MidCap Financial Investment Corporation

Good morning and welcome to the earnings conference call for the period ended March 31, 2025 for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode. The call will be open for a question and answer session following the speaker's prepared remarks. If you would like to ask a question at that time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press the star 2. I will now turn the call over to Elizabeth Beeson, Investor Relations Manager for MidCap Financial Investment Corporation.

Thank you, operator, and thank you everyone for joining us today. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President, and Greg Hunt, Chief Financial Officer. Howard Widra, Executive Chairman, is on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of MidCap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosures in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit either the SEC's website at .sec.gov or our website at .midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as the MFIC or the BDC and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer.

Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MFIC's first quarter earnings conference call. I'll begin today's call by providing an overview of MFIC's first quarter results and sharing our perspective on the current volatile and evolving market environment. I'll then turn the call over to Ted who will discuss our investment activity and provide an update on the investment portfolio including some comments on the impact of tariffs. Greg will then review our financial results and capital position in more detail. Yesterday after market closed, we reported solid first quarter results including a healthy level of earnings and strong portfolio growth with net investment income of 37 cents for the March quarter which corresponds to an annualized return on equity or ROE of 9.8%. Gap net income per share was 32 cents for the quarter which corresponds to an annualized return on equity or ROE of 8.7%. Nav for share was $14.93 at the end of March down five cents or approximately 30 basis points. Nav for share benefited by approximately one cent from stock repurchases below Nav made during the quarter. We continue to observe stable credit quality trends in our portfolio. During the quarter, we saw sequential improvements in several credit metrics including a decline in investments on non-accrual status, a decline in PIC income, and a decline in the weighted average leverage of our borrowers. MFIC has built a well-diversified portfolio of true first-lean floating rate direct corporate loans invested in less cyclical industries with granular position sizes. At the end of March, 99% of our direct origination portfolio was first-lean and our average direct lending position was approximately 13.1 million or .5% of the total direct lending portfolio. These figures are at fair value. We believe the current uncertain and evolving environment will showcase the advantages of MFIC's portfolio construction and the strength of mid-cap financials underwriting. That said, the current uncertainty stemming from the trade tariffs could pose challenges for some of our portfolio companies, although we expect these potential challenges to be relatively limited, as Ted will discuss later. We continue to be active in our investing and have continued to make progress deploying the capital from the mergers that closed last July. During the March quarter, MFIC made $376 million of new commitments. While we did observe some spread compression relative to last quarter's commitments, we also saw a slight decline in the net leverage of new commitments, resulting in an attractive spread per unit of leverage. We also continued to sell certain assets acquired in connection with the mergers that do not align with our strategy and prudently deployed the proceeds along with the investment capacity generated from the mergers into first-lean floating rate middle market loans originated by mid-cap financials. At the end of March, the non-direct origination assets onboarded from the mergers represented just 2 percent of the total portfolio fair value. While sourcing assets is generally considered to be among the biggest challenges for many market participants in this market environment, MFIC benefits from access to assets sourced by mid-cap financials, one of the largest and most experienced lenders in the middle market and which is consistently ranked near or at the top of league tables. Our affiliation with mid-cap financial provides a significant deal sourcing advantage for MFIC. We are fortunate to have access to the necessary origination to deploy this capital given the significant volume of commitments originated by mid-cap financial. During the March quarter, mid-cap financial closed approximately 6.5 billion of commitments, which is particularly noteworthy given the overall muted sponsor M&A activity in the market. Mid-cap financial has what we believe to be one of the largest direct lending teams in the U.S. with close to 200 investment professionals. Mid-cap financial is founded in 2009 and has a long track record, which includes closing on over 136 billion of lending commitments since 2013. This origination track record provides us with a vast data set of middle market company financial information across all industries that we believe. This makes mid-cap financial one of the most informed and experienced middle market lenders in the market. Key members of mid-cap financial's management team have been working together for more than resulting in strong collaboration and an enhanced ability to navigate challenging market conditions leading to improved credit quality and risk management. We believe the core middle market offers attractive opportunities across cycles and does not compete directly with either the broadly syndicated market or the high-yield market. Moving to Merck's, at the end of March, MFIC's investment in Merck's totaled approximately $185 million, representing 5.8 percent of the total portfolio at fair value. I'd like to provide an update on Merck's Russia fleet insurance claims. As a reminder, at the time of Russia's invasion of Ukraine in February 2022 and the imposition of sanctions, Merck's own portfolio included four aircraft on lease to two Russian airlines. Those aircraft are held in aircraft securitization known as MAPS 2019. In compliance with EU sanctions imposed on Russia due to the invasion, Merck's terminated the leases of those aircraft, but three were not returned and have remained in Russia since then. Merck's has brought legal action in the English courts seeking payment for those aircraft under both the lessee reinsurance policies and its own contingent policy. As mentioned on last quarter's call, we settled a portion of our contingent insurance claims with certain insurers during the first quarter. We recently reached a settlement with another insurer bringing Merck's total proceeds to $16.5 million so far. We are currently waiting for final judgment for our remaining claims which we expect to be made in the very near future. As mentioned on last quarter's call, Merck's has made substantial progress on multiple sales campaigns covering a majority of the remaining aircraft on its balance sheet. We look forward to providing further updates on the process as purchase agreements are finalized in the very near future. The blended yield across our total investment in Merck's was approximately 3.2 percent at fair value. And the continued rotation of capital from Merck's into directly originated corporate loans should have a beneficial impact on MFIC's income. Assuming we are successful with our sales campaign, we expect MFIC's exposure to Merck's to decline in the coming quarters. Now let me discuss current market conditions. Market conditions in the first quarter started on a relatively strong note as forward interest rates were expected to be lower but stable and the economic backdrop was solid. As the quarter progressed, we saw conditions deteriorate amid federal government layoffs, increasing tariff concerns and their potential negative effects on business fundamentals and economic growth. Although the trade tariffs were largely expected, their size and scope were far greater than anticipated. Following the U.S.-China tariff truce that was announced yesterday, the probability of a U.S. recession in 2025 has decreased. Lower tariffs are positive for the economy and markets but there are other headwinds to U.S. economic growth. The key issue for markets is to monitor the speed with which confidence is restored among consumers, corporates and foreigners. While markets may recover quickly from this episode, we believe it will take some time before confidence is restored among consumers and corporates. Amid ongoing volatility and uncertainty driven by the trade war and increasing fears of a recession, new activity has been fairly light as M&A activity remains slow. Due to the heightened economic uncertainty following the tariff announcements, there has been a lack of investor demand in the syndicated loan market and banks have become more cautious when launching new syndication transactions. Secondary loan and bond markets have experienced increased volatility and widening spreads. We believe this uncertainty in the public debt markets creates the type of environment that causes borrowers to seek solutions in the private market. On one hand, we believe direct lenders are particularly well poised to benefit in this type of environment as the syndicated loan market has become less certain and accessible for certain borrowers. On the other hand, we believe the trade war induced uncertainty may further delay the long-awaited anticipated increase in M&A activity. Depending on the timing and outcome of the tariff policies, it may continue to be a slow year for LDOs, M&A and IPOs, which would negatively impact sponsor activity. That said, the mounting pressure on financial sponsors to return capital to investors could drive some activity. We believe the core middle market where we are focused does not compete directly with either the broadly syndicated loan market or the high-yield bond market. Additionally, even with the slowdown in the M&A activity, we see that many of our borrowers continue to have add-on financing needs. Now turning to our dividend, on May 7, 2025, our board declared a quarterly dividend of 38 cents per share for shareholders of record as of June 10, 2025, payable on June 26, 2025. With that, I will now turn the

call over to Ted. Thank you, Tanner. Good morning, everyone. I'm going to spend a few minutes reviewing our first quarter investment activity and then provide some details on our investment portfolio, including some comments on the analysis we've done with respect to tariff-related risks. In the March quarter, we continued to prudently deploy the capital acquired from the mergers into assets with what we believe to be strong credit attributes. As mentioned, MFIC's new commitments in the March quarter totaled $376 million, with a total of 113 basis points across 33 different companies. Although we observed the decline in spreads on new commitments compared to the previous quarter, we also observed a slight decline in the net leverage on new commitments. The weighted average net leverage on new commitments was 4.2 times in the March quarter, down from 4.3 times in the prior quarter. Our fee structure, which is one of the lowest among listed BDCs, allows us to produce attractive ROEs even at current spreads. For the March quarter, gross fundings totaled $357 million, excluding revolvers. Sales and repayments, excluding revolvers, totaled $192 million, including $44 million of liquid assets acquired from the mergers. Net revolver fundings were approximately $3 million. In total, net fundings for the quarter were $170 million. Given commitments closed so far in the June quarter and our robust pipeline for mid-cap financial, we expect fundings for the June quarter to be strong. Turning to our investment portfolio, at the end of March, our portfolio had a fair value of $3.19 billion and was invested in 240 companies across 49 different industries. Please note, we have transitioned our industry classification from the Moody's industry system to the Global Industry Classification System, or GICS, beginning this quarter. Direct origination and other represented 92 percent of the total portfolio, up from 90 percent last quarter. This quarterly increase is the result of growth in the portfolio from fundings of mid-cap financial source loans and from the sale of non-direct origination positions from the mergers. At the end of March, the non-directly originated loans acquired from the closed-end funds, which included high-yield bonds, broadly syndicated loans, and structured credit positions, totaled $73 million, representing just 2 percent of the portfolio. Lastly, Merck's accounted for 5.8 percent of the total portfolio. All of these figures are on a fair value basis. Specific to the direct origination portfolio, at the end of March, 99 percent was first leans and 92 percent was backed by a financial sponsor, both on a fair value basis. Approximately 97 percent had one or more financial covenants on a cost basis. Covenant quality is a key point of differentiation for the upper middle market, as substantially all of our deals have at least one covenant compared to larger deals, which are generally without covenants. The average funded position was $13.1 million. The median EBITDA was approximately $46 million. The weighted average yield at cost of our direct origination portfolio was 10.7 percent on average for the March quarter, down from 11 percent for the December quarter. The decline in the yield was primarily due to the decline in base rates. At the end of March, the weighted average spread on the directly originated corporate lending portfolio was 569 basis points, down 9 basis points compared to the end of December. During periods of elevated volatility and uncertainty, we look at the potential impact on our existing portfolio companies. As it relates to the recently announced U.S. tariffs, we've done a comprehensive review on MFIC's portfolio to evaluate their direct impact on our borrowers. As Tanner mentioned, MFIC has been focused on building a well-diversified portfolio of true first-lean floating rate direct corporate loans invested in less cyclical industries. We primarily lend to U.S.-focused service-oriented businesses, or underweight businesses that are heavily dependent on imports and exports. At the end of March, MFIC's top three industry exposures, excluding Merck's, were software, healthcare providers and services, and financial services. MidCap Financial leads and serves as administrative agent on the vast majority of the MFIC's direct lending deals, which allows us to be in active dialogue with our borrowers and have enhanced information flow, which is particularly valuable during these uncertain periods. Being agent allows us to detect and address any issues early. At the end of March, MidCap Financial or Apollo is the agent on 72 percent of MFIC's direct lending portfolio at cost and at fair value. We believe the first-order impact of the tariffs to our portfolio is limited. We've defined the first-order impact as businesses which have labor or source products from outside the U.S. We've categorized our direct lending portfolio into four categories based on what we believe to be the severity of the tariffs. No impact, minimal impact, medium impact, and meaningful impact. We've enhanced our monitoring of companies which we have identified as having a meaningful impact. Of course, there could be second-order impact from an economic slowdown or a recession, which is more challenging to quantify. We've supplemented our underwriting process in response to tariffs. Our underwriting process has always included a downside scenario, such as a mild recession. As Tanner mentioned, we continue to observe relatively stable credit quality trends in our portfolio. We continue to believe that we have constructed a senior portfolio built for today's economic uncertainty. We are not observing any signs of general credit weakness. Our portfolio companies continue to show good financial performance as evidenced by a modest improvement in revenue growth with continued positive EBITDA growth. We saw an improvement in net leverage or debt to EBITDA of our borrowers. The weighted average net leverage was 5.25 times at the end of March, down from 5.5 times at the end of December due to lower leverage on new assets and an improvement on certain existing assets. At the end of March, the weighted average interest coverage was 2.1 times flat compared to last quarter. This statistic is based on financial information as of the end of December 2024 and therefore does not reflect the benefit of lower base rates that occurred in the March quarter. We believe the stable level of revolver utilization we are seeing from our portfolio companies is an additional sign of portfolio health. At the end of March, the percentage of our leverage lending revolver commitments that were drawn did not change materially from the prior quarter. We believe a steady revolver utilization rate is an indicator of greater financial stability. The number and dollar amount of investments on non-accrual status decreased on both a cost and fair value basis compared to the previous quarter. No new positions were placed on non-accrual status this quarter. Our position in international cruise and excursion was restored to accrual status following a restructuring that occurred in the December quarter. Additionally, we received a pay down above fair value on a position acquired via the mergers, which exceeded our mark at the accrual status where .9% of the portfolio at fair value down from .3% last quarter. After quarter end, we received information about the ongoing restructuring of the new era of technologies business, which will be reflected in our June results. MFIC's PIC income declined to .5% of total investment income down from .7% last quarter as a few borrowers switched to cash from PIC during the quarter. Our level of PIC remains well below the average of BDC peers. That said, we recognize that it makes sense to allow borrowers to elect PIC in certain circumstances. Our underwriting on mid cap financial source loans is proven to be sound. Based on data since mid 2016, which is the approximate date upon which we began utilizing our co-investment order, our annualized net realized and unrealized loss rate is around five basis points on loan source by mid cap financial. We think this performance data shows how well the strategy is performed. With that, I will now turn the call over to Greg to discuss our financial results in detail. Thank you, Ted,

and good morning, everyone. Starting with our operating results, total investment income for the March quarter was approximately 78.7 million, down 3.5 million or .2% compared to the prior quarter. This decline was primarily due to lower fee and prepayment income as well as a decline in asset yield due to the impact of lower base rates on income, partially offset by the growth in the size of the portfolio. Fee income and prepayment income for the March quarter totaled $950,000, down from 2.3 million last quarter. Dividend income was approximately $250,000, essentially flat quarter over quarter. As a reminder, there's a lag effect between changes in base rates and their impact to interest income depending on the rate of interest. In December and March quarters, three months SOFR declined by approximately 28 basis points and two basis points respectively, while one month SOFR declined by 52 basis points and one basis point respectively. MFIC's investments are linked to both one month and three months SOFR rates with a grade proportion tied to three months SOFR. In short, the decline in base rates during December quarter was a contributor to the decline in interest income recorded in the March quarter. The average yield at cost on our direct originated portfolio was .7% on average for the March quarter, down from 11% last quarter, largely due to lower base rates. Net expenses for the quarter were $44.4 million, down from $45.1 million last quarter. This decline was driven by lower management fees, interest expenses, and GNA expenses, partially offset by a higher incentive fee. Interest expense benefited from the same base rate decline mentioned earlier, partially offset by a higher average debt balance, as well as the impact of the CLO, which closed during the quarter. As mentioned in the past quarter's call, in late January, MFIC priced a $529 million CLO, which closed on February 24th. We sold through the single-A tranche, adding approximately $399 million of relatively low-cost secured debt at a blended spread of 161 basis points. The proceeds from the CLO were effectively used to repay MFIC's $350 million, .25% unsecured notes that matured on March 3rd, 2025. At today's base rates, the cost of the CLO is slightly higher than the fixed rate debt it effectively replaced. Other GNA expenses totaled $1.2 million for the quarter, down from $1.7 million in the previous quarter. During the March quarter, we received a reimbursement from Merck's for certain expenses that MFIC previously incurred on Merck's behalf, which was recorded as a contra expense. We expect other GNA to average around $1.6 million per quarter going forward. This is in addition to administrative expenses, which are around $1 million per quarter. MFIC's incentive fee rate is .5% and is subject to a total return with a 12-quarter look back. Given the total return hurdle feature and the net loss incurred during the look back period, MFIC's incentive fee for the March quarter was $6.4 million for .8% of pre-incentive fee net investment income. For the quarter, the net income per share was 32 cents. These results correspond to an annualized return on equity based net investment income of .8% and an annualized return based on net income of 8.7%. Results for the quarter include a net loss of approximately $4 million or 5 cents per share. The net loss was primarily driven by a few concentrated positions that were already on accrual status. We ended the quarter with net leverage of 1.31 times, up from 1.1, six times last quarter. Our funding activity was weighted toward the second half of the quarter. Average leverage for the March quarter was approximately 1.2 times. During the March quarter, we continued to make progress deploying the capital acquired from MFIC's merger with the average at 1.4 times. Gross and net funding for the quarter were $357 million and $170 million, respectively. At the end of March, our portfolio had a fair value of $3.19 billion. We had total principal debt outstanding of $1.9 billion, total net assets of $1.39 billion for a NAV of $14.93 per share. Lastly, during the March quarter, we repurchased approximately 477,000 shares at a weighted average price of $12.75 for a total cost of $6.1 million. These buybacks had a creative impact on NAV per share of approximately $1.7. This concludes our prepared remarks. Operator, please open the call to questions.

Thank you. At this time, if you would like to ask a question, please press the star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. We'll take our first question from Mark Hughes with Truist. Please go ahead.

Yeah, thank you very much. Good morning. Morning. The funding is in two queue. I think you said they're strong so far. Kind of interesting to hear, given the cautious commentary from you and others around the overall backdrop. Could you talk a little bit more about that, where you're seeing opportunity, what's driving that, and then any comment on the spread trajectory here in two queue so far relative to one queue?

Yeah, sure. Thanks, Mark. What we say oftentimes about many aspects of our business is that there's a lag. We had a very strong deployment in queue one, the 376 million of new commits we made. The strength that we've seen in the quarter to day period reflects that level of activity that, frankly, was in many cases commenced before the end of the year or early in the year, to some of the April volatility. It really is more just a function of that which was already in the quarter. What we've seen, and this is how we square the seemingly contradictory results, as you alluded to, is that there's reason to believe that there's less auctions to be launched in the back half of the year or even in the back half of the second quarter. You should start to see that show up. Again, the relatively strong activity that we've seen is really just a holdover from that which commenced earlier this year. In terms of spreads, our queue one spreads declined to 513 down from queue four. We've definitely seen some stabilization more recently in where we're indicating and where our peers are indicating. Then from here, it's that tension with the technical mark, acknowledging that there's a lot of capital for private transactions out there, as well as also it's likely to be a muted M&A environment, creating fewer credit creation opportunities. Thus, notwithstanding some volatility, it'll be the interplay of those. We would expect some reprieve from that which we saw in queue one or some widening, but not materially more just stabilization and less deals getting done in the fours in the broader market.

Very good. Then could you talk about the dividend relative to NII, the sustainability, how you think that will ... the underlying trend versus the current dividend as the year progresses and you're obviously making a lot of updates, changes in the portfolio. What about sustainability?

Yeah, sure. As we alluded to, the activity that we had in the quarter was back half weighted as well as also we were operating below our leverage level. Then furthermore, many of the aspects of our earnings profile are stable, but the prepayment income in a given quarter can ebb and flow and we were relatively light in this quarter. We also mentioned in our prepared remarks about the level of earnings that we're taking from our Merck's investment, which is .8% and is only 3.2%. The combination of those gives us a lot of comfort in our ability to increase earnings and with the caveat, particularly as it relates to prepayment fees, that will ebb and flow. You're very comfortable in our earnings power and how we've slated our capital plan.

Very good. Thank you.

Thank you. As a reminder, ladies and gentlemen, it is star one for a question. Let's take our next question from Kenneth Lee with RBC Capital Markets. Please go ahead.

Hey, good morning. Thanks for taking my question. Just on originations, given the muted outlook for M&A activity there, could you just remind us again the extent of MFIC's dependence on M&A activity for new originations? Let's look for potential add-ons and other activity from incumbents. Thanks.

This is Howard. Across MidCat, it is not completely reliant at all on M&A activity. First of all, there is an existing portfolio that continues to grow and there's opportunities there and we saw that this quarter and we'll continue to see it in future quarters. That also carries on to some of the reduced M&A activity is being replaced by continuation funds, which is also sort of like a captive business, which comes out of a portfolio and enables MFIC to sort of step into transactions they weren't in before. There's some other products as well. Certainly, more M&A activity drives more volume, but even in the first quarter, there was not huge volume in the market and there were $6.5 billion of originations at MidCat, which we saw sort of work its way through at MFIC. The answer is, and we said this before, I think if we were a $20 billion BDC, it would be impactful for the amount of assets that MFIC is able to select of what MidCat originates. It's not impactful.

Gotcha. Very helpful there. One follow-up, if I may, just in terms of the dividend coverage there, could you remind us again of the latest estimate for spillover income and then perhaps just remind us again what's the overall policy and thoughts around usage of that?

Thanks. Yeah, we, when it comes to spillover income, we have minimal spillover income at this point. We provided our shareholders with a dividend following the closed-end funds and Mercksta will create, it does create at some points, additional spillover income and we'll evaluate that as we continue to reduce that position and move forward.

Gotcha. Very helpful there. Thanks again.

Thank you. Next we'll take our question from Healy Seth with Reem and James. Please go ahead.

Hi. Good morning. Thanks for the question. So in your conversations with private equity sponsors and just looking at the current pipeline, what's your sense for M&A recovery and the timeline there? Do you guys feel like it's more 2025 back-end loaded or going into 2026?

Yeah, sure. I think it's going to be path-dependent and I think it's very easy to look and survey the sponsor community landscape right now and it's very hard, the calculus is very hard to launch an acquisition right now and that's what we're seeing. As Howard alluded to, notwithstanding, we take comfort in MFIC's position as a relatively small balance sheet amongst a bigger ecosystem and having opportunities for follow-ons within our existing portfolio companies. When we look out and it's hard to project specifically whether it's going to be Q4 or 2025 or 2026, we and our peers often point to, which is objective and demonstrable, the significant level of private equity dry powder as well as also a real pressure to return capital to LPs as, again, difficult to predict when it will come but it needs to come to return capital and or deploy that capital that's already been raised. Furthermore, we have a lot of dynamics here in the U.S. that notwithstanding currently perhaps sidelined or amidst some volatility but there's a lot to point to significant capital expenditures and infrastructure spending over the next several years that also will give rise to significant credit opportunities for ourselves and other similarly situated private capital lenders in the market.

Guys, that's helpful and a quick follow-up with your new investments this quarter. Can you provide any sort of breakout for how many were incumbent borrowers versus new borrowers?

Yeah, sure. So we did 33 new deals, 19 of which were to new companies and 14 of which were to existing companies.

Perfect. Thank you. We'll take our next question from Melissa Weedle with JPMorgan. Please go ahead.

Good morning. Thanks for taking my questions. Following on your comments about the activity levels through to date, sort of second quarter, does it stand to reason that pre-payment income accelerated OID might remain on the lower end in the near term? I'm curious if you're seeing slower repayment activity like we've heard from a lot of teams. If I did miss your comments on that, I apologize. Thank you.

Hi, Melissa. Yeah, I think consistent with what you're hearing across the industry from our peers, we do expect that given the lack of M&A, that's going to result in fewer pre-payments and that's going to result in lower fees.

Okay. Appreciate that clarification. As a follow-up, I appreciate the commentary you've offered about limited direct tariff exposure in the portfolio. On a different but kind of related note, have you assessed the exposure in the portfolio from any government contracts or anything susceptible to lower revenues or reimbursements from Doge cuts or healthcare spending cuts?

It's always part of our underwriting. We have limited, as a general matter, for years and years, we've limited our exposure to government payments because of stroke of hand risk. Obviously, it's even more volatile now, but we just don't have that much of it. Even our healthcare names are not directly reimbursed by the government and direct government contractors. I don't know if we have any. I don't think we have any. So always look to get all of those things, but those are sort of underwriting risks regardless of the administration. It's just this one's more on-tethered.

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

Thanks. Good morning. Thanks for taking my questions. Sorry if I missed it, but I was just wondering what the sort of underlying meaningful exposure to given call accounts is for any sort of the tariff countries or anything of all of your higher risk tariff classification, kind of what that is roughly within the portfolio?

So Paul, single digits. I think, like we said in our prepared remarks, we have the benefits by statute. We need to focus on U.S. companies in the middle market. It's far less likely to have real diverse supply chains on top of the fact that you were overindexed to those sectors that are more service-related, less capital-intensive. I hope we tried to strike this balance within in the portfolio. That number is more important, but as we think about our underwriting, I think the market has as well. Notwithstanding, we're not looking at those very, very intently and looking at that single digits part of our portfolio watching it very closely, but we're really focused on the second-order effect. We mentioned confidence on the part of both corporates and consumers and really looking at that second-order effect as being the primary driver for credit performance from here and really occupying the lion's share of our time as we assess the effects of the current environment on our current portfolio.

God, I appreciate that. And then just on amendment activity, anything note there in terms of just trends, frequency, how many amendments you were transferring

were

in

the portfolio? Amendments were relatively flat quarter over quarter, and in particular, some of the more involved amendments where you're talking about covenant violations or you're dealing with pick or forbearance or those types of things. That particular segment was flat over quarter over quarter.

I'd make another comment, Paul. This is the second time I'm going to bring up lag on this call. Recall, we're reporting March financials and the underlying companies of the amendments that we would otherwise or the performance that we would be assessing within this quarter is Q4 by and large. We get monthlies on certain of our borrowers, but the lion's share is quarterly and certainly the tests, our covenant tests, which is a predictor of amendment activity, is from Q4 performance. And so obviously a different market. So hard to draw too many conclusions from that number, and we weren't surprised to see that that was flat in the quarter.

Thanks again. Appreciate that. And then just on repurchases going forward, you know, congrats on the purchases in the quarter, but leverage kind of around one four times. Stocks still trading a little bit low or below the repurchase price during the first quarter. How are you kind of thinking about that with the deployment of capital and where the

stock trades today? Well, we hope that question will be irrelevant after this call is over. Uh, but the chance is not. I mean, we say we always assess the use, you know, the use of our capital based on sort of the discount in that versus like other choices. And obviously, you know, other choices when we're at our at our full leverage includes effectively paying down debt and redeploying. So it becomes a higher bogey to buy back shares, but it's always like part of what the incremental investment would be buying back shares when it makes sense. You know, but it's it's it's, you know, and I've said this before in a lot of calls, you know, the the the window of buying is not it's not, you know, that many that many trading days during the during the quarter. And so, you know, sometimes when like tracking and people looking how much we're buying back, we're limited by the amount we can buy each day, you know, when we can buy and limited in how many days we can buy. So that also impacts whether we buy back shares in that, you know, is the timing at a time when the stock's trading at a level we want and our capital opportunities otherwise fit with it.

Thank you. It's all for me.

Thank you. And as a reminder, ladies and gentlemen, it is star one for a question. We'll pause for a moment. At this time, we have no further questions. I'll return the call over to management for closing remarks.

Thank you, operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us if you have any other questions. Please have a good day.

Thank you. And this does conclude today's program. We thank you for your participation. You may disconnect at any time.