Bain Capital Specialty Finance, Inc. (BCSF) Q2 2020 Earnings Report, Transcript and Summary

Good morning, and welcome to the Bain Capital Specialty Finance Second Quarter 2020 Earnings Conference Call. [Operator Instructions]. Please, note, this event is being recorded. I would now like to turn the conference over to Katherine Schneider, Investor Relations at Bain Capital Specialty Finance. Please go ahead.

Thanks, Chris. Good morning, everyone, and welcome to the Bain Capital Specialty Finance conference call for the second quarter of 2020. Yesterday, after market close, we issued our earnings press release and investor presentation of our quarterly results, a copy of which is available on Bain Capital Specialty Finance's Investor Relations website. Following our remarks today, we will hold a question-and-answer center for analysts and investors. This call is being webcast, and a replay will be available on our website. This call and webcast are property of Bain Capital Specialty Finance, and any unauthorized broadcast in any form is strictly prohibited. Any forward-looking statements made today do not guarantee future performance, and actual results may differ materially. These statements are based on current management expectations, which include risks and uncertainties, which are identified in the Risk Factors section of our Form 10-Q that could cause actual results to differ materially from those indicated. Bain Capital Specialty Finance assumes no obligation to update any forward-looking statements at this time unless required to do so by law. Lastly, past performance does not guarantee future results. Today I'm joined by Michael Ewald, our President and Chief Executive Officer; Michael Boyle, our Vice President and Treasurer; and our Chief Financial Officer, Sally Dornaus. In terms of the agenda for the call, Michael Ewald will first provide an overview of our second quarter results and the recent capital market actions that we took during the quarter. Thereafter, Mike Boyle and Sally will discuss our investment portfolio, credit quality and financial results in greater detail. So with that, I'll turn the call over to our President and CEO, Michael Ewald.

Thanks, Catherine. And good morning, and thank you all for joining us on our earnings call. We hope everyone is staying safe and healthy. Before jumping into our second quarter results, I want to take some time to discuss the current environment and the recent actions that we took to strengthen the company's balance sheet and better position it to navigate an uncertain future. The market environment today continues to be marked by uncertainty due to the COVID-19 pandemic. Most businesses across the global economy have been impacted to varying degrees, depending on the nature and type of company. From our viewpoint, the extent of the impact on each business will largely be driven by the duration of the pandemic, which unfortunately continues to be unknown. Nevertheless, we've been encouraged by early indications of better-than-expected performance by our portfolio in the second quarter. We believe these positive results can largely be attributed to the swift actions that the owners and management teams of these businesses took in late March and early April to preserve capital through several cost-cutting or delaying actions. Notwithstanding these positive indications, we remain watchful for the unique challenges at middle market companies and impacted COVID-19 sectors face, and place a high emphasis on preparing for any prolonged economic challenges that could arise. Consistent with Bain Capital Credit's focus on capital preservation and disciplined investment approach, we have been conservatively positioning the company's balance sheet over the past several years. Our investment portfolio, which Mike Boyle will discuss in greater detail later in this call, is comprised largely of first lien senior secured floating rate assets across a set of portfolio companies diversified by both industry and geography. Given the significant volatility exhibited in the markets during Q1 and our focus on positioning the company to better withstand uncertain and volatile periods ahead, we conducted 2 capital markets transactions during the second quarter as a means of strengthening the company's balance sheet and providing it with greater financial flexibility going forward. First, we completed a transferable rights offering, issuing approximately 13 million shares of our common stock at a price of $10.22 per share. We had over 2x demand for the offering, and we appreciate and we're encouraged by the strong support that we received from our shareholders. Total gross proceeds from the offering were approximately $132 million. The proceeds from the offering were used to repay outstanding secured indebtedness and brought the company's 6/30 net leverage ratio significantly down quarter-over-quarter, ending the second quarter at approximately 1.4x. Second, we completed a private placement of unsecured debt. The company issued $150 million aggregate principal amount of 8.5% notes due 2023. While this is a relatively high cost of capital compared to our other debt instruments, we limited the size of the offering in order to minimize the impact on the company's overall cost of borrowings while gaining greater flexibility in our liability stack. In addition, we structured the notes with only a 2-year non-call period to limit the duration of these notes on our balance sheet. The proceeds of the notes were also used to repay existing secured debt facilities. While the repayment of debt has a neutral effect on the company's leverage ratio, it created excess capital availability and resources under the company's revolving facilities, which we believe are significant benefits to the company. Our ability to demonstrate the company's access to debt and equity capital markets during these times is a testament to the broader Bain Capital platform, and exhibits the resources, expertise and relationships from which the company benefits. As a result of the capital raised, we believe the company has a stronger balance sheet to be able to support existing portfolio companies and take advantage of new opportunistic investments resulting from periods of extreme market volatility and dislocation. While middle-market loan volumes remain significantly below new activity levels under normal market conditions, we believe more transactions will be completed in future quarters, and we would seek to capitalize on attractive investment opportunities and take advantage of improved lenders, terms and structures. Importantly, BCSF sits within our broader Bain Capital Credit platform, and benefits from our private credit group's global origination platform and relationships. Now turning to our financial results for the second quarter. Our net investment income for the quarter was $0.37 per share compared to our Q2 dividend of $0.34 per share. Subsequent to quarter end, our Board declared a third quarter dividend equal to $0.34 per share payable to record date holders as of September 30, 2020. This represents an annualized 8.6% yield on ending book value as of June 30. Based on the attributes of the current portfolio, we believe this dividend level can be maintained for the foreseeable future. Net asset value per share was flat quarter-over-quarter after taking into account the dilution impact from the rights offering. As of June 30, ending NAV per share was $15.81 per share, compared to an adjusted $15.82 last quarter. During the second quarter we saw broad-based spread tightening in our reference markets but also witnessed decreased financial performance across our portfolio versus prior year results as well as initial budgeted expectations, in line with the broader decline in the economy as a whole. Overall, though, credit quality remained stable during the quarter with no new investments placed on nonaccrual. As of June 30, just 1% of the total investment portfolio at fair value, representing 2 out of 109 portfolio companies was on nonaccrual. We believe credit quality is solid across the investment portfolio, driven by our team's long-standing history and expertise in investing in middle-market leveraged capital structures. Capital preservation is at the core of our investment philosophy, and we believe many tenants of our strategy, which we've followed since our inception, provide the company with a strong foundation to manage downside-protection in the current environment. We witnessed the benefit of having these structures in place during the quarter as we worked through several amendments with our portfolio companies. Over the years, we have placed an emphasis on strong loan documentation with legitimate financial covenants and voting control that helps us identify issues early and gives us a seat at the table when expectations aren't meant, in order to maximize investment outcomes. We are therefore in a stronger position to better-align our risk/reward trade-off at early signs of weakness, which we did by executing a number of amendments across our portfolio in the second quarter. These outcomes typically result in exchanging short-term covenant relief for additional economics, both one-time fees and ongoing rate increases and/or the introduction of new governors such as liquidity covenants. Furthermore, our focus on favoring private equity sponsored-backed companies given the professional management resources, oversight and alignment to guide them through various macroeconomic periods also served us well this quarter as private equity sponsors injected equity into businesses that required liquidity in order to preserve value. We believe these attributes will continue to serve us well as we navigate volatile periods ahead. Finally, our team of 29 investment professionals within the private credit group is operating efficiently at full capacity with most of our global team continuing to work remotely. In addition to our dedicated team, the company benefits from the expertise within Bain Capital Credit's 77% distressed and special situations team. We believe this is a key competitive advantage in the current environment as it provides us with a deep set of experiences and resources to deploy as needed, and we will not shy away from situations where we might need to take a more active role in owning and managing a portfolio company in the future. I will now turn the call over to Mike Boyle, our Vice President and Treasurer, to walk through our investment portfolio in greater detail.

Thanks, Mike. Good morning, everyone. I'll kick it off with our investment activity this quarter and then provide an update on our portfolio and underlying credit quality. In the second quarter, new investment fundings were $49 million in 16 portfolio companies operating across 10 different industries. The majority of these fundings were to existing portfolio companies. Sales and repayments totaled $67 million, primarily driven by the repayments of revolving credit facilities. As we discussed on our Q1 earnings call, we experienced an increase in revolver funding requests during March as many of our portfolio companies brought cash onto their balance sheet as a defensive measure in light of an uncertain market environment. We were pleased to see some of these facilities repaid in the second quarter. The revolver utilization across these facilities was approximately 51% as of June 30 as compared to a high of approximately 81% as of March 31. At the end of the quarter, BCSF had adequate liquidity, consisting of cash and undrawn capacity on our secured facilities of approximately $441 million against our $119 million of undrawn investment commitments, representing coverage of 3.7x. As of June 30, the fair value of our investment portfolio was $2.5 billion, and was relatively unchanged from the prior quarter. Our portfolio is highly diversified, comprised of 109 unique companies. The top 10 investments represent 24% of our exposure, meaning that no single investment should have a significant impact on the performance of the company overall. 88% of the portfolio at fair value was invested in first lien debt, including 1% in first lien last out debt. The remaining portfolio was comprised of 6% in second lien debt, less than 1% in subordinated debt, 1% preferred equity and 5% common equity. As Mike Ewald mentioned earlier in the call, we have focused on strong loan documentation and voting control across our investments as they are key ways in which we protect our downside as lenders. Over 90% of our debt investments have financial maintenance covenants and effective control rights, which puts us in a strong position to drive outcomes. The median EBITDA of our portfolio companies was $46 million as of June 30. Our leverage metrics at our portfolio companies were stable quarter-over-quarter, as represented by our last dollar attachment point on our debt investments at 5.3x, which was unchanged from the prior quarter end. Our portfolio is comprised of investments across 30 different industries. Our top 3 industries are defensive sectors, such as technology, aerospace and defense and health care. While our portfolio companies in technology and health care have exhibited solid performance. Aerospace and defense is a sector that has been impacted by COVID-19. The majority of our portfolio companies within this sector has seen a moderate impact because our portfolio includes government defense suppliers and aviation maintenance suppliers that serve diversified end-markets outside of aviation, which has helped to offset revenue pressure. Currently, these portfolios all have sufficient liquidity and runway, but we continue to monitor these investments closely. Our exposure to cyclical industries that are currently most impacted by COVID-19 is low. These sectors include energy, consumer transportation and hotel gaming and leisure. The largest of these single-industry exposures within our portfolio is less than 3%. The weighted average portfolio yield at amortized cost was 6.6% as compared to 7.3% as of the prior quarter end. The decrease was primarily driven by the significant decline of LIBOR rates with 3-month LIBOR rates falling 115 basis points during the quarter. The majority of our debt investments are comprised of floating rate loans with LIBOR floors, which help mitigate these lower LIBOR rates. Turning to credit quality and underlying performance. Mike Ewald highlighted earlier on the call, we have been encouraged by better-than-expected portfolio company performance in recent months due in part to swift cost-cutting measures helping to offset declines in revenues. Our portfolio is geographically diverse, with 83% of our investments domiciled in the U.S. and the remaining 17% invested outside of the U.S. We have witnessed trends reversing in Europe and Australia sooner than in the U.S., and this has served as a positive diversifier in our portfolio. We believe our investment portfolio is on solid footing. As we highlighted to our shareholders last quarter, we employ an internal risk rating framework to provide greater transparency around the risk profile of our investment. This framework takes into consideration individual portfolio company performance, business and industry trends and various factors such as compliance with debt covenants and status of loan interest payments due. Our overall risk-rating trends were stable quarter-over-quarter. We believe this is a reflection of our conservative approach we took early on to identify potential portfolio companies that might be impacted in light of the global pandemic. As of June 30, 84% of the investment portfolio at fair value had an internal risk rating of either 1 or 2, representing that the investment is performing as expected or above expectation relative to the time of underwriting. While we witnessed the retraction of spread tightening in our reference markets during the period, we believe we took an overall conservative approach in light of the uncertain environment. As a result, the weighted average fair value mark on our rating 1 and 2 investments was up approximately 50 basis points in the quarter from 96.3%, as of March 31, to 96.8%, as of June 30. At the end of the second quarter, 14.5% of the investment portfolio at fair value was categorized as a risk rating 3, which indicates that the investment is performing below underwriting expectations, and there may be concerns about the portfolio company's performance or trends in the industry. These include certain portfolio companies that have a segment of their end market being more significantly impacted as a result of COVID-19. Just 1.1% of total investment portfolio was categorized as a risk rating 4, indicating that the investment is performing materially below underwriting expectation, and we view there to be an increased risk of recovering our principal in those transactions. The weighted average fair value mark for risk rating 3 and 4 investments was 82% of par as of June 30. Importantly, only 1.5% of the portfolio is in second lien debt with a risk rating of 3 or 4. This means that our watch list is primarily comprised of situations where we sit at the top of the capital structure, well-positioned to maximize recovery value in the event of a restructuring. During the quarter, no new investments were added to nonaccrual status, reflecting overall credit stability. As of June 30, 2020, 2 out of our total 109 portfolio companies were on nonaccrual status, representing 1% of the investment portfolio at fair value. Sally will now provide a more detailed financial review.

Thank you, Mike, and good morning, everyone. I'll start the review of our second quarter 2020 results with our income statement. Total investment income was $47.9 million for the 3 months ended June 30, 2020, as compared to $51.5 million for the 3 months ended March 31, 2020. The decrease in investment income was primarily driven by a decrease in interest income due mainly to a decrease in LIBOR over the quarter. Our investment income is comprised primarily of contractual cash-paying interest income. We take a conservative accounting approach to recognizing commitment fees or structuring fees on new investments. This is referred to as the original issue discount, or OID, which we amortize over the life of the loan as opposed to taking fees upfront. Total expenses for the quarter were $27.9 million in the second quarter as compared to $29 million in the first quarter. The decrease was driven by lower interest and debt financing expenses due to the decrease in LIBOR and lower other operating expenses. Net investment income for the quarter was $20 million or $0.37 per share as compared to $22.5 million or $0.44 per share for the prior quarter. This quarter, the fair value mark as a percentage of notional on our investment portfolio stayed relatively flat quarter-over-quarter at approximately 94% as of June 30, 2020. This was largely attributed to broad-based spread tightening across our investment portfolio and offset by decreased financial performance due to COVID-19 for certain portfolio companies. As we have discussed on prior earnings calls, we employ a robust valuation framework with 100% of illiquid investments being reviewed by an independent third-party provider each quarter. We believe these additional layers of review provide for best-in-class valuation processes, especially during periods of increased market volatility. During the 3 months ended June 30, 2020, the company had net realized and unrealized gains of $1.8 million. GAAP income per share for the 3 months ended June 30 was $0.40 per share. Moving over to our balance sheet. As of June 30, our investment portfolio at fair value totaled $2.5 billion and total assets of $2.6 billion. Total net assets were $1 billion as of June 30. As Mike Ewald highlighted earlier in the call, we completed a transferable rights offering in June. In connection with this, we issued 12.9 million shares of common stock at a price of $10.22 per share. Total gross and net proceeds were $131.9 million and $128.3 million respectively. The proceeds from the offering were used to repay outstanding indebtedness and brought the company's ending net leverage ratio significantly down quarter-over-quarter. At the end of Q2, our debt-to-equity ratio was 1.52x compared to 1.86x at the end of Q1. Our net leverage ratio, which represents principal debt outstanding less cash, was 1.42x at the end of Q2 as compared to 1.78x at the end of Q1. We believe these are significant improvements to our balance sheet quarter-over-quarter. Our investor earnings presentation provides a NAV bridge, including the impact of the rights offering. To walk you through this change, our ending NAV was $17.29 per share as of March 31. The net dilution impact of the issuance of common shares in the rights offering was approximately $1.47 per share, bringing the pro forma adjusted March 31 NAV to $15.82 per share. After factoring in this effect, our NAV per share was flat quarter-over-quarter, ending Q2 at $15.81. During the month of June, we completed an unsecured debt offering of $150 million aggregate principal amount of 8.5% notes due June 2023. The proceeds were used to repay existing secured debt facilities, notwithstanding the relatively high cost of capital as compared to our secured facilities, we believe the company gained significant financial flexibility in its liability structure through issuing these notes. Furthermore, we minimized the size of the debt offering to not have a significant impact on the company's overall borrowing. The unsecured debt issued represents just 10% of our overall $1.5 billion principal debt outstanding as of June 30. Our remaining debt outstanding was comprised of bilateral secured credit facilities and CLO securitization structures. Our CLO structures are long-dated structures maturing in 2030 and 2031, and provide for durability in periods of volatility. In addition to these debt structures, the company has a $50 million unsecured loan from its adviser, providing for increased financial flexibility, of which none was drawn as of June 30. For the 3 months ended June 30, 2020, the weighted average interest rate on our debt outstanding was 3.7% as compared to 4.1% for the 3 months ended March 31, 2020. In Q3, we have seen a further reduction in the weighted average cost of our debt, driven by LIBOR resets that occurred during the quarter. Pro forma for these resets, the weighted average interest rate on debt outstanding is approximately 3.3%. This provides the company with a net interest margin benefit between our assets and liabilities as the majority of our investments contain LIBOR for us. As of June 30, the company had cash and cash equivalents of $76.7 million and $364.3 million of aggregate capacity under its credit facility. As of June 30, 2020, the company was in compliance with all terms under its secured credit facilities. With that, I will turn the call back over to Mike for closing remarks.

Thanks, Ally. We're pleased to deliver solid results to our shareholders, notwithstanding the continued challenging economic backdrop. Since the inception of BCSF, we've been positioning the portfolio conservatively, as reflected by the high percentage of first lien senior secured loans and highly diversified set of companies and defensive industries. We believe this provides us with a strong foundation to manage any downside risks to our portfolio companies in the current environment. Furthermore, Bain Capital Credit has a long-standing history and expertise in investing in leveraged capital structures through multiple market environments. Finally, we appreciate the support from our shareholders in managing our investor capital to drive attractive risk-adjusted returns. Chris, please open the line for questions.

[Operator Instructions]. Our first question is from Finian O'Shea of Wells Fargo.

First question on the LIBOR impact. I know that's a headwind right now. The 6/30 million number is much lower than 3/31. Can you give your floor weighted average? And then, any nuances there as to what rates your borrowers have effectively locked in and what that is going to spill out for next quarter on the LIBOR side for your earnings impact?

Sure. Thanks for the questions, and good morning. So the weighted average LIBOR floor across our portfolio is about 74 basis points. And that is driven by the vast majority of our U.S. borrowers having a 1% LIBOR floor, while the majority of the European borrowers that might be set off of EURIBOR or a different rate would be having a 0% floor.

Okay. So sorry, is there -- are you mostly out of the woods on the top line impact?

Yes, that's right. So the yield that we quoted, highlights, the impact of most of those hitting their floor is as of 6/30.

Okay. And then just a question for Michael. It looks like you've recovered about 20% of first quarter markdowns, which is on -- definitely on the lower end of who's reported so far. You've also had no nonaccruals. So things look pretty stable in that aspect. Any commentary on your valuation and/or portfolio underlying performance that's driving this delta, understanding you're only responsible for your own book? But to the extent you've watched others report, I would ask for any color there that you could provide.

Sure, Fin. And glad you asked. Obviously, you know as well, you know that we have a pretty vigorous valuation process that Sally highlighted in her remarks as well. Having an individual model on every company, every quarter, having that reviewed by a third-party every quarter as well I think is important there. And there's no one determinant that we will use for where our marks shake out at the end of the quarter. Clearly, all of that will roll up to 1 single NAV across the portfolio. But I probably wouldn't focus too much on a couple of percentage points change, up, down, flat, and really focus on probably underlying credit quality. And there, I think the investment performance ratings are probably a good proxy there. We were very aggressive back at the end of Q1 in terms of moving about 17 companies to risk rating 3 out of our 100 change companies. Today, it's still 17 companies. I think 1 or 2 left, 1 or 2 came in, but it's still 17 companies. And there is still just 2 that are risk grading 4 or on nonaccrual, as you point out. And then there's no change quarter-on-quarter. So I think the good news here is that we've got consistent quality across the portfolio. And I think at a high level, if you think about different determinants, yes, there's been a lot of talk about how reference markets are up and spreads are tightened, that's absolutely true. But I'd point out a few other points here. One is performance is better than it was feared across portfolio companies generally at the end of 3/31. But again, generally speaking, it's worse than expected based on where Q2 was last year and based on what year-end budgets from end of 2019, beginning of 2022, would have suggested Q2 performance would have been, right? So performance overall is down. Our credit quality, though, was flat. And so if you put that all together, with some continued uncertainty in the economy here, having book value be flat this quarter certainly seems reasonable. It's not like we had nonaccruals double. It's not like we had our 3s double. And our market value, our book value was up 5%. Yes, I think book value flat is a pretty sober evaluation of where things stand today.

The next question is from Ryan Lynch of KBW.

As I look at your guys' investment activity this quarter, looks like the sales and repayments in the quarter dropped pretty significantly. I was a little surprised to see that a lot of BDCs had actually pretty robust activity regarding the sales repayments as they look to delever, as well as some borrowers who drew down unfunded commitments kind of repaid those. So could you provide any commentary on what was really driving the low level of sales and repayments in this quarter?

Yes. Good question, Ryan. Thanks. The -- I guess I'd make a couple of comments, and Mike will, I'm sure will jump in too. But on the sales and repayments front, what I would point out is that we can't always determine when we're going to get repaid here, right? I mean, a lot of the repayments we do get. Our portfolio companies are being sold. We may not participate in any sort of role or maybe strategic buys until we can. And because there was pretty muted M&A activity, you didn't see a lot of companies change hands and therefore, pay off, pay out their old facilities. So, we didn't really see that, which has historically driven a lot of our repayment volume. The other thing, where we did see some was, I think Mike Boyle mentioned the statistic where we did see revolver draws up to 81% or so with the end of Q1, that's since come down to 51%. So you saw some of that cash actually come back to the system. But the repayment front, there just wasn't much action. And I think that holds true on the new investment front too where on a net basis we had some repayments, we had a couple of delayed draw term loans that were paid -- sorry, that were drawn because there are some of our portfolio companies that try to get opportunistic and make a couple of acquisitions and things like that. So that's really what drove a lot of the new investments that we made. But again, because there's muted M&A activity, you didn't see a whole lot of new platforms that came into the BDC either.

Okay. Understood. And then you mentioned you had several amendments in portfolio companies this quarter. Can you quantify that as either a percentage of the portfolio or just the absolute dollar amount of amendments you made this quarter? And then as part of those amendments, you mentioned you gave them short-term covenant release, but usually got additional fees or terms. Were any of those amendments accompanied by additional equity capital contributed by the sponsor?

Yes. So look, at a high level it was -- I believe it was 11 companies out of our 109 companies, where we signed the amendment of some flavor. Together, that represents about 8% of our portfolio, both fair market value and cost. So that gives you a high level sense. And in terms of -- I'm trying to think, individual deals, Mike, I don't know if you have those stats in front of you in terms of how many may have been equity contributions, et cetera.

Yes. So more than half of those came with incremental equity dollars coming in from sponsors. So we have been pleased with the continued sponsor support across the portfolio.

Okay. And then just one last one. You guys obviously made significant changes to the -- your capital structure, doing the rights offering. But you guys also did what I would consider very high costs, unsecured note, relative -- 8.5% relative to the yield on your portfolio of kind of the mid- 60s. So I was a little surprised to see the cost on that debt. So can you just walk through what was the need behind issuing the unsecured notes at that high of a cost? As well as we look forward, how do you feel about the current composition of your capital structure to kind of weather through and manage through this downturn at this point?

Sure. So we did decide to issue that $150 million unsecured debt in order to provide some greater flexibility in our balance sheet, particularly as we look at potential restructurings across our portfolio. And we wanted a capital structure that would be durable in that environment. Although the cost of debt was higher than we would have liked across the entire weighted average cost of capital, it added about 30 basis points to the cost across the whole cap stack. So we were thoughtful when we issued that incremental note as to how that stacked up relative to the assets we were investing in. But we think that it is the right -- was the right move to drive long-term value in the environment that we're looking for. And we do think that there's a continued -- we have a continued commitment to having unsecured debt in our capital stack. So although it's 10% today, that is a way of financing that we think will continue to tap in the future, albeit at lower cost than we have historically.

Our next question is from Derek Hewett of Bank of America.

Michael, do you have any high-level thoughts on yesterday's SEC announcement on AFFE? And are there other potential areas where new rules would make sense for the industry at this point?

Hey, Derek, thanks for that. Yes, look, the -- I think there's still a lot to be learned. And we're still trying to get up to speed on it a little bit. I think the -- I think it's a step in the right direction in terms of making it easier for institutions to invest in the BDC space, which I think is good news. What I'm trying to get a handle on or what we're trying to get a handle on is around that 10% limitation. Clearly, more is better. So I'm not sure to what extent. It's going to drive institutional behavior to invest in BDCs more. Certainly ones that are more active I think could very well start taking positions in BDCs, whereas the more passive ones that are more index-related, I think it's unclear to see how the different indices end up treating that limitation with that 10% governor in there. So we've got a 60-day comment period here, I think. So it'll be interesting to see what sort of comments get posted. I'm sure we'll offer an opinion to someone at some point here, but are still trying to develop that as well. In terms of other rules, there's really not much that's kind of front of mind for us. We are certainly in favor of BDCs being allowed to go to 2:1 leverage rather than 1:1. I think that the NSA FFE thing was the other big one that we were looking at. So I don't think there's anything else that's immediately front of mind for us beyond seeing how this one shakes out.

[Operator Instructions]. I appear that we have no further questions. I would like to turn the conference back over to Mr. Michael Ewald for his closing comments. Please go ahead, sir.

Great. Thanks, Chris, and thanks, everyone, for joining us on our call today. Again, we're very pleased with how the quarter shook out, and looking moving on to Q3 at this point. Thanks very much. Cheers.

Thank you very much, sir. Ladies and gentlemen, that then concludes this conference call. Thank you for attending today's presentation. You may now disconnect.