Casey Alexander

Casey Alexander highlighted FSK's stock trading at a significant discount to book value, suggesting that share repurchases could be more accretive than new loan investments. He asked about FSK's inclination towards initiating meaningful stock repurchases. Additionally, he inquired about the structure and performance of FSK's investment in Toorak, given reports of dislocation in the fix and flip market.

Answer

Dan Pietrzak, Chief Investment Officer and President, acknowledged the point about repurchases, noting FSK's historical buybacks of $350 million. He stated it's a consideration, balanced against market volatility and leverage targets. For Toorak, Mr. Pietrzak explained the 2016 investment has facilitated $12.5 billion in loans with cumulative losses of approximately $100 million over 10 years. While the UK business is strong, US delinquencies are higher (around 10%, stabilizing), and ROEs are challenged by rates and delinquencies, impacting dividends. He confirmed Toorak is treated as a portfolio company with potential for monetization.

Casey Alexander asked for an update on FSK's significant investment in Toray, given reports of material dislocation in the fix and flip market, inquiring about the investment's structure and current performance.

Answer

Dan Pietrzak, Chief Investment Officer and President, explained that the Toray investment, initiated in 2016, has grown to $12.5 billion in loans with cumulative losses of approximately $100 million over ten years. He noted positive aspects like $800 million in direct originations last year and strong UK performance, but also higher US delinquencies (around 10%, now stabilizing) and challenged ROEs due to the interest rate environment. Dividends from Toray have been lower, impacting its valuation, but it remains a long-term positive story.

Casey Alexander of Compass Point Research & Trading, LLC asked about the company's future dividend policy for 2026 and how it plans to manage a high level of new investment activity given its leverage targets.

Answer

Daniel Pietrzak, President & CIO, indicated that formal 2026 dividend guidance would come on the Q3 call but confirmed the policy will be 'NII led,' considering factors like the spread environment and debt refinancing costs. To manage new deal flow, he highlighted the JV's growth capacity and the high correlation between new originations and portfolio repayments, while stressing adherence to the target leverage band is paramount.

Casey Alexander asked about the KKR macro group's view on recession odds, the potential for further portfolio yield compression, and whether loans spilling over from the broadly syndicated market carry lower yields.

Answer

Chief Investment Officer & Co-President Daniel Pietrzak relayed that KKR's macro team sees a recession as 'more likely than not,' though it could be muted. He acknowledged the potential for downward pressure on yields as the portfolio churns but emphasized a focus on risk-adjusted returns. Pietrzak also confirmed that while loans from the syndicated market can have lower spreads, private credit is increasingly valued for the lender relationship, not just for certainty of execution, and FSK is positioned to act if volatility increases.

Casey Alexander from Compass Point Research & Trading asked for quantification of new originations that were delayed from Q4 2024 to Q1 2025, questioned the source of the building deal pipeline if M&A is delayed, and inquired if the MAVERICK sale was above or below its Q4 mark.

Answer

Chief Investment Officer Daniel Pietrzak stated that a handful of deals slipped into Q1, which would have generated an additional $0.02 to $0.03 in fee income. He clarified that while a major M&A wave might be slower to materialize due to policy uncertainty, the pipeline is still building and is busier than in 2023 and 2024. Regarding MAVERICK, Mr. Pietrzak confirmed the sale price was above the Q4 mark, consistent with the company's valuation methodology.

Casey Alexander asked about the significant increase in Payment-In-Kind (PIK) income and its expected trend. He also inquired about the Board's expected approach to the 2025 dividend policy, considering potential rate compression and declining base rates.

Answer

Daniel Pietrzak, CIO, stated that roughly half of the PIK income is from intentionally structured junior debt in large, stable companies, while the rest relates to restructured businesses needing flexibility. Brian Gerson, Co-President, added that the PIK option is a strategic tool to support turnarounds. Regarding the dividend, Daniel Pietrzak and Michael Forman, CEO, reiterated that the Board takes a long-term view, setting the base dividend at $0.64, and noted that significant spillover income is available to support the total $0.70 distribution.

Casey Alexander asked about Trinity Capital's opportunity to play offense given its diversified verticals and lower software exposure, specifically inquiring if the company could leverage turmoil in the software sector to convert software loans to equipment finance loans for better collateralization, spreads, and risk-adjusted returns.

Answer

CFO Michael Testa and CEO Kyle Brown confirmed they see this as an opportunity, noting their strategic entry into the software space when valuations were more favorable. Kyle Brown highlighted their opportunistic approach, particularly in sponsor finance for lower middle-market AI-enabled software companies, and emphasized their liquidity to capitalize on market consolidation.

Casey Alexander inquired about Trinity Capital's strategy to leverage its diversified verticals and lower software exposure to play offense, specifically exploring opportunities to convert software loans to equipment finance loans for better risk-adjusted returns amidst market turmoil.

Answer

CEO Kyle Brown and CFO Michael Testa confirmed they view this as a significant opportunity, particularly in sponsor finance for AI-enabled lower middle-market software companies. They noted that declining valuations created a favorable entry point, allowing for more aggressive pricing and opportunistic investments.

Casey Alexander asked about the apparent contradiction between commentary on tariffs driving equipment finance demand and the quarter's origination mix, which was heavily skewed towards secured loans. He also requested clarification on the composition of the watchlist, specifically the split between companies needing capital versus those underperforming.

Answer

CEO Kyle Brown and COO Gerry Harder explained that the origination mix was a matter of timing, noting the equipment finance vertical had a strong quarter for commitments and its year-to-date deployment of 26% is in line with expectations. Chief Credit Officer Ron Cundich addressed the watchlist, stating it's a dynamic list and a combination of companies needing capital and those underperforming, which are often related issues.

Casey Alexander asked for clarification on the 5% quarter-over-quarter drop in interest income despite being a net originator, the outlook for loan payoffs, and the specific impact of tariffs on the medical device portfolio.

Answer

CEO Kyle Brown attributed the income drop to the lagged effects of a prior rate cut and a significant decrease in early loan payoffs, which reduced fee income. He noted that payoffs have already returned to normal levels in Q2. Chief Credit Officer Ron Kundich and COO Gerald Harder added that a deep analysis found the tariff impact on the high-margin medical device portfolio to be 'low' as subcomponent costs are not a major factor.

Casey Alexander questioned the sustainability of Trinity's rapid origination growth while maintaining credit quality and queried the strategy of using the ATM program so heavily for equity raises versus a syndicated offering.

Answer

COO Gerry Harder explained that the company's diversified vertical structure was designed for scalable growth without sacrificing credit quality. CEO Kyle Brown defended the ATM program as a more cost-effective (1% fee) and less disruptive method for raising equity compared to syndicated offerings (6-8% fee), highlighting the benefits for shareholders.

Casey Alexander asked about the implications of software loans trading at an average price of 90 in liquid credit markets for Barings BDC's valuations and whether the company would consider tactical investments in liquid credit if the risk-adjusted returns become more attractive than directly originated private credit.

Answer

CEO Tom McDonnell explained that the lower prices in broadly syndicated software loans are driven by CLO ratings sensitivity and repositioning, not fundamental credit issues, and do not reflect Barings BDC's high-quality software exposure. He confirmed that the company would tactically consider investing in liquid credit markets if volatility or pricing mismatches present compelling risk-adjusted return opportunities.

Casey Alexander inquired about the impact of liquid credit market software loan prices, which are reportedly trading around 90, on Barings' and third-party valuations for its software portfolio. He also asked if Barings would consider tactically investing in the liquid credit markets if the risk-adjusted return mismatch with directly originated private credit widens.

Answer

CEO Tom McDonnell attributed the lower prices in the broadly syndicated loan (BSL) software market to CLO ratings sensitivity, headline-driven selling, and repositioning ahead of potential downgrades, rather than fundamental credit issues for quality names. He asserted that Barings' software exposure, focused on vertically integrated, enterprise-value businesses integral to core operations, does not warrant similar markdowns. Mr. McDonnell confirmed that Barings would absolutely consider tactical investments in BSLs, leveraging their high yield team's expertise, especially during periods of market volatility or general sell-offs, to capitalize on opportunities with low credit risk.

Casey Alexander questioned the modest pace of share repurchases despite the stock's discount to NAV and asked if Barings was seeing the same August surge in deal activity as peers, and how it would manage inflows given its high leverage.

Answer

President Matthew Freund explained that blackout periods related to strategic activities limited share repurchase timing but affirmed it remains a core strategy. He expressed cautious optimism about the deal pipeline but was skeptical of industry hyperbole. He noted the decision to run at the higher end of their leverage range was conscious and supported by a diversified capital base, allowing them to manage new opportunities.

Questioned the modest pace of share repurchases given the stock's discount to NAV and asked about the reported surge in August deal activity and how the company would manage it with high leverage.

Answer

The company explained that share repurchases were limited by blackout periods related to other strategic initiatives. They aim to close the NAV gap by improving ROE. While their deal pipeline is strong, they are cautious about calling August a record month and are confident they can manage new deal flow across their broad platform without being pressured to deploy capital, while keeping BBDC's leverage at the high end of its range.

Casey Alexander questioned the modest pace of share repurchases given the stock's wide discount to NAV and asked about other measures to close the gap. He also asked if Barings is seeing a similar surge in August deal activity as other BDCs and how it would manage new deals with already high leverage.

Answer

President Matthew Freund explained that blackout periods, sometimes extended by strategic activities, have constrained their ability to repurchase shares but that it remains a core strategy. He expects the NAV gap to narrow as ROE improves. Regarding deal flow, he was skeptical of August being a record month but confirmed the pipeline is strong. He stated BBDC will continue to run leverage at the higher end of its range, supported by a balanced capital base and high-quality assets.

Casey Alexander questioned the outlook for fee and other income in 2025, given the cautious commentary on deal flow, and asked if a one-time event contributed to the strong fee income in Q4 2024.

Answer

President Matthew Freund projected that fee income would likely be 'flat to flat' in 2025, as a potential decrease in OID acceleration from fewer new deals could be offset by an increase in amendment and extension fees from the existing portfolio. He confirmed that a single transaction with a substantive fee made Q4 an outlier and recommended using a trailing four-quarter average for modeling purposes.

Casey Alexander questioned whether fee and other income is likely to be flat-to-down in 2025 due to deal uncertainty and asked if a one-time event contributed to the strong fee income in Q4 2024.

Answer

President Matt Freund projected that fee income would likely be 'flat to flat' for the year, as lower OID acceleration from new deals could be offset by higher amendment and extension fees from the seasoned portfolio. He confirmed that a single transaction with a substantive fee created an 'outlier dynamic' in Q4 and recommended using a trailing four-quarter average for modeling purposes.

Casey Alexander questioned whether the private equity sector's reactivity to market sentiment is causing shifts in Blue Owl Technology Finance Corp.'s pipeline, potentially moving away from software, and if this creates challenges for reaching a fully levered position.

Answer

Erik Bissonnette, President, suggested that larger, technology-focused private equity players largely share Blue Owl's thesis and view market dislocations as opportunities, citing past 'go private' tech transactions. He emphasized Blue Owl's broad tech mandate beyond just software. Craig Packer, Chief Executive Officer, added that private equity firms take a long-term view and are well-versed in the space, seeing current conditions as an opportunity to acquire businesses at attractive valuations. He also noted that public loan market dislocation benefits direct lenders like Blue Owl.

Casey Alexander asked if the private equity sector's activity is shifting away from software due to market sentiment, potentially creating challenges for Blue Owl Technology Finance Corp. to reach a fully levered position.

Answer

Erik Bissonnette, President, suggested that larger, technology-focused PE players share Blue Owl's thesis and see opportunities, including attractive public market dislocations. He clarified that Blue Owl's portfolio is not exclusively software. Craig Packer, CEO, added that PE firms take a long view, are well-versed in the space, and view market disruptions as opportunities to acquire businesses cheaply. He also noted that public loan market dislocation benefits direct lenders like Blue Owl.

Casey Alexander asked if Blue Owl would consider additional asset sales from the OBDC II portfolio to accelerate its wind-down, given market awareness of its runoff and significant dry powder among LPs. He also requested more granularity on the one-time income and lower operating expenses that contributed to the $0.02 per share tailwind for OBDC.

Answer

Craig Packer, Co-President of Blue Owl Capital Inc, stated that they are open to considering additional asset sales from OBDC II if they deliver great value and accelerate capital return, alongside repayments and earnings, while emphasizing a prudent management approach. Jonathan Lamm, CFO of Credit, explained that the one-time income was primarily from call protection on a repayment, and the lower OpEx (approximately $0.005) was a non-repeatable positive true-up related to merger synergies achieved post-OBDC/OBDE merger, exceeding conservative budgeting.

Casey Alexander asked if Blue Owl would consider additional asset sales from the OBDC II portfolio to accelerate its winding down, given the market's awareness of its runoff and significant dry powder among LPs. He also asked Jonathan Lamm for more granularity on the $0.02 tailwind from one-time income and lower operating expenses.

Answer

Craig Packer, Co-President of Blue Owl Capital Inc, stated they would consider anything that delivers great value to investors, acknowledging inbound interest for additional asset sales. He explained that winding down a fund involves a complex process with the board and shareholder engagement, but they will look to repayments, earnings, and potential asset sales to accelerate capital return. Jonathan Lamm, CFO of Credit, Blue Owl Capital Inc, explained that the one-time income was primarily from call protection on a repayment, and the lower OpEx was a non-repeatable positive true-up related to merger synergies that were conservatively budgeted.

Casey Alexander inquired about how Blue Owl plans to scale its new equipment leasing joint venture to a meaningful size for OBDC, given the typical characteristics of that market.

Answer

CEO Craig Packer clarified that the JV is an example of new opportunities rather than a future massive investment. He highlighted that 'chunky' opportunities exist, particularly in financing data centers and GPUs for investment-grade counterparties, which differ from traditional micro-ticket leasing. He also referenced the company's existing successful equipment financing business within its Wingspire JV.

Casey Alexander inquired about opportunities to lower costs by rationalizing the liability structure inherited from the OBDE merger. He also asked for clarification on whether the supplemental dividend is calculated based on adjusted earnings or GAAP earnings.

Answer

CFO Jonathan Lamm confirmed that there are significant opportunities to optimize the inherited liabilities. He stated that the company has already begun this process by repricing certain facilities, a CLO, and repaying high-coupon OBDE notes at the first opportunity. He also clarified that the supplemental dividend is calculated based on adjusted net investment income, not GAAP figures.

Casey Alexander congratulated the team on the seamless OBDE merger and asked two questions: first, how far along the portfolio is in recognizing the impact of Fed rate cuts, and second, about the current level of onboarding yields and what it would take for spreads to normalize.

Answer

CEO Craig Packer stated that as of quarter-end, a little over two-thirds (about 70%) of the portfolio had recognized the rate resets. He explained that new unitranche spreads are currently tight, around 475-500 basis points, due to moderate M&A activity and a strong syndicated loan market. However, he noted this still represents a significant premium over the syndicated market. Packer anticipates that an increase in M&A or a loosening of the syndicated market could allow spreads to widen.

Casey Alexander inquired about the sustainable run rate for dividend and fee income for the upcoming quarters, noting a variance in his Q3 model.

Answer

CEO Craig Packer and CFO Jonathan Lamm clarified that income components can fluctuate. Packer explained that dividend income from certain investments was slightly down from Q2, and fee income from repayments normalized after an exceptionally high Q2. He guided that Q4 dividend income should be in a similar range, while prepayment fees will depend on market activity.

Casey Alexander from Compass Point Research and Trading questioned the projected 9% EBITDA margin for 2026, contrasting it with the 12% margin prior to the Topgolf acquisition, and asked how Callaway Golf plans to close this "gulf" and improve profitability.

Answer

President and CEO Chip Brewer emphasized the company's renewed focus as a pure-play golf company and highlighted a 200 basis point increase in golf equipment gross margins (net of tariffs) in the past year. He outlined initiatives such as mix optimization, focusing on higher-margin products, adjusting launch cadences and product life cycles, and investing in fitting programs. EVP, CFO, and CLO Brian Lynch reiterated the significant $75 million tariff impact over two years.

Casey Alexander questioned Callaway Golf's 2026 guidance, specifically the projected 9% EBITDA margin, and how it compares to the 12% EBITDA margin achieved prior to the Topgolf acquisition. He sought clarification on the differences between the two periods and the company's strategy to bridge this substantial margin gap.

Answer

President and CEO Chip Brewer acknowledged the focus on improving the long-term margin profile as a pure-play company. He highlighted a 200 basis point increase in golf equipment margins (net of tariffs) last year and ongoing initiatives like mix optimization, refocusing on higher-margin products, adjusting launch cadences and life cycles, and reinvesting in fitting programs. EVP, CFO, and CLO Brian Lynch added that the cumulative tariff impact over two years is $75 million, significantly affecting margins.

Casey Alexander raised concerns about the high leverage (2.8x) in PennantPark Investment Corporation's PSLF joint venture, especially given a $22 million markdown in equity fair value, and asked at what point PNNT might be compelled to add more equity or shrink the JV to manage the leverage ratio.

Answer

Rick Allorto, Chief Financial Officer, explained that the broader PennantPark platform allocates first-lien loans across various vehicles, including JVs and CLOs, noting that middle market CLOs often operate with 4x-5x leverage. He stated that while 2.8x leverage in the JV is on the higher end, they do not anticipate it increasing further, emphasizing the prudent structure against low-levered, senior-secured, covenanted, cash-pay debt. He acknowledged equity diminution but highlighted PNNT's equity co-investment program, which has generated strong returns, as a mechanism to address potential gaps, and noted the JF sale provided capital to deleverage PNNT and create dry powder.

Casey Alexander expressed concern about the PSLF JV's leverage ratio of 2.8 times, noting it's the highest among BDC JVs, and highlighted the $22 million markdown in the fair value of PennantPark's equity in the JV. He asked at what point the company would be compelled to add more equity or shrink the JV to manage this leverage.

Answer

Richard Allorto, CFO, acknowledged the points raised, explaining that while 2.8x is on the higher end, the JV is a prudent structure for low-levered, senior-secured, covenanted, cash-pay debt, with no software exposure. He stated that the company does not anticipate going higher than 2.8x leverage. Mr. Allorto also mentioned that PennantPark's equity co-invest program helps offset inevitable debt losses, and the JF sale proceeds were used to deleverage the balance sheet and create a prudent cushion.

Casey Alexander of Compass Point Research & Trading LLC questioned the potential for a merger with PFLT, asking what PNNT's equity concentration would need to be to avoid dilution. He also asked if the company is still making new equity co-investments.

Answer

Art Penn, Founder and Managing Partner, stated the long-term target for non-JV equity is around 10% of the portfolio, similar to PFLT, but emphasized the immediate focus is on normalizing PNNT's portfolio. He confirmed they continue to make new equity co-investments on a selective basis, noting these have a strong historical track record and are distinct from the larger equity positions resulting from past debt restructurings.

Casey Alexander asked what level the equity concentration in PNNT's portfolio would need to reach for a potential merger with PFLT to be viable, and whether the company is still making new equity co-investments.

Answer

Art Penn, Founder and Managing Partner, reiterated a long-term target of around 10% for the equity portfolio (excluding the JV), similar to PFLT's current level. He clarified that the current high equity concentration is mainly from debt-to-equity restructurings, not new co-investments. He confirmed PNNT continues to make new equity co-investments on a selective basis, citing their strong historical returns.

Casey Alexander asked about the flow-through impact of base rate changes, the timeline for the JV reaching capacity, the possibility of a special dividend to manage spillover, potential limitations on future JVs, and any notable post-quarter-end credit events.

Answer

CFO Richard Allorto estimated that 50-75% of the recent base rate decline has flowed through the portfolio. CEO Arthur Penn projected it would take 2-3 quarters to fully ramp up the JV. Regarding dividend policy, Penn stated they are open to discussions on different structures to enhance shareholder value. He noted future JVs are limited by the 30% bucket rule. Lastly, he disclosed a prepackaged bankruptcy by Zips Car Wash, which he described as not material and appropriately marked at year-end.

Casey Alexander questioned the significant markup of the J&F equity position, the accretion math of moving assets to the JV given high balance sheet leverage, and whether the high number of add-on investments represented maintenance capital.

Answer

CEO Arthur Penn suggested the J&F markup could signal a future monetization event but avoided making promises. He affirmed that the JV's high returns make investments accretive and that equity rotation is a key driver for future NII. CFO Richard Allorto clarified that the high number of add-on investments was primarily due to revolver draws (estimated at 85% of the activity), not maintenance capital.

Casey Alexander questioned why spreads haven't widened despite recent market dislocations and slowing non-traded market inflows, and inquired about Ares Capital's willingness to deploy its share repurchase program given the stock trading below NAV.

Answer

CEO Kort Schnabel explained that previous BSL market widening was too short-lived to impact the private market, which typically lags. He acknowledged that recent changes in non-traded flows are new and could impact competitive behavior, potentially leading to spread widening, but it's too soon to tell. Regarding share repurchases, Schnabel stated that ARCC has purchased shares in the past and it remains an option discussed with the board, but he would not provide forward-looking statements.

Casey Alexander from Compass Point questioned why spreads haven't widened generally despite recent market dislocation and slowing inflows into the non-traded market, and whether Ares Capital would deploy its share repurchase program if the stock trades at a discount to NAV.

Answer

Kort Schnabel, CEO of Ares Capital Corporation, explained that previous BSL market widening was too short-lived to impact the private market, which has a lag. He acknowledged that slowing non-traded flows are new and could impact competitive behavior, potentially leading to spread widening, but it's too soon to tell. Schnabel confirmed that share repurchases have occurred in the past and remain an option, but he would not provide forward-looking statements.

Casey Alexander asked about the impact of recent "mini-hysteria" surrounding private credit on market dynamics, including any temporary market stalls, relief from loans shifting from private credit to broadly syndicated markets, and potential for spread widening in the broadly syndicated market. He also inquired about net realized losses relative to third-quarter marks.

Answer

CEO Kort Schnabel dismissed the "mini-hysteria" as overstated, noting that collaboration and competition with banks have been ongoing for decades. He stated that periods of broadly syndicated market volatility reinforce the long-term trend of borrowers favoring private credit for certainty. Mr. Schnabel indicated it's too early to definitively say if recent events will cause spread widening in the broadly syndicated market, as private credit tends to be more stable. Regarding net realized losses, he confirmed they were "pretty much right at the marks."

Casey Alexander questioned the impact of recent 'mini-hysteria' in private credit on market dynamics and potential spread widening, and the relationship between recognized net realized losses and third-quarter marks.

Answer

Kort Schnabel (CEO) dismissed the 'mini-hysteria' as overstated, emphasizing long-standing bank partnerships and private credit's value during volatility. He noted it's too early to see a direct impact on broadly syndicated market spread widening. Mr. Schnabel confirmed that the $67 million net realized losses were 'pretty much right at the marks' for the exited investments.

Casey Alexander of Compass Point Research & Trading, LLC questioned whether a significant increase in deal activity could lead to wider spreads or if market capacity would keep them tight. He also asked for clarification on the quarter-over-quarter increase in dividend income.

Answer

CEO Kort Schnabel suggested that while basic supply and demand could lead to wider spreads with more deal flow, the company is satisfied with the current risk-adjusted returns. Regarding dividend income, CEO Kort Schnabel and CFO & Treasurer Scott Lemm clarified that the increase was driven by a mix of recurring portfolio growth and approximately $10 million in non-recurring dividends from the equity co-investment portfolio.

Casey Alexander noted that Ares Capital sounds more optimistic than the industry consensus on M&A volume and asked about the company's playbook if origination volume slows, including how it would manage earnings against rising liability costs.

Answer

Incoming CEO Kort Schnabel pointed to a healthy deal backlog and historical ability to gain market share in volatile periods. He outlined several earnings management levers, including operating at the low end of their target leverage, potential for increased second-lien or Ivy Hill opportunities, and a significant spillover income buffer of $1.29 per share. CFO Scott Lem added that lower repayment rates in volatile markets also provide portfolio stability.

Casey Alexander asked what percentage of the recent 100 basis point decline in base rates had flowed through to the portfolio's yield by quarter-end. He also questioned if the significant ATM issuance and low leverage implied preparation for heightened deal activity.

Answer

CFO Scott Lem explained there is a lag effect, with Q4 results reflecting Q3 rate changes, and a similar impact from Q4's rate declines is expected in Q1. Then-CEO Robert DeVeer confirmed it was a 'fair assumption' that the company was building capacity for an anticipated high level of investment activity, noting they also take advantage of accretive equity issuance opportunities when the stock price is favorable.

Casey Alexander noted the significant reduction in second-lien exposure over the past three years and asked if this was a deliberate strategy or a reflection of market changes. He also asked for the breakdown between pure first-lien and unitranche loans and the typical yield premium for unitranche.

Answer

Co-President Kort Schnabel attributed the decline in second-lien exposure to a market-wide shift towards unitranche transactions, stating it was not an intentional strategic change for ARCC. CEO Robert Kipp DeVeer commented that defining a precise yield premium for unitranche versus first-lien is difficult as it's subjective.

Casey Alexander expressed concern about alternative capital potentially entering the property market in 2026 with irrational pricing, driven by a year with low CAT activity, and asked if this concerns Kinsale.

Answer

Stuart Winston, EVP and Chief Underwriting Officer, acknowledged the possibility but referred to the dynamics observed specifically in the third quarter.

Casey Alexander from Compass Point Research expressed concern about the property rate decline stabilizing, noting that a year with low CAT activity often attracts alternative capital to the commercial property market, potentially leading to irrational pricing in 2026. He asked if this scenario concerns Kinsale.

Answer

Stuart Winston, EVP and Chief Underwriting Officer, acknowledged the possibility of alternative capital entering the market but stated his comments on rate stabilization were primarily referring to the dynamics observed in the third quarter.

Asked about the potential for a significant growth opportunity in California, the impact of potential tariffs on building costs and reserves, and the reason for the equity portfolio's outperformance during a down market.

Answer

Management sees a huge opportunity in California, particularly in personal lines (high-value homes), and is actively pursuing it. They believe the company is well-positioned to absorb any cost inflation from tariffs due to strong margins and conservative reserves. The equity portfolio's outperformance was attributed to its two-thirds active management with a value-oriented, large-cap, dividend-paying strategy.

Casey Alexander asked if the $25 million net wildfire loss estimate was firm or could change. He also questioned the rationale for a routine share repurchase program that is dilutive to book value, given the stock's high price-to-book multiple, suggesting a dividend increase as an alternative.

Answer

CEO Michael Kehoe described the $25 million loss as a 'good faith estimate' that is not expected to change dramatically. On capital return, he defended the modest buyback program by arguing that price-to-book is a misleading metric for Kinsale due to its high capital efficiency compared to peers with 'bloated' capital bases. He asserted that investors value the company based on future earnings expectations, making earnings multiples a more appropriate valuation tool.

Casey Alexander of Compass Point asked for more specifics on which casualty lines reinsurers believe have reserve insufficiencies across the industry. He also questioned the reason for the quarter-over-quarter decline in fee income.

Answer

President and COO Brian Haney identified excess casualty and commercial auto as the two primary areas of concern for industry-wide reserve adequacy mentioned by reinsurers. CFO Bryan Petrucelli explained that the variance in fee income was not significant and that viewing it as a percentage of gross written premium over time provides a better gauge.

Casey Alexander of Compass Point Research & Trading LLC questioned whether the quarter's new originations were shared with the BC Partners platform or taken entirely by the BDC.

Answer

CFO & COO Thomas Raterman clarified that the two new investments in the quarter, Auto Books and Swing, were held exclusively by the BDC. However, he noted that two subsequent-to-quarter-end deals were participations in larger transactions originated by the broader BC Partners platform, demonstrating the intended synergy.

Casey Alexander of Compass Point Research & Trading inquired about the seemingly low volume of new originations early in the first quarter and asked for the percentage of the loan portfolio trading at its interest rate floors.

Answer

Chief Investment Officer Greg Greifeld explained that originations are typically back-loaded in a quarter and that current activity is not indicative of the final outcome. Chief Financial Officer Tom Raterman added that the majority of the loan book is trading at or above its interest rate floors, with newer deals at the floors and older deals above them.

Casey Alexander from Compass Point Research & Trading LLC sought clarification on whether the 25,000 policy depopulation approval was per entity or in total, and asked about emerging opportunities outside of Florida.

Answer

CFO Mark Harmsworth confirmed the approval was for 25,000 policies for each of the three underwriting entities, totaling a potential 75,000 policies. Chairman & CEO Paresh Patel responded that HCI is seeing opportunities in other states and that its technology is a key enabler for this expansion, allowing the company to carefully identify and pursue growth with a multiyear horizon.

Casey Alexander of Compass Point Research & Trading, LLC sought clarification on whether the 25,000 depopulation approval was per entity or total, and inquired about emerging opportunities outside of Florida and how Exeo's technology would aid in that expansion.

Answer

CFO Mark Harmsworth confirmed the approval was for 25,000 policies for each of the three underwriting entities, for a total of 75,000. Chairman & CEO Paresh Patel expressed excitement about opportunities in other states, stating that Exeo's technology is key to identifying and capitalizing on them with a careful, multi-year approach. He emphasized that the technology continues to improve HCI's performance, independent of past legislative reforms.

Casey Alexander of Compass Point Research & Trading, LLC asked if the full spin-off of Exzeo was intended to resolve potential conflicts of interest with future clients. He also inquired if Exzeo's offering is a prepackaged or customized solution and how the company's convertible notes would be settled.

Answer

President of Exzeo Kevin Mitchell confirmed that eliminating conflicts of interest was a primary driver for the 100% spin-off to enable future growth. Chairman and CEO Paresh Patel clarified that Exzeo operates as a solution-based platform with a variable, per-policy fee model, rather than a customized software sale. CFO Mark Harmsworth stated the convertible notes would be settled with shares.

Casey Alexander noted that his intended questions had already been asked by the previous analyst, Mark Hughes.

Answer

As Casey Alexander's questions were preempted, there was no direct response from management. He deferred to the answers already provided to Mark Hughes, which covered topics including premium run-rates, ceded premiums, and holding company liquidity.

Casey Alexander of Compass Point Research & Trading raised concerns about the trend of net realized/unrealized losses over the last four quarters and asked for an update on Medallia, the largest loan, which was marked down to 87% of par.

Answer

Co-CEO Brad Marshall stated that quarterly marks reflect a robust valuation process and that since inception, realized gains have exceeded losses. He confirmed Medallia is underperforming expectations, which is reflected in the mark. CFO Teddy Desloge added that overall portfolio health remains strong, with 11% EBITDA growth and minimal exposure to stressed assets.

Casey Alexander inquired about the source of BXSL's strong Q4 origination volume, asking what percentage was derived from the existing Blackstone ecosystem versus new business, especially when other platforms reported slower activity.

Answer

Co-Chief Executive Officer Brad Marshall described the firm's origination capability as a "superpower," allowing them to proactively create deal flow even in slow M&A markets. He stated that over half of Q4 deals were sourced through incumbency or proactive outreach in key sectors like tech and healthcare, highlighting how scale can be a true advantage.

Casey Alexander from Compass Point asked for a quantification of the potential earnings benefit from a normalized M&A environment and questioned why the high-quality portfolio doesn't operate at a higher leverage ratio.

Answer

Co-CEO Brad Marshall explained that a more active M&A market would allow for higher leverage and accelerated fee income from quicker loan turnover, suggesting a 20-25% turnover rate could be used for modeling. Regarding leverage, he emphasized that maintaining a conservative profile is crucial for preserving their strong credit ratings, which in turn drives down financing costs and maximizes long-term, loss-adjusted returns for investors.

Casey Alexander from Compass Point Research & Trading LLC asked for clarity on the expense ratio, questioning if it would stabilize at 31% or if further reductions were possible into 2026. He also sought details on how the one-time and ongoing financial benefits from the company's redomiciling would be reflected in financial models.

Answer

Sarah Doran, Group CFO, clarified that while the expense ratio is expected to be around 31% for the current year, there is potential for further improvement in 2026. She explained the one-time $10-13 million redomicile benefit will materialize as a lower effective tax rate in Q4 2025, and the ongoing $3-6 million annual benefit will result from the tax rate aligning more closely with the U.S. statutory rate starting in 2026.

Casey Alexander questioned the economic proposition of the Specialty Admitted segment, given its very low retained risk and minimal fee income, and asked about the company's future plans for the business, including the possibility of a complete runoff.

Answer

CEO Frank D'Orazio explained that the segment was intended to provide diversification without consuming significant capital but acknowledged the challenging market dynamics. He stated that the company is "constantly evaluating all of our businesses for scale and profitability where we believe we'll produce the best returns for shareholders," strongly implying that all strategic options, including a potential exit, remain under consideration.

Casey Alexander sought details on the Gallatin Point conversion premium, the accounting for the Enstar deal cost, spending on the Fleming dispute, and the reasons for declining fees in the Specialty Admitted segment.

Answer

CFO Sarah Doran explained the Gallatin Point preferred shares have a 130% voluntary and 200% mandatory conversion premium. She stated the $52.8 million Enstar cost will be booked as an additional ceded premium in the quarter the deal closes, likely Q4, pending regulatory approval. She also noted legal fees for the Fleming dispute were under $1 million and that Specialty Admitted fees declined with lower gross written premiums, partly due to the workers' comp runoff.

Casey Alexander questioned if strong Golf Equipment results were due to customers pulling orders forward ahead of tariffs and asked if Topgolf's value initiatives were also targeting the soft 3+ Bay events business.

Answer

President and CEO Chip Brewer stated they saw no evidence of customers front-running tariffs in the Golf Equipment segment. For Topgolf, CEO Artie Starrs clarified that the events business is being addressed with more localized sales flexibility rather than broad promotions. Brewer added that the events business is currently more sensitive to corporate confidence than to price.

Casey Alexander asked about the impact of Topgolf's promotional efforts, questioning if they were more focused on the 1-2 bay consumer business. He also inquired how the reduced plan for 2025 venue openings would impact the outlook for Topgolf's adjusted free cash flow.

Answer

President and CEO Chip Brewer confirmed that promotions are almost entirely focused on the consumer (1-2 bay) side and are now being targeted more effectively at lapsed and new visitors using the new consumer data platform. Both Brewer and CFO Brian Lynch acknowledged that building fewer venues in 2025 will positively impact cash flow that year, but declined to provide specific 2025 guidance.

Casey Alexander questioned the repayment of SBIC II debentures, the cost of new debentures, the accounting for excise tax, and the rationale for raising $32 million in equity via the ATM program while holding over $200 million in cash.

Answer

Executive Henri Steenkamp confirmed the repayment of $44 million in 6% SBIC II debentures and noted new debentures are priced around 5.25%. He explained that excise tax is recognized annually based on accounting rules. CEO Christian Oberbeck defended the equity raise as a long-term strategic decision to strengthen the balance sheet and capitalize on market opportunities to raise equity, which are not always available, ensuring the company is well-positioned for future growth.

Casey Alexander questioned the rationale for raising $32 million in equity while holding substantial cash. He also asked for details on the repayment of SBIC II debentures, the interest rate on new SBA debentures, the accounting for the annual excise tax, and the size of post-quarter-end deployments.

Answer

CEO Christian Oberbeck defended the equity raise as a long-term strategic decision to build a 'fortress balance sheet' and raise capital when it's available, not just when needed. CFO Henri Steenkamp confirmed the repayment of $44 million in SBIC II debentures at a ~6% rate, with new debentures costing around 5.25%. He explained the excise tax is recognized when definitive and that cash is excluded from assets for calculating management fees. He also disclosed $45 million in deployments since quarter-end.

Casey Alexander of Compass Point Research & Trading asked about the specifics of SBIC debenture repayments and new costs, the accounting for the annual excise tax, the management fee calculation relative to cash holdings, the size of post-quarter deployments, and challenged the rationale for issuing equity while holding significant cash.

Answer

Executive Henri Steenkamp confirmed the repayment of $44 million in SBIC II debentures (~6% cost) and noted new debentures are priced around 5.25%. He also confirmed cash is excluded from assets for management fee calculations. CEO Christian Oberbeck defended the equity issuance as a long-term strategic decision to build a "fortress balance sheet" with permanent capital, emphasizing that equity can only be raised opportunistically when market conditions allow.

Casey Alexander questioned the impact of declining interest rates on portfolio yield, the potential to under-earn the dividend, the rationale for holding cash in SBIC II, and the logic behind selling equity while holding a large cash balance.

Answer

Executive Henri Steenkamp estimated that about two-thirds of the base rate decrease has been reflected in portfolio yields. CEO Christian Oberbeck stated the company does not anticipate under-earning its dividend, citing a strong pipeline and potential for increased M&A activity. Oberbeck also explained that holding cash in SBIC II currently creates a positive arbitrage and that the decision to sell equity was a long-term strategic move to raise permanent capital when the opportunity arose, independent of the short-term cash balance.

Casey Alexander of Compass Point asked about competition from larger private credit platforms moving down-market, the terms of the new Live Oak facility versus the Encina facility, and the composition of the 'other income' line item.

Answer

Chief Investment Officer Michael Grisius stated that while they don't compete directly with large platforms for new deals, they are subject to them refinancing well-performing, late-cycle portfolio companies. Executive Henri Steenkamp detailed that the Live Oak facility has a similar cost structure to Encina but with tiered pricing, and that maintaining two facilities diversifies banking relationships despite the cost of carrying liquidity. He also clarified that 'other income' is mainly transactional from amendment and prepayment fees, which are lumpy but recurring in nature.

Casey Alexander from Compass Point posed several questions regarding Q2 prepayment expectations, the specifics of the Revolut secondary sale, and the terms of the Outfittery loan extension. He also challenged the decision to prioritize portfolio growth over share repurchases, given the stock's high dividend yield and discount to book value.

Answer

Executive Sajal Srivastava addressed the questions, stating that TPVG expects 1-2 prepayments per quarter from older vintages with minimal NII impact. He explained the Revolut sale was a limited opportunity for institutional investors, with the sale price in line with their mark. On Outfittery, the loan was assumed and extended post-merger. Regarding capital allocation, Srivastava defended the focus on portfolio growth as essential for achieving long-term strategic goals like diversification and increased NII, which they believe is the best use of capital in the near term.

Casey Alexander questioned to what extent the portfolio has fully reset following the 100 basis point decrease in base rates. He also asked about the strategy behind borrowing less than the amount being refinanced.

Answer

Executive Sajal Srivastava explained that base rate changes are typically effective immediately or within a month, so the impact should have already flowed through the portfolio. Regarding the debt strategy, Srivastava stated the decision to raise less than the maturing $70 million note was a deliberate move to optimize the balance sheet, rebalance towards more flexible revolving debt, and help maintain the company's investment-grade rating.

Casey Alexander asked about the fee structure for the $56 million in loans that Hercules refinanced internally, specifically whether prepayment fees were waived and if this contributed to lower fee income for the quarter. He also sought clarity on whether a similar dynamic of internal refinancings should be expected within the Q2 prepayment guidance.

Answer

CEO Scott Bluestein confirmed that for performing borrowers whose facilities are upsized and refinanced, Hercules typically waives prepayment penalties, though not back-end fees. He agreed this practice, combined with lower overall early repayments, contributed to reduced fee income in Q1. However, for the upcoming quarter, he stated with high confidence that the Q2 prepayment guidance of $200 million to $250 million is expected to be entirely from external repayments, not internal refinancings.

Casey Alexander of Compass Point asked about the practice of waiving fees on internal refinancings and its impact on Q1 income, and whether to expect a similar dynamic in Q2.

Answer

CEO & CIO Scott Bluestein confirmed that Hercules typically waives prepayment penalties (but not back-end fees) when upsizing a loan for a performing portfolio company. He stated this, along with lower overall prepayments, reduced Q1 fee income. For Q2, he expressed high confidence that the $200-$250 million prepayment forecast is entirely from external sources, not internal refinancings.

Casey Alexander of Compass Point Research & Trading, LLC questioned the strategy of repaying maturing notes with a higher-cost credit facility. He also asked if Hercules is becoming a "hybrid lender" by moving up-market and, in a follow-up, requested details on Chorus, the company placed on non-accrual.

Answer

CFO Seth Meyer addressed the debt repayment, confirming the use of credit facilities and an opportunistic approach to future refinancing, highlighting the new SBIC license. CEO Scott Bluestein agreed with the "hybrid lender" observation, detailing the company's evolution toward later-stage companies. Regarding Chorus, Bluestein explained the loan was impaired to a fair value of ~$32M and placed on non-accrual due to an expected principal loss and a shift from cash to PIK interest.

Casey Alexander of Compass Point asked about the potential impact of tariffs on transportation and construction markets. He also questioned if RLI sees an opportunity in California's disrupted property market similar to the one it capitalized on in Florida.

Answer

COO Jenni Klobnak stated that RLI is prepared for tariff-related disruptions, drawing on experience from the COVID period. CEO Craig Kliethermes added that while short-term uncertainty could slow construction bidding, higher long-term costs also increase premiums, making the net effect relatively neutral. Regarding California, Mr. Kliethermes asserted that the business and regulatory environment is 'much different' and less inviting than Florida's was, a sentiment echoed by Ms. Klobnak, who cited difficulties in getting necessary rate approvals.

Casey Alexander from Compass Point questioned the accounting for the Prime investment, asking if the decline in its balance sheet value was due to an impairment. He also inquired about the equity portfolio's underperformance relative to the broader market.

Answer

CFO Todd Bryant confirmed there was no impairment of the Prime investment; the carrying value change was due to dividends paid and the recognition of Prime's other comprehensive income (OCI), which was impacted by bond market declines. Executive Aaron Diefenthaler explained that the equity portfolio's relative underperformance was driven by a minority portion of the allocation that is managed with a value orientation.

Casey Alexander from Compass Point asked about the liability structure of the equipment finance portfolio, the nature of the ABL pipeline, and the strategic role of the SSLP for lower-yielding loans.

Answer

Co-CEO Bruce Spohler explained that the equipment finance portfolio is well-matched for the current inflationary environment and generates stable returns. He clarified the ABL pipeline consists primarily of individual loan opportunities rather than whole company acquisitions. He also confirmed the SSLP is actively utilized for lower-yielding cash flow loans to maintain portfolio optimization.

Casey Alexander questioned why, given the company's substantial origination capacity and below-target leverage, the portfolio size wasn't increased more significantly during the quarter, suggesting it was a conscious decision.

Answer

CEO Tanner Powell responded that the deployment pace was a function of maintaining portfolio granularity and not over-indexing to a single quarter, rather than a deliberate decision to hold back. CFO Gregory Hunt added that the company has flexibility in its deployment strategy and is focused on ensuring it can comfortably cover the dividend while methodically levering up and redeploying capital.