Carlyle Credit Income Fund

Good day and thank you for standing by. Welcome to the Carlyle Credit Income Fund fourth quarter 2024 financial results and investor conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jane Tsai, Investor Relations for CCIF. Please go ahead.

Good morning and welcome to Carlyle Credit Income Fund's fourth quarter 2024 earnings call. With me on the call today is Lauren Beth Majan, CCIF Chief Executive Officer, Nishal Mehta, CCIF Portfolio Manager, and Nelson Joseph, CCIF Chief Financial Officer. Last night, we issued our Q4 financial statements and a corresponding press release and earnings presentation discussing our results. which are available in the investor relations section of our website. Following our remarks today, we will hold a question and answer session for analysts and institutional investors. This call is being webcast and a replay will be available on our website. Any forward-looking statements made today do not guarantee future performance and any undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the risk factor section of our annual report on the form NCSR. These risks and uncertainties could cause actual results to differ materially from those indicated. Carlisle Credit Income Fund assumes no obligation to update any forward-looking statements at any time. With that, I'll turn the call over to Lauren.

Thanks, Jane. Good morning, everyone, and thank you for joining CCIS Quarterly Earnings Call. I would like to start by reviewing the fund's activities over the last quarter. We maintained our monthly dividend at $0.105 per share, or 15.2% annualized. based on the share price as of November 19th, 2024, which is now declared through February of 2025. The monthly dividend is supported by four net investment income of 45 cents per share and 70 cents of recurring cash flows during the quarter. We completed a private placement of five-year, seven and an eighth percent convertible preferred shares due 2029. Six months after issuance, the holders have the option to convert the preferred shares into common stock at the greater of NAV or the average closing price of the five previous trading dates. We issued 1.4 million of our common shares through a registered direct placement at a price above the fund's NAV. Total net proceeds from these two offerings were approximately $22.2 million. These offerings are in addition to 6.8 million of common shares issued through the ATM program. New CLO investments during the quarter totaled $39.6 million with a weighted average gap yield of 16.5%. The aggregate portfolio weighted average gap yield was 18.6% as of September 30th. Heading into the current market environment, I'd like to discuss what we've observed in both the loan and CLO equity markets over the quarter. The CLO market continues to experience strong issuance activity, supported by tightening spreads and a stable backdrop for credit. Third quarter CLO new issuance totaled $39 billion, representing a 42% increase year over year. Refinancing and reset volumes totaled $21 billion and $72 billion in the third quarter. CLO resets and refinancings are up 10 times year over year, mainly driven by the tightening of CLO liabilities. which allows SEALs to cut their borrowing costs. Resets and refinancings have been largely absent from our market during 2022 and 2023, since financing spreads were at historical highs. So there's an element of catch-up in our market today. Within CCIF's portfolio, we continue to work with CLO managers and have completed seven resets year-to-date through September, extending the reinvestment period and cash flows of these CLOs. Despite the increase in CLO reset activity, 33% of the CLO market is still out of its reinvestment period. The CCIS portfolio only has two positions outside their reinvestment period, both of which were opportunistic purchases. In September, the Federal Reserve reacted to a more normalized inflation environment and a weaker labor market by cutting rates by 50 basis points, marking its first reduction since 2020. CLO equity is modeled using a forward curve for base rates, so today's current yields take into account expectations for future rate cuts. Cash on cash returns could decline slightly if rates move lower, though borrower health should improve due to lower interest expense, which should help the credit quality of the underlying portfolios. U.S. loan borrowers demonstrated strong performance throughout the quarter. Interestingly, in-court and out-of-court bankruptcies continue to diverge. While the LSA LTM default rate of 80 basis points remains less than half of its 20-year average, the default rates inclusive of distressed exchanges remains high at 3.7%. We believe that out-of-court bankruptcies will continue to be the predominant form of default given the degradation of loan documentation. That said, recoveries for out-of-court processes have thus far been higher than recoveries in Chapter 11. The 600 plus borrowers in Carlyle's U.S. loan portfolio have generally continued to focus on free cash flow generation. We are still in the midst of third quarter earnings, but in the second quarter, borrower EBITDA growth of 9% outpaced revenue growth of 5%. At this point, we're seeing similar trends in the third quarter. Additionally, Interest coverage increased quarter over quarter to 3.3 times and is approaching the historical average of 3.9 times. Only 3% of borrowers had an interest coverage ratio of less than one time, suggesting that borrowers are navigating the higher interest rate environment well. Third quarter institutional gross loan issuance increased 61% year over year as borrowers continue to manage their respective cost of debt through repricing activity. On average, borrowers reduced spread by 50 basis points with each repricing, resulting in an overall spread decline of 20 basis points in the loan market. The spread compression is in line with what we've seen in other fixed income markets. While loan prices experienced a decline in August related to volatility in the broader markets, they rebounded to remain in line quarter over quarter, with third quarter ending at 96.71. As we approach 2025, we remain constructive on the outlook for the broadly syndicated loan and CLO asset classes. Key factors such as a resilient U.S. economy, moderating inflation, and the normalization of monetary policy support an outlook for sales growth, EBITDA growth, and reduced interest expense for our borrowers. I will now hand the call over to Nishal Mehta, our portfolio manager, to discuss our deployment and the current portfolio.

Thank you, Lauren. We continue to leverage Carlyle's longstanding presence in the CELO market as one of the world's largest CELO managers and a 15-year track record of investing in third-party CELOs to manage a diversified portfolio of CELO equity investments. As of September 30th, our portfolio comprised of 49 unique CELO investments managed by 27 different collateral managers. We continue to source the majority of our investments in the secondary market and selectively invested in primary markets to take advantage of spread compression and supportive CLO arbitrage. We continue to target recent vintages of Tier 1 and Tier 2 managers with ample time remaining in the reinvestment period in the secondary market. Given the sustained stability and low market fundamentals, we believe the CLO market will continue to experience strong issuance. We continue to leverage Carlyle's 14-step CLO investment process and the credit expertise of the Carlyle Liquid Credit team. Today, we have 23 U.S. and 10 European credit research analysts to complete bottoms-up fund mill analysis on their underlying loan portfolios of CLOs. As Lauren mentioned, the CLO equity market was impacted by the record repricing wave, which has reduced the average spread of CCIF's portfolio by 10 basis points over the quarter and 26 basis points year-to-date, causing CCIF's gap yield to decline. The following represents some key stats on the portfolio as of September 30th. The portfolio generates a gap yield of 18.63% on a cost basis supported by cash-on-cash yields of 27.91% on CLO investment quarterly payments received during the quarter. The weighted average years left in reinvestment period increased approximately two and a half years, providing CLO managers the opportunity to capitalize on periods of volatility to improve portfolios or reposition them. We believe the weighted average junior over-collarization cushion of 4.33% is a healthy cushion to offset defaults and losses in the underlying loan portfolios. The weighted average spread of the underlying portfolios was 3.46%. The percentage of loans rated CCC by S&P was 5.9%, below the 7.5% CCC limit in CLOs. As a reminder, once a CLO has more than 7.5% of its portfolio rated CCC, the excess over 7.5% is marked at the lower of fair market value or rating agency recovery rates and reduces the over-qualization cushion. And the percentage of loans trading below $80 declined from 4.2% to 3.2%. I will now turn it over to Nelson, our CFO, to discuss the financial results.

Thank you, Nishal. Today I will begin with a review of our fourth quarter earnings. Total investment income for the fourth quarter was $7.9 million or $0.55 per share compared to $7.4 million or $0.58 per share in the prior quarter. Total expenses for the quarter were $3.7 million compared to $3.4 million in the prior quarter. Total net investment income for the fourth quarter was $4.2 million or $0.30 per share compared to $4 million or $0.32 per share in the prior quarter. Core net investment income for the fourth quarter was $0.45 per share. Core net investment income is recurring cash flows minus expenses, and we believe a more accurate prediction of the fund's future distribution requirements. Net asset value as of September 30th was $7.64 per share compared to $7.68 per share in the prior quarter. Our net asset value evaluations are based on a bid size mark we received from third party on 100% of the CLL portfolio. We continue to hold one legacy real estate asset in the portfolio. The fair market value of the loan is 2.2 million. The third party we engage to sell our position continues to work through the sales process. During the fourth quarter, we sold 850,000 of our common shares in connection with the ATM offering program at a premium to NAV proceeds of 6.8 million. Additionally, we issued 1.4 million common shares in a private placement offering. The overall common share issuance for the quarter resulted and net creation over a net asset value of $0.04 per share. The cash-on-cash yield of 27.91% on CLO investment quarterly payments resulted in $0.70 of recurring cash flow. The quarterly cash payments received in October totaled $11 million, or approximately $0.72 per share, compared to $4.5 million of dividends paid in the quarter, or $0.31.5 per share. On the topic of distributions, I now want to spend a few minutes to talk about our 2024 full fiscal year distributions and related tax designation for our shareholders. For the fiscal year ended September 30, 2024, the fund had $15.6 million in distributions to shareholders, of which $15.2 million was designated as return on capital, primarily due to a one-time timing mismatch between when CLOs issued their tax reporting requirements and the fund's fiscal year end. According to our tax counts, this is a common issue in the first year of a fund that invests in CLO equity. The underlying CLO equity investment tax reporting statements, commonly referred to as PFIC statements, are reported annually and are typically received on an eight-month lag. Per guidelines established by the IRS, taxable income for CCIF only includes taxable income for CLOs that issue the annual PFIC statements during CCIF's fiscal year. For CCIF, this means The fund only includes taxable income from CLOs that issue their PFIC statements between October 1, 2023 and September 30, 2024. For investments purchased by CCIF between January 1 and September 30, 2024, CCIF does not yet have any PFIC reporting available, and therefore, we assume zero taxable income for these investments for fiscal year 2024 per our IRS guidelines. Taxable income for these investments will be incorporated into our fiscal year 2025 financial statements after we receive the PFIC statements in 2025. As a result, for the 2024 fiscal year, CCIF is only able to recognize taxable income for investments purchased in calendar year 2023. This covers less than a six-month period since Carlisle took over as the investment advisor of the fund in July 2023. Furthermore, the fund was ramping and initial cash available and the average hold period for our COO investments in calendar year 2023 was limited. While a portion of our dividends paid in fiscal year 2024 will be recognized as return on capital, CCIS Core NII in fiscal year 2024 was $1.64, well in excess of our $1.23 amount of distributions paid. We believe Core NII is a more accurate prediction of the fund's distribution requirements. Due to the nature of our underlying investments, the percentage of return of capital is likely to vary year over year. With that, I'll turn it back to Lauren.

Thanks, Nelson. We continue to believe that CCIF is well positioned to provide investors with an attractive dividend yield and total return. In addition to incorporating our market and manager views, we remain focused on analyzing the underlying collateral in each CLO equity position that we own in order to deliver strong risk-adjusted returns for our investors. I'd now like to hand the call over to the operator to take your questions.

As a reminder, if you'd like to ask a question at this time, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Miki Schleyen. with Leidenberg. Mickey, your line is now open.

Yes, good morning, everyone. Can you hear me?

Hey, Mickey. How are you?

Good. How are you, initial? I want to start out by asking a high-level question. You know, we think about this year overall, the backdrop's been pretty constructive in terms of the loan market and underlying borrower performance. But CLO equity has been relatively weak. And I want to understand, you know, to what do you attribute the weakness in the CLO equity market valuations, which has caused you to report unrealized portfolio depreciation every quarter? And it looks like that continued into October.

Yeah, I think it's initial. So I'll take that question. So when I think about CLO returns, there's obviously two components of CLO returns. One is the cash on cash, and then two is the change in valuations. On a cash on cash basis, 2024 actually has been a very strong year. I think the highest cash on cash returns since 2016. I think based on a par basis, I think cash on cash yields were in the mid to high teens. So it's actually been a very good year for CELA equity in that aspect. Conversely, you have seen some decline in CLO valuations. That's mainly a function of the fact that, as Laura mentioned, about a third to almost a half of the loan market has seen repricings where the borrowers are cutting spreads by about 50 basis points. The overall market's seen about 20 to 25 base points of overall decline in the rate average spread. From a valuation standpoint, that is factored into the future cash flows and the valuations that our third-party agent provides. And so that's resulted in the decline in NAV. So a strong year when it comes to the cash on cash. Obviously, it could be a better year when it comes to the valuations on CELA equity.

So initially, if I understand correctly, and if I can paraphrase, Spreads on the asset side are declining faster than spreads on the liability side. But do you think that can revert down the road as CLO managers continue to refinance or reset their liabilities?

Yeah, so the one way to offset the decline we have spread is to do the refinancing and resets. And so far in 2024, it's been a record year for the overall market. For CCI specifically, we've completed about seven refinancings and resets. So it's something that we're always focused on and looking to optimize the portfolio and extend the reinvestment period. The one thing I would mention is when a CLO is typically refinanced or reset, you typically have a two-year non-call period. So you can only do it every two years or so. Whereas on the loan side, and we're already seeing this, the typical non-call period is only six months. And so we're already seeing borrowers come back to the market twice this year to reprice their loans. So it's something that we are trying to combat with refinancing and resets. And it's been incredibly helpful that COO debt spreads are close to all-time tights. And that's been hugely beneficial, but it hasn't been enough to offset the repricings.

I understand. Nisha, when I looked at your average estimated yield on your new investments this quarter, they were down meaningfully versus the previous quarter. Is that due to the spread tightening you've talked about on the loans, or did you go up market in terms of tier and maybe are taking less risk, or was there something else going on? Can you help us understand that?

Yeah, sure. You mentioned a couple of factors. I think there's three main drivers of that. One, when we ramped this portfolio initially, mainly in the second half of last year, it was still a fairly volatile period. So we were able to take advantage of that and purchase investments in the secondary market at discounted prices, which resulted in an elevated gap yield. So obviously, those discounted prices are no longer available in the market today, just given the tightening we've seen. When you've seen the decline in whatever spreads across the market, that also impacts new investments as well. And then three, we are, I think, going higher quality. If you think about just the overall fixed-income markets, they're trading near all-time tights. Investment-grade bonds on a spread basis are trading at the tightest level since, I think, 97 or 98. High-yield bonds are trading at the tightest level since pre-financial crisis. We don't think today is the right time to be stretching for risk. And so we're definitely looking to add more defensive positions, which will have a lower gap yield.

I understand. Nishal, I also noticed that your recurring cash flows per share declined versus the previous quarter. Can you help us understand that? And I think you mentioned the October cash flows in the prepared remarks, but I didn't have a chance to write it down. You know, what is the implications for the fourth calendar quarter?

Yeah, so I think we mentioned we had 70 cents of recurring cash flow per share for the third quarter. And then the fourth quarter, which really reflects the payments and the quarterly payments in October, it actually increased to about 72 cents per share. And so there is some seasonality when it comes to the cash flows because COOs have limited exposure to high yield bonds, which typically pay on a semi-annual basis. And then just back to the repricings, as low market continues to reprice, that results in slightly lower cash on cash yields as well.

Yeah, that seems consistent with what I'm hearing across the space. And my last question, I think Lauren mentioned the out-of-court restructurings, and they are elevated and creating these sort of unsustainable capital structures for some companies. And from my perspective, that just effectively kicks the can down the road. I'm just curious how you see those transactions impacting the market in the future as as we'll have to contend with that at some point. And how are CLO managers dealing with that risk in terms of their portfolios?

Yeah, I think of it as a major paradigm shift for the loan market and the CLO market, almost like when loans went from having covenants to not having covenants. I think going forward, we're going to be living in an environment where these out-of-court Distressed exchanges or liability management exercises are the dominant way that companies are going to deal with over-levered capital structures. And so what does it do? I think it creates more volatility for stressed loans because there's a lot more uncertainty of outcomes when you're doing an out-of-court process versus an in-court process. You could see the same manager recover a very different amount on a loan than, let's say, a larger manager, meaning I think larger managers will have an advantage with size to be able to recover higher out of court, and I think it disadvantages small managers. So when we talk to some of our managers, we're seeing a trend where smaller managers are trying to exit distressed investments early so they don't have to get to the point where they would be disadvantaged. And when you have that type of selling, that creates volatility.

Sorry, Meg. I would add to that. What's really helpful for CCIF is being part of the larger Carlyle platform. Given Carlyle today is either the largest or second largest COO manager globally, And we have a six-person workout group. And whenever we are in a loan that is stressed or distressed, that team is typically on the steering committee, driving kind of the results of a lot of these restructurings and distressed exchanges. So we get incredibly helpful insight on what is going on in the overall market, just trends we're seeing in terms of distressed exchanges, which has been incredibly helpful when just looking at the overall market and market trends when it comes to defaults and distressed exchanges.

That's really helpful for us to understand and appreciate your comments there. Those are all my questions. I thank you for taking the time. Thanks. Thank you.

Our next question comes from the line of Matthew Howlett with B Reilly.

Hi, Nisha. Hi, Lauren. Thanks for taking my question. First, on just the quarter, it was a busy quarter of capital raising. If I look at 30-cent NII, I mean, was there a drag? I mean, was there some – can you quantify any type of drag that might have coincided with the raising and the deployment? In other words, if all the capital raises on day one of the quarter with the NII had been higher? Just curious if there was some sort of implied drag.

Yeah, good morning, Matt. It's good to hear from you, so I'll take that question initially. So you're right. We did have an active quarter when it came to fundraising between the ATM, the direct common stock offering, and the convertible preferred. So there was some drag associated with that. But I think on a go-forward basis, obviously, we can't provide projections. But the $0.30 NII, I don't think we're expecting that to increase materially in forward quarters just from the lack of drag.

Well, the core is weight covering the dividend, but, I mean, is that, I guess, enough striking distance to the common dividend where it doesn't really matter given the cash flows? I guess that's – and that leads me to the second question. I mean, you've got the ATM, you have this direct issuance, and you have this convertible preferred that you did. When you look at – are you going to use all kind of three channels here? I mean, what can you talk about raising capital here in the next few quarters? What does it look like? What channel – Um, do you want to use, and then I have a follow up on that convertible.

Yeah, look, obviously it's, it's completely market dependent, but our goal here is, um, really the, the, the fund we still think is somewhat subscale. Um, and you see that and the liquidity of the stock and the overall trading volume. And so our goal is to, to grow, uh, the fund, um, which we think would make it better for, for investors. And so. We are going to look at all avenues and how we can efficiently leverage the fund, but also more importantly, accretively raise common stock, which increases NAV as well. I think we'll continue to be active when it comes to capital markets activity. The ATM is something that I think we'll continue to utilize. if we'll be able to issue incremental convertible preferreds or direct kind of stock offerings.

Well, the ATM is currently highly accretive. On that convertible preferred, I mean, just go over the terms again. I mean, you can call it, but people can exercise it after six months, but can you force conversion on it if the stock price is at a certain level? Just go over the terms again. It looks like it's really attractive if you get that converted out. It obviously increases your equity base. You can add more deferred. Just walk over the terms again of that. That's interesting, that deal.

Yeah, and so, like I would say, I think the expectation is the holders will want to convert at some point. Right. But I think what makes it attractive for us is even if it's not converted, the coupon on the five-year convert will prefer it as 7.125%. That's materially lower than the initial preferred that we completed last November. So even if they do not convert, we think it's a very efficient way to leverage the fund. Now, some key terms are the fund has the option to redeem after a six-month period at par, but the holders after a six-month period also have the option to convert into common shares. And that would be done at the higher of NAV and the average of the previous five-day closing price. So if there is conversion, it would be obviously at NAV or higher, so it would be accretive for the fund.

Yeah, I mean, clearly with the stock today, but you can't force conversion of it if it's trading at a certain level to get people to convert. No, we cannot force it. Okay. Either way, it's a really – I mean, that's against your equity. Your leverage test, correct? I mean, that convertible preferred is against your leverage test?

Yeah, that's right. And so I think today we have about 63, 62, 63 million of convertible preferred outstanding, and our net assets is around 120 million. So it's about a 0.5, which is kind of in line with our long-term targets.

Gotcha. Now, I say that because if you get that, the convertible actually grows the equity base. Your existing preferred is trading at like 26%. So the extent that you could issue new straight preferred or term preferred, I mean, the whole thing really begins to work. I'm just talking out loud, but is that convertible preferred? Do you think that channel is still open? I mean, is there still demand if you chose to access it?

Yeah, we do think there is demand. And so market dependent, we could issue more of that because we agree with you that there's A lot of attractive features of the convertible preferred that we found to be beneficial for the fund.

Great. Well, you're really in good position to scale this vehicle. So next question, just on the refi resets, did you do like one or two since the last quarter? And just the outlook on what, your 49 positions or how many more you could do here that are ripe for resets or refis and how many you did last quarter?

Yeah, so to answer, I can come back to you on exactly how many we did last quarter. I know we've done seven year to date, and activity has definitely picked up as CELA debt spreads continue to compress. The one thing I would mention is the number of resets and refis we've done is probably a smaller number than some of our peer funds. That's probably more of a function of where our portfolio is today in terms of that it's less seasoned. Only two of our investments are out of reinvestment period, and we've already reset one of them. We expect to reset the other one this quarter. And so just the number of resets is probably not as high as some of our peer funds, but we're actively looking to optimize the portfolio. And our expectation is at least for the first quarter of next year, you'll continue to see this elevated activity until we'll look to continue to refinance and reset the portfolio.

Okay, great. The reinvestment period, what the weighted average is around two and a half years or something. I mean, it's pretty far out there. Did I get that right? It was 2.4 years?

Yeah, it's around two and a half years. And by the end of this year, I don't think we will have a single CLO that's out of reinvestment period.

Great. And final question, I got to go back and listen to all the tax information you provided, but I guess the question here is when you look at the dividend policy and you look at the reoccurring cash flows, which obviously were 45 cents in there, or the reoccurring, you call it net, core net income, reoccurring cash flows were much higher than that. It looks like they're going to go higher. Are you paying, are you going to have to pay an excise tax? In other words, is there a spillover or is the distribution enough that you don't have to pay an excise tax? There's no carryover because, I mean, obviously you've seen it's a high class problem to have with these vehicles that they can't pay enough the cash flows are so high, the cash flow income is so high, they can't get paid enough on the regular dividend to offset the requirements. So they do spillovers, they pay excess tax, and you need to know this, so they pay specials. I mean, just walk, just, can you sort of boil it down where you guys stand, you know, looking into your next tax calendar year?

Yeah, like, it's a great question. It's something we spend a lot of time on, senior management here, and it's a lot of discussions we have with the board. I think admittedly, the taxable income calculations for CO equity is extremely complex. I thought I knew a lot about the tax accounting for CO equity, but it seems like I learned something new every year. And so we've had this one-time phenomenon this year where because of the timing mismatch between when the anal statements, the PIVX statements are actually issued versus where our fiscal year end is, our taxable income from this year is really a fraction of our recurring cash flow, a fraction of core NII. Obviously, that's a one-time thing, so we won't see that going forward. But it's something we are looking and trying to estimate of what is going to be taxable income for the fund in 2025. How does that compare to our current dividends? And we can at least use the spillover if we need to, but that's really a short-term solution. Obviously, long-term, we need to make sure that our dividend policy aligns with kind of the tax distribution requirements.

And you say basically the core net income is kind of the closest thing to taxable income. Did I hear you say that if you're looking going forward?

Yeah, so I think that's definitely how we are estimating what we think taxable income will be. And so that core NII of 45 cents, obviously with the dividend being 31.5 cents, that does not line up yet. But the one thing that we need to factor in is this timing mismatch and how that impacts the taxable income on a go-forward basis. Because if you think about it, So as I was going to say, so if you think about it, our, most of our taxable income will be based on investments that will be based on the investments from the prior year. And if we are growing the fund, you are going to have this mismatch of the taxable income for any fiscal year is going to be based on your portfolio from the prior year. So that's something that we'll have to factor in, in our analysis of what our distribution policy should be versus taxable income.

Gotcha. And I guess it's just, I mean, look, I'd love to hear your response to that. I mean, we, when investors look at, you know, 30 NII and 45 core, I mean, what do you, as a firm, what do you think is the true economic, true earnings, like power of the company? Is it closer to gap? Is it closer to core? Will they both converge at some point in time in the future?

Yeah, again, another great question, because when you think of income for SELAs, you can get three, five different answers of what's right income number for CLOs. We think, like, obviously our focus is as a closed-end fund, we have to pay out 90% of taxable income. And so we think core NII is the best proxy for that distribution requirement. And so our dividend policy really will focus on that with the caveat of factoring in kind of this timing mismatch that we've talked about.

That's great additional color. Keep up the good work. Thanks a lot. Thank you, Matt.

As a reminder, if you'd like to ask a question at this time, please press star 11 on your touchtone telephone. I'm sure I know further questions in queue at this time. I'd like to turn the call back to Lauren for closing remarks.

Thank you. We look forward to speaking to everyone next quarter, if not sooner. Please feel free to reach out if you have any questions. And thanks again for all your support.

This concludes today's conference call. Thank you for participating. You may now disconnect.