction. Ms. Kleinhenn, you may now begin.

Klein: A link to todays webcast and the presentation is available on the Investor Relations section of the company's website under events and presentations.

Steven Lilly: With that said, we expect second quarter 2025 gap net investment income to approximate 64 cents per share, and we expect our adjusted net investment income to approximate 62 cents per share.

Klein: Please note that this call is the property of <unk> any unauthorized rebroadcast of this call in any form is strictly prohibited.

Steven Lilly: Detailed second quarter guidance is as follows. Our recurring interest income on a gap basis is expected to approximate $302 million. We expect recurring dividend income associated with our joint venture to approximate $56 million. We expect other fee and dividend income to approximate $43 million during the second From an expense standpoint, we expect management fees to approximate $53 million. We expect incentive fees to approximate $36 million. We expect interest expense to approximate $124 million. And we expect other G&A expenses to approximate $10 million.

Anna Kleinhenn: Thank you. Good morning and welcome to FS KKR Capital Corp's first quarter of 2025 earning conference call. We know that FS KKR Capital Corp may be referred to as FSK, the Fund, or the company throughout the call.

Klein: Today's conference call includes forward looking statements and are subject to risks and uncertainties that could affect FSA or the economy generally.

Klein: We ask that you refer to other Skus most recent filings with the SEC for important factors and risks that could cause actual results or outcomes to differ materially from these statements.

Today's conference call is being recorded and an audio replay of the call will be available for 30 days.

Klein: <unk> does not undertake to update its forward looking statements unless required to do so by law.

Anna Kleinhenn: Replay information is included in a press release that FSK issued yesterday.

Klein: In addition in this call will include certain non-GAAP financial measures.

Anna Kleinhenn: In addition, FS KS toasted on his website, a presentation containing supplemental financial information with respect to its portfolio and financial performance for the quarter ended March 31, 2025.

Klein: As such measures reconciliations to the most directly comparable GAAP measures can be found in <unk> first quarter earnings release that was filed with the SEC on May seven 2025.

Anna Kleinhenn: A link to today's webcast and the presentation is available on the Investor Relations section of the company's website under Events and Presentations.

Klein: non-GAAP information should be considered supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP.

Steven Lilly: And as Michael indicated during his remarks, our 2025 distribution guidance remains in place as we currently expect our distributions during the year will total $2.80 per share comprised of $2.56 per share of base distributions and $0.24 per share of supplemental distribution.

Anna Kleinhenn: Please note that this call is the property of FSK, any unauthorized rebroadcast of this call in any form

Klein: In addition, these non-GAAP financial measures may not be the same as similarly named measures reported by other companies.

Anna Kleinhenn: Today's conference call includes forward-looking statements and are subject to risks and insert into exact effect FSK or the economy generally.

Klein: To obtain copies of the company's latest SEC filings. Please visit <unk> website.

Anna Kleinhenn: We ask that you refer to FS KKR's most recent filings with the SEC for important factors and risks that could cause actual results or outcomes to different materially from these statements.

Speaker Change: Speaking on today's call will be Michael Forman, Chief Executive Officer, and Chairman, Dan Pietrzak, Chief Investment Officer, and co President and Steven Lilly Chief Financial Officer.

Steven Lilly: Turning to our capital structure in March, we closed on our second middle market CLO raising $380 million of low cost secure debt priced at a weighted average rate of SOFR plus 158 basis. We are pleased with this financing, given it is match funded with no mark to market at an attractive rate.

Anna Kleinhenn: FS K does not undertake to update its forward-looking statements unless required to do so by law.

Speaker Change: Also joining us on the call today are co chief operating officers drew O'toole and Ryan Wilson.

Anna Kleinhenn: In addition, this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measures can be found in FS K's first quarter earnings release that was filed with the SEC on May 7th, 2025.

Michael Forman: I'll now turn the call over to Michael.

Michael Forman: Thank you Anna and good morning, everyone. Thank you all for joining us for <unk> first quarter 2025 earnings conference call.

Steven Lilly: Additionally, in March, we amended our Morgan Stanley funding facility, where we reduced the spread from 2.7% to 1.95% and extended the maturity date by two years to November 2028. As of March 31, 2025, our gross and net debt-to-equity levels were 122% and 114%, respectively, compared to 112% and 104% at December 31, 2024. At March 31, our available liquidity was $3.2 billion, and approximately 54% of our drawn balance sheet and 41% of our committed balance sheet was comprised of unsecured debt.

Speaker Change: I'd like to begin this mornings call with a few comments regarding some of the uncertainties in the world.

Speaker Change: Since our last earnings call in February of this year, our country's economic outlook the volatility associated with both debt and equity markets. The major geopolitical risks have all worsening.

Anna Kleinhenn: In addition, these non-GAAP financial measures may not be the same as similarly named measures reported by other companies.

Speaker Change: Not only our investors faced with the task of analyzing doing different risk elements, but they are forced to react to daily headlines regarding the current administration's announcements indeed for investors who value stability. The current market is challenging at best.

Anna Kleinhenn: To obtain copies of the company's latest SEC filings, please visit FSK's website.

Michael Forman: Speaking on today's call, we Michael Forman, Chief Executive Officer in Chairman, Dan Pietrzak, Chief Investment Officer and Co-President, and Steven Lilly, Chief Financial Officer.

Dan: As Dan will discuss in more detail, we've been taking proactive steps to provide investors with the most accurate information and the best overall investor experience as it relates to <unk> during this challenging time.

Michael Forman: Also joining us on the call today are Code Chief Operating Officers Drew O'Toole and Ryan Wilson.

I'll now turn the call over to Michael.

Michael Forman: And with that, I'll turn the call back to Michael for a few closing remarks before we open the call for questions. Thanks, Steven. In closing, while the broader environment remains uncertain, we believe that FSK has taken and is continuing to take proactive steps to deliver for our shareholders. Many private credit providers have navigated volatile markets extremely well in the past, and we believe FSK is well positioned to navigate this period of uncertainty as well. Private credit thrives in part because of its consistent ability to generate a steady stream of current income for its investors. We are confident in our business strategy and believe both the breadth of the KKR credit platform and our strong balance sheet will allow us to continue to succeed going forward.

Michael Forman: Thank you, Anna, and good morning, everyone. Thank you all for joining us for FSK's first quarter, 2025 earnings conference call

Dan: No one would have predicted exactly the events, which have transpired over these last many weeks our team did envision that volatility would rise from time to time in 2025 would be the year of transition for interest rates.

Michael Forman: I'd like to begin this morning's call with a few comments regarding some of the uncertainties in the world.

Michael Forman: Since our last earnings call in February of this year, our country's economic outlook, the volatility associated with both debt and equity markets, and major geopolitical risks have all worsened.

Dan: Those are the main reasons, we announced in February our board's intention to maintain our <unk> 64 per share quarterly distribution and also our six cents per share supplemental distribution for each of the four quarters. During 2025, our goal was and still is to provide investors with both transparency.

Michael Forman: Not only are investors faced with a task of analyzing new and different risk elements, but they are forced to react to daily headlines regarding the current administration's announcements.

Dan: Stability of income from S. K.

Michael Forman: Indeed, for investors who value stability, the current market is challenging at best.

Dan: Our view rest upon the premise that by early next year, the macroeconomic environment will settle down.

Michael Forman: As Dan will discuss in more detail, we have been taking proactive steps to provide investors with the most accurate information and the best overall investor experiences relate to FS K during this challenging time.

Dan: <unk> bdcs with a more clear picture of interest rates tariffs and other key drivers of economic activity.

Operator: And with that, operator, we'd like to open the line for questions. Thank you. As a reminder, to ask a question, you will need to press star 11 and wait for your name to be announced. Please stand by while we compile the Q&A.

Dan: Our strategy of building a healthy balance of spillover income during periods of higher interest rates enables us to provide stability and confidence in our quarterly distributions. During these periods of greater market volatility regardless of variances in our net investment income on a quarter to quarter basis.

Michael Forman: And while no one would have predicted exactly the events which have transpired over these last many weeks Our team didn't envision that volatility would rise from time to time and 2025 would be the year of transition for interest rates

Dan: Additionally, starting late last year the team began analyzing our portfolio in terms of both tariffs and dose exposure.

John Hecht: Your first question comes from the line of John Hecht of Jeffreys. John, please go ahead. Morning guys. Thanks very much for taking my questions. First one is just, I guess, kind of, I guess, from a modeling perspective, the timing of deployments last quarter, and then also, you know, is the full effect of rate changes in the run rate from last quarter, you know, or should we expect some more adjustments coming into this quarter from an asset yield perspective?

Michael Forman: Those are main reasons we announced in February . Our board's intention to maintain our 64% per share quarterly distribution and also our sixth set per share supplemental distribution for each of the four quarters during 2025. Our girl was and still is to provide investors with both transparency and stability of income from FS K. [inaudible]

Dan: And those analyses have been further refined over the last several weeks again, Dan will address this topic during his comments.

Dan: And now I'd like to shift to <unk> first quarter performance during the first quarter <unk> generated net investment income totaling <unk> 67 per share and adjusted net investment income totaling <unk> 65 per share as compared to our public guidance of approximately 66%.

Michael Forman: Our view rests upon the premise that by early next year the macroeconomic environment will settle down, providing BDCs with a more clear picture of interest rates, tariffs and other key drivers of economic activity.

Dan: At <unk> 64 per share respectively.

Michael Forman: Good morning, John. Maybe Steven will comment on some of the modeling points. I think I think we were happy with the origination number.

Michael Forman: Our strategy of building a healthy balance of spillover income during periods of higher interest rates enables us to provide stability and confidence in our quarterly distributions during these periods of greater market volatility, regardless of variances in our net investment income on a quarter-to-quarter basis.

Dan: From a liquidity perspective, we ended the quarter with approximately $3 2 billion of available liquidity.

Dan: Consistent with my earlier comments, our board has declared a second quarter distribution of <unk> 70 per share consisting of our base distribution of <unk> 64 per share and a supplemental distribution of <unk> <unk> per share.

Steven Lilly: I think a couple of things to point out we talked about in the last call, right? There was some carryover slippage from the prior quarter. You know, deals we thought were going to get done in December, you know, on the other side of that, I think from a diversification of deployment, you know, we're also pretty happy, right? We were growing the JV. That was a focus area for us.

Michael Forman: Additionally, starting late last year, the team began analyzing our portfolio in terms of both tariffs and dose exposure.

Dan: This total distribution equates to a 12% yield on our March 31.

Dan: <unk> of $23 37 per share.

Michael Forman: and those analyses have been further refined over the last several weeks. Again, Dan will address this topic during his comments.

Dan: And with that I'll turn the call over to Dan.

Dan: Thanks, Michael as we discussed on our fourth quarter earnings call. Our view at the time was the increases in M&A activity. This year will take longer to materialize due to geopolitical uncertainty.

Steven Lilly: Unknown Executive, John Hecht, Unknown Executive, Unknown Executive, Unknown Executive, Unknown Most of the declining rates has flowed through now as of the end of the first quarter. But as you know from the comments on the call, we went down from 11% down to 10.8% on a weighted average yield basis. So that flow through in the portfolio will affect us. And that's effectively why the guidance that we gave, our interest income, the recurring interest income is effectively flat at around $300 million for the first quarter and then also guidance for the second.

Michael Forman: and now I'd like to shift FSK's first quarter performance. During the first quarter, FSK generated net investment income totaling 67 cents per share, and adjusted net investment income totaling 65 cents per share, as compared to our public guidance over approximately 66 cents and 64 cents per share respectively.

Dan: That view still holds true even more so now.

Dan: As expected the more liquid markets are bearing the brunt of the current volatility with wider credit spreads and uneven trading.

Michael Forman: From a liquidity perspective, we end the quarter with approximately 3.2 billion of available liquidity.

Dan: Over the last month spreads have also begun to widen on certain private direct lending deals due to the market volatility.

Michael Forman: Consistent with my earlier comments, our board is declared a second quarter distribution of 70 cents per share consisting of our base distribution of 64 cents per share and a supplemental distribution of 6 cents per share

Dan: As Michael noted earlier, we have been in close contact with sponsors and management teams and have run extensive analysis in an effort to stay up to date with the latest tariff policies and impacted countries.

Dan: Additionally, as we originate new investments and we are evaluating each deal for potential risks related to tariffs or dose.

and with that, I'll turn the call over to Dan.

Dan: As a result, we believe we have a good understanding of the first order potential tariff impacts on the portfolio.

Dan: Thanks, Michael. As we discussed on our fourth quarter earnings call, our view at the time was that increases in M&A activity this year would take longer to materialize due to geopolitical uncertainty. That view still holds true even more so now.

Dan Pietrzak: Okay. And then, Dan, you did give some color around, you know, the fact that some of the high activity in 1Q was kind of a catch-up. But I'm wondering, when you think about your pipeline now and activity overall within your own platform, it's clear that you guys had a much more active first quarter than, I guess, the overall market. So I'm wondering, are there certain categories of assets or characteristics of transactions that you guys, as FSK and attached to KKR, are maybe gaining market share? Or is there anything that you could talk about that's a reflection of the competitive environment that's giving you guys incremental opportunities?

Dan: However, we remain cautious as second or third order impacts are still unknown and depending on the ultimate tariff resolution may take real time to play out.

Dan: Based on our current portfolio analysis, we believe approximately 8% of our portfolio could have direct exposure to tariff policies should they become permanent.

Dan: Over the last month, Sprites have also begun to widen on certain private direct lending deals due to the market volatility.

Dan: And while dose exposure is more difficult to quantify we currently estimate low to mid single digit those exposure.

Dan: The industry is most impacted by potential tariff policies are consumer durables consumer discretionary consumer staples, and industrials, which falls within our capital goods classification.

Dan: The industry is most impacted by dose our software and services healthcare equipment and services at Aerospace and defense, which falls within our capital goods classification.

Dan: Additionally, as we originate in new investments, we are evaluating each deal for potential risks related to tariffs or doge.

Dan Pietrzak: Yeah, and, you know, I think, you know, John made a couple sort of pieces there. One, you know, I do, you know, kind of like that, we're kind of sourcing from different pieces and really giving, you know, FSK access to everything we're doing in private credit, you could probably give the benefit to, as I said, you know, a couple of deals out of Europe and the activity in our asset based finance business. You know, I think in terms of just broader activity levels, I think we were definitely, you know, walking into the year feeling like it was going to be a very active and busy 25.

Dan: I would clarify that this information is top down in nature and therefore, it remains too early to attempt to specifically quantify what impacts these items could have on individual portfolio companies from an EBITDA and free cash flow perspective.

Dan: However, we remain cautious as second or third-order impacts are still unknown, and depending on the ultimate tariff resolution may take real time to play out.

Dan: Based on our current portfolio analysis, we believe approximately 8% of our portfolio could have direct exposure to terror falsies. Should they become permanent? And while Dodd's exposure is more difficult to quantify, we currently estimate low to mid single digit Dodd's exposure.

Dan: The good news is our typical portfolio company tends to be large and a market share leader and therefore maintains highly diversified customer and supplier relationships.

Dan: As a result, these companies typically enjoy more pricing power, which allows them to pass through price increases compared to smaller companies.

Dan Pietrzak: You know, that started to slow down a little bit. That's why we commented in February, we were, you know, kind of pushing that M&A, you know, thesis out a little bit. It definitely slowed down in Q2, right? I think everybody, you know, hit a general pause button, you know, post April 2nd, you know, I think we will continue to, you know, benefit from the large existing book, I think we'll continue to benefit from, you know, those developments. I think we'll continue to diversify, you know, origination sources or channels. But I, I think.

Dan: The industry's most impacted by potential tariff policies are consumer doorables, consumer discretionary, consumer staples, and industrials, which falls within our capital goods classification.

Dan: Since identifying potential tariff related headwinds in November we have taken a proactive approach to managing exposure across the portfolio.

Dan: The industry is most impacted by those, our software and services, healthcare, equipment and services, and aerospace and defense, which falls within our capital goods classification.

Dan: Notably during the quarter, we achieved a full exit on to portfolio of companies that we believe exhibited more risk from a tariff in cycle standpoint.

Speaker Change: I would clarify that this information is top-down in nature and therefore remains too early to attempt to specifically quantify what impacts these items could have on individual portfolio companies from an Ibiza and free cash flow perspective.

Dan: The first example, $3 60 group is a company whose products are primarily sourced from China.

Dan Pietrzak: There's going to need to be some more certainty out there before you see more regular way transactions is my guess.

Dan: The second example Lake you farm Lakeview farms is a fluid products business subject to consumer purchasing behavior we.

John Hecht: I really appreciate the call.

Operator: Thank you.

Speaker Change: The good news is our typical portfolio company tends to be large and a market share leader and therefore maintain highly diversified customer and supplier relationships.

Operator: Excuse me, one moment for your next question.

Dan: We are pleased with both outcomes as the investments were repaid at par.

Dan: Another bright spot is our asset based finance portfolio, which we view as particularly compelling during periods like this.

Casey Alexander: The next question comes from the line of Casey Alexander of Compass Point Research and Trading. Casey, please go ahead. Hi, good morning. And thank you for taking my questions.

Speaker Change: As a result, these companies typically enjoy more pricing power, which allows them to pass through price increases compared to smaller companies.

Dan: Traditional secured and unsecured corporate credit investing hinges largely on future earnings forecast and cash flow assumptions, which are obviously volte vulnerable to macro shifts.

Casey Alexander: Dan, this is for you. You know, KKR has a really highly regarded macro group. And And I want to take this opportunity to ask, you know, how does the macro group, which is feeding you information, see the odds of recession changing with what's happening now? And how does the macro group see it impacting private credit going forward?

Speaker Change: Since identifying potential terror-related headwinds in November , we have taken a proactive approach to managing exposure across the portfolio.

Dan: ABS investments by contrast are anchored in contractual structures tied directly to tangible collateral.

Speaker Change: Notably, during the quarter, we achieved a full exit on two portfolio companies that we believe exhibited more risk from a tariff and cycle standpoint.

Dan: We would note however that we are mindful about our consumer related exposure in our ABS portfolio.

Dan: Though we are focused almost entirely on secured risk or high FICO score prime borrowers.

Speaker Change: The first example 360 group is a company whose products are primarily sourced from China.

Dan: Overall, we continue to be bullish on ABS positive impact to our portfolio and the diversification benefits. It provides.

Speaker Change: The second example, Lakeview Farms, Lakeview Farms, is a food products business subject to consumer

Dan Pietrzak: Good morning, Casey. I think you'll, you'll make Henry McVeigh and team happy with that comment. So thank you. You know, we are lucky, you know, being part of KKR to have access to those resources. I mean, Henry sits, you know, probably less than 30 feet from me. You know, we we have almost a monthly call with his team and the broader private credit team where You know, we hear what's on their mind, they actually get, you know, hear what's kind of on our minds, hear what's kind of going on in the portfolio, sort of feeding in the views that actually happened yesterday, this month.

Speaker Change: We are pleased with both outcomes as the investments were repaid at par.

Dan: Turning to <unk> investment activity during the first quarter, we originated approximately $2 billion of new investments.

Speaker Change: Another bright spot is our asset-based finance portfolio, which we view as particularly compelling during periods like this.

Dan: Proximately, 45% of our new investments were focused on add on financings to existing portfolio companies and long term KKR relationships.

Speaker Change: Traditional Secured and Unsecured Corporate Credit, Investing, Hinges, Largely on Future Earnings Forecast and Cash Low Assumptions, which are obviously vulnerable to macro shifts.

Dan: Our new investments combined with $1 1 billion of net sales and repayments when factoring in sales to our joint venture equated to a net portfolio increase of $881 million.

Speaker Change: ABS investments, by contrast, are anchored in contractual structures tied directly to tangible collateral.

Dan Pietrzak: So there's there is an active dialogue there. You know, and I don't want to speak sort of fully for him, but I'll give you kind of, you know, The starting point was kind of good, right, in the sense of the, you know, the health of the economy, the health of the corporates, where the consumer sat. You know, uncertainty is bad. I think the initial tariff numbers that came out post-Liberation Day were much wider than any kind of forecast. You know, I think there's a general consensus that The chances of a recession are, what I will say, probably more likely than not, albeit that could very well be a technical one, or one that's fairly muted.

Dan: New originations consisted of approximately 63% in first lien loans, 1% and other senior secured debt, 19% in asset based finance, 15% and capital cost of the joint venture and 2% in equity and other investments.

Speaker Change: We would note, however, that we are mindful about our consumer-related exposure and our ABS portfolio.

Speaker Change: Though we are focused almost entirely on secured risk or high-fICO score-prime borrowers.

Speaker Change: Overall, we continue to be bullish on ABS positive impact to our portfolio and the diversification benefits it provides.

Dan: Our new direct lending investment commitments at a weighted average EBITDA of approximately $257 million.

Speaker Change: Turning to FSK's investment activity. During the first quarter we originated approximately $2 billion of new investments.

Five five times leverage through our security and at a weighted average coupon of approximately sofa, plus 505 basis points.

Speaker Change: Approximately 45% of our new investments were focused on add-on financing to existing portfolio companies and long-term KKR relationships.

Dan: Though the first quarter of the year has traditionally resulted in seasonally slower new originations. This has been our strongest origination quarter from both a total and net deployment perspective since 2022.

Speaker Change: Our new investments, combined with $1.1 billion of net sales and repayments, when factoring in sales to our joint venture, equated to a net portfolio increase of $881 million.

Dan Pietrzak: I think we're trying to spend more and more time on what we see as the tail risk of that, like where it could sort of get worse, but we do use that team a lot. The dialogue is sort of strong. You know, that said, there has been a fair amount of uncertainty and kind of moves out there. Obviously, there was, I don't know if it's been formally announced, but I saw the headlines this morning with kind of the first sort of, quote, unquote, big trade deal being signed. But, you know, we got to stay on top.

Dan: Despite the sluggishness of the U S M&A market during the first quarter, we experienced strong original strong origination activity driven.

Speaker Change: New originations consisted of approximately 63% in first lean loans, 1% in other senior secure debt, 19% in asset-based finance, 15% in capital calls to the joint venture, and 2% in equity and other investments.

Dan: Driven by our expansive deal funnel, which continues to generate robust diversified deal flow.

Dan: Our private credit team maintained strong sponsor relationships on a global basis, and our large base of incumbent borrowers remains a consistent and valuable source of repeat opportunities.

Speaker Change: Our new direct lending investment commitment added a weighted average EBITDA of approximately $257 million.

Casey Alexander: My second question is You know, you talked about the weighted average yield came down to 10.8%. You know, when I look at the new money yields of 950 Is it reasonable to expect some additional yield compression as the portfolio churns because it's very likely that your repays are significantly yielding materially higher than where your new money yields? Okay, it's it's, you know, not an unfair sort of point. I mean, I think that I think the number is probably closer to nine, eight or sort of 10. When you especially when you factor in some of the OID and sort of potential fee income, you know, I think you know, we are very focused on risk, right?

Dan: We remain focused on the upper middle market or companies with $50 million to $150 million of EBITDA, which tend to have more levers they can pull during challenging periods.

Speaker Change: 5.5 times leveraged through our security and a weighted average coupon of approximately so for plus 505 basis points.

Dan: And in an environment like this we are acutely focused on investing in high quality companies with strong defensive positions.

Speaker Change: Though the first quarter of the year has traditionally resulted in seasonally slower new originations, this has been our strongest origination quarter from both a total and net deployment perspective since 2022.

Dan: The weighted average EBITDA of our portfolio companies was $255 million and the median EBITDA was $120 million as of March 31 2025.

Speaker Change: Despite the sluggishness of the U.S. M&A market, during the first quarter, we experienced strong origination activity, driven by our expansive deal funnel, which continues to generate robust, diversified deal flow.

Dan: Our portfolio of companies reported a weighted average year over year EBITDA growth rate of approximately 10% across companies in which we have invested since April of 2018.

Speaker Change: Our private credit team maintains strong sponsor relationships on a global basis, and our large base of incumbent borrowers remains a consistent and valuable source of repeat opportunities.

Dan: Interest coverage levels remained steady with the median first quarter coverage at one seven times unchanged quarter over quarter.

Dan Pietrzak: You know, we we want to get paid as much as we can on any individual loan. But I think we're also prepared to walk away from loans if it sort of doesn't make sense. You know, I am happy we you know, got some growth into the joint venture. We've been talking about that for some time. You know, and I do think it's at some point, we will see, you know, that M&A market sort of return, albeit, I think we're probably done sort of predicting that in some ways, right? But that's the longer probably side of it.

Dan: At the end of the first quarter non accruals represented three 5% of our portfolio on a cost basis, and two 1% of our portfolio on a fair value basis.

Speaker Change: We remain focused on the upper middle market, or companies with 50 to $150 million of EBITDA, which tend to have more levers they can pull during challenging periods.

Dan: This compares to three 7% of our portfolio on a cost basis, and two 2% of our portfolio on a fair value basis as of December 31, 2024.

Speaker Change: In an environment like this, we're acutely focused on investing in high quality companies with strong defensive positions.

Speaker Change: The weighted average EBITDA of our portfolio companies was $255 million and the median EBITDA was $120 million as of March 31st, 2025.

Dan: We also believe it is helpful to provide the market with information based on SK assets originated by KKR credit.

Dan Pietrzak: And you'll get some additional sort of fee income generated. But yes, I think you could, you could continue to have some downward pressure on that.

Dan: Non accruals relating to the 90% of our total portfolio, which has been originated by KKR credit in the Fs KKR advisor or 2% on a cost basis and 1% on a fair value basis as of the end of the first quarter.

Speaker Change: Our portfolio company's reported a weighted average year over year evita growth rate of approximately 10% across companies in which we have invested since April of 2018.

Dan Pietrzak: I just just slip again one last one we're hearing about loans spilling over from the broadly syndicated market into the private credit market. wouldn't those generally be associated with, you know, somewhat lower new origination yields as compared to stuff that just normally sits in private credit? Or am I mistaken? That's probably a fair point. I mean, you can probably argue there's a pretty high correlation between, you know, quality and size of business and where the spread might sort of, you know, you know, land, you know, I think, almost as a tailwind for private credit, you know, from, you know, the COVID activity, I do think more and more, you know, companies and or sponsors have been willing to you know, use it as a lending tool.

Speaker Change: Interest coverage levels remain steady, with the median first quarter coverage at 1.7 times, unchanged quarter-over-quarter.

This compares to 2% on a cost basis, and <unk>, 8% on a fair value basis as of the end of the fourth quarter.

Dan: During the first quarter two investments were added to non accrual status and three investments were removed.

Dan: Our first lien senior secured position in new era was added to nonaccrual contributing $29 million of cost and $23 million of fair value.

Speaker Change: This compares to 3.7% of our portfolio on a cost basis and 2.2% of our portfolio on a fair value basis as of December 31, 2024.

Dan: Additionally, our second lien investment in Cuba Corp was added to nonaccrual contributing $43 million of costs and $34 million of fair value.

Speaker Change: We also believe it is helpful to provide the market with information based on FSK assets originated by KKR Credit.

Dan: Our position in accurate Alacrity solutions was restructured during the quarter, which resulted in the $22 million of costs and $16 million of fair value being removed from non accrual.

Dan Pietrzak: I think people have gotten more comfortable with it. I think, you know, historically, I feel like people use, you know, direct lending or private credit for certainty of execution. I do think that's extended to including kind of really wanting to know your lender. You know, we've always had a thesis, the loan market and the bond market will continue to exist. I do continue, though, to see, you know, growth kind of here, more companies accessing it, and then in times of volatility, hopefully able to sort of step in and lend against some attractive sort of companies.

Speaker Change: Not a cruise relating to the 90% of our total portfolio which has been originated by KKR Credit and the FS KKR Advisor were 2% on a cross basis and 1% on a fair value basis as of the end of the first quarter.

Dan: Our position in Accuride was also restructured during the quarter, which resulted in $8 million of cost and $2 million of fair value being removed from non accrual.

Speaker Change: This compares to 2% on a cost basis and 0.8% on a fair value basis as of the end of the fourth quarter.

Dan: Our remaining subordinated debt position in Miami Beach medical was converted to equity in conjunction with the Companys wind down removing $18 million of costs and $12 million of fair value from non accrual.

Speaker Change: During the first quarter, two investments were added to not a cruel status, and three investments were removed.

Dan Pietrzak: You know, we did make a comment in our prepared remarks, we saw spreads widen a bit. you know, probably not as much as we'd have liked to seen if we're honest about that. But, you know, I'm not sure the volatility is done. So we're going to be, you know, continue to focus on providing solutions if the market, you know, does struggle all of a sudden again.

Dan: Also during the quarter J W aluminum refinance the $300 million high yield bond with a new $350 million offering. This resulted in a $77 million par paydown on our senior secured bond and a $21 million pay down on our preferred equity position.

Speaker Change: Our first lean senior secure position in New Era was added to not a cruel, contributing $29 million of cost and $23 million of fair value.

Speaker Change: Additionally, our second lean investment in Cubic Corp was added to non-accrual, contributing 43 million dollars of cost and 34 million dollars of fair value.

Dan: Given this investment has been on non accrual since Q4 2023, we are pleased with this outcome.

Casey Alexander: All right. Thank you for taking my questions. I appreciate it. Thanks. Have a good day.

Speaker Change: Our position in Alacrity Solutions was structured during the quarter, which resulted in the $22 million of cost and $60 million of fair value being removed from not a cruel.

Dan: Performance of GWA has been strong and the company is a beneficiary of the recent tariff news.

Operator: One moment for your next question.

Ken Lee: The next question comes from the line of Ken Lee of RBC Capital Markets.

Speaker Change: Our position in Accuride was also structured during the quarter, which resulted in 8 million dollars of cost and 2 million dollars of fair value being removed from non-accrual.

Dan: In terms of other portfolio updates production resource group and $48 40 were our two largest markdowns during the first quarter.

Ken Lee: Ken, please go ahead. Good morning. Thanks for taking my question. Just given the views for continued macro uncertainty there, Any updated thoughts on where preferred leverage. It could go over the near-term death. Yeah, good morning, Ken. I think we've built our target range on leverage, kind of thinking about sort of all markets, right. And we've always talked about sort of one times to 1.25 times, you know, ended the quarter at 114, you know, ended the quarter with, you know, north of $3 billion of available liquidity. So I don't think there's really a change in range there.

Dan: <unk> continues to be impacted by certain tour cancellations and margin pressure and $48 40 has been impacted by labor costs and excess inventory.

Speaker Change: Our remaining subordinated debt position in Miami Beach Medical was converted to equity in conjunction with the company's wind down, removing $18 million of cost and $12 million of fair value from non-a-cruel.

Dan: Separately, we are pleased to note that the sale of Maverick natural resources, our legacy position, which has been in the portfolio since 2014 has closed.

Speaker Change: Also during the quarter, JW Illuminum re-financed the $300 million high yield bond with a new $350 million offering. This resulted in a $77 million par paydown on our senior secured bond and a $21 million paydown on our preferred equity position.

Dan: As a result, <unk> received $18 million in cash and $25 million, a diversified energy company common stock.

Steven: With that I'll turn the call over to Steven.

Steven: Thanks, Dan.

Speaker Change: Given this investment has been on non-accrual since Q4 2023, we are pleased with this outcome.

Steven: As of March 31, 2025, our investment.

Steven: Portfolio had a fair value of $14 1 billion, consisting of 224 portfolio companies.

Speaker Change: Performance at JWA has been strong and the company is a beneficiary of the recent

Ken Lee: You know, I think it's I think as important as the range is, I think your activity on the just your ability generally, but we were happy with the execution on the CLO. We think it's another diversified funding source for companies like this. I think we were happy with what we kind of commented on the family facility. I think the, you know, the, the, the management team on the side and a lot of folks. Go for the broader deal teams to spend real time on the financing facility. So it's not a really nice job.

Steven: At the end of the first quarter, our 10 largest portfolio companies represented 20% of the fair value of our portfolio compared to 21% as of the end of the fourth quarter.

Speaker Change: In terms of other portfolio updates, production resource group, and 4840, where are two largest markdowns during the first quarter.

Speaker Change: PRG continues to be impacted by certain tour cancellations and margin pressure, and 48-40 has been impacted by labor costs and excess inventory.

Steven: We continue to focus on senior secured investments as our portfolio consisted of approximately 58% first lien loans and 63% senior secured debt as of March 31.

Steven: In addition, our joint venture represented 11, 8% of the fair value of our portfolio.

Speaker Change: As a result, <unk> received $18 million in cash and $25 million, a diversified energy company common stock.

Steven: As a result, when investors consider our entire portfolio.

Ken Lee: I think we're feel quite good where we sit from a liability perspective today. Great, very helpful there.

Steven: Looking through to the investments in our joint venture in first lien loans total approximately 67% of our total portfolio.

Steven: With that I'll turn the call over to Steven.

Steven: Thanks, Dan.

Speaker Change: At March 31, 2025, our investment portfolio had a fair value of $14 1 billion consisting of 224 portfolio companies.

Ken Lee: And then one follow-up, if I may, just on the asset-based financing side, the ABF portfolio, I think in the prepared remarks, you mentioned that there could be some retail-oriented risks there. Maybe you could just remind us again which particular investments... This could center on and maybe just remind us again some of the downside protection in a lot of these ABF investments there. Thanks. Yeah, no, and I think we wanted to make, you know, the point fair, Doran, our prepared remarks, right? We are You know, still very, you know, excited about the broader opportunity in the ABF sort of space, you know, I did call out specifically, we're just mindful about the consumer risk we do have, you know, that is a small percentage of FSK, you know, it's roughly 3% of total size.

Steven: And senior secured investments total approximately 73% of our portfolio as of March 31.

Speaker Change: At the end of the first quarter, our 10 largest portfolio companies represented 20% of the fair value of our portfolio compared to 21% as of the end of the fourth quarter.

Steven: The weighted average yield on accruing debt investments was 10, 8% as of March 31.

Steven: A decrease of 20 basis points compared to 11%.

Steven: At December 31.

Speaker Change: We continue to focus on senior secured investments as our portfolio consisted of approximately 58% first lien loans and 63% senior secured debt as of March 31.

Steven: The decrease primarily attributable to incremental spread compression on new investments and the decline in base rates.

Steven: As a reminder, the calculation of weighted average yield is adjusted.

Speaker Change: In addition, our joint venture represented 11, 8% of the fair value of our portfolio.

Steven: To exclude the accretion associated with the merger of Fs KR.

Steven: Our total investment income decreased by $7 million quarter over quarter to 400 million.

Speaker Change: As a result, when investors consider our entire portfolio looking through to the investments in our joint venture in first lien loans total approximately 67% of our total portfolio.

Steven: Primarily due to two fewer days in the first quarter compared with the fourth quarter, the pay down of higher yielding investments and lower spreads on new originations.

Speaker Change: And senior secured investments total approximately 73% of our portfolio.

Dan Pietrzak: You know, I think when we have been active in the consumer space, we've generally targeted, you know, either secured risk, you know, higher FICO score type risk, or what I call, you know, kind of either loans to homeowners or other sort of short duration loans, you know, maybe just two examples for us, we've talked about on prior calls, you know, one would be PayPal, the European deal, but that is a portfolio that, you know, Unknown Executive, John Hecht, Bryce Rowe, Michael Forman, Daniel Pietrzak, Steven Lilly, makes us kind of, you know, feel good that even with the tariff noise, even with other things, they're going to continue to perform.

Steven: The primary components of our total investment income during the quarter were as follows.

Speaker Change: As of March 31.

Speaker Change: The weighted average yield on accruing debt investments was 10, 8% as of March 31.

Steven: Total interest income was $302 million.

Steven: A decrease of $22 million quarter over quarter.

Speaker Change: Decrease of 20 basis points compared to 11%.

Steven: Dividend and fee income totaled $98 million, an increase of $15 million quarter over quarter.

Speaker Change: December 31 of.

Speaker Change: The decrease primarily attributable to incremental spread compression on new investments and the decline in base rates.

Steven: Our total dividend and fee income during the quarter is summarized as follows.

Steven: $46 million of recurring dividend income from our joint venture.

Speaker Change: As a reminder, the calculation of weighted average yield is adjusted to.

Speaker Change: To exclude the accretion associated with the merger of Fs KR.

Steven: Other dividends from various portfolio companies totaling approximately $35 million during the quarter.

Speaker Change: Our total investment income decreased by $7 million quarter over quarter to $400 million.

Steven: And fee income totaling approximately $17 million during the quarter.

Speaker Change: Primarily due to two fewer days in the first quarter compared with the fourth quarter, the pay down of higher yielding investments and lower spreads on new originations.

Steven: Our interest expense totaled $113 million.

Steven: A decrease of $3 million quarter over quarter.

Steven: Our weighted average cost of debt was five 5% as of March 31.

Speaker Change: The primary components of our total investment income during the quarter were as follows.

Dan Pietrzak: I think we're worried a little bit more about the non-prime or the subprime consumer because I think, you know, by definition, in my mind, you know, tariffs will put additional sort of cost into the system that somebody has to pay. Great. Very helpful there. Thanks again. Okay, thanks. Have a good day.

Steven: Management fees totaled $52 million, a decrease of $1 million quarter over quarter.

Speaker Change: Total interest income was $302 million.

Speaker Change: A decrease of $22 million quarter over quarter.

Steven: And incentive fees totaled $39 million.

Speaker Change: Dividend and fee income totaled $98 million, an increase of $15 million quarter over quarter.

Steven: An increase of $4 million quarter over quarter.

Steven: Other expenses totaled $9 million during the first quarter unchanged quarter over quarter.

Speaker Change: Our total dividend and fee income during the quarter is summarized as follows.

Finian O'shea: One moment for your next question. The next question comes from the line of Finian O'Shea of Wells Fargo Security. Finian, please go ahead. Hey, everyone. Good morning. Thanks. Steven, I think the guys for for non JV and other fee was 43. Does that imply a sort of continued strength in the ABF group or other fee income? Thanks. Jeff, and the In the first quarter, we were a little heavier on ABF dividends distributions. And as you know, that business can be a little bit lumpy quarter to quarter, it varies quarter to quarter. So we're a little bit lighter there in terms of guidance for the second quarter.

Steven: The detailed bridge and our net asset value per share on a quarter over quarter basis is as follows our ending <unk> 2024, net asset value per share of $23.64 was increased by GAAP net investment income of 67 per share and was decreased.

Speaker Change: $46 million of recurring dividend income from our joint venture.

Speaker Change: Other dividends from various portfolio companies totaling approximately $35 million during the quarter.

Speaker Change: And fee income totaling approximately $17 million during the quarter.

Speaker Change: Our interest expense totaled $113 million.

Steven: By 2000, and <unk> per share due to a decrease in the overall value of our investment portfolio.

Speaker Change: A decrease of $3 million quarter over quarter.

Speaker Change: Our weighted average cost of debt was five 5% as of March 31.

Steven: Our net asset value per share was reduced by our <unk> 70 per share total distributions paid during the quarter.

Speaker Change: Management fees totaled $52 million.

Speaker Change: A decrease of $1 million quarter over quarter.

Steven: Some of these activities results in our March 31, 2025, net asset value per share of $23 and 37.

Speaker Change: And incentive fees totaled $39 million.

Speaker Change: An increase of $4 million quarter over quarter.

Steven: From a forward looking guidance perspective, we acknowledge the many factors currently affecting the U S economy.

Speaker Change: Other expenses totaled $9 million during the first quarter unchanged quarter over quarter.

Speaker Change: The detailed bridge and our net asset value per share on a quarter over quarter basis is as follows our ending <unk> 2024, net asset value per share of $23 64.

Steven: As a result, while we continue to provide guidance in an effort to be as transparent as possible with the investment community.

Steven Lilly: But that's made up, if you will, you know, in a almost exactly within a million dollars or so, additional dividends from or growth and dividends from the joint venture. Um, you know, as we have, as Dan mentioned, and his comments have continued to scale that. So is it other, is it just fee income that's supposed to jump? No fee income is down, I think, $3 million quarter over.

Steven: There is the potential for greater variance within our guidance categories than in prior periods.

Steven: With that said, we expect second quarter 2025.

Speaker Change: Was increased by GAAP net investment income of 67 per share and was decreased by 24 per share due to a decrease in the overall value of our investment portfolio.

Steven: GAAP net investment income to approximate 64 per share and we expect our adjusted net investment income until.

Steven: To approximate 60 <unk> per share.

Speaker Change: Our net asset value per share was reduced by our 70 <unk> per share total distributions paid during the quarter.

Steven: Detailed second quarter guidance is as follows.

Steven: Our recurring interest income on a GAAP basis is expected to approximate $302 million.

Speaker Change: Some of these activities results in our March 31, 2025, net asset value per share of $23 and 37.

Steven: We expect recurring dividend income associated with our joint venture to approximate $56 million.

Finian O'shea: And maybe Finn, we'll make sure we can follow up with you after the tip to kind of tie that out because I want to make sure you have the right number. Okay, sure.

Speaker Change: From a forward looking guidance perspective, we acknowledge the many factors currently affecting the U S economy.

We expect other fee and dividend income to approximate $43 million during the second quarter.

Dan Pietrzak: And Dan, one on ABF, sort of tying to Perhaps Casey's question on yield. A lot of the new ABF, maybe with the exception of Open Door, looks like senior debt, you know, below 500 type spreads. Is this the way it's is this maybe from your senior high grade style group or is this the way it's going for you overall in ABF? Yeah, and I think what you're picking up there is the receivables and inventory deals we've been doing. You know, So, you know, and the market has generally called that more ABL, but it's included within our kind of ABF sort of classification here.

Speaker Change: As a result, while we continue to provide guidance in an effort to be as transparent as possible with the investment community.

Steven: From an expense standpoint, we expect management fees to approximate $53 million, we expect incentive fees to approximate $36 million.

Speaker Change: There is the potential for greater variance within our guidance categories than in prior periods.

Steven: We expect interest expense to approximate $124 million and we expect other G&A expenses to approximate $10 million.

Speaker Change: With that said, we expect second quarter 2025.

Speaker Change: GAAP net investment income to approximate 64 per share and we expect our adjusted net investment income.

Speaker Change: And as Michael indicated during his remarks, our 2025 distribution guidance remains in place as we currently expect our distributions during the year will total $2 80 per share comprised of $2 56 per share a base distributions and 24 per share.

Speaker Change: To approximate 60 keystone's per share.

Speaker Change: Detailed second quarter guidance is as follows I'll.

Speaker Change: Our recurring interest income on a GAAP basis is expected to approximate $302 million.

Speaker Change: We expect recurring dividend income associated with our joint venture to approximate $56 million.

Steven: <unk> of supplemental distributions.

Steven: Turning to our capital structure in March we closed on our second middle market CLO, raising $380 million of low cost secured debt priced at a weighted average rate of <unk> plus 158 basis points were.

Speaker Change: We expect other fee and dividend income to approximate $43 million during the second quarter.

Dan Pietrzak: So that's generally, you know, to a company, sometimes it's it's senior secured, sometimes it's done, you know, in an SPV, you know, I think we're getting good overall return pickup there versus direct lending. Because you're usually, you know, north of 500, and there's pretty significant kind of upfront fee income and or exit fee income, I would probably separate that from, you know, what I would call the traditional, you know, ABF deals that I'm talking about, like the Discover, or like, you know, PayPal, or the stuff we've been doing in aviation leasing, which would be still higher than that.

Speaker Change: From an expense standpoint, we expect management fees to approximate $53 million, we expect incentive fees to approximate $36 million.

Steven: We are pleased with this financing given it is match funded with no mark to market at an attractive rate.

Speaker Change: We expect interest expense to approximate $124 million and we expect other G&A expenses to approximate $10 million.

Steven: Additionally in March we amended our Morgan Stanley funding facility, where we reduced the spread from two 7% to 195% and extended the maturity date by two years to November 2028.

Steven: As of March 31, 2025, our gross and net debt to equity levels for 122% and 114%, respectively compared to 112% and 104% at December 31 2024.

Robert Dodd: And then I, you know, the high grade business that you sort of referenced, like that is a very, you know, large, you know, activity for us, you know, it does keep the ABF team sort of active in addition to the, you know, more regular way or sort of opportunistic deals, but those high grade deals are generally an IG plus product, that wouldn't be part of the FSK portfolio, I think you're picking up the receivables and inventory stuff. Very helpful. Thanks so much. Have a good day. One moment for your next question.

Speaker Change: <unk> of supplemental distributions.

Speaker Change: Turning to our capital structure in March we closed on our second middle market CLO, raising $380 million of low cost secured debt priced at a weighted average rate of <unk> plus 158 basis points were.

Steven: At March 31, our available liquidity was $3 $2 billion and.

Steven: Only 54% of our drawn balance sheet and 41% of our committed balance sheet was comprised of unsecured debt.

Speaker Change: We are pleased with this financing given it is match funded with no mark to market at an attractive rate.

Michael Forman: And with that I will turn the call back to Michael for a few closing remarks before we open the call for questions.

Speaker Change: Additionally in March we amended our Morgan Stanley funding facility, where we reduced the spread from two 7% to 195% and extended the maturity date by two years to November 2028.

Robert Dodd: The next question comes from the line of Robert Dodd, or Dodd, excuse me, of Raymond James. Robert, please go ahead. Thank you, you got it right the second time, Dodds.

Michael Forman: Thanks, Steven in closing, while the broader environment remains uncertain. We believe that <unk> has taken and is continuing to take proactive steps to deliver for our shareholders. Many private credit providers have navigated volatile volatile markets extremely well in the past and we believe <unk> is well positioned to navigate.

Robert Dodd: Um, two questions I'm going to talk out of both sides of my mouth here. One on JW Aluminum, and to your point, it should be a beneficiary, I mean locally sourced scrap, domestic producer, etc. paying down debt, the bond investors on the refinance obviously think they're going to get repaid. The pick preferred still on monocruel, but there's a lot of positive trends there. I mean, how close do you think that asset, it's a pretty big one, obviously, is to that preferred going back on accrual, given all the positive trends and the fact that obviously you just got partially repaid at par on that trench, which...

Speaker Change: As of March 31, 2025, our gross and net debt to equity levels for 122% and 114%, respectively compared to 112% and 104% at December 31 2024.

Michael Forman: This period of uncertainty as well.

Michael Forman: Credit thrives in part because of its consistent ability to generate a steady stream of current income for its investors.

We are confident in our business strategy and believe both the breadth of the KKR credit platform and our strong balance sheet will allow us to continue to succeed going forward.

Speaker Change: At March 31, our available liquidity was $3 2 billion.

Speaker Change: And approximately 54% of our drawn balance sheet and 41% of our committed balance sheet was comprised of unsecured debt.

Michael Forman: And with that operator, we'd like to open the line for questions.

Speaker Change: Thank you as a reminder to ask a question you will need to press Star One line and wait for your name to be announced please standby, while we compile the Q&A right there.

Michael Forman: And with that I'll turn the call back to Michael for a few closing remarks before we open the call for questions.

Dan Pietrzak: may indicate it's collectible at par and may be worth taking into account. Yeah, I mean, I appreciate the question. Yeah, I think the deal team has done kind of great work, I think, on this name, you know, over the last several years. It's traditionally been in what I'll call a hard industry. You know, we're kind of a minority there. But I think the overall ownership group has been well coordinated as well. I think, you know, Robert, we're very happy to get that bond deal done, right? Very happy to effectively take some money off the table on the bottom parts of the capital structure.

Speaker Change: Your first question comes from the line of John Hecht Jefferies. John. Please go ahead.

John Hecht: Morning, guys. Thanks, very much for taking my questions.

Speaker Change: First one is it.

Michael Forman: This period of uncertainty as well.

Speaker Change: Just I guess kind of I guess from a modeling perspective.

Michael Forman: Good credits thrives in part because of its consistent ability to generate a steady stream of current income for its investors.

Speaker Change: The timing of deployments last quarter.

Speaker Change: And then also is the full effects of rate changes in the run rate.

Michael Forman: We are confident in our business strategy and believe both the graph of the KKR credit platform and our strong balance sheet will allow us to continue to succeed going forward.

Speaker Change: From last quarter.

Dan Pietrzak: You know, earnings we have seen there have been strong. You know, I think that there is definitely the what I will call the tailwind for what's going on as a benefit. So I think we're happy about that.

Speaker Change: Or should we expect some more adjustments coming into this quarter from our end.

Speaker Change: And with that operator, we'd like to open the line for questions.

Speaker Change: Asset yield perspective.

Speaker Change: Thank you as a reminder to ask a question you will need to press star one one and wait for your name to be announced please standby, while we compile the Q&A roster.

John Hecht: Hey, good morning, John.

Speaker Change: And maybe Steve will comment on some of the modeling points I think.

Dan Pietrzak: I think we're going to be pretty thoughtful, though, or pretty conservative about putting something, you know, back on accrual. But, you know, I think time will tell.

Speaker Change: I think we were happy with the origination number I think a couple of things to point out we talked about on the last call, but there was some carryover of slippage from the prior quarter.

Robert Dodd: And I think we're going to continue to be active with the name to see if we can capitalize on the current market environment that again, I think is a tailwind for the business got it got it thank you on on that and congratulations on the work done on that effort um second question kind of the opposite side i'm looking at the chart on on page 10 in the presentation and it shows you know over the last two quarters kind of median leverage in the portfolio has gone down four tenths over the same time period the average uh borrower cost i.e.

Speaker Change: Your first question comes from the line of John Hecht Jefferies. John. Please go ahead.

Speaker Change: It deals with how we're going to get done in December.

Speaker Change: On the other side of that I think from a diversification of deployment. We're also pretty happy right. We are growing the JV that was a focus area for us we continue to deploy into.

John Hecht: Morning, guys. Thanks, very much for taking my questions.

John Hecht: First one is just.

John Hecht: Just I.

John Hecht: I guess kind of I guess from a modeling perspective.

John Hecht: The timing of deployments last quarter.

Speaker Change: Our asset based finance activities.

Speaker Change: And we are also focused on getting some additional non U S. Exposure is so those three buckets, where probably half.

John Hecht: And then also is the full effect of rate changes in the run rate.

John Hecht: From last quarter.

Speaker Change: The total $2 billion.

Dan Pietrzak: income yield to you has gone down like 70 basis But the interest coverage has gone up a tiny bit, but not much. It looks like there's there's some kind of diversion or divergence. between the interest coverage trends and, you know, the portfolio yield and the leverage in the portfolio. So can you I mean, I'm probably missing something, but can you kind of explain what's what's going on there? Why interest coverage isn't isn't improving at a faster pace given portfolio leverage is falling and rates are falling? Yeah, I just bring it up to the page 10 here, you know, I do think you probably got a little bit of a lag effect, kind of number one and number two, you know, while I kind of can see that the trend sort of the point you're putting, I think you're, I think we're all talking about just kind of like, you know, point 1.2 sort of numbers that could also include some some rounding.

John Hecht: Or should we expect some more adjustments coming into this quarter from.

Speaker Change: My guess is from a modeling perspective is probably pretty balanced and thinking about kind of the ins and the outs with Stephens.

John Hecht: Asset yield perspective.

John Hecht: Hey, good morning, John.

John Hecht: Yes, John.

Speaker Change: Maybe Steve will comment on some of the modeling points I think.

John Hecht: Most of the decline in rates has flowed through now.

Speaker Change: I think we were happy with the origination number I think a couple of things to point out we talked about on the last call. There was some carryover of slippage from the prior quarter.

John Hecht: As of the end of the first quarter.

John Hecht: But as you know from the.

John Hecht: Comments on the call, we went down from 11% down to 10 spot.

John Hecht: On a weighted average yield basis. So you have.

Speaker Change: It deals with how we're going to get done in December.

John Hecht: That that flow through in the portfolio it will affect us and that's effectively why in the guidance that we gave our interest income.

John Hecht: The recurring interest income is effectively flat.

John Hecht: Around 300 million for the first quarter and then also guidance for the second quarter.

Speaker Change: Our asset based finance activities.

Speaker Change: And we are also focused on getting some additional non U S exposure and so those three buckets, where probably half.

Speaker Change: Okay, and then Dan you did you did give some color around.

John Hecht: The fact that some of the.

Speaker Change: The total $2 billion.

John Hecht: Hi activity in <unk> was kind of a catch up.

Speaker Change: My guess is from a modeling perspective is probably part of your balance and thinking about kind of the ins and the outflow Steven.

John Hecht: But I am wondering when you think about your pipeline now.

Steven Lilly: We'll do a little bit of work on the other side and circle back, but my sense is probably more of a lag. Yeah, it's primarily a lag, Robert. You know, when, when rates were going, interest rates were rising, you know, there were lots of questions on BDC calls, ours included of, you know, is, how are people calculating interest coverage and, and those types of things, you know, is it, is it trailing? Is it forward? Is it a mix? And so, you know, some, basically the answer to your question is it's a little bit of a lag.

John Hecht: And activity overall within your own platform.

John Hecht: Yes, John.

John Hecht: Most of the decline in rates has flowed through now.

John Hecht: It's clear that you guys had a much more active first quarter, then I guess the overall market. So I'm wondering are there certain categories of assets or characteristics of transactions that you guys.

John Hecht: As of the end of the first quarter.

John Hecht: But as you know from the.

John Hecht: Comments on the call, we went down from 11% down to 10 spot.

John Hecht: On a weighted average yield basis, so that.

John Hecht: S K and attached to KKR.

John Hecht: Pat.

John Hecht: Flow through in the portfolio it will affect us and that's effectively why in the guidance that we gave our interest income.

John Hecht: Yes.

John Hecht: It may be gaining market share or is there anything that you could talk about thats a reflection of the competitive environment, that's giving you guys the incremental opportunities.

Maxwell Fritscher: Okay, got it. Thank you. One moment, please. Excuse me, one moment for your next question. The next question comes from the line of Maxwell Fritscher of Truist. Maxwell, please go ahead. Thank you. Good morning.

John Hecht: The recurring interest income is effectively flat.

John Hecht: Around $300 million for the first quarter and then also guidance for a second.

John Hecht: Yes.

John Hecht: I think John made a couple of sort of pieces there one.

Speaker Change: Okay, and then Dan you did you did give some color around.

John Hecht: Do.

John Hecht: Kind of like that were kind of sourcing from different pieces and really giving.

John Hecht: The fact that some of the.

John Hecht: S K access to everything we're doing in private credit.

Speaker Change: The high activity in <unk> was kind of a catch up.

Maxwell Fritscher: I'm Mark from Mark Hughes. Given the assumption of economic uncertainty persisting through 2025, in a possible recession case, do you anticipate any material difference in deal activity in the upper middle market, or sorry, the upper market that you're operating in versus maybe the core middle and lower middle market? Yeah, and good morning. We're having a little bit of a hard time hearing you, but I think I gotcha. You know, I you could probably make a case that some of the activity and the larger company size could be more muted because it does probably rely on a, you know, more active, you know, M&A market, including kind of sponsor to sponsor sales.

John Hecht: Probably give the benefit to as I said, a couple of deals out of Europe.

Speaker Change: But I am wondering when you think about your pipeline now.

Speaker Change: Activity overall within your own platform.

John Hecht: The activity.

John Hecht: And our asset based finance business I think in terms of just broader activity levels I think we were definitely.

Speaker Change: It's clear that you guys had a much more active first quarter, then I guess the overall market. So I'm wondering are there certain categories of assets or characteristics of transactions that you guys.

John Hecht: Walking into the year feeling like it was going to be a very active and busy 'twenty five.

John Hecht: It started to slow down a little bit and Thats why we commented on in February we were.

Speaker Change: S K and attached to KKR.

John Hecht: Kind of pushing that M&A thesis out a little bit definitely slowed down in Q2, but I think everybody at a general pause button.

Speaker Change: Yes.

Speaker Change: It may be gaining market share or is there anything that you could talk about that as a reflection of the competitive environment, that's giving you guys about incremental opportunities.

John Hecht: Post April 2nd.

Speaker Change: Yes.

John Hecht: We will continue to benefit from our large existing book I think will continue to benefit from those diversified.

John Hecht: I think John made a couple of other pieces there one.

Speaker Change: Do.

Speaker Change: Kind of like that were kind of sourcing from different pieces and really giving.

John Hecht: Origination sources our channels, but.

Dan Pietrzak: You know, I think that said the I think the benefit of of that we have and I think a lot of the other large players have of this kind of incumbent. could help with that. Thank you.

Speaker Change: S K access to everything we're doing in private credit.

John Hecht: Thank you.

Speaker Change: There's going to be some more certainty out there before you see more regular way transactions is my guess.

Speaker Change: Probably give the benefit to as I said a.

Speaker Change: A couple of deals out of Europe.

Speaker Change: The activity.

John Hecht: Okay really appreciate the color. Thank you.

Speaker Change: And our asset based finance business I think in terms of just broader activity levels I think we were definitely.

Speaker Change: Thank you.

Speaker Change: Excuse me one moment for your next question.

Unknown Executive: of Michigan School of Business, with the support of the American Librarian Association. We're always available. Thank you. Unknown Executive, John Hecht, Bryce Rowe, Michael Forman, Daniel Pietrzak, Steven Lilly, Brian Gerson, Robert Dodd, Erik Zwick, Bryce Rowe, Michael Forman, Daniel Pietrzak, Steven Lilly, Brian Gerson, Robert Paun, Maxwell Fritscher, Anna Kleinhenn, I think, Maxwell, your intuition is probably correct. but I do think if you see. Microsoft Office Word MSWordDoc Word.Document.8 Transcripts provided by Transcription Outsourcing, LLC. Thank you. I think I'm having a little technical difficulties on my side, so I'll leave it there. Appreciate the answer. Okay.

Speaker Change: Yeah.

Speaker Change: Walking into the year feeling like it was going to be a very active and busy 'twenty five that started to slow down a little bit Thats why we combat and in February we were.

Speaker Change: The next question comes from the line of Casey Alexander of Compass Point Research <unk> trading Casey. Please go ahead.

Casey Alexander: Hi, good morning.

Speaker Change: Kind of pushing that M&A.

Casey Alexander: Thank you for taking my questions. Dan. This is for you KKR has a really highly regarded macro group.

Speaker Change: This out a little bit definitely slowed down in Q2, but I think everybody at a general pause button.

Speaker Change: Post April 2nd.

<unk>.

Speaker Change: We will continue to benefit from our large existing book I think will continue to benefit from that.

Casey Alexander: And I want to take this opportunity to ask you.

Casey Alexander: How does the macro group, which is feeding you information see the odds of recession changing with what's happening now and how does the macro groups see it impacting private credit going forward.

Speaker Change: Diversified.

Speaker Change: Origination sources our channels.

Speaker Change: But I think.

Speaker Change: They're going to need to be some more certainty out there before youll see more regular way transactions is my guess.

Speaker Change: Okay really appreciate the color. Thank you.

Speaker Change: Yes, good morning, Casey I think Youll make Henry Mcvey and team happy with that comment so thank you.

Speaker Change: Thank you.

Speaker Change: Excuse me one moment for your next question.

Operator: Thank you. One moment for your next question. Actually, I am showing no further questions.

Speaker Change: We are lucky.

Speaker Change: Being part of KKR to have access to those resources.

Speaker Change: The next question comes from the line of Casey Alexander of Compass Point Research and trading Casey. Please go ahead.

Speaker Change: Henry.

Speaker Change: Less than 30 feet for me.

Operator: So I would now like to turn it back over to Pete for closing remarks. and Dan Pietrzak. Thank you. Everyone, thank you for taking the time today and your questions. We're wishing everybody a good summer. We look forward to talking to you again in August. If there are any follow-up points, though, please don't hesitate to reach out. So thanks, have a good day.

Speaker Change: We have almost a monthly call with his team and the broader private credit team where.

Casey Alexander: Hi, good morning.

Speaker Change: Thank you for taking my questions. Dan This is for U K.

Speaker Change: We hear what's on their mind, they actually get here, what's kind of on our minds here, what's kind of going on in the portfolio sort of feeding and have used that actually happened.

Speaker Change: KKR has a really highly regarded macro group and.

Speaker Change: And I want to take this opportunity to ask.

Speaker Change: Yesterday the spot. So there is an active dialogue there.

Speaker Change: How does the macro group, which is feeding your information see the odds of recession changing with what's happening now.

Speaker Change: Yes.

Speaker Change: And then I don't want to speak to sort of fully friend, but I'll give you kind of.

Speaker Change: Yes.

Speaker Change: The starting point was kind of good right in the sense of the.

Speaker Change: And how does the macro group see it impacting private credit going forward.

Speaker Change: The health of the economy, the health of the corporates, where the consumer SaaS.

Speaker Change: Yes, good morning, Casey I think Youll make Henry Mcvey and team happy with that comment. So so thank you.

Speaker Change: Uncertainty is bad I think the initial tariff numbers that came out post liberation day were much wider than any kind of forecast.

Speaker Change: We are lucky.

Speaker Change: Being part of KKR to have access to those resources.

Speaker Change: I think there's a general consensus that.

Speaker Change: Henry.

Speaker Change: The chances of a recession.

Speaker Change: Probably less than 30 feet for me.

Speaker Change: What I will say, probably more likely than not albeit that could very well be a technical one.

Speaker Change: We have almost a monthly call with his team and the broader private credit team where.

Speaker Change: Or one that that's fairly muted I think we're trying to spend more and more time on what we see is the tail risk to that like where it could get worse, but.

Speaker Change: Yes yesterday. This is Bob so there is an active dialogue there.

Speaker Change: We do use that team a lot.

Speaker Change: The dialogue is strong in.

Speaker Change: And then I don't want to speak to sort of fully frame, but I'll give you kind of.

Speaker Change: Yes.

Speaker Change: That said there has been a fair amount of uncertainty and kind of moves out there obviously there was.

Speaker Change: The starting point was kind of good right in the sense of the.

Speaker Change: The health of the economy or the health of the corporates, where the consumer SaaS.

Speaker Change: I don't know if its been formally announced but I saw the headlines. This morning, what's kind of the first.

Speaker Change: Uncertainty is bad I think the initial tariff numbers that came out post liberation day were much wider than any kind of forecast.

Speaker Change: So the quote unquote big trade deals being signed.

Speaker Change: But we got to stay on top of that.

Speaker Change: My second question is.

Speaker Change: I think there is a general consensus that.

Speaker Change: You talked about the weighted average yield came down to 10, 8%.

Speaker Change: The chances of a recession.

Speaker Change: When I look at the new money yields of 950.

Speaker Change: What I will say, probably more likely than not albeit that could very well be a technical one.

Speaker Change: Is it reasonable to expect some additional yield compression as the portfolio churns, because it's very likely that youre repays are significantly yielding fielding materially higher than where your new money yields are.

Speaker Change: Or one that's that's fairly muted I think we're trying to spend more and more time on what we see is the tail risks with that like where it could get worse, but.

Speaker Change: We do use that team a lot.

Speaker Change: The dialogue is sort of a strong in.

Speaker Change: Yes.

Speaker Change: Not an unfair sort of point I mean, I think that I think the number is probably closer to 908 or sort of 10.

Speaker Change: That said there has been a fair amount of uncertainty and kind of moves out there obviously there was.

Speaker Change: I don't know if its been formally announced but I saw the headlines. This morning, what's kind of the first set of.

Speaker Change: When you, especially when you factor in some of the OID and sort of potential fee income.

Speaker Change: Quite a big trade deals being signed.

Speaker Change: I think.

Speaker Change: We are.

Speaker Change: But we got to stay on top of that.

Speaker Change: Very focused on risk right, we want to get paid as much as we can on any individual loan, but I think we're also prepared to walk away from loans and it sort of doesn't make sense.

Speaker Change: My second question is.

Speaker Change: You talked about the weighted average yield came down to 10, 8%.

Speaker Change: I am happy we.

Speaker Change: When I look at the new money yields of 950.

Speaker Change: <unk> got some growth into the joint venture we've been talking about that for some time.

Speaker Change: Is it reasonable to expect some additional yield compression as the portfolio churns, because it's very likely that youre repays are significantly yielding yielding materially higher than where your new money yields are.

Speaker Change: And I do think at some point, we will see that M&A market sort of return, albeit I think were probably done sort of predicting that in some ways right, but thats a longer probably side of it.

Speaker Change: You'll get some additional sort of fee income generated but yes, I think you could you could continue to have some downward pressure on that point.

Speaker Change: Okay.

Speaker Change: No not an unfair sort of point I mean, I think that I think the number is probably closer to 908 or sort of 10.

Speaker Change: Just just slip again, one last one we're hearing about loans spilling over from the broadly syndicated market into the private credit market.

Speaker Change: When you, especially when you factor in some of the OID and sort of potential fee income.

Speaker Change: I think.

Speaker Change: Those generally be associated with.

Speaker Change: We are.

Speaker Change: Very focused on risk right, we want to get paid as much as we can on any individual loan, but I think we're also prepared to walk away from loans of it sort of doesn't make sense.

Speaker Change: Somewhat lower new origination yields as compared to stuff that just normally sits in private credit or am I mistaken about that.

Speaker Change: That's probably a fair point.

Speaker Change: You could probably argue that was a pretty high correlation between.

Speaker Change: I am happy we.

Speaker Change: <unk> got some growth into the joint venture we've been talking about that for some time.

Speaker Change: Quality and size of business and where the spread might sort of you know.

Speaker Change: Yeah.

Speaker Change: Land.

Speaker Change: Almost as a tailwind for private credit.

Speaker Change: The COVID-19 activity I do think more and more.

Speaker Change: Companies and our sponsors have been willing to.

Speaker Change: And you'll get some additional sort of fee income generated but yes. I think you could you could continue to have some downward pressure on that time point.

Speaker Change: Use it as a lending toy and people have gotten more comfortable with it I think historically I feel like people use direct lending private credit for certainty of execution I do think that's extended to including kind of really wanting to know your lender.

Speaker Change: Just just slip again, one last one we're hearing about loans spilling over from the broadly syndicated market into the private credit market.

Speaker Change: Those generally be associated with a.

Speaker Change: <unk>.

Speaker Change: We've always had a thesis the loan market and the bond market will continue to exist.

Speaker Change: Somewhat lower new origination yields as compared to stuff that just normally sits in private credit or am I mistaken about that.

Speaker Change: I continue though to see growth kind of hear more companies accessing it and then in times of volatility hopefully able to sort of step in.

Speaker Change: That's probably a fair point I mean.

Speaker Change: You could probably argue that was a pretty high correlation between.

Speaker Change: I wanted to get some attractive set of companies, we did make a comment in our prepared remarks, we saw spreads widen a bit.

Speaker Change: The quality and size of business and where the spread might sort of.

Speaker Change: No.

Speaker Change: Sure.

Speaker Change: Lance.

Speaker Change: Probably not as much as we would have liked to seen if we're honest about that.

Speaker Change: Almost as a tailwind for private credit.

Speaker Change: But.

Speaker Change: From the Covid activity I do think more and more.

Speaker Change: I'm not sure of the volatility has done so we're going to be continued focused on providing solutions that the market industrial all of a sudden.

Speaker Change: Companies and our sponsors have been willing to.

Speaker Change: Use it as a lending total I think people have gotten more comfortable with it I think historically I feel like people use direct lending private credit for certainty of execution I do think that's extended to including kind of really wanting to know your lender.

Speaker Change: Thank you.

Speaker Change: Alright, Thank you for taking my questions I appreciate it.

Speaker Change: Thanks have a good day.

Speaker Change: One moment for your next question.

Speaker Change: The next question comes from the line of Ken Lee of RBC capital markets. Ken. Please go ahead.

Speaker Change: We've always had a thesis the loan market and the bond market will continue to exist.

Speaker Change: I just continue though to see growth kind of hear more companies accessing it and then in times of volatility hopefully able to sort of step in.

Ken Lee: Hey, good morning, Thanks for taking my question.

Speaker Change: Just given the views for macro continued macro uncertainty there.

Speaker Change: I wanted to get some attractive set of companies, we did make a comment in our prepared remarks, we saw spreads widen a bit.

Speaker Change: Any updated thoughts on where preferred leverage ranges could could go over the near term there. Thanks.

Speaker Change: Sure.

Speaker Change: Probably not as much as we would have liked to seen if we're honest about that.

Ken Lee: Yes, good morning, Ken.

Speaker Change: Sure.

Speaker Change: But.

Speaker Change: Yes, I think we've built our target range on leverage kind of thinking about sort of all markets, Brian and we've always talked about sort of one times to 125 times ended.

Speaker Change: I'm not sure the volatility has done so we're going to be continue to focus on providing solutions that the market industrial setting.

Speaker Change: They get it.

Speaker Change: We ended the quarter at 114 ended the quarter with north of $3 billion of available liquidity. So I don't think theres really a change in range there.

Speaker Change: Alright, Thank you for taking my questions I appreciate it.

Speaker Change: Thanks have a good day.

Speaker Change: One moment for your next question.

Speaker Change: I think it's I think as important as the ranges I think your activity on the just your liabilities.

Speaker Change: The next question comes from the line of Ken Lee of RBC capital markets. Ken. Please go ahead.

Speaker Change: Right.

Speaker Change: You are happy with the execution on the CLO, we think it's another diversified funding source for companies like this I think we were happy with.

Speaker Change: Hey, good morning, Thanks for taking my question.

Speaker Change: Just given the views for macro continued macro uncertainty there.

Speaker Change: Therefore, we kind of commented on the Morgan Stanley.

Speaker Change: Any updated thoughts on where preferred leverage ranges could could go over the near term there. Thanks.

Speaker Change: Facility I think the.

Speaker Change: The management team on the <unk> side, a lot of folks.

Speaker Change: Yes, good morning, Ken.

Speaker Change: Sure.

Speaker Change: Yes, I think we've built our targeted range on leverage kind of thinking about sort of all markets. Brian we've always talked about sort of one times to 125 times.

Speaker Change: Broader deal teams too.

Speaker Change: Real time on the financing facilities.

Nice job.

Speaker Change: Yes.

Speaker Change: We feel quite good with where we sit from a liability perspective today.

Speaker Change: We ended the quarter at 114 ended the quarter with north of $3 billion of available liquidity. So I don't think theres really a change in range there.

Speaker Change: Great very helpful. There and then one follow up.

Speaker Change: If I may just on the asset based financing side. The ABF portfolio I think in the prepared remarks, you mentioned that there could be some some retail oriented risks there.

Speaker Change: I think it's I think as important as the ranges I think your activity on the industrial liabilities.

Speaker Change: Maybe you could just remind us again, which particular investments.

Speaker Change: Right.

Speaker Change: You're happy with the execution on the CLO, we think it's another diversified funding source for companies like this I think we were happy with.

Speaker Change: You seem to.

Speaker Change: Center on and maybe just remind us again some of the downside protection and a lot of these ABF investments there. Thanks.

Speaker Change: Therefore, we kind of commented on Morgan Stanley.

Speaker Change: Yes, no and I think we wanted to make.

Speaker Change: The facility I think.

Speaker Change: The point fair Darren our prepared remarks, we are.

Speaker Change: The management team on the <unk> side, a lot of folks.

Speaker Change: It's still very.

Speaker Change: Excited about the broader opportunity.

Speaker Change: Broader deal teams to spend.

Speaker Change: And the ABS sort of space.

Speaker Change: Real time, all the financing facilities.

Speaker Change: I did call out specifically, we're just mindful about the consumer risk, we do have that as a small percentage of FX K its roughly 3%.

Speaker Change: Okay.

Speaker Change: We feel quite good with where we sit from a liability perspective today.

Speaker Change: Great very helpful. There and then one follow up.

Speaker Change:

Speaker Change: Total size I think what we have been active in the consumer space, we've generally targeted either secured risk.

Speaker Change: If I may just on the asset base financing side, the ABF portfolio I think in the prepared remarks, you mentioned that there could be some some retail oriented risks there.

Speaker Change: Higher FICO score type risk.

Speaker Change: Maybe you could just remind us again, which particular investments.

Speaker Change: Or what I call.

Speaker Change: You seem to.

Speaker Change: Loans to homeowners or other sort of short duration loans, maybe just two examples for you as we've talked about on prior calls one would be Paypal the European deal, but that is a portfolio of that.

Speaker Change: Center on and maybe just remind us again some of the downside protection in a lot of these ABF investments there. Thanks.

Speaker Change: Yeah, No and I think we wanted to make.

Speaker Change: Effectively turns every 90 days, so I think thats a good risk weighting into it and then we talked about discover in the past.

Speaker Change: Point fair Darren our prepared remarks right we are.

Speaker Change: It's still very.

Speaker Change: We're excited about the broader opportunity.

Speaker Change: Which is a private student loan portfolio.

Speaker Change: And the ABS sort of space.

Speaker Change: But it's mainly.

Speaker Change: Parent co signers I think the average FICO score there was like 760 <unk> right. So I think the starting point of the consumer.

Speaker Change: I did call out specifically, we're just mindful about the consumer risk, we do have that as a small percentage of FSA is roughly 3%.

Speaker Change: It makes us feel good that even with the tariff noise, even with other things that are going to continue to perform I think were worried a little bit more about the.

Speaker Change: Of total size I think what we have been active in the consumer space. We are generally targeted.

Speaker Change: Either secured risk.

Speaker Change: The non prime or the sub prime consumer because I think by definition.

Speaker Change: Higher FICO score type risk.

Speaker Change: Initiative, My mind tariffs will put additional.

Speaker Change: Or what I call.

Speaker Change: Sort of cost into the system that somebody has to pay for.

Speaker Change: Either loans to homeowners or other sort of short duration loans, maybe just two examples for you as we've talked about on prior calls one would be Paypal the European deal, but that is a portfolio of that.

Speaker Change: Great very helpful. There. Thanks again.

Okay. Thanks have a good day.

Speaker Change: One moment for your next question.

Speaker Change: Effectively turns every 90 days, so I think thats, a good risk, but again to it and then we talked about discover in the past.

Speaker Change: Yeah.

Speaker Change: Your next question comes from the line of Simeon O'shea of Wells Fargo Securities. Please go ahead.

Speaker Change: Which is a private student loan portfolio.

Speaker Change: But it's mainly.

Speaker Change: Parent co signers I think the average FICO score there was like 760 <unk> right. So I think the starting point of the consumer.

Simeon O'Shea: Hey, everyone. Good morning. Thanks.

Speaker Change: Stephen I think the guys for for non JV.

Speaker Change: It makes us kind of feel good that even with the tariff noise, even with other things they're going to continue to perform I think were worried a little bit more about the.

Speaker Change: And other fee was 43 does that imply.

Speaker Change: The sort of continued strength in the ABF group or other fee income. Thanks.

Speaker Change: The non prime and the subprime consumer I guess.

Speaker Change: I think by definition in my mind tariffs will put additional.

Tim: Yes, Tim.

Speaker Change: Sort of cost into the system that somebody has to pay for.

Speaker Change: In the first quarter, we were a little.

Speaker Change: Heavier on ABF dividends distributions and as you know that business.

Speaker Change: Great very helpful. There. Thanks again.

Speaker Change: Okay. Thanks have a good day.

Speaker Change: <unk>.

Speaker Change: One moment for your next question.

Speaker Change: A little bit lumpy quarter to quarter, it varies quarter to quarter. So we're a little bit lighter there in terms of guidance for the second quarter.

Speaker Change: Your next question comes from the line of Simeon O'shea of Wells Fargo Securities. Please go ahead.

Speaker Change: That's made up if you will.

Speaker Change: Almost exactly within $1 million or so.

Speaker Change: Additional dividends from our growth and dividends from the joint venture.

Simeon O'Shea: Hey, everyone. Good morning. Thanks.

Speaker Change: Stephen I think the guys for for non JV.

Speaker Change: Yes, we have as Dan mentioned in his comments have continued to scale that.

Speaker Change: And other fee was 43 does that imply.

Speaker Change: So is it other is it just fee income that's supposed to jump.

Speaker Change: The sort of continued strength in the ABF group or other fee income. Thanks.

Speaker Change: Fee income is.

Speaker Change:

Speaker Change: Down I think $3 million quarter over quarter.

Speaker Change: Yes.

Speaker Change: In the first quarter, we were a little.

Speaker Change: And maybe if and when we make sure we can follow up with you after the tip to kind of tie that out because I want to make sure you have the.

Speaker Change: Heavier on ABF dividends distributions and as you know that business can be.

Speaker Change: The right numbers.

Speaker Change: Okay sure.

Speaker Change: <unk>.

Speaker Change: A little bit lumpy quarter to quarter, it varies quarter to quarter. So we're a little bit lighter there in terms of guidance for the second quarter.

Speaker Change: <unk>.

Speaker Change: Dan one on ABF.

Speaker Change: And sort of tying to.

Speaker Change: Perhaps casey's question on yields.

Speaker Change: That's made up if you will.

Speaker Change: A lot of the new <unk> the new ABF.

Speaker Change: Almost exactly within $1 million or so.

Speaker Change: Maybe with the exception of open door looks like senior debt.

Speaker Change: No.

Speaker Change: Additional dividends from our growth and dividends from the joint venture.

Speaker Change: Below 500 type spreads.

Speaker Change: Yes, we have as Dan mentioned in his comments of continuing to scale that.

Is this.

Speaker Change: Is this maybe from your senior.

Speaker Change: Hi, Great style group or is this the way it's going.

Speaker Change: So is it other is it just fee income that's supposed to jump.

Speaker Change: For you overall in ABF.

Speaker Change: Yes, and I think what you are picking up there is the receivables at <unk>.

Speaker Change: No our fee income is.

Speaker Change: Down I think $3 million quarter over quarter.

Speaker Change: Inventory deals we've been doing.

Speaker Change: Yeah.

Speaker Change: And maybe it's been we make sure we can follow up with you after the chip to kind of tie that out because that will make sure you have.

Speaker Change: So the market is generally all that more ABL that is it's included within our.

Speaker Change: The right numbers.

Speaker Change: Kind of ABS sort of classification here, so thats generally.

Speaker Change: Okay sure.

Speaker Change: Sure.

Speaker Change: Dan one on ABF.

Speaker Change: To a company.

Speaker Change: Sure.

Speaker Change: Sort of tying to.

Speaker Change: Sometimes its senior secured sometimes it's done in an SPV.

Speaker Change: Perhaps casey's question on yields.

Speaker Change: A lot of the new <unk> the new ABF.

Speaker Change: I think we're getting good overall return pickup there versus direct lending.

Speaker Change: Maybe with the exception of open door looks like senior debt.

Speaker Change: You're usually.

Speaker Change: North of 500 in this pretty significant kind of upfront fee income and or exit fee income.

Speaker Change: Below 500 type spreads is this.

Speaker Change: Is this maybe from your senior.

Speaker Change: I would probably separate that from what I would call the traditional ABS deals that I'm talking about like the discover.

Speaker Change: Hi, Great style group or is this the way it's going.

Speaker Change: For you overall in ABF.

Speaker Change: Or like Paypal or the stuff, we've been doing in aviation leasing, which would be still higher than that.

Speaker Change: Yes, and I think what you are picking up there is the receivables at <unk>.

Speaker Change: And then the.

Speaker Change: The high grade business that you sort of referenced that is a very.

Speaker Change: Inventory deals we've been doing.

Speaker Change: Yes.

Speaker Change: Large.

Speaker Change: So the market is generally called that more ABL that is it's included within our.

Speaker Change: Activity for us it does keep the ABF teams that are active in addition to the <unk>.

Speaker Change: Kind of maybe asset classification here, so thats generally.

Speaker Change: More regular way or set of opportunistic deals, but those high grade deals are generally NIH plus products that wouldn't be part of the FCA portfolio. I think you are picking up the receivables and inventory stuff.

Speaker Change: To a company.

Speaker Change: Sometimes its senior secure it sometimes is done in an SPV.

Speaker Change: I think we're getting good overall return pickup there versus direct lending because youre usually.

Speaker Change: Okay.

Speaker Change: Very helpful. Thanks, so much.

Speaker Change: Have a good day.

Speaker Change: One moment for your next question.

Speaker Change: North of 500 in this pretty significant kind of upfront fee income and our exit fee income.

Speaker Change: Your next question comes from the line of Robert downward or down excuse me of Raymond James Robert Please go ahead.

Speaker Change: I would probably separate that from what I would call. The traditional ABS deals that I'm talking about like the discover or like Paypal or the stuff, we've been doing in aviation leasing, which would be still higher than that.

Speaker Change: Thank you got it right. The second time Docs, Hi, guys two questions I'm going to talk out of both sides of my mouth here, one on gws aluminum and to your point.

Speaker Change: And then the high grade business that you sort of referenced like that is a very.

Speaker Change: Should be a beneficiary I mean locally so scrap domestic produce et cetera.

Speaker Change: Large.

Speaker Change: Activity for us it does keep the ABF teams that are active in addition to that.

Speaker Change: Paying down debt the bond investors on the refinance obviously think they're going to get repaid the.

More regular way or set of opportunistic deals, but those high grade deals are generally NIH plus products that wouldn't be part of the escape portfolio. I think you are picking up the receivables and inventory stuff.

Speaker Change: The pick preferred still on nonaccrual, but theres a lot of positive trends there I mean, how close do you think that asset it's a pretty big one obviously is to that preferred going back on accrual given all the positive trends and the fact that obviously you just got portion repaid at par.

Speaker Change: Okay.

Speaker Change: Helpful. Thanks, so much.

Speaker Change: Have a good day.

Speaker Change: One moment for your next question.

Speaker Change: That trend switch.

Speaker Change: May indicate it's collectible parlance, maybe were taken into income.

Speaker Change: The next question comes from the line of Robert download or Dod excuse me of Raymond James Robert Please go ahead.

Speaker Change: Yes.

Speaker Change: And I appreciate the question.

Speaker Change: I think the.

Speaker Change: Thank you got it right. The second time Docs, Hi, guys two questions I'm going to talk out of both sides of my last one on gws aluminum to your point.

Speaker Change: The deal team.

Speaker Change: Has done kind of great work I think on the same over the last several years.

Speaker Change: It should be a beneficiary I mean locally sourced scrap domestic produced.

Speaker Change: It's traditionally been in what I'll call a hard industry.

Speaker Change: Or kind of a minority there, but I think the overall ownership has been well coordinated as well I think.

Speaker Change: Sure.

Speaker Change: Paying down debt the bond investors on the refinance obviously think they are going to get repaid.

Speaker Change: Robert we're very happy to get that bond deal done right very happy too.

Speaker Change: The pick preferred still on nonaccrual, but theres a lot of positive trends there I mean, how close do you think that asset and it's a pretty big one obviously is to that preferred going back on accrual given all the positive trends and the fact that obviously you just got partially repaid at par.

Speaker Change: Actively take some money off the table on the bottom parts of the capital structure earnings we have seen there have been strong.

Speaker Change: I think that there is definitely the what I'll call the tailwind for what's going on.

Speaker Change: On that trend switch.

Speaker Change: As a benefit so I think we're happy about that I think we're going to be pretty thoughtful though are pretty conservative.

May indicate it's collectible pardon me.

Speaker Change: Maybe were taken into income.

Speaker Change: About putting something back on accrual.

Speaker Change: Yes.

Speaker Change: And I appreciate the question.

Speaker Change: But I think time will tell.

Speaker Change: I think the the deal team.

Speaker Change: I think we're going to continue to be active with the named to see if we can capitalize on the current market environment that again, I think as a tailwind for the business.

Speaker Change: Has done great work I think on this name.

Speaker Change: Over the last several years.

Speaker Change: Got it got it thank you.

Speaker Change: Congratulations on the work done on the asset second question kind of the opposite.

Speaker Change: It's traditionally been in what I'll call a hard industry.

Speaker Change: We're kind of a minority there, but I think the overall ownership pro business has been well coordinated as well I think.

Speaker Change: I am looking at the chart on page 10 of the presentation.

Speaker Change: Shows over the last two quarters kind of median leverage in the portfolio has gone down four tenths of at the same time period. The average borrowing cost income yield to you has gone down like 70 basis points, but the interest coverage is just coming up a tiny bit but not much it looks like this there's somehow.

Speaker Change: Robert we're very happy to get that bond deal done right very happy to.

Speaker Change: Effectively take some money off the table on the bottom parts of the capital structure earnings we have seen there have been strong.

Speaker Change: I think that there is definitely the what I'll call the tailwind for what's going on.

Speaker Change: Diversion divergence between the inkjet press coverage yet.

Speaker Change: As a benefit so I think we're happy about that I think we're going to be pretty thoughtful though are pretty conservative.

Speaker Change: <unk> and the portfolio yield and the leverage in the portfolio. So can you.

Speaker Change: About putting something back on accrual.

Speaker Change: But I think time will tell.

Speaker Change: I'm, probably missing something but can you kind of explain what's going on there why interest coverage is improving at a faster pace given portfolio, which is falling in late to fluid.

Speaker Change: I think we're going to continue to be active with the named to see if we can capitalize on the current market environment that again, I think as a tailwind for the business.

Speaker Change: Got it got it thank you.

Speaker Change: Yeah, I mean, I'll just bring it up to the page 10 here.

Speaker Change: Congratulations on the work done on the asset second question kind of the opposite side I'm looking at the chart on page 10 of the presentation.

Speaker Change: I do think you probably got a little bit of a lag effect on our number one and number two.

Speaker Change: So as you know over the last two quarters kind of median leveraging the portfolio has gone down four tenths of a at the same time period, the average borrowing cost income.

Speaker Change: While.

Speaker Change: I kind of can see the trends so to the point you're putting.

Speaker Change: I think I think we're all talking about just kind of like.

Speaker Change: Income yield to you has gone down like 70 basis points.

Speaker Change: One two set of numbers that could also include some some rounding.

Speaker Change: The interest coverage is just coming up a tiny bit but not much it looks like there's some kind of diversion.

Speaker Change: What we will do a little bit of work on the other side of the circle back, but my sense is that probably more of a lag.

Speaker Change: Primarily.

Speaker Change: Vergence between the inkjet press coverage shirt trends and the portfolio yield and the leverage in the portfolio. So can you I mean.

Speaker Change: When.

The rates were going interest rates were rising there were lots of questions on BDC calls ours included.

Speaker Change: Is how were people calculating interest coverage.

Speaker Change: These types of things.

Speaker Change: Trailing as it forward is that a mix and so some of it.

Speaker Change: Basically the answer to your question is just a little bit of a lag.

Speaker Change: Yes, I'll just bring it up to the page 10 here.

Speaker Change: Okay got it thank you.

Speaker Change: Yes.

Speaker Change: I do think you've probably got a little bit of a lag effect.

Speaker Change: One moment for your next question.

Speaker Change: Number one and number two.

Speaker Change: Yeah.

Speaker Change: While.

Speaker Change: The next question comes from the line of Maxwell feature of chewing Maxwell. Please go ahead.

Speaker Change: I kind of can see the trends so to the point you are putting.

Speaker Change: I think I think we're all talking about just kind of like.

Speaker Change: Thank you and good morning.

Speaker Change: 0.1, 0.2 set of numbers that could also include some some rounding.

Speaker Change: For Mark Hughes.

Speaker Change: Given the assumption of economic uncertainty persisting between 25 and up.

Speaker Change: What we will do a little bit of work on the other side of the circle back, but my sense is that probably more of a.

Speaker Change: Possible recession case.

Speaker Change: Primarily.

Speaker Change: Do you anticipate any material difference in deal activity in the upper middle market on the upper market.

Speaker Change: Yes.

Speaker Change: And rates were going interest rates were rising there were lots of questions on BDC calls ours included.

Speaker Change: Operating in versus maybe the core middle and lower middle market.

Speaker Change: Is how were people calculating interest coverage.

Speaker Change: Those types of things.

Speaker Change: Yes, and good morning, everyone.

Speaker Change: Trailing as a forward is that a mix and so.

Speaker Change: I have a hard time hearing you, but I think I got you.

Speaker Change: Basically the answer to your question is this a little bit of a lag.

Speaker Change: You could probably make a case.

Speaker Change: Okay got it thank you.

Speaker Change: That's some of the activity in the larger company size could be more muted.

Speaker Change: Yes.

Speaker Change: One moment for your next question.

Speaker Change: Because it does probably rely on.

Speaker Change: Yeah.

Speaker Change: The next question comes from the line of Maxwell feature of chewing Maxwell. Please go ahead.

Speaker Change: More active.

Speaker Change: M&A market, including kind of sponsor to sponsor sales.

Speaker Change: I think that said the.

Speaker Change: Thank you and good morning.

Speaker Change: For Mark Hughes.

Speaker Change: I think the benefit of.

Speaker Change: Given the assumption of economic uncertainty persisting between 25 and up.

Speaker Change: That we have and I think a lot of the other large players have.

Speaker Change: This kind of incumbents.

Speaker Change: Possible recession case.

Speaker Change: Okay.

Speaker Change: Do you anticipate any material difference in deal it could be.

Speaker Change: Okay.

Speaker Change: Got it.

Upper middle market.

Speaker Change: Okay.

Speaker Change: Upper market.

Speaker Change: Okay.

Speaker Change: Operating in versus maybe the core middle and lower middle market.

Speaker Change: Okay.

Speaker Change: Portfolio.

Speaker Change: Yes.

Speaker Change: Oh, sorry.

Speaker Change: Yes, and good morning, we're having a little bit of a hard time hearing you, but I think I got you.

Speaker Change: Right.

Speaker Change: Finally Europe.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: You could probably make a case that.

Speaker Change: Okay.

Speaker Change: Great.

Speaker Change: Hello.

Speaker Change: Some of the activity in the larger company size could be more muted.

Speaker Change: Okay.

Speaker Change: Thanks.

Speaker Change: I do think.

Speaker Change: Because it does probably rely on.

Speaker Change: Okay.

Speaker Change: Got it.

Speaker Change: More active.

Speaker Change: Yeah.

Speaker Change: Right.

Speaker Change: <unk> market, including kind of sponsor to sponsor sales.

Speaker Change: Okay.

Speaker Change: I think that said the.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: I think the benefit of that we have and I think a lot of the other large players have this kind of incumbent.

Speaker Change: Okay.

Speaker Change: Thank you I think I'm, having a little technical difficulties on my side. So I'll leave it there I appreciate the answers.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Great.

Speaker Change: Okay.

Speaker Change: One moment for your next question.

Speaker Change: Portfolio.

Speaker Change: Yes.

Speaker Change: Sorry about that.

Speaker Change: Actually I am showing no further questions I would now like to turn it back over to Pete for closing remarks.

Speaker Change: Right.

Speaker Change: Okay.

Speaker Change: Great.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Everyone. Thank you.

Speaker Change: I do.

Speaker Change: And your questions.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Body.

Speaker Change: Got it.

Speaker Change: Okay.

Speaker Change: We look forward to talking to you again in August if there are any follow up please.

Speaker Change: Okay.

Speaker Change: Great.

Speaker Change: Okay.

Speaker Change: So thanks have a good day.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Thank you I think I'm, having a little technical difficulties on my side. So I'll leave it there I appreciate the answers.

Speaker Change: Okay.

Speaker Change: One moment for your next question.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Actually I am showing no further questions I would now like to turn it back over to Pete for closing remarks.

Speaker Change: Okay.

Pete: Thank you.

Speaker Change: Hi, everyone. Thank you.

Speaker Change: Thank you for your questions.

Speaker Change: Body.

Speaker Change: Okay.

Speaker Change: We look forward to talking to you again.

Speaker Change: They're already.

Speaker Change: Please don't hesitate to create jobs.

Speaker Change: So thanks.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

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