Erik Zwick

Erik Zwick inquired about the specific metrics or measures that led to the realized losses from rotating out of underperforming collateral managers, the funding sources for redeeming the Series C Term Preferred Stock, and the drivers behind the increase in the CLO portfolio's weighted average expected yield.

Answer

Daniel Ko, Senior Principal and Portfolio Manager, explained that underperforming collateral managers exhibited more credit issues and loan spread compression than anticipated, leading to a rotation into other CLOs and non-CLO asset classes like collateralized fund obligations and asset-backed securities for better relative value and diversity. He also stated that the Series C redemption would be funded by a combination of the new revolving credit facility, cash on hand, and proceeds from CLO Debt refinancings and resets. The increase in the weighted average expected yield was primarily attributed to redeploying capital into higher-yielding non-CLO assets.

Erik Zwick inquired about the specific metrics and reasons behind the realized losses from rotating out of underperforming CLO collateral managers, the funding sources for the Series C Term Preferred Stock redemption, and the drivers for the increase in the CLO portfolio's weighted average expected yield.

Answer

Daniel Ko, Senior Principal and Portfolio Manager, explained that underperforming managers had more credit issues and loan spread compression than anticipated, leading to rotation into other CLOs and non-CLO asset classes for better relative value. He confirmed the Series C redemption would be funded by the new revolver, cash on hand, and proceeds from CLO debt refis/resets. For the yield increase, Mr. Ko attributed it to a combination of denominator changes and redeploying capital into wider-yielding non-CLO assets.

Asked about the current pipeline for new investments and the strategy behind the share buyback program, including whether they would revert to issuing shares via the ATM if the stock price recovered to a premium.

Answer

The company stated the investment pipeline is strong for both CLO BBs and equity, with a preference for discounted opportunities. Regarding capital allocation, they view share buybacks as the best investment at a significant discount to NAV. If the stock were to trade at a premium again, they would likely utilize their revolver for investments before considering issuing new shares via the ATM.

Erik Zwick of Lucid Capital Markets LLC inquired about the pipeline for new investments and the strategy behind the share buyback program, including whether the company would revert to ATM issuance at a premium.

Answer

Senior Principal & Portfolio Manager Daniel Ko described a strong investment pipeline with opportunities in both primary and secondary markets. Chairperson & CEO Thomas Majewski explained that share buybacks are the best investment at a significant discount. He added that even if the stock returned to a premium, they would likely use their revolver for new investments before reactivating the ATM program.

Erik Zwick from Lucid Capital Markets asked if there are current signs of loan spread widening in the market and how a material widening would affect the fund's ability to execute additional CLO resets and refinancings. He also questioned if the majority of the NAV decline for this cycle has likely been realized and sought insights into the current leverage in the portfolio and future management plans.

Answer

Lauren Basmadjian, CCIF's Chair and Carlyle's Global Head of Liquid Credit, confirmed that discount margins have widened in the loan market over the last month, expecting new issues to come with higher spreads. Nishil Mehta, CCIF's Principal Executive Officer and President, noted that while liability spreads are still historically tight, opportunities for refinancings and resets remain. Regarding NAV, Nishil stated that while hard to predict, fading repricings and increasing discount margins, coupled with M&A activity, should lead to increased loan spreads. Lauren added that borrowers pushing out maturities might offer more spread. Nishil also acknowledged that leverage is at the high end of the target and the fund aims to bring it back to historical levels over time.

Erik Zwick inquired about signs of loan spread widening in the market, its potential impact on future CLO resets and refinancings, and management's perspective on whether the majority of the NAV decline for this cycle has been realized. He also asked about the current leverage in the portfolio and future management strategy.

Answer

Lauren Basmadjian confirmed that discount margins have widened in the loan market over the last month, and new issues are anticipated to come with higher spreads. Nishil Mehta stated that liability spreads, while widening slightly, are still historically tight, suggesting continued opportunities for refinancings and resets. He acknowledged the market's dynamic nature but suggested that fading repricings and increasing discount margins could lead to wider loan spreads. Nishil also noted that leverage is at the high end of the target and will be managed back to historical levels over time.

Erik Zwick asked for details on the drivers of the 4% out-of-court restructuring rate, questioning if specific industries or CLO vintages were responsible. He also inquired about the relative value between primary and secondary CLO investment opportunities and the potential impact of government budget cuts on the fund's healthcare and pharma holdings.

Answer

Lauren Basmadjian, Chair and Global Head of Liquid Credit, explained that the restructuring wave is more attributable to the 2021 vintage of deals, which had high leverage and low base rate assumptions, rather than a specific industry trend. She also noted that while government cuts add incremental risk, they are most likely to affect weaker, over-levered companies, not the majority of the portfolio. Nishil Mehta, Principal Executive Officer and President, stated that the relative value between primary and secondary markets is currently similar, offering low to mid-teens expected returns in both.

Inquired about the relative attractiveness of primary versus secondary markets, the cause of unrealized losses, the potential to recapture those losses, and any current credit quality concerns, particularly regarding out-of-court restructurings.

Answer

The primary market is currently attractive for locking in low-cost financing. Unrealized losses were a market-wide phenomenon due to loan repricings, which can be offset by resetting CLO liabilities. It is possible to recapture some of these losses through resets. The main credit concern is the shift to out-of-court restructurings, driven by loose loan documentation, which requires expertise to navigate.

Erik Zwick questioned the mix of Q4 originations, noting a weighting towards existing portfolio companies, and asked if this trend continues in the current pipeline, along with the impact of tightened spreads on new investment quality. He also sought details on the two new non-accrual credits, Zoom and 3DEO, and the company's approach to resolving their difficulties.

Answer

CEO Kyle Brown stated that new logos have been the majority of deployment over the past year, with current portfolio deployments primarily for equipment financing or delayed draw term loans to growing companies. Chief Credit Officer Ron Kundich added that the backlog is over $1 billion, with a third for equipment, mostly subject to milestones. Ron Kundich also explained that Zoom and 3DEO are legacy borrowers who stopped making payments in Q4, and they are actively working to resolve these situations.

Erik Zwick asked about the Q4 originations mix, noting a weighting towards existing portfolio needs, and whether the current pipeline reflects this trend. He also inquired about the quality of new investments and the developments leading to two new non-accruals (Zoom and 3DEO), and Trinity Capital's approach to working with them.

Answer

CEO Kyle Brown clarified that their focus over the past year has been on new logos, with existing portfolio deployments primarily for equipment financing or delayed draw term loans tied to milestones. Chief Credit Officer Ron Kundich added that the backlog is over $1 billion, with a third for equipment, mostly subject to milestones. Ron Kundich explained that Zoom and 3DEO are legacy borrowers who stopped making payments in Q4, and Trinity Capital is actively working with them.

Erik Zwick asked for the rationale behind forming the Structured Credit Partners (SCP) joint venture now, questioning if it reflects a view on tighter middle market spreads and a strategy to utilize non-qualifying assets for yield.

Answer

President and Chief Financial Officer Thomas Hennigan stated that the SCP JV had been in development for a while, aiming to leverage the broader Carlyle network and syndicated team while maximizing the use of non-qualifying asset buckets. He emphasized the attractive expected returns due to the no-fee structure.

Erik Zwick from Lucid Capital Markets inquired about Carlyle Secured Lending's strategy to gain market share, asking who they aim to take share from (BSL, private credit, banks) and what their competitive advantages are. He also asked about the drivers of borrowing demand and the strong Q1 2026 pipeline amidst K-shaped economy concerns, and the rationale behind forming the Structured Credit Partners (SCP) joint venture, specifically if it reflects a view on tighter middle market spreads and leveraging non-qualifying assets for yield.

Answer

Alex Chi, CEO of Carlyle Secured Lending, emphasized that the core investment strategy remains unchanged, focusing on high-quality core and upper middle market companies. He highlighted leveraging the broader Carlyle platform (CLO business, AlpInvest, Washington D.C. presence, global private equity) as a key competitive advantage, rather than being a pure-play direct lending shop. Regarding pipeline, Chi noted increased M&A activity, particularly in industrials, aerospace and defense, and healthcare, combined with a rejuvenated origination platform. Thomas Hennigan, President and CFO, explained that the SCP JV was a long-term initiative to grow existing JVs, maximize non-qualifying asset buckets, and leverage the broader Carlyle network for strong expected returns due to its no-fee structure.

Erik Zwick of Lucid Capital Markets LLC inquired about the drivers of the current tight spread environment and the potential for a return to historical norms. He also asked about management's view on the U.S. economic outlook, whether recent unrealized losses were company-specific, and the company's perspective on share buybacks given the stock's discount to NAV.

Answer

CEO Justin Plouffe attributed tight spreads to a combination of lower-than-hoped deal activity and a normalization from the unusually wide spreads of 2022-2023, expressing optimism for the second half of the year. CFO Tom Hennigan clarified that unrealized losses were primarily idiosyncratic and related to a handful of specific credits, not a broader market issue. Hennigan also noted that while management is discussing buybacks more frequently, the primary focus remains on growth, with no imminent buyback plan.

Erik Zwick of Lucid Capital Markets inquired about SLR Investment Corp.'s inorganic growth strategy within its ABL and equipment finance segments, asking for updates on recent acquisition activity for portfolios or lending teams and the outlook for 2026. He also questioned if tight public debt market spreads were impacting ABL and equipment finance opportunities and if there were any early signs of credit concerns, such as increased admin re-requests or revolver usage.

Answer

Co-CEO Michael Gross stated that SLRC is actively evaluating potential acquisitions, often using lending as a way to explore integration, but nothing is imminent. Co-CEO Bruce Spohler noted that while overall returns have slightly decreased, the limited capital flows into specialty finance markets help maintain competitive positioning. Bruce Spohler also confirmed no broad early signs of credit concern, with any issues being idiosyncratic, and highlighted the real-time collateral monitoring capabilities of ABL strategies.

Erik Zwick inquired about the inorganic growth pipeline within the ABL and equipment finance segments, specifically regarding opportunities to acquire portfolios or lending teams, and requested an update on recent activity and the outlook for 2026.

Answer

Michael Gross, Chairman and Co-CEO, stated that SLR has been very active in evaluating potential acquisitions, maintaining discipline in their approach. He noted a high quality of opportunities and a strategy of lending into potential platforms to foster future acquisitions. While nothing is imminent, they are actively engaged in dialogues. Bruce Spohler, Co-CEO and COO, added that overall returns have slightly decreased across strategies, but the 11.5% yield remains favorable compared to the broader market, especially cash flow. He attributed their competitive position to structural protections and limited capital flows into these specialized markets. Spohler also confirmed that the portfolio remains clean, with no thematic early signs of concern like increased admin re-requests or revolver usage, noting that ABL strategies provide real-time visibility into borrower performance.

Erik Zwick of Lucid Capital Markets LLC asked about the yield on new originations versus repayments, the strength of the deal pipeline for the third quarter, the competitive landscape for asset-based lending (ABL), and any concerning economic trends observed in specific sectors.

Answer

Co-CEO Bruce Spohler stated that new investments yielded approximately 11.8% on average, compared to exits at just over 10%. He described the Q3 pipeline as steady but not as robust as the record Q2. Chairman and Co-CEO Michael Gross and Co-CEO Bruce Spohler both emphasized the high barriers to entry in their ABL niche, noting they have not seen new entrants. Bruce Spohler added that while some stress is visible in cyclical sectors within the ABL portfolio, it is not significant, and the cash flow portfolio remains focused on non-cyclical industries.

Erik Zwick inquired about the composition of the investment pipeline across lending verticals, the current state of spreads compared to recent months, the characteristics of attractive cash flow deals, and the sustainability of the quarterly contribution from Kingsbridge.

Answer

Co-CEO Bruce Spohler explained that the pipeline is 75-80% weighted towards asset-based lending (ABL), which he described as an all-in return business with stable returns around 11-13%. He noted that attractive cash flow deals are typically tuck-in acquisitions for seasoned platforms. Regarding Kingsbridge, Spohler confirmed its strong performance but mentioned that the Q1 income was elevated by some onetime gains from asset sales.

Erik Zwick of Hovde Group inquired about the pipeline for acquiring specialty finance portfolios and teams, and asked about the structural dynamics and risk-adjusted returns in the sponsor finance market.

Answer

Co-CEO Bruce Spohler confirmed an active pipeline for portfolio acquisitions, noting that SLR has passed on some opportunities due to credit quality concerns. He added that in sponsor finance, both spreads and terms have stabilized at levels that are currently less attractive than the opportunities available in their ABL and other specialty finance strategies.

Erik Zwick asked for clarification on the slowing loan repricing momentum mentioned in the prepared remarks, specifically whether it's a market-wide trend or unique to Pearl Diver Credit Company's portfolio. He also inquired about the company's continued use of the At-The-Market (ATM) equity issuance program, considering the stock's trading price relative to its Net Asset Value (NAV).

Answer

CEO Indranil Basu confirmed that the slowing loan repricing momentum is both a larger market dynamic and observed within their portfolio, noting a decrease in CLO loan portfolios pricing above par from over 50% to about 30%, indicating slowing prepayment and repricing speeds. Basu clarified that the company utilizes the ATM program when the stock trades at a premium, noting that the last observed stock price was trading at NAV, not at a premium.

Erik Zwick inquired about the company's new $100 million common stock repurchase program, specifically how 'material discount to NAV' is defined and how active the company plans to be, balancing repurchases against new investment opportunities. He also asked what factors would be necessary for the company's NAV to become more stable or grow, given recent asset repricing and arbitrage challenges.

Answer

CEO Thomas Majewski stated that the decision to use the repurchase program is an 'art, not a science,' balancing share price, leverage ratios, and relative investment opportunities. Regarding NAV stability, Majewski highlighted the recent reduction in the distribution rate (to $0.06 per share monthly) to retain more capital, providing a cushion over net investment income. He also mentioned that investments in other private credit assets could generate gains, potentially offset by capital loss carryforwards, contributing to NAV growth.

Erik Zwick from Lucid Capital Markets inquired about the new $100 million common stock repurchase program, specifically how 'material discount to NAV' is defined, the potential activity level, and how it's weighed against new investment opportunities. He also asked what needs to change for NAV to be more stable, given the challenges of 2025.

Answer

Thomas Majewski, Chief Executive Officer, stated that the decision to use the repurchase program is an art, balancing share price, leverage ratios, and relative investment opportunities, similar to their approach with EIC. Regarding NAV stability, he noted that the new, lower distribution rate ($0.06/month) provides a cushion, allowing the company to retain more capital. He also mentioned that non-CLO private credit investments could create gains, potentially offset by capital loss carryforwards, contributing to NAV growth.

Erik Zwick from Lucid Capital Markets asked for details on the newly formed second CLO collateral manager partnership, including its structure and potential financial benefits. He also questioned the sensitivity of loan repayments to interest rates and the outlook for the repayment rate.

Answer

CEO Thomas Majewski explained the partnership strategy involves providing initial CLO equity capital to a new manager in exchange for a perpetual top-line revenue share, creating long-term value without incurring operating risk. He noted the second partnership is well-timed due to tighter pricing spreads for new managers. He also clarified that loan repayments are driven by credit spread sentiment and M&A activity, not interest rates, as the underlying loans are floating rate.

Erik Zwick asked about the slower pace of net capital deployment in April, the expected cash flows for the remainder of Q2, and the historical reasons for higher loan spreads post-GFC.

Answer

CEO Thomas Majewski explained that deployment slows during volatility as trading volume dries up, but activity is now resuming. He noted Q2 cash flows are front-loaded, with only a small amount more expected, but new investments will begin paying in Q3. He attributed higher post-GFC loan spreads to a fundamental shift in the CLO funding model, where wider AAA liability spreads now necessitate higher underlying loan spreads to make the arbitrage work.

Erik Zwick of Lucid Capital Markets asked for clarification on the timing and drivers of recurring cash flow, the factors behind the difference between the effective and expected portfolio yields, and the reasons for the recent improvements in portfolio characteristics.

Answer

Executives Kenneth Onorio and Thomas Majewski explained that recurring cash flows fluctuate quarterly due to the timing of payments, with most arriving early in the quarter and new CLOs often having a long first payment period. They clarified the yield difference is due to using amortized cost versus fair value as the calculation base. Majewski attributed portfolio improvements to a conscious strategy of rotating from CLO debt into CLO equity, actively resetting CLOs to extend their reinvestment periods, and locking in lower financing costs.

Erik Zwick asked about the extent of loan floors on variable rate loans given increased revolver usage and expected SOFR reductions, the company's view on AI and data center-related investment opportunities, and the drivers behind the recent increase in PIK income.

Answer

CFO Nicole Schaltenbrand confirmed most variable rate loans have floors, but they are not yet active, implying interest income will decline with rates. President Bob Marcotte added that the company can absorb most rate decreases and sustain dividends, partly due to savings from increased revolver utilization. Regarding AI/data centers, President Bob Marcotte stated they don't directly invest but see related spend, expressing caution about market sustainability. For PIK income, President Bob Marcotte attributed it to specific credits, including one scaling up with working capital consumption and another liquidating an underperforming business, emphasizing a case-by-case approach to manage and recoup PIK exposure.

Erik Zwick from Lucid Capital Markets inquired about Gladstone Capital's strategy regarding floating rate debt, specifically the extent of loan floors and their impact given anticipated SOFR reductions. He also asked about the company's exposure to AI and data center-related opportunities, referencing their investment in IMX Power Holdings, and sought clarification on the drivers behind the recent increase in PIK income.

Answer

CFO Nicole Schaltenbrand confirmed that most variable rate loans have floors, indicating that interest income would decline with falling rates, prompting a strategy to increase reliance on floating rate debt. President Bob Marcotte elaborated that the company expects to absorb initial rate decreases and sustain dividends, partly due to significant savings from reduced line commitment fees. Regarding AI/data centers, Mr. Marcotte stated Gladstone Capital does not directly invest in large-scale data centers but sees related spend in its portfolio, maintaining a cautious stance on market sustainability. For PIK income, Mr. Marcotte explained it's driven by specific credits, one requiring cash flow flexibility for growth and another undergoing liquidation, with a focus on recouping PIK and returning credits to cash-paying status.

Erik Zwick inquired about the current pipeline size and mix of new versus add-on opportunities, the reasons behind the quarter-over-quarter decline in portfolio yield, and the operational improvements and valuation trend for WBXL (Monarch Coal).

Answer

President Bob Marcotte stated the pipeline is tracking around $100 million with approximately 10 near-term deals, expecting continued portfolio growth. He noted a 'barbell' transaction structure with larger add-ons and smaller new originations. Marcotte attributed most of the portfolio yield decline to lower base rates, while new originations maintained attractive spreads. Regarding WBXL, he reported 18 consecutive months of sales and profitability increases, with the company now EBITDA positive, though not yet an earning asset.

Erik Zwick inquired about the current pipeline's size and composition, the reasons behind the quarter-over-quarter decline in portfolio yield, and the operational improvements driving the valuation increase for WBXL (Monarch Coal).

Answer

President Bob Marcotte stated the pipeline tracks approximately $100 million in potential volume across about 10 near-term deals, expecting accelerated portfolio growth in fiscal 2026 due to lower turnover and expanded PE relationships. He noted a 'barbell' of transactions, with larger add-ons for existing deals and smaller new originations. The decline in portfolio yield was primarily attributed to lower base rates, though new originations also contributed. For WBXL, Mr. Marcotte highlighted 18 consecutive months of sales and profitability increases, with the company now EBITDA positive, indicating strong business and brand consistency.

Erik Zwick from Lucid Capital Markets questioned the rationale behind the dividend reduction, specifically whether it was driven by secondary market opportunities rather than a decline in the fund's earnings power. He also asked about the impact of secondary market purchases on NAV, the potential for special dividends, and the outlook for CLO resets and refinancings.

Answer

CEO Jonathan Cohen clarified that the dividend reduction was primarily to capitalize on strong secondary market opportunities, where Oxford Lane is a major participant, rather than reflecting a decrease in earnings power. Managing Director Joe Kupka confirmed that buying at discounts in the secondary market could support NAV through pull-to-par effects and reset plays. Jonathan Cohen also stated that special dividends are possible to maintain RIC compliance, with the RIC test conducted on a fiscal year basis (March). Joe Kupka added that 2026 is expected to be very active for resets and refinancings, following 70 such activities in 2025, with many portfolio items rolling off non-call periods starting in July.

The analyst inquired about the company's investment strategy regarding primary versus secondary CLO opportunities, the evaluation process for new CLO managers, the expected timing of distributions from new investments, the reasons for recent unrealized depreciation, the firm's competitive advantages, and the overall economic outlook's impact on performance.

Answer

The company responded that they find value in both primary (for Tier 1) and secondary (for lower-tier managers) markets. They evaluate new managers' track records before investing. Distributions from new CLOs are expected over the next few quarters. The unrealized depreciation was attributed to general mark-to-market movements rather than specific asset issues, emphasizing their focus on total return. Their competitive edge is their unconstrained investment mandate. While acknowledging the link to the U.S. economy, they reported no specific near-term concerns.

Erik Zwick of Lucid Capital Markets LLC inquired about Oxford Lane's investment strategy, including the relative appeal of primary versus secondary CLO opportunities, the evaluation process for new managers, and the company's competitive advantage. He also asked about the timeline for distributions from new CLOs and the drivers behind the quarter's unrealized depreciation.

Answer

Managing Director Joe Kupka and CEO Jonathan Cohen explained that they find value in both primary and secondary markets, focusing on top-tier managers for primary issuance and seeking value in lower-tier managers or reset opportunities in the secondary. They noted that unrealized depreciation was a function of mark-to-market adjustments rather than specific asset issues, emphasizing their focus on total return. Cohen highlighted their unconstrained investment mandate across the full spectrum of CLO profiles as a key competitive advantage.

Erik Zwick of Lucid Capital Markets LLC inquired about the comparative value of primary versus secondary CLO opportunities, the evaluation process for new and existing CLO managers, the expected timing of distributions from new CLOs, the reasons for recent unrealized depreciation, the company's competitive advantage from its unconstrained investment strategy, and any forward-looking economic concerns.

Answer

Managing Director Joe Kupka stated that both primary and secondary markets offer value, with a focus on creating Tier one profiles in primary markets and targeting lower-tier managers or reset opportunities in secondary. He also clarified that new CLOs would begin distributing in the following quarters. CEO Jonathan Cohen emphasized that their unconstrained mandate to invest across the entire CLO structure—including warehouses, primary, and secondary markets with various manager tiers—is a significant competitive advantage. Regarding unrealized depreciation, Kupka attributed it to general mark-to-market movements rather than specific deal issues.

Erik Zwick inquired about Oxford Lane's investment activity, specifically the split between primary and secondary market purchases and their relative attractiveness. He also asked about the potential impact of a lower interest rate environment on the portfolio, the reasons for an increase in out-of-court restructurings over formal defaults, and the factors contributing to the quarter's unrealized depreciation.

Answer

Managing Director Joseph Kupka detailed the investment activity, noting it was primarily driven by new primary CLO investments ($270M) and warehouse investments ($180M), with about $90M in the secondary market. Executive Jonathan Cohen explained that while a lower rate environment won't meaningfully change their strategy, it should reduce U.S. syndicated loan default risk. Regarding restructurings, Mr. Kupka suggested companies are trying to delay payment defaults in anticipation of future rate cuts. Both executives attributed the unrealized depreciation to a complex interplay of GAAP accounting measures, including fair value changes and cash flows.

Erik Zwick asked for commentary on Oxford Lane's investment activity, including the split between primary and secondary markets, the potential impact of a lower interest rate environment, the reasons for an increase in out-of-court restructurings, and the factors behind the quarter's unrealized depreciation.

Answer

Managing Director Joseph Kupka detailed that new investments were primarily driven by primary market activity and warehouse conversions, with both primary and secondary markets remaining attractive. CEO Jonathan Cohen stated that lower interest rates would likely reduce loan default risks without significantly changing portfolio management strategy. Kupka attributed the rise in out-of-court restructurings to companies anticipating rate cuts and seeking to delay payment defaults. Regarding unrealized depreciation, Kupka explained it was a complex GAAP accounting measure reflecting fair value changes, cash flows, and cost basis adjustments.

Erik Zwick asked about the recent increase in the yield on interest-bearing investments, the competitive environment for deal structures like interest rate floors, and the specific drivers behind the material fair value markup for ImageWorks.

Answer

CFO Taylor Ritchie explained the yield increase was primarily due to a one-time $1.5 million collection of past-due interest; excluding this, the yield was stable. She noted recent deals include 13.5% floors, protecting against SOFR decreases. President David Dullum added that Gladstone competes more with private equity on enterprise value rather than on debt structure, allowing them to maintain terms. He also stated the ImageWorks markup was driven by both higher EBITDA and an increased valuation multiple.

Erik Zwick of Lucid Capital Markets asked for elaboration on the 'cautiously optimistic' outlook for buyout activity, the rationale behind the Educators Resource dividend recapitalization, and a repeat of the current spillover income figure.

Answer

President Dave Dullum stated the optimism stems from a strong deal funnel with reasonably valued companies, while caution is warranted due to economic uncertainty and tariff impacts. He explained the Educators Resource recap was a strategic 'reinvestment decision' to provide liquidity to the management team and deploy more income-generating capital into a business they like. CFO Taylor Ritchie confirmed the fiscal year-end spillover income was $55.3 million, or $1.50 per share, which covers the regular monthly and the declared supplemental distributions.

Erik Zwick asked for an outlook on originations and spread trends for the second half of the year, the potential timing for resuming stock buybacks, the pro forma NAV following the Logan Ridge merger, the expected timeframe to realize NAV gains from discounted assets, and the resolution outlook for the non-accrual portfolio.

Answer

CEO Ted Goldthorpe noted a significant uptick in refinancing activity and a healthy pipeline, while also signaling an aggressive stance on stock buybacks once eligible. CIO Patrick Schafer added that the portfolio's natural duration is about 2.5 to 3 years for asset rotation and discussed the resolution progress for non-accrual names, noting one is now paying cash interest. CFO Brandon Satoren provided the pro forma NAV figure of just over $235 million.

Erik Zwick of Hovde Group inquired about the dollar value of the Sundance interest reversal, the recent growth in PIK income, and the composition of the investment pipeline amid current economic uncertainty.

Answer

Chief Financial Officer Brandon Satoren confirmed the Sundance reversal's out-of-period impact was approximately $450,000 and noted that the PIK income figure was elevated by nonrecurring items. Executive Edward Goldthorpe described the investment pipeline as healthy but stated the firm is very cautious, with Chief Investment Officer Patrick Schafer adding that their underwriting is focused on service-based businesses with less direct tariff exposure.

Erik Zwick of Lucid Capital Markets LLC asked for an update on the CADMA JV, inquired which new product offerings were gaining traction, and questioned why venture M&A is recovering more slowly than in the middle market.

Answer

CIO Greg Greifeld stated the CADMA JV is ramping and expects more activity by year-end. CFO & COO Thomas Raterman noted that new products like revolvers and structured second liens are well-received, leveraging BC Partners' expertise. He explained that venture M&A is slower because portfolio companies see renewed organic growth potential, reducing their immediate desire for an exit.

Erik Zwick of Hovde Group inquired about the noted slowdown in healthcare lending, the current composition of the investment pipeline, and recent activity within the company's joint venture.

Answer

Chief Financial Officer Tom Raterman clarified that the healthcare lending data reflects a cautious, industry-wide trend from PitchBook. Chief Investment Officer Greg Greifeld added that while healthcare remains a core vertical, the team is monitoring regulatory risks and has seen more interesting technology deals recently. Greifeld also noted the pipeline reflects a market where deals are taking longer to close, and Raterman confirmed the joint venture's activity is similarly muted due to this cautious credit approach.

Erik Zwick of Lucid Capital Markets asked about the strategy for the equity portfolio, which has grown to 10% of total assets, whether the Gynesonics position drove the quarter's unrealized gain, and for an update on spillover income.

Answer

CFO Tom Raterman explained that the equity portfolio's size increased due to restructurings like Gynesonics and Snagajob, where equity was taken to protect value, and affirmed they are always looking to realize this value. He confirmed Gynesonics was the single largest driver of the unrealized gain. He also stated that the goal is to maintain at least one quarter's worth of spillover income and grow it over time.

Erik Zwick from Lucid Capital Markets LLC asked for a breakdown of new versus add-on originations in the current quarter and questioned if the company's confidence in its dividend sustainability accounts for potential NII headwinds from falling interest rates.

Answer

CEO Michael Sarner stated that current quarter originations are heavily weighted towards new platforms, at approximately 75%. He also expressed confidence in maintaining the regular dividend, citing operational efficiencies, a strong UTI balance of $1.00 per share, and expected equity gains as buffers against potential rate declines. CFO Chris Rehberger added that funding growth with cost-effective SBIC debentures will also help support NII.

Erik Zwick of Lucid Capital Markets inquired about the size and mix of the current deal pipeline, the eligibility of new deals for SBIC funding, the specific nature of the portfolio's consumer products exposure, and any updates on the potential private credit fund.

Answer

CEO Michael Sarner estimated the June quarter pipeline at $75-$100 million in new platforms and around $50 million in add-on activity. Executive Chris Rehberger added that new deals are eligible for SBIC funding, which will initially focus on reinvesting in SBIC I before funding SBIC II. Sarner described the consumer portfolio as diversified and focused on the value end of the market. He also mentioned a slight pause on the private credit fund initiative due to market uncertainty, particularly from international investors, but reiterated long-term commitment to the strategy.

Erik Zwick of Lucid Capital Markets asked for quantification of recent spread compression in the market, whether increased competition was affecting deal structures, and for an update on the status of non-accrual loans and their potential for resolution.

Answer

Executive Chris Rehberger and CEO Bowen Diehl noted that market spreads compressed by 50-100 basis points about 6-9 months prior but have been relatively stable since. Rehberger confirmed they have not seen significant pressure on deal structures, with loan-to-values remaining consistent. An executive explained that one non-accrual was restructured in the December quarter and another in the current quarter, with these loans being the primary driver of NAV depreciation. Diehl added that restructurings involve converting debt to equity to allow for NAV recovery as the companies improve.

Erik Zwick of Lucid Capital Markets LLC inquired about the nature and frequency of a large insurance-related dividend, the strategic plan for the CoreWeave investment post-IPO, the relative attractiveness of corporate debt versus CLO equity for future growth, and the rationale for moving the Maverick Gaming and Del Monte investments to non-accrual status.

Answer

CEO & President Matt Kaplan explained that the insurance-related dividend is an annual event that contributed approximately $1.6 to $1.7 million to NII. Regarding the CoreWeave investment, he stated that liquidity decisions are up to the General Partner and the underlying shares are under a lockup expected to expire in the current quarter. Kaplan also noted a strategic shift towards private side debt transactions due to a strengthening secondary market. He confirmed the Maverick Gaming non-accrual was prompted by its bankruptcy filing and that a potential return to accrual for it and Del Monte is linked to DIP financing.

Inquired about the timing of Q1 capital deployment and its impact on NII for Q1 and Q2, the current investment pipeline's size and yield, portfolio exposure to government contracts, and the nature of the company's consumer-facing investments.

Answer

Capital deployment was concentrated in January and March, with a positive flow-through effect expected to increase NII in Q2. The direct lending pipeline is strengthening, and the company is cautiously evaluating opportunities. The portfolio has minimal exposure to government contracts and its consumer investments are defensive, focusing on private label products and recession-resilient services like laundry, which benefit from trade-down effects.

Erik Zwick asked about the long-term target size of the CLO JV as a percentage of assets, the investment selection process within the JV, and the current outlook for the corporate portfolio's deployment pipeline and potential repayments.

Answer

CEO Matt Kaplan projected that the CLO exposure could grow to approximately 20% of the asset base over time. He described the selection process as a collaboration with sophisticated institutional partners to identify opportunities with enhanced economics. For the corporate portfolio, Kaplan noted a stable direct lending pipeline and emerging opportunities in the secondary loan market, with some potential for M&A-driven repayments, though timing remains uncertain.

Inquired about the long-term target size of the CLO JV as a percentage of assets, the investment selection process for CLOs, the current state of the corporate portfolio pipeline, and the outlook for deployments and repayments.

Answer

The executive stated that the CLO exposure could grow to around 20% of the asset base over time. The investment process involves sophisticated institutional partners and focuses on taking majority positions for enhanced economics. The lending pipeline is seeing opportunities in the secondary market due to spread widening, while the direct lending pipeline is stable. Near-term repayments are not expected, but some M&A or refinancing activity is possible, though timing is uncertain.

Erik Zwick inquired about the impact of Q1 originations on interest income, the current deal pipeline's strength relative to three months prior, the outlook for Net Investment Income (NII) to cover the dividend, and the details surrounding the restructuring of the Trade Education Acquisition.

Answer

Robert Ladd, CEO, stated that a higher average portfolio in Q2 should lead to an increase in interest income. He noted the deal pipeline is currently slower due to tariff-related M&A uncertainty but expects activity to resume. Ladd acknowledged that NII is running below the dividend but anticipates that potential realized equity gains exceeding $10 million by year-end will cover the shortfall. Regarding the restructured loan, he confirmed it was recapitalized after the original equity sponsor contributed capital.

Erik Zwick questioned the current state of the investment pipeline, the structure of delayed draw term loans (DDTLs), and the current level of spillover income.

Answer

Executive Robert Ladd described the deal pipeline as strong, following an 'exceptional' pace late in Q4 and early in Q1, with a mix of roughly two-thirds new transactions and one-third follow-ons or DDTL draws. He explained that DDTLs are subject to tests, including covenant compliance and leverage incurrence tests. Executive W. Huskinson specified that the company's spillover income stood at $45 million at year-end.

Erik Zwick inquired about the composition of the investment pipeline, the ideal portfolio size for the company's current infrastructure, potential exposure to federal government contract cuts, and the current level of spillover income.

Answer

Chief Investment Officer Michael Grisius stated that the pipeline is difficult to forecast due to market uncertainty but that business development initiatives in the lower middle market are promising. He and CEO Christian Oberbeck explained that the company is built for significant growth without a specific 'ideal size' in mind, emphasizing their focus on founder-led transitions. Grisius also confirmed no significant exposure to government contract cuts. Executive Henri Steenkamp noted the spillover income is just over $3.00 per share, as disclosed in the 10-K filing.

Erik Zwick inquired about the composition of the strengthening deal pipeline, including the mix of new versus add-on opportunities and industry concentrations. He also asked about the ideal portfolio size, potential exposure to federal agency cuts, and the current level of spillover income.

Answer

Chief Investment Officer Michael Grisius stated that it's challenging to predict the pipeline mix due to market uncertainty but noted that business development efforts are showing positive results. He explained they don't target an 'ideal' portfolio size but see significant growth capacity and have no material exposure to government contract cuts. CEO Christian Oberbeck added that the lower-middle market provides a steady stream of opportunities from founder transitions. CFO Henri Steenkamp confirmed the spillover income stands at just over $3.00 per share.

Erik Zwick inquired about the outlook for new investment growth versus the pace of repayments, the mechanics of calling SBIC debentures, and the strategy for realizing gains on equity investments.

Answer

CEO Christian Oberbeck, CIO Michael Grisius, and Executive Henri Steenkamp explained that repayments can be lumpy, citing the large Invita exit, but expressed long-term confidence in outpacing repayments with new originations from their strong pipeline. Steenkamp detailed the mechanics of calling SBIC debentures, noting the decision depends on reinvestment periods and interest rate arbitrage. Grisius clarified that equity gains are typically realized upon a company's sale, as Saratoga is a minority investor, and this strategy is a cornerstone for augmenting debt returns.

Erik Zwick of Hovde Group inquired about the specific shortcomings of potential new investments that were passed on, the quantifiable impact of interest rate cuts on Net Investment Income (NII), the company's ability to manage through a recession if debt refinancing is difficult, and whether the recent increase in Payment-In-Kind (PIK) interest was recurring.

Answer

Chief Investment Officer Michael Grisius explained that investment rejections were due to unique, credit-specific issues like customer concentration, not a single common factor. Executive Henri Steenkamp quantified the NII impact of rate cuts at approximately $0.03 per share for every 25 basis point reduction, noting this is a static view that excludes mitigating actions like refinancing callable debt. Steenkamp also confirmed the company's ability to manage rate decreases due to the gradual reset of assets and significant dividend overearning. He clarified that the quarterly increase in PIK interest was non-recurring and primarily related to the resolved Knowland investment.

Erik Zwick of Lucid Capital Markets asked for color on why no new investments were made, the expected timeline for value recovery from the Zollege and Pepper Palace restructurings, and how the new management teams for those companies were sourced.

Answer

Chief Investment Officer Michael Grisius attributed the lack of new deals to low market volume, Saratoga's rigorous underwriting standards, and significant pricing compression. Regarding the restructurings, he stated there are no fixed timelines for recovery, but they are constantly evaluating opportunities to maximize value. He detailed that the new management for Zollege is its original founder, while for Pepper Palace, it is an experienced turnaround specialist who is also investing personal capital into the business.

Erik Zwick of Hovde Group inquired about the investment in Anthem Sports & Entertainment, including its deal structure and business model transition. He also asked about valuation trends in the healthcare and pharma sectors, specifically questioning the increased investment in Future Pak, and sought an update on potential realized gains from the equity portfolio.

Answer

Gregg Bresner, President and Chief Investment Officer, explained that Anthem Sports is a club deal and its transition to an advertising-based model could take approximately 24 months. He clarified that the increased investment in Future Pak was to support a large acquisition, driven by its strong earnings growth. Bresner attributed valuation declines in other healthcare assets to mark-to-market adjustments rather than structural industry issues and noted that potential future realized gains from the private equity portfolio could not be disclosed due to confidentiality.

Erik Zwick of Hovde Group inquired about the investment in Anthem Sports & Entertainment, asking about its deal structure, the rationale for its business model shift, and the expected recovery timeline. He also questioned the contrasting performance within the healthcare and pharma portfolio, specifically the increased investment in Future Pak versus markdowns in other assets, and asked for an update on potential realized gains from the equity portfolio.

Answer

Gregg Bresner, President and Chief Investment Officer, explained that Anthem Sports is a club deal and its transition to an advertising-based model could take approximately 24 months. He clarified that the increased investment in Future Pak was to fund a major acquisition, reflecting its strong growth. Bresner noted that other healthcare markdowns were due to market comps, not structural industry issues, and stated that while future equity gains are expected, no specific timeline could be disclosed due to confidentiality.

Erik Zwick inquired about the Anthem Sports investment, including its deal structure, the rationale for its business model shift, and the expected timeline for its financial recovery. He also asked about valuation trends in the healthcare and pharma portfolio, specifically questioning the depreciation in some assets versus an increased investment in Future Pak, and requested an update on potential realized gains from the equity portfolio in the coming quarters.

Answer

Gregg Bresner, President and Chief Investment Officer, explained that Anthem Sports is a club deal with a 24-month transition period to an advertising-based revenue model. Regarding the portfolio, he stated the increased investment in Future Pak was for an acquisition, while depreciation in other healthcare names was due to mark-to-market comps, not structural industry issues. Bresner noted that he could not disclose information on potential realized gains from private equity holdings due to confidentiality.