Finian O'Shea

Finian O'Shea from Wells Fargo inquired about the significant NAV drawdowns and the unusual Friday night 8-K filing, questioning if there were underlying changes in valuation procedures or personnel beyond the stated issuer-specific developments. He also sought clarification on whether this significant disclosure was a one-off event driven by idiosyncratic factors in specific names, rather than a new ongoing valuation or disclosure policy.

Answer

President Jason Mehring clarified that there has been no change to their valuation policy or methodology. He explained that the write-downs were heavily concentrated in six names with an equity orientation, making them more volatile and sensitive to underlying performance changes. He acknowledged that a unique collection of idiosyncratic factors occurred in unison, leading to the material markdown and the 8-K release, implying it was not a regular occurrence, and reiterated that the valuation process remains consistent.

Finian O'Shea from Wells Fargo asked if there were underlying changes in personnel or valuation procedures contributing to the significant NAV drawdowns and the unusual Friday night 8-K announcement. He also questioned if this 8-K was a one-off event driven by idiosyncratic factors.

Answer

President Jason Mehring clarified that there have been no changes to BlackRock TCP Capital Corp.'s valuation policy or procedures. He attributed the material markdown and the 8-K release to a unique collection of idiosyncratic factors and concentrated losses in six names, many with an equity orientation, which are inherently more volatile. He confirmed that such an 8-K is not a regular occurrence.

Finian O'Shea with Wells Fargo inquired about the Clearwater Analytics transaction, specifically how Goldman Sachs' platform provided a competitive advantage and influenced pricing and leverage risk. He also asked about the structure and liquidity provisions of semi-liquid funds and the company's updated view on the $0.32 base dividend.

Answer

Co-CEO Vivek Bantwal explained that Goldman's ability to offer a 100% solution in take-private deals like Clearwater Analytics provides value to sponsors, allowing for bilateral negotiations and incremental economics. He clarified that all vehicles share a single investment process and that economics are passed through proportionally. Bantwal emphasized that the firm avoids the term "semi-liquid," preferring to educate clients on the nuanced liquidity provisions of non-traded BDCs and the importance of a measured approach to vehicle sizing to avoid deployment pressure. CFO Stan Matuszewski added that the company feels comfortable with the current $0.32 base dividend, anticipating potential spread widening.

Finian O'Shea inquired about the updated outlook for the $0.32 base dividend, noting that the incentive fee-adjusted SOFR look-through suggested it was slightly below current earnings.

Answer

CFO Stan Matuszewski expressed confidence in the current base dividend, citing its reset in 2025 and an optimistic view on moderate spread widening (25-50 basis points in coupon and OID) in the market, which supports the dividend's sustainability.

Finian O'Shea inquired about the specifics of the portfolio sale, including whether the 94% discount included advisory fees, and if the proceeds would primarily be used for redeployment and buybacks rather than deleveraging. He also asked if the sale focused on struggling assets or easier-to-explain ones, specifically mentioning Benevis.

Answer

John Kline, President and CEO, clarified that the 94% purchase price was separate from an estimated $7 million in fees and expenses. He stated that the company's leverage target remains 1x-1.25x, and proceeds would be strategically deployed into new credit investments or stock buybacks, not solely for deleveraging. Regarding asset selection, Mr. Kline explained that the sale aimed to reduce concentration and PIK income, not to offload 'terrible assets,' highlighting the Benevis sale as validating its value while retaining upside for NMFC. He also noted the sale reduced software exposure.

Finian O'Shea inquired about the specifics of the portfolio sale, asking if the 94% discount included advisory fees and whether the proceeds would primarily be used for redeployment and buybacks rather than deleveraging, seeking clarity on the updated leverage posture. He also questioned if the sale focused on 'clean' assets or included more struggling positions like Benevis, given its scrutiny by investors.

Answer

John Kline, President and CEO of New Mountain Finance Corporation, clarified that the 94% was the purchase price, with an additional $7 million in fees. He stated that the leverage target remains 1x-1.25x, and proceeds would be strategically deployed into credit investments, direct lending, and potential stock buybacks. Kline emphasized that the sale was driven by a desire to reduce concentration, high PIK income, and subordinated positions, not to unload 'terrible assets,' and highlighted the Benevis sale as validating its value while retaining upside.

Finian O'Shea asked if Hercules Capital expects to "run in place" in 2026, implying a potential breather from impressive growth due to factors like light ATM usage, stable base dividends, and high supplemental distributions. He also inquired about Hercules Capital's view on venture debt products being offered in the non-traded wealth channel by peers and if this could create a significant headwind to terms and spreads.

Answer

Scott Bluestein (CEO and Chief Investment Officer) unequivocally stated that Hercules Capital does not expect to "run in place," expressing strong conviction in the platform's growth opportunity for 2026, supported by robust liquidity and strong Q1 quarter-to-date commitments. He clarified that ATM usage is only for capital needs, not dilution. Regarding venture debt in the non-traded wealth channel, Mr. Bluestein respectfully declined to comment on competitors' strategies but reiterated Hercules Capital's focus on the institutional market for its private funds business, which currently includes four active, 100% institutional funds.

Finian O'Shea questioned whether Hercules Capital expects to maintain its impressive growth trajectory in 2026 or if it anticipates a period of running in place, considering ATM usage, dividend structure, and prepayment guidance. He also asked about the suitability of venture debt for the non-traded wealth channel and potential market headwinds from such products.

Answer

CEO and Chief Investment Officer Scott Bluestein unequivocally stated expectations for continued strong growth in 2026, citing robust Q1 2026 commitments, stable prepayment guidance, and a policy of not using the ATM for dilution unless capital is needed. He reiterated Hercules' focus on the institutional market for private fund capital raising, declining to comment on competitors' strategies for the non-traded wealth channel.

Finian O'Shea with Wells Fargo inquired about Prospect Capital's historical avoidance of software investments, particularly in light of current market consternation, and whether the company considers pivoting into enterprise SaaS software, a common holding among BDC peers.

Answer

Chairman and CEO John F. Barry III acknowledged his inability to forecast the AI software sector or comment on competitors. President and COO M. Grier Eliasek detailed Prospect Capital's underwriting philosophy, which prioritizes multiple repayment sources and principal protection, typically requiring a 1.5x fixed charge coverage. He explained that the company has historically avoided annual recurring revenue (ARR) software loans, common among peers, due to their lower than 1.0x fixed charge coverage and reliance on growth for repayment, deeming them too risky. Eliasek confirmed Prospect Capital has never invested in such deals and maintains the lowest software exposure among BDC bond issuers at under 3%, significantly below the 22% average.

Finian O'Shea inquired about the potential impact of higher tax refunds on First Tower's loan balances, whether First Tower is part of Prospect Capital's equity-linked exit strategy, the effect of non-traded BDC headlines on Prospect Capital's preferred product line, and the company's stance on pivoting into enterprise SaaS software given their historical avoidance.

Answer

Chairman and CEO John F. Barry III affirmed Prospect Capital's commitment to retaining First Tower due to its strong performance and management, while also expressing intellectual modesty regarding the future of AI software. President and COO M. Grier Eliasek detailed First Tower's tax advantages, strong yields, and prudent expansion, noting that tax refund seasonality is normal. He explained that while non-traded BDCs face challenges from declining SOFR, Prospect Capital's fixed-rate preferreds remain compelling. Eliasek also clarified Prospect Capital's deliberate avoidance of risky "annual recurring revenue" (ARR) software loans, emphasizing their underwriting culture and significantly lower software exposure compared to industry peers.

Finian O'Shea of Wells Fargo & Company asked about the potential impact of recent AI advancements on GBDC's enterprise SaaS software portfolio, expressing concern about future AI progress affecting existing credits.

Answer

David Golub, CEO of GBDC, addressed the 'SaaSpocalypse,' acknowledging rapid AI advancement and potential disruption. He detailed GBDC's 20 years of software investment experience, proprietary risk mapping, and AI risk assessment. Golub emphasized GBDC's preference for enterprise-critical platforms with sticky workflows and proprietary datasets, and working with AI-expert sponsors, while avoiding content creation, analytical overlay, and tool-based software. He expressed confidence in the portfolio's current positioning but stressed vigilance. Regarding capital access for software companies, Golub outlined scenarios where increased challenges could benefit private credit specialists like GBDC through better opportunities and pricing, anticipating a more selective market long-term.

Finian O'Shea of Wells Fargo inquired about the potential impact of recent AI advancements on GBDC's software portfolio, specifically addressing concerns regarding enterprise SaaS-based companies, future AI progress, and the implications for loan-to-values and capital access in the software market. He also asked if higher capital costs could amplify risks for software models.

Answer

CEO David Golub acknowledged the rapid advancement of AI and its potential to disrupt some software companies, emphasizing GBDC's 20 years of experience and proprietary risk mapping framework in software lending. He detailed GBDC's preference for enterprise-critical platforms with sticky workflows and proprietary datasets, and its avoidance of content creation, analytical overlay, and tool-based software. Golub stated that GBDC feels confident in its current portfolio positioning after a real-time review. Regarding capital access, Golub suggested that a more challenging environment for software companies to access broadly syndicated loans could be positive for private credit specialists like GBDC, leading to more opportunities and better pricing, though he views a quick market bounce-back as unlikely. He anticipates the market becoming more selective over the longer term.

Finian O'Shea asked about the current picture of Oaktree's underperforming portfolio assets, including those marked below par, and sought insights into potential interesting software investment opportunities given AI risks and market liquidity.

Answer

Raghav Khanna (Managing Director and Co-Portfolio Manager, Oaktree) clarified that underperforming assets include non-accruals, restructured equities, and positions marked significantly below par, noting that many are public positions influenced by small CLO seller trades. He also mentioned Oaktree's use of AI scorecards for software names but indicated insufficient market volume to act as a buyer despite attractive screen prices.

Finian O'Shea inquired about the portion of Oaktree Specialty Lending's portfolio currently underperforming its original security or underwriting, and the progress in resolving legacy issues.

Answer

Raghav Khanna, Managing Director and Co-Portfolio Manager, Oaktree, detailed their monitoring of underperforming assets, including non-accruals, restructured equities, and positions marked below par. He noted that most significantly marked-down positions are public, with some technology names experiencing pressure from small CLO selling, but are expected to rebound.

Finian O'Shea inquired about Ares Capital Corporation's dividend coverage inputs, specifically the allocation framework for junior or alpha-laden opportunities between ARCC and ASIF, and the strategic use of spillover income to support the base dividend.

Answer

CEO Kort Schnabel clarified that deal allocation between ARCC and ASIF is based on available capital and fund mandates, with ARCC's flexible mandate ensuring it receives a share of diverse transactions. CFO Scott Lem added that ARCC's profile is also considered. Regarding spillover income, Mr. Schnabel expressed confidence in covering the dividend, noting the spillover provides additional stability if core earnings temporarily fall below the dividend level, without speculating on specific usage scenarios.