Capital Southwest Q3 2026 Capital Southwest Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q3 2026 Capital Southwest Corp Earnings Call
Amy Baker: Thank you for joining today's Capital Southwest Q3 fiscal year 2026 earnings call. Participating on the call today are Michael Sarner, Chief Executive Officer, Chris Rehberger, Chief Financial Officer, Josh Weinstein, Chief Investment Officer, and Amy Baker, Executive Vice President, Accounting. I will now turn the call over to Amy Baker.
Thank you for joining today's Capital Southwest Q3 fiscal year 2026 earnings call. Participating on the call today are Michael Sarner, Chief Executive Officer, Chris Rehberger, Chief Financial Officer, Josh Weinstein, Chief Investment Officer, and Amy Baker, Executive Vice President, Accounting. I will now turn the call over to Amy Baker.
Speaker #1: I will now turn the call over to Amy
Speaker #1: Baker. Thank you.
Amy Baker: Thank you. I would like to remind everyone that in the course of this call, we will be making certain forward-looking statements. These statements are based on current conditions, currently available information, and management's expectations, assumptions, and beliefs. They are not guarantees of future results and are subject to numerous risks, uncertainties, and assumptions that could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see Capital Southwest's publicly available filings with the SEC. The company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances, or any other reason after the date of this press release, except as required by law. I will now hand the call over to our President and Chief Executive Officer, Michael Sarner.
Amy Baker: Thank you. I would like to remind everyone that in the course of this call, we will be making certain forward-looking statements. These statements are based on current conditions, currently available information, and management's expectations, assumptions, and beliefs. They are not guarantees of future results and are subject to numerous risks, uncertainties, and assumptions that could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see Capital Southwest's publicly available filings with the SEC. The company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances, or any other reason after the date of this press release, except as required by law. I will now hand the call over to our President and Chief Executive Officer, Michael Sarner.
Speaker #2: I would like to remind everyone that in the course of this call, we will be making certain forward-looking statements. These statements are based on current conditions, currently available information, and management's expectations, assumptions, and beliefs.
Speaker #2: They are not guarantees of future results and are subject to numerous risks, uncertainties, and assumptions that could cause actual results to differ materially from such statements.
Speaker #2: For information concerning these risks and uncertainties, see CAPITAL SOUTHWEST's publicly available filings with the SEC. The company does not undertake any obligation to update or revise any forward-looking statements whether as a result of new information, future events, changing circumstances, or any other reason after the date of this press release, except as required by law.
Speaker #2: I will now hand the call over to our President and Chief Executive Officer, Michael Sarner.
Speaker #3: Thanks, Amy. And thank you all for joining us for our third quarter fiscal year 2026 earnings call. We are pleased to be with you today and look forward to walking you through our results for the quarter.
Michael Sarner: Thanks, Amy, and thank you all for joining us for our Q3 fiscal year 2026 earnings call. We are pleased to be with you today and look forward to walking you through our results for the quarter. During the third fiscal quarter, we generated pre-tax net investment income of $0.60 per share, supported by strong recurring earnings across the portfolio. Our undistributed taxable income balance remains robust at $1.02 per share, reflecting consistent realization activity. In fact, over the last 12 months, we have harvested $44.5 million in realized gains from equity exits, driving UTI growth from $0.68 per share in December 2024 to today's level. Subsequent to quarter end, we realized an additional realized gain of $6.8 million from another equity exit, which should further support our UTI balance going forward.
Michael Sarner: Thanks, Amy, and thank you all for joining us for our Q3 fiscal year 2026 earnings call. We are pleased to be with you today and look forward to walking you through our results for the quarter. During the third fiscal quarter, we generated pre-tax net investment income of $0.60 per share, supported by strong recurring earnings across the portfolio. Our undistributed taxable income balance remains robust at $1.02 per share, reflecting consistent realization activity. In fact, over the last 12 months, we have harvested $44.5 million in realized gains from equity exits, driving UTI growth from $0.68 per share in December 2024 to today's level. Subsequent to quarter end, we realized an additional realized gain of $6.8 million from another equity exit, which should further support our UTI balance going forward.
Speaker #3: During the third fiscal quarter, we generated pre-tax net investment income of $0.60 per share, supported by strong recurring earnings across the portfolio. Our undistributed taxable income balance remains robust at $1.02 per share, reflecting consistent realization activity.
Speaker #3: In fact, over the last 12 months, we have harvested 44.5 million in realized gains from equity exits, driving UTI growth from 68 cents per share in December of 2024 to today's level.
Speaker #3: Subsequent to quarter-end, we realized an additional realized gain of $6.8 million from another equity exit, which should further support our UTI balance going forward.
Michael Sarner: Our board of directors has declared a total of $0.58 in regular dividends for the March quarter, payable monthly in each of January, February, and March 2026, and has also declared a quarterly dividend, supplemental dividend of $0.06 per share, payable in March, bringing total dividends declared for the March quarter to $0.64 per share. Turning to originations, deal flow in the lower middle market remained healthy this quarter. We closed $244 million in total new commitments across 8 new portfolio companies and 16 existing portfolio companies. Add-on financings continue to be an important source of originations for us, as over the last 12 months, add-ons as a percentage of total new commitments have been 29%. These opportunities allow us to deploy capital into businesses we know well with proven management teams and sponsors.
Our board of directors has declared a total of $0.58 in regular dividends for the March quarter, payable monthly in each of January, February, and March 2026, and has also declared a quarterly dividend, supplemental dividend of $0.06 per share, payable in March, bringing total dividends declared for the March quarter to $0.64 per share. Turning to originations, deal flow in the lower middle market remained healthy this quarter. We closed $244 million in total new commitments across 8 new portfolio companies and 16 existing portfolio companies. Add-on financings continue to be an important source of originations for us, as over the last 12 months, add-ons as a percentage of total new commitments have been 29%. These opportunities allow us to deploy capital into businesses we know well with proven management teams and sponsors.
Speaker #3: Our board of directors has declared a total of 58 cents in regular dividends for the March quarter, payable monthly in each of January, February, and March 2026, and has also declared a quarterly dividend supplemental dividend of 6 cents per share payable in March, bringing total dividends declared for the March quarter to 64 cents per share.
Speaker #3: Turning to originations, deal flow in the lower middle market remained healthy this quarter. We closed 244 million in total new commitments across eight new portfolio companies, and 16 existing portfolio companies.
Speaker #3: Add-on financing has continued to be an important source of originations for us, as over the last 12 months, add-ons as a percentage of total new commitments have been 29%.
Speaker #3: These opportunities allow us to deploy capital into businesses we know well, with proven management teams and sponsors. The weighted average spread on our new commitments this quarter was approximately 6.4%, which we view as very attractive given today's competitive spread environment.
Michael Sarner: The weighted average spread on our new commitments this quarter was approximately 6.4%, which we view as very attractive, given today's competitive spread environment. On the capitalization front, last quarter, we strengthened our balance sheet by issuing $350 million in aggregate principal of 5.95% notes due 2030. This quarter, we used a portion of the proceeds to fully redeem our $150 million notes due 2026, and $71.9 million notes due 2028, extending our maturity profile at an attractive cost of capital.
The weighted average spread on our new commitments this quarter was approximately 6.4%, which we view as very attractive, given today's competitive spread environment. On the capitalization front, last quarter, we strengthened our balance sheet by issuing $350 million in aggregate principal of 5.95% notes due 2030. This quarter, we used a portion of the proceeds to fully redeem our $150 million notes due 2026, and $71.9 million notes due 2028, extending our maturity profile at an attractive cost of capital.
Speaker #3: On the capitalization front, last quarter we strengthened our balance sheet by issuing 350 million dollars in aggregate principal of 5.95% notes due 2030. This quarter, we used a portion of the proceeds to fully redeem our 150 million dollar notes due 2026 and 71.9 million dollar notes due 2028, extending our maturity profile at an attractive cost of capital.
Speaker #3: We also raised approximately 53 million in gross equity proceeds through our equity ATM program at a weighted average share price of 21 dollars and 11 cents per share, or 127% of the prevailing NAB per share.
Michael Sarner: We also raised approximately $53 million in gross equity proceeds through our equity ATM program at a weighted average share price of $21.11 per share, or 127% of the prevailing NAV per share, reinforcing our ability to raise capital efficiently and accretively. Subsequent to quarter end, we announced a first out senior loan joint venture with a private credit asset manager, which I would like to spend some time discussing. We believe this new JV will enhance our competitiveness in our core lower middle market by enabling us to participate in larger, higher quality deals with tighter spreads while maintaining disciplined hold sizes.
We also raised approximately $53 million in gross equity proceeds through our equity ATM program at a weighted average share price of $21.11 per share, or 127% of the prevailing NAV per share, reinforcing our ability to raise capital efficiently and accretively. Subsequent to quarter end, we announced a first out senior loan joint venture with a private credit asset manager, which I would like to spend some time discussing. We believe this new JV will enhance our competitiveness in our core lower middle market by enabling us to participate in larger, higher quality deals with tighter spreads while maintaining disciplined hold sizes.
Speaker #3: Reinforcing our ability to raise capital efficiently and accretively. Subsequent to quarter-end, we announced a first-out senior loan joint venture with a private credit asset manager, which I would like to spend some time discussing.
Speaker #3: We believe this new GAV will enhance our competitiveness in our core lower middle market by enabling us to participate in larger, higher-quality deals with tighter spreads while maintaining discipline hold sizes.
Michael Sarner: The structure also allows us to earn outsized economics due to our role as originator and administrator of the JV, and higher relative yields on last out loans, which is extremely important in an environment where SOFR is declining and loan spreads on new deals remain very tight. The first out loans within the JV are expected to be conservatively levered at approximately 1.5 times debt to EBITDA or less, and once fully ramped, we expect the JV to generate a low- to mid-teen equity return for Capital Southwest. Finally, our partners in the JV is a highly regarded, well-capitalized asset manager with whom we are extremely excited to build a long-term relationship. We believe this relationship may open up other unique opportunities for co-investment in the future as we continue to expand our platform.
The structure also allows us to earn outsized economics due to our role as originator and administrator of the JV, and higher relative yields on last out loans, which is extremely important in an environment where SOFR is declining and loan spreads on new deals remain very tight. The first out loans within the JV are expected to be conservatively levered at approximately 1.5 times debt to EBITDA or less, and once fully ramped, we expect the JV to generate a low- to mid-teen equity return for Capital Southwest. Finally, our partners in the JV is a highly regarded, well-capitalized asset manager with whom we are extremely excited to build a long-term relationship. We believe this relationship may open up other unique opportunities for co-investment in the future as we continue to expand our platform.
Speaker #3: The structure also allows us to earn outsized economics due to our role as originator and administrator of the GAV, and higher relative yields on last-out loans, which is extremely important in an environment where sofers declining and loan spreads on new deals remain very tight.
Speaker #3: The first-out loans within the GAV are expected to be conservatively levered at approximately 1.5 times debt-to-EBITDA or less, and once fully ramped, we expect the GAV to generate a low-to-mid-teens equity return for Capital Southwest.
Speaker #3: Finally, our partners in the GAV is a highly regarded well-capitalized asset manager with whom we are extremely excited to build a long-term relationship. We believe this relationship may open up other unique opportunities for co-investment in the future as we continue to expand our platform.
Speaker #3: Overall, we are pleased with our performance this quarter and enthusiastic about the prospects for this new venture. We look forward to giving further updates on the fund in the coming quarters.
Michael Sarner: Overall, we are pleased with our performance this quarter and enthusiastic about the prospects for this new venture. We look forward to giving further updates on the fund in the coming quarters. I will now hand the call over to Josh to review more specifics on our investment activity and the market environment.
Overall, we are pleased with our performance this quarter and enthusiastic about the prospects for this new venture. We look forward to giving further updates on the fund in the coming quarters. I will now hand the call over to Josh to review more specifics on our investment activity and the market environment.
Speaker #3: I will now hand the call over to Josh to review more specifics of our investment activity and the market
Speaker #3: environment. Thanks,
Amy Baker: Thanks, Michael. This quarter, we deployed a total of $199 million of new committed capital, consisting of $197 million in first lien senior secured debt and $2 million of equity across eight new portfolio companies. We also completed add-on financings for 16 existing portfolio companies, totaling $44 million in first lien senior secured debt and $405 thousand in equity.
Josh Weinstein: Thanks, Michael. This quarter, we deployed a total of $199 million of new committed capital, consisting of $197 million in first lien senior secured debt and $2 million of equity across eight new portfolio companies. We also completed add-on financings for 16 existing portfolio companies, totaling $44 million in first lien senior secured debt and $405 thousand in equity.
Speaker #4: Michael. This quarter, we deployed a total of 199 million of new committed capital, consisting of 197 million in first-lean senior-secured debt and 2 million of equity across eight new portfolio companies.
Speaker #4: We also completed add-on financing for 16 existing portfolio companies, totaling $44 million in first-lien senior-secured debt and $405,000 in equity. Our on-balance sheet credit portfolio ended the quarter at $1.8 billion, representing 19% year-over-year growth from $1.5 billion as of December 2024.
Josh Weinstein: ...Our on-balance sheet credit portfolio ended the quarter at $1.8 billion, representing 19% year-over-year growth from $1.5 billion as of December 2024. Importantly, 100% of new portfolio company debt originations were first-lien senior secured, and as of quarter end, 99% of the credit portfolio remains first-lien senior secured, with a weighted average exposure per company of only 29%. This level of portfolio granularity reflects our disciplined approach to risk management as we continue to scale the balance sheet. The vast majority of our deal activity continues to be in first-lien senior secured loans to private equity-backed companies. Approximately 93% of our credit portfolio is sponsor-backed, which provides strong governance, operational support, and when needed, the potential for junior capital.
...Our on-balance sheet credit portfolio ended the quarter at $1.8 billion, representing 19% year-over-year growth from $1.5 billion as of December 2024. Importantly, 100% of new portfolio company debt originations were first-lien senior secured, and as of quarter end, 99% of the credit portfolio remains first-lien senior secured, with a weighted average exposure per company of only 29%. This level of portfolio granularity reflects our disciplined approach to risk management as we continue to scale the balance sheet. The vast majority of our deal activity continues to be in first-lien senior secured loans to private equity-backed companies. Approximately 93% of our credit portfolio is sponsor-backed, which provides strong governance, operational support, and when needed, the potential for junior capital.
Speaker #4: Importantly, 100% of new portfolio company debt originations were first-lean senior-secured, and as of quarter-end, 99% of the credit portfolio remained first-lean senior-secured, with a weighted average exposure per company of only 0.9%.
Speaker #4: This level of portfolio granularity reflects our disciplined approach to risk management as we continue to scale the balance sheet. The vast majority of our deal activity continues to be in first-lien, senior-secured loans to private equity-backed companies.
Speaker #4: Approximately 93% of our credit portfolio is sponsor-backed, which provides strong governance, operational support, and, when needed, the potential for junior capital. In the lower middle market, we frequently have the opportunity to invest on a monthly basis in the equity of our portfolio companies, partnering with the private equity firm where we believe the equity thesis is compelling.
Josh Weinstein: In the lower middle market, we frequently have the opportunity to invest on a minority basis in the equity of our portfolio companies, pari passu with the private equity firm, where we believe the equity thesis is compelling. As of quarter end, our equity co-investment portfolio consisted of 86 investments with a total fair value of $183 million, representing 9% of our total portfolio at fair value. This portfolio was marked at 133% of our cost, representing $45.2 million of embedded unrealized appreciation, or $0.76 per share. These equity positions continue to give our shareholders meaningful upside participation in growing lower middle market businesses, driven by both operational improvements and strategic add-on acquisitions. This is evident from the recent realized gains, which Michael mentioned earlier.
In the lower middle market, we frequently have the opportunity to invest on a minority basis in the equity of our portfolio companies, pari passu with the private equity firm, where we believe the equity thesis is compelling. As of quarter end, our equity co-investment portfolio consisted of 86 investments with a total fair value of $183 million, representing 9% of our total portfolio at fair value. This portfolio was marked at 133% of our cost, representing $45.2 million of embedded unrealized appreciation, or $0.76 per share. These equity positions continue to give our shareholders meaningful upside participation in growing lower middle market businesses, driven by both operational improvements and strategic add-on acquisitions. This is evident from the recent realized gains, which Michael mentioned earlier.
Speaker #4: As of quarter-end, our equity co-investment portfolio consisted of 86 investments, with a total fair value of 183 million, representing 9% of our total portfolio at fair value.
Speaker #4: This portfolio was marked at 133% of our cost, representing 45.2 million of embedded unrealized appreciation, or 76 cents per share. These equity positions continue to give our shareholders meaningful upside participation in growing lower middle market businesses driven by both operational improvements and strategic add-on acquisitions.
Speaker #4: This is evident from the recent realized gains, which Michael mentioned earlier. The lower middle market remains highly competitive, as this segment of the market continues to attract both bank and non-bank lenders.
Josh Weinstein: The lower middle market remains highly competitive, as this segment of the market continues to attract both bank and non-bank lenders. While this has resulted in tight loan pricing for high-quality opportunities, the depth and strength of our sponsor relationships the team has cultivated over the years has continued to result in our sourcing and winning opportunities with attractive risk-return profiles. Today, our portfolio includes investments from 90 unique private equity firms, and over the past 12 months, we've closed 14 new platform investments with sponsors we had not previously partnered with. Since launching our credit strategy, we have completed transactions with over 129 private equity firms nationwide, including more than 20% with whom we have completed multiple deals.
The lower middle market remains highly competitive, as this segment of the market continues to attract both bank and non-bank lenders. While this has resulted in tight loan pricing for high-quality opportunities, the depth and strength of our sponsor relationships the team has cultivated over the years has continued to result in our sourcing and winning opportunities with attractive risk-return profiles. Today, our portfolio includes investments from 90 unique private equity firms, and over the past 12 months, we've closed 14 new platform investments with sponsors we had not previously partnered with. Since launching our credit strategy, we have completed transactions with over 129 private equity firms nationwide, including more than 20% with whom we have completed multiple deals.
Speaker #4: While this has resulted in tight loan pricing for high-quality opportunities, the depth and strength of our sponsor relationships—the team has cultivated over the years—has continued to result in our sourcing and winning opportunities with attractive risk-return profiles.
Speaker #4: Today, our portfolio includes investments from 90 unique private equity firms, and over the past 12 months, we closed 14 new platform investments with sponsors we had not previously partnered with.
Speaker #4: Since launching our credit strategy, we have completed transactions with over 129 private equity firms nationwide, including more than 20% with whom we have completed multiple deals.
Speaker #4: Our portfolio now consists of 132 portfolio companies, allocated 90% to first-lean senior-secured debt, 0.8% to second-lean senior-secured debt, and 9.1% to equity co-investments. The credit portfolio generated a weighted average yield of 11.3%, with weighted average leverage through our security of 3.6 times EBITDA.
Josh Weinstein: Our portfolio now consists of 132 portfolio companies, allocated 90% to first-lien senior secured debt, 0.8% to second-lien senior secured debt, and 9.1% to equity co-investments. The credit portfolio generated a weighted average yield of 11.3%, with weighted average leverage through our security of 3.6x EBITDA. We remain pleased with the overall performance of the portfolio. At origination, all loans are initially assigned an investment rating of 2 on a 5-point scale, with 1 being the highest rating and 5 being the lowest rating. As of quarter end, 90% of the portfolio at fair value was rated in the top two categories. Cash flow coverage remains strong at 3.4 times, reflecting an improvement from the 2.9 times low observed during the peak of base rates.
Our portfolio now consists of 132 portfolio companies, allocated 90% to first-lien senior secured debt, 0.8% to second-lien senior secured debt, and 9.1% to equity co-investments. The credit portfolio generated a weighted average yield of 11.3%, with weighted average leverage through our security of 3.6x EBITDA. We remain pleased with the overall performance of the portfolio. At origination, all loans are initially assigned an investment rating of 2 on a 5-point scale, with 1 being the highest rating and 5 being the lowest rating. As of quarter end, 90% of the portfolio at fair value was rated in the top two categories. Cash flow coverage remains strong at 3.4 times, reflecting an improvement from the 2.9 times low observed during the peak of base rates.
Speaker #4: We remain pleased with the overall performance of the portfolio. At origination, all loans are initially assigned an investment rating of 2 on a 5-point scale, with 1 being the highest rating and 5 being the lowest rating.
Speaker #4: As of quarter-end, 90% of the portfolio at fair value was rated in the top two categories. Cash flow coverage remains strong at 3.4 times, reflecting an improvement from the 2.9 times low observed during the peak of base rates.
Speaker #4: This strength is further supported by the fact that our loans represent, on average, only 44% of portfolio company enterprise value. Our portfolio remains broadly diversified across industries, and our average exposure per company of less than 1% continues to provide meaningful protection against idiosyncratic risk.
Josh Weinstein: This strength is further supported by the fact that our loans represent, on average, only 44% of portfolio company enterprise value. Our portfolio remains broadly diversified across industries, and our average exposure per company of less than 1% continues to provide meaningful protection against idiosyncratic risk. For new platform deals closed during the December quarter, weighted average senior leverage was 3x debt to EBITDA, and weighted average loan to value was 36%, providing a substantial equity cushion beneath our debt. Over the past 12 months, new platform originations have averaged 3.3x senior leverage and 37% loan to value, underscoring our consistent commitment to conservative underwriting. I will now hand the call over to Chris to review the specifics of our financial performance for the quarter.
This strength is further supported by the fact that our loans represent, on average, only 44% of portfolio company enterprise value. Our portfolio remains broadly diversified across industries, and our average exposure per company of less than 1% continues to provide meaningful protection against idiosyncratic risk. For new platform deals closed during the December quarter, weighted average senior leverage was 3x debt to EBITDA, and weighted average loan to value was 36%, providing a substantial equity cushion beneath our debt. Over the past 12 months, new platform originations have averaged 3.3x senior leverage and 37% loan to value, underscoring our consistent commitment to conservative underwriting. I will now hand the call over to Chris to review the specifics of our financial performance for the quarter.
Speaker #4: For new platform deals closed during the December quarter, weighted average senior leverage was 3 times debt-to-EBITDA, and weighted average loan-to-value was 36%, providing a substantial equity cushion beneath our debt.
Speaker #4: Over the past 12 months, new platform originations have averaged 3.3x senior leverage and 37% loan-to-value, underscoring our consistent commitment to conservative underwriting. I will now hand the call over to Chris to review the specifics of our financial performance for the quarter.
Speaker #5: Thanks, Josh. Turning to our financial performance for the quarter, pre-tax net investment income was 34.6 million dollars, or 60 cents per share. Total investment income increased to 61.4 million dollars, up from 56.9 million dollars in the prior quarter.
Chris Rehberger: Thanks, Josh. Turning to our financial performance for the quarter, pre-tax net investment income was $34.6 million, or $0.60 per share. Total investment income increased to $61.4 million, up from $56.9 million in the prior quarter. The increase was driven primarily by a $1.8 million increase in PIK income, a $1.1 million increase in fees and other income, and a $1 million increase in dividend income. The increase in PIK was driven by an amendment to one of our portfolio companies, in which the sponsor provided significant new cash equity support and a debt paydown in exchange for a PIK option. As of quarter end, non-accruals represented just 1.5% of our investment portfolio at fair value.
Chris Rehberger: Thanks, Josh. Turning to our financial performance for the quarter, pre-tax net investment income was $34.6 million, or $0.60 per share. Total investment income increased to $61.4 million, up from $56.9 million in the prior quarter. The increase was driven primarily by a $1.8 million increase in PIK income, a $1.1 million increase in fees and other income, and a $1 million increase in dividend income. The increase in PIK was driven by an amendment to one of our portfolio companies, in which the sponsor provided significant new cash equity support and a debt paydown in exchange for a PIK option. As of quarter end, non-accruals represented just 1.5% of our investment portfolio at fair value.
Speaker #5: The increase was driven primarily by a $1.8 million increase in PIC income, a $1.1 million increase in fees and other income, and a $1 million increase in dividend income.
Speaker #5: The increase in PIC was driven by an amendment to one of our portfolio companies, in which the sponsor provided significant new cash equity support and a debt paydown in exchange for a PIC option.
Speaker #5: As of quarter-end, non-accruals represented just 1.5% of our investment portfolio at fair value. During the quarter, we paid a 58 cent per share regular dividend and a 6 cent per share supplemental dividend.
Chris Rehberger: During the quarter, we paid a $0.58 per share regular dividend and a $0.06 per share supplemental dividend. For the March 2026 quarter, our board has again declared a total of $0.58 per share in regular dividends, payable monthly in each of January, February, and March 2026, and maintained the $0.06 supplemental dividend, also payable in March, bringing total dividends declared to $0.64 per share. We continue to demonstrate strong dividend coverage, with 110% cumulative coverage since launching our credit strategy. With UTI of $1.02 per share and a sizable unrealized appreciation balance in our equity portfolio, we remain confident in our ability to continue distributing quarterly supplemental dividends over time. LTM operating leverage ended the quarter at 1.7%, significantly better than the BDC industry average of approximately 2.6%.
During the quarter, we paid a $0.58 per share regular dividend and a $0.06 per share supplemental dividend. For the March 2026 quarter, our board has again declared a total of $0.58 per share in regular dividends, payable monthly in each of January, February, and March 2026, and maintained the $0.06 supplemental dividend, also payable in March, bringing total dividends declared to $0.64 per share. We continue to demonstrate strong dividend coverage, with 110% cumulative coverage since launching our credit strategy. With UTI of $1.02 per share and a sizable unrealized appreciation balance in our equity portfolio, we remain confident in our ability to continue distributing quarterly supplemental dividends over time. LTM operating leverage ended the quarter at 1.7%, significantly better than the BDC industry average of approximately 2.6%.
Speaker #5: For the March 2026 quarter, our board has again declared a total of 58 cents per share in regular dividends, payable monthly in each of January/February and March 2026.
Speaker #5: And maintained the $0.06 supplemental dividend, also payable in March, bringing total dividends declared to $0.64 per share. We continue to demonstrate strong dividend coverage, with 110% cumulative coverage since launching our credit strategy.
Speaker #5: With UTI of $1.02 per share and a sizable unrealized appreciation balance in our equity portfolio, we remain confident in our ability to continue distributing quarterly supplemental dividends over time.
Speaker #5: LTM operating leverage ended at the quarter at 1.7%, significantly better than the BDC industry average of approximately 2.6%. As our asset base continues to grow, our near-term target for operating leverage is 1.5% or below, reflecting the inherent efficiency of the internally managed BDC model.
Chris Rehberger: As our asset base continues to grow, our near-term target for operating leverage is 1.5% or below, reflecting the inherent efficiency of the internally managed BDC model. The internally managed model has, and will continue to, provide meaningful fixed cost leverage to shareholders, while still allowing us to invest in talent and infrastructure as we continue to scale a best-in-class BDC platform. NAV per share increased to $16.75 per share, up from sixteen dollars and sixty-two cents per share in the prior quarter, driven primarily by our equity ATM program. As Michael noted, last quarter, we issued $350 million of 5.95% unsecured notes due 2030.
As our asset base continues to grow, our near-term target for operating leverage is 1.5% or below, reflecting the inherent efficiency of the internally managed BDC model. The internally managed model has, and will continue to, provide meaningful fixed cost leverage to shareholders, while still allowing us to invest in talent and infrastructure as we continue to scale a best-in-class BDC platform. NAV per share increased to $16.75 per share, up from sixteen dollars and sixty-two cents per share in the prior quarter, driven primarily by our equity ATM program. As Michael noted, last quarter, we issued $350 million of 5.95% unsecured notes due 2030.
Speaker #5: The internally managed model has and will continue to provide meaningful fixed-cost leverage to shareholders, while still allowing us to invest in talent and infrastructure as we continue to scale a best-in-class BDC platform.
Speaker #5: NAV per share increased to $16.75 per share, up from $16.62 per share in the prior quarter, driven primarily by our equity ATM program. As Michael noted, last quarter we issued 350 million of 5.95% unsecured notes due 2030.
Speaker #5: During the December quarter, we used a portion of the proceeds to fully redeem our $71.9 million August 2028 notes and $150 million October 2026 notes, with no make-whole payments required.
Chris Rehberger: During the December quarter, we used a portion of the proceeds to fully redeem our $71.9 million August 2028 notes and $150 million October 2026 notes, with no make-whole payments required. We view this refinancing as a highly favorable outcome for shareholders, strengthening our balance sheet and positioning us well across a range of market environments. Our liquidity position remains robust, with approximately $438 million in cash and undrawn leverage commitments across our two credit facilities, plus $20 million available on SBA debentures. In total, this represents more than 1.5 times coverage of the $285 million in unfunded commitments across the portfolio. Regulatory leverage ended the quarter at 0.89 to 1 debt to equity, down slightly from 0.91 to 1 in the prior quarter.
During the December quarter, we used a portion of the proceeds to fully redeem our $71.9 million August 2028 notes and $150 million October 2026 notes, with no make-whole payments required. We view this refinancing as a highly favorable outcome for shareholders, strengthening our balance sheet and positioning us well across a range of market environments. Our liquidity position remains robust, with approximately $438 million in cash and undrawn leverage commitments across our two credit facilities, plus $20 million available on SBA debentures. In total, this represents more than 1.5 times coverage of the $285 million in unfunded commitments across the portfolio. Regulatory leverage ended the quarter at 0.89 to 1 debt to equity, down slightly from 0.91 to 1 in the prior quarter.
Speaker #5: We view this refinancing as a highly favorable outcome for shareholders, strengthening our balance sheet and positioning us well across a range of market environments.
Speaker #5: Our liquidity position remains robust, with approximately $438 million in cash and undrawn leverage commitments across our two credit facilities, plus $20 million available on SBA debentures.
Speaker #5: In total, this represents more than 1.5 times coverage of the $285 million in unfunded commitments across the portfolio. Regulatory leverage ended the quarter at 0.89-to-1 debt-to-equity, down slightly from 0.91-to-1 in the prior quarter.
Speaker #5: While our target leverage remains 0.8 to 0.95, we continue to factor in the macroeconomic backdrop and intend to maintain a prudent leverage cushion to help mitigate capital markets volatility.
Chris Rehberger: While our target leverage remains 0.8 to 0.95, we continue to factor in the macroeconomic backdrop and intend to maintain a prudent leverage cushion to help mitigate capital markets volatility. We will continue to raise secured and unsecured debt capital, as well as equity through our ATM program, in a methodical and opportunistic manner to ensure we maintain significant liquidity and a conservatively constructed balance sheet with adequate covenant cushions. I will now hand the call back to Michael for some final comments.
While our target leverage remains 0.8 to 0.95, we continue to factor in the macroeconomic backdrop and intend to maintain a prudent leverage cushion to help mitigate capital markets volatility. We will continue to raise secured and unsecured debt capital, as well as equity through our ATM program, in a methodical and opportunistic manner to ensure we maintain significant liquidity and a conservatively constructed balance sheet with adequate covenant cushions. I will now hand the call back to Michael for some final comments.
Speaker #5: We will continue to raise secured and unsecured debt capital as well as equity through our ATM program, and a methodical and opportunistic manner to ensure we maintain significant liquidity at a conservatively constructed balance sheet with adequate covenant cushions.
Speaker #5: I will now hand the call back to Michael for some final remarks.
Speaker #5: comments. Thank you, Chris, Josh,
Michael Sarner: Thank you, Chris, Josh, and Amy, and thank you to all of our employees who work tirelessly behind the scenes to help us deliver for our shareholders and communicate our progress each quarter. Your dedication is a critical part of what makes this platform so strong, and it remains a deep source of pride for me. And to everyone joining us today, we appreciate your continued interest, engagement, and support. We remain focused on executing our strategy, maintaining disciplined growth, and creating long-term value for our shareholders. That concludes our prepared remarks. Operator, we're ready to open the line for Q&A.
Michael Sarner: Thank you, Chris, Josh, and Amy, and thank you to all of our employees who work tirelessly behind the scenes to help us deliver for our shareholders and communicate our progress each quarter. Your dedication is a critical part of what makes this platform so strong, and it remains a deep source of pride for me. And to everyone joining us today, we appreciate your continued interest, engagement, and support. We remain focused on executing our strategy, maintaining disciplined growth, and creating long-term value for our shareholders. That concludes our prepared remarks. Operator, we're ready to open the line for Q&A.
Speaker #1: and Amy, and thank you to all of our employees who worked tirelessly behind the scenes to help us deliver for our shareholders and communicate our progress each quarter.
Speaker #1: Your dedication is a critical part of what makes this platform so strong, and it remains a deep source of pride for me. And to everyone joining us today, we appreciate your continued interest, engagement, and support.
Speaker #1: We remain focused on executing our strategy, maintaining discipline growth, and creating long-term value for our shareholders. That concludes our prepared remarks. Operator, we're ready to open the line for
Speaker #1: Q&A. If you'd like to ask a
Operator: If you'd like to ask a question at this time, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Doug Harter with UBS.
Operator: If you'd like to ask a question at this time, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Doug Harter with UBS.
Speaker #6: If you have a question at this time, please press star, one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star, one, one again.
Speaker #6: Please stand by while we compile the Q&A roster. Our first question comes from Doug Harter with UBS.
[Analyst] (UBS): Thanks. I was hoping you could just expand a little more, talk about, you know, the lower middle market. Just how do you view that from a competitive dynamic today? You know, what are you seeing in terms of, you know, players? Or is anyone, you know, kind of moving back into that market, moving out of the market? You know, just how are you seeing that, and what's the outlook for spreads as a result?
Doug Harter: Thanks. I was hoping you could just expand a little more, talk about, you know, the lower middle market. Just how do you view that from a competitive dynamic today? You know, what are you seeing in terms of, you know, players? Or is anyone, you know, kind of moving back into that market, moving out of the market? You know, just how are you seeing that, and what's the outlook for spreads as a result?
Speaker #7: Thanks. I was hoping you could just expand a little more, talk about, you know, the lower middle market. Just, how do you view that from a competitive dynamic today?
Speaker #7: You know, what are you seeing in terms of, you know, players? Or is anyone kind of moving back into that market, moving out of the market?
Speaker #7: You know, just how are you seeing that and what's the outlook for spreads as a
Michael Sarner: Yeah. I don't think it's really changed much over the last probably 6 months. I think over the last 12 and 18 months, we have seen regional banks. I think I've noted this before, that have dropped down. Historically, they only lent, you know, to maybe 1.5 turns of leverage in a maybe in a senior mezz structure. And more recently, we're seeing regional banks actually underwrite a whole unitranche loan. Now they come and go. Certainly anytime you're seeing headlines of, you know, private credit issues, they sort of back off. But by and large, I think that, you know, it's kind of the same players.
Michael Sarner: Yeah. I don't think it's really changed much over the last probably 6 months. I think over the last 12 and 18 months, we have seen regional banks. I think I've noted this before, that have dropped down. Historically, they only lent, you know, to maybe 1.5 turns of leverage in a maybe in a senior mezz structure. And more recently, we're seeing regional banks actually underwrite a whole unitranche loan. Now they come and go. Certainly anytime you're seeing headlines of, you know, private credit issues, they sort of back off. But by and large, I think that, you know, it's kind of the same players.
Speaker #1: Yeah, I don't think it's really changed much over the last probably six months. I think over the last 12 and 18 months, we have seen regional banks—I think I've noted this before—that have dropped down.
Speaker #1: Historically, they only landed, you know, to maybe one and a half turns of leverage in a maybe in a senior med structure. And more recently, we're seeing regional banks actually underwrite the whole unit tranche loan.
Speaker #1: Now they come and go, certainly anytime you've seen headlines of, you know, private credit issues, they sort of back off. But by and large, I think that, you know, it's kind of the same players.
Speaker #1: I mean, what we probably have seen in the last, I would say, one to two months is that there's particularly on the BDC space, there's 27 to 42 BDCs that have cut their dividends.
Michael Sarner: You know, what we probably have seen in the last, I would say, 1 to 2 months, is that there's, you know, particularly on the BDC space, there's 27 out of 42 BDCs have cut their dividends, and I think, you know, we're only seeing 5 BDCs trade above book right now. So there's a little less competition from our peers, as they sort of lick their wounds right now. But other than that, I think that, you know, we're in a very strong competitive position. And you know, obviously, we've announced this joint venture, which we think is going to strengthen our ability to continue to win deals that are in our core competency, the lower middle market.
You know, what we probably have seen in the last, I would say, 1 to 2 months, is that there's, you know, particularly on the BDC space, there's 27 out of 42 BDCs have cut their dividends, and I think, you know, we're only seeing 5 BDCs trade above book right now. So there's a little less competition from our peers, as they sort of lick their wounds right now. But other than that, I think that, you know, we're in a very strong competitive position. And you know, obviously, we've announced this joint venture, which we think is going to strengthen our ability to continue to win deals that are in our core competency, the lower middle market.
Speaker #1: And I think, you know, we're only seeing five BDCs trade a book right now. So there's a little less competition from our peers. As I sort of licked their wounds right now, but other than that, I think that, you know, we're in a very strong competitive position.
Speaker #1: And, you know, obviously we've announced this joint venture, which we think is going to strengthen our ability to continue to win deals that are in our core competency, the lower middle market.
[Analyst] (UBS): Great. And I guess, just then on the spread outlook, how that, you know, kind of those comments would lead to kind of how you think spreads progress over the coming quarters?
Speaker #7: Great. And I guess just then on the spread outlook, how that, you know, kind of those comments would lead to kind of how you think spreads progress over the coming quarters?
Doug Harter: Great. And I guess, just then on the spread outlook, how that, you know, kind of those comments would lead to kind of how you think spreads progress over the coming quarters?
Speaker #1: Yeah, so when we look at it, the spread on debt is actually—from 3/31/2025, it was 7.35%, and today it's 7.24%. So we've held in pretty well from a spread perspective.
Michael Sarner: Yeah. So when we look at it, our the spread on debt is actually from 31 March 2025, it was 7.35%, and today it's 7.24%. So we've held in pretty well from a spread perspective. I think we'd say that we've seen spreads the spread compression has seemed to stop the last 12 months, and even, you know, the last 3 months, we've seen our spreads on our newly originated deals in the mid-6s. And those are with, you know, 3x leverage and 36% loan-to-value, so very conservatively structured deals with decent spreads. So I think for us, we'll continue to be somewhere between 7% and 7.25%, we would expect for the next 12 months.
Michael Sarner: Yeah. So when we look at it, our the spread on debt is actually from 31 March 2025, it was 7.35%, and today it's 7.24%. So we've held in pretty well from a spread perspective. I think we'd say that we've seen spreads the spread compression has seemed to stop the last 12 months, and even, you know, the last 3 months, we've seen our spreads on our newly originated deals in the mid-6s. And those are with, you know, 3x leverage and 36% loan-to-value, so very conservatively structured deals with decent spreads. So I think for us, we'll continue to be somewhere between 7% and 7.25%, we would expect for the next 12 months.
Speaker #1: I think we'd say that we've seen spreads—the spread compression has seemed to stop over the last 12 months. And even, you know, in the last three months, we've seen our spreads on our newly originated deals in the mid-sixes.
Speaker #1: And those are with, you know, three times leverage and 36% loan-to-value. So very conservatively structured deals, with decent spreads. So I think for us, we'll continue to be somewhere between 7% and 7.25%, if we would expect for the next 12 months.
Operator: Our next question comes from Mickey Schleien with Clear Street.
Operator: Our next question comes from Mickey Schleien with Clear Street.
Speaker #6: Nikki Schlein with ClearStreet.
Operator: Yes, good morning, everyone. Michael, could you give us a sense of the breakdown of the portfolio between sponsored and non-sponsored at this time?
Mickey Schleien: Yes, good morning, everyone. Michael, could you give us a sense of the breakdown of the portfolio between sponsored and non-sponsored at this time?
Speaker #8: Yes, good morning, everyone. Michael, could you give us a sense of the breakdown of the portfolio between sponsored and non-sponsored at this point?
Speaker #8: time? I think
Michael Sarner: I think it's 93% sponsored and, and 7% non-sponsored, and that's probably on the high side. It's typically been somewhere between 85 and 95% sponsored deals.
Michael Sarner: I think it's 93% sponsored and, and 7% non-sponsored, and that's probably on the high side. It's typically been somewhere between 85 and 95% sponsored deals.
Speaker #1: It's 93% sponsored and 7% non-sponsored. And that's probably on the buy side. It's typically been somewhere between 85% and 95% sponsored.
Speaker #1: deals. And how
Operator: How are those sponsors behaving in terms of their appetite for deals in the current market environment? You know, I mean, we go quarter to quarter and, you know, sometimes it's risk on, sometimes it's risk off. There's so much going on. Can you give us a sense of just the backdrop?
Mickey Schleien: How are those sponsors behaving in terms of their appetite for deals in the current market environment? You know, I mean, we go quarter to quarter and, you know, sometimes it's risk on, sometimes it's risk off. There's so much going on. Can you give us a sense of just the backdrop?
Speaker #8: Are those sponsors behaving in terms of their appetite for deals in the current market environment? You know, I mean, we go quarter to quarter, and sometimes it's risk-on, sometimes it's risk-off.
Speaker #8: There's so much going on. Can you give us a sense of just the backdrop?
Michael Sarner: Josh, you wanna take this one?
Michael Sarner: Josh, you wanna take this one?
Speaker #1: Josh, you want to take this?
Speaker #1: one? I think
Josh Weinstein: I think there's still a lot of capital in the private equity, lower middle market private equity funds, so they're still looking for deals. I think that if you ask most private equity sponsors in the lower middle market, they would say last year was a pretty, quote unquote, "weak year" from a deployment perspective, and they're hoping 2026 there'll be more opportunities for them. But yeah, so I think that they're looking for deals. They have capital to spend, but they're not. But you know, last year, they didn't find as many deals available to them.
Josh Weinstein: I think there's still a lot of capital in the private equity, lower middle market private equity funds, so they're still looking for deals. I think that if you ask most private equity sponsors in the lower middle market, they would say last year was a pretty, quote unquote, "weak year" from a deployment perspective, and they're hoping 2026 there'll be more opportunities for them. But yeah, so I think that they're looking for deals. They have capital to spend, but they're not. But you know, last year, they didn't find as many deals available to them.
Speaker #3: There's still a lot of capital in the private equity lower middle market private equity fund, so they're still looking for deals. I think that if you ask most private equity sponsors in the lower middle market, they would say last year was a pretty 'weak year' from a deployment perspective.
Speaker #3: And they're hoping 2026 will be more opportunities for them. But yeah, so I think that they're looking for deals. They have capital to spend, but they're not—but, you know, last year they didn't find as many deals
Speaker #3: available to them. And, you know, the
Michael Sarner: You know, the other thing I would add is that the lower, lower middle market, where we play the 3 to 15 million in EBITDA, you know, we're not dividing UC is as typical with what you hear in the headlines of, you know, M&A going up and down. There are founders. There's an aging population, where, you know, companies are turning over. So there's been a steady drumbeat. I wouldn't say that there's been. There's clearly not the same peaks and troughs that you see in the upper and middle middle market. So I think the sponsors that Josh is referring to, they're still seeing plenty of deal flow.
Michael Sarner: You know, the other thing I would add is that the lower, lower middle market, where we play the 3 to 15 million in EBITDA, you know, we're not dividing UC is as typical with what you hear in the headlines of, you know, M&A going up and down. There are founders. There's an aging population, where, you know, companies are turning over. So there's been a steady drumbeat. I wouldn't say that there's been. There's clearly not the same peaks and troughs that you see in the upper and middle middle market. So I think the sponsors that Josh is referring to, they're still seeing plenty of deal flow.
Speaker #1: Other thing I would add is that the lower middle market, where we play—the $3 to $15 million in EBITDA—you know, the volume you see isn’t as typical as what you hear in the headlines of, you know, M&A going up and down.
Speaker #1: There are founders as an aging population where, you know, companies are turning over. There's been a steady drumbeat. I wouldn't say that there's been—there's clearly not the same peaks and troughs that you see in the upper and middle middle market.
Speaker #1: So I think the sponsors that Josh was referring to, they're still seeing plenty of deal flow.
Operator: And Michael, with that in mind, I mean, we're certainly reading a lot about pressure from LPs on these sponsors to provide them some liquidity. But I'm getting the sense that, you know, the sponsors you work with, which are, you know, focused on the lower middle market, is that less of an issue for them?
Speaker #8: And Michael, with that in mind, I mean, we're certainly reading a lot about pressure from LPs on these sponsors to provide them some liquidity.
Mickey Schleien: And Michael, with that in mind, I mean, we're certainly reading a lot about pressure from LPs on these sponsors to provide them some liquidity. But I'm getting the sense that, you know, the sponsors you work with, which are, you know, focused on the lower middle market, is that less of an issue for them?
Speaker #8: But I'm getting the sense that, you know, the sponsors you work with, which are, you know, focused on the lower middle market, is that less of an issue for them?
Speaker #1: I think it's—I mean, I think it can be an issue. It depends on where they are in the life cycle of the fund. I mean, I think that there's—you know, I think that they're looking for opportunities to exit as well to provide that liquidity to LPs.
Josh Weinstein: I think it's. I mean, I think, I think it can be an issue. Depends on where they are in the life cycle of the fund. I mean, I think that they're, you know, I think that they're looking for opportunities to exit, as well, to provide that liquidity to LPs, but, but, probably a little bit less pressure than you'd see in the middle market or upper middle market. But, but, you know, we obviously talk to a lot of sponsors in the country and have deep relationships with them, but, you know, speaking specifically about their, you know, their liquidity situations and all that stuff is a little bit tough for us.
Josh Weinstein: I think it's. I mean, I think, I think it can be an issue. Depends on where they are in the life cycle of the fund. I mean, I think that they're, you know, I think that they're looking for opportunities to exit, as well, to provide that liquidity to LPs, but, but, probably a little bit less pressure than you'd see in the middle market or upper middle market. But, but, you know, we obviously talk to a lot of sponsors in the country and have deep relationships with them, but, you know, speaking specifically about their, you know, their liquidity situations and all that stuff is a little bit tough for us.
Speaker #1: But probably a little bit less pressure than you'd see in the middle market or upper middle market. But, you know, we obviously talk to a lot of sponsors in the country and have a deep relationship with them.
Speaker #1: But, you know, speaking specifically about their, you know, their liquidity situations and all that stuff is a little bit tough for us.
Speaker #8: Right. No, I get it.
Operator: Right. No, I get it.
Mickey Schleien: Right. No, I get it.
Michael Sarner: Yeah. And another thing I would note for you, this is—when we go through our investment committee process on new deals, we definitely focus on where this investment stands in a fund life. So if a—if a fund or a sponsor, this is, you know, one of the last deals, and we're—you know, there's only $5 to 10 million of dry powder that's allocated with the rest of the portfolio, that's certainly gonna be a negative and something that we're gonna discuss to see whether we still feel good about the credit. So we typically want these deals to be in, you know, the beginning or the middle stages of a fund life.
Michael Sarner: Yeah. And another thing I would note for you, this is—when we go through our investment committee process on new deals, we definitely focus on where this investment stands in a fund life. So if a—if a fund or a sponsor, this is, you know, one of the last deals, and we're—you know, there's only $5 to 10 million of dry powder that's allocated with the rest of the portfolio, that's certainly gonna be a negative and something that we're gonna discuss to see whether we still feel good about the credit. So we typically want these deals to be in, you know, the beginning or the middle stages of a fund life.
Speaker #1: Yeah. And another thing I would note for you, and this is—when we go through our investment committee process on new deals, we definitely focus on where this investment stands in a fund life.
Speaker #1: So if a fund or a sponsor—this is, you know, one of the last deals and we know there's only 5 to 10 million of dry powder, that's allocated with the rest of the portfolio, that's certainly going to be a negative and something that we're going to discuss to see whether we still feel good about the credit.
Speaker #1: So we typically want these deals to be in, you know, the beginning or the middle stages of a fund life.
Operator: Understood. Michael, given what we've just talked about in terms of sponsors, any sense of, you know, how active you expect to be, you know, this calendar year and, and maybe even next year in terms of deal flow and, you know, repayment risk in the portfolio? And essentially, you know, what's your sort of business plan for net portfolio growth?
Mickey Schleien: Understood. Michael, given what we've just talked about in terms of sponsors, any sense of, you know, how active you expect to be, you know, this calendar year and, and maybe even next year in terms of deal flow and, you know, repayment risk in the portfolio? And essentially, you know, what's your sort of business plan for net portfolio growth?
Speaker #8: Understood. Michael, given what we've just talked about in terms of sponsors, any sense of, you know, how active you expect to be, you know, this calendar year and maybe even next year in terms of deal flow and, you know, repayment risk in the portfolio and essentially, you know, what's your sort of business plan for net portfolio?
Speaker #8: growth? No,
Michael Sarner: No, I honestly feel very bullish for several reasons. One, you know, we've grown our sponsor relationships, I think we cited the numbers earlier, over time. We've recently added another MD, originating MD, Ryan Mullins, who brings his own unique set of sponsors, who's gonna be covering, you know, the country. We recently promoted Grant Eason, one of our principals, to MD, and he's, you know, he's firing on all cylinders, and he's been. So he's another source of origination. And then, you know, the joint venture, I'll look back to it. So the joint venture allows us to compete on the same deals we're looking at today, but we've historically held the line at around 5.75% because that's, you know, that's a moving target.
Michael Sarner: No, I honestly feel very bullish for several reasons. One, you know, we've grown our sponsor relationships, I think we cited the numbers earlier, over time. We've recently added another MD, originating MD, Ryan Mullins, who brings his own unique set of sponsors, who's gonna be covering, you know, the country. We recently promoted Grant Eason, one of our principals, to MD, and he's, you know, he's firing on all cylinders, and he's been. So he's another source of origination. And then, you know, the joint venture, I'll look back to it. So the joint venture allows us to compete on the same deals we're looking at today, but we've historically held the line at around 5.75% because that's, you know, that's a moving target.
Speaker #1: I honestly, I feel very bullish for several reasons. One, you know, we've grown our sponsor relationships, I think we cited the numbers earlier, over time.
Speaker #1: We've recently added another MD on the originating MD, Brian Mullens, who brings his own unique set of sponsors. Who's going to be covering, you know, the contrary.
Speaker #1: We recently promoted Brent Eason, one of our principals, to MD, and he's, you know, he's firing on all cylinders and he's another source of origination.
Speaker #1: And then, you know, the joint venture—I'm looking back to it. So the joint venture allows us to compete on the same deals we're looking at today, but we've historically held the line at around 5.75% because that's, you know, that's a moving target.
Speaker #1: But most recently, a 5.75% spread kind of meets our ROE target. And anything below that, you know, we didn't view as a credit to the portfolio and helpful to our dividend.
Michael Sarner: But most recently, 5.75% spread kind of meets our ROI target, and anything below that, you know, is – we didn't view as accretive to the portfolio and helpful to our dividend. By doing this joint venture, we're able to compete and win on deals at 5% or above, while still actually, you know, incorporating additional arranger fees, profit allocations, and this enhanced spread that increases the yield on the deal by 100 basis points. So we're gonna be able to see the same amount of deals from one perspective, but be winning more of them.
But most recently, 5.75% spread kind of meets our ROI target, and anything below that, you know, is – we didn't view as accretive to the portfolio and helpful to our dividend. By doing this joint venture, we're able to compete and win on deals at 5% or above, while still actually, you know, incorporating additional arranger fees, profit allocations, and this enhanced spread that increases the yield on the deal by 100 basis points. So we're gonna be able to see the same amount of deals from one perspective, but be winning more of them.
Speaker #1: By doing this joint venture, we're able to compete and win on deals at 5% or above while still actually incorporating additional ranger fees, profit allocations, and enhanced spreads that increases the yield on the deal by 100 basis points.
Speaker #1: So we're going to be able to see the same amount of deals from one perspective, but be winning more of them. And these are typically—the reason this venture was really important to us is we were focused over the last 12 months saying, "Look, we've seen a lot of really high-quality deals that we would love to put in our portfolio, that we thought were 'sleep at night' credit." But we weren't getting our deal team the ability to go below the 5%, below 5.75%.
Michael Sarner: These are typically. The reason this venture was really important to us is we were focused over the last 12 months saying: Look, we've seen a lot of really high-quality deals that we would love to put in our portfolio that we felt were, quote, unquote, you know, "sleep at night credit," but we weren't giving our deal team the ability to go below five point, below 5.75. This is giving them another, you know, arrow and a quiver to actually go out and compete. And again, these are deals that we can consider cleaner and more high quality, and it also allows us to maintain granularity. We think that's been a huge part of our success, is maintaining granularity through the last 10 years and not really getting greedy, staying below that 1% on average.
These are typically. The reason this venture was really important to us is we were focused over the last 12 months saying: Look, we've seen a lot of really high-quality deals that we would love to put in our portfolio that we felt were, quote, unquote, you know, "sleep at night credit," but we weren't giving our deal team the ability to go below five point, below 5.75. This is giving them another, you know, arrow and a quiver to actually go out and compete. And again, these are deals that we can consider cleaner and more high quality, and it also allows us to maintain granularity. We think that's been a huge part of our success, is maintaining granularity through the last 10 years and not really getting greedy, staying below that 1% on average.
Speaker #1: This is giving them another arrow in their quiver to actually go out and compete. And again, these are deals that we can consider cleaner and more high quality.
Speaker #1: And it also allows us to maintain granularity. So we think that's been a huge part of our success is maintaining granularity, through the last 10 years, and not really getting greedy, staying below that 1% on average.
Operator: ... Michael, did you say in your prepared remarks that the JV would be primarily a last out fund? Did I hear you correctly?
Mickey Schleien: ... Michael, did you say in your prepared remarks that the JV would be primarily a last out fund? Did I hear you correctly?
Speaker #8: Michael, did you say in your prepared remarks that the JV would be primarily a last-out fund? Did I hear you
Speaker #8: correctly? No.
Michael Sarner: No. So, well, I'd say it's primarily, but there's gonna be different types of assets that go into the fund. The probably the best example of what this fund is, is if you look at a $10 million EBITDA company that's levered 3.5x with, say, 35% loan to value at a, you know, 550 spreads. That's a $35 million total debt check. So in the example I give you, the first out that would go into the joint venture, so, sorry to correct myself. The only thing that's pretty much going into the joint venture is gonna be first out position. So they would hold $10 million at 375 spread, 1 turn of leverage and 10% loan to value.
Michael Sarner: No. So, well, I'd say it's primarily, but there's gonna be different types of assets that go into the fund. The probably the best example of what this fund is, is if you look at a $10 million EBITDA company that's levered 3.5x with, say, 35% loan to value at a, you know, 550 spreads. That's a $35 million total debt check. So in the example I give you, the first out that would go into the joint venture, so, sorry to correct myself. The only thing that's pretty much going into the joint venture is gonna be first out position. So they would hold $10 million at 375 spread, 1 turn of leverage and 10% loan to value.
Speaker #1: So it's—well, I'd say it's primarily, but there's going to be different types of assets that go into the fund. But probably the best example of what this fund is, is if you look at a $10 million EBITDA company, that's levered 3 and a half times with, say, 35% loan to value at a 5.50 spread.
Speaker #1: That's a $35 million total debt check. So in the example I give you, the first out that would go into the joint venture—so, probably to correct myself, the only—that's pretty much going into the joint venture is going to be first out position.
Speaker #1: So they would hold $10 million at a 3.75% spread, one turn of leverage, and 10% loan-to-value on our balance sheet. We would hold $25 million of that debt—of the debt stack—and that would get a 6.25% spread, still levered at the same 3.5 times.
Michael Sarner: On our balance sheet, we would hold $25 million of that debt, of the debt stack, and that would get a, you know, 6- to 6.25 spread and still levered at the same 3.5x and 35% loan to value. So that kind of gives you an idea of what it'll look like on balance sheet and in the JV.
On our balance sheet, we would hold $25 million of that debt, of the debt stack, and that would get a, you know, 6- to 6.25 spread and still levered at the same 3.5x and 35% loan to value. So that kind of gives you an idea of what it'll look like on balance sheet and in the JV.
Speaker #1: And 35% loan to value. So that kind of gives you an idea of what it'll look like on balance sheet and in the JV.
Operator: Understood. And what kind of leverage do you expect the JV's balance sheet to have?
Speaker #8: Understood. And what kind of leverage do you expect the JV's balance sheet to have?
Operator: Understood. And what kind of leverage do you expect the JV's balance sheet to have?
Speaker #1: So I'll start. The asset level is going to be between 1 and 1 and a half turns. Of leverage for individually on the asset side, the fund itself will be probably something around 2 and a half turns plus or minus.
Michael Sarner: So I'll start. The asset level is gonna be between 1 and 1.5 turns of leverage for individually on the asset side. The fund itself will be probably something around 2.5 turns, ±.
Michael Sarner: So I'll start. The asset level is gonna be between 1 and 1.5 turns of leverage for individually on the asset side. The fund itself will be probably something around 2.5 turns, ±.
Speaker #8: Okay. And that gets you to your ROE target. I understand. And lastly, and I appreciate your patience, the portfolio has about 21% at fair value in consumer products and services, restaurants, and movies.
Operator: Okay, and that gets you to your ROE target. I understand. And lastly, and I appreciate your patience. The portfolio has about 21% at fair value in consumer products and services, restaurants, and movies. You know, those are, you know, sort of cyclical segments. Can you discuss your underwriting approach to those segments? And, you know, how are those portfolio companies doing, given, you know, everything we're reading about a K-shaped economy?
Mickey Schleien: Okay, and that gets you to your ROE target. I understand. And lastly, and I appreciate your patience. The portfolio has about 21% at fair value in consumer products and services, restaurants, and movies. You know, those are, you know, sort of cyclical segments. Can you discuss your underwriting approach to those segments? And, you know, how are those portfolio companies doing, given, you know, everything we're reading about a K-shaped economy?
Speaker #8: You know, those are our, you know, sort of cyclical segments. Can you discuss your underwriting approach to those segments and, you know, how are those portfolio companies doing given everything we're reading about a K-shaped economy?
Speaker #8: You know, those are our, you know, sort of cyclical segments. Can you discuss your underwriting approach to those segments and, you know, how are those portfolio companies doing given everything we're reading about a K-shaped economy?
Speaker #1: So I think, Josh, I want to take this one. I would tell you that when we look at our weighted average leverage for consumer services that fall into the buckets you're referring to, their leverage is slightly elevated at 4.2 times.
Michael Sarner: So I think Josh might want to take this one. I would tell you that when we look at our weighted average leverage for consumer services that fall into the buckets you're referring to, their leverage is slightly elevated. It's at 4.2x. When we look at, you know, where other portfolios begin at 5.5 to 6x in the upper middle market, we would say it's still pretty conservatively levered because, you know, our entry multiple on many of these companies are gonna be somewhere between 1.5 to 3x leverage.
Michael Sarner: So I think Josh might want to take this one. I would tell you that when we look at our weighted average leverage for consumer services that fall into the buckets you're referring to, their leverage is slightly elevated. It's at 4.2x. When we look at, you know, where other portfolios begin at 5.5 to 6x in the upper middle market, we would say it's still pretty conservatively levered because, you know, our entry multiple on many of these companies are gonna be somewhere between 1.5 to 3x leverage.
Speaker #1: When we look at, you know, where other portfolios begin, at 5 and a half to 6 times in the upper middle market, we would say that's still pretty conservatively leveraged because, you know, our entry multiple on many of these companies are going to be somewhere between 1 and a half to 3 times leverage.
Josh Weinstein: We're certainly cognizant of consumer discretionary. So I would say there's a decent amount of that consumer, of probably the majority of that consumer, we think are well positioned for a consumer pullback, or economic pullback. And on top of that, you know, we do structure our deals, you know, recognizing, you know, where we are with the, you know, with the, with the potential consumer pullback.
Speaker #1: We're certainly cognizant of consumer discretionary. So I would say there's a decent amount of that consumer—probably the majority of that consumer—we think are well positioned for a consumer pullback or economic pullback.
Josh Weinstein: We're certainly cognizant of consumer discretionary. So I would say there's a decent amount of that consumer, of probably the majority of that consumer, we think are well positioned for a consumer pullback, or economic pullback. And on top of that, you know, we do structure our deals, you know, recognizing, you know, where we are with the, you know, with the, with the potential consumer pullback.
Speaker #1: And on top of that, we do structure our deals recognizing, you know, where we are with the potential consumer pullback.
Speaker #8: Understood. I appreciate you taking my questions. That's all I have this morning. Thank you very much.
Operator: Understood. I appreciate you taking my questions. That's all I have this morning. Thank you very much.
Mickey Schleien: Understood. I appreciate you taking my questions. That's all I have this morning. Thank you very much.
Speaker #1: Thanks,
Michael Sarner: Thanks.
Michael Sarner: Thanks.
Speaker #1: Mike. Our next question comes from
Operator: Our next question comes from Erik Zwick with Lucid Capital Markets.
Operator: Our next question comes from Erik Zwick with Lucid Capital Markets.
Speaker #2: Eric Zwick with Lucid Capital Markets.
[Analyst] (Lucid Capital Markets): Good morning, this is Justin Marco in for Erik today. Just going back to the spread conversation, was wondering if you guys could talk about the current state of underwriting conditions and if you're seeing any other signs of pressure on structure terms?
Speaker #9: Good morning. This is Justin Marcon for Eric today. Just going back to the spread conversation, I was wondering if you guys could talk about the current state of underwriting conditions, and if you're seeing any other signs of pressure on structure or terms.
Justin Marca: Good morning, this is Justin Marco in for Erik today. Just going back to the spread conversation, was wondering if you guys could talk about the current state of underwriting conditions and if you're seeing any other signs of pressure on structure terms?
Michael Sarner: Yeah. From a performance standpoint, I would tell you that we're not seeing pressure on any particular industry. Any issues in the portfolio continue to be idiosyncratic. I don't know, Josh-
Michael Sarner: Yeah. From a performance standpoint, I would tell you that we're not seeing pressure on any particular industry. Any issues in the portfolio continue to be idiosyncratic. I don't know, Josh-
Speaker #1: Yeah. From a performance standpoint, I would tell you that we're not seeing pressure on any particular industry. Any issues in the portfolio continue to be idiosyncratic.
Josh Weinstein: I think you're asking about the structures of new deals we're doing. I think, if... Is that your question?
Josh Weinstein: I think you're asking about the structures of new deals we're doing. I think, if... Is that your question?
Speaker #1: I think you're asking about the structures of new deals we're doing. I think, is that
Speaker #1: your question? Yeah.
[Analyst] (Lucid Capital Markets): Yeah. Yeah.
Justin Marca: Yeah. Yeah.
Speaker #9: Yeah.
Speaker #1: Yeah. So I think we've said this and it stays consistent that we've definitely seen—we had seen spread compression over the last kind of 12, 18 months considerably.
Josh Weinstein: Yeah. So, so I think we've said this, and it's stayed consistent, that we've- we've definitely seen- we had seen spread compression over the last, 12, 18 months considerably. But, but structurally, in the lower middle market, we have not seen, you know, sort of weak, credit agreements or asks coming through from our private equity sponsors. It's, it's pretty status quo from a structural perspective over the last bunch of years. I think that where, where the lower middle market has moved in the last kind of 18 months or so, has been on the pricing and spread, not, not on the structure. So still seeing good covenants and, and solid credit documents.
Josh Weinstein: Yeah. So, so I think we've said this, and it's stayed consistent, that we've- we've definitely seen- we had seen spread compression over the last, 12, 18 months considerably. But, but structurally, in the lower middle market, we have not seen, you know, sort of weak, credit agreements or asks coming through from our private equity sponsors. It's, it's pretty status quo from a structural perspective over the last bunch of years. I think that where, where the lower middle market has moved in the last kind of 18 months or so, has been on the pricing and spread, not, not on the structure. So still seeing good covenants and, and solid credit documents.
Speaker #1: But structurally, in the lower middle market, we have not seen sort of weak credit agreements or asks coming through from our private equity sponsors.
Speaker #1: It's pretty status quo from a structural perspective over the last bunch of years. I think that where the lower middle market has moved in the last, kind of, 18 months or so has been on the pricing and the spread, not on the structure.
Speaker #1: So, still seeing good covenants and solid credit documents? Yes. I mean, almost—I’d say 100% of our portfolio, or close to it—have a fixed charge covenant and a leverage covenant.
Michael Sarner: Yes. I mean, almost, I'd say 100% of our portfolio or close to it, you know, have a fixed charge covenant, they have a leverage covenant, they have a CapEx covenant, and then to the extent that there's a DDTL, you'll see an incurrence covenant as well.
Michael Sarner: Yes. I mean, almost, I'd say 100% of our portfolio or close to it, you know, have a fixed charge covenant, they have a leverage covenant, they have a CapEx covenant, and then to the extent that there's a DDTL, you'll see an incurrence covenant as well.
Speaker #1: We have a capex covenant. And then to the extent that there's a DDTL, you'll see an incurrence covenant as
Speaker #1: well. Okay.
[Analyst] (Lucid Capital Markets): Okay, thanks for the color there. Last one for me. Any other additional details on the new JV, whether you have, like, a targeted size in mind or when you're expecting to be fully ramped up?
Justin Marca: Okay, thanks for the color there. Last one for me. Any other additional details on the new JV, whether you have, like, a targeted size in mind or when you're expecting to be fully ramped up?
Speaker #9: Thanks for the color there. And last one for me, any other additional details on the new JV, whether you have a targeted size in mind or when you're expecting to be fully ramped up?
Speaker #1: Sure. So we've actually—we've been negotiating that for a bit of time. We've already started ramping. We closed three deals that will be contributed—close to deals in the 12/31 quarter—that will be contributed.
Michael Sarner: Sure. So, you know, we've actually, you know, we've been negotiating that for a bit of time. We've already started ramping. We closed three deals that will be contributed. We closed three deals in the 12/31 quarter that were contributed in the coming weeks. And we're close to closing a credit facility. I think, how many? Is it $150 million? $150 million credit facility. I think the answer to the question is each party was contributing, has committed $50 million of equity to date. We think it's gonna take probably at least a year to get probably up to the, the full leverage. So it's gonna probably. It'll, it'll eventually be a mid-teens return. I think it'll be, you know, double digits return by the end of the year.
Michael Sarner: Sure. So, you know, we've actually, you know, we've been negotiating that for a bit of time. We've already started ramping. We closed three deals that will be contributed. We closed three deals in the 12/31 quarter that were contributed in the coming weeks. And we're close to closing a credit facility. I think, how many? Is it $150 million? $150 million credit facility. I think the answer to the question is each party was contributing, has committed $50 million of equity to date. We think it's gonna take probably at least a year to get probably up to the, the full leverage. So it's gonna probably. It'll, it'll eventually be a mid-teens return. I think it'll be, you know, double digits return by the end of the year.
Speaker #1: In the coming weeks, we're close to closing a credit facility. I think—how many? Is it $150 million? A $150 million credit facility. I think the answer to the question is each party has committed $50 million of equity to date.
Speaker #1: We think it's going to take probably at least a year to get probably up to the full leverage. So it's going to probably—it'll eventually be a mid-teens return.
Speaker #1: I think it'll be double digits return by the end of the year.
Speaker #9: Got it.
[Analyst] (Lucid Capital Markets): Got it. Thanks for taking my questions today.
Justin Marca: Got it. Thanks for taking my questions today.
Speaker #1: Of course.
Michael Sarner: Of course.
Michael Sarner: Of course.
Speaker #2: Our next question comes from Dylan Hines with B Riley
Operator: Our next question comes from Dylan Hines with B. Riley Securities.
Operator: Our next question comes from Dylan Hines with B. Riley Securities.
Speaker #2: Securities. Hey, thanks for taking my question.
Operator: Hey, thanks for taking my question. I was just wondering, I noticed you talked about the spreads in the quarter for the originations. I was wondering, do you know what the weighted average yield was for your originations in the quarter?
Dillon Heins: Hey, thanks for taking my question. I was just wondering, I noticed you talked about the spreads in the quarter for the originations. I was wondering, do you know what the weighted average yield was for your originations in the quarter?
Speaker #10: I was just wondering—I know you two talked about the spreads in the quarter for the originations. I was wondering, do you know what the weighted average yield was for your originations in the—
Speaker #10: quarter? Weighted
Michael Sarner: ... weighted average yield? Well, I think I said earlier, so the spread on the new deals this quarter was 6.5%, and leverage was 3x, and loan to value was 36%. So are you just saying, I mean, with the SOFR, so the weighted average yield is approximately 10.50.
Michael Sarner: ... weighted average yield? Well, I think I said earlier, so the spread on the new deals this quarter was 6.5%, and leverage was 3x, and loan to value was 36%. So are you just saying, I mean, with the SOFR, so the weighted average yield is approximately 10.50.
Speaker #1: average yield? Well, I think I said earlier. So the spread on the new deals this quarter was 6.5%. And leverage was 3 times. And loan to value was
Speaker #1: 36%. So
Speaker #10: are you just saying—I mean, with the SOFR, so the weighted average yield is approximately 10.50? Gotcha. Right. Okay. Gotcha. Yeah. And then I was wondering about the ATM issuances.
[Analyst] (B. Riley Securities): Gotcha. Yeah, and then I was wondering about the ATM issuances. Do you expect to continue doing that as long as the premium's favorable? Do you have a target rate that you generally wanna issue at, or?
Dillon Heins: Gotcha. Yeah, and then I was wondering about the ATM issuances. Do you expect to continue doing that as long as the premium's favorable? Do you have a target rate that you generally wanna issue at, or?
Speaker #10: Do you expect to continue doing that as long as the premium's favorable? Do you have a target rate that you generally want to
Speaker #10: issue at, or? Yeah,
Michael Sarner: Yeah, sure. So yeah, if you look, you know, at past history, we do somewhere between $30 and 50 million every quarter. That vacillates depending on deal flow, repayments, and liquidity needs. But certainly with the premium we're trading at, you know, somewhere in that range, it would be a good expectation for the coming quarter.
Michael Sarner: Yeah, sure. So yeah, if you look, you know, at past history, we do somewhere between $30 and 50 million every quarter. That vacillates depending on deal flow, repayments, and liquidity needs. But certainly with the premium we're trading at, you know, somewhere in that range, it would be a good expectation for the coming quarter.
Speaker #1: sure. So if you look, you know, past history, we do somewhere between 30 and 50 million every quarter. That vacillates depending on deal flow and repayments and liquidity needs.
Speaker #1: But certainly with the premium, we're trading at somewhere in that range. It would be a good expectation for the coming
Speaker #1: quarter. Okay.
[Analyst] (B. Riley Securities): Okay. All right. That'll be it. Thank you.
Dillon Heins: Okay. All right. That'll be it. Thank you.
Speaker #10: All right. That'll be it. Thank
Speaker #10: you. You're welcome.
Michael Sarner: You're welcome.
Michael Sarner: You're welcome.
Speaker #2: Our next question comes from Robert Dodd with Raymond James.
Operator: Our next question comes from Robert Dodd with Raymond James.
Operator: Our next question comes from Robert Dodd with Raymond James.
[Analyst] (Raymond James): Hi, everybody. Hope you can hear me with the bunch of background noise. On the JV, if we can talk about, is there any intent... I mean, you've said you don't need to expand kind of your net currently, in terms of being able to stock that up, but is there any intent to expand maybe the size of the businesses or the type of leverage multiple, anything like that, maybe once it gets closer to scale? Or is it just, it's exactly the same assets, just the lower spread ones going in that JV?
Robert Dodd: Hi, everybody. Hope you can hear me with the bunch of background noise. On the JV, if we can talk about, is there any intent... I mean, you've said you don't need to expand kind of your net currently, in terms of being able to stock that up, but is there any intent to expand maybe the size of the businesses or the type of leverage multiple, anything like that, maybe once it gets closer to scale? Or is it just, it's exactly the same assets, just the lower spread ones going in that JV?
Speaker #11: Hi, everybody. Hope you can hear me with the microphone background noise. On the JV, if we think about it, is there any—I mean, you've said you don't need to expand kind of your net currently in terms of being able to stock that up.
Speaker #11: But is there any intent to expand maybe the size of the businesses or the type of leverage multiple or anything like that? Maybe once it gets closer to scale or is it just exactly the same assets just at the lower spread ones going in that JV?
Michael Sarner: So I see it this way. It's pretty much exactly the same assets. I think these, the deals that are really targeted for this are gonna be deals that are between 5 and 10 million of EBITDA. So it's just that, like I said many times, they're very clean, deals and that are priced between 5 and 5.75. I would say to the extent that we're seeing deals that are slightly larger, so let's call them, you know, $35 to 40 million dollar check, which we don't prefer to hold because our preference for granularity, this does give us the ability on those deals to put 10 to 15 million in the JV, while, you know, still maintaining a, you know, a $20 to 30 million dollar hold.
Michael Sarner: So I see it this way. It's pretty much exactly the same assets. I think these, the deals that are really targeted for this are gonna be deals that are between 5 and 10 million of EBITDA. So it's just that, like I said many times, they're very clean, deals and that are priced between 5 and 5.75. I would say to the extent that we're seeing deals that are slightly larger, so let's call them, you know, $35 to 40 million dollar check, which we don't prefer to hold because our preference for granularity, this does give us the ability on those deals to put 10 to 15 million in the JV, while, you know, still maintaining a, you know, a $20 to 30 million dollar hold.
Speaker #1: So I see it this way. It's pretty much the exactly the same assets. I think the deals that are really targeted for this are going to be the deals that are between 5 and 10 million of EBITDA.
Speaker #1: So there, like I said many times, they're very clean. Deals. And they're priced between 5 and 5.75. I would say to the extent that we're seeing deals that are slightly larger, so let's call them 35 to 40 million dollar check, which we don't prefer to hold because our preference for granularity, this does give us the ability on those deals to put 10 to 15 million in the JV.
Speaker #1: While still maintaining a 20 to 30 million dollar hold. So I think on the margin, it allows us to feel more comfortable putting deals that are slightly larger but for the most part, it's just the cleanest deals in our core space.
Michael Sarner: So I think, on the margin, it allows us to feel more comfortable putting dark deals that are slightly larger, but for the most part, it's just the cleanest deals in our core space.
So I think, on the margin, it allows us to feel more comfortable putting dark deals that are slightly larger, but for the most part, it's just the cleanest deals in our core space.
[Analyst] (Raymond James): Got it. Thank you for that. One more, if I can. It's been topical over the last couple of days. How are you evaluating AI disruption risk, both within the assets you already have in the portfolio, but then when you look at new originations and opportunities, how much, if any, is AI risk being factored into your underwriting case mix?
Robert Dodd: Got it. Thank you for that. One more, if I can. It's been topical over the last couple of days. How are you evaluating AI disruption risk, both within the assets you already have in the portfolio, but then when you look at new originations and opportunities, how much, if any, is AI risk being factored into your underwriting case mix?
Speaker #11: Got it. Thank you for that. One more, if I can. It's been topical over the last time we met, a couple of days ago. How are you evaluating AI disruption risk, both within the assets you already have in the portfolio, but then when you look at new originations and opportunities?
Speaker #11: How much, if any, is AI risk being factored into your underwriting case now?
Michael Sarner: Honestly, that is something that we started taking up about probably a year ago. We formed an AI committee, and then actually created a segment in our investment committee process, which rates the various aspects of a company, in terms of the AI risk or -- so, because look, when we look at companies, sometimes AI is gonna be helpful. We've seen sometimes financial services companies; they're gonna be using AI to you know basically become more efficient. In other deals, we're seeing AI as a potential.
Speaker #1: Honestly, that is something that we started taking up about probably a year ago. We formed an AI committee. And then actually created a segment in our investment committee process, which rates the various aspects of a company in terms of the AI risk.
Michael Sarner: Honestly, that is something that we started taking up about probably a year ago. We formed an AI committee, and then actually created a segment in our investment committee process, which rates the various aspects of a company, in terms of the AI risk or -- so, because look, when we look at companies, sometimes AI is gonna be helpful. We've seen sometimes financial services companies; they're gonna be using AI to you know basically become more efficient. In other deals, we're seeing AI as a potential.
Speaker #1: Because, look, when we look at companies, sometimes AI is going to be helpful. We see, in some financial services companies, they're going to be using AI to basically become more efficient.
Speaker #1: In other deals, we're seeing AI as a potential. We just saw a deal maybe two weeks ago that we couldn't get comfortable with because the advent of AI may not impact the business in the next two years, but it would impact the business in five.
Michael Sarner: We just saw a deal maybe 2 weeks ago that we, we couldn't get comfortable with because the advent of AI may not impact the business in the next 2 years, but it would impact the business in 5, and therefore, you know, the concern of how it's gonna get sold and at what valuation, and would that cover the debt? So I think we're looking at it. We're, we're certainly; it's definitely a heavy segment of our investment committee discussion. And then internally, we're looking to see how we can utilize AI as well to become more efficient as an organization. And that's something that's has begun in earnest.
We just saw a deal maybe 2 weeks ago that we, we couldn't get comfortable with because the advent of AI may not impact the business in the next 2 years, but it would impact the business in 5, and therefore, you know, the concern of how it's gonna get sold and at what valuation, and would that cover the debt? So I think we're looking at it. We're, we're certainly; it's definitely a heavy segment of our investment committee discussion. And then internally, we're looking to see how we can utilize AI as well to become more efficient as an organization. And that's something that's has begun in earnest.
Speaker #1: And therefore, the concern of how it's going to get sold and at what valuation and would that cover the debt. So I think we're looking at it.
Speaker #1: We're certainly—it's definitely a heavy segment of our investment committee discussion. And then internally, we're looking to see how we can utilize AI as well to become more efficient as an organization, and that's something that has begun in—
Speaker #1: earnest. Got it.
[Analyst] (Raymond James): Got it. Thank you.
Robert Dodd: Got it. Thank you.
Speaker #11: Thank you.
Speaker #2: That concludes today's question and answer session. I'd like to turn the call back to Michael Sarner for closing
Operator: That concludes today's question and answer session. I'd like to turn the call back to Michael Sarner for closing remarks.
Operator: That concludes today's question and answer session. I'd like to turn the call back to Michael Sarner for closing remarks.
Speaker #2: Remarks. Yeah, I want to take one minute.
Michael Sarner: Yeah, I want to take one minute to just pause and reflect. Our company, our balance sheet, just passed $2 billion in assets. I know, you know, growing the balance sheet is not the goal here, it's creating value. It is a testament to everybody who's worked here, and all the value that's created that allow us to continue to grow. And my optimism today, and I think our optimism as a group, has never been higher. I mean, we've mentioned the two, you know, new MDs that are, you know, helping enhance the business, the joint venture, which we spent a lot of time discussing. You know, we've talked about over the last 12 months, we've exited, to date, like $50 million in equity.
Michael Sarner: Yeah, I want to take one minute to just pause and reflect. Our company, our balance sheet, just passed $2 billion in assets. I know, you know, growing the balance sheet is not the goal here, it's creating value. It is a testament to everybody who's worked here, and all the value that's created that allow us to continue to grow. And my optimism today, and I think our optimism as a group, has never been higher. I mean, we've mentioned the two, you know, new MDs that are, you know, helping enhance the business, the joint venture, which we spent a lot of time discussing. You know, we've talked about over the last 12 months, we've exited, to date, like $50 million in equity.
Speaker #1: to just pause and reflect. Our company, our balance sheet, just passed 2 billion in assets. And though growing the balance sheet is not the goal here, it's creating value.
Speaker #1: It is a testament to everybody who's worked here, and all the value that's been created will allow us to continue to grow. My optimism today—and I think our optimism as a group—has never been higher.
Speaker #1: I mean, we've mentioned the two new MDs that are helping enhance the business, the joint venture, which we spent a lot of time discussing. We've talked about, over the last 12 months, we've exited to date like $50 million in equity.
Michael Sarner: I'd remind everybody, that's on a 5 million-- a 5 percent equity portfolio at cost. So we're punching way above our weight, which tells you, you know, our underwriting, both on our debt and, and our ability to, to create equity gains has been, has been strong. That's created the $2 per share of UTI. We have $0.76 of unrealized appreciation, and we would tell you majority of that are in companies that are in the market, some in the first half of 2026 and others in the back half. You know, our operating leverage of the company is 1.4% on a run rate basis, excluding the one-time charge in, from, from last year.
Speaker #1: And I'd remind everybody that's on a $5 million 5% equity portfolio at cost. So we're punching way above our weight, which tells you our underwriting, both on our debt and our ability to create equity gains, has been strong.
I'd remind everybody, that's on a 5 million-- a 5 percent equity portfolio at cost. So we're punching way above our weight, which tells you, you know, our underwriting, both on our debt and, and our ability to, to create equity gains has been, has been strong. That's created the $2 per share of UTI. We have $0.76 of unrealized appreciation, and we would tell you majority of that are in companies that are in the market, some in the first half of 2026 and others in the back half. You know, our operating leverage of the company is 1.4% on a run rate basis, excluding the one-time charge in, from, from last year.
Speaker #1: That's created the $2 per share of UTI. We have $0.76 of unrealized depreciation, and we would tell you the majority of that are in companies that are in the market.
Speaker #1: Some in the first half of 2026 and other in the back half. Our operating leverage of the company is 1.4% on a run rate basis.
Speaker #1: Excluding the one-time charge from last year. Conservative leverage at active corporate level of 0.89. Conservative leverage at our portfolio level of 3.6 times. Significant liquidity.
Michael Sarner: Conservative leverage at active corporate level of 0.89, conservative leverage at our portfolio level of 3.6 times, significant liquidity, and, and all of that has brought us to a place where we have a 40%+ premium to book on our stock, which reflects, I think, all the strong work we've done as a company. So, you know, as we leave this call, I, I just, I'm, I'm thankful to all of the shareholders that support the company. I'm extremely proud of, of all of the employees who, who've done this great work, and as we look forward, we, you know, we see this optimism and, and hope you understand it as well. Thanks to everyone and, and have a great week.
Michael Sarner: Conservative leverage at active corporate level of 0.89, conservative leverage at our portfolio level of 3.6 times, significant liquidity, and, and all of that has brought us to a place where we have a 40%+ premium to book on our stock, which reflects, I think, all the strong work we've done as a company. So, you know, as we leave this call, I, I just, I'm, I'm thankful to all of the shareholders that support the company. I'm extremely proud of, of all of the employees who, who've done this great work, and as we look forward, we, you know, we see this optimism and, and hope you understand it as well. Thanks to everyone and, and have a great week.
Speaker #1: And all of that is brought us to a place where we have a 40% plus premium to book on our stock, which reflects, I think, all the strong work we've done as a company.
Speaker #1: So, as we leave this call, I'm thankful to all of the shareholders that have supported the company. I'm extremely proud of all of the employees who have done this great work.
Speaker #1: And as we look forward, we see this optimism, and hope you understand it as well. Thanks to everyone, and have a great week.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
