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spk05: Good morning, ladies and gentlemen. Welcome to the FSKKR Capital Corp's third quarter 2022 earnings conference call. Your lines will be in a listen-only mode during remarks by FSK's management. At the conclusion of the company's remarks, we will begin the question and answer session, at which time I will give instructions on how to enter the queue. Please note that this conference is being recorded. At this time, Robert Pohn, Head of Investor Relations, will proceed with the introduction. Mr. Pohn, you may begin.
spk08: Thank you. Good morning and welcome to FSKKR Capital Corp's third 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 November 7th, 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 September 30th, 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 third quarter earnings release that was filed with the SEC on November 7, 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 Steven Lilly, Chief Financial Officer. Also joining us in the room are Co-Chief Operating Officers Drew O'Toole and Ryan Wilson. I will now turn the call over to Michael.
spk09: Thank you, Robert, and good morning, everyone. Welcome to FSKKR Capital Corp's third quarter 2022 earnings conference call. FSK again delivered strong earnings in line with our quarterly guidance. Our results were driven both by the positive impact of rising interest rates and consistent dividend and fee income. During the third quarter, we generated net investment income totaling 76 cents per share and adjusted net investment income totaling 73 cents per share. This compares to our public guidance of approximately 76 and 72 cents per share, respectively. Consistent with the overall private debt market, the value of our investment portfolio declined during the third quarter, due primarily to spread widening and market multiple contraction. The 2.1% decline in the value of our investment portfolio equated to a 4.2% decline in our net asset value quarter over quarter. As Dan will discuss in more detail during his comments, the FSKKR Advisor continues to maintain its high quality credit standards and discipline underwriting process. We originated approximately $900 million of investments during the third quarter, and we ended the quarter with ample liquidity, totaling approximately $2.75 billion. Based on our third quarter financial results, our board has declared a fourth quarter total distribution of 68 cents per share, which consists of our quarterly base distribution of 61 cents per share, and a supplemental distribution of 7 cents per share. In terms of our forward-looking view, while we believe transaction flow for the next few months will continue to be below historical norms, we also believe our favorable liquidity position will enable us to take advantage of quality investment opportunities they present themselves during 2023 and beyond. Additionally, as Steven will discuss later in the call, our net investment income will continue to be positively impacted by the rise in base rates, as almost 90% of our yielding debt investment portfolio is comprised of floating rate investments. And with that, I'll turn the call over to Dan and the team to provide additional color on the market and the quarter.
spk15: Thanks, Michael. From a market perspective, in the near term, we continue to expect above average levels of volatility, given the Federal Reserve's primary focus on curbing inflation. We believe the Fed's actions and their resulting impact on the economy will continue to create compelling investment opportunities for large scale private debt investors, such as KKR, over the next several quarters. Our belief is based on the view that before the Fed began increasing interest rates, the private debt market already had established itself as an attractive alternative to the syndicated debt markets. As a result, Going forward, we believe sponsors are likely to continue to trust the execution capabilities of the largest platforms in the private debt industry. That being said, we do believe it will take some time for the Federal Reserve's actions over the last several months to be fully absorbed by the economy. And therefore, we believe M&A transaction volumes will remain below average until investors can gain confidence that inflation has stabilized and a greater consensus forms around what the broader economic landscape might look like going forward. Despite the current market backdrop, the vast majority of our portfolio companies continue to experience solid fundamental performance, which we attribute to our focus on larger companies at the upper end of the middle market. Companies with strong competitive positions, resilient cash flows, and businesses in non-cyclical industries. These types of portfolio companies do in large parts of their size and market presence are continuing to find ways to pass along price increases as evidenced by the weighted average year over year EBITDA growth of 12% across portfolio companies in which we have invested in since the establishment of the FS KKR Advisor in April of 2018. In addition to the EBITDA growth, By continuing to focus on larger companies, we have increased the weighted average EBITDA of our portfolio companies to $207 million as of the end of the third quarter, as compared to just $78 million at the end of the second quarter of 2018. In terms of our quarter results, Michael mentioned the decline in value associated with our investment portfolio. To us, it seemed natural that some level of decline is appropriate, simply from a mark to market perspective. More specifically, our independent valuation firms factored in spread widening in our valuations of approximately 25 to 100 basis points, depending on the seniority of the facility. This is in line with the wider pricing we are seeing in our more recent originations. Separately, An example of a mark-to-market move is highlighted in one of our largest attractors during the third quarter, Athena Health. The company continues to perform in line with our underwriting expectations, yet the value of the asset declined to the movement in rates and spreads, as opposed to underlying performance issues. Certain companies in our portfolio, though, have been meaningfully impacted by a combination of inflation, supply chain issues, and the increasing interest rate environment, which contributed to a portion of our portfolio depreciation during the quarter. Given the macroeconomic environment still includes many uncertainties, we are exercising caution with respect to new originations. Additionally, the human capital investments that we have made in our platform over the last several years enables us to proactively manage our remaining legacy portfolio from a position of strength. When assessing our sector exposure today, we take comfort in the fact that we have focused on more defensive industries over the past several years, as our top industry exposures today include software services, healthcare services, and insurance services businesses, which represent approximately 37% of our portfolio. This compares to more cyclical and volatile sectors such as materials, capital goods and energy, which represented approximately 34% of the total portfolio at the end of the second quarter of 2018, and today represent only 17% of our portfolio. Turning to our quarterly investment activity, during the third quarter, we originated $907 million of investments, which were primarily focused on fundings and add-on financings to existing portfolio companies. Approximately 81% of our originations came from opportunities and companies previously invested in by KKR. Our new investments, combined with $651 million of net sales and repayments when factoring in sales to our joint venture, equated to a net portfolio increase of $256 million during the quarter. In terms of interest coverage, At the end of the third quarter, our portfolio companies had a median interest coverage ratio of 2.3 times. Furthermore, most of our borrowers have access to revolving lines of credit, which provides them with additional committed liquidity should an economic downturn occur. With that, I'll turn the call over to Brian to discuss our portfolio in more detail.
spk03: Thanks, Dan. As of September 30th, 2022, Our investment portfolio had a fair value of $15.8 billion, consisting of 195 portfolio companies. This compares to a fair value of $16.2 billion and 192 portfolio companies as of June 30th, 2022. At the end of the third quarter, our 10 largest portfolio companies represented approximately 19% of the fair value of our portfolio. We continue to focus on senior secured investments as our portfolio consisted of 61.9% first lien loans and 70.5% senior secured debt as of September 30th. In addition, our joint venture represented 9.3% of the fair value of the portfolio and asset-based finance investments represented 11.6%, equating to an additional 20.9%, which is comprised predominantly of first lien loans or secured asset-based finance investments. The weighted average yield on accruing debt investments was 10.4% as of September 30th, 2022, compared to 9.2% as of June 30th. As a reminder, the weighted average yield is adjusted to exclude the accretion associated with the merger with FSKR. The increase in our weighted average yield during the third quarter primarily was associated with the continued rise in base rates, a benefit which will continue to accrue in our favor given the Fed's actions last week. During the third quarter, excluding the impact of merger accounting, we experienced net portfolio depreciation on investments of approximately $376 million. Approximately 75% of the portfolio depreciation we experienced during the quarter tied primarily to market technicals such as spread widening and market multiple contraction, with the remaining 25% due to specific company performance issues related to the current economic environment. The largest negative movers in our portfolio, which are impacted by credit-related issues during the quarter, were By-Ryder Finance LLC and NBG Home. I would also point out that these names Both were placed on non-accrual during the third quarter, which means they're already factored into our third quarter reported earnings. Our new non-accrual investments during the quarter had a combined fair market value of $56 million. In addition, there were three investments that were removed from non-accrual status during the quarter with a fair market value of $13 million. Based on the third quarter's activity, as of September 30, 2022, non-accruals totaled 5% of our portfolio on a cost basis and 2.5% on a fair value basis, compared to 4.9% on a cost basis and 2.9% on a fair value basis as of June 30, 2022. And we would note that none of the non-accruals were related to assets originated by the FSK Care Advisor since April of 2018. And with that, I'll turn the call over to Stephen.
spk13: Thanks, Brian. The recent increases in interest rates have positively impacted our net investment income. And as Brian mentioned, we are well positioned to continue to benefit from the Fed's most recent action, as 89% of our debt investments are floating rate. From a starting point of September 30th, a 100 basis point move and higher in short-term rates ultimately will increase our net investment income by approximately 25 cents per share per year, which equates to approximately 6 cents per share per quarter. As a reminder, there is a detailed breakout of how every 50 basis points of interest rate increases is expected to positively impact our investment income provided in our 10Q filing. In terms of our financial results for the third quarter, Total investment income increased by $32 million quarter over quarter, largely driven by increased interest income. The components of our total investment income during the quarter were as follows. Total interest income was $318 million during the third quarter, an increase of $31 million quarter over quarter. Dividend and fee income totaled $93 million during the third quarter, an increase of $1 million quarter over quarter. Our dividend and fee income during the third quarter is summarized as follows. $50 million of recurring dividend income from our joint venture, other dividends from various portfolio companies totaling approximately $17 million, and fee income totaling approximately $26 million. Our interest expense totaled $96 million, an increase of $13 million quarter over quarter. due to the fact that we basically were operating at target leverage throughout the quarter, as well as the impact of rising base rates. Our weighted average cost of debt was 4.2% at September 30th. Management fees were $61 million during the quarter, a decrease of $2 million quarter over quarter. Incentive fees totaled $25 million during the third quarter, which is net of the $15 million incentive fee waiver. As previously noted, as part of the FSK-FSKR merger, which closed in June of 2021, the advisor agreed to waive $90 million of incentive fees spread evenly over six quarters, which began during the third quarter of 2021. As a reminder, the fourth quarter of 2022 will be the final quarter of the incentive fee waiver. And as we have discussed on 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 2Q2022 net asset value per share of $26.41 was increased by GAAP net investment income of 76 cents per share and was decreased by $1.21 per share due to a decrease in the overall value of our investment portfolio. Our net asset value per share was reduced by our 67 cent per share dividend paid during the quarter and increased by one penny per share due to share repurchases. The sum of these activities results in our September 30, 2022 net asset value per share of $25.30. From a forward-looking guidance perspective, we expect fourth quarter 2022 GAAP net investment income to approximate 74 cents per share, and we expect our adjusted net investment income to approximate 75 cents per share. Detailed fourth quarter guidance is as follows. A recurring interest income on a GAAP basis is expected to approximate $347 million. We expect recurring dividend income associated with our joint venture to approximate $53 million. We expect other fee and dividend income to approximate $31 million during the fourth 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 $24 million. We expect our interest expense to approximate $110 million, and we expect other G&A expenses to approximate $11 million. During the fourth quarter, we expect our excise taxes will approximate $17 million. As many of you know, our spillback level currently approximates two quarters worth of dividends, which we believe represents a healthy balance of having some spillback cushion, while at the same time not allowing our spillback balance to grow too large. We expect our excise taxes to be largely offset by the accretion of our investments due to merger accounting, which is why our projected fourth quarter gap net investment income is one penny per share below our projected adjusted net investment income. In terms of the right side of our balance sheet, our gross and net debt to equity levels were 128% and 119% respectively. at September 30, 2022. This compares to gross and net debt to equity of 125% and 115%, respectively, at the end of the second quarter of 2022. At September 30, our available liquidity was $2.75 billion. At the end of the third quarter, approximately 52% of our drawn balance sheet and 42% of our committed balance sheet was comprised of unsecured debt. and our overall effective average cost of debt was 4.2%. And with that, I'll turn the call back to Michael for a few closing remarks before we open the call for questions.
spk09: Thanks, Stephen. As we begin focusing on 2023, I believe we are well positioned with respect to our investment and portfolio management team, strong capital structure, and committed liquidity position. Going forward, We believe the benefits of size and scale that we and a very few other debt providers offer will further separate us from the broader industry in terms of both transaction volume and asset quality. As we near the completion of our internal portfolio rotation, we believe the forward opportunity for our platform is extremely attractive. And as always, we thank you for your continued support. And with that, operator, we would like to open the call for questions.
spk05: Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster.
spk00: And today's first question will come from John Hecht with Jefferies.
spk05: Please go ahead.
spk04: Hey, guys. Thanks very much for taking my questions and good morning. Dan, I'm just wondering, maybe can you describe, or I guess Dan or Brian, maybe can you guys describe the deal environment now? I mean, how many deals are you looking at? What are the characteristics of them? And would you, you know, would you rank them as high quality relative to, you know, a few years ago or lower quality overall when you're looking at the deal?
spk15: Yeah, John, it's Dan. And good morning. I can start. I'd probably, you know, a couple different points in there. In terms of, you know, deal volumes itself, I think total volumes are down, right? This business is heavily driven by kind of M&A activity. M&A activity has been slowed. You know, that said, we also are seeing some deals that would normally just make their way to the syndicated market because the private debt market is really the market that's open. So that's, you know, I think a positive fact, and we talked about that in the script. I think there was a lot of tailwinds for private debt going into this. It's long-term sort of tied up capital, so I think that tailwind remains and it's exacerbated. I think the new lending environment is extremely attractive. I mean, just think about kind of the Unitron's product. The OID is probably one point wider than it was a year ago. Spreads are probably 100 basis points wider than there was a year ago. Call pro is better. At the end of the day, it is just a lender-friendly environment, which we're, quite frankly, excited about. And I think that's going to continue for some time, as I think 23 will be bumpy out of the gate. But those platforms who can play in this market, I think, are going to have quite good investing opportunities.
spk03: I think the quality of what we're seeing is good. Um, quite honestly, given, um, the slowing and deal activity, um, sponsors are really selling their, their better companies because that's where they think they're going to get the best possible multiples, um, given what's happened overall in the market. So, you know, I think you're seeing better, better companies and better structures overall.
spk04: Okay. That's very helpful. Thanks. And then you guys, um, I think you guys have accomplished. everything you said how to do that you stated in your analyst day last year. So congratulations on that. But just thinking about the coming year, the coming quarters, maybe how much of the legacy portfolio you still have to rotate? What do you think the timing will be there? And then are there any kind of key maturities next year that we should just think about with respect to managing the liability structure?
spk15: Yeah, and I think starting on the liabilities, the short answer is kind of none in terms of maturities. I don't think there's really any maturities until 25. I think we feel quite good about both where we are on the unsecured debt side as well as the fact, and I think we talked about this on our last call, we increased the revolver size-wise. We also extended it to the last quarter. So I think our liability structure we're quite proud of. On the rotation of the legacy book, if you recall, April 2018, it was probably 70% of the income earning portfolio. It's down to 10 today. The overall legacy book, including those non-income producing assets, is probably closer to 15% of the portfolio. When we do peel that onion away a little bit, there's five names that make up probably more than half of that portfolio. You know, one of them we've got a good sense is – actually, I think we know is repaying in the near term. You know, one of them is an amortizing position. And then kind of three names we're intimately involved with to try to look to both maximize, you know, kind of value, but look to sell those businesses. Those would be, you know, PRG, sort of JWA, and GlobalJet. So, you know, I think you can see a lot of activity – you know, coming forward in the next, you know, two years. But like I said, I do think we're pretty proud of how we've rotated that. I think we've talked about some things in the script, just kind of broader portfolio rotations as well. You know, the weighted average EBITDA number up meaningfully, the sector exposure, you know, transition meaningfully from, you know, what I'd call less cyclical sort of industry. So still a little bit of work to go there, John, but I think we see the path.
spk04: Thank you guys very much.
spk15: Thank you. Have a good day.
spk05: And one moment for our next question. That will come from the line of Casey Alexander with Compass Point Research and Trading. Please go ahead.
spk14: Hi. Good morning. Thank you for taking my questions. I have three here. First of all, $300 million downstream to the credit opportunities portfolio, feels like a lot this quarter. And what's the opportunity set there that has you driving that much capital down into COP?
spk15: Good morning, Casey. I'll go back and kind of check. I don't think that $300 million is necessarily a lot if I looked at the last sort of four to six quarters. I think that said, we're probably thinking about that entity from a total return perspective and what it, you know, enables itself to pay in terms of recurring dividend income, you know, to FSK. I think the biggest thing is kind of targeting where we want to be there from a leverage perspective, which we're kind of approaching sort of that number. So I think we're happy with where that entity sits. I think we're happy with how it's grown. And it's, you know, you go to Stephen's kind of prepared remarks, you're $50 million plus of recurring dividend income, and we expect that to continue.
spk14: Secondly, you know, Stephen mentioned that the excise tax is going to be $17 million in the fourth quarter. With a variable dividend structure like you have, which is an attractive dividend structure, you can really manage your distribution to your earnings stream. So is it really necessary to have that much spillback when you're managing your distribution stream against your earnings? And to continue to have, you know, $17 million is a reasonably significant charge against your earnings.
spk15: And I'll let Stephen sort of add to that. I think we've been thinking about it, you know, to ensure that we, you know, had kind of one to two sort of quarters of spillback income. You know, we're kind of at the midpoint, a little bit closer to sort of two quarters there. But that's been, I think, our stated goal and stated objective. But, Stephen, you might want to add to that.
spk12: Yeah, and Casey, I think it's our target is, as Dan says, you know, on the low end, one quarter. On the high end, three quarters is sort of the range. And that's, I think, a sweet spot a lot of BDCs tend to operate in. We understand certainly your observation on the dividend and what we're paying there and believe investors have found that to be quite attractive. But, you know, from a spillback perspective, you know, looking at the excise tax perspective, excuse me, is I think it's 4% or so of our, on an annual basis, our quarterly revenue. So from our standpoint, it's sort of in line with where some other folks are. We think the total spillback number at just north of two quarters of dividends is a real healthy position. So maybe we're tending a little conservative there. admit that, but it feels like a very comfortable place to be.
spk14: Yeah, well, I would just point out that these spillbacks grew when BDCs had really a fixed dividend level and their earnings would fluctuate and they needed to make sure that they had a level that would protect them for periods where their earnings fell below the distribution rate. But the variable dividend structure tends to protect the BDCs better from that. And I'm not sure such a large spillback continues to be necessary for a lot of BDCs that have taken that structure. But that's my own soapbox. My last question is, in relation to looking at your portfolio, Dan, you can see where the pressure points are in the portfolio where they're coming because you get the numbers from each of your companies. How aggressively can you get in front of problems with portfolio companies by working with the portfolio company, by working with the private equity sponsor, and creating amendments and modifications that allow those portfolio companies the flexibility to get through this cycle and come out better competitors on the other side?
spk15: Yeah, thanks, Casey. I mean, I put it in a couple of different buckets, right? I think one of the great advantages of the private debt market is is allowing sort of lenders generally to do that, right? These documents are tighter. They are generally financial covenants. I think you want to be a good and responsible lender, but you want to sort of de-risk your positions over time. And we haven't seen, I think, anything outside the normal of kind of amendment activity. We will not be surprised if that does occur over the coming quarters. I think our expectation and our approach there is we will work with these companies and work with these sponsors to allow them to get to the other side of this. But that said, we're going to look to both reduce risk and where we can reprice our portfolio. Albeit, to be honest, I think we're going to be more focused on risk. And then I would point out, and I mentioned this in my prepared remarks, I think we've got the team to do that. We've talked about this on a handful of prior calls. We've built up our private credit business materially. We've built out our workout and governance team. We've built out our portfolio monitoring team. That is a major focus for us. If you think about just we will continue to do deals that we find very attractive in this environment. We will continue to see payoffs in the portfolio. We will continue to look to reduce risk and or sort of reprice the existing portfolio. So that's the focus for the handful of coming quarters.
spk14: All right, great. Thank you for taking my questions. I appreciate it.
spk15: Thank you. Good morning.
spk05: Thank you. One moment for our next question. And that will come from the line of Ryan Lynch with KBW. Please go ahead.
spk02: Hey, good morning. First question I had was just, you talked about kind of looking forward, fundings or new kind of portfolio growth will probably be focused more around funding commitments and adding on to existing portfolio companies. But then at the same time, you're talking about the environment being significantly better for deploying capital, spreads have widened, covenants have gotten better, leverage levels are down, and just general stronger portfolio companies are getting funded today. But because your leverage level is where it is and kind of your focus just on mostly funding existing commitments and add-ons, does it put you in a spot where you guys aren't going to be able to benefit as much from kind of the overall outside of your existing portfolio companies, kind of the new deals that are taking place in this marketplace today?
spk15: Yeah. Good morning, Ryan. You know, I don't think that's exactly the way I would look at it. I mean, I'm just off the top of my head. One of the biggest realizations in Q3 was our joint venture with Home Partners of America that realized almost $300 million of cash proceeds. It was probably a two-times-money multiple deal. I can think of three other names that have either repaid or announced a repay, and we're going to kind of recycle that money. One of those names, we actually did the financing for the new sponsor. I think repayments are definitely slower. I don't expect that to change sort of meaningfully, but I think we will continue to see some and we will continue to see new deal opportunities. And then we are kind of in the middle of our target leverage range. It is important that we kind of stay within that in our mind. So we'll be balanced. So maybe we're not going to be able to be as forward-leaning as we might necessarily like. But I do think we'll be able to capitalize on some of that. And going back to Casey's question, I do think some of the existing portfolio, when you do either do an add-on or if there is an amendment request that comes on, you have a very good opportunity to potentially reprice or de-risk the entire loan structure.
spk02: Okay. That makes sense. That's all for me today. Thank you.
spk15: Thanks, Ryan.
spk05: Thank you. One moment for our next question. And that will come from the line of Kenneth Lee with RBC Capital Markets. Please go ahead.
spk10: Hi. Good morning, and thanks for taking my question. Just one follow-up on the previous question. You mentioned you don't see debt paydowns picking up anytime soon. One of the key factors that could drive a pickup is going to really depend on M&A activity, or would there be anything else that could potentially drive a pickup and that pay down volumes over time? Thanks.
spk15: Thanks, Kenneth. I think M&A would be the biggest point. I mean, we don't have a lot of worries about near-term maturities on our assets of the portfolio. Most of those loans would have gotten done as five-, six-, or seven-year loans. I think history has shown us the weighted average life of that loan book is probably somewhere between three to four years, so it does sort of turn. I think it will be the pickup in M&A volumes, maybe a bit of a pickup in just kind of the broadly syndicated markets as well, but I think that those two items are probably correlated. I think, again, you just sort of tie that together. You can see this quarter, I mean, we did $900 million of kind of new deals. You can see the repayment numbers, and then the numbers I gave a little bit there was both sort of Q3 and Q4 for stuff we're seeing in the portfolio. But I think you're right. I think M&A is the big driver.
spk10: Gotcha. Very helpful there. One follow-up, if I may. You mentioned that all the non-accruals were within – We're outside of the FSKKR advisor-originated investments. I wonder if you could just give us a better sense of how the credit performance is for some of these newer investments, the ones originated since 2018. Thanks.
spk15: Yeah, maybe a couple points there. I mean, I think we talked about in the script, you know, year-on-year EBITDA growth for those names, you know, has been quite impressive. That was the 12% number, so I think we feel good about that. Obviously, the new names have had a much larger EBITDA number. As you can see, the weighted average EBITDA number from April 2018 has grown meaningfully, probably almost grown roughly three times as we continue to target that sort of upper end of the middle market. A couple points I would just mention on the non-accruals. I mean, yes, there was a handful of new names. Not necessarily happy about that, but there was names that sort of came off as well. roughly 10 basis points. We did talk about in our prepared remarks, we've done roughly $21 billion of deals since April 2018. None of those deals show up in the Adana accrual numbers, which we think that's important. And then we talked about this, I think, broadly on the last call as well, the sort of assets from an income-producing perspective attributed to You know, the legacy advisor are roughly 10%, but, you know, they're roughly 60% of the cost basis of the non-accrual number. So we know we have some work to do there, but I think we're pretty proud of what we've done from a new origination perspective and as we continue to sort of rotate this portfolio.
spk10: Gotcha. Very helpful there. Thanks again.
spk15: Thank you. Have a good day.
spk05: Thank you. One moment for our next question. That will come from the line of Robert Dodd with Raymond James. Please go ahead.
spk11: Hi, guys. Looking, as you said, a more lender-friendly environment, capital is more scarce, et cetera, et cetera. So, I mean, it would tend to imply that while it is a good time to report capital, it might be even better in certain verticals. So are there – And I'm thinking asset-based finance, to be honest. Are there particular areas where the terms and structures are moving even more favorably than the broad market, given how scarce capital is in the case of asset-based finance? And it has been creeping up as a percentage of the portfolio over time. Should we expect that to get... uh, maybe a higher share of incremental deployments over the next 12 months, maybe, or, or not.
spk15: Yeah, we're probably, and, and Robert, good morning. We're probably inside the range of where we want to be there, right? We've talked to the market about sort of 10 to 15%, sort of ABF sort of bucket. I mean, I think we, we do believe the investing environment there kind of remains quite compelling. Um, I think there's been different kind of shocks to the market in some ways. Um, In some ways, the overall kind of rate shock has probably impacted that market more just from either an end investing perspective or people being forced to reprice kind of loan books. But again, we've been pretty happy with what we've seen there performance-wise. I mentioned the home partners realization that happened during Q3. that was roughly $300 million of proceeds received. I think the position had an overall sort of two times money multiple from the time where it was initially invested, which was probably 2017 or 2018. I think the thing that remains interesting, though, and just we'll call it the more regular way private debt markets, is your kind of basic deal today is probably 11% sort of plus on levered. And that is probably a bigger company than usual, which, you know, we like, cause we talk about that all the time. Um, but also is probably, you know, a deal that has, you know, 50% sort of plus sort of equity below it. Right. And the, you know, that, that number in 2000 and December of 2021 was probably closer to kind of seven or seven and a half percent. Um, now obviously a hundred of that is credit spreads probably 25 of that is additional OID and the rest is the benchmark. We just think it's a very compelling environment to deploy capital these days. I do think our bar is just higher.
spk00: A little bit to make sure that
spk15: you know, we're not making mistakes, as we always do, but obviously it's just more heightened in an environment like this. And we're also, you know, the question that Ryan asked, I think being mindful about operating inside of our target leverage, but, you know, a lot of parts of the market are pretty darn interesting right now. You know, the things that probably aren't as much as, you know, the certain asset classes that themselves probably have not repriced enough, and if you are using, you know, financing or leverage against those those levered returns might be too tight, and I think you're waiting for that market to reprice.
spk11: Got it. I really appreciate all that comment. Thank you.
spk05: Thank you. As a reminder, if you would like to ask a question, please press star 1-1. One moment for our next question. That will come from the line of Melissa Waddell with J.P. Morgan. Please go ahead.
spk06: Thanks. I appreciate you taking my questions this morning. Most of them have actually been asked already, and I'll follow up here. I don't think I missed it, but if I did, I apologize. Given where portfolio leverage is right now, can you talk about how you're sort of thinking about, you know, staying within that target range? while preserving some capital for future deals, but also, you know, how that interacts with, you know, your thinking on share repurchase?
spk15: Yeah, happy to do that. You know, I think we've put out that target range of one to one and a quarter, right, that's on a net basis. Obviously, these deals were quite hands-on sort of with, so we have a you know, a pretty strong view of what expected repayments might be. You know, those repayments are never necessarily guaranteed. But I think if you look at our, you know, almost estimated repayment sheet, you probably have roughly a billion dollars of names that we could see get repaid over the, you know, the sort of next, you know, handful of quarters. So I think, Melissa, you're managing that with kind of, you know, what, you know, new deal opportunities you want to do coupled with, you know, any sort of commitments that you may sort of have outstanding. So it's, I don't think it's necessarily rocket science, but it's got a bunch of different inputs to kind of go into that. You know, I think at the one-to-one in the quarter, we still have some dry powder if we wanted to, to, you know, capitalize on that, you know, sort of market opportunity. Obviously, we're just mindful about, you know, credit ratings and we're supposed to be sort also the capital base. So I think it still gives you some wiggle room, but obviously as you get at or above that sort of target range, you would probably start to get a little bit more worried and I think want to look to bring that down. I think when you couple that with share repurchases, we've had this $100 million plan. We intend to fill that plan. And I think we've million dollars of shares we have repurchased over the last handful of years, and I think you should expect that in the coming course.
spk06: Okay, that's really hopeful.
spk15: Have a good day, Melissa.
spk06: Thanks so much.
spk05: Thank you. One moment for our next question, and we do have a follow-up from Ryan Lynch with KBW. Please go ahead.
spk02: Yeah, I just had one quick follow-up. You mentioned none of the non-accruals in your portfolio today are from the new advisor, the 2018 KKR FS advisor, which is a really great accomplishment. But I'm just curious, do you have a percentage of those loans on non-accrual today that were just legacy KKR-originated non-accruals versus the legacy KKR? Blackstone GSO?
spk15: I mean, we can probably get it for you more formally offline, Ryan. The only number that I do know off the top of my head is roughly from a cost basis perspective, you know, 60% of the non-accruals relate to the legacy advisor, which is probably, you know, which is 10% of income-producing assets today. I think probably by simple math, You could just say the other 40 relate to sort of the KKR numbers, which is probably, you know, 15 to 20% of income-producing assets today.
spk02: Okay. All right. Thank you.
spk05: Thank you. And speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call over to Mr. Dan Peterzak for any closing remarks.
spk15: Well, I wanted to thank everyone for their time and questions today. We're always available if you have any follow-up items. Please do not hesitate to reach out. Thanks again and have a good day.
spk05: This concludes today's conference call. Thank you for participating. You may now disconnect.
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