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spk04: Good morning, ladies and gentlemen. Welcome to the FSKKR Capital Corp's first quarter 2022 earnings conference call. Your lines will be a listen-only mode marked by FSK's management. As a conclusion of the company's remarks, we will begin a question and answer session, at which time we will give instructions on entering the queue. Please note that this conference is being recorded. At this time, Robert Pond, head of investor relations, will proceed with the introduction. Mr. Pond, you may begin.
spk00: Thank you. Good morning and welcome to FSKKR Capital Corp's first quarter 2022 earnings conference call. Please note that FSKKR Capital Corp may be referred to as FSK, the fund, or the company throughout the call. Today's conference call is being recorded and an audio replay of the call will be available for 30 days. Replay information is included in a press release that FSK issued on May 9th, 2022. In addition, FSK has posted on its website a presentation containing supplemental financial information with respect to its portfolio and financial performance for the quarter ended March 31st, 2022. A link to today's webcast and the presentation is available on the investor relations section of the company's website under events and presentations. Please note that this call is the property of FSK. Any unauthorized rebroadcast of this call in any form is strictly prohibited. Today's conference call includes forward-looking statements and are subject to risks and uncertainties that could affect FSK or the economy generally. We ask that you refer to FSK's most recent filings with the SEC for important factors and risks that could cause actual results or outcomes to differ materially from these statements. FSK does not undertake to update its forward-looking statements unless required to do so by law. In addition, this call will include certain non-GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures can be found in FSK's first quarter earnings release that was filed with the SEC on May 9th, 2022. Non-GAAP information should be considered supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly named measures reported by other companies. To obtain copies of the company's latest SEC filings, please visit FSK's website. Speaking on today's call will be Michael Foreman, Chairman and Chief Executive Officer, Dan Pietrzak, Chief Investment Officer and Co-President, Brian Gerson, Co-President, and Stephen Lilly, Chief Financial Officer. Also joining us in the room today are Co-Chief Operating Officers Drew O'Toole and Ryan Wilson. I will now turn the call over to Michael.
spk10: Thank you, Robert, and good morning, everyone. Welcome to FSKKR Capital Corp's first quarter 2022 earnings conference call. I'd like to start by congratulating our entire team on delivering another strong quarter of results. As we continue to execute our strategy of generating organic net investment income growth through new investments and successful portfolio rotation, we are pleased that the positive momentum we created during 2021 is continuing as we move into 2022. During the first quarter, our investment team originated $2.1 billion of new investments. In addition, we experienced a 0.6 percent increase in our net asset value as we continue to see improvements in both the performance and valuation associated with specific investments. As a result of our investing activity and our portfolio's overall performance, we again meaningfully out-earned our base $0.60 per share quarterly dividend. During the first quarter, our net investment income was 77 cents per share, and our adjusted net investment income was 72 cents per share, which was 8 cents per share above our public guidance. Our outperformance primarily was driven by higher than expected originations and corresponding fee income during the quarter. From a liquidity perspective, we ended the quarter with approximately $2.6 billion of available liquidity. In terms of our $100 million share repurchase program, through May 6, 2022, we've repurchased approximately $25 million of shares under this program. Based on our strong results, our board has declared a distribution of 68 cents per share for the second quarter. As many of you know, our dividend policy consists of a base quarterly dividend of 60 cents per share, coupled with additional amounts in excess of 60 cents per share during quarters where additional net investment income is generated. In summary, our investment team produced another strong quarter of originations, and our base business is continuing to produce results which give us confidence in the future. And with that, I'll turn the call over to Dan and the team to provide additional color on the market and the quarter.
spk08: Thanks, Michael. From a macro perspective, we, like others, are focused on the persistence of inflation, continued supply chain challenges, and the tragedy of human loss in Ukraine. We remain hopeful the Federal Reserve's decision to take a more aggressive stance in terms of raising interest rates will help curb inflation. As interest rates move higher in response to inflationary pressures, we expect our shareholders will benefit given that 87% of our debt investments are structured as floating rate investments with a weighted average floor of 88 basis points. From where rates were on March 31, 2022, all other things being equal, every 100 basis point increase in short-term rates should increase our annual net investment income by $0.19 per share, or between 4 cents and 5 cents per share on a quarterly basis. Against this backdrop, we continue to focus on investing in larger companies, which we believe maintain at least some degree of pricing power, as well as overall portfolio diversification. The increased volatility in the public markets continues to lead to strong demand for private capital, and we believe we are well positioned to capitalize on this opportunity. Turning to our investment activity, During the first quarter, the $2.1 billion of investments we originated were spread across 14 new high-quality companies and nine industries and included two asset-based finance transactions. The average EBITDA of the new corporate names in which we invested during the quarter was approximately $186 million, and the average LTV was 47%. reflecting both our continued focus on the upper end of the middle market as well as conservative investment structures we are pursuing. Our investments during the quarter carried a weighted average yield of 8.4%, and approximately 59% of our portfolio activity came from opportunities and companies previously invested in by KKR. Again, illustrating the power of incumbency and our longstanding existing relationships. Our $2.1 billion of total investments combined with $1.1 billion of net sales and repayments when factoring in sales to our joint venture equated to a net portfolio increase of $949 million during the quarter. As we discussed in our last earnings call, during our 2021 Investor Day in September of last year, we presented three primary opportunities which we believe potentially would enhance our net investment income First was rotating out of certain non-income producing assets into income producing assets. Second was operating somewhere closer to the midpoint of our target leverage range. And third was selectively refinancing certain higher cost unsecured debt on our balance sheet. At our investor day, we communicated our view that in total, over the next six quarters, these opportunities, depending on prevailing interest rates, rates, and other factors could generate up to $0.15 per share per quarter of additional net investment income. In addition, we analyzed the remaining legacy portfolio's contribution to net investment income, which also totaled $0.15 per quarter. As a reminder, on our fourth quarter 2021 call, we stated that we had achieved approximately 5 cents per share of incremental quarterly run rate adjusted net investment income through two quarters. As of the end of the first quarter of 2022, before taking into account recent upward moves in interest rates, we have achieved 12 cents per share of incremental quarterly run rate adjusted net investment income. Our progress breaks down as follows. First, at the time of the investor day, we identified $0.04 per share of potential incremental net investment income growth on a quarterly basis, assuming we redeployed certain non-income producing assets into income producing assets. At the end of the first quarter, we have achieved $0.03 per share of this incremental net investment income growth. The second opportunity we identified was operating at our target leverage. Over the last three quarters, we have expanded both our investment portfolio and our joint venture to generate approximately 7 cents per share of additional run rate quarterly net investment income, as compared to a potential of 9 cents per share that we identified at the time of our investor day. The difference between the 7 cents per share of additional run rate net investment income we have generated and the $0.09 per share of net investment income we targeted at the time of our 2021 Investor Day relates to asset-based finance investments and our joint venture. Since our Investor Day, we have originated approximately $200 million of asset-based finance investments, which are in their ramping phase. We expect that these investments, once fully ramped, will generate approximately one cent per share of additional net investment income. In addition, we expect that our joint venture, now that it is fully ramped, will contribute an additional penny per share of dividends during the second half of this year. The third opportunity we spoke about related to the right side of our balance sheet. At the time of our investor day, we had the opportunity to refinance certain higher-cost unsecured notes. During the fourth quarter of last year and early during the first quarter of this year, we issued $1.75 billion of unsecured notes at a blended coupon of 2.7%. In April, we repaid our 4.75% $450 million unsecured bond that was due in May of this year. As a result, beginning with the second quarter of this year, we have achieved approximately $0.02 per share in interest savings. As a result of these combined activities, we have achieved approximately $0.12 per share of incremental quarterly run contribution to our adjusted net investment income. Also, as I mentioned, once our ABS investments begin to generate income and our JV begins paying an increased quarterly dividend, we expect to generate an additional $0.02 per share of additional quarterly net investment income. Offsetting these positive increases to adjusted net investment income have been the recent increases in interest rates and a slightly elevated average leverage balance during the quarter. which combined to impact us by approximately $0.04 per share, at a lower weighted average portfolio yield of 8.3% as compared to 8.5% at the time of our investor day. This impacts us by approximately $0.02 per share. In summary, we are extremely pleased to have made such substantial progress over just three quarters towards the goals we laid out in September of last year. And with that, I'll turn the call over to Brian.
spk06: Thanks, Dan. As of March 31, 2022, our investment portfolio had a fair value of $16.6 billion, consisting of 193 portfolio companies. This compares to a fair value of $16.1 billion in 189 portfolio companies as of December 31, 2021. At the end of the first quarter, our 10 largest portfolio companies represented approximately 19% of our portfolio, which is in line with the end of the fourth quarter. We continue to focus on senior secured investments as our portfolio consisted of 59.9% of first lien loans and 69.2% senior secured as of March 31st. In addition, our joint venture represented 8.9% of the portfolio, and asset-based finance investments represented 13.2% of the portfolio, equating to an additional 22.1%, which is comprised predominantly of first lien loans or asset-based finance investments, which we believe have meaningful principal protection. During the first quarter, our new originations consisted of approximately 55% in first lien loans, 2% in second lien, 21% in asset-based finance investments, 4% in the joint venture, 16% in preferred equity, and 2% in equity and other investments. The weighted average yield on accruing debt investments was 8.3% as of March 31, 2022, compared to 8.4% at year-end 2021. As a reminder, the weighted average yield is adjusted to exclude the accretion-associated with the merger with FSKR. Including the effects of the investment activity we experienced during the first quarter, as of March 31, 2022, approximately 88% of our yielding investment portfolio is now comprised of investments originated either by KKR Credit or the FSKR advisor. This compares to 86% at the end of the fourth quarter of 2021 and 79% at December 31, 2020. We are proud of the progress we have made continuing to rotate legacy assets, and we remain focused on taking a disciplined approach to positioning our portfolio and growing our run rate net investment income. During the first quarter, excluding the impact of merger accounting, we experienced net portfolio appreciation on investments of $9 million. In terms of non-accruals, During the quarter, we exited our investment in Borden Dairy. In addition, our legacy investment in SQL Youth was successfully restructured during the quarter into certain new securities and equity interests. As of March 31, 2022, our non-accruals declined to approximately 3.2% of our portfolio on a cost basis and 1.5% on a fair value basis compared to 3.9% on a cost basis and 1.9% on a fair value basis as of December 31, 2021. With regard to the legacy portion of our portfolio, we continue to work with both the investor group and the management team of GlobalJet to adjust and enhance their business on a go-forward basis. During the first quarter, we received an approximate $23 million repayment of principal at par on our mezzanine investments. As a result, during the first quarter, we adjusted our accrual rate on the security from 9% during the fourth quarter to its contractual rate of 15%. Additionally, we adjusted the accrual rate on our preferred equity to 4.5% during the first quarter from its prior level of 9%. We took similar action with our legacy investment in JW Aluminum as we reduced our rate of accrual on our preferred stock investment from 12.5% to 6.25%. While JW continues to perform in line with its budget, we believe the reduced accrual rate will more accurately reflect an appropriate indication of value for the company on a go-forward basis. Before handing the call to Steve, I'd like to highlight two significant items during the quarter. First, we invested in approximately $300 million of preferred equity issued by Athena Health to support Hellman and Friedman and Bain Capital's acquisition of the company. Athena Health is a provider of electronic health records and revenue cycle management software and services to small group physician practices and other ambulatory providers. Athena Health was a former successful second lien and preferred equity investment of FSK, and as such, we were very familiar with the credit and well-positioned to support the sponsor group. Second, we are pleased to announce that during the month of April, the sale of Sound United LLC, previously known as DEI, closed. As of March 31, 2022, our common stock was valued at $167.8 million versus $77.5 million as of December 31, 2021. As many of you may recall, during the depths of COVID, we converted our subordinated debt into equity and invested new capital in the company to support a strategic acquisition. We believe that this positive outcome is a prime example of our internal workout and governance group creating value for our shareholders. And with that, I'll turn the call over to Stephen.
spk01: Thanks, Brian. During this portion of the call, I'll focus on our financial results our forward-looking guidance, and our balance sheet. In terms of our financial results for the quarter, our total investment income increased by $32 million quarter over quarter, largely driven by portfolio growth due to the positive investment activity about which Dan and Brian spoke. The primary components of our total investment income are as follows. Interest income increased by $22 million quarter over quarter, including an approximate $8 million one-time benefit predominantly due to our investment in Micronics, in which we recorded additional income coupled with our successful exit of the investment in February. Our fee and dividend income totaled $92 million during the first quarter, an increase of $10 million compared to the fourth quarter of 2021. Our fee and dividend income during the first quarter is summarized as follows. $44 million of dividend income from our joint venture, other dividends from various portfolio companies of approximately $19 million, and fee income of approximately $29 million. Our fee income was higher than expected during the first quarter based on the elevated level of originations and repayments we experienced. Our interest expense totaled $77 million, an increase of $4 million quarter over quarter due to the fact that we were operating at target leverage throughout the quarter. Our weighted average cost of debt was 3.1%, and management fees were $62 million, an increase of $2 million quarter over quarter due to the higher amount of average gross assets during the quarter compared to the prior quarter. Incentive fees totaled $25 million during the first quarter, which is net of the $15 million incentive fee waiver. As previously announced, as part of the FSK-FSKR merger, which closed in June of 2021, the advisor will waive $90 million of incentive fees spread evenly over six quarters, which began during the third quarter of 2021. And just as a reminder, as we discussed on our prior earnings calls, the advisor does not earn an incentive fee on any of the merger-related accretion associated with FSK's acquisition of FSKR. The detailed bridge in our net asset value per share on a quarter-over-quarter basis is as follows. Our ending 4Q 2021 net asset value per share of $27.17 was increased by GAAP net investment income of $0.77 per share. and was increased by 2 cents per share due to an increase in the overall value of our investment portfolio. Our net asset value per share was reduced by our 63 cent per share dividend paid during the quarter. The sum of these activities results in our March 31, 2022 net asset value per share of $27.33. From a forward-looking guidance perspective, we expect second quarter 2022 GAAP net investment income to approximate 70 cents per share, and we expect our adjusted net investment income to approximate 65 cents per share, which is in line with our run rate adjusted net investment income about which Dan spoke earlier on the call. Detailed second quarter guidance is as follows. Our recurring interest income on a GAAP basis is expected to approximate $298 million, which is relatively flat compared to the first quarter, excluding the one-time interest income item we experienced during the first quarter that I mentioned earlier. We expect recurring dividend income associated with our joint venture to approximate $47 million, based on the overall growth of the joint venture. We expect other fee and dividend income to approximate $28 million during the second quarter. The decline in our second quarter guidance versus our first quarter results and other fee and dividend income is primarily related to our expectation of lower origination activity during the second quarter. From an expense standpoint, we expect our management fees to approximate $61 million. We expect incentive fees net of the $15 million quarterly waiver to approximate $21 million. we expect our interest expense to approximate $82 million, and we expect our other G&A expenses to approximate $10 million. As a reminder, the five cents per share difference between our GAAP net investment income and our adjusted net investment income relates to the expected accretion of our investments during the quarter due to merger accounting. This difference affects our recurring interest income, Other categories of our revenues and expenses are not affected. In an effort to link the $0.12 per share of quarterly run rate adjusted net investment income, about which Dan spoke earlier, from the time of our investor day in September of last year and compared to our 2Q 2022 guidance, the key inputs are as follows. First, we begin with the $0.61 per share of adjusted net investment income we provided as guidance at our investor day and add $0.12 per share to that number, which equates to quarterly adjusted net investment income of approximately $0.73 per share. We then lower that number by $0.04 per share due to the recent increases in interest rates. We lower by $0.02 per share due to a lower weighted average portfolio yield of 8.3%, as compared to 8.5% at the time of our investor day, and we lower by another 2 cents per share to reflect a decline in fee income associated with our expectation for lower origination activity during the second quarter. These adjustments result in our current run rate adjusted net investment income of 65 cents per share, which equals our second quarter guidance of 65 cents per share. This detailed bridge also can be seen on slide 11 of our earnings presentation on our website. In terms of the right side of our balance sheet, our gross and net debt to equity levels were 127% and 112%, respectively, as of March 31, 2022. This compares to gross and net debt to equity of 119% and 107%, respectively, at the end of the fourth quarter of 2021. At March 31, our available liquidity was $2.6 billion. At the end of the first quarter, approximately 53% of our drawn balance sheet and 46% of our committed balance sheet was comprised of unsecured debt, and our overall effective average cost of debt was 3.1%. As Dan discussed with regard to our investment results and our positive momentum since our investor day, we also were pleased with the success we have had with our balance sheet activities over the last 18 to 24 months, as we not only have merged two companies' balance sheets together, but we simultaneously have lowered our cost of capital while we have extended our maturities. And with that, I'll turn the call back to Michael for a few closing remarks before we open the call for questions.
spk10: Thanks, Stephen. In closing, I'm excited about the company's outlook based on the team's execution of our strategic initiatives, which was clearly reflected in our strong first quarter results. We look forward to continuing to build on our current progress and growth opportunities. As always, I'd like to thank our investors for their continued support. And with that, operator, we'd like to open the call for questions.
spk04: Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star then 1 on your touchtone telephone. Again, if you would like to ask a question, please press star then 1. One moment, please. Our first question comes from Kenneth Lee of RBC Capital Markets. Your line is open.
spk03: Hi. Thanks for taking my question. One about leverage. Given that you've reached your target and the current market backdrop, how do you expect the leverage to remain over the near term? Thanks.
spk08: No problem. Good morning. I didn't hear the last part of the question sort of perfectly, but I think it's just how do we expect leverage to kind of evolve over the near term? Yeah, that's it. Yeah, so I think two things. I think you're right. We're kind of inside our target range, almost kind of smack in the middle of it. So I think we're happy about that. There's going to be no change in our mind to that range of where we expect kind of leverage to be. If anything, I think we're probably going to look to remain sort of at and around this level, considering what some of that market volatility is out there. I think we've been pretty happy with the amount of unsecured debt issuance that we did. especially to get into the market in the first month of this year. We talked about those numbers in the script. Kind of real size and sort of a good rate, I think, has been a great thing for our liability structure, which is now 53% of the funded debt is in unsecured bonds.
spk03: Great. And just one follow-up, if I may. You talked about the preferred equity investment recently. Wondering if you could just talk a little bit more about your current appetite for any kind of investment lower on the capital structure, either equity-related or otherwise. Thanks.
spk08: Yeah, no, happy to do that. You know, I think with what's going on kind of market-wise, you know, the bar for anything that would be subordinate, you know, would be quite high. You know, you're referring to the Athena sort of health investment. You know, I think that falls into a bit of a sweet spot, though, for us. You know, we... Did the last sort of buyout that was done, I think the deal closed in February of 2019. We did second lien and sort of prep there. That was repaid after two years. We got to know the company, the management team quite well, sort of quite fond of them. This new opportunity presented itself. The company's grown tremendously sort of over time. But a large company now, roughly a billion dollars of EBITDA, you know, roughly 55 LTV deal with kind of $6 billion of capital below us. You know, those are these larger companies we want to get behind and we think a really good investment to be a part of, again, for a name that we're going to, you know, have real history with as we were a prior lender.
spk03: Great. Very helpful. Thanks again. Thanks, Kevin.
spk04: Thank you. Our next question comes from Melissa Waddell of J.P. Morgan. Your line is open.
spk05: Thanks for taking my questions. Good morning. I wanted to clarify, I think Steven, this is one of your comments on the adjusted NII walk that you provided, which was really helpful. I'm not sure if I heard you correctly, but I thought you might have said that on higher rates, that adjusted NII amount was lowered by 4 cents per share. And I wanted to dig into that a little bit because I would think with the asset sensitivity, the higher rates would have been a benefit to NIA.
spk01: Melissa, hi. Thanks for the question. Yeah, what we were trying to outline there is, and I think we talked about this on the fourth quarter call as well, is as rates have increased, we like some other BDCs as the first move in rates because we have liable floors in a very high percentage of our investments obviously on the asset side of the balance sheet. it takes a period of time with an increase in rates before you pierce through those fours. And so now, as of the end of the quarter with, I guess, three-month LIBOR was just under one. It was like 0.96 or something. So for every 100 basis points of increase in rates going forward, we believe we'll generate an incremental, on an annual basis, 19 cents a share of net investment income on a quarterly basis, therefore between four and five. But it's really that timing difference. And for your modeling purposes, Melissa, and others on the call, given that most of our borrowers are under typically like a three-month LIBOR contract, it will take a little bit of time before we will see the benefit there. So for modeling purposes, I would think more third quarter and fourth quarter than second quarter. So those thoughts are incumbent in our guidance. And that guidance is detailed on page 11 of our earnings supplement as well, just for you to have after the call.
spk05: Got it. And then in terms of thinking about real investments, definitely hear your points about having reached a certain level of leverage and being quite satisfied at or around those levels going forward. particularly with the volatility in the environment. I'm curious about your outlook on yield for potential new investments, as it does seem that risk is pricing a bit higher these days.
spk08: Yeah, I think we would share that view in terms of how risk is pricing. I mean, it's only the beginning of May, but it's been a pretty adventurous year so far. I think we all start off the year with a lot of money having sat on the sidelines coming out. Pretty aggressive. The movement rates has been real. The conversations around inflation have been real. The news out of Europe with Ukraine has been sort of troubling. I think we're expecting just less deal volume as we go through the rest of the year. I think a lot of people are in a wait-and-see approach, I think us included. You know, and I think, you know, we're getting the benefit because most of this portfolio today and on a go-forward basis will be, you know, floating rate assets. But I think, you know, the overall returns for risk will go up.
spk04: Thank you. Our next question comes from Paul Johnson of KBW. Your line is open.
spk09: Yeah, good morning, guys. Thanks for taking questions. You touched on this a little bit earlier with Ken's question, but I'm just curious. Obviously, rates have moved quite a bit higher since you last issued back in January. Has that effectively kind of, at least, you know, maybe it's more temporary, but closed the window for refinancing any sort of existing higher-cost debt projects? maybe more of a wait-and-pause approach to continuing to lower the cost of debt, or do markets still remain pretty conducive to executing on that?
spk08: I think your wait-and-see statement, Paul, is probably the right one. I don't think that would just be for us, but probably any sort of issuer into this market. The right moves have been material. Like I said, I think we're pretty – Pretty thankful that we got into the market in Q1 of this year. Pretty happy with what we did in the end of 2021. Obviously, the use of proceeds was to pay off our 4.75% to the deal. But I think wait and see is kind of the right sort of thought or sort of outlook to the way we think about that. Now, I think we feel good about our overall position, though. You know, our revolver is with a great group of partner banks. It's got, you know, real duration attached to it, and we'll be focused on keeping that duration.
spk09: Thanks. Appreciate that. Then on just more specifically your leasing and, you know, your asset-backed finance part of your portfolio, just wondering if you could talk about how that – I guess how that's affected by the current environment. Does that tend to benefit from a rising rate environment, the underlying assets, potentially longer outstanding balances or outstanding leases? Any sort of effect from the environment that plays through to that part of your portfolio?
spk08: No, and good question, fair question. I think we've been happy to grow that part of our portfolio here. I think it's roughly sort of 13%. You know, we focus a lot on downside protection, you and those deals, as we do have, you know, actual kind of collateral available to us. You know, I think there's a lot of good, you know, probably benefits when we think about inflation because a fair amount of this is, you know, either sort of real asset-backed. You know, we've had single-family rental exposure or aviation sort of leasing exposure. So are you getting kind of an inflation sort of pickup from that or at least sort of a backdrop? I think where we probably worry a little bit in the market as it relates to our overall asset-based finance effort is what's the impact of this on the consumer? You've had, obviously, a big move in rates. You've got expensive prices at the pump. We're very light, though, on any consumer exposure. We have done that on purpose, not necessarily thinking that the rate moves or some of these shocks would be as large as they are, but These are really kind of hard asset-backed deals, which just occupies most of the portfolio now. So I think we feel pretty good about it.
spk09: Thanks. I appreciate that as well. One real quick one on just the repurchases. I know you repurchased some shares on the buyback this quarter. The sector is obviously pulling back quite a bit here post-first quarter end. you know, kind of taking that in conjunction, you know, where your stock currently trades on a price-to-book basis and, you know, the leverage on the BDC's balance sheet or where you stand from a leverage standpoint today. Are you expecting to be, you know, pretty active in this kind of sell-off in the market? Are you taking more of a measured approach with just trying to, you know, prioritize balance sheet leverage? Any color there would be helpful.
spk08: Yeah. I think if you recall, we've been very active on buybacks over the last several years. I think between FSK or some of its predecessor entities, we've bought back over probably $500 million of stock. This plan's been active. We do expect this plan to continue to buy under a 10B51 program, and we do expect it to get filled. I think we have historically thought about that, trying to skew maybe a bit more where there has been sort of a market volatility. But no change to, I think, the plan itself or the fact it's going to buy under 10B51. And like I said, we intend to fill it.
spk09: Got it. That's all for me. Congratulations in improving NII from the last Investor Day as well as credit. And I appreciate you taking my questions.
spk08: Well, thank you for that, Paul.
spk04: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then 1 on your touchtone telephone. One moment, please. Our next question comes from Casey Alexander of Conference Point. Your line is open.
spk11: Yeah, good morning. He got a lot of my questions right on the button, but I'll ask two real quick ones. Do you know when can you refinance the COVID bond without paying a big penalty on that? Because that seems to be an area where you could clearly cut some of your debt service costs.
spk08: Yeah, good morning, Casey. You know, I think it is available to repay sort of now. I think any form of prepayment penalties would start to drop pretty materially over time. you know, the coming sort of quarters or the coming sort of year. I think we'll reevaluate that sort of at that time. I think you're right. There's potentially an opportunity to, you know, reduce some of those sort of interest costs. But I think we'll think about that in the coming quarters or coming years.
spk11: Thank you. And secondly, can you tell us what, you know, you've been working this down all along. What are legacy investments as a percentage of the total portfolio down to at this point in time?
spk08: Yeah, 12% is kind of the number we've been sort of talking about. That's obviously moved down kind of meaningfully, you know, over the last several years. I think we've been very happy with what we've done, you know, with regards to a portfolio investment. rotation perspective, and that 12% number is a percentage of all the assets that are yielding in the portfolio.
spk11: And would you figure that that gets down to single digits by the end of the year? Would that be your view?
spk08: It's probably trending towards that. I mean, you know, there is a handful of larger sort of names in there that really sort of make that up. You know, several of those were not necessarily either the controlling shareholder or or have the sole voice on how we sort of exit that. But, you know, we're quite active in all the names with a view of definitely trying to, you know, resolve those or generate kind of the best outcome possible in the coming quarters. But it's probably not perfectly linear in terms of how it will wind down.
spk11: Great. Thank you for taking my questions. I appreciate it.
spk04: Thank you, Casey. Thank you. Thank you. Our next question comes from . Your line is open.
spk02: Thanks. Thanks. Good morning. Let's see. I think I'd like to ask about some of the gain and loss activity in the quarter. You know, obviously, you've got some moving parts, both from a realized gain perspective and an unrealized perspective. Nice to see NAV up here again in the quarter. But maybe you could try to characterize you know, what's going on within the investment portfolio, you know, company-specific type events versus maybe more, you know, market-driven credit spread widening affecting the marks on the portfolio?
spk08: Yeah, I mean, maybe a couple sort of points. You know, we're – and I think Brian's going to add to this. I think we are very happy with the result that we got on Sound United, right? We had mentioned that sort of activity on the prior call. You know, there was, you know, maybe certain offsets, you know, to that, including, you know, a pretty material move sort of down as it relates to Hilding, you know, sort of a European business, you know, pretty impacted by what's happening in Europe and sort of Russia and Ukraine. But, Brian, why don't you add anything else to that?
spk07: Yeah, I mean, just given the fact that spreads widened out during the quarter, you If you look across the debt portfolio, about two-thirds of the investments were probably down slightly, and then about a third were up, and that was really spread-driven.
spk08: So, Bryce, a little bit of individual sort of name activity, and then obviously the volatility and the overall market, but I think we're pretty happy to be up on NAV in this quarter.
spk02: Yeah. That's it for me. My other questions were asked. Thanks.
spk08: Great. Thank you.
spk04: Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Dan Peterczak for any closing remarks.
spk08: Well, thank you, everyone, for your time today. We really appreciated it. If there are any follow-up points or other questions, please do not hesitate to reach out to anyone on the team. Thanks again.
spk04: Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.
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