BCP Investment Corporation - Q2 2024
August 9, 2024
Transcript
Operator (participant)
Good morning, ladies and gentlemen, and welcome to Portman Ridge Finance Corporation's Q2 2024 Earnings Conference Call. An earnings press release was distributed yesterday, August 8, after market close. A copy of the release, along with an earnings presentation, is available on the company's website at www.portmanridge.com in the Investor Relations section, and should be reviewed in conjunction with the company's Form 10-Q filed yesterday with the SEC. As a reminder, this conference call is being recorded for replay purposes. Please note that today's conference call may contain forward-looking statements, which, pardon me, which are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in the company's filings with the SEC.
Portman Ridge Finance Corporation assumes no obligation to update any such forward-looking statements unless required by law. Speaking on today's call will be Ted Goldthorpe, Chief Executive Officer, President, and Director of Portman Ridge Finance Corporation. Brandon Satoren, Chief Financial Officer. And Patrick Schafer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of Portman Ridge.
Ted Goldthorpe (CEO)
Thank you. Good morning, and welcome to our Q2 2024 Earnings Call. I'm joined today by our Chief Financial Officer, Brandon Satoren, and our Chief Investment Officer, Patrick Schafer. Following my opening remarks on the company's performance and activities during the Q2, Patrick will provide commentary on our investment portfolio and our markets, and Brandon will discuss our operating results and financial condition in greater detail. Yesterday, Portman Ridge announced its Q2 2024 results. And despite operating under challenging market conditions, we reported net investment income of $6.5 million, or $0.70 per share, an increase of $300,000 or 3 cents per share as compared to the prior quarter.
A well-diversified portfolio remains one of our highest priorities for Portman Ridge portfolio, and I'm pleased to share that we finished the quarter with exposure to 28 industries and 75 unique portfolio companies, with an average par balance of $2.6 million. This compares to 27 industries and 79 unique portfolio companies with an average par balance per entity of $3.1 million as of March 31, 2024. Further, subsequent to quarter end, we amended and extended our existing senior secured revolving credit facility with JPMorgan Chase Bank. Under the terms of the amendment, we increased the facility size by $85 million to $200 million and reduced the applicable margin by 30 basis points, from 2.8% per year to 2.5% per year.
Additionally, the reinvestment period was extended from April 29, 2025 to August 29, 2026, terming out our revolving period by 2 years and improving the company's asset liability matching. The remaining $85 million of secured notes will be refinanced with the upsize of the credit facility. We value the long-term commitment and relationship we have with our lenders and JPMorgan, a world-class financial institution. The amendment, the amended credit facility will provide us with meaningful liquidity as well as the flexibility to grow the company's balance sheet as we look to capitalize on future investment and origination opportunities. We continue to believe our stock remains undervalued, and as such, we continue to repurchase shares under our share repurchase program.
During the Q2, we purchased a total of 79,722 shares from aggregate costs of $1.6 million. These repurchases were accretive to Portman's net asset value by $0.03 per share during the quarter. Additionally, the board of directors approved a $0.69 per share distribution for the Q3 of 2024, which represents a 13% annualized return on net asset value, among the highest in the BDC space. Turning to conditions in our primary market, the Q2 of 2024 continued the macro trend seen in the Q1. New deal activity has picked up pace and syndicated markets have continued to remain open, though borrowers have continued to rely heavily on private credit capital providers for M&A activity, given the certainty they provide, resulting in tailwinds for our industry.
Having said that, the combination of continued private credit capital raising and a more competitive syndicated market alternative has led to meaningful spread compression in certain parts of the private credit market. According to KBRA DLD private data, private credit spreads for borrowers with greater than 100 million of EBITDA and those between 50 and 100 million of EBITDA have both declined by approximately 75 basis points since the beginning of the year. That is compared to spread compression of approximately 50 basis points for borrowers between 20 and 50 of EBITDA, and just over 25 basis points for borrowers with less than 20 of EBITDA. As always, our strategy at Portman is to be selective regarding new investment opportunities by leveraging the platform scale of BC Partners and its robust deal pipeline, while also increasing the diversification of our investment portfolio through hold size.
As an example, during the quarter, we made only two investments in portfolio companies, one comprising a $4.6 million investment and the other a $2.7 million investment, while the remainder of our additions were in the form of incremental capital to existing portfolio companies to support their add-on acquisitions.
Patrick will provide details shortly. This has allowed us to maintain a relatively consistent spreads on new origination as compared to our portfolio as a whole. As we enter the back half of 2024, we remain confident in our business. With our amended credit facility, robust pipeline, strong balance sheet, we believe we are well-positioned to continue executing our strategy and delivering strong returns for our shareholders. With that, I will turn over the call to Patrick Schafer, our Chief Investment Officer, for a review of our investment activity.
Patrick Schafer (CIO)
Thanks, Ted. Turning now to slide 5 of our presentation and the sensitivity of our earnings to interest rates. As of June 30, 2024, approximately 89% of our debt securities portfolio was either floating rate with a spread peg to an interest rate index, such as SOFR or prime rate, with substantially all of these being linked to SOFR. As you can see from the chart, SOFR rates have remained relatively consistent for the last five quarters. Skipping down to slide 10, originations for the quarter were lower than last quarter and were also below the current quarter repayments and sales levels, resulting in net repayments and sales of approximately $18.2 million. During the quarter, we took advantage of rising secondary prices to exit or materially reduce a number of our more liquid loans.
This proactive rotation represents a substantial portion of the net repayment and sales amounts. Our new investments made during the quarter are expected to yield a spread to SOFR of 724 basis points on par value, and the investments were purchased at a cost of approximately 98.6% of par. Our investment portfolio at the end of the Q2 remained highly diversified. We ended the Q2 with a debt investment portfolio spread across 28 different industries, one more as compared to the end of the Q1, and 75 unique portfolio companies with an average par balance of $2.6 million.
Turning to slide 11, in aggregate, investments on non-accrual status for 9 investments at the end of the Q2 of 2024, representing 0.5% and 4.5% of the company's investment portfolio at fair value and cost, respectively. This compares to 7 investments on non-accrual status as of March 31, 2024, representing 0.5% and 3.2% of the company's investment portfolio at fair value and cost, respectively. The main driver of this increase was due to placing an additional security of QualTek on non-accrual.
We were able to exit our entire QualTek position shortly after the quarter end, but during the course of the quarter, the buyer for the company made a number of changes to the purchase price that ultimately resulted in our security receiving less than par, and therefore, we have included it on a non-accrual list for the quarter. As of today, we have completely exited all QualTek securities, and the ultimate NAV impact has been factored into the June thirtieth financial results. On slide twelve, excluding our non-accrual investments, we have an aggregate debt investment portfolio of $383.6 million at fair value, which represents a blended price of 93% of par value and is 91% comprised of first lien loans at par value.
Assuming par recovery, our June 30, 2024 fair values reflect a potential of $26.7 million of incremental NAV value, or a 13.6% increase to NAV. When applying an illustrative 10% default rate and 70% recovery rate, our debt portfolio would generate an incremental $1.64 per share of NAV, or a 7.7% increase as it rotates to maturity. Finally, turning to slide 13. If you aggregate the three portfolios acquired over the last three years, we have purchased a combined $435 million of investments, have realized approximately 85% of these positions at a combined realized and unrealized mark of 101% of fair value at the time of closing the respective purchase.
As of Q2 of 2024, we have fully exited the acquired Oak Hill portfolio and are down to a combined $13.8 million of the acquired HCAP and the initial KCAP portfolios. I'll now turn the call over to Brandon to further discuss our financial results for the period.
Brandon Satoren (CFO)
Thanks, Patrick. For the Q2 of 2024, Portman generated $16.3 million of investment income, of which $13.9 million was attributable to interest income, inclusive of PIK income from the debt investment portfolio. This compares to total investment income for the Q1 of 2024 of $16.5 million, of which $14.2 million was attributable to interest income, inclusive of PIK income from the debt investment portfolio. The decrease was driven by lower interest income due to net repayments and sales during the quarter, as well as the reversal of $0.1 million, or a penny per share, of previously accrued unpaid interest on a loan placed on non-accrual status during the quarter, partially offset by higher dividend income from the Great Lakes Joint Venture.
Excluding the impact of asset acquisition accounting, our core investment income for the quarter was $16.2 million, as compared to core investment income of $16.5 million in the prior quarter. Total operating expenses for the quarter ended June 30, 2024, decreased by $0.4 million to $9.9 million, as compared to $10.3 million in the prior quarter. This decrease was largely driven by a decrease in interest expense as a result of a $6.6 million paydown on the 2018-2 Secured Notes during the quarter, as well as a larger $34.2 million paydown on the 2018-2 Secured Notes in the second half of the prior quarter. Our net investment income for the quarter increased to $6.5 million or $0.70 per share.
This compares to $6.2 million or $0.67 per share for the prior quarter. The increase in NII was primarily due to lower interest expense during the quarter. For the quarter ended June 30, 2024, net realized and change in unrealized losses on investments in debt was $12.8 million. This compares to net realized and change in unrealized losses on investment in debt of $1.7 million in the prior quarter. As of June 30, 2024, the company's net asset value was $196.4 million, or $21.21 per share, a decrease of $14.2 million, or $1.36 per share, compared to the prior quarter net asset value of $210.6 million, or $22.57 per share.
As of June thirtieth and March thirty-first, 2024, our gross leverage ratios were 1.5 times and 1.4 times, respectively. For the same periods, our leverage ratio net of cash was 1.3 times and 1.2 times, respectively. Specifically, as of June thirtieth, 2024, we had a total of $285.1 million of borrowings outstanding, with a current weighted average contractual interest rate of 6.9%. This compares to $291.7 million of borrowings outstanding as of the prior quarter, with a then current weighted average contractual interest rate of 6.9% as well.
Additionally, consistent with the prior quarter, the company finished the quarter with $23 million of available borrowing capacity under the senior secured revolving credit facility and no remaining borrowing capacity under the 2018-2 secured notes as the reinvestment period has ended. As Ted mentioned, subsequent to quarter end, we amended and extended our existing senior secured revolving credit facility with J.P. Morgan. Under the terms of the amendment, the credit facility was upsized by $85 million, for a total revolving capacity of $200 million. Additionally, the applicable margin was reduced from 2.8% to 2.5%, and the reinvestment period was extended by approximately 2 years to August 29th, 2026. This amendment has reduced our overall cost of debt capital and extended the duration of our debt capital structure.
Further, we intend to refinance the remaining $85 million 2018-2 secured notes outstanding with the proceeds from the upsized J.P. Morgan credit facility. Finally, the board approved a quarterly distribution of $0.69 per share, payable on August 30, 2024, to stockholders of record at the close of business on August 22, 2024. With that, I will turn the call back over to Ted.
Ted Goldthorpe (CEO)
Thank you, Brandon. Ahead of questions, I'd like to reemphasize that we believe we are well positioned to take advantage of the current market environment, as shown in the first half of the year. Through our prudent investment strategy, we believe we'll be able to deliver strong returns to our shareholders in the back half of 2024. I would like to thank once again all of our shareholders for your ongoing support. This concludes our prepared remarks, and I'll turn the call over for any questions.
Operator (participant)
Thank you. We will now begin the Q&A session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue. Your first question comes from the line of Christopher Nolan with Ladenburg Thalmann. Your line is open.
Christopher Nolan (Analyst)
Hey, guys.
Ted Goldthorpe (CEO)
Hi, Chris.
Christopher Nolan (Analyst)
What was the driver for the realized loss and the unrealized appreciation, please?
Patrick Schafer (CIO)
So I'll turn it to Brandon for the realized, but on the unrealized front, the primary driver is QualTek, which I talked about a little bit in my remarks. But we ultimately exited the investment right after quarter end, and had to take an unrealized write-down in and around the exit price there. That again will just flip from unrealized to realized in Q3. But for Q2, it was a significant portion of our unrealized loss.
Brandon Satoren (CFO)
That's right, Patrick.
Christopher Nolan (Analyst)
Yes.
Brandon Satoren (CFO)
Just on the realized front, Chris, it was an investment called Tank. We realized it at the mark we had last quarter, so that was already embedded in our net. It was just a flip from unrealized to realized.
Christopher Nolan (Analyst)
If I'm correct, Tank was on the old Capitana investments. Is that correct?
Patrick Schafer (CIO)
No. So this, this was an old KCAP, like, way legacy one. It was on non-accrual. I took over the portfolio. We've had, like, a $40,000 receivable or something left from, like, some state, like a, like a, a state liquidation that finally got resolved. So it's been, it's been, it's been running at, like, almost no value on our, on our, SOI for several, several years now.
Christopher Nolan (Analyst)
No. Okay, I'm getting your portfolio company, excuse me, your BDCs confused. QualTek, what should we expect in terms of a realized loss for 3Q on that?
Patrick Schafer (CIO)
The short answer is, it should be all a flip from unrealized to realized. There should be no NAV impact for Q3, Chris. I don't have the exact quantum of that. We can follow up with you with the exact quantum, but it will be a complete flip from unrealized to realized. So we baked in, and again, it closed in on, like, July seventh or something like that. So the price as of 6/30 bakes in the exit price, but we can follow up with the exact amount that you should expect.
Christopher Nolan (Analyst)
No need. That's fine. Okay, on the credit facility. The text of the press release says, margin of 2.5% or so. Am I to presume that's a spread over some index? And if so, what's the index?
Patrick Schafer (CIO)
SOFR. It's a, it's a 2.50 over SOFR.
Christopher Nolan (Analyst)
Great. Final question would be, can you give any perspective as to what the BDC M&A market might be evolving like, given many BDCs are starting to see asset quality deterioration this quarter?
Ted Goldthorpe (CEO)
I would say, it's still pretty quiet on that front and there is, but there is a lot of strategic activity happening in the broader asset management space. So you've seen, two big deals happen this past quarter. We are M&A activities pick up a lot in the broader asset management space, so I'm not sure that applies. I wouldn't say we've seen that in the quote-unquote "BDC space," but we are seeing it in the '40 Act space, and we're definitely seeing it in the broader institutional space. And the theme is the same. The theme is scale matters. So costs keep going up, there's pressure on fees.
So a lot of firms are having to put a lot of money into distribution, in terms of expenditures. So the themes are becoming more pronounced. So some people in 2020 had issues with credit. Now it's much more, people are having issues with scale. So you're gonna see a lot of M&A over the next 12 to 18 months, but, that's a comment more broadly around 40 Acts and around, and around, asset management as opposed to just BDCs.
Christopher Nolan (Analyst)
Got it. Okay, that's it for me. Thanks, guys.
Ted Goldthorpe (CEO)
Thanks, Chris.
Operator (participant)
And as a reminder, please press star one if you would like to ask a question. And your next question comes from the line of Deepak Sarpangal with Repertoire Partners. Your line is open.
Deepak Sarpangal (Analyst)
Thank you. Hi, good morning.
Ted Goldthorpe (CEO)
Hi, good morning.
Deepak Sarpangal (Analyst)
So a few questions. On the recent quarter, obviously, we'd all like to see zero markdowns at any given point in time, but that's essentially impossible. Curious, I know Qualtek was one of the big drivers. It did seem like a lot of it was like a lot of the weakness has been primarily in the high tech industry part of your portfolio. Is there something broader that you're seeing? I know that that's the size of that has come down now, which is good, but is there anything else any other context with respect to that? Because it looked like there were a few of them that
Ted Goldthorpe (CEO)
That's actually a very perceptive question. I would say QualTek's not really a tech company. And again, it's a long-term legacy position, and we've now exited it. I will say across our tech portfolio, which is, generally speaking enterprise software, so recurring cash flow, I will say that they've definitely seen two factors that impact them. One is sales cycles becoming longer for new sales, so their existing base of business is still turning along. But number two is this AI theme and the expenditures in AI, are taking away a little bit of the budgets for what I'd call traditional software. It feels like just looking at our portfolio companies.
And then number three is there has been some very, very company-specific events that have impacted some of our companies, some of our companies in the broader space. Obviously, everybody knows the CrowdStrike example, but that's actually happened in a couple other situations. We had a specific investment in a company that had a cyber issue this quarter that we think is totally. We think it's a temporary markdown. We think the company is totally fine. But there is some idiosyncratic events happening in tech that are really like we haven't seen before. CrowdStrike's the most public example, but we're seeing it, we're seeing it on a smaller scale.
Deepak Sarpangal (Analyst)
Okay, that makes sense. And then is there also, is there anything? I know your business isn't seasonal, but like, it also just so happened that last year it was like Q2 that was maybe a tougher quarter, but then it reverted. Is there anything maybe just like where there's, like you said, maybe there's company-specific factors or like the overall market just happened to be in a particular position. Is there anything just in terms of like timing that contributes maybe this being like a tougher quarter than most?
Ted Goldthorpe (CEO)
Another really good question. I would say thematically the banks were really closed in 2020. So post Twitter, a lot of the investment banks were really reticent to take on risk. And then you obviously had the regional banking crisis. So we felt like there really wasn't a lot of issue. Like, we've had more loan issuance year to date than we've had in the last 2 years combined. Hasn't really impacted us because we're at the smaller end of the market, so we haven't seen the revise that some of our larger peers have seen. Coming into this year, our portfolio, our pipeline was not that great. We were incredibly busy up till June, and now our pipeline slowed down again.
The theme there is just, there's just not a lot of new LBO activity. So you're seeing M&A pick up broadly, and you're seeing the investment banks comment on M&A. We're not seeing it on the private equity sponsor level. So exits are hard. Prices haven't come down that much.
Financing costs are higher, and the economy is slowing down. So we're seeing, like, our pipeline for new M&A activity in LBOs is pretty anemic. So that'll pick up. Like, if you look at our portfolio today, a very large percentage of them are supposed to go for sale in the Q4. Now, again, that was the same thing last year. That doesn't mean they're actually going to transact, but there is a very, very large pipeline of companies in the middle market that need to be sold over the next 1 to 2-3 years. So this should revert to the mean at some point.
Deepak Sarpangal (Analyst)
Okay. And then this is a more random question-
Patrick Schafer (CIO)
I would say, I would say, so Deepak, I wouldn't say it's seasonal. It's more thematic, I would say.
Deepak Sarpangal (Analyst)
That makes more sense. And this question is a little bit more random, but I, I noticed that, one thing I, I do like that again, the, the joint ventures in CLO, parts of your portfolios are smaller and continuing to get smaller. In your, in your fair value disclosures and assumptions, it looks like you value those with discount rates of over 20% on a weighted average. I'm glad that's conservative. It, it, it does seem like a high discount rate. Can you maybe explain a little bit more about how you come up with that and how to think about that?
Patrick Schafer (CIO)
Deepak. So this is Patrick. So the, the short answer is, for all those valuations, we send those out to, to third parties to be valued. So third parties are come up with the discount rates. But the, the reality is CLO equity, and that's generally where those discount rates are coming from. Not as much, like Great Lakes Joint Venture, but really more so the, the other CLOs. Candidly, it's just a very opaque market and where spreads are right now liabilities came down a little bit, but not nearly as much as spreads have come down. So, like, the return to equity in CLO land has been relatively compressed, which means you need to price it at a much higher discount rate.
So again, it's not like the most obvious of answers, but just in the CLO market, in order to get potential buyers to transact you really need to have a very healthy discount rate to that back end of tranche because of where, like, the liability asset spread is on BSLs.
Deepak Sarpangal (Analyst)
Okay. And then, I know that-
Ted Goldthorpe (CEO)
As you mentioned, Patrick, it's a very small portion of our book, and obviously can get smaller. Our Great Lakes Joint Venture, which is the biggest piece of that, is not valued at a 20% discount rate. All the individual loans within that joint venture are valued at their own individual discount rates that then rolls up into a joint venture valuation. And I don't know the exact numbers off the top of my head, but those are all substantially lower than 20%.
Deepak Sarpangal (Analyst)
Yep, and again, in the relatively smaller cases where you're using EBITDA multiples, it does look like. Again, I know that these are not necessarily apples to apples, but to what extent are the businesses that you're valuing in, like, just lower multiple businesses versus maybe just like better priced investments? And the reason why I ask that is, like, for example, like, your multiples are like by far the low, which is a good thing, but by far the lowest. If you look at the larger BDCs, Ares, it's more like 11x or 13x, in terms of those EBITDA multiples. Now, I know, like, those could be like software businesses or something like that, but just curious, is there, is there anything else that accounts for that?
Patrick Schafer (CIO)
No, another good question. So I'd say a couple of things, which is, one, generally we try and be pretty conservative on our valuations, particularly on equity securities, which is what you're referencing. Just because, again, like, equity can tend to be volatile, so we prefer to be on the conservative side. The other little bit of a nuance there is, generally speaking, our equity positions are tended to be sosome of the acquired portfolios from either Harvest or Garrison, or even like KCAP, where the bars themselves are probably a little bit smaller.
And so we do tend to try and factor in a little bit of a, like, size discount in terms of size of the portfolio company relative to a quote-unquote, "peer set," and where we think a valuation multiple should trade. So, again, the combination of being able to conserve up the multiple and like, if you're using Ares as the example, they're going to have much larger portfolio companies. So they're able to or probably can look more similar to, like, the actual peer set from a valuation multiple perspective, as opposed to ours. We tend to apply a meaningful discount to where the peers trade, just to, to factor in the fact that they're, they're smaller companies than the peers.
Deepak Sarpangal (Analyst)
Great. That's all my questions. I am glad to see that you're continuing to take advantage of your undervalued stock, and it's not, it's not every company that demonstrates that savvy capital allocation, and especially in the BDC space. So thanks, and look forward to more ahead.
Patrick Schafer (CIO)
All right.
Deepak Sarpangal (Analyst)
Thank you.
Operator (participant)
As a reminder, it is star one if you would like to ask a question, and your next question comes from the line of Steven Martin with Slater Capital Management. Your line is open.
Steven Martin (Analyst)
Hi, guys. You've addressed a lot of my questions. Can you comment on what the current trend is in amendments, extensions, waivers, et cetera?
Ted Goldthorpe (CEO)
I don't think we've seen a material pickup in amendment and waiver activity. So again, a lot of companies who are not fully levered were having trouble, not trouble, but they were asking for extensions the last couple of years. Now the market's normalized, and so there is some repricing activity, and to the extent we're not willing to do it, there's other lenders lining up to do it. So I don't think there's been obviously, we have some normal course amendments going on. I don't think we've seen a material pickup in amendment activity. Actually, it's pretty. Honestly, this quarter has been relatively muted.
Steven Martin (Analyst)
Gotcha. Can you comment on the nature of your PIK income? It's been relatively flat. Is it penalty? Is it a little extra income? Are you eventually collecting? What's the status?
Patrick Schafer (CIO)
Hey, Steve, it's Patrick. The answer is, it's a little bit of all of the above. So, there are some instances or have been historically where, and a lot of it was coming out of COVID, where you get an extra 100, 150 basis points of pricing concession for a covenant relief, for a maturity extension or something, and that typically came in the form of PIK. And so you'd have whatever it is, 80% of your spread in cash, and the extra 100, 150 basis points you get, is in the form of PIK. So there's a combination of that. More recently, there's three good examples of this that we've done in the last handful of months.
Riddell, which was done at the end of Q1, and then Princeton Medspa and CareConnectors are the doing business as names that were the new portfolio company. Those two were the new portfolio companies in this quarter, where we as BC and Portman collectively, we did effectively like a two-security unitranche where we provided, let's call it 80% of our capital in the form of a senior secured first lien loan, and then 20% of our capital in the form of some structured equity solution. And so that equity piece itself is all PIK, but the way we look at the investment is a combined investment in both the term loan and the preferred equity.
And so from a cash PIK component in terms of our investment in the BDC in aggregate, it's probably something like a 80/20, 85/15 type of a split, but on those two, those two securities themselves happen to be all PIK because they're structured equity. So the answer, Steve, is we look at both cash and PIK like, as like a collective investment. And so more often than not, it is a little bit of extra PIK in addition to cash coupon for a borrower. But there are some instances, like the handful of deals or 3 deals that we've done recently, where technically one security is all PIK, but we did it as a strip between a first lien that is all cash and then preferred equity that's all PIK.
And so it blends to, again more, something that makes more sense in terms of like, again, 85/15 or whatever you wanna think about a cash PIK.
Steven Martin (Analyst)
One more-
Brandon Satoren (CFO)
Just point out.
Steven Martin (Analyst)
Oh, go ahead.
Brandon Satoren (CFO)
I just point out that there's a little, it looks like PIC increased by 1% this quarter-over-quarter. There's a little bit of a denominator effect there. The reality is PIC only increased, PIC increased by less than $200 million.
Steven Martin (Analyst)
Right. I was more commenting on the last couple of quarters, it's been around the $2 million level. So I was curious as to the composition. On the unrealized, Ted, you said spreads have tightened over the last couple of months. If spreads have tightened versus the prior four or five quarters where they were wider, are we seeing or shouldn't we see a recapture of some of our unrealized losses?
Ted Goldthorpe (CEO)
It's a good question. There's a bit of a lag. So I'd say a couple things. Spread compression always starts at the top. So we've seen spread compressions at the big cap level, and obviously over time, that'll trickle into our market. So that should be a tailwind for valuations. And again, Patrick gave some color around NAV upside in our book right now. And so it should filter through. There's always a lag, though. So spreads have really come down pretty aggressively over the last, I'm gonna say, three months. And again, the way our valuation methodology works is there's a bit of a lag on our matrix. So there should be some tailwind there.
Obviously, recent volatility, excluded like in the markets.
Steven Martin (Analyst)
Gotcha. With respect to position sizes, the last couple of deals you've added Riddell, as an example, you've taken very little of the deal. Is there a reason why the position sizes you've added seem to be much smaller?
Ted Goldthorpe (CEO)
Steve, the simple answer is our view on BDCs specifically, is that they should be very well-diversified portfolios. Where we sit from a leverage perspective, invested capital perspective. I don't think we need to put out significant amounts of capital. And so for us, we've been focused on trying to continue to run a diversified book, and in our opinion being able to take smaller bits of more deals, is more advantageous for our shareholders, as they're able to invest in, again, a more diversified portfolio where any individual deal becomes less impactful, either positive or minus, and increase a lot more consistency of results.
Steven Martin (Analyst)
All right. Thanks a lot.
Operator (participant)
We have no further questions at this time. I would now like to turn the conference back over to Mr. Ted Goldthorpe for closing remarks.
Ted Goldthorpe (CEO)
Thank you all for attending our call, and as per always, please reach out to us for any questions which we're happy to discuss. We look forward to speaking to you again in November for our Q3 conference call, and we hope all of our shareholders and stakeholders have a very good end of summer. Thank you.
Operator (participant)
Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.