Crescent Capital BDC, Inc.

Please stand by, your program is about to begin. Good day everyone and welcome to the Q2 2024 Crescent Capital BDC Earnings Conference Call. At this time all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question and answer session. You may register to ask questions by pressing the star N1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Please note this call may be recorded and that will be sent in by should you need any assistance. It is now my pleasure to turn the conference over to Dan McMahon, Head of Investor Relations. Please go ahead.

Good morning and welcome to Crescent Capital BDC Inc's second quarter and to June 30th, 2024 earnings conference call. Please note that Crescent Capital BDC may be referred to as CCAP, Crescent BDC or the company throughout the call. Before we begin, I'll start with some important reminders. Comments made over the course of this call and webcast may contain forward-looking statements and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC filings. The company assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. Yesterday, after the market closed, the company issued its earnings press release for the second quarter ended June 30th, 2024, and posted a presentation to the investor relations section of its website at crescentbdc.com. The presentation should be reviewed in conjunction with the company's Form 10-Q filed yesterday with the SEC. As a reminder, this call is being recorded for replay purposes. Speaking on today's call will be CCAP's Chief Executive Officer, Jason Brough, President Henry Chung, and Chief Financial Officer Gerhard Lombard. With that, I'd now like to turn it over to Jason.

Thank you, Dan. Hello, everyone, and thank you all for joining us today. It was great to see some of you in person at our inaugural Analyst and Investor Day in early June. I'll start today's call by highlighting our second quarter results. Follow that with some thoughts on our investment approach and touch on our portfolio. Yesterday evening, we reported another quarter of solid earnings with continued strong credit performance across the portfolio. Net investment income, or NII, was $0.59 per share, which translates into an annualized NII return on equity of 11.7%. With our earnings, again, well in excess of the recently increased regular dividend, our Board has declared a supplemental dividend for the second quarter of $0.09 per share. When coupled with our previously declared regular dividend of 42 cents per share, this equates to a 10% annualized dividend yield on June 30, 2024, NAV. The strength of our earnings also led to growth in our net asset value, which increased to $20.30 per share, which is the highest it has been since June 2022. Let's shift gears and discuss the investment portfolio. Before I get into specific data points, I'd like to spend a minute on our investment approach and where we seek to originate new opportunities. It's no secret that in recent quarters, there has been a lot of competition in private credit, both with the syndicated markets and significant capital that we have seen raised in the sector. In recent quarters, the average tranche size of transactions that are being refinanced by the direct lending markets from the syndicated markets is well north of $1 billion. This segment of the market is not where we focus. Where we focus our efforts is in what we call the lower and core middle market. Segments of the market that are typically not able or less able to access the syndicated loan markets due to issuer size. So think issuers with EBITDA of 10 million on the low end up to roughly 150 to 200 million on the high end. In the lower and core middle market, we are able to directly negotiate terms with our sponsors that have structural features around collateral protection that we deem critical for investing in the space. This is in direct contrast with the looser documentation for some of the mega Unitronge deals completed over the past few quarters that resemble broadly syndicated loan documents, some of which have garnered significant public attention. Our segment focus provides us with an opportunity to truly lead our transactions and drive the documentation. We are focused on strong cash flow generation, tight EBITDA definitions, as well as enhanced monitoring rights, which allow us to be proactive versus reactive as we think about our approach to portfolio management. We are cash flow lenders, so we focus on underwriting businesses that have been operating for a long time that have a history of being able to generate cash flow consistently with low working capital requirements. It's for these reasons we do not invest in annual recurring revenue or ARR loans. Please turn to slides 13 and 14 of the presentation, which highlight certain characteristics of our portfolio. We ended the quarter with approximately $1.6 billion of investments at fair value. across a highly diversified portfolio of 183 companies, with an average investment size of approximately 0.5% of the total portfolio. We've deliberately maintained an investment portfolio that consists primarily of first lien loans, collectively representing 90% of the portfolio fair value at quarter end, unchanged from the prior quarter. We continue to focus our investing efforts on non-cyclical industries and remain well diversified across 20 broad industry categorizations. Our investments are almost entirely supported by well-capitalized private equity sponsors, with 98% of our debt portfolio in sponsor-backed companies as of quarter end. We have been pleased with the fundamental performance of our portfolio, as indicated by our performance ratings and non-accrual levels. Our weighted average portfolio grade of 2.1 remains stable quarter over quarter. And on slide 17, you will see the percentage of risk-rated one and two investments, the highest ratings our portfolio companies can receive, accounted for 89% of the portfolio at fair value, also stable quarter over quarter. As a quarter end, we had investments in eight portfolio companies on non-accrual status, representing 1.6% and 0.9%, of our total debt investments at cost and fair value, respectively, which was flat quarter over quarter. I'd now like to turn it over to Henry to discuss the market, our Q2 investment activity, and the portfolio. Henry.

Thanks, Jason. Middle market loan volume for the first half of the year increased nearly 20% as compared to the second half of 2023, with most of the pickup in volume driven by refinancing activity. LBO activity, which represented approximately one-third of middle market loan volume in the first half of 2024, continued to increase, albeit modestly, driven by continued strong business fundamentals, better clarity on rates, declining spreads, and strong demand from the private credit market. Coupled with continued pressure from LPs to return capital, we believe that conditions are in place for LBO volume to continue to accelerate in the second half of the year. And while the syndicated markets are open, as Jason discussed, we believe the direct lending market remains the market of choice for sponsors in the lower and core middle market, given the benefits of the direct lending expertise offered by managers like Crescent, including speed and uncertainty of execution and flexibility around the ability to craft bespoke capital structures. Please turn to slide 15, where we highlight our recent activity. Gross deployment in the first quarter totaled $119 million. As you can see on the left-hand side of the page, 92% of which was in senior secured first lien and first lien unit tranche investments. During the quarter, we closed six new platform investments totaling $62 million, with the remaining $57 million coming from incremental investments in our existing portfolio companies. Incremental investments as a percentage of overall activity was elevated in the first half of 2024 compared to prior periods, as we continue to see higher levels of opportunistic refinancing and add-on opportunities within our existing borrower universe. This provides an ongoing opportunity set for us to make incremental investments in existing, well-performing companies seeking to grow via the pursuit of creative M&A. The $119 million in gross deployment compares to approximately $73 million in aggregate exits, sales, and repayments, resulting in $46 million of deployment on a net basis. The new investments during the first quarter were loans to private equity-backed companies with silver floors, attractive fees, and a weighted average spread of approximately 530 basis points. We continue to back well-capitalized borrowers with significant equity cushions, and the weighted average loan-to-value of our new investments for the quarter was 31%. Turning back to the broader portfolio, please flip to slide 16. You can see the weighted average yield of our income producing securities at cost came down modestly quarter over quarter to 12.2%, primarily due to lower yielding assets that we originated in the second quarter, coupled with the exit of certain higher yielding assets. As a reminder, this metric, represented by the dark blue line at the top of the chart, now includes the impact of income producing equity investments. This includes dividends from the Logan JV, as well as our partnership interests in GACP2 and Whitehawk. As of June 30th, 97% of our debt investments at fair value were floating rate with a weighted average floor of 80 basis points, which compares to our 67% floating rate liability structure based on debt drawn with 0% floors. Overall, our investment portfolio continues to perform well, with strong year-over-year weighted average revenue and EBITDA growth. That being said, we have continued to closely monitor the impact of borrowing costs on our portfolio companies given the elevated interest rate backdrop. The weighted average interest coverage of the companies in our investment portfolio at quarter end remains stable at 1.7 times as compared to the prior quarter. As a reminder, this calculation is based on the latest annualized base rate each quarter. We also continue to closely monitor how our portfolio companies are managing fixed operating costs. Our analysis demonstrates that our portfolio companies in the aggregate are well positioned to address fixed charges with operating cash flows and available balance sheet liquidity. As expected, we saw a modest decrease in aggregate revolver utilization during the second quarter with approximately 57% of aggregate revolver capacity available across the portfolio as a quarter end, which is sufficient in our view. It is worth noting that we have seen an increase in repricing requests given tightening spreads. Our approach to repricings is that a portfolio company ought to have demonstrated improvement in creditworthiness since underwrite through growth and deleveraging in order to warrant a repricing. The strength of our portfolio continues to benefit from the substantial amount of equity invested in our companies. Most of it's applied by large and well-established private equity firms with whom we have longstanding relationships and have partnered with in multiple transactions. And we note that the weighted average loan-to-value in the portfolio at time of underwrite is approximately 40%. With that, I will now turn it over to Gerhard.

Thanks, Henry, and hello, everyone. Our net investment income per share of 59 cents for the second quarter of 2024 compares to 63 cents per share for the prior quarter and 56 cents per share for the second quarter of 2023. Total investment income of $49 million for the second quarter compares to $50.4 million for the prior quarter. The primary driver of this decrease relates to what we classify as non-recurring investment income. Consisting of accelerated amortization, fee income, and common stock dividends, non-recurring income of $1.8 million decreased quarter over quarter from $2.6 million. As noted on last quarter's poll, while we expect some level of non-recurring or transactional investment income every quarter, on recurring investment income last quarter, driven primarily by two large realizations and an increase in structuring fees for a new platform investment, but meaningfully higher than in previous quarters. Importantly, our recurring yield-related income continues to represent the lion's share of total investment income, contributing over 95% of this quarter's total income, consistent with prior quarters. PIC income continues to represent a modest portion of our revenue at 4% of total investment income, which compares favorably to the BDC peer group. We remain highly focused on our level of PIC income, particularly in this environment, and believe that this will be a differentiator for BDC performance in the coming years. Our gap earnings per share, or net income, for the second quarter of 2024 was $0.55. This was primarily the result of net investment income outpacing the regular and supplemental dividend offset by $0.07 per share of net unrealized and realized losses. As of June 30th, our stockholders' equity was $752 million, up modestly from the prior quarter, resulting in net asset value per share of $20.30. Now let's shift to our capitalization and liquidity. I'm on slide 19. As I noted in June at our analyst day, in terms of our leverage strategy, we have generally prioritized measured growth and have historically operated at the relatively conservative debt to equity ratio. This quarter's investment activity brought our debt to equity ratio up to 1.18 times from 1.11 times in the prior quarter. This quarter's increase puts us closer to the midpoint of our stated leverage range of 1.1 times to 1.3 times. With $294 million of undrawn capacity subject to leverage, borrowing base, and other restrictions, and $36 million in cash and cash equivalents as of quarter end, we have sufficient liquidity to fund further investment activity while maintaining a debt-to-equity ratio that we are comfortable operating at. The weighted average stated interest rate on our total borrowings was 6.91% as of quarter end. And as we've highlighted on the right-hand side of the slide, there are no debt maturities until 2026. One additional item to highlight here relates to our SPV asset facility. In May, we tightened the spread by 30 basis points to SOFR plus 245 and extended the maturity from March 2028 to May 2029. As Jason mentioned, for the third quarter of 2024, our Board has declared our recently increased regular dividend of 42 cents per share. which we believe we are well positioned to cover over the longer term. We also plan to continue to declare and pay quarterly supplemental dividends pursuant to the current calculation to provide further distributions to stockholders. And with that, I'd like to turn it back to Jason for closing remarks.

Thanks, Gerhard. In closing, we are pleased with this quarter's financial results and the performance of our investment portfolio. we continue to maintain a defensively positioned portfolio that delivers a stable NAV profile with consistent dividend coverage. At our Analyst and Investor Day in June, one thing we hope everyone left with was that CCAP benefits from its affiliation with Crescent, a proven cycle-tested manager. As credit investors, Crescent's approach to investment selection has remained consistent and disciplined for over three decades. and we believe this level of experience will serve as a point of real differentiation for CCAP in less benign credit environments. Even though the private credit landscape continues to rapidly evolve, we want to assure our shareholders that our investment approach remains disciplined and consistent. As we look forward over the remainder of 2024, we remain confident in the continued strong performance of CCAP's portfolio and believe we are on track to continue to deliver attractive risk-adjusted returns to our stockholders. And with that, operator, we can open the line for questions.

And at this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw your question by pressing star 2. Once again, to ask a question, please press the star and 1 on your telephone keypad. So we'll take our first question from Lee Cooperman with Omega Family Office. Please go ahead.

Thanks. Never been first. Thank you. Two questions. One, I need a little help. On all these calls I've listened to, everybody says interest rates are very high. What are the evidence that interest rates are very high? They're higher than they've been, but the stock market's at a record high. If you take the unweighted averages, the market is at a record high. There's speculation going on in the market. Prior to 2008, the 10-year government bond yielded in line with nominal GDP. So if you take 2% to 3% inflation, 2% to 3% real growth, the 10-year wouldn't be undervalued at 4% to 6% yield. So what is the evidence that interest rates are too high? That's number one. And I have a second question.

Hey, Lee. Thanks for joining. Thanks for the question. I think we would agree with you. I think we would say that interest rates are high on a, looking back at the last, let's say, 10 years, They're high. But if you go back historically over a longer period of time, I wouldn't call them necessarily high today.

Secondly, Wall Street has created a lot of companies in the BDC space, REIT space, that only made sense when stocks sold at a premium to NAV. Because the game was sell stock, buy assets, raise a dividend. Sell stock, buy assets, raise a dividend. And once the stocks go to a discount to NAV, it's game over and you want to be with the guys that are smart enough to understand that the game has changed and are willing to engage in capital management. So we have stock selling below book value. Do you guys have any plans to return capital via repurchase or is this something that you don't consider?

Yeah, Lee, thanks again. It's Jason. This is something that we evaluate and we will continue to evaluate. As of today, the asset yields that we're getting are still compelling, with leverage even more compelling. That said, I think that's something that we're going to continue to be mindful of as we look at our stock price and we look at where the rate environment heads going forward, because we obviously need to evaluate both of those measures. We also have to take into consideration on buybacks that we make sure to balance that with the benefits of having scale in the space, just given the fixed charges that are associated with managing a registered vehicle. And then the last point is where our leverage is at. So today, for instance, we're basically on top of our target leverage. A buyback would be a leveraging transaction, but it is something if we are to do it, I think we would make sure to manage that within our target leverage.

A reasonable answer. Thank you very much and good luck.

Thank you.

We'll take our next question from Robert Dodd with Raymond James. Please go ahead.

Hi, guys. Looking at the liability side of the balance sheet, can you give us any color on the plans? I mean, as it stands right now, you've got about 60% of your debt stack maturing at an eight-month window in 2026. And the SMBC facility goes into amortization roughly a year from now. So, I mean, it's pretty crowded. in that window, it's a couple years from now, but can you give us any thoughts on what you would expect to do to maybe ladder that, ladder it out more over the period that you still have available to manage that?

Yeah. Hey, Robert. It's Gerhard. Good morning. Thanks for the question. It's a good question. You know, we certainly feel good about our cost of capital today. Those unsecured debts, as you know, have kind of a low fixed coupon relative to when it would be today, so that's very attractive. We are not in a rush to refinance those notes immediately. As you saw from the 8K on our SPV facility and the prepared comments we made a few minutes ago, We are actively looking at our capital structure and taking advantage opportunistically of opportunities to kind of, you know, manage that and optimize the capital structure. But as you might imagine, we are in constant dialogue with the market and with our lenders. And so, you know, you should expect that we will take action on those notes as well in terms of maturity. And, you know, to comment about laddering, I think that does make a lot of sense. I don't think we necessarily like the idea of having, you know, a large bullet maturity on our unsecured debt. And so I think we like the idea of laddering that so you are, you know, in the market all the time and you are diversifying away that refinancing risk that you would have otherwise if you had a kind of a larger single maturity on your unsecured capital.

Got it. Thank you. I appreciate that. On the Henry's comments about the portfolio aggregate liquidity, 57% of all the capacities available, which it sounds very good. Are you seeing any shifts on the margin? Because obviously the aggregate, I'd expect the aggregate portfolio companies would be doing pretty well. But have there been any shifts at the margin? It doesn't look like it from your internal ratings, right? But anything that you're monitoring at 20 seconds, you're monitoring at an increased rate, given how relatively high rates have been for the prolonged period and the liquidity that has been consumed on the plus side for shareholders by those rates and higher costs of funding from portfolio companies.

yeah this is henry i can comment on that i would say that um you know there's certainly uh on the margins we're focused on is indicated by our watch list which represents just around 10 of our overall portfolio within the watch list i'd say that liquidity is as we see here today liquidity needs are really concentrated in less than a handful of portfolio companies that were or highly focused on. And, you know, these are companies where it's not necessarily just a rate issue. There's some operating performance near-term challenges that those companies are working through that, coupled with the higher fixed charges that are resulting from the current rate environment, are creating some needs for liquidity. I'd say that, you know, given that 99% of our portfolio is sponsored by us, We look to the sponsors to solve those liquidity needs to the extent that outside capital is needed. But to your comments, if you were to look at it on an aggregate basis, we're not seeing any heightened revolver utilization, which is something we track real time, given that we are typically the revolver lenders in these transactions as well. It's really going to be on the margins, as you said, and really a subset of our watch list.

I appreciate that, and you opened the sponsor door to the point of Jason's comments in the beginning as well. Sponsors from different parts of the market appear to be acting differently. Are you seeing those sponsors step up? I mean, certainly in some of the large mega deals, we have not, clearly. Are you seeing the sponsors continue to step up to provide the liquidity where needed in your segment of the market?

Yeah, the short answer is we absolutely are. And it really comes down to the assessment of the constituents within the capital structure of whether the issue that the company is facing is really a secular or a longer-term fundamental issue or something that's short-term that can be bridged with some amount of equity capital. I think we've certainly been fortunate within our portfolio, and I think this is really given our investment approach and our underwriting process to be in situations where any liquidity needs that we have seen in the situation that we have seen that have been really short-term needs in nature, and that's allowed the sponsor to be able to be comfortable putting in capital beneath us. in a position where they feel like they'll, you know, get a return on that capital, and also for us to credibly come to a view that that's all that's needed within that respective situation. So, I'd say that certainly in the situation where we've seen sponsors need to step up, we've seen them continue to do so.

Got it. Thank you. Appreciate the call.

We'll take our next question from Paul Johnson with KBW. Please go ahead.

Yeah, thanks. Good morning. Thanks for taking my questions. So I just wanted to ask a question on the PIC income statistic you gave, 4%. I'm just wondering if you can kind of talk to why that is so much lower than the average kind of BDC PIC. percent across the space um you know weighted average leverage of five and a half times you would expect in this environment that might be higher but um it's just simply because there's less of borrowers in the portfolio that have this option available or is you know less uh less being utilized at the moment but Thomas there would be um be helpful for

Yeah, hey Paul, it's Jason. Thanks for the question. Let me take a stab at that and Henry feel free to chime in if you've got additional thoughts. A little bit of this is speculation around, you know, maybe why we're lower than our peers. I can certainly comment on why we're low, which is we are and have been since inception very focused on earning cash at the top line since we're distributing cash at the bottom line. We have a high degree of sensitivity to pick toggle options, for instance, in deals at underwrite. I can't say that we don't do them, but we do them very selectively in terms of deals at underwrite that have a pick option. That probably falls in contrast to some of our peers who do more of that. ARR loans, for instance, oftentimes have a PIC feature because they don't necessarily generate profitability as they're investing in their business. And so ARR loans are not an area of focus for Crescent, really never have been. Secondarily, I would say the other way you find PIC in portfolios is when you've got amendment or workout activity. And I would say we certainly have some of those situations contained within our watch list. Oftentimes, as Henry mentioned, when sponsors are wanting to write a check to support a business, they're also looking for concessions from lenders. The top ask these days is cash interest burden relief in the form of PIC. So that's the other way that you would find PIC come into portfolios, and I would say We do our darndest on those types of situations to make sure that if we are picking, we are getting real value from ownership as well to compensate for that concession that we're making. And, you know, as you know, we try to be extremely selective in terms of the credits that we choose to put into our portfolios. So my hope is that over the long term, You won't see that as a material part of our portfolio at any time.

Yeah, the other thing I'll comment on there, Jason already touched on ARR loans, but during that 21, early 22 vintage, a lot of, or I shouldn't say a lot, but a steel structure that was fairly popular was a unique pick preferred structure. um where sponsors were looking to be able to stretch leverage without overburning from a cash interest perspective to be able to you know pay those top decile multiples that needed that were needed to prevail in auctions um that was something that i think especially the paper fur piece we just shied away from given our focus since the inception of ccap to stay away and minimize PIC income as much as we can on the front end. So that's, I think, certainly something that you'll see is a minority in our portfolio relative to some of the other peers that are out there. And I think the last point I'll make is that, you know, if you were to ask us two years ago, I think we would have certainly seen more PIC amendment asks than we've seen now. But the other side of the coin that I think has been a positive surprise is that the business fundamentals have just been quite strong. Revenue and EBITDA growth on an aggregate basis continued. We've seen both top line and bottom line growth across the book. And as a result, while certainly borrowers are contending with higher fixed charges, the numerator of that has grown to be able to address that. So that's been, I'd say, certainly a positive development that's helped ameliorate what we would have thought, you know, several quarters ago would have been a much more robust environment for PIC requests.

Thanks for that. That's great color. On the new activity, $119 million in the quarter, I know it looks like there was about six new deals in there. What was kind of the mix of just the repricing activity that you mentioned and then the new deals within that, as well as just kind of the pipeline overall?

Henry's pulling that up here. While he does, Paul, I think I can comment just broadly on the market. You know, we're certainly seeing a pickup in general activity. I think first half middle market loan volume was up 20% relative to the second half of last year, albeit most of it driven by refinancings. I think LBOs represented about a third of volume in the second quarter, so still lighter than where we want it to get to and we expect it to get to. That said, still a meaningful increase over Q1, I think a 70-plus percent increase over Q1 LBO activity.

Yeah, and to follow back up on the first part of your question, six new platforms totaling And then we had 13 add-ons. That was $33 million. And then the remainder were fundings on our existing unfunded commitments, DDTLs and revolvers. The new platforms that you referenced, those are new LBOs versus repricings.

Thanks for that. Last question, I was just wondering if you can give kind of an update on the performance of the Logan JV and where that's at. It looks like that was written down a little bit this quarter, but just a status update there would be helpful. Thanks.

Yeah, so the JV, just as a reminder, the largest investment in the JV is a middle market CLO. And as a result, you'll see that fair value kind of move on a quarter-to-quarter basis based on the mark-to-market of the underlying obligors within that CLO. In terms of the performance of the JEV as a whole, you know, we're very focused on assessing the distribution that we're receiving from that CLO and the loans within relative to our projections. And I'd say that they've been in line. since we've onboarded the asset. One thing to note with Logan JV is that that CLO that's in the JV, the reinvestment period is coming up. It's going to expire in August of next year, or sorry, not August, April of next year. So right now, the base case here, the thought around that is that once that reinvested period lapses, the portfolio will monetize here. But that's something that we're evaluating in real time as we kind of think about next steps with respect to that vehicle. But I'd say performance-wise, it's kind of been in line with the cash flow expectations that we've been expecting to receive from that vehicle.

Thank you very much. All for me.

Thanks, Paul.

And we will move next with Fenian Osheo with Wells Fargo. Please go ahead.

Hey, everyone. Good morning. I wanted to go back to the debt side discussion. It sounded like there'll be emphasis on or perhaps more of a ladder. Seeing what that might look like if we'll have even more and smaller pieces that would thereby presumably be more expensive or if you think that you'll be able to do this and keep that cost down or perhaps reduce them. Thank you.

Hey, Finn. This is Gerhard. Yes, it's a good question. We have three tranches of unsecured notes right now maturing in Feb, May, and July of 2026. We do not see – and those are all issued through the private placement channel. We're evaluating both private placement and DCM options, but we don't see dead costs necessarily tick up due to size. We'll make sure that we size those issuances appropriately to get best execution in the market. You know, I think the, you know, I think it is fair to say, you know, just given that those notes currently are priced at 4%, 5%, and 7.5%, that they'll probably price up a little bit given, you know, if you look at the spread environment today. But other than that kind of, you know, price-to-market effect that we expect, you know, we'll make sure we size those tranches appropriately.

And, Finn, thanks for the questions, Jason, too. I just wanted to add that I think as we continue to look at the market and we want to be very opportunistic about when we penetrate the market, but we will also be looking at swapping as well, just given the environment that ConsenSys seems to think we're in today.

Okay, that's helpful. And for a follow up, Jason, to your opening commentary on sticking with the lower middle market, to what extent do you see the larger players moving into that territory? And what's the sort of level of competition that that brings?

Yeah, thanks, Finn. I think, so we, everybody has their own definitions of middle market, but just for, as a reminder, we deem the lower mid market roughly 10 to about 35, $40 million of EBITDA, and then we call the core middle market, say, 40 to 150 or so. That's really, those are the two areas of focus for CCAP. I would say competition from folks who are generally going after the upper middle market has not been all that meaningful in the lower mid market. I think it's a different market focus. It's a different sponsor focus generally than the upper middle market players. In addition to that, you know, a lot of the upper middle market uh deal making is is really getting done because of the significant flows coming into the non-traded space on the retail side where managers are taking in monthly subscriptions and needing to put that capital to work immediately so it's it's certainly uh beneficial to to put um put larger put larger amounts of capital uh uh into each deal um in the core i would say it's you know we do see Some of the upper mid-market players dip down into the core at times, and these are folks that have been in the core middle market as well, so folks that we've partnered with before, we've competed with before. So there is some level activity from the folks that do the mega Unitron steals as well dipping down into the core at times.

Thanks so much.

Thank you.

We'll take our next question from Derek Hewitt with Bank of America. Please go ahead.

Good morning, everyone. Focusing on slide 13, what's driving that 71% of the portfolio as financial covenants? I would have expected the percentage to be a little bit higher, just given the focus on the lower and core middle market.

Sorry, Derek, you said slide 13. Can you repeat your question?

What's driving the 71% of the portfolio that has financial covenants? Just given the focus on the lower and core middle market, I would expect that number to be higher. Does that have to do with any sort of legacy investment from First Eagle or is there something else driving that number?

No, I think it's This is Henry speaking, Derek. It's really a function of the segmentation of the two different markets. When you think about how we define lower middle market, which is 35 million of EBITDA and below, all of those deals, or I should say virtually all of those deals, are going to have at least one maintenance covenant. In the core middle market, keep in mind how we define that. That's a much larger band. That's 35 to 200 million of EBITDA. When you get to the upper end of that size spectrum, you do see situations where you do not have a maintenance covenant. So as a result, that's why you're seeing that mix. It's a function of the two different markets where we focus. I do think that one thing that we always do like to point out here is that This is, I'd say, almost a direct inverse of what you're kind of seeing in the upper middle market with respect to covenants, probably more so nowadays. But that's really a function of just how wide that band is in terms of company size when you think about the core middle market and what you'll see on the larger issuer side of that spectrum.

We're also, I would just add to that, agree with everything Henry said. I would just say that even in the core, Derek, when we talk don't necessarily have maintenance covenants. We are still highly focused on the documentation and having protections in place to the fullest extent that we can negotiate around things like baskets and asset dispositions and the like. So while this is representative of true financial covenants, that doesn't mean that Then in the governmental market, our documents look like, you know, look like broadly syndicated loan documents.

Yeah, and I think that's an important point because there certainly can be a tendency to oversell the protection you get with maintenance covenants. You know, we've seen in certain situations maintenance covenants are quite wide relative to having some real teeth to them. And we covered this during a segment within our analyst today presentation, but the key here is really the document as a whole and our ability to ensure that our collateral stays within our credit box and that we're limiting leakage of our collateral to the extent that a situation may go sideways in order to operate and perform it. So I think this is one barometer, and we really use this to kind of indicate that our deals are not really just a variation or a variant of what you're seeing in the broadly syndicated loan market. But if you were to kind of dig beneath that, you'll really see that even in deals that are covelight, the documentation is not indicative or does not resemble that of what you would see in a upper middle market broadly syndicated loan type construct.

TAB, Mark McIntyre:" Okay, thank you for that and then circling back to pick I realized that tickets well below. TAB, Mark McIntyre:" Industry peers, but how would you characterize it was was the pick that you have was that structured into the original deals or over that result of amendments.

Yeah, this is Henry. I can respond to that. I'd say the majority of that PIC income is going to be related to it was available at origination. So it's I mentioned in my comments to an earlier question here that the volume of PIC amendments that we've seen has actually been quite a bit wider than we would have initially guessed several quarters ago. So the majority, which you'll see there, is going to be related to investments that have a PIC component at origination. And that will really be more so for investments that are second lien or unsecured, which represent a minority of our portfolio.

Thank you.

Thanks, Derek. Thank you. And this will conclude our Q&A session as well as our conference call. Thank you for your participation and you may disconnect at any time.