BlackRock TCP Capital - Q1 2024

Executive Summary

• Q1 2024 delivered net investment income (NII) of $28.3M ($0.46/share), with adjusted NII of $27.7M ($0.45/share), covering the $0.34 dividend and marking the first quarter post-merger with BCIC; total investment income rose to $55.7M, benefiting from higher base rates and wider spreads.
• GAAP EPS (net increase in net assets per share) was $0.08, down sharply versus $0.39 in Q1 2023, as unrealized losses (notably Edmentum, Razor, Aventiv, Astra, Thrasio, 36th Street Capital) offset $21.3M of unrealized gains from purchase discount accounting under the BCIC merger.
• NAV per share declined to $11.14 from $11.90 in Q4 2023, reflecting portfolio markdowns and accounting impacts from the merger; non‑accruals increased to five names (1.7% of portfolio FV).
• Guidance signal: dividend maintained at $0.34/share for Q2; management fee reduced to 1.25% on assets ≤200% of NAV post-merger; CFO expects further synergy and expense savings over coming quarters, and plans near‑term action on 2024 notes.
• S&P Global Wall Street consensus estimates were unavailable at time of analysis; we note relative outperformance on NII vs dividend but cannot benchmark EPS/“revenue” vs street due to data access limitations (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

• Adjusted NII of $0.45/share and GAAP NII of $0.46/share exceeded the regular dividend, supported by higher base rates and wider spreads in a predominantly floating-rate portfolio.
• Management emphasized portfolio resilience and the strategic value of the BCIC merger (scale, lower fee structure, improved capital access), expecting income accretion and efficiencies: “gaining scale... including income accretion, more efficient access to capital and a lower fee structure”.
• Liquidity strong at $408.7M (including $286.0M available leverage and $120.6M cash); weighted average borrowing cost remained relatively low at 5.08% despite rate hikes.

What Went Wrong

• NAV per share fell to $11.14 (from $11.90), driven by unrealized losses on specific positions (e.g., Edmentum −$13.4M, Razor −$13.2M, Aventiv −$6.8M, Astra −$6.4M, Thras.io −$3.3M, 36th Street Capital −$3.1M), partially offset by reversals (e.g., Perch +$6.3M).
• Non‑accruals rose to five companies; Aventiv was added in Q1 and Gordon Brothers was acquired as a pre‑existing non‑accrual through the BCIC merger (1.7% FV; 3.6% cost).
• Merger-related purchase discount accounting created volatility between GAAP and adjusted metrics, complicating period-over-period comparability; adjusted net decrease in net assets from operations was $(0.27)/share despite positive GAAP EPS of $0.08.

Transcript

Operator (participant)

Now I would like to turn the call over to Katie McGlynn, Director of the BlackRock TCP Capital Corp Investor Relations team. Katie, please proceed.

Katie McGlynn (Director of Investor Relations)

Thank you, Emily. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at the time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected. Any forward-looking statements made on this call are made as of today and are subject to change without notice. Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, we make no representation or warranty with respect to such information. Earlier today, we issued our earnings release for the first quarter ended 31 March 2024. We also posted a supplemental earnings presentation to our website at www.tcpcapital.com.

To view the slide presentation, which we will refer to on today's call, please click on the Investor Relations link and select Events and Presentations. These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today. I will now turn the call over to our Chairman and CEO, Rajneesh Vig.

Rajneesh Vig (Chairman and CEO)

Thanks, Katie, and thank you for joining us for TCPC's Q1 2024 earnings call, which is also officially the first earnings call for TCPC as a combined entity post our successful combination with our former affiliate BDC, BlackRock Capital Investment Corp, or BCIC. Today, I'm joined by our president, Phil Tseng, and our CFO, Erik Cuellar. We are also joined today by Michaela Murray, who will be taking over the investor relations role from Katie McGlynn, who is leaving the firm to pursue other opportunities. I'd like to officially welcome Michaela to the show. As a reminder, Katie has been a valued member of the TCPC team and private debt platform since 2018, and was instrumental in structuring and closing the recent merger. She's been a great partner and friend and will be sorely missed. We, of course, wish her well in her future endeavors.

For today, I will begin with a few comments on the successful completion of our merger with BCIC. I'll then provide an overview of our first quarter results. Phil will follow with an overview of the investment environment and our portfolio and investment activity, and Erik will then review our financial results, as well as our capital and liquidity in greater detail. Finally, I will wrap up with a few comments on the opportunities we see ahead before taking your questions. As I mentioned earlier, during the first quarter on 18 March, we closed our affiliate merger with BCIC. As a reminder, since BlackRock's acquisition of TCP's platform in 2018, the investment activities of both TCPC and BCIC were managed by one team and are under the current leadership.

The merger simply formalizes a combination of these two materially overlapping portfolios and delivers meaningful value for our shareholders through the greater scale and targeted operating efficiencies. This includes a lower overall fee structure for the larger combined entity, the likelihood of more efficient access to capital, and income accretion for the company and ultimately for our shareholders. From this point forward, we will be discussing financial results for the entity on a combined basis. Now, let's begin with a review of the highlights of our first quarter results. I am pleased to report that for the first quarter of 2024, TCPC delivered adjusted net income of $0.45 per share, an increase from $0.44 per share in the prior quarter.

Our run rate NII remains among the highest in TCPC's history as a public company, and our annualized net investment income return on equity for the quarter was 14.7%, and NII continues to benefit from relatively higher base rates, base rates and spreads. During the first quarter, our NAV declined 6.4%, primarily due to net unrealized losses on portfolio companies previously discussed, including our investments in two Amazon aggregators, Thrasio and Razor, along with our equity investment in Edmentum. The write-downs in the first quarter are mostly the result of circumstances specific to a handful of companies, and as we have stated before, we do not believe these situations are any indication of broader credit challenges in our portfolio. The majority of our portfolio companies continue to report revenue and margin expansion, with many generating sustained performance improvements.

That said, I again want to provide commentary on a few of the names that contributed to the portfolio markdowns. Thrasio and Razor both operate in the Amazon aggregator space, and as we have discussed on previous calls, the aggregators are consolidators of small to medium-sized brands that sell through Amazon's market-leading third-party platform. This sector was initially impacted by COVID-related supply chain issues, and then by slowing growth in online consumer spending as supply chain issues alleviated, resulting in excess inventories and over-leveraged balance sheets. Given the persistent operating and liquidity challenges that resulted, Thrasio, one of the largest Amazon aggregators, opted for a balance sheet restructuring via a Chapter 11 filing in February 2024, which we supported given the net benefits from that process.

Although a fair bit of work remains ahead of us, we expect ultimately Thrasio to emerge with a lower and more manageable debt structure, as well as a leaner and more efficient operating profile. This should allow the company to remain a leader in the sector and to focus on a return to profitability post-emergence in what we continue to believe is a long-term and viable and attractive industry. By contrast, Razor Group opted to address challenges via consolidation and acquired Perch in March, solidifying the combined entity's position as a global leader in the space. Similar to Thrasio's standalone restructuring effort, we expect the strategic combination to drive a more efficient operating structure than either company could have achieved in the near term standalone.

We also believe that further consolidation and cost optimization are likely to continue in this space, and ultimately, there will be fewer, larger scale, and better capitalized vendors serving it. We will continue to update you on the progress of each of these as we are able to. Next, I'll discuss Edmentum, an online learning provider, which, as we noted last quarter, is navigating a reversion to a more normalized but still positive demand environment. Demand for its tools and services spiked during the pandemic, but that has since corrected following the successful return to in-person attendance in many schools. Relative to pre-pandemic levels, digital education and remote learning services continue to grow in popularity and prominence, and Edmentum remains well-positioned in an industry with positive secular trends.

As a reminder, our current investment in Edmentum is a residual equity position after we received full repayment on our loan to the company. As a longstanding player in the direct lending space, our team has experienced lending across market cycles and has developed unique expertise and a proven track record of success working through challenge credits, challenging credit situations. We are leveraging this expertise, believe we have the right teams in place, and are proactively working with management teams, equity owners, and other lenders to improve performance and achieve positive outcomes for our, our investments. Most importantly, outside of these situations, the credit quality of our portfolio remains strong. As of 31 March 2024, our internal risk rating was relatively unchanged from 31 December 2023 and reflects the fact that the majority of our portfolio companies are substantially in line or ahead of base case expectations.

Our board of directors declared a second quarter dividend of $0.34 per share, which implies 132% NII coverage based on our first quarter adjusted NII. The second quarter dividend is payable on 28 June to shareholders of record of 14 June. We have always taken a disciplined approach to our dividend, with an emphasis on stability and strong coverage from our recurring net investment income. Throughout TCPC's 12-year history, we have consistently covered our dividends with recurring net investment income and have also paid several special dividends, including in the most recent quarters. Now, I'll turn it over to Phil to discuss our investment activity and portfolio.

Phil Tseng (President)

Thanks, Raj. I'll start with providing an update on our portfolio and highlights from our investment activity during the first quarter, and then provide a few comments on the investment environment. In the first quarter of 2024, we invested $20 million, primarily in senior secured loans. Deployments in the quarter included loans to four new and three existing portfolio companies. Consistent with our strategy, our emphasis remains on companies with established business models and proven core customer bases that make them more resilient across economic cycles. In reviewing new opportunities, we emphasize transactions where we are positioned as a lender of influence, where we have a direct relationship with the borrower, and the ability to leverage our more than two decades of experience in negotiating deal terms and conditions that we believe provide meaningful downside protection.

We believe this has been a key driver of our low realized loss rates over our history. We also see emerging opportunity on the horizon as pent-up M&A transactions come to market. As the bid-ask spread and valuations for higher quality assets narrow, we expect market participants who've been sitting on the sidelines to be more active. Actual interest rate cuts should help to catalyze a pickup in M&A due to the lower debt service costs for prospective borrowers. Based on our conversations with market participants, we're optimistic about activity in the near to intermediate term. In this environment, our industry specialization continues to be an advantage as it provides two key benefits for us. First, it enhances our ability to assess and effectively mitigate risk in our underwriting when we negotiate terms and credit documentation.

Second, it expands our deal sourcing capabilities with sponsors and non-sponsors who value our industry experience, which lends itself to more reliable execution for borrowers. Follow-on investments in existing companies continue to be an important source of opportunity for us. About half of the capital we deployed over the last 12 months was to existing portfolio companies. One of the recent investments made during the first quarter was an investment in PMA Asset Management. PMA is a leading money market asset manager serving local government, K-12 education, and other public sector entities. The company provides its public sector clients with a comprehensive suite of investment advisory, fund administration, and capital markets advisory services. BlackRock provided capital to support the sponsor's acquisition of PMA.

We believe this investment offers an attractive risk-adjusted return and provides a unique opportunity to invest in a scaled money market asset manager that has exhibited consistent [audio distortion] of its history. New investments in the first quarter were offset by dispositions and payoffs of $24 million. As part of our ongoing portfolio management, we closely monitor and directly engage with our existing portfolio companies, proactively assessing both current and projected performance relative to our original underwriting assumptions. In the limited situations where performance is below our expectations, we're engaged with the management teams and the owners to proactively drive performance improvements and ensure our capital remains well protected. Managing situations where capital may be at risk is a top priority for our team, and we believe our 20+ years of experience in managing portfolios through cycles is a significant competitive advantage for TCPC.

We are pleased to report that the majority of our portfolio companies continue to deliver revenue growth and margin expansion as they successfully navigate the higher rate environment, lingering inflation, and general uncertainty in the economy. We believe this reflects the durability of companies in the middle market, as well as our ability to pick the right industries and the right companies, and to structure transactions that are good for our borrowers and for our investors. Now, I'll turn to our portfolio. As a reminder, these figures relate to our consolidated portfolio following a merger with BCIC. At quarter end, our portfolio had a fair market value of approximately $2.1 billion. 91% of our investments were senior secured debt spread across a wide range of industries, providing portfolio diversity and minimizing concentration risk.

At quarter end, our diversified portfolio consisted of investments in 157 companies, and our average portfolio company investment was $13.5 million. As the chart on Slide seven of the presentation illustrates, our recurring income is distributed broadly across our portfolio and is not reliant on income from any one company. In fact, more than 75% of our portfolio companies each contribute less than 1% to our recurring income. 80% of the portfolio are first lien, providing significant downside protection, and 97% of our debt investments are floating rate. The overall effective yield on our debt portfolio is 14.1%, reflecting the benefit of higher base rates and wider spread on new investments.

Investments in new portfolio companies during the quarter had a weighted average effective yield of 14.7%, exceeding the 14% weighted average effective yield on exited positions. To date, we have had no prepayment income in the second quarter. In looking forward, we believe we're well positioned to continue to deliver attractive returns, given that our team has one of the longest track records in direct lending of any of the publicly traded BDCs. Irrespective of when the Fed rate cuts commence, we believe we will be in a slower growth and an elevated rate environment for the foreseeable future and could see a range of macroeconomic scenarios. But in periods like this, we believe our experience and our deep industry knowledge provide us advantages that have resulted in strong results throughout various market cycles. The market environment that persisted over the past year is changing.

For a large part of 2023, we saw wider spreads, we saw more conservative leverage profiles, and generally stronger structural protections. However, for much of this year so far, we've seen a broader repricing, and we expect this to continue. This means managers have to work harder to identify deals with favorable economics and favorable structures. As we noted last quarter, there's been an increased bifurcation of the direct lending market, which continues to persist today. Many have observed more borrower-friendly trends, such as tightening pricing and covenant-light deal structures. These are especially prevalent in the upper middle market or large cap direct lending market, given the robust return of banks to that segment. However, in the core middle market, where we focus, there's been less impact by this trend.

We continue to benefit from lower leverage overall and the presence of maintenance covenants, all of which lead to generally tighter documentation practices. We continue to see a durable yield premium for our transaction flow relative to the broadly syndicated market. Now, I'll turn it over to Erik to walk through our financial results, as well as our capital and liquidity positioning.

Erik Cuellar (CFO)

Thank you, Phil. As Raj noted, our net investment income in the first quarter benefited from the increase in base rates over the last 21 months and was $0.45 on an adjusted basis for the quarter. As detailed in the earnings press release, adjusted NII excludes amortization of the purchase accounting discount resulting from the merger with BCIC and is calculated in accordance with GAAP. A full reconciliation of adjusted NII to GAAP NII, as well as other non-GAAP financial metrics, is included in the earnings press release and 10-Q. Today, we declared a second quarter dividend of $0.34 per share. We remain committed to paying a sustainable dividend that is fully covered by our net investment income, regardless of the interest rate environment, as we have done consistently over the last 12 years. Investment income for the first quarter was $0.90 per share.

This included recurring cash interest of $0.78, non-recurring interest of $0.02, recurring discount and fee amortization of $0.03 and PIK income of $0.05. PIK income remains in line with the average over our history. Investment income also included $0.02 of dividend income. Operating expenses for the first quarter were $0.35 per share, including $0.21 of interest and other debt expenses. Incentive fees in the quarter totaled $5.8 million, or $0.09 per share. Operating expenses for the quarter reflected the impact of the lower management fee rate since the closing of the transaction on 18 March. We expect other synergies and expense savings to materialize over the next few quarters. Net realized losses for the quarter were $168,000, or less than $0.01 per share.

Net unrealized losses in the first quarter totaled $23 million, or $0.37 per share, primarily reflecting unrealized markdowns on previously discussed investments, as Raj described earlier. The net increase in the assets for the quarter was $5.1 million, or $0.08 per share. As of 31 March, we have five portfolio companies on non-accrual, representing 1.7% of the portfolio at fair value and 3.6% at cost. During the quarter, we added two portfolio companies to non-accrual status, including Aventiv, previously known as Securus, as well as Gordon Brothers, a pre-existing non-accrual portfolio company from the acquired BCIC portfolio. Turning to our liquidity. Our balance sheet positioning remains solid, and our total liquidity increased to $409 million at the end of the quarter, relative to our total investments of $2.1 billion.

This included available leverage of $286 million and cash of $121 million. Unfunded loan commitments to portfolio companies at quarter end equaled 4% of total investments, or approximately $91 million, of which only $57 million were revolver commitments. Net leverage, excluding SBIC debt for the quarter, is 1.08x, well within our target range of 0.9x-1.2x leverage. Our diverse and flexible leverage program includes three low-cost credit facilities, three unsecured note issuances, and an SBA program. Given the moderate size of each of our debt issuances, we are not overly reliant on any single source of financing, and our debt maturities remain well laddered.

Additionally, we are comfortable with our current mix of secured and unsecured financing, and we expect to address the upcoming maturity of our 2024 notes in the near future. Combined, the weighted average interest rate on our outstanding borrowings, including debt assumed as a result of the merger, increased modestly during the quarter to 5.08%. That average interest rate is up only 217 basis points since March 2022, while base rates increased more than 500 basis points during this period. This is the result of our lower overall cost of capital. Now, I'll turn the call back over to Raj.

Rajneesh Vig (Chairman and CEO)

Thanks, Eric. Since we took TCPC public in 2012, we've delivered a 10% annualized return on invested assets and an annualized cash return of 9.7% to our shareholders. We are very proud of these results, which include performance during periods when base rates were substantially lower than they are today. We believe this performance remains at the high end of our peer group and speaks to our ability to consistently identify attractive middle-market investment opportunities at premium yields and deliver exceptional returns to our shareholders across market and economic cycles. Following our successful merger with BCIC, we look forward to continuing to deliver financing solutions to our borrowers and to structure transactions that deliver attractive returns to our shareholders. And with that, operator, please open the call for questions.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star followed by two to remove yourself from the queue. We will just take a brief pause to allow the queue to fill. As a reminder, that is star followed by the number one on your telephone keypad for any questions today. Our first question today comes from the line of Robert Dodd with Raymond James. Robert, please go ahead. Your line is open.

Robert Dodd (Director)

Morning, well, afternoon, I guess, for you all. On Thrasio, etc., the aggregators in the aggregator space. I mean, on Thrasio, particularly, I mean, the bankruptcy got resolved, I think, after quarter end, and I just want to clarify. I think in the docs and the discussion was, you know, implied recovery below the mark that you currently have it carrying at. Is that factored in or is it because you disagree about the valuation of the business long-term potentially, or is it because it happened after the quarter end that was not fully known at the time you were evaluating some of these positions?

Rajneesh Vig (Chairman and CEO)

Robert, I think I got most of that question, but I think the question was, is the bankruptcy after quarter end, is that correct?

Robert Dodd (Director)

Well, it was-

Rajneesh Vig (Chairman and CEO)

Yeah.

Robert Dodd (Director)

It was resolved after quarter end, right? I mean, it was finalized, and what I read was implied value, you know, to senior lenders, 20%, which obviously is lower than the current mark you have that carried at. So is that a disagreement with the valuation, which is fine, or is it that it wasn't factored in yet because it hadn't been resolved yet?

Rajneesh Vig (Chairman and CEO)

Yeah. So let me, I think, I get the question. So the valuation, keep in mind, our valuation procedures are done through third party, you know, third parties.

Robert Dodd (Director)

Understood, yeah.

Rajneesh Vig (Chairman and CEO)

They'll take into account, you know, all the circumstances at the time of the valuation. The bankruptcy process is kind of a different process where the valuations that are being put forth may be more strategic, you know, depending on where you are in the capital structure. So will there be differences? Potentially, yes. Are folks looking at it for the same purpose? Not necessarily. And I guess what I would say is we have maintained the valuation process and policies that we think, you know, are appropriate for the portfolio markings.

The value, the bankruptcy itself was a, you know, really a collective decision of something that was a more strategic tool to do, you know, some additional financing, clean up the capital structure and other liabilities. But I will say for any company, and not just Thrasio, but in general, where there is a restructuring, either in or out of court, you're just going to see, as you know, Robert, more volatility and maybe variance in marks until the ultimate realization. That probably happens here. That probably happens with the other aggregators, and it has happened with Edmentum, where ultimately we're doing, you know, right by the process, giving all the information that's available, including the filing.

But ultimately, the realization is, you know, cash-based, and I think in the case of Edmentum, at least, even though the equity is volatile, we've taken all our cash and the original debt off at par plus. And here the effort is gonna be on maintaining that, you know, the rigor on the valuation, but really focusing on the recovery on a realized basis, which will probably be, you know, a couple years of work and restructuring. But yes, the valuations may differ. Our folks will take the operating results in hand. I don't think they're gonna necessarily take the bankruptcy valuation as a face value, versus the information we give them around, you know, forecast projections and things of that sort. Hopefully, that answers your question.

Robert Dodd (Director)

Got it.

Erik Cuellar (CFO)

Robert, I'll add-

Robert Dodd (Director)

Absolutely.

Erik Cuellar (CFO)

As it re-

Robert Dodd (Director)

Go ahead.

Erik Cuellar (CFO)

Robert, as it relates to the 3.31 mark, this loan actually has had some trading activity even through the bankruptcy process. It's quoted, and that's what drove the mark at 3.31.

Robert Dodd (Director)

Got it. Thank you. I understand all, yeah, there's a lot of moving parts in there. Then next question, I mean, I think, Phil, you said you expect activity in the market to pick up, and I'm then reading this down, as rates decline. So is there the... Yeah, looking at the curve today, and it moves around a lot, right? Rates aren't really projected to decline materially, or not at all this year, based on the curve today. Again, that will change quickly. So again, can you give us any more, I mean, are you expecting the activity level to remain very moderate so long as rates stay here, or are there other factors that can drive it?

Phil Tseng (President)

Yeah, that's a good point. You're right, the forward yield curve is dramatically different than it was, let's say, you know, a few quarters ago. I think a few quarters ago, you know, folks were expecting rates to kind of stabilize down in the mid- to mid-high three in about 18 months, but I think we're now looking at probably closer to mid-four. So you're right, rates are not expected to come down as dramatically. So we are moderating our expectations because, you know, rate cuts will drive more, you know, higher equity valuations and more processes that probably get done.

But I think the fact that rates have normalized here, I'm not sure folks are really expecting rates to increase, you know, given what's been talked about in the market in the last few weeks. But we are continuing to hear from market participants, whether they're investment bankers or private equity sponsors, that there are a lot of processes underway. There are a lot of non-process processes, meaning there are a lot of pre-marketing of deals, trying to do some price discovery on assets. And so that tells us that there is some momentum underway. The second is we're continuing to hear from clients out there, institutional investors, that they are continuing to demand distributions coming back from their GPs.

So they're putting more and more pressure in order to give more money for future vintages to get money back. And so what you're seeing are GPs trying to really, you know, test the market. But too, if they're not selling businesses outright, then they are looking at other ways of distributing capital back to their clients, like dividend recaps, maybe some continuation-type vehicles. Dividend recaps are areas, sorry, deal profiles that we've funded, you know, over the course of the past several quarters, you know, for great assets where that de-levered over time, we're happy to continue putting good money after those situations. So I think we're cautiously optimistic, Robert, but I agree. You know, the yield curve not showing a more dramatic reduction is, you know, it is something that we should be watching closely.

Robert Dodd (Director)

Got it. Thank you. And I appreciate that answer, and then I wonder if I can take it in a slightly different direction as well. But you mentioned as well that, you know, it's harder to find favorable deals, and I certainly think that's the case in, you know, like LBO financing and things like that. Over the last decade, I mean, let's call it that, you guys have shown a lot more flexibility than some BDCs in terms of willingness to do other kinds of deals. You know, ABL financing for retail, leasing, you know, other areas of the market that you'll look at.

[audio distortion]

Is that something we should expect to see increasingly over the next couple of years? If the market for LBOs maybe stays a little bit more moderate, should we see more of these other verticals for you guys, or how are you thinking about operating in an environment, hypothetically, where LBO activity remains moderate for a prolonged period?

Rajneesh Vig (Chairman and CEO)

Yeah. Great question, Robert. I think that also, you know, you have an insight that perhaps goes beyond the public vehicle, you know, to the platform itself, which has existed well before the BDC was public. And I think, as you highlight, we've always, you know, been able to pivot to things that are a little, maybe, I won't say opportunistic and risk, but areas that are maybe a little less picked over, like the leasing. And I think, you know, even aviation or things of that sort. I think one of the benefits of the merger that we don't speak about as much is the greater scale also allows us to think through some of those things and perhaps, you know, take advantage of that.

I will say, just as an additional element, you know, even if new LBO activity is abated, keep in mind that the existing portfolio, even through the last couple of years, and I expect going forward, will always be a good source of deals. You know, add on investments, because as the portfolio remains healthy, you know, those companies are good about taking advantage of, you know, less help elsewhere, whether it's through M&A or other types of consolidation. But to answer your question, as we see things that are interesting, you know, areas where we can do the credit work and we feel comfortable with, you know, the industry or the asset, I would say, we will take advantage of that, and I think the leasing is a good example.

We've also done, you know, more ABL structures where there's less of a desire to be exposed to the entity, but more of a desire to be covered by, you know, the discrete asset. And I think, as the environment, you know, gives rise to those opportunities, our team is very well positioned to take advantage of that. But it's always gonna be a credit-first, you know, downside protection type of approach.

Robert Dodd (Director)

Got it. Thank you.

Phil Tseng (President)

Thank you.

Rajneesh Vig (Chairman and CEO)

Thanks for the question.

Operator (participant)

Our next question comes from Christopher Nolan with Ladenburg Thalmann. Please go ahead, Christopher.

Christopher Nolan (Senior Equity Research Analyst)

Hey, guys. Katie, congratulations. Michaela, welcome.

Operator (participant)

Thank you, Chris.

Christopher Nolan (Senior Equity Research Analyst)

On the maturing debt that you guys referred to earlier, what's the thought in terms of where you're gonna refinance that? Is it gonna be, you know, a bond issuance because you... And for that, are you able to leverage your investment grade rating, do you think? Or you gonna turn to bank financing?

Erik Cuellar (CFO)

Yeah, Chris, good question. We're certainly looking to address those maturities in the near future. And we're very happy with what we've seen in the capital markets within our sector. So definitely that, that'll be a factor. We also like our current mix of secure versus unsecured. So all of that will come into play. Really, the only reason we hadn't addressed it to this point was the pending transaction, and we just wanted to wait till that was done to be able to address the maturity. But we plan to do so in the near term.

Christopher Nolan (Senior Equity Research Analyst)

All right. And then I read an article where Moody's is taking a dimmer view on private credit in general. Does your funding costs really turn on just having that investment grade rating?

Rajneesh Vig (Chairman and CEO)

I mean, I think any credit issuance is, you know, correlated to a rating, but ours are no different. I would just clarify that the article, two things, was more broader-based than honing in on our issues specifically. And it wasn't a downgrade, it was an outlook change, which we have seen that do before, you know, in the past, in the sector. So whether that actually really impacts the pricing, I think is TBD, you know, as we're exploring that.

... I also think the net movement in pricing has been favorable over the last, you know, 12-18 months, and you can see that in issuances that have hit the market, you know, it's a very directly comparable deal, I think. So, stay tuned. I think we're going to do, you know, the responsible thing and sort of explore the options. Obviously, the write-up is not irrelevant, but how relevant it is is sort of TBD. And I think very fortunately, we've had a very long and well-established, you know, investment-grade rating in the market. So I think hopefully our bond investors and others, you know, looking at it will, you know, keep that fine.

Christopher Nolan (Senior Equity Research Analyst)

Okay. That's it for me. Thank you.

Rajneesh Vig (Chairman and CEO)

Thank you.

Operator (participant)

The next question comes from Paul Johnson with KBW. Please go ahead, Paul.

Paul Johnson (VP and Equity Research Analyst)

Yeah, good afternoon. Thanks for taking my questions. I'm just curious, what was the driver of the higher other income this quarter? Was there anything in particular driving that, amendments or, or dividends or anything like that?

Erik Cuellar (CFO)

Yeah, we did have $0.02 of non-recurring income, just amendments in general and a couple of prepayments that we received. Anytime that we have any prepayments, it tends to accelerate any unadvertised discount or exit fee that might be linked to that investment.

Paul Johnson (VP and Equity Research Analyst)

Got it. Thanks for that. And then, just kinda higher level, you know, with the portfolio, there's a decent, you know, amount of software businesses in the portfolio. I know it's not something you've disclosed historically, but I'm just curious. I mean, are any of those ARR loans, and are you able to give any kind of sense of what percent of the portfolio is ARR?

Phil Tseng (President)

Yeah. Thanks, Paul. So we have disclosed the percentage of software for ARR deals, but, you know, when we look at our portfolio in a more detailed way, you know, our software and ARR portfolio. Well, so ARR is a subset of our software exposure. But generally speaking, it's been one of the sectors for us that held up the strongest. And the way we think about software actually is not as a broad brush kind of industry exposure. We actually look at it more as a horizontal across a number of end market exposures. So the way we think about it, for example, is a risk management software provider or insurance company, for insurance companies, so that is a little bit more embedded to the insurance and services market.

And then, alternatively, a software provider that, you know, helps facilitate e-commerce transactions for retailers, that perhaps is in the retail consumer market, end market. So we actually view, you know, software exposure broadly as less correlated as a group, but much more susceptible to risks on the end markets. And when we look at it in that fashion, it's actually quite, quite diversified.

Paul Johnson (VP and Equity Research Analyst)

Got it. Appreciate that. Thanks. That's all for me.

Phil Tseng (President)

Thank you, Paul.

Operator (participant)

We do not have any further questions, so I'll turn the call back to the management team.

Rajneesh Vig (Chairman and CEO)

Thank you. We appreciate your participation on today's call. I would like to thank our team for all their hard work and dedication, and our shareholders and capital partners for their confidence and continued support. Thanks for joining us. This concludes today's call.