Prospect Capital Q2 2026 Prospect Capital Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q2 2026 Prospect Capital Corp Earnings Call
Speaker #1: Good day and welcome to the Capital . Prospect Second Fiscal 2026 earnings Quarter Release and call . conference All will be participants in listen only mode .
Speaker #1: Should you need assistance , please signal a conference pressing the star key , specialist by followed by zero . After today's presentation , there will be an opportunity to ask questions , to ask a question , you may press star , then one on your telephone keypad .
Speaker #1: To withdraw your question , please press star . Then two . Please note this event is being recorded . I would now like to turn the conference over to John Barry , chairman and CEO .
John Barry: Thank you, Michael. Joining me on the call today once again, are Grier Eliasek, our President and Chief Operating Officer, and Kristin Van Dask, our Chief Financial Officer. Kristin.
John F. Barry III: Thank you, Michael. Joining me on the call today once again, are Grier Eliasek, our President and Chief Operating Officer, and Kristin Van Dask, our Chief Financial Officer. Kristin.
Speaker #1: Please go ahead .
Speaker #2: Thank you . Michael . Joining me on the call today once again , are Greer Isaac , our president and chief operating officer .
Kristin Van Dask: Thanks, John. This call contains forward-looking statements that are intended to be subject to Safe Harbor protection. Future results are highly likely to vary materially. We do not undertake to update our forward-looking statements. For additional disclosure, see our earnings press release, and 10-Q filed previously and available on our website, ProspectStreet.com. Now I'll turn the call back over to John.
Kristin Van Dask: Thanks, John. This call contains forward-looking statements that are intended to be subject to Safe Harbor protection. Future results are highly likely to vary materially. We do not undertake to update our forward-looking statements. For additional disclosure, see our earnings press release, and 10-Q filed previously and available on our website, ProspectStreet.com. Now I'll turn the call back over to John.
Speaker #2: And Kristen Van Damme , our chief financial . officer Kristen
Speaker #2: .
Speaker #3: Thanks , . John This call contains forward looking statements that intended to be subject to safe harbor protection Future results are highly . likely to vary materially .
Speaker #3: We do undertake to not update our forward looking statements . additional For disclosure . See our earnings press release and and 10-q available on our filed are website street.com .
John Barry: Okay. Thank you, Kristin. In our December quarter, our net investment income was $91 million or $0.19 per common share. Our NAV was approximately $3 billion, $6.21 per common share. At 31 December 2024, our net debt to total assets ratio was 28.2%. Unsecured debt plus unsecured perpetual preferred was 85.3% of total debt plus preferred. We are announcing monthly common shareholder distributions of $0.04 per share for each of February, March, and April. Since our IPO nearly 22 years ago through our April 2026 declared distribution, we will have distributed $4.7 billion or $21.93 per share. Our preferred shareholder cash distributions continue at their contract rates. We continue to make progress with our strategic priorities, including: Number one, rotation of assets into our core business of first lien, senior secured, middle market loans with our first lien mix increasing 728 basis points to 71.4% since June 2024.
John F. Barry III: Okay. Thank you, Kristin. In our December quarter, our net investment income was $91 million or $0.19 per common share. Our NAV was approximately $3 billion, $6.21 per common share. At 31 December 2024, our net debt to total assets ratio was 28.2%. Unsecured debt plus unsecured perpetual preferred was 85.3% of total debt plus preferred. We are announcing monthly common shareholder distributions of $0.04 per share for each of February, March, and April. Since our IPO nearly 22 years ago through our April 2026 declared distribution, we will have distributed $4.7 billion or $21.93 per share. Our preferred shareholder cash distributions continue at their contract rates. We continue to make progress with our strategic priorities, including: Number one, rotation of assets into our core business of first lien, senior secured, middle market loans with our first lien mix increasing 728 basis points to 71.4% since June 2024.
Speaker #3: Now I'll call back over to John .
Speaker #2: you . In our Kristen . Okay . Thank December quarter , our net investment income was $91 million , or $0.19 per common share .
Speaker #2: Nav Our was approximately $3 billion , $6.21 per common share at December 31st , our net debt to assets total ratio 28.2% . was Unsecured debt plus unsecured perpetual preferred total 85.3% of was plus preferred debt , are .
Speaker #2: monthly shareholder common We announcing distributions of four and a half cents per for each of February , share March and our Since . IPO , April nearly ago , through 22 years our April 226 declared distribution have distributed , we will $4.7 billion , or $21.93 per share .
Speaker #2: preferred Our cash shareholder distributions at their continue contract rates continue to . We make progress with our strategic priorities , including number one , rotation of assets into our core business of first lien senior secured middle market loans with our increasing first lien mix basis points , two 71.4% since June 2024 .
John Barry: We are focusing on new investments in companies with less than $50 million of EBITDA, including companies with smaller funded private equity sponsors, independent sponsors, and no third-party financial sponsors. Number 2, reduction in second lien senior secured middle market loans with our second lien mix decreasing 371 basis points to 12.7% since June 2024. Number 3, exiting subordinated structured notes with our subordinated structured notes mix decreasing 818 basis points to near zero since June 2024. Number 4, exiting targeted equity-linked assets, including real estate, with 5 additional real estate properties sold in the current fiscal year, more targeted, and certain corporate investments sold, including significant assets within Echelon Transportation in July and December 2025 and other exits targeted. Number 5, enhancement of portfolio company operations, especially where we hold equity-linked investments. Number 6, utilization of our cost-efficient floating rate revolver, which significantly matches our floating rate assets. Thank you.
John F. Barry III: We are focusing on new investments in companies with less than $50 million of EBITDA, including companies with smaller funded private equity sponsors, independent sponsors, and no third-party financial sponsors. Number 2, reduction in second lien senior secured middle market loans with our second lien mix decreasing 371 basis points to 12.7% since June 2024. Number 3, exiting subordinated structured notes with our subordinated structured notes mix decreasing 818 basis points to near zero since June 2024. Number 4, exiting targeted equity-linked assets, including real estate, with 5 additional real estate properties sold in the current fiscal year, more targeted, and certain corporate investments sold, including significant assets within Echelon Transportation in July and December 2025 and other exits targeted. Number 5, enhancement of portfolio company operations, especially where we hold equity-linked investments. Number 6, utilization of our cost-efficient floating rate revolver, which significantly matches our floating rate assets. Thank you.
Speaker #2: We are focusing on new investments in companies with less than $50 million of EBITDA, including with companies backed by smaller private-funded equity sponsors, independent sponsors, and third-party financial sponsors.
Speaker #2: Number two reduction in second lien . Senior secured middle market loans with our second lien mix decreasing 371 basis points to 12.7% . Since June 2024 .
Speaker #2: Number three exiting subordinated structured notes with our subordinated structure notes . Mix decreasing 808 . Teen basis points to near zero . Since June 2024 .
Speaker #2: Number four exiting targeted equity assets , including real estate , with five estate properties sold in the current fiscal year . More targeted and certain corporate investments sold , including significant assets within echelon Transportation .
Speaker #2: In July and December 2025 , and other exits targeted number five enhancement of portfolio company operations . Especially where we hold equity linked investments .
Speaker #2: And number six , utilization of our cost floating rate revolver , which significantly matches our floating rate assets . Thank you . I'll now turn the call over to Greer .
John Barry: I'll now turn the call over to Grier.
John F. Barry III: I'll now turn the call over to Grier.
Grier Eliasek: Thank you, John. Over the past two-plus decades, Prospect Capital Corporation has invested approximately $13.1 billion in over 350 exited investments out of over $22 billion in over 450 total investments that have earned a 12% unlevered investment-level gross cash IRR to Prospect Capital Corporation. This multi-decade time period includes the GFC and has been dominated in general by low prevailing market interest rates. In Prospect's primary business of middle market lending over the same nearly 22-year time period, Prospect's exited investments resulted in an investment-level exited gross IRR of approximately 14.5% based on total capital invested of about $11.2 billion and total proceeds from such exited investments of about $14.3 billion, with an annualized realized loss rate of 0.2%.
Grier Eliasek: Thank you, John. Over the past two-plus decades, Prospect Capital Corporation has invested approximately $13.1 billion in over 350 exited investments out of over $22 billion in over 450 total investments that have earned a 12% unlevered investment-level gross cash IRR to Prospect Capital Corporation. This multi-decade time period includes the GFC and has been dominated in general by low prevailing market interest rates. In Prospect's primary business of middle market lending over the same nearly 22-year time period, Prospect's exited investments resulted in an investment-level exited gross IRR of approximately 14.5% based on total capital invested of about $11.2 billion and total proceeds from such exited investments of about $14.3 billion, with an annualized realized loss rate of 0.2%.
Speaker #4: Thank you . John . Over the past two plus decades , Prospect Capital Corporation has invested approximately $13.1 billion in over 350 exited investments out of over 22 billion in over 450 total investments .
Speaker #4: That have earned a 12% Unlevered investment level gross cash IRR to Prospect Capital Corporation . This multi-decade time period includes the GFC and has been dominated in general by low prevailing market interest rates in prospects , primary business of primary of middle market lending over the same nearly 22 year time period , prospects exited investments resulted in an investment level exited gross IRR of approximately 14.5% based on total capital invested of about 11.2 billion .
Speaker #4: In total . Proceeds from such exited investments of about 14.3 billion , with an annualized realized loss rate of 0.2% in prospects , core targeted business of middle market lending to companies with less than 50 million of EBITDA over the same nearly 22 year time period , prospects exited investments resulted in an investment level exited gross IRR approximately of 17.2% , based on total capital invested of about 6.3 billion and total proceeds from such exited investments of about with 8.3 billion , an annualized net loss realized rate in this segment of 0.1% , prospects EBITDA to interest coverage for our primary business of market lending middle is about 210% , which increases to prospects 230% about .
Grier Eliasek: In Prospect's core targeted business of middle market lending to companies with less than $50 million of EBITDA over the same nearly 22-year time period, Prospect's exited investments resulted in an investment-level exited gross IRR of approximately 17.2% based on total capital invested of about $6.3 billion and total proceeds from such exited investments of about $8.3 billion, with an annualized net realized loss rate in this segment of 0.1%. Prospect's EBITDA to interest coverage for our primary business of middle market lending is about 210%, which increases to about 230% for Prospect's core targeted middle market lending to companies with less than $50 million of EBITDA. As of December 2025, we held 91 portfolio companies across 32 different industries with an aggregate fair value of $6.4 billion.
Grier Eliasek: In Prospect's core targeted business of middle market lending to companies with less than $50 million of EBITDA over the same nearly 22-year time period, Prospect's exited investments resulted in an investment-level exited gross IRR of approximately 17.2% based on total capital invested of about $6.3 billion and total proceeds from such exited investments of about $8.3 billion, with an annualized net realized loss rate in this segment of 0.1%. Prospect's EBITDA to interest coverage for our primary business of middle market lending is about 210%, which increases to about 230% for Prospect's core targeted middle market lending to companies with less than $50 million of EBITDA. As of December 2025, we held 91 portfolio companies across 32 different industries with an aggregate fair value of $6.4 billion.
Speaker #4: We targeted middle market lending companies to core with less than $50 million of EBITDA as of December 2025. We held 91 portfolio companies across 32 different industries, with an aggregate fair value of $6.4 billion.
Grier Eliasek: Our portfolio at cost included 2.8% of investments in software companies, which is significantly less than the 22% average across business development companies with publicly traded unsecured bonds from a recent Wall Street fixed income research report. We primarily focus on senior secured debt, which was 84% of our portfolio at cost as of December. Our middle market lending strategy is the primary focus of our company, with such strategy as of December representing 85% of our investments at cost, an increase of 878 basis points from June 2024. Middle market lending comprised 100% of our originations during the December quarter, with a continued prioritization of first lien senior secured loans. Investments during the quarter included follow-on investments in existing portfolio companies to support acquisitions, working capital needs, organic growth initiatives, and other objectives.
Grier Eliasek: Our portfolio at cost included 2.8% of investments in software companies, which is significantly less than the 22% average across business development companies with publicly traded unsecured bonds from a recent Wall Street fixed income research report. We primarily focus on senior secured debt, which was 84% of our portfolio at cost as of December. Our middle market lending strategy is the primary focus of our company, with such strategy as of December representing 85% of our investments at cost, an increase of 878 basis points from June 2024. Middle market lending comprised 100% of our originations during the December quarter, with a continued prioritization of first lien senior secured loans. Investments during the quarter included follow-on investments in existing portfolio companies to support acquisitions, working capital needs, organic growth initiatives, and other objectives.
Speaker #4: portfolio Our cost , at included 2.8% of investments in software companies , which is significantly less than the 22% average across business development companies with publicly traded unsecured bonds from a recent Wall fixed Street report research income .
Speaker #4: We primarily focus on senior and debt , which was 84% of our portfolio at cost as of December . Our middle market lending strategy is the primary focus of our company , which such strategy as a December representing 85% of our investments at cost , an increase of 878 basis points from June 2020 .
Speaker #4: For middle market lending comprised 100% of our originations during the December quarter , with a continued prioritization of first line senior secured loans investments during the quarter included follow on investments in existing portfolio companies support to acquisitions capital , working needs , organic growth initiatives and other objectives .
Grier Eliasek: We've essentially completed the exit of our subordinated structured notes portfolio as of December, with such portfolio representing only 0.2% of our investment portfolio at cost, which represents a reduction of 818 basis points from 8.4% in June 2024. Our real estate property portfolio at National Property REIT Corp. (NPRC) totaled 14% of our investments at cost as of December and continued its focus on developed and occupied cash flow multifamily investments. Since the inception of this strategy 14 years ago in 2012 and through December 2025, we've exited 56 property investments, earning an unlevered investment-level gross cash IRR of 24% and cash on cash multiple of 2.4 times. We exited 4 property investments in the current fiscal year through December 2025 that earned an unlevered investment-level gross cash IRR of 21% and cash on cash multiple of 2.4 times.
Grier Eliasek: We've essentially completed the exit of our subordinated structured notes portfolio as of December, with such portfolio representing only 0.2% of our investment portfolio at cost, which represents a reduction of 818 basis points from 8.4% in June 2024. Our real estate property portfolio at National Property REIT Corp. (NPRC) totaled 14% of our investments at cost as of December and continued its focus on developed and occupied cash flow multifamily investments. Since the inception of this strategy 14 years ago in 2012 and through December 2025, we've exited 56 property investments, earning an unlevered investment-level gross cash IRR of 24% and cash on cash multiple of 2.4 times. We exited 4 property investments in the current fiscal year through December 2025 that earned an unlevered investment-level gross cash IRR of 21% and cash on cash multiple of 2.4 times.
Speaker #4: We've essentially completed the exit of our subordinated structured notes portfolio as of December . With such portfolio representing only 0.2% of our investment portfolio at cost , which represents a reduction of 818 basis points from 8.4% in June 2024 .
Speaker #4: Our real estate property portfolio at National Property REIT Corp. npr-c totaled 14% of our investments at cost as of December and its focus on developed and occupied cash flow , multifamily investments since the inception of this strategy 14 years ago .
Speaker #4: In 2012 and through December 2025 , we've exited 56 property investments , earning an Unlevered investment level gross cash IRR of 24% in cash on cash multiple of 2.4 times .
Speaker #4: We exited for property investments in the current fiscal year through December 2025 . That earned an Unlevered investment level gross cash IRR of 21% and cash on cash multiple of 2.4 times Npr-c exited one additional property investment after December 31st , 2025 , and as multiple additional properties in various stages of exit an .
Grier Eliasek: NPRC exited 1 additional property investment after 31 December 2025, and has multiple additional properties in various stages of an exit process. The remaining real estate property portfolio included 54 properties and paid us an income yield of 5.4% for the December quarter, providing an opportunity for potential income enhancement from a portfolio rotation strategy. Prospect's aggregate investments in NPRC included a $270 million unrealized gain as of December. We expect to continue to redeploy future real estate property exit proceeds primarily into more first lien senior secured loans with selected equity-linked investments. Our interest income for the 12-month period ending December 2025 was 92% of our total investment income, reflecting a strong recurring revenue profile for our business.
Grier Eliasek: NPRC exited 1 additional property investment after 31 December 2025, and has multiple additional properties in various stages of an exit process. The remaining real estate property portfolio included 54 properties and paid us an income yield of 5.4% for the December quarter, providing an opportunity for potential income enhancement from a portfolio rotation strategy. Prospect's aggregate investments in NPRC included a $270 million unrealized gain as of December. We expect to continue to redeploy future real estate property exit proceeds primarily into more first lien senior secured loans with selected equity-linked investments. Our interest income for the 12-month period ending December 2025 was 92% of our total investment income, reflecting a strong recurring revenue profile for our business.
Speaker #4: The remaining real estate portfolio included 54 properties and paid us an income yield of 5.4% for the December quarter, providing an opportunity for potential income enhancement from a portfolio rotation strategy.
Speaker #4: Prospects . Aggregate investments in Npr-c included a $270 million unrealized gain as of December . We expect to continue to redeploy future real estate property exit proceeds primarily into more first lien senior secured loans with selected equity linked investments .
Speaker #4: Our interest income for the 12 month period ending December 2025 was 92% of total investment income , reflecting a strong recurring revenue profile for our business .
Grier Eliasek: Payment-in-kind interest income for the last 12-month period ended December 2025 was reduced by 46% from the 12-month period ending December 2024 and was 8.6% of total investment income for the December 2025 quarter. Non-accruals as a percentage of total assets as of December stood at approximately 0.7% based on fair market value. Investment originations in the December quarter aggregated $80 million and consisted of 100% middle market investments with a significant majority of first lien senior secured loans. We also experienced $79 million in repayments and exits as a validation of our capital preservation objective, resulting in net repayments of $1 million. Thank you. I'll now turn the call over to Kristin. Kristin?
Grier Eliasek: Payment-in-kind interest income for the last 12-month period ended December 2025 was reduced by 46% from the 12-month period ending December 2024 and was 8.6% of total investment income for the December 2025 quarter. Non-accruals as a percentage of total assets as of December stood at approximately 0.7% based on fair market value. Investment originations in the December quarter aggregated $80 million and consisted of 100% middle market investments with a significant majority of first lien senior secured loans. We also experienced $79 million in repayments and exits as a validation of our capital preservation objective, resulting in net repayments of $1 million. Thank you. I'll now turn the call over to Kristin. Kristin?
Speaker #4: In Payment Kind interest income for the last 12-month period ended December 2025 was reduced by 46% from the 12-month period ending December 2024.
Speaker #4: And was 8.6% of total investment income for the December 2025 quarter. Non-accruals, as a percentage of total assets as of December, stood at approximately 0.7% based on fair market value.
Speaker #4: Investment originations in the December quarter aggregated 80 million and consisted of 100% middle market investments , with a significant majority of first lean senior secured loans .
Speaker #4: We also experienced 79 million in repayments and exits as a capital our validation of preservation objective , resulting in net repayments of 1 million .
Kristin Van Dask: Thanks, Grier. We believe our prudent leverage, diversified access to matchbook funding, substantial majority of unencumbered assets weighting toward unsecured fixed rate debt, and avoidance of unfunded asset commitments all demonstrate balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending 26 years into the future. On 30 October 2025, we successfully completed the institutional issuance of approximately $168 million in aggregate principal amount of senior unsecured 5.5% notes due 2030, which mature on 31 December 2030. Our unfunded eligible commitments to portfolio companies total approximately $34 million, of which $23 million are considered at our sole discretion, representing approximately 0.5% and 0.3% of our total assets as of December 2025, respectively.
Kristin Van Dask: Thanks, Grier. We believe our prudent leverage, diversified access to matchbook funding, substantial majority of unencumbered assets weighting toward unsecured fixed rate debt, and avoidance of unfunded asset commitments all demonstrate balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending 26 years into the future. On 30 October 2025, we successfully completed the institutional issuance of approximately $168 million in aggregate principal amount of senior unsecured 5.5% notes due 2030, which mature on 31 December 2030. Our unfunded eligible commitments to portfolio companies total approximately $34 million, of which $23 million are considered at our sole discretion, representing approximately 0.5% and 0.3% of our total assets as of December 2025, respectively.
Speaker #4: Thank you . I'll now turn the call over to Kristen . Kristen .
Speaker #3: Thanks , Greer . We believe our prudent leverage , diversified access to matchbook funding , substantial majority of unencumbered assets toward weighting unsecured fixed rate debt and avoidance of unfunded asset commitments .
Speaker #3: All demonstrate balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities . Our company has locked in a ladder of liabilities , extending 26 years into the future .
Speaker #3: On October 30th , 2025 , we successfully completed the institutional issuance of approximately 168 million in aggregate principal amount of senior unsecured , 5.5% notes due 2030 , which mature on December 31st , 2030 .
Speaker #3: Our eligible commitments portfolio to unfunded companies total approximately 34 million , of which 23 million are considered at our sole discretion , representing approximately 0.5% and 0.3% of our total assets .
Kristin Van Dask: Our combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.6 billion as of December, and we held $4.2 billion of our assets as unencumbered assets, representing approximately 64% of our portfolio. The remaining assets are pledged to Prospect Capital Funding, a non-recourse SPV. We currently have $2.12 billion of commitments from 48 banks, demonstrating strong support of our company from the lender community with a diversity unmatched by any other company in our industry. The facility does not mature until June 2029 and revolves until June 2028. Our drawn pricing continues to be SOFR plus 2.05%. Outside of our revolver, we have access to diversified funding sources across multiple investor types and have successfully issued securities in an array of markets. Prospect has issued multiple types of unsecured debt: institutional non-convertible bonds, institutional convertible bonds, retail baby bonds, and retail program notes.
Kristin Van Dask: Our combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.6 billion as of December, and we held $4.2 billion of our assets as unencumbered assets, representing approximately 64% of our portfolio. The remaining assets are pledged to Prospect Capital Funding, a non-recourse SPV. We currently have $2.12 billion of commitments from 48 banks, demonstrating strong support of our company from the lender community with a diversity unmatched by any other company in our industry. The facility does not mature until June 2029 and revolves until June 2028. Our drawn pricing continues to be SOFR plus 2.05%. Outside of our revolver, we have access to diversified funding sources across multiple investor types and have successfully issued securities in an array of markets. Prospect has issued multiple types of unsecured debt: institutional non-convertible bonds, institutional convertible bonds, retail baby bonds, and retail program notes.
Speaker #3: of As December 2025 , respectively , our combined balance sheet , cash and undrawn revolving credit facility commitments stood at 1.6 billion as of December , and we held 4.2 billion of our assets as unencumbered assets representing approximately 64% of our portfolio .
Speaker #3: The remaining assets are pledged to Prospect Capital funding a non-recourse SPV currently . We have 2.12 billion of commitments from 48 banks , demonstrating strong support of our company from the lender community , with the diversity unmatched by any other company in our industry , the facility does not mature until revolves June 2029 and until June 2028 .
Speaker #3: drawn pricing continues to be Sofr plus 2.05% . Outside of our revolver . We have access to diversified funding sources across multiple investor types and have successfully issued securities in an array of markets .
Speaker #3: Prospect has issued multiple of types unsecured debt , institutional non-convertible bonds , institutional convertible bonds , retail baby bonds , and retail program notes .
Kristin Van Dask: All of these types of unsecured debt have no financial covenants, no asset restrictions, and no cross defaults with our revolver. We've tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out 26 years, with our debt maturities extending through 2052. With so many banks and debt investors across so many unsecured and non-recourse debt tranches, we have substantially reduced our counterparty risk. At 31 December 2025, our weighted average cost of unsecured debt financing was 4.68%. Now I'll turn the call back over to John.
Kristin Van Dask: All of these types of unsecured debt have no financial covenants, no asset restrictions, and no cross defaults with our revolver. We've tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out 26 years, with our debt maturities extending through 2052. With so many banks and debt investors across so many unsecured and non-recourse debt tranches, we have substantially reduced our counterparty risk. At 31 December 2025, our weighted average cost of unsecured debt financing was 4.68%. Now I'll turn the call back over to John.
Speaker #3: All of these types of unsecured debt have no financial covenants , no asset restrictions , and no cross with our revolver . We've tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out with 26 years our debt maturities extending through 2052 .
Speaker #3: With so many banks and debt investors so many across unsecured and nonrecourse debt tranches , we have reduced our counterparty substantially risk . At December 31st , 2025 , our weighted average cost of unsecured debt financing was 4.68% .
John Barry: Thank you, Kristin. We will now answer any questions.
John F. Barry III: Thank you, Kristin. We will now answer any questions.
Speaker #3: Now, I'll turn the call back over to John.
Grier Eliasek: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Your first question today comes from Finian O'Shea with Wells Fargo. Please go ahead.
Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Your first question today comes from Finian O'Shea with Wells Fargo. Please go ahead.
Speaker #2: Thank you. We will now answer any questions.
Speaker #1: We will now begin the question and answer session to ask a question . You may press star then one on your telephone keypad .
Speaker #1: If you are using a speakerphone , please pick up your handset before pressing the keys . If at any time your question has been addressed and you would like to withdraw your question , please press star then this time , two .
Speaker #1: At we will pause momentarily to assemble our roster . In your first question , today comes from Finian O'Shea with Wells Fargo . Please go ahead
Finian O'Shea: Hey, everyone. Good morning. Wanted to ask on Tower, sort of a two-parter. One is to the extent that, that tax refunds are higher this year, do you anticipate that's a headwind to loan balances, and then seeing Tower, it's been a really big winner for you, is that part of the, the optimization strategy to say exit the equity-linked types of investments, or is that still one of, you know, sort of a firm hold for now, one that you definitely want to keep? Thank you.
Finian O'Shea: Hey, everyone. Good morning. Wanted to ask on Tower, sort of a two-parter. One is to the extent that, that tax refunds are higher this year, do you anticipate that's a headwind to loan balances, and then seeing Tower, it's been a really big winner for you, is that part of the, the optimization strategy to say exit the equity-linked types of investments, or is that still one of, you know, sort of a firm hold for now, one that you definitely want to keep? Thank you.
Speaker #1: .
Speaker #5: morning Hey , everyone . Good . I wanted to on tower , sort of a two parter . One is to the extent that that tax refunds are higher this year .
Speaker #5: Do you anticipate that's a headwind to loan balances ? And then seeing tower , it's been a really big winner for you . Is that part of the the optimization strategy to say exit the equity linked types of investments or is that still one of sort of a firm hold for now , one that you definitely want to keep ?
John Barry: Well, hey Finian, and this is John. I would say that we want to stick with our great winners, and First Tower is absolutely one of them. We have a fabulous CEO there, frankly. It'd be very hard to find a better CEO. So we have no current plans to do anything but continue to work with Frank. Grier?
John F. Barry III: Well, hey Finian, and this is John. I would say that we want to stick with our great winners, and First Tower is absolutely one of them. We have a fabulous CEO there, frankly. It'd be very hard to find a better CEO. So we have no current plans to do anything but continue to work with Frank. Grier?
Speaker #5: Thank you .
Speaker #2: Finny . Well , hey , And this is John . I would say that we want to stick with great winners . And first tower is absolutely one of them .
Speaker #2: We have a fabulous CEO there . Frankly , be very hard to find a better CEO . So we have no current plans to do anything but continue to work with Frank Greer .
Grier Eliasek: Sure. Thank you for your questions, Finian. On the second one.
Grier Eliasek: Sure. Thank you for your questions, Finian. On the second one.
John Barry: Yep.
John F. Barry III: Yep.
Grier Eliasek: On potentially exiting Tower, we have no such plans, as John mentioned. Recall that we have substantial tax advantages as a regulated investment company under Subchapter M, paying no income taxes, as a Business Development Company. And the income generated by First Tower is quite favorable, good income, under our tax regime. So we're able to hold First Tower as a tax partnership rather than a C Corporation, thereby avoiding an extra level of taxation. Any prospective buyer of Tower, given its scale, would, you know, quite likely either be a C corp or have potential future plans to maybe IPO the business, to become and that would require a C corp under the tax law, which would immediately create significantly tax drag. So that's a way of saying that we are the logical lowest cost of capital, most tax-efficient owner of that business.
Grier Eliasek: On potentially exiting Tower, we have no such plans, as John mentioned. Recall that we have substantial tax advantages as a regulated investment company under Subchapter M, paying no income taxes, as a Business Development Company. And the income generated by First Tower is quite favorable, good income, under our tax regime. So we're able to hold First Tower as a tax partnership rather than a C Corporation, thereby avoiding an extra level of taxation. Any prospective buyer of Tower, given its scale, would, you know, quite likely either be a C corp or have potential future plans to maybe IPO the business, to become and that would require a C corp under the tax law, which would immediately create significantly tax drag. So that's a way of saying that we are the logical lowest cost of capital, most tax-efficient owner of that business.
Speaker #4: Sure . Thank you for your questions . Finian , on the second one on potentially exiting tower , we have no such plans as John mentioned .
Speaker #4: Recall that we have substantial tax advantages as a regulated investment company under Subchapter M, paying no income taxes as a business development company. The income generated by First Tower is quite favorable.
Speaker #4: Good income under our tax regime . So we're able to hold first tower as a tax partnership rather than a C corporation , thereby avoiding a an extra level of of taxation .
Speaker #4: Any prospective buyer of tower , given its , would scale quite likely either be a C maybe potential or plans to future have a corp IPO .
Speaker #4: The business to become that would . And require a C Corp under the tax law , which would immediately create significantly tax drag .
Speaker #4: So that's a way of saying that we are the logical lowest cost of capital . Most tax efficient owner of that business . On top of it .
Grier Eliasek: On top of it, it's a very yieldy strategy that we like in our business. Whenever we open up a new branch, it has an expected IRR typically well over 30%. You know, it's attractive income type of business with low-cost, third-party ABL financing that's going lower still, enhancing the yield as SOFR continues to drop, also part of the forward curve. The business is also firing on all cylinders with, in recent periods, record low on a multi-decade basis delinquencies, record low on a multi-decade basis charge-offs. The company has optimized its strategy, not overexpanding but expandingly expanding prudently and thoughtfully into new states and new offices within existing and new states. Florida and Tennessee, for example, are significant opportunities for expansion on top of Texas, which has been a more recent area for expansion.
Grier Eliasek: On top of it, it's a very yieldy strategy that we like in our business. Whenever we open up a new branch, it has an expected IRR typically well over 30%. You know, it's attractive income type of business with low-cost, third-party ABL financing that's going lower still, enhancing the yield as SOFR continues to drop, also part of the forward curve. The business is also firing on all cylinders with, in recent periods, record low on a multi-decade basis delinquencies, record low on a multi-decade basis charge-offs. The company has optimized its strategy, not overexpanding but expandingly expanding prudently and thoughtfully into new states and new offices within existing and new states. Florida and Tennessee, for example, are significant opportunities for expansion on top of Texas, which has been a more recent area for expansion.
Speaker #4: It's a very yielding strategy that we like in our business . Whenever we open up a new branch , it has an expected IRR , typically of well over 30% .
Speaker #4: It's attractive income , type of business with low cost third party ABL financing that's going lower still , enhancing the yield as Sofr continues drop .
Speaker #4: Also, part forward of the curve, the business is also firing on all cylinders, with in recent periods record low on a multi-decade basis.
Speaker #4: Delinquencies record low on a multi-decade basis . Charge offs . The company as optimized its strategy not overexpanding , but expanding , expanding prudently and thoughtfully into new states and new offices within existing and new states .
Speaker #4: Florida and Tennessee , for example , are significant opportunities for expansion on top of Texas , which has been a more recent area for expansion .
Grier Eliasek: So the business is doing well, and again, we have no plans to rotate out of it. In terms of your first question, from a tax refund standpoint, yes, the dynamic of consumers borrowing money for holiday spending in the December quarter and then, you know, repaying some of those borrowings in the first half of the following calendar year based on tax refunds is not a new phenomenon at all. That's, you know, been the case for decades. Creates a little bit of seasonality, which is fine and not problematic. I hadn't heard that tax refunds would necessarily be, you know, abnormally large or cause any distortions to Tower's business in any way. And of course, there are multiple drivers of consumer demand, not just holiday spending but other aspects as well, including what's going on in the bank and non-bank borrower and lender markets.
Grier Eliasek: So the business is doing well, and again, we have no plans to rotate out of it. In terms of your first question, from a tax refund standpoint, yes, the dynamic of consumers borrowing money for holiday spending in the December quarter and then, you know, repaying some of those borrowings in the first half of the following calendar year based on tax refunds is not a new phenomenon at all. That's, you know, been the case for decades. Creates a little bit of seasonality, which is fine and not problematic. I hadn't heard that tax refunds would necessarily be, you know, abnormally large or cause any distortions to Tower's business in any way. And of course, there are multiple drivers of consumer demand, not just holiday spending but other aspects as well, including what's going on in the bank and non-bank borrower and lender markets.
Speaker #4: So the business is doing well . And again , we have no plans to rotate out of it in terms of your first question from a tax refund standpoint , yes , the of dynamic consumers borrowing money for holiday spending in the December quarter and then , you know , repaying some of those borrowings in the first half of the following calendar year based on tax refunds , is not a new phenomenon at all .
Speaker #4: That's been the case for decades . Creates a little bit of seasonality , which is fine . not And problematic . I hadn't heard that tax refunds would necessarily be abnormally large or cause any distortions to towers business and any way .
Speaker #4: course , there are of And multiple drivers of consumer demand , not just holiday spending , but other aspects as well , including what's going on in the bank and non-bank borrower and lender markets .
Grier Eliasek: There's a very high barrier to entry in the non-bank installment finance business. There's not a whole lot of new lending going on to new entrants. This is a fairly well-defined existing group of banks that are lenders to that business and don't tend to, from our observation, be that desirous of expanding into new entrants but rather sticking with incumbents, creating a benefit to being already in that business with an established bank group and a history in the case of Tower that spans over 40 years. So, we see strong demand. We also see a phenomenon in which Tower and other companies have determined this over time. Tower's not alone in this, and some of our other companies have also optimized on this basis. The best indicator you have of consumer credit is your existing customers and your existing credit experience with those customers.
Grier Eliasek: There's a very high barrier to entry in the non-bank installment finance business. There's not a whole lot of new lending going on to new entrants. This is a fairly well-defined existing group of banks that are lenders to that business and don't tend to, from our observation, be that desirous of expanding into new entrants but rather sticking with incumbents, creating a benefit to being already in that business with an established bank group and a history in the case of Tower that spans over 40 years. So, we see strong demand. We also see a phenomenon in which Tower and other companies have determined this over time. Tower's not alone in this, and some of our other companies have also optimized on this basis. The best indicator you have of consumer credit is your existing customers and your existing credit experience with those customers.
Speaker #4: There's a very high barrier to entry for non-banks in the installment finance business—a whole lot. There's not a lot of new lending going on to new entrants.
Speaker #4: fairly well This is defined . Existing group of banks that are lenders to that business and don't tend to from from our observation , be that desirous of expanding into new entrants , but rather sticking with incumbents , creating a benefit to being already in business with an established that bank group and a history in the case of tower , that spans over 40 years .
Speaker #4: So we see demand . strong We also see a phenomenon in which tower and other companies have determined this over tower's not time , alone in this , and some of our other companies have also optimized in this basis .
Speaker #4: The best you indicator have of credit consumer is your existing customers and your existing credit experience with those customers . So as they demonstrate strong history over time of repayment and delevering providing additional financing to those solid credit customers in the form of larger loans becomes a very smart way to enhance profitability , not only way the , but a but meaningful driver to avoid potential charge offs or that reduce risk for borrowers new .
Grier Eliasek: So as they demonstrate a strong history over time of repayment and delevering, providing additional financing to those solid credit customers in the form of larger loans becomes a very smart way to enhance profitability. Not the only way, but, but a meaningful driver to avoid potential charge-offs or reduce that risk for new borrowers for which one does not necessarily have a prior credit experience. So, hopefully, that's a little bit of context on First Tower, which we first invested in in the 2012, 2013 timeframe. So we're going on 12, 13, 14 years roughly of a history with that management team, which is outstanding, which is very well aligned with us, has made additional growth investments in the business right alongside us, and we couldn't be more pleased with how that business and team is performing.
Grier Eliasek: So as they demonstrate a strong history over time of repayment and delevering, providing additional financing to those solid credit customers in the form of larger loans becomes a very smart way to enhance profitability. Not the only way, but, but a meaningful driver to avoid potential charge-offs or reduce that risk for new borrowers for which one does not necessarily have a prior credit experience. So, hopefully, that's a little bit of context on First Tower, which we first invested in in the 2012, 2013 timeframe. So we're going on 12, 13, 14 years roughly of a history with that management team, which is outstanding, which is very well aligned with us, has made additional growth investments in the business right alongside us, and we couldn't be more pleased with how that business and team is performing.
Speaker #4: For which one does not necessarily have a prior credit experience . So context hopefully that's a little bit of on First tower , which we first invested in in 2012 , 2013 time frame .
Speaker #4: So we're going on 12 , 13 , 14 years , roughly of a history with that management team , which is outstanding , which is very well aligned with us , has made additional investments in the growth business right alongside us , and we couldn't be more pleased with how that business and team is performing .
Finian O'Shea: That's great. I appreciate the color. Follow-up on the, the preffs. Conversions are stable. One thing you've touched on in the past, you've given us color on that market in terms of impacts from other products in the non-traded channel. So today, as we all know, there are a lot of headlines sort of hitting the larger non-traded BDC market. Does that have an impact, you know, good or bad, on your convertible preff product line?
Grier Eliasek: That's great. I appreciate the color. Follow-up on the, the preffs. Conversions are stable. One thing you've touched on in the past, you've given us color on that market in terms of impacts from other products in the non-traded channel. So today, as we all know, there are a lot of headlines sort of hitting the larger non-traded BDC market. Does that have an impact, you know, good or bad, on your convertible preff product line?
Speaker #5: It's great . I appreciate the color follow up on the the prefs conversions or stable . One thing you've touched on in the us color on that market .
Speaker #5: In terms of impacts from other products in the Non-traded channel . So today , as we all know , there are a lot of headlines sort of hitting the larger Non-traded BDC market .
Speaker #5: Does that have an impact , you know , good or bad , on your convertible pref product line ?
Grier Eliasek: I mean, not really directly. I think that interest rates are a meaningful factor, Finian. And in the current environment, you know, some folks are, you know, deprioritizing floating-rate investments or vehicles that have significant underlying floating-rate exposure. Everybody likes to float up and get a higher yield. They don't necessarily like to float down and get paid less. So, right? So you see that dynamic, not just with non-traded BDCs that, of course, rode the wave up from 6 yields to 10 yields to investors and now have been riding the wave a bit downward with distribution reductions based on underlying loans paying less with prevailing SOFR going down. You see that dynamic with interval funds and, you know, anything that's floating rate in nature. I think it makes fixed-rate investments to our sector, no matter what that form might be, all the more compelling.
Grier Eliasek: I mean, not really directly. I think that interest rates are a meaningful factor, Finian. And in the current environment, you know, some folks are, you know, deprioritizing floating-rate investments or vehicles that have significant underlying floating-rate exposure. Everybody likes to float up and get a higher yield. They don't necessarily like to float down and get paid less. So, right? So you see that dynamic, not just with non-traded BDCs that, of course, rode the wave up from 6 yields to 10 yields to investors and now have been riding the wave a bit downward with distribution reductions based on underlying loans paying less with prevailing SOFR going down. You see that dynamic with interval funds and, you know, anything that's floating rate in nature. I think it makes fixed-rate investments to our sector, no matter what that form might be, all the more compelling.
Speaker #4: I mean , not really directly . I think that interest rates are meaningful factor . Finian . And in the current environment , you know , folks are some folks are , you know , deprioritizing floating rate investments or vehicles that have significant underlying floating rate exposure .
Speaker #4: Everybody likes to up float higher They don't yield . float like to down necessarily and get paid less . Right . So you see that dynamic not just with non-traded BDCs , that of course , rode the wave up from six yields to ten yields to investors .
Speaker #4: And now are have been riding the wave a bit downward with distribution reductions based on underlying loans paying less with prevailing sofr going down .
Speaker #4: You see that dynamic with interval funds and anything that's floating rate in nature. I think it makes fixed rate investments to our sector.
Grier Eliasek: And I'm talking not just about fixed-rate preferreds, which is essentially what all our Xtant preferreds are and newly issued preferreds, but also bonds for BDCs. So prioritization of investors from what we see is rotating back towards fixed rate and wanting to lock in a nice yield, should rates continue to decline, at least on a short-term basis, as evidenced by the forward curve. So I think that's a non-trivial dynamic at play here, which maybe keeps folks in their seats when it comes to sitting on fixed-rate paper.
Grier Eliasek: And I'm talking not just about fixed-rate preferreds, which is essentially what all our Xtant preferreds are and newly issued preferreds, but also bonds for BDCs. So prioritization of investors from what we see is rotating back towards fixed rate and wanting to lock in a nice yield, should rates continue to decline, at least on a short-term basis, as evidenced by the forward curve. So I think that's a non-trivial dynamic at play here, which maybe keeps folks in their seats when it comes to sitting on fixed-rate paper.
Speaker #4: No matter what that form might be . All the more compelling . And I'm talking not just about fixed rate preferred's , which is what essentially all our extant preferred's are .
Speaker #4: And newly issued preferred's . But also bonds for BDC . So prioritization and investors , from we what see is rotating back towards fixed rate and wanting to lock in a nice yield should rates continue to least in the short term basis , as decline , at by the forward evidenced curve .
Speaker #4: think So I that's a non-trivial dynamic at play here , which maybe keeps folks in their seats when it comes to sitting on rate paper
Finian O'Shea: That's helpful as well. Thanks. And I try to stay disciplined according to convention, but if I could throw in a bonus question, you guys have avoided software historically, which is, you know, pretty favorable to you at this point. That's causing a lot of the market consternation. Curious if you have any view on those sort of that sort of overhang being too heavy. Is it time to maybe pivot into enterprise SaaS software that's sort of a mainstay of a lot of your BDC peers' portfolios? And that'll be all from me. Thanks.
Finian O'Shea: That's helpful as well. Thanks. And I try to stay disciplined according to convention, but if I could throw in a bonus question, you guys have avoided software historically, which is, you know, pretty favorable to you at this point. That's causing a lot of the market consternation. Curious if you have any view on those sort of that sort of overhang being too heavy. Is it time to maybe pivot into enterprise SaaS software that's sort of a mainstay of a lot of your BDC peers' portfolios? And that'll be all from me. Thanks.
Speaker #4: .
Speaker #5: helpful as well . Thanks That's . And I try to stay disciplined . According to but if I could convention , throw in a bonus question , you guys have avoided software historically , which is , you know , pretty favorable to you at this point .
Speaker #5: That's causing a lot of the consternation market . Curious if you have view any on those sort of that sort of overhang being too heavy .
Speaker #5: Is it time to maybe pivot into enterprise SaaS software ? That's sort of a mainstay of a lot of your BDC peers portfolios , and that would be all for me .
Grier Eliasek: Sure.
Grier Eliasek: Sure.
John Barry: Hey Finney.
John F. Barry III: Hey Finney.
Grier Eliasek: Well.
Grier Eliasek: Well.
John Barry: Hey Grier. Just.
John F. Barry III: Hey Grier. Just.
Grier Eliasek: Hi.
Grier Eliasek: Hi.
John Barry: Grier, just one second. Hey Finian, and thank you for your questions. I always hesitate to comment on what other people are doing, their investment strategies, whether I have an opinion or not. I'm very focused on our company. So I really don't know what's happening or going to happen with AI software, and I don't think anybody else does. So I just want to preface anything that anyone has to say here with intellectual modesty and admitting that not only am I unable to forecast what might be happening in that sector, I have no firsthand information about what any of our competitors are doing. So that's my two cents on that, an admission of intense ignorance, if you will. All right, Grier.
John F. Barry III: Grier, just one second. Hey Finian, and thank you for your questions. I always hesitate to comment on what other people are doing, their investment strategies, whether I have an opinion or not. I'm very focused on our company. So I really don't know what's happening or going to happen with AI software, and I don't think anybody else does. So I just want to preface anything that anyone has to say here with intellectual modesty and admitting that not only am I unable to forecast what might be happening in that sector, I have no firsthand information about what any of our competitors are doing. So that's my two cents on that, an admission of intense ignorance, if you will. All right, Grier.
Speaker #5: Thanks .
Speaker #4: Sure .
Speaker #2: Hey . Hey , Greer . Just just one second . Thank you for your questions . I always hesitate to comment on what other people are doing their investment strategies , whether I have an opinion or not .
Speaker #2: I'm very focused on on our company . So I really don't know what's happening or going to happen with AI And I software .
Speaker #2: I don't think anybody else does. So I just want to preface anything that is said here with intellectual modesty and admit that not only am I unable to forecast what might be happening in that sector, I have no firsthand information about what any of our competitors are doing.
Speaker #2: So that's my $0.02 on that . And admission of of of intense ignorance , if you will . All right . Greer ?
Grier Eliasek: Sure. Yeah, we can only speak as to our own underwriting and thoughts. It's really a big difference in private credit compared to the broadly syndicated market for what the exposures are for software in the two. In the broadly syndicated market, there's, you know, a non-trivial amount of software, I think, you know, 10% or so, give or take, last I saw. And in that market, they tend to be cash-flowing software companies. And the reason for that is you need to get a rating. That's a very rating-centric market. With the BDC market, less rating-centric, and what a lot of folks have done is to invest in annual recurring revenue loans that have less than a 1.0x fixed charge coverage.
Grier Eliasek: Sure. Yeah, we can only speak as to our own underwriting and thoughts. It's really a big difference in private credit compared to the broadly syndicated market for what the exposures are for software in the two. In the broadly syndicated market, there's, you know, a non-trivial amount of software, I think, you know, 10% or so, give or take, last I saw. And in that market, they tend to be cash-flowing software companies. And the reason for that is you need to get a rating. That's a very rating-centric market. With the BDC market, less rating-centric, and what a lot of folks have done is to invest in annual recurring revenue loans that have less than a 1.0x fixed charge coverage.
Speaker #4: Sure . Yeah . We can only speak as to our own underwriting and thoughts . It's really a big difference in private credit compared to broadly syndicated market for what the exposures are for software in the two and the broadly syndicated market , there's a non-trivial amount of software .
Speaker #4: I think , you know , give or take 10% or so , . Last I saw and in that market , they tend to be cash flowing .
Speaker #4: Software companies and the reason for that is you need to get a rating . That's a very rating centric market with the BDC market , less ratings centric and what a lot of folks have done is to invest in annual recurring revenue loans that have less than a 1.0 x fixed charge coverage .
Grier Eliasek: Those loans, when you go get a rating, whether it's credit estimate or private rating or what have you, tend to come back as triple Cs and, you know, the lower type of rating. And of course, there's risk attached to that because there's no cash flow exit when you're below 1.0x fixed charge coverage. You're consuming cash, and you need growth of the business to enable repayment, you know, coupled with liquidity of a burgeoning software market. And that was always antithetical or has been to date to our underwriting culture of seeking multiple sources of repayment, seeking downside protection, principal protection in the loans we make. We like to see delevering occur from the underlying cash flow available for debt service, out of the business. We historically have underwritten with around a 1.5x fixed charge coverage or better with each deal.
Grier Eliasek: Those loans, when you go get a rating, whether it's credit estimate or private rating or what have you, tend to come back as triple Cs and, you know, the lower type of rating. And of course, there's risk attached to that because there's no cash flow exit when you're below 1.0x fixed charge coverage. You're consuming cash, and you need growth of the business to enable repayment, you know, coupled with liquidity of a burgeoning software market. And that was always antithetical or has been to date to our underwriting culture of seeking multiple sources of repayment, seeking downside protection, principal protection in the loans we make. We like to see delevering occur from the underlying cash flow available for debt service, out of the business. We historically have underwritten with around a 1.5x fixed charge coverage or better with each deal.
Speaker #4: Those loans , when you go get a rating , whether it's credit estimate or private rating or what have you , tend to come back as Triple C's and the lower type of of rating .
Speaker #4: And of course , there's attached risk to because that there's no cash flow exit when you're below 1.0 x fixed charge coverage , you're consuming cash and you need growth of the business to enable repayment .
Speaker #4: Coupled with liquidity of a burgeoning software market . And that was always antithetical or has been to date to our underwriting culture of seeking multiple sources of repayment , seeking downside protection , principal protection in the loans we make .
Speaker #4: We'd like to see delevering occur from the underlying cash flow available for debt service out of the business . We underwritten with a round of 1.5 x fixed charge coverage or better with each deal , and annual those recurring revenue or ordeals never offered .
Grier Eliasek: Those annual recurring revenue or AR deals never offered those, and we thought looked quite risky from our point of view. So we passed on every single one of them. We've never done a single such deal. We understand that others in the industry have pursued that sector, and we'll see what happens. I don't think we're in position to prognosticate on what's going to happen with AI impacting those software companies. We'll just note that if anyone, whether an equity investor or a bond investor, is worried about software exposure, they need not worry about it when it comes to Prospect Capital Corporation. We are the absolute lowest with software exposure at less than 3%, compared to the BDC average, which is around 22% for bond issuers.
Grier Eliasek: Those annual recurring revenue or AR deals never offered those, and we thought looked quite risky from our point of view. So we passed on every single one of them. We've never done a single such deal. We understand that others in the industry have pursued that sector, and we'll see what happens. I don't think we're in position to prognosticate on what's going to happen with AI impacting those software companies. We'll just note that if anyone, whether an equity investor or a bond investor, is worried about software exposure, they need not worry about it when it comes to Prospect Capital Corporation. We are the absolute lowest with software exposure at less than 3%, compared to the BDC average, which is around 22% for bond issuers.
Speaker #4: And Those . we thought risky quite looked from our point of view . So we passed on every single one of them . We've never a done single such deal .
Speaker #4: We understand that others in the industry have pursued that sector , and we'll see what happens . I don't think we're in a position to prognosticate on what's going to happen with AI impacting those software companies .
Speaker #4: We'll just note that if anyone , whether an equity investor or a bond investor , is worried about software exposure , they need not worry about it when it comes to prospect capital Corporation , we are the absolute lowest with software exposure at less than 3% compared to the BDC average , which is around 22% for bond issuers .
Finian O'Shea: Appreciate that, everybody, and thanks so much.
Finian O'Shea: Appreciate that, everybody, and thanks so much.
Grier Eliasek: Thank you, Finian.
Grier Eliasek: Thank you, Finian.
John Barry: Thank you, Finian. Thank you, Finian. Appreciate the questions.
John F. Barry III: Thank you, Finian. Thank you, Finian. Appreciate the questions.
Speaker #6: Appreciate that everybody . much And thanks so .
Operator 2: Seeing no additional questions, this concludes our question-and-answer session. I would like to turn the conference back over to John Barry for any closing remarks.
Operator: Seeing no additional questions, this concludes our question-and-answer session. I would like to turn the conference back over to John Barry for any closing remarks.
Speaker #4: Thank you .
Speaker #2: Thank you . Finian . Thank you Finian , appreciate the questions .
Speaker #1: Seeing no additional questions , this concludes our question and answer session . I would like to turn the conference back over to John Barry for any closing remarks .
John Barry: Okay. Well, thank you, everyone. Have a wonderful day now. Bye.
John F. Barry III: Okay. Well, thank you, everyone. Have a wonderful day now. Bye.
Speaker #2: Okay . Well thank you everyone . Have a wonderful day . Now . Bye .
Operator 2: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
