Blue Owl Capital Corporation

Good morning and welcome to the Owl Rock Capital Corporation second quarter 2021 earnings call. I would like to remind our listeners that remarks made during the call may contain forward-looking statements. Forward-looking statements are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described from time to time in Owl Rock Capital Corporation's filings to the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements. As a reminder, this call is being recorded for replay purposes. Yesterday, the company issued its earnings press release and posted an earnings presentation for the second quarter ended June 30th, 2021. This presentation should be reviewed in conjunction with the company's form 10Q filed on August 4th with the SEC. The company will refer to the earnings presentation throughout the call today. So please have the presentation available to you. As a reminder, the earnings presentation is available on the company's website. I will now turn the call over to Mr. Craig Packer, Chief Executive Officer of Owl Rock Capital Corporation.

Thank you, operator. Good morning, everyone, and thank you for joining us today for our second quarter earnings call. This is Craig Packer, and I'm CEO of Owl Rock Capital Corporation and a co-founder of Blue Owl. Joining me today is Alan Kirschenbaum, our CFO and COO, Jonathan Lamm, a recent addition to our senior management team, and Dana Stefani, our head of investor relations. I'll start today's call by briefly discussing our financial results for the second quarter before providing an update on the portfolio and the quarter's deal activity. Afterwards, Alan and Jonathan will cover our financial results in more detail, and then I will discuss our outlook and make some closing remarks. Turning to our second quarter financial highlights, net investment income for the quarter was $0.30, up from $0.26 per share in the first quarter. We made substantial progress towards covering our $0.31 quarterly dividend and remain on track to cover it in the second half of the year. This was driven by a significant increase in both originations and repayments and continued strong credit performance. Our board has approved a third quarter dividend of $0.31 per share. We ended the second quarter with net asset value per share of $14.90, up $0.08 from the first quarter. Credit quality remains strong with an average fair value of $0.98, consistent with prior quarters. We are very pleased with the origination activity we saw this quarter, which represents our third largest quarter since inception. As a result of this activity, our net leverage increased to 1.0 times, approaching the midpoint of our target range of 0.9 to 1.25 times. We also saw our pace of sales repayments accelerate to $743 million, with repayment levels now approaching fully ramped levels. Finally, I would like to take the opportunity to formally introduce Jonathan Lamm, who many of you already know. Jonathan will become the CFO and COO of ORCC effective September 1st. Jonathan brings a wealth of knowledge and more than 20 years of experience, most recently as the CFO of Goldman Sachs' BDC. We're excited to have him on board, and he will be discussing our second quarter financial results in greater depth shortly. Turning to originations, we were extremely pleased with our activity this quarter, both in terms of volume and quality. Originations were up significantly from last quarter and exceeded Q4, driven by the strong performance of our investment team and a pickup in M&A activity as a result of the continued strong economic backdrop. Gross originations for the quarter were $1.6 billion, with $1.4 billion of funded activity and net funded originations of $663 million. Our average spread on new commitments was approximately 670 basis points, up from 640 basis points last quarter. Our overall spread increased as a result of our ability to originate some higher spread unit tranches, particularly in the software sector, as well as an increase in second lien investments and a new preferred investment. We are pleased with our success at increasing the average spread on our investments over the last year, which is now roughly 20 basis points higher than it was a year ago. We believe this reflects the strength of our origination capabilities and relationships and the continued attractiveness of our direct lending solutions. Along those same lines, we have talked in prior quarters about how we have not yet reached a normalized pace of repayments. The payment volume was up meaningfully this quarter, and we are quickly progressing towards our expected fully ramped pace of repayments, which will positively impact earnings. We finished the quarter with an investment portfolio of $11.9 billion across 129 portfolio companies, and we are pleased with our strong credit performance. The overwhelming majority of the portfolio continues to perform very well, with 93% of debt investments marked above 95% of par. Most of our borrowers have returned to normalized operating levels, and many experienced strong performance in Q2. While we are closely monitoring COVID developments, we have a positive outlook for the overall economy in the second half of the year as consumer demand further rebounds. We believe this will continue to drive good results for our borrowers. We continue to see sequential improvement in names in our lowest rating category, those names rated 4 or 5. These have decreased from 1.9% to 0.5% of the portfolio quarter over quarter. While we continue to have a small number of challenge credits, our non-accruals remain extremely low, with only two investments on non-accrual status at the end of the quarter, representing less than 0.5% of the portfolio based on fair value, one of the lowest levels in the BDC sector. Before I turn it over to Jonathan to discuss our financial results, I would like to take a moment to discuss two recent announcements we made. A few weeks ago, we announced an increase in capital commitments to our joint venture loan fund, Sebago Lakes. The fund has generated an attractive average quarterly ROE over the past three years of approximately 10%. ORCC increased its commitment to $325 million and, in addition, increased its economic ownership to 87.5% from 50%. We are also excited to bring in Nationwide Life Insurance as a new partner in the JV. Nationwide has been a meaningful ORCC shareholder since inception and purchased the remaining 12.5% economic interest from UC Regents effective June 30th. Regents remains a very significant ORCC shareholder and a valued long-term partner across the broader Blue Owl platform. In conjunction with these changes, the joint venture will be referred to as ORCC Senior Loan Fund going forward in our disclosures. I also want to touch on the CFO transition we announced this week. Effective September 1st, Jonathan will become the CFO and COO of ORCC. Alan will remain an officer of the company as an executive vice president and serves as the CFO of Blue Owl, the parent of ORCC's advisor. Jonathan comes to us with tremendous experience as a BDC CFO, and I'm excited to work closely with him going forward. I would also like to thank Alan for his extraordinary contributions to ORCC since inception. Alan has played a critical role in the great success we've enjoyed to date by building a best-in-class operational and financial infrastructure for ORCC, which we believe to be one of our key competitive advantages. Alan will now say a few words before turning it over to Jonathan.

Thank you, Craig. Good morning, everyone. To begin, I echo your comments, Craig. We are thrilled to have Jonathan on board with us and know that his deep experience and wealth of knowledge will serve ORCC very well. Before I turn it over to Jonathan to go through the results, I'd like to briefly reflect on how we strategically approached the construction of ORCC's balance sheet. ORCC now benefits from what we believe is one of the strongest funding profiles in the industry. Given ORCC's scale since inception, we knew it was critical to have a diversified financing landscape and we embarked on building a balance sheet that would provide financial flexibility and ample liquidity for multiple financing sources. In addition to developing a large, diverse bank group that provides us with a billion and a half of revolving credit capacity, we have also issued almost $4 billion across eight unsecured bond deals and over $1.5 billion across six CLOs to efficiently finance our balance sheet. We have been able to meaningfully improve pricing since our first issuances in both cases. I am confident with Jonathan as CFO and COO, ORCC will continue to optimize its financing profile and deliver strong risk-adjusted results for our shareholders. With that, I'll turn it over to Jonathan.

Thank you, Craig and Alan, for the kind words. I'm excited to be part of the team and look forward to talking more with all of our investors and our other stakeholders. We ended the second quarter with total portfolio investments of $11.9 billion Outstanding debt of $6.4 billion and total net assets of $5.8 billion. Net asset value per share increased to $14.90 as of June 30th compared to $14.82 as of March 31st. We ended the quarter with net leverage of 1.0 times debt to equity, approaching the midpoint of our target range of 0.9 times to 1.25 times, with $2.2 billion in available liquidity. Our dividend for the second quarter was $0.31 per share, and our net investment income was $0.30 per share. Total investment income for the second quarter was $249 million, up from $222 million in the first quarter as a result of a $22 million increase in interest income, reflecting the progress we made in net portfolio deployment as well as from an increase in prepayment-related income. On the expense side, Management and incentive fees were $69 million, reflecting continued growth in the portfolio. And interest expense was $54 million, up from the prior quarter, as we modestly grew our leverage. I would highlight that we had $1.8 million of non-recurring interest expense related to the acceleration of upfront deferred financing fees, as we continued to optimize our financing costs through the restructuring of one of our CLOs. Turning to the balance sheet. We're pleased with the continued growth of our unsecured financing while we continue our efforts to reduce our borrowing costs. We capitalized on strong conditions in the unsecured bond market during the quarter, raising $950 million across two deals on attractive spreads. In addition to the long five-year that we issued in April, we raised an additional $450 million in a seven-year bond, which priced at a fixed coupon of 2 7 8. This is our first seven-year bond and should help us to enhance the laddering of our debt maturity profile. As of June 30th, more than 60% of our outstanding borrowings were from unsecured debt. We will continue to look for opportunities to optimize our liabilities, which may contribute to positive NII growth in the future. For context, our unsecured bond pricing levels have improved over 100 basis points since we began accessing the unsecured market and we believe there is additional improvement we can capture on future issuances. With that, I'll turn it back to Craig for closing comments.

Thanks, Jonathan. To close, I'd like to touch on the market environment and discuss our outlook for ORCC in the second half of the year. We are really pleased to have delivered on a number of the objectives we have talked about in prior quarters. We are now well within our target leverage range and continue to grow the portfolio, which has allowed us to make substantial progress towards covering our dividend. Despite a competitive market backdrop, we were able to deploy capital into attractive investments and drive incremental yield in the portfolio. The pace of repayments also picked up, resulting in a meaningful increase of prepayment-related income. Our credit performance remains extremely strong and is amongst the best in the sector. and opportunistic financings and improving financing spreads have allowed us to continue to lower our overall cost of funding. We are encouraged by our visibility on the third quarter and expect another very solid quarter of originations. In terms of repayments, we also expect another strong quarter, which should again generate meaningful prepayment income in Q3. Given our strong origination activity, we are confident we will be able to offset repayments by deploying the capital into new originations at attractive spreads. In terms of portfolio construction, we will continue to be primarily a first lien lender and will also participate in other opportunities across the capital structure that offer attractive risk-adjusted returns. This includes continued second lien investments, Investments in funds like our senior loan fund or equity investments in companies like Wingspire, as well as select structured capital and equity co-investment opportunities. However, protecting our principle is paramount to everything we do. In terms of the market opportunity, while we have seen some increased competition and resulting spread pressure, We are very pleased by the continued growth in demand for large direct lending solutions, in particular unit tranches. Private equity firms are choosing direct loans for more of their large deals, which plays to our strength since we generally favor bigger companies for our portfolio. This year, we have already evaluated more than 20 opportunities over $1 billion in size and invested in or committed to eight of these and continue to evaluate others. This trend continues to accelerate and is creating exciting opportunities for large direct lenders like Alrock. We believe we are especially well positioned for this due to our scaled platform with a full suite of financing solutions and a large, deeply experienced team with strong relationships in the financial sponsor community. Before I wrap up, I want to touch briefly on the Blue Owl transaction, which closed on May 20th. Alrock now operates as a division of Blue Owl, and we're excited about the growth of the platform and the opportunities that the expanded business will provide over time. We will continue to use the Alrock name and will maintain the same focus that we've had since inception, which is providing customized financing solutions to borrowers and financial sponsors. We look forward to continuing to execute on our long-term plan to optimize ORCC's portfolio and balance sheet to achieve compelling risk-adjusted returns and a stable, attractive dividend for our shareholders. Thank you for joining us today. We appreciate your interest in ORCC and look forward to speaking to you again next quarter. Operator, please open the line for questions.

Thank you. At this time, I would like to remind everyone to answer to queue up for questions. You may press star 1 on your telephone keypad. If you would like to withdraw your question, you may press the pound key. Your first question comes from the line of Devin Ryan from JMP Securities. Your line is open.

Okay, great. Good morning, Craig and Allen, and welcome, Jonathan. First question here. So, you know, clearly another very strong quarter of portfolio growth. You're now at one times leverage within reach of covering the dividend. Now that you're at one times, and I'm sure have a little bit of a clearer picture on earnings power of the portfolio, can you maybe share your thoughts around intermediate term leverage range that you consider optimal in the current environment?

Sure. Sure, Devin. Look, our range is 0.9 and one and a quarter. I think we're comfortable operating anywhere within that range. As you know, we're now at one times on a net base. We think we're comfortable being there. And frankly, I would expect that we would operate somewhere between there and 1.1 on sort of center of gravity. We look around. The portfolios can certainly support that. We're very focused on keeping really strong ratings from the rating agencies. We're in constant communication with the agencies and believe that we'll continue to have good investment grade ratings in that range. It's obviously very dependent upon flows in any one quarter, so could dip a little higher, dip a little lower, depending upon when deals land within a quarter. But 1 to 1.1 is probably the right range for folks to be modeling in. Again, could be a bit higher or lower. Okay, great. Very helpful.

And just to follow up, maybe touching on pre-payment activity, And the outlook, I know it's episodic, so a bit hard to predict. And I heard the quarter-to-day comment. But are you seeing any change in some of the factors that have been driving elevated activity?

Sure. So we get repaid. The most typical reasons we're getting repaid are Company is getting sold and the buyer redoes the capital structure. Company goes public and uses IPO proceeds to repay debt. Company grows through acquisition and gets to a size where it makes sense to refinance. And then occasionally we get refinanced either in a direct market or in the syndicated market to just lower costs. That's the mix. I would say right now, and I'd have to go back and and study it, but my sense just from my seat is there's a lot of M&A activity where sponsors, the velocity of companies The velocity the sponsors are buying and selling companies has picked up, in part because of the much stronger economic conditions. And so as the economy has picked up, M&A spirits are kindled, and sellers are thinking it's a good time to sell, buyers are thinking it's a good time to buy. And so we're just seeing a really nice pace of M&A activity that results in the companies getting bought and sold oftentimes from one sponsor to another, or certainly companies get sold from financial sponsors to strategic buyers as well but you know the sponsors that you know that got you know properties that you know during COVID you know I mean the activity slowed you know that we're still I think feeling the The catch-up effect of that as the economy has recovered and sellers are finding the businesses have recovered, it's a good time to sell. So I don't know if that gives you a flavor for it. So a little more M&A oriented. Obviously, the financing markets are strong, so financing activity is good. The IPO market, it's a mix of all those things, but probably a little more weighted to M&A velocity right at this moment.

Yeah, okay. No, that is helpful. I appreciate it, and I will leave it there.

Thanks so much. Thanks, David.

Your next question comes from the line of Robert Dodd from Raymond James. Your line is open.

Hi guys, and congrats on the quarter, and if it hadn't been for that $1.8 million, I think you would have earned the dividend this quarter, not just in the second half. On the portfolio mix, Craig, you gave some comments, you know, obviously you focus on first things that you're willing to add more secondly. That goes all the way back to the IPO, you've always said that, with some other things. So how... What kind of mix, you know, what could First Lean go down to, I guess I'm saying? Would you be happy at 80? Or would you be willing to go a little bit lower than that if, you know, if you had Second Lean to good borrowers, you know, and more of the fun type structures? I mean, any color on what you kind of, not quite target mix, but comfort mix would be First Lean versus the other big categories.

Sure. So we are running in the high 70s now, close to 80%. We make decisions one deal at a time. I appreciate your reminding folks, but we've said for a while now that we like second liens and we like doing them, but we just have a very high credit bar. Our second lien exposure is around 17%. I'd be very comfortable taking that number into the 20s and mid-20s, even high 20s in a certain kind of deal environment. We get shown a lot of second lien opportunities. We just say no to almost all of them. and, you know, the other piece which I touched on in my comments, you didn't ask about it, but I'll bring it up, is I do think, you know, the other part of our portfolio, the equity preferred investments in Sebago Lake, investments in Wingspire, that all approximates, give or take, you know, we were, it's very, there's only a handful of investments that comprise that. primarily our investments in Sebago and Wingspire, a couple of equity investments, one PLI, which we took over. But we're seeing some interesting structured capital opportunities. We did one this quarter for a company called Mavis, which was previous in our portfolio where we did a structured preferred. And so that 5%, I think, could grow over time to high single digits, maybe even approaching 10. So just to come back to it, if we took Thank you for joining us.

and many more.

I think that's right. I think even larger – our bar is obviously even that much higher for anything that's structured capital that might be – again, I don't want to overstate this. We did that. We're doing these like one a quarter. I don't want to make it seem like we're doing lots of these. What's happened is that valuations are quite high right now. Financial sponsors are having to pay very significant prices to buy companies. And, you know, leverage is not going up that much. That gap is being filled by more and more equity from the financial sponsors. And so we're seeing, you know, we're getting approached for companies we like. Maybe we're doing this. Maybe we're doing a second lean. The sponsors are writing an even bigger equity check beneath us, and they're saying, you know, can you structure something where we think we're getting downside protection, you know, through a preferred structure, and we're getting, you know, low-to-mid-teens-type rates of return. Those are interesting, but our bar is extraordinarily high on those, even beyond the second lien for obvious reasons. You're a bit deeper. You won't see us do a lot for smaller companies. As you know, and you touched on our second lien bar, if our average EBITDA across the portfolio is $100 million of EBITDA, our second liens are closer to $200 million of EBITDA. And so the bar for preferreds will be even that much higher.

Got it. Thank you.

Thanks, Robert.

Your next question comes from the line of Mickey Schlein from Leidenberg. Your line is open.

Good morning, Craig, and hello to Jonathan. Craig, I don't want to beat a dead horse, but I want to follow up on the second lean and Unitron's question. I do appreciate that Alrock is still somewhat transitioning from its pre-IPO portfolio, but I'd like to ask you how we should think about the additional credit risk you might be introducing by Thank you for joining us.

our Unitronch you know gets you know we we depending upon where in our disclosure it gets included as first lien today it's about a third of the overall portfolio is Unitronch what we have done and maybe this is what you're alluding to is as we built the portfolio you know we wanted to scale relatively quickly but we wanted to do it safely and so we put a lot of high quality but lower spread first lien paper in the book you know we still have a billion dollars of Thank you for joining us. and many more. But again, I don't view this as new. For those of you who have followed us, when we started five years ago, we had 35%, 40% of the book at second lean. We've been running extremely low at 17%. So it's really, I'd say, just been ebbing at a very low level, and we're talking about moderating that back up. We've stayed flat at second lean the last couple of quarters, so it hasn't gone up. But the question I was asked was, what would you be comfortable taking it up to? And obviously, we want to and many more. But most of our activity continues to be first lien. Most of it continues to be unit tranche. But if we find chunky second liens to do, we will happily do them for the right credits.

And to follow up on that, Craig, given the current market conditions, would you be comfortable with a majority of the portfolio in unit tranche as opposed to pure first lien?

Well, Again, a third of the portfolio today is Unitronch. So, yes, I'd be comfortable having all of our first lane be Unitronch. We think Unitronch is really ideal for BDC. And the reason is because you get a higher spread, but you attach a $1, so there's great downside protection. But, again, with a high credit bar, we wind up having... and many more. But Unitronch is a core to what we do. It's a core offering for direct lending, and particularly in the tech sector, we're seeing some really attractive, very large Unitronchs that we continue to be very active in.

And Craig, my last question, just considering your deep relationships across the financial community, how actively does Blue Owl, or Owl Rock specifically, Thank you for joining us.

The construct that you're describing where a lender does a unit fraud and sells the first out, when we started Alrock, I would say that was often the predominant method that lenders used and sold the first out to try to boost returns. I think there's been a real change there, Mickey, that that's not often done and that most lenders in the market, and certainly we, typically just hold it all. And part of that is... Thank you for joining us. Certainly in the upper middle market, most lenders just hold it all rather than slice it up.

I appreciate that, Craig. That's it for me. I just want to thank Alan for our relationship and all the hard work he did to put together Owl Rock and ORCC. Much appreciated. Thanks for your time.

Thanks, Nicky. That was very kind of you. Thank you.

Again, if you would like to queue up for a question, you may press star then the number one on your touch-tone pad. Your next question comes from the line of Casey Alexander from Compass Point. Your line is open.

Hi, good morning. I'd like to echo Mickey's comments, thanking Alan for great work and very definitive information flow in our work in trying to cover this company and welcome Jonathan to the platform. Most of my questions have been asked and answered, but I would ask that generally in a quarter that's active in deployments and repayments such as this one, there's almost some immediate activity that also tended to slip over the quarter into the third quarter. So I'm just wondering... Were there any deals that pushed out into the third quarter that might give you some insight into deployment activity in the third quarter and also, you know, some view as to how repayments are shaping up in this quarter?

Sure. So I mentioned this briefly in the comments, but I'm happy to underscore it. We have visibility on our third quarter. It's going to be a very active one from an origination standpoint, I would say. Again, it depends on when everything winds up closing. Even when you have high visibility until it closes, you're not sure. But I would expect it to be in line with the second quarter, possibly exceed it, but in line with it. Repayments also we have really nice visibility on and similar comments, at least in line, if not exceed. There are... I won't get into specific deals. Yes, there's a couple deals that closed in the beginning part of the third quarter, but my comments are more driven by just our near-term pipeline, which we're seeing and map out on a daily, weekly basis, and what we expect to have close over the next month or so. It's quite active. All right, great.

Thank you, Craig. Very helpful, and appreciate you taking my questions.

Sure.

Thanks, Casey.

Casey, thank you very much.

Your next question comes from the line of Kenneth Lee from RBC Capital Markets. Your line is open.

Hi, thanks for taking my question. Just one on the senior loan fund JV. I'm wondering if you could just remind us again the potential benefits of ORCC and how you think about potential allocation toward that JV in the near term. Thanks.

Well, I'm not sure. Well, I'll try to answer the question. I may be missing some nuance to it. JV, we've changed the name, but I'll use Tobago Lake since that's the name everybody's familiar with. It's been a wonderful partnership we had for UC Regents. They're terrific partners in it. And it's really a first lien strategy, not Unitronch, all first lien direct and syndicated first lien term loans. We've earned about a 10% ROE at that JV, and we think that growing is a great investment for ORCC. It benefits from ORCC's sourcing capabilities, and we have a desire to grow it and think it's just a terrific investment. Thank you for joining us. That's our commitment. It's going to take time for us to fully invest that and get all that money working. And then as part of it, we brought in Nationwide Life Insurance, who we also know extremely well as a new partner there going forward. So no change to how we operate the JV. It's primarily in this... Thank you for joining us. I think terrific.

Gotcha. Very helpful. And then just one follow-up, if I may, on the liability side. I wonder if you could elaborate on any specific further optimizations you've seen in your term with the funding mix.

Thanks. Well, we were definitely quite active this quarter. We feel really good about where we are from, we'll call it the three legs of the stool in terms of having the corporate revolver, having drop-down SPVs as well as CLO financings and our unsecureds. So we're quite happy with the mix there. The $1.8 million of capital The accelerated expense that we took was because we were reducing pricing in our CLOs. So we continue to actively look at those and find ways to, and we'll be looking to find ways to optimize there. And then in addition, on the unsecured side, certainly as we mentioned, spreads have continued to come in. Our spreads have continued to come in and we certainly will look to be active over time there, but we feel really good about our liquidity position. So it's more about an optimization game right now.

Gotcha. Great. Very helpful. Thanks again. Thank you.

Your next question comes from the line of Sinyon O'Shea from North Fargo Securities. Your line is open.

Hi. Good morning. First question on the yields this quarter. Craig and team, I think you all guided that we would see the improvement from repays, and it looks like we, of course, saw that. Is this about what you expected in terms of the portfolio yield, or was there a little extra from higher, more juicy yields? Repays. Any color there on what we should sort of model out?

I was very pleased with the yields on new investments this quarter and the increase in spreads. The comparison spreads we were able to put on this quarter versus the first quarter was a nice pickup. Thank you for joining us. We're outperforming on that regard in terms of where we're adding new deals and able to increase the overall spread and the overall yield in the portfolio over the last year or the last quarter. We've talked about our desire to rotate a bit and get a little more spread in the portfolio without sacrificing credit quality. And I think we're seeing tangible evidence that we're succeeding on that. So I'm pleased with that. In terms of the outlook, that'll be more challenging. The market is competitive, and there is some spread pressure, and we're seeing that, and I touched on that a couple questions ago, but I'll sort of repeat it here. Given how strong all the credit markets are, the public markets, private markets, capital raising private markets, their spread pressure. And so we're seeing that. And I think it'll be more challenging in the next quarter to also increase and maybe we'll see a reduction in spread for new deal activity. We just have to see how it all lands. Obviously, any one quarter doesn't move the needle for the overall portfolio. But I would say our second quarter was an unusually strong one, just Thank you for joining us.

Can you talk about the nature of these deals? I know you often go into the advantages of private credit with the certainty and the privacy and so forth, but is there any sort of pocket of where these are coming from? Are they middle market companies graduating and just sticking with the private credit solution because that's what they know and like, or is it You know, syndicated names kind of dipping down for the advantages of private execution. Is there any sort of clear area where we're seeing this pipeline come from?

Sure. I think that the single biggest driver is the continued success and growth of software and software's use throughout all the economy and all the different companies that have been formed in the last five to 10 years to help companies, governments, and many more. Thank you for joining us. Thank you for joining us. Thank you for joining us. The apparatus of doing a syndicated deal, it's cumbersome. It takes time. The constituencies in that space don't always understand software in the same manner. The loan to value on these software loans is often actually quite modest. and I say that one because they're good highlights their attractive loans but two you know frankly ease of use and execution and simplicity and knowing who your lender is and having certainty um you know are really important and given it's actually a modest amount of the overall capital structure you know the fact that it costs more which it does potentially versus syndicated deal you know doesn't necessarily move the needle for the sponsor and many more. and even more desire for sponsors to use them for their buyouts. And so I think this trend is accelerating and we're really well positioned for it.

Great. Thank you, Craig, and congratulations, Mr. Lamm, on the new appointment. Thank you, Fred.

There are no further questions at this time. Now I'll turn it back over to Mr. Craig Packer.

Great. Well, in closing, I'm going to add my own thank you to Alan. He's not going very far. He's still going to be, obviously, working very closely with us. But Alan's been an incredible partner to me and to our whole team and really deserves a lot of credit for everything that we've built at LRCC and at ALROC. And we will still be interacting with him all the time, but really his imprint on what we've built will be felt for many years to come. So thanks to Alan, thanks to all of you for joining, and we look forward to talking to you soon.

Thank you for your participation. You may now disconnect.