Sean-Paul Adams • B. Riley Securities

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President David Dullum clarified that Diligent Delivery Systems is a legacy debt investment from a prior sale. He stated the company plans to roll over the debt as necessary while management restructuring occurs at the portfolio company, with the ultimate goal of being paid out over time.

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CIO Greg Greifeld and CFO & COO Thomas Raterman confirmed a brighter outlook for 2026 but stressed the current priority is portfolio optimization and diversification, not reckless growth. They explained that as very large loans are repaid, they will be replaced with multiple smaller loans to improve diversification, which may cause a temporary lag in net growth but is part of their long-term strategy.

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CEO Stuart Aronson confirmed that companies are attempting to pass through any tariff costs not absorbed by suppliers by raising prices. However, he noted that the ultimate consumer reaction to these higher prices remains uncertain and will become clearer during the upcoming holiday season.

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CEO Stuart Aronson confirmed that to the extent tariffs are not absorbed by suppliers, portfolio companies are raising prices. He noted that competitors are doing the same, but the ultimate consumer reaction to these higher prices, particularly for seasonal businesses, remains to be seen.

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Executive Stuart Aronson detailed a strategy focused on first-lien debt, remediating existing non-accruals like Telestream, and maintaining caution on new deals. He emphasized their extensive analysis of tariff risks and a focus on strong debt service coverage, leading them to avoid cyclical businesses or deals structured with excessive leverage.

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Daniel Pietrzak, President & Chief Investment Officer, clarified that only one of the four, PRG, was a legacy (pre-KKR advisor) asset. He explained that the workout team is deeply engaged with each unique situation, with PRG facing another restructuring, KBS being a valuation issue post-stabilization, and 4840 still paying interest but trending towards non-accrual.

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CEO Michael Sarner explained that the net decrease in non-accruals was primarily due to a large position of approximately $25 million returning to accrual status, which offset a smaller new non-accrual. Regarding the risk rating migration, he suggested it was not due to credit degradation but likely involved a performing company that was upgraded to a '1' in anticipation of a sale that did not proceed, causing it to revert to a '2'.

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Chief Credit Officer Ron Cundich stated that discussions with NexCAR regarding a loan modification are ongoing and the company continues to receive investor backing. For Space Perspective, which was added to non-accrual status, he indicated that a transaction is expected to be finalized during Q3 with more details to follow.

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CEO Kyle Brown affirmed a strong commitment to maintaining and growing the dividend, calling it 'BDC 101.' He explained the lower coverage in Q1 was due to a temporary lack of early loan payoffs, which typically adds $0.03-$0.04 to EPS. He stated that building NAV is a current focus given the stock's high yield, which may lead to future special dividends. He concluded by expressing strong confidence in covering the dividend going forward.

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Bob Marcotte, President, clarified there is no fundamental strategy to change the portfolio mix away from first-lien unitranche debt. He explained that higher yields are achieved selectively through two main structures: first-out, last-out arrangements where Gladstone takes the higher-yielding last-out piece, and second-lien positions behind asset-backed facilities. He noted that straight second-lien deals are generally not prevalent in the lower middle market.

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COO Laura Holson responded that the EdTech market remains strong and Edmentum's underlying business performance has stabilized. She clarified that the write-downs are not due to operational issues but are a result of the capital structure, where senior securities are accreting in value ahead of NMFC's common equity position, which pressures its valuation.

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CEO Kort Schnabel provided a direct response, stating that Ivy Hill's strategy remains focused on first-lien investments and that the company does not anticipate any strategic changes for the vehicle.

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Incoming CEO Kort Schnabel responded that despite continuous monitoring and analysis, the company is not currently seeing any discernible trends or thematic patterns in portfolio stress that they could comment on.

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Executive Dwayne Hyzak stated that future growth in the asset management business's base fees will be driven by capital deployment at MSC Income Fund. He suggested Q2 earnings from the adviser would be similar to Q1, with the variable incentive fee being the largest determinant going forward. On valuations, Hyzak explained that the goal of their quarterly process is to reflect fair market transaction multiples, as detailed in the 10-Q. He noted that a competitive sale process, like those for recent exits, can lead to significant multiple expansion above the carrying value.

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Executive Edward Ross stated there was no material update on Quantum IR, confirming the team is actively managing the situation and that the investment's valuation reflects its risk profile. For the other two companies mentioned, Ross indicated the valuation changes reflect normal quarter-to-quarter performance fluctuations rather than a significant change in their outlook, describing the businesses as stable.

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Executive Edward Ross acknowledged ongoing softness in consumer and industrial markets but emphasized the portfolio's overall health, noting that more companies grew EBITDA than declined in Q4. He stated that while some portfolio companies could see margin impacts from potential tariffs, the exposure is not significant, and most have the pricing power to offset cost increases. Ross confirmed there has been no change to their investment strategy, which remains focused on high free cash flow businesses, maintaining reasonable leverage, and ensuring a strong enterprise value cushion.

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CEO Craig Packer detailed two sources for the ROE uplift: investment-related optimization, such as increasing exposure to accretive strategic equity platforms where OBDE was underweight, and cost structure synergies. CFO Jonathan Lamm added that on the cost side, the company has already realized approximately 10 basis points of operating expense synergies in Q1 2025.

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Chief Investment Officer Michael Grisius noted the pipeline is up slightly in a tough market and that new deals are priced to be accretive over the all-in cost of capital, leveraging favorable SBIC financing. CFO Henri Steenkamp clarified that the significant net repayments occurred in Q3, whereas Q4 saw net asset growth. Michael Grisius added that access to low-cost SBIC capital allows them to deploy capital accretively even in a tight pricing environment.

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CEO Joshua Easterly confirmed there have been no material negative migrations. He elaborated on the firm's tariff exposure analysis, stating direct risk is limited to about 2% of the portfolio by fair value, with minimal expected impact. Easterly emphasized that the ability to 'play offense' requires capital, liquidity, and bandwidth, and confirmed TSLX has all three because its existing portfolio is healthy.

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CEO Jeff Levin clarified that the firm's exposure is not to direct auto manufacturing but to related services and software, which he views as more insulated. He confirmed a team is analyzing broader tariff impacts but noted the portfolio's largest sectors, software and insurance, are well-protected. Regarding M&A, Levin stated that while private equity dry powder creates a bullish backdrop, uncertainty may delay a significant pickup in LBO volume until the latter half of 2025. He highlighted that MSDL's deal flow engine allows for strong deployment even in a subdued market.

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Chief Financial Officer Teddy Desloge confirmed that extensive work has been done on the topic. He stated that exposure to risks from higher tariffs on imported goods is estimated to be in the "mid-single digits" of the portfolio. He also noted that the firm is now even more cautious on new investments in potentially affected industries like consumer goods.

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President Ted McNulty confirmed that several non-accrual positions underwent restructuring transactions, placing them in a more stable position. He directed the analyst to the earnings supplement, which details the four remaining non-accrual names from the mergers.

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Co-CEO Bruce Spohler clarified that the Rug Doctor investment is a joint venture with BISSELL, which operates the business. He stated the nonaccrual status is because cash flow is being reinvested into the business rather than being paid out as interest. Spohler suggested a long-term resolution could involve their JV partner, BISSELL, acquiring the remaining interest from SLRC and other BDC holders.

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