Bain Capital Specialty Finance, Inc.

Greetings and welcome to the Bain Capital Specialty Finance second quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sloan Bolin, Investor Relations. Please go ahead.

Good morning. Last night we issued our second quarter earnings press release and investor presentation, copies of which are available on Bain Capital Specialty Finance Investor Relations website. Following our remarks today, we will hold a question and answer session for analysts and investors. This call is being webcast and a replay will be available on our website. This call and the webcast are property of Bain Capital Specialty Finance and any unauthorized broadcast in any form is strictly prohibited. Any forward-looking statements made today do not guarantee future performance, and actual results may differ materially. These statements are based on current management expectations, which include risks and uncertainties, which are identified in the risk factors section of our annual report in Form 10-K. That could cause actual results to differ materially from those indicated. Bain Capital Specialty Finance assumes no obligation to update any forward-looking statements at this time, unless required to do so by law. Lastly, past performance does not guarantee future results. And with that, I'll turn the call over to our President and Chief Executive Officer, Michael Ewald.

Good morning, and thank you for joining us for our second quarter 2019 earnings call. As Sloan mentioned, this is Michael Ewald, and today I'm joined by our Vice President and Treasurer, Mike Boyle, and our Chief Financial Officer, Sally Dornis. I'm going to start with a brief overview of the quarter that both Mike and Sally will further detail in a minute. At the end of the second quarter, the BCSF portfolio represented $2.4 billion invested across 30 different industries and 123 portfolio companies, with a current weighted average yield of 8.0%. Excluding the impact of the ABCS balance sheet consolidation, for the quarter we originated $403 million of new investments. Year-to-date, our new originations total $679 million. As of June 30th, approximately 88% of our portfolio is invested in what we refer to as first dollar risk and is made up of traditional first lien loans. Credit in our portfolio remains very strong and there remain zero non-accruals in our portfolio, a hallmark of our cautious approach to current market conditions. We're also pleased to announce that our board declared a third quarter dividend of 41 cents per share. That dividend will be payable on October 30th, 2019 to stockholders of record on September 30th, 2019. I'd now like to spend some time speaking to how our portfolio composition has changed since we've brought the investments in our interiors joint venture, ABCS, onto the fund's balance sheet. First, it's important to again highlight the rationale for executing on the consolidation. Consolidating the assets and liabilities of our interest in the JV onto our balance sheet removes our equity interest in ABCS from the 30% non-qualifying basket of our assets, a threshold that has limited our investment activity in the past, and places these qualifying assets onto our balance sheet. Our non-qualifying assets went from 25.8% of the portfolio at March 31st to 10.6% at June 30th. Freeing up this capacity allows us the ability to grow other investment opportunities that would fall into the 30% bucket. In particular, we intend to continue to invest in deals sourced by our European and Australian offices, improving the geographic diversity of the portfolio, and we may continue to expand into other strategic partnerships within the direct lending realm. Both of these initiatives within this basket, we believe, will provide attractive risk-adjusted returns for investors. Second, Bain Capital Specialty Finance has exempted relief from the SEC, allowing us to invest alongside other funds and other accounts managed by Bain Capital Credit. Following the consolidation of our interest in the JV, other Bain Capital Credit funds and accounts will be able to invest alongside each other. Given the success of the program, $1 billion in total investments since inception, in our view of where we see attractive risk-adjusted return, we believe the ability to speak for larger hold sizes, prior to consolidating the joint venture, we could speak for loans of up to $350 million, will allow us to lead some bigger deals while still influencing terms and economics. Finally, this transaction is fee neutral for our shareholders. We have and will continue to waive management fees on the incremental assets acquired in conjunction with the ABCS JV consolidation throughout 2019. Importantly, we remain very active alongside Antares in sourcing, structuring, diligencing, and closing Unitronge investments together, and our pipeline for additional deals remains very active. I would also like to note that the ABCS balance sheet consolidation has also impacted our leverage profile. The portfolio at quarter end comprised a ratio of 1.49 times debt to equity. Despite being at the upper end of our previously stated 1 to 1.5 times range, we are comfortable with our current positioning. First, though we harbor some concerns about economic cycle risk broadly, we have focused the fund on first dollar risk and defensible industries, specifically the types of investments which warrant relatively higher leverage. Second, we have confidence in our underwriting process, which has constructed a portfolio with zero non-accruals to date. an investment horizon that spans almost three years. Finally, we have confidence in our and Bain Capital Credit's broader experience and track record in the middle market, including managing our investments through multiple market cycles. Furthermore, we don't believe that being at the upper end of our range will hinder future performance of the fund. Given our relatively young portfolio, we have historically not experienced much churn. However, that churn has picked up noticeably over the last few quarters. Given our robust origination capability, We have not seen any quarter of overall portfolio contraction since our inception and intend to continue that track record. In fact, churn often allows us to accelerate some fee income in the form of original issue discount, or OID, which we have not yet amortized. And replacement origination allows us to initiate additional such fee income in the first place. Both actions are therefore accretive to shareholders. Before I turn the call over to Sally and Mike to go through our financial results and investment activity, let me comment briefly on the market environment for direct lending. We have seen similar trends as other market participants and observers, such as Refinitiv. Overall market, middle market new issuance was up quarter over quarter, but 2019 second quarter still lagged in volume versus 2018s. Despite this relatively muted activity level, we saw favorable lender-friendly trends in pricing, leverage, and other terms. For example, the spread of our newly originated deals are, on average, 75 basis points higher than that of our exited portfolio companies. Over 80% of our new investment activity in the quarter was in the form of new leveraged buyout activity rather than recapitalizations, which often happen at a lower spread, or dividend transactions, meaning that they featured a significant amount of cash equity contributed behind us in the capital structure. We've also seen a continued uptick in the popularity of Unitranche financings, which bodes well for our ABCS product, especially in light of the ability to write larger checks after the consolidation of the JV onto our balance sheet. Sally will now provide a more detailed financial review.

Thank you, Mike, and good morning, everyone. Before highlighting our second quarter results, I would like to provide everyone a summary of the ABCS transaction that occurred during the second quarter. As previously announced, on April 30th, we completed the ABCS transaction, where the company received our proportionate share of all ABCS assets, which represented 44.7% of ABCS. The distribution of assets comprised of 25 senior secured Unitranche loans with a fair value of $919 million and cash of $3.2 million. The company also entered into a new facility agreement with J.P. Morgan where we incurred $577.5 million of J.P. Morgan debt. The transaction resulted in a net increase in investments of $572.5 million. In connection with the transaction, we recorded $4.9 million in dividend income for the month of April, and for the remaining two months of the quarter, revenue generated from the ABCS investments is recognized as interest income on our consolidated statement of operations. With that, I would like to discuss our overall second quarter 2019 results. Our net investment income was $21.2 million, or $0.41 per share, for the second quarter of 2019. which was consistent with the first quarter of 2019 of net investment income of $21.2 million or 41 cents per share. Our gap earnings per share for the three months ended June 30th, 2019 was 37 cents per share compared to 76 cents per share for the three months ended March 31st, 2019. The quarter over quarter decrease was due to net unrealized depreciation of $8.4 million offset by net realized gains of $6.4 million. Total expenses for the quarter net of waivers increased $10.8 million to approximately $29.4 million in the second quarter compared to $18.6 million in the first quarter. Our expenses increased primarily due to the first full quarter of interest and fee expense related to our city credit facility, two months of interest and fee expense associated with the JP Morgan credit facility, which was effective April 30th, and an increase in management and incentive fees net of waivers. For the three months ended June 30, 2019, our management and incentive fee net of waivers was $6.4 million and $4.5 million, respectively, compared to a management fee and incentive fee net of waivers of $4.5 million and $2.1 million for the three months ended March 31, 2019. As Mike mentioned in his opening remarks, our advisor voluntarily waived its right to receive a base management fee and the incremental assets associated with the ABCS transaction. For the second quarter, the impact of that voluntary waiver was $900,000. In addition, our advisor also voluntarily waived an additional $700,000 related to management fee. We believe this additional waiver aligns with the interests of our shareholders and demonstrates our commitment to a stable dividend. Moving over to our balance sheet, As of June 30th, our investment portfolio at fair value totaled $2.4 billion, an increase of 33% quarter over quarter, primarily due to the incremental assets of the ABCS transaction. The weighted average portfolio yield was 8% compared to the weighted average yield excluding ABCS in the first quarter of 7.8%. Excluding the impact of ABCS, we had total fundings for the quarter of $403 million, and sales and pay downs of $378 million for net portfolio growth of $25 million. Moving to the right side of the balance sheet, total net assets were $1 billion as of June 30, 2019. NAV per share was $19.77 compared to 1981 in the first quarter. The slight decrease was due to the net unrealized losses during the period. As of June 30, we had total principal debt outstanding of $1.5 billion, comprised of our Goldman Sachs, Citibank, and J.P. Morgan facilities, along with our 2018-1 notes. Our debt-to-equity ratio, inclusive of trade payables, was 1.49 times, which is an increase from the first quarter of 0.92 times due to the onboarding of the J.P. Morgan credit facility as a result of the ABCS transaction. Finally, we are pleased to announce that our Board declared a third-quarter dividend of $0.41 per share. The third quarter dividend is payable on October 30th, 2019 to stockholders of record on September 30th, 2019. I appreciate your time and attention. I will now turn the call over to Mike Boyle, our Vice President and Treasurer, to walk through our investment portfolio and some recent investments in more detail.

Thanks, and good morning, everyone. I'll kick it off with an update on the credit quality of our portfolio and also provide more detail on our originations this quarter. As of June 30th, the fair value of our investment portfolio was $2.4 billion, diversified between 123 portfolio companies operating in 30 different industries. 99% of the fair value of these investments is performing in line or ahead of our underwriting case, split between our performance ratings of 1 and 2. We are pleased to report that we have had no non-accrual since the inception of BCSF in 2016 and have no non-accruals in the portfolio as of the end of the second quarter. Our investments are primarily comprised of first lien senior secured loans, which represent 87% of the portfolio. The weighted average yield of these investments is 8%, which we believe offers attractive risk return given our focus on the first dollar of risk in capital structures. The median EBITDA of the companies in our portfolio is $57 million, with the median leverage level of 4.8 times. 84% of our investments contain financial maintenance covenants. Recently, we have been favoring more defensive sectors as we construct our investment portfolio, including high-tech, healthcare, and aerospace and defense. We believe that the sum product of these variables creates a portfolio that is well-positioned to withstand any future market volatility. 98.5% of our investments are floating rate. This is matched with the 100% floating rate liability structure, which was put in place to mitigate the impact of interest rate fluctuations on our profitability. Shifting now to second quarter originations, we invested approximately $403 million, including 14 new portfolio companies. During the same period, we had approximately $378 million of repayments and sales. This gross origination pace demonstrates our continued view that there are attractive investment opportunities in lending to sponsor-backed middle market businesses with EBITDA between $10 and $150 million. The quantum of paydowns and sales in the portfolio in the quarter is reflective of a now-mature portfolio operating in a healthy credit market. On average, over our 20-year history investing in the middle market, our investments have tended towards a weighted average life between two and three years, and we believe the churn in the portfolio this quarter is more consistent with what we would expect to see going forward versus prior quarters. We have a global sourcing effort focused on finding investment ideas for BCSF. 10% of our current portfolio is invested in European jurisdictions currently, and approximately 25% of our second quarter originations were sourced internationally. Access to attractive direct lending deal flow sourced outside of the U.S. is an important component driving value at BCSF. To highlight a specific international investment made in the quarter, I will point to a first lien loan investment in Radiology, a German-based operator of radiology and radiotherapy clinics at a yield of Euribor plus 575. Given our macro views stemming from experience in outpatient healthcare systems and our micro views on the consolidation opportunity in German radiology, we structured a senior secured deal for the sponsor, which we believe is well insulated in a downturn while also providing some flexibility for the business to continue to pursue its acquisition strategy. This investment in radiology represents a 1.0% position in our portfolio. Two of our 14 deals or approximately 20% of originations in the quarter were sourced through an ongoing partnership we have within Terry's Capital, focused on providing Unitronch loans to sponsor-backed middle market companies. As Mike Ewald mentioned in his earlier remarks, we continue to think Unitronch assets are amongst the most attractive new investments we are originating in the portfolio today. And we are excited about the ability to continue to scale our exposure as a result of the incremental flexibility afforded by the consolidation of the joint venture structure. Lastly, I'll highlight a second origination from the quarter, this time sourced by our U.S. team. Aerocom is a Tier 1 manufacturer of heating and cooling components for aircraft and helicopters. The company demonstrates many of the attributes we look for in the aerospace and defense industry, including having strong supplier power stemming from its entrenched position on long-lived aerospace platforms with high switching costs. Given our longstanding presence and deep expertise in aerospace and defense, coupled with our ability to provide a full capital stack solution, Bain Capital Credit was uniquely positioned to provide the financing package. We structured a first lien loan priced at LIBOR plus 650, as well as a preferred equity security in our aircromb investment, which represents a combined 1.5% position in our portfolio. Looking forward, our pipeline for the third quarter has continued to be full, demonstrating our ability to utilize the Bain Capital platform to find attractive investment opportunities in middle market lending across the globe. With that, I'll turn the call back over to Mike for closing remarks.

Thanks, Mike. Before we conclude the call with questions, I would like to welcome our two new independent board members, Amy Butte and Claire Richer. Both Amy and Claire are distinguished professionals with extensive knowledge of financial services businesses as well as board roles. Their experience and expertise will provide us valuable insight as we continue to grow the platform. To conclude, we had another solid quarter executing on our core middle market investment strategy and remain very well positioned to continue driving shareholder value. Our investment and portfolio construction decisions remain well informed by the experience of the many investment and operating professionals at Bain Capital Credit who have navigated multiple market cycles. As always, I would like to thank our investors for their continued support, and we look forward to seeing you at conferences and in meetings during the fall. I'd also like to thank all of you for your time today. Operator, please open the line for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please limit yourself to one question and one follow-up. Our first question comes from Doug Harder with Credit Suisse. Please go ahead.

Hi, guys. This is actually Sam Cho. I'm for Doug. Thank you for the color on investing in defensible industries, namely those in aerospace and defense. I mean, we've seen recent escalation in the trade war between U.S. and China, and we've also seen it globally between Korea and Japan. I was just wondering, because I'm seeing some exposure in transportation, cargo, if there are certain areas in your portfolio that could potentially have credit issues. I know you don't have any non-accruals, but just wondering if there are areas you're constantly monitoring.

Sure. Good question there. It's certainly something that takes up a fair amount of our investment committee deliberations these days in terms of what any given company's exposure might be to global trade wars in general, but certainly China tariffs are very front of mind right now. In general, most of the middle market companies with which we deal tend to be fairly domestic oriented, either domestic to the U.S. or domestic to their respective countries overseas. There are certainly situations more on the manufacturing side where we can see some components coming in from Chinese suppliers. What we're seeing there is people are being pretty active in terms of trying to find alternative countries from which to source those components. And generally speaking, those components don't make up a particularly large part of the cost bar overall for those manufacturing companies. So while it's certainly something that we're looking at We haven't seen either in the past nor going forward a whole lot of impact to our particular portfolio companies.

Great. That's helpful. And then my second question was, you guys mentioned last quarter with the onboarding of the ABCS, we would see some fee waivers, and we did. I guess I was just thinking we were kind of expecting a little bit higher on that, and So just want to color on how you're thinking about management fees and kind of being shareholder-friendly and managing that. Just color on that would be great.

Sure. You know, and look, maybe we take a step back here and just kind of think about our high-level plan because I think that will address how we think about waivers as well. As we've started BCSF, and obviously we're now several years into it, our goal really – I suppose it is really threefold. One is we want to curate an attractive portfolio of assets, which means highest credit quality. I think we've certainly done that. Of appropriately weighted risk return assets, so taking into account company, industry, macro factors, and then do that all with an efficient capital structure, i.e. cheap, flexible, and as long-dated as possible. So, you know, in today's environment, both from a competitive BDC perspective and also from the perspective of other income yielding assets, we think an 8% plus dividend yield on book value is certainly compelling. Currently, we're obviously waiving some fees, management and or incentive, depending on the quarter to get there. Albeit sequentially, it's certainly less quarter on quarter in terms of what we needed to waive to get there. And certainly past performance is not a guarantee of future results, as Sloan indicated in his opening remarks. But, you know, there's certainly a pattern there of us waiving fees to get to the point where we're generating that dividend that we think is attractive. Now, our goal overall is to generate, call it a 9% plus yield on our assets. We're obviously at 8% today to avoid the need for waivers long term. I can't tell you whether that's next quarter or two quarters, three quarters from now, but that's certainly what our goal is. And we believe we have a path to get there without sacrificing any of the hallmarks I mentioned earlier. And both on the asset and the liability side, there's a few different things that we're working on. And clearly, when we have something announced, we obviously will. But if nothing else, we hope that we've exhibited methodical, prudent, and consistent behavior over the past several quarters as a public company, but even as a private BDC prior to that. So overall, our goal here is to generate an attractive return in the extent that It requires some fee waivers. We've shown in the past that we're happy to do that.

Great. Thank you so much.

Our next question comes from Ryan Lynch with KBW. Please go ahead.

Good morning. Thanks for taking my questions. Kind of following up on the question regarding fee waivers and the dividend and the earnings potential. But if I look at your portfolio today, it's 99% floating rate assets. You have zero non-accruals. And then you also have some fee waivers with the collapse in the Ontario's JV onto your balance sheet. That's all occurred this quarter. You guys put up $0.41. The dividend's $0.41. So it seems that earnings right now today are just in line with the dividend with fee waivers. and doesn't really take into account any sort of items that could go wrong and potentially impact earnings as far as non-accruals or the direction that LIBORs move. So just wanted to know, get some more color, I guess, on, you know, how you plan on increasing earnings potentially to that, you said, kind of that 9% operating ROE or your commitment to, to sort of formalize and commit to waiving fees necessary to support the dividend going forward?

Sure.

So I think as Mike highlighted on the last answer, we are focused on continuing to increase the yield in the portfolio. Right now it's at 8%, but we are targeting 9% plus. And our new originations in the quarter, move us in that direction. The exited investments were 75 basis points lower in spread than the new investments we made over the quarter. So we do feel we're continuing to invest prudently, but be able to add some incremental yield to the portfolio. And as we think about fee waivers, we did reduce the fee waivers in Q2 relative to Q1, and we think that we'll continue to evaluate waiving those fees when it comes to supporting the dividend, whether it's for any sort of non-accrual or LIBOR changes. We do think there is flexibility while we can still support that $0.41 dividend.

Okay. And then my follow-up question this quarter, it looked like when your slides had the portfolio companies this quarter drop down to 123 from 133 in the prior quarter. So I was just kind of surprised to see the number of portfolio companies owned go down by 10 when we saw significant growth in the actual overall portfolios. Can you just talk about that dynamic there and why that occurred?

Sure. So we have been exiting some lower spread investments, and some of those investments come with some liquidity. And so about half of the sales and repayments over the quarter were us selling loans into the secondary market. And many of those loans were smaller positions or more diversified positions in the portfolio. So that's why the investment count came down. We do think that between 100 and 125 companies is likely to be our targeted range as we think about the overall portfolio construction. So this 123 for this quarter we think is likely to be in line with expectations going forward from an investment count perspective. We do still think there's material diversification with that investment count. And so we are, you know, we do still believe that benefit of diversification still exists similarly as it did last quarter.

Okay. Thank you for taking my questions. Sure.

Our next question comes from Chris York with JMP Securities. Please go ahead.

Good morning, guys, and thanks for taking my questions. So the questions on the dividend have largely been asked, and that will get much more color on whether the dividend is sustainable. But the question to you this morning is on origination of new investments. So what was the yield on non-qualified assets in the quarter? And then what is the yield spread of non-qualified assets on the balance sheet today versus qualified assets?

Sure. So right now, I would say there isn't a meaningful differential between the yield of qualifying versus non-qualifying assets, given the mix of first lien securities is quite comparable in the 10% European non-qualifying assets relative to those assets that are qualifying currently. So the new assets that we originated had a yield of or LIBOR plus about 560 in the quarter. The assets that we originated, if we just isolate the assets in the non-qualifying basket, it was about LIBOR plus 550. So it was in line with the overall origination pace. We do think, as Mike highlighted earlier, that there is some potential for us to increase the yield of the overall portfolio with strategic partnerships that are non-qualifying. but that's something that we'll play through over coming quarters.

Got it. So if that spread differential is actually 10 basis points tighter in non-qualified assets today, what should we expect maybe from a modeling purpose going forward in that spread differential as that seems to be a focus for some of your

interest income growth? Sure.

So in terms of going forward, I mean, we're not going to give specific guidance on what yield profile will look like in the non-qualifying basket. But to the extent we do see some strategic partnership opportunities, we think those overall yields could be north of 10%. And so as we see those potentially come online and think about modeling going forward, there is some component of that basket that we think will generate 10% plus yield.

Great. If I could just ask one accounting question. How much of the dividend from control portfolio companies in the quarter was either one time or a return of capital as it just seems the 5.1% is a little bit higher than what I would have expected for the month of April and your proportionate share of the ownership.

Could you repeat just the beginning of your question? I got the tail end of it, but not the beginning of it.

Yeah, so the $5.1 million of control portfolio dividend income seems to be a little bit higher than what I would have modeled.

Yeah, okay. So part of that was just one month of ABCS. So as you remember, that transaction went through on April 30th, so we had a month there where it was still treated as in the old structure. And so that one month of it was ABCS, so that was like $4.8 million, and the rest of it is related to an investment we have that is a controlled affiliate. Okay. So none of it was a return of capital. That was the second part of your question.

Got it. Okay. So that 4.8 just relative to the previous quarter was just higher on a monthly basis, which is fine. I was just curious. Thank you. Got it. Thank you.

Our next question comes from Finian O'Shea with Wells Fargo Security. Please go ahead.

Hi, guys. Good morning. First question, just going through the portfolio slides. observing the Antares collapse impact, one of the charts that stands out was the control percentage. I thought that would have gone up more. Is this maybe understated, given that Antares has a large portion of these loans, too? Or are these more broadly held, having thought that yours and Ontario's control would have been pretty universal in that portfolio.

Yeah, thanks, Finn. For the effective loan voting control bar chart, which I'm guessing you're referring to, the use of effective there was meant to indicate that that was always a excuse me, on a look through basis. So it included us having effective voting control on the ABCS assets where the unit tranche, the ABCS unit tranche was the only security as well.

Okay, thanks for the color. And then does the advisor to the BDC or the now consolidated joint venture retain any upfront economics prior to allocation?

No.

So one more follow-up, if I may. What typical level of upfront fee do you receive? And can you remind us, do you account for this entirely as OID, or do you have some interpretation of an in-between where, you know, some is booked as fee income and some is a yield enhancement OID?

We generally try to keep it simple, and the vast majority, if not all of our investments, any upfront fees are structured as OID, which makes it obviously very transparent, and that all flows through onto the fund's balance sheet directly, so shareholders benefit from that. There's no seasoning or selling or anything else like that that takes place where something's skimmed. If there are situations where there might be a structuring fee, an origination fee, or something that for whatever reason, is put into place at the get-go, all those fees also flow through the income statement of the fund. So all those benefits accrue to the shareholder. We, the advisor, get paid through the management fee and the incentive fee, and that's really it.

Sure. And just on the – thank you for the color. And just on the level, again, do you – is it typically about a point?

Oh, yeah. Sorry about that. Yeah, it's typically about two points. You know, it can range, I'd say, probably from one to like three, but it's typically around two points. So we typically be buying our securities at around 98 cents on the dollar.

Got it. Thanks for taking my question. Sure.

Our next question comes from Aaron Siganovich with Citi. Please go ahead.

Thanks. You'd mentioned that, you know, given the size and seasoning of the portfolio, you expect the kind of churn to increase. How much of that do you have control over, though, I guess is the area that I'd be curious about. Usually with most of these kind of direct originated, you don't generally have control. The sponsor does. So how do you deal with knowing, you know, what's coming through to you each quarter?

Yeah, and thanks for the question, Aaron. It is the sponsor who will have control of these exits. And so when we are in a healthy credit market and these businesses are growing, we do tend to see an average churn in the portfolio, given the way that average life is two to three years So it is really the sponsors that do have that control and we're in a position to react when a sponsor is looking to refinance or exit a capital structure. In this last quarter, I did mention we did have about half of that exit activity was through sales in the secondary market. So there are times when we can sometimes sell on to the market. But The portion of the portfolio where there is that type of liquidity is quite low, given where we sit today.

Okay. Thank you.

There are no further questions. I would like to turn the floor over to Mike Ewald for closing comments.

Great. Well, thanks, everyone, for your time and attention and questions today. We, again, are very happy with the performance of the fund in the second quarter, and we'll look forward to reporting out next quarter's results in about three months or so. Thanks very much.

This concludes today's conference. Thank you for your participation.