Q1 2025 Nuveen Churchill Direct Lending Corp Earnings Call
Speaker Change: [music].
Welcome to Nuveen Churchill direct lending Corp, first quarter 2025 earnings call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
As a reminder, this conference call is being recorded for replay purposes.
Robert: I'd like to turn the call over to Robert <unk> head of Investor Relations for M. C. D. L. Robert Please go ahead.
Speaker Change: Good morning, and welcome to Nebiim Churchill direct lending Corp's first quarter 2025 earnings call.
Speaker Change: Today, I'm joined by <unk>, Chairman, President and CEO, Ken can sell and Chief Financial Officer Shai thickness.
Speaker Change: Following our prepared remarks, we will be available to take your questions.
Speaker Change: Today's call May include forward looking statements such statements involve known and unknown risks uncertainties and other factors and undue reliance should not be placed thereon.
Speaker Change: These forward looking statements are not historical facts, but rather are based on current expectations.
Speaker Change: <unk> and projections about the company.
Speaker Change: Current and prospective portfolio investments, our industry, our beliefs and opinions and our assumptions.
Speaker Change: These statements are not guarantees of future performance and are subject to risks uncertainties and other factors some of which are beyond our control and difficult to predict.
Speaker Change: Actual results may differ materially from those expressed or forecasted in the forward looking statements.
Speaker Change: We ask that you refer to the company's most recent filings with the SEC for important risk factors.
Speaker Change: Any forward looking statements made today do not guarantee future performance and.
Speaker Change: Undue reliance should not be placed on them.
Speaker Change: The company assumes no obligation to update any forward looking statements at any time.
Speaker Change: Our earnings release 10-Q, and supplemental earnings presentation are available on the Investor Relations section of our website at N C D L Dot com.
Ken: Now I would like to turn the call over to Ken.
Ken: Thank you Robert.
Ken: Good morning, everyone and thank you all for joining us today.
Ken: During my prepared remarks, I will discuss our results for the first quarter.
Ken: And then ill discuss our origination activity.
Ken: Portfolio positioning and our forward outlook.
Shai: After that I'll hand, the call over to Shai.
Shai: For a more detailed discussion of our financial performance.
Shai: Before I go through our financial results for the quarter I'd.
Shai: I'd like to take a moment to comment on current market conditions, and our positioning as a leader in the core middle market direct lending space.
Shai: We have witnessed significant market volatility in the equity and credit markets over the past several weeks.
Shai: Driven by the announcement and implementation by the current administration of broad based tariffs.
Shai: Our pending global trade at least in the short term.
Shai: During periods of economic uncertainty like we're experiencing today.
Shai: It is important to remain focused on our core values and pillars that have benefited churchill over the past 20 years.
Shai: We have deep expertise.
Shai: Tangible experience.
Shai: Strong relationships.
Shai: Significant size and scale and.
And a differentiated approach to sourcing and originating high quality deal flow.
Shai: Our ability to navigate these market conditions and environment stems from our experienced investment operating and management teams are leading the Churchill have been investing in operating the private credit market through various cycles, including the great financial crisis Covid the recent rate hike cycle.
Shai: In other periods of volatility and challenging conditions.
Shai: While we expect near term volatility to continue driven by uncertainty around tariffs and the impact of the U S and global economies. We believe that we are well positioned to continue delivering strong returns for our shareholders.
We believe we are entering this uncertain economic time from a position of strength.
Shai: Based on a number of key factors.
Shai: First.
Shai: Our investment portfolio is largely concentrated in non cyclical and service oriented businesses.
Shai: Second our portfolio is highly diversified our average position size is one half of 1%.
Shai: Our largest investment is only one 5% of the total portfolio and our top 10 portfolio companies represent only 13% of the portfolio.
Shai: Third our conservative approach to underwriting is supported by several key metrics, including a weighted average portfolio of company net leverage of under five times.
Shai: And an interest coverage ratio of two four times at the end of the first quarter.
Shai: Fourth.
Shai: Our total nonaccrual percentage remains extremely low at 0.4% of portfolio fair value at quarter end, and finally, our balance sheet and capital structure remains strong.
Shai: With no near term debt maturities.
Shai: But it is still too early to tell where trade policy lands and the ultimate impact on the economy.
Shai: We will lean in on our experience and conservative investment approach.
Shai: Navigate through these uncertain times.
Shai: Historically periods of stress and volatility in markets have led to attractive opportunities in the private credit market.
Shai: And we are well positioned to take advantage of these opportunities.
Shai: As they present themselves.
Shai: Since the initial tariff announcements earlier this year characterized as a firm has been actively analyzing the potential implications across our portfolio on a borrower by borrower basis.
Shai: This review has been updated by weekly to reflect the evolving landscape.
Shai: Following recent revisions to the previously announced tariffs.
Shai: Our team completed an updated assessment.
Shai: Using the most current information available and how a comprehensive portfolio review with members of the investment Committee portfolio management and risk teams.
Shai: Our early findings suggest that the majority of the portfolio remains largely insulated.
Shai: Some direct negative impacts related to new tariffs.
Shai: Due to several key factors.
Shai: A primarily domestic revenue base with over 90% of the NCD Els senior loan portfolio company revenues derived from the U S.
Shai: A significant portion of our portfolio is comprised of domestic service oriented businesses.
Shai: And many portfolio companies maintain flexible supply chain capable of shifting sourcing to less impacted geographies.
Shai: And finally, our borrowers have historically demonstrated the ability to preserve margins by passing through changes to input cost to end consumers.
Shai: This analysis ultimately led us to categorizing each portfolio company.
Shai: As either a low medium or high risk.
Shai: Based on direct revenue cost and supply impacts from tariffs.
And N C D L.
Shai: High risk exposure is.
Shai: Is limited to less than 10% of our overall portfolio.
Shai: Well, we believe we are well insulated from the direct impact of tariffs.
Shai: We are cognizant of the elevated level of macroeconomic risks and uncertainty in the current environment and are continuing to monitor our portfolio closely for signs of stress.
We remain in close contact with private equity sponsors and borrowers.
Shai: And our investment team will continue to monitor the portfolio as new information emerges and the impacts both direct and indirect become more evident.
Shai: Now turning to our results for the first quarter.
Shai: We generated net investment income of 53 per share.
Shai: Which was impacted by one time interest and debt financing expenses totaling <unk> <unk> per share.
Shai: Excluding these nonrecurring items net investment income totaled 56 pence per share.
Shai: In line with our fourth quarter 2024 results.
Shai: These results reflect the continued strong performance of our investment portfolio.
Shai: As well as shareholder friendly actions, we implemented following our IPO.
Shai: <unk> the maintenance of our pre IPO management fee rate.
Shai: A full waiver of incentive fees for five quarters, which concluded at the end of the first quarter.
Shai: New originations totaled $166 million for the first quarter.
Shai: Compared to a $163 million in the fourth quarter of last year.
Shai: Investment activity in the quarter was primarily focused on senior secured first lien loans and we remain focused on investing into our core traditional middle market pipeline.
Shai: Which we believe benefits from wider spreads.
Shai: And generally more attractive terms than the upper middle and broadly syndicated markets.
Shai: Our net investment value was $17 96 per share.
Shai: At March 31 2025.
Shai: Compared to $18 18 per share as of December 31, 2024.
Shai: The decline in net asset value quarter over quarter was primarily due to modest valuation declines in some of our watch list names.
Shai: In terms of the recent market environment. Following the tariff announcements in early April public credit markets have experienced increased volatility and spreads have widened.
Shai: And the resurgence of the BSL market that we saw last year.
Shai: Taken abrupt pause.
Shai: On the other hand, the private credit markets continue to operate efficiently and direct lending deals are still getting done in this environment in fact.
Nearly every deal that was in process. Prior to April is either gotten done or has continued to progress.
Shai: And our investment team remains very busy.
Shai: As I outlined earlier historically market volatility has led to attractive opportunities in the direct lending space.
Shai: Which is exhibited greater stability than the BSL market over time.
Shai: Although we haven't yet seen a material widening of spreads in our market.
Shai: We would expect to see modestly wider spreads and more favorable lending terms should the current market volatility persists.
Shai: Turning to our investment activity at a platform level Churchill continues to be extremely active as.
Shai: As investment activity volume was up 60% year over year in the first quarter.
Shai: This follows a record year in 2024 for the Churchill platform investing over $13 billion across approximately 400 transactions for the full year.
Shai: <unk> also benefited from the activity at the platform level.
Shai: Our new commitments remain focused on senior lending.
Shai: Which represented 91% of N C deals origination activity in the first quarter.
Shai: First lien debt remained steady as a percentage of the <unk> portfolio, representing over 90% of the fair value of the overall portfolio.
Shai: One of the benefits of the Churchill platform is the size and scale of our incumbent portfolio.
Shai: Which we believe drives differentiated access to high quality investment opportunities from our existing portfolio of companies.
Shai: We also believe that continuing to invest in these companies that we know well leads to better long term credit performance and reduces underwriting risk.
Shai: In the first quarter.
Shai: Approximately 44% of our new commitments and N CDL were to existing borrowers or long term Churchill relationships.
Shai: In terms of the portfolio and credit quality company performance across our overall portfolio remained healthy.
Shai: Which we believe reflects the quality of the deal flow we have experienced over the last several years as.
Shai: As well as our selective approach to investing and the diversification of our portfolio.
Shai: Our weighted average internal risk rating remains at 4.1 versus an original rating of 4.0 for all of our investments at the time of origination.
Shai: And our watch list remains at a very manageable level below 7% of fair value.
Shai: Additionally, as I mentioned earlier, we are pleased with the credit fundamentals within the <unk> portfolio.
Shai: With portfolio company total net leverage of four nine times.
Shai: And interest coverage of two four times on traditional middle market first lien loans.
Shai: These metrics are a direct result of conservative structuring and relatively low attachment points that we target when underwriting new transactions.
Shai: This conservative approach has served us well and the elevated rate environment.
Shai: During the first quarter.
Shai: One portfolio company was placed on non accrual status with a cost of $14 $5 million and a fair value of $4 8 million.
Shai: Despite this one addition.
Shai: Our total non accrual percentage is still extremely low at <unk>, 4% of fair value.
Shai: And 1% of cost.
Shai: As of March 31.
Shai: With a highly diversified portfolio of over 200 companies in.
Shai: And only two names on nonaccrual status.
Shai: We believe that this metric compares favorably.
Shai: BDC industry averages.
Shai: We continue to remain focused on diversification as a key risk mitigate tool and our investment portfolio.
Shai: This has been achieved with a continued high level of selectivity facilitated by the significant proprietary deal flow. Our sourcing engine is able to generate from the breadth and depth of our p/e relationships.
Shai: As of March 31.
Shai: We had 210 companies in our portfolio and as I mentioned earlier, our top 10 portfolio companies represented only 13% of total fair value.
Shai: This diversification is critical as we seek to maintain exceptional credit quality and originate additional attractive opportunities.
Shai: From a forward looking perspective, and an uncertain economic environment, we will remain focused on maintaining underwriting discipline selectively investing in high quality companies and proactively managing our current investment portfolio.
Shai: Since the inception of the firm nearly 20 years ago. Each time, we have been faced with market dislocation Churchill has not only navigated through these challenging conditions, but also opportunistically take advantage of such environments.
Shai: We have been and continue to be a trusted and established investor in the core middle market with deep long term relationships, which provides N C D L with a strong information and sourcing advantage.
Shai: And we remain confident in the company's positioning as a leader in the core middle market direct lending space.
Shai: Given our long standing track record.
Shai: Deep network of sponsor relationships and extensive LP commitments across the broader Churchill platform.
Shai: Which have enabled us to continue to see a wide range of attractive investment opportunities while remaining highly selective.
Shai: And now I'll turn the call over to Shai to discuss our financial results in more detail.
Shai: Thank you Ken and good morning, everyone I will now review, our first quarter results in more detail.
Shai: We reported net investment income of 53 cents per share in the first quarter compared to 56 cents per share for the fourth quarter of 2024.
Shai: As Ken mentioned in his remarks net investment income in the quarter was negatively impacted by approximately <unk> <unk> per share of nonrecurring interest and debt financing expenses related to the acceleration of deferred financing costs associated with paying off and terminating our credit facility with wells Fargo as well as the impact of the reset of one of our Clo's.
Shai: Both of these moves were aimed at optimizing our debt financing and reducing ongoing borrowing costs.
Shai: Excluding these nonrecurring expenses net investment income was 56 cents per share in the first quarter.
Shai: Total investment income decreased to $53 $6 million in the first quarter compared to $57 $1 million in the fourth quarter of 2024, primarily driven by a decline in interest income due to the decline in base rates.
Shai: In April we paid a total dividend of <unk> 55 per share consisting of our regular quarterly dividend of 45 cents per share and a special dividend of <unk> 10 cents per share.
Shai: In aggregate this 55 cent per share dividend equates to an annualized yield of approximately 12% based on our quarter end net asset value.
Shai: As a reminder, the Tencent special dividend paid in April was the fourth and final special dividend that we declared at the time of our IPO in January of 'twenty 'twenty four.
Shai: In the first quarter, our total GAAP net income was 29 cents per share compared to 54 cents per share in the fourth quarter of last year.
Shai: Our first quarter net income included 24 cents of net realized and unrealized losses, largely due to valuation declines in a few watch list names.
Shai: Our gross debt to equity ratio at March 31 was 1.31 times compared to 1.15 times at year end 2024, and our net debt to equity ratio net of cash was $1 two five times compared to 1.1 times at year end 2024.
At the end of the first quarter, our net asset value was $17.96 per share compared to $18 18 per share at December 31, 2024.
Shai: The decline was largely driven by the 24 cents per share of net realized and unrealized losses during the quarter and slightly offset by the impact of our share repurchases, which had a positive impact of approximately four cents per share.
Shai: As of March 31, our investment portfolio had a fair value of $2.08 billion in line with the fair value at year end.
Shai: Gross originations totaled 166 million and gross investment fundings totaled $153 million.
Shai: This compares to $163 million and $151 million of gross originations and gross investment fundings, respectively in the fourth quarter of last year.
Shai: New originations accounted for 12 of the transactions done during the first quarter totaling approximately $90 million.
Shai: Additionally, we continue to benefit from add on financing opportunities, which allow us to generate 11 deals in the form of incremental transactions for existing portfolio companies totaling approximately $25 million.
Shai: We also saw drawdowns of approximately $37 million on our delayed draw term loans in the quarter as our portfolio companies continue to be active and growing via acquisitions.
Shai: Repayments in the first quarter totaled four 7% compared to four 6% in the fourth quarter of last year and remained in line with our long range assumption of 5% per quarter.
Shai: We had full repayments on three deals totaling $53 million and partial prepayments for another $31 million.
Shai: We also sold $65 million worth of upper middle market investments, continuing our strategy of rotating out of lower spread upper middle market investments and into our traditional middle market pipeline.
Shai: On a net basis, we deployed approximately $5 million during the first quarter.
Shai: Looking ahead, we expect to continue to deploy capital primarily into traditional middle market transactions rotate the portfolio away from more liquid upper middle market assets and redeploy cash received from repayments.
Shai: Our total portfolio consisted of 210 names as at the end of the first quarter in line with the number of names at year end 'twenty four.
Shai: The investment portfolio remains highly diversified with the top 10 portfolio companies accounting for only 13% of the fair value of the total portfolio down slightly from 13, 2% in the prior quarter.
Shai: Our largest exposure is only one 5% of the total portfolio and our average position size is 0.5%.
We continue to view this high level of diversification by position size as a key risk mitigation tool, particularly in today's uncertain economic environment.
Shai: As far as asset selection.
Shai: Our new originations during the quarter were weighted towards traditional middle market senior loans, representing more than 83% of the dollars deployed during the quarter with the balance deployed into the upper middle market as well as into junior debt and equity investments.
Shai: This focus on the traditional middle market segment, we believe will benefit NCD all shareholders as we see meaningfully higher spreads and tighter documentation terms in the traditional middle market versus the upper middle and BSL markets.
Shai: Spreads in the quarter were largely unchanged again in the 475 over range.
Shai: Our weighted average yield on debt and income producing investments at cost decreased slightly to 10.1% at the end of the first quarter from 10, 3% at the end of the fourth quarter of last year.
Shai: While new transactions during the quarter focused on first lien loans. We also opportunistically invested in a few subordinated debt transactions, which accounted for 8% of gross commitments.
Shai: At the end of the first quarter first lien loans represented 95% of the total portfolio.
Shai: While junior debt and equity comprised seven 8% and one 7% respectively.
Shai: As a reminder, we remain committed to the target allocations that we communicated tanvir IPO with a target of 85% to 90% senior loans and the balance in junior debt and equity co investments with equity staying in that low single digit percentage range.
Shai: Turning to credit quality as Ken mentioned earlier, we believe we are entering this period of economic uncertainty from a position of strength based on the overall quality of our investment portfolio.
Shai: As an example at the end of the first quarter, we had only two names on nonaccrual, representing just 0.4% on a fair value basis, and 1% a cost putting one portfolio company on nonaccrual during the quarter.
Shai: Additionally, our weighted average internal risk rating remained steady quarter over quarter at 4.1 at the end of the first quarter.
Shai: Our watch list consisting of names with internal risk ratings of six or worse also remains at a relatively low level of six 7% at the end of the first quarter.
Shai: And finally, our conservative approach to underwriting is highlighted by our weighted average net leverage of four nine times and interest coverage of 2.4 times for our traditional middle market senior loans at the end of the quarter.
Shai: As far as the right hand side of our balance sheet is concerned specifically leverage utilization our debt to equity ratio increased to 1.31 times at March 31, compared to 1.15 times at year end 2024.
Shai: On a net basis, our debt to equity ratio was 1.25 times net of our cash position at quarter end.
Shai: This incremental leverage utilization is in line with our expectations at the time of our IPO and was driven primarily by a reduction in our outstanding shares as a result of activity on our share repurchase program.
Shai: The issuance of debt in connection with the reset of N C. D. L. C. L O one and associated borrowings on our corporate revolver.
Shai: We expect to continue to be able to deploy capital efficiently and operate towards the upper end of our target range of one to 1.25 times debt to equity.
Shai: As we spoke about on our last call. We also took an additional step towards optimizing our capital structure in the first quarter.
Shai: In January of this year, we issued 300 million of unsecured notes due in 2030 at a fixed coupon of 6.65%.
Shai: Which we swapped to a floating rate of sofa, plus 230 basis points.
Shai: We were pleased with the execution of our Nagra bond offering and the reception that we received from the capital markets.
Shai: This issuance further diversified and strengthened our capital structure and balance sheet.
Shai: In connection with our unsecured bond issuance, we received two investment grade ratings from Fitch and Moody's.
Shai: Also in January this year, we terminated in full our wells Fargo financing facility using a portion of the proceeds from the unsecured note issuance to repay the outstanding borrowings on the facility.
Shai: And finally in February we priced a reset of the N C. D. L. CLO, one transaction, reducing borrowing costs on the financing through the double a tranche from sofa, plus 166 basis points to sulfur plus $1 43.
Shai: In addition, we were able to secure a five year reinvestment period up from four years previously.
Shai: With this reset we replaced approximately $59 million of CLO debt with borrowings on our corporate revolver.
Shai: In aggregate these transactions reduce the overall weighted average spread on our debt from Sofer, plus 214 basis points to sofer, plus 202 basis points.
Shai: With over $200 million of available liquidity as of the end of the first quarter and no near term debt maturities, we remain well positioned to take advantage of attractive investment opportunities fund, our unfunded commitments and fund the remainder of our share repurchase program.
Shai: As discussed our focus for the near term is on optimizing the asset mix within the portfolio and actively reinvesting cash received from repayments and sales.
Shai: In advance of the exploration of our share repurchase plan in March we extended the program for another 12 months, giving us additional time to utilize the $99.3 million on authorization.
Shai: Through may 2nd we've utilized approximately $85 million under the program, leaving approximately 50 million remaining.
Shai: The program increased its level of activity in early 2025 and in April based on the increased trading volume in the shares of N C. D L and the recent volatility in the public equity markets, allowing us to purchase shares at a meaningful discount to NAV.
Ken: I'll now turn it back to Ken for closing remarks.
Ken: Thank you Shai.
Ken: In closing, we believe we are well positioned with respect to our high quality investment portfolio Conservative investment approach and strong capital structure to navigate the current market environment.
Ken: Additionally, we continue to believe <unk> is uniquely positioned for long term success and remain optimistic about the company's outlook based on our experienced team and our long term successful track record of investing in operating across various market conditions and cycles.
Ken: Lastly, I'd like to thank our team for its continued strong execution.
Ken: And I'd like to thank all of you for joining us today and your interest in N C D L.
Ken: I will now turn the call over to the operator for Q&A.
Ken: Thank you and at this time, we will conduct our question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Ken: Confirmation tone will indicate that your line is in the question queue.
Ken: You May press Star two if you would like to remove your question from the queue.
Ken: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: And your first question comes from Brian Mckenna with citizens. Please state your question.
Brian McKenna: Thanks, Good morning, everyone I appreciate the detail on the three cents per share of nonrecurring costs in the quarter. So if I adjust for this and then you layer in full management and incentive fees that will kick in during the second quarter. The implied NII. It's about one penny above the 45 regular quarterly dividend I'm, assuming you still feel good about.
Brian McKenna: The quarterly dividend moving forward and the coverage there, but any thoughts would be helpful. And then I guess two are there any other levers you can pull to drive some incremental NII NII throughout the year. I know you are still maybe remixing the portfolio. So maybe just hash out that that opportunity as well.
Brian McKenna: Yeah, Hey, Brian. Thanks for the question had shy here so on both of those with respect to the dividend coverage going forward I think your math is directionally accurate renders the effect of the increase in the management fee as well as the implementation of the of the incentive fee.
Brian McKenna: Going forward so.
Brian McKenna: That I think is correct with respect to our ability to continue to cover we set that 45% and regular dividend level with that in mind right. So thinking about kind of what our forward assessment is of the earnings power of the vehicle and the ability to cover that dividend. So the short answer is yes, we continue to feel good about our.
Brian McKenna: Ability to cover the dividend.
Brian McKenna: For the foreseeable future, obviously as we evaluate the macro situation.
Brian McKenna: And sort of where base rates go in the future that will be something that we discussed and focus on but we did all that with with the forward view in mind and a high degree of confidence in our ability to continue to to earn that dividend at the at the 45%.
Brian McKenna: Level.
Brian McKenna: In terms of the other levers that we can pull I think theres a few factors there right. One is we think about the current environment and what does that mean for ongoing sort of spreads in the marketplace.
Brian McKenna: Interestingly, we've seen spreads be based.
Brian McKenna: Basically unchanged for the last three quarters now.
Brian McKenna: If you look at our new origination activity.
Brian McKenna: And we're really not seeing continued tightening of spreads if anything we would expect spreads to start going the other way. So I think theres an opportunity there to eke out some incremental yield in the portfolio. We also still have a reasonable amount of rotation left to go.
Brian McKenna: You will have seen and heard in my comments, we sold $65 million of upper middle market sort of liquid assets, which tend to be lower spread.
Brian McKenna: Last quarter, we will continue to seek opportunities for that rotation trade as we move forward obviously, the redeployment of any repayments that we get so I think there is an opportunity there to drive some incremental earnings and then the last piece of it is just sort of a liability management exercise and thinking about our financings.
Brian McKenna: Including if you look at our CLO, we have a couple in there that have higher cost of capital than where the current market is and as those exit their non call periods, we will be evaluating those as opportunities to continue to bring down our cost of financing going forward.
Brian McKenna: Okay, Great that's helpful.
Then just on the buyback.
Brian McKenna: Leverage is staying kind of at the upper end of the target I think you feel comfortable with what's out there but.
Brian McKenna: Stock's trading at almost any for 80% of NAV today, So does it make sense to lean in more opportunistically.
Speaker Change: On repurchases and then did you disclose the actual amounts for how much you bought back in the first quarter and then how much you bought back quarter to date and then I know you mentioned you extended the buyback, yes $15 million left on the remaining authorization. So did you keep the $15 million.
Brian McKenna: <unk> or why not increase that just given where the stocks trading.
Brian McKenna: Yeah. So a couple of comments there maybe taking kind of in reverse order. So in terms of the extension of the authorization, we did extend the timing.
Brian McKenna: So we kicked it out another 12 months, we did not touch yet the amount on authorization.
Brian McKenna: It's a conversation that we have regularly obviously internally with our board and we'll continue to evaluate sort of that trade right whether it's a.
Brian McKenna: Appropriate to increase.
Brian McKenna: Or not one thing I would comment on though is in terms of just to your question about being opportunistic is that the program is designed in and of itself to effectively be opportunistic on kind of a programmatic basis and what I mean by that is it's structured such that as the discount to NAV increases the percentage of average daily trading volume that we're buying and increases in that.
Brian McKenna: That's designed to do exactly that right take advantage of the deeper discounts. So the level of activity under the program as we moved into this year and certainly kind of post.
Brian McKenna: Elaboration day became more active so I think we are taking advantage of that opportunity and I think you can sort of do the math right in terms of what we disclosed last quarter in terms of how much we purchased versus how much we purchased through this quarter and then through the quarter to date, which is the may date that we just referenced on the call. So.
Brian McKenna: That number was something like $35 million to $40 million in purchases in Q1.
Brian McKenna: And then an additional sort of $15 million or so in Q2 through the through the date that we just we just referenced.
Brian McKenna: Okay. That's super helpful. I'll leave it there thank you.
Brian McKenna: Excellent. Thank you.
Speaker Change: Your next question comes from Doug Harter with UBS. Please state your question.
Speaker Change: Thank you.
Doug Harter: Can you just talk about.
Speaker Change: Your expectations for for leverage any willingness to kind of let that move a little bit higher if you see opportunities kind of in the current market or is it going to be coming more from a rotation.
Speaker Change: Yes. So I think we really are committed to that range that we put out there Doug. So it's really a function of again one to one in the quarter. We have said previously and we've been consistent on this point all along is that based on our view of the quality of our portfolio the skew towards.
Speaker Change: Senior lending representing over 90% of the assets in the book.
Speaker Change: We're comfortable operating at the upper end of that target range and.
Speaker Change: And I expect we'll kind of hold there, but we do have levers to pull to allow us to continue to be opportunistic in the market, namely the rotation, obviously as we get repayments under our.
Speaker Change: In our existing portfolio the ability to redeploy so we do have dry powder, but I don't know that we would be comfortable taking that leverage ratio much higher than what it is today, but I do think they are still presents an opportunity for us to be opportunistic to take advantage of wider spreads and deploy them as we see those opportunities.
Speaker Change: So the answer to your question is kind of a bit of both right. We will still remain active in the market we'll be opportunistic.
Speaker Change: Have more to go in terms of rotation and given where kind of broadly syndicated loans or bid right theres still an opportunity to sell at attractive levels.
Speaker Change: In that upper middle market and kind of BSL category in our book and then rotate and Thats, where we will we will look to do that but.
Speaker Change: Again, our view right now is that we're really not.
Speaker Change: Turning to move leverage higher from here.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: And a reminder to the audience to ask a question at this time press Star one on your telephone keypad, you could remove yourself from the queue by pressing star to once again to queue up for a question press star one on your phone now.
Speaker Change: Our next question comes from Maxwell Fisher with Truest Securities. Please state your question.
Hi, good morning, calling in for Mark Hughes, you had noted that the direct lending are directly taken back some share from there.
Speaker Change: Sell market has this had any positive effects on competition in the core middle market maybe some.
Speaker Change: <unk> going backup market.
Max: Yes Max.
Max: Ken. Thank you for the question look I think that you know our size and scale in the core middle market and our ability to finance larger businesses is a real advantage right. Now there are really just a handful of what I would call core middle market direct lenders that can step up and right.
Max: Significant checks to finance those businesses and as a result.
Max: I feel like we're in a in a well.
Max: A very nice position to be able to take advantage of those opportunities. So you know as we've seen over and over.
Historically in times of market stress the liquid market tends to go offline the larger scale direct lenders.
Max: And certainly the core Middle America.
Max: Lenders like ourselves can take advantage of that by stepping into that void. So I would expect that the companies, we finance would skew larger over the next quarter or two I'd also expect that they would continue to be of the highest quality. If you look at the market today the deals.
Max: We're really getting done or the a plus credits.
Max: That can demonstrate.
Max: No real tariff impact strong businesses with significant cash flow market leaders.
Max: Sure I think mentioned on the call and I did as well that you know our deal flow remains very strong.
Max: In fact, we didn't have a single deal as we move from March to April and post Liberation day that did not continue to progress and I think that speaks to the quality of the deals we're seeing so I think the competitive dynamics.
Max: We will be better as a result of that scaling to two larger opportunities and the large cap market.
Max: Really being waylaid. So we're looking forward to good opportunities we have not seen interestingly, we have really not seen spreads move.
Max: Appreciably at this point, although the BSL market has moved a bit on the secondary side 50 to 100 basis points. So we would absolutely expect spreads to move over it over the next next several months in a positive way.
Max: Reds today for high quality mid market deals in the core middle market are hovering in that $4 75 range for $75 500, I could certainly envision a scenario, where they moved out a bit.
And I certainly think the quality of the deal flow, we're seeing in the size of the companies I would expect to be somewhat larger so.
Max: We're looking it up.
Max: Opportunity here, but an opportunity with what might be somewhat reduced volume.
Max: Because it's really on the quality deals on the deals that can demonstrate.
Max: Really no tariff dynamics that are going to be the prevalent certainly of what we're financing so areas like software healthcare business services that are primarily domestic businesses.
Max: Where there is demonstrated market leadership strong cash flow are really where we're going to focus as you know we've never been.
Max: Chasing kind of yield on marginal opportunities. So I think it's certainly possible that the overall level of deal flow.
Max: In the core middle market may come in <unk>, just given the focus on quality, but I think that will be offset and potentially been more than offset by the runway and the widening of that aperture of deals that we'll see at the upper end of the market.
Max: Understood. Thank you and you had mentioned Youre strong deal flow and strong new investments in the quarter. So.
Speaker Change: Just wondering how the pipeline is shaping up in terms of.
Speaker Change: The mix of new versus incumbent borrowers and maybe in your answer you kind of answered that in the deck.
Speaker Change: Way, but yeah. So.
Speaker Change: Is the pipeline shaping.
Speaker Change: The pipeline remains.
Speaker Change: No quite good.
Speaker Change: <unk>.
Speaker Change: The fact that we are through our private equity and junior capital team and L. P and 300 private equity funds gives us.
Speaker Change: Kind of a built in deal flow if you will.
When deals are getting done the odds are very good certainly with our LP base and our relationships were seeing them.
Speaker Change: So it has led to.
Speaker Change: Ongoing new investment activity that.
Speaker Change: That has enabled us to remain very selective so pipeline is actually quite good and I think that's reflective of the fact that.
Speaker Change: The quality that we're focusing on.
Speaker Change: And the types of deals we're financing are generally non tariff impacted you see that in our current portfolio I think we quoted 90% or so are companies that are either minimally or not impacted by tariffs. So that continues to be the case in terms of what we're looking at today. So as a result pipeline.
Speaker Change: It looks quite good.
Speaker Change: And certainly some of those deals are coming in that are a bit larger in size.
Speaker Change: That historically might have gone to the BSL market. So we're seeing some of that as well.
Speaker Change: We're certainly.
Speaker Change: Shying away from turning down not pursuing.
Speaker Change: Credits, where we think there is either a.
Speaker Change: Tariff implication in some way shape or form either on the revenue side or the cost side.
Speaker Change: Sure.
Speaker Change: <unk> that we think have a higher probability of being impacted in any type of recessionary dynamic.
Speaker Change: Overall.
As we think about the market today.
Speaker Change: Still see tariffs as.
Speaker Change: A tariff dynamic that.
Speaker Change: We would hope would see some resolution in a reasonable period of time here.
Speaker Change: Just given the dynamics, both political and economic that would mitigate in favor of that occurring.
Speaker Change: But we of course are mindful of the fact that if we do slip into more of a recessionary dynamic we need to be financing companies that have that are in really and recession resistant industries and market leaders. So that being said pipeline is good we're staying very selective and it tends to skew larger but at this point, we haven't seen any appreciable widening of spreads.
Speaker Change: But we would certainly we're certainly hopeful that we would start to see it as we move move through the quarter.
Speaker Change: Thank you and then last one for me and sorry, if I missed this in the prepared remarks, but.
Speaker Change: With the understanding that there is a little bit of a lag effect as the full impact of the base rate changes last quarter completely made made its way through the portfolio.
Speaker Change: Yes, so I think you're right Max at shy. So there is essentially a one quarter lag if you will with respect to how the assets reset now they don't all reset exactly on quarter end.
Speaker Change: But again, our view is that when we think about the weighted average chauffeur that we experienced during the quarter. It was roughly four three so down about 15 basis points from the prior quarter.
Speaker Change: So again as you think about the forward curve and kind of what that means I think it's fair to assume sort of a one quarter lag relative to the curve, noting obviously that the curve and then what really plays out in terms of silver obviously can differ materially.
Ken: Very good thanks, guys. Thanks, Ken.
Speaker Change: Thank you.
Ken: Thank you and we have reached the end of the question and answer session. I will now turn the call over to Ken can sell for closing remarks.
Ken: Great well, thank you operator, and thank you all for joining us today, we remain.
Ken: Very very much open to taking your calls any follow up questions. You may have we're certainly available to us.
Ken: To respond.
Ken: As a general matter as we indicated we feel we feel well positioned in the market environment going forward.
<unk> dry powder across our platform and within the BDC ability to take advantage of those opportunities as they become available.
Ken: Then thank you for joining the call we look forward to taking our time to talk with you next quarter.
Ken: Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.