Carlyle Secured Lending, Inc. (CGBD) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to TCG BDC's Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I would now like to hand the conference over to your host, Head of Investor Relations, Daniel Harris. Sir, please go ahead.

Good morning, and welcome to TCG BDC's second quarter 2020 earnings call. Last night, we issued an earnings press release and detailed earnings presentation with our quarterly results, a copy of which is available on TCG BDC's Investor Relations website. Following my remarks today, we will hold a question-and-answer session for analysts and institutional investors. This call is being webcast and a replay will be available on our website. Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factor section on our annual report on Form 10-K that could cause actual results to differ materially from those indicated. TCG BDC assumes no obligation to update forward-looking statements at any time. With that, I'll turn the call over to our Chief Executive Officer, Linda Pace.

Thank you, Dan. Good morning, everyone, and thank you for joining us on our call this morning to discuss our second quarter 2020 results. Joining me on the call today is our Chief Investment Officer, Taylor Boswell; and our Chief Financial Officer, Tom Hennigan. I'd like to focus my remarks today across three areas. First, highlighting the positive momentum in our business under our new leadership team. Second, a quick review of our quarterly results. And third, a discussion of our updated dividend policy. Let me start by looking at the positive momentum we'll get established on behalf of shareholders over the past year. Our priority is to deliver sustainable income generation and an attractive risk adjusted return for shareholders, which we strive to accomplish through portfolio construction, differentiated origination, and prudent management of our capital. Our portfolio construction strategy continues to focus on firstly loans in a diversified group of sectors we know well. We largely avoid highly cyclical sectors like energy and retail, and instead stick to our knitting in areas like high tech and software, business and financial services, and healthcare and pharmaceutical. Our true first lien exposure is just about 70% of our portfolio, generally in line with our historical average. But we remain opportunistic across the capital stack, and we believe we are being compensated for that additional risk. We continue to improve our leadership position in the marketplace, and our influence has substantially increased as our platform has scaled and matured over the past few years. Today, we have a lead role in about 90% of our transactions. This increased leadership role accrues to the benefit of TCG BDC and our shareholders. We have strengthened and diversified our origination footprint. While our core investment exposure remains domestic sponsored back leveraged loans, we now also regularly make investments outside the U.S. in specialty strategies, such as asset base and recurring revenue lending, and increasingly, we invest alongside other Carlyle Global Credit vehicles to amplify the benefits of our scale. And finally, we actively manage our liabilities to ensure we can continue delivering results for all of our stakeholders. At the end of 2019, we priced our first unsecured bond transaction, which has been incredibly helpful during recent market volatility. In addition, we took decisive action early in the second quarter to reestablish our target leverage range, and we are now back comfortably inside our target leverage range of 1 times to 1.4 times. Overall, are were operating well in a difficult market, and I'm extremely proud of the hard work across our entire team. Let me move onto an overview results for the quarter. We generated net investment income of $0.38 per share, a strong result, given the significant interest rate headwinds across the entire industry and lower than trend origination activity. Net asset value per share increased 4.4% quarter-over-quarter to $14.80 from $14.18. Last quarter, nearly two-thirds of our unrealized loss was due to spread widening of market yield benchmarks. This quarter, market yields rebounded, resulting in an overall positive impact on valuations and a partial recapture of last quarters' unrealized loss. Finally, let me shift to discussion of our dividend. Our focus remains generating a sustainable income stream, which delivers an attractive dividend for our shareholders. Given ongoing economic uncertainty and a dramatically different interest rate environment as compared to past periods, we have chosen to update our dividend policy. Our new policy aims to deliver a highly secure regular dividend of $0.32, which we intend to supplement each quarter with additional special dividends based on actual earnings. We believe this new regular dividend is highly sustainable, even under downside economic scenarios, and for reference, alone generates an annualized dividend yield on our current stock price of approximately 15%. Under our new policy, in the third quarter, we declared a total dividend of $0.37 per share, which is in line with our historical regular dividend, and which is comprised of the new regular quarterly dividend of $0.32, plus a special dividend of $0.05. We believe that CGBD's market leading origination platform, strong underwriting capabilities, conservative portfolio construction, and prudent liability management will drive solid operating results. And over time, our share price should ultimately better reflect the strength of our platform. I'd like to thank each of you for your time and partnership. And let me now, hand the call over to our Chief Investment Officer, Taylor Boswell.

Thank you, Linda. Since our last report in May, the global economy has taken its first steps towards recovery. Carlyle's view is that this recovery will be unpredictable in slope and duration, as well as uneven across geographies and sectors. Signs of rebounding economic activity, particularly in China and Europe, are encouraging. While the potential for lingering weakness in areas where virus containment has been more challenged, like the U.S., weigh on our view, away from COVID, increasing tensions between the U.S. and China, as well as the pending presidential election, interject additional risks. The continuing macro uncertainty leads us to maintain a cautious perspective on the outlook for the real economy and markets. Over the same time, leveraged finance market conditions continued an impressive rebound, with secondary levels rallying alongside equities and other risk assets on government stimulus, better than feared macro data, progress towards vaccines, and economic research. That said, away from the high yield market, which is benefiting from strong technical demands, primary deal volumes were relatively light in Q2, due to the aforementioned uncertainty and a broad based slowing of M&A activity. However, the last eight weeks have begun to evidence a noticeable uptick, as market participants gain more confidence in a path to post-COVID normalization. While market-wide activity levels remain short of the robust pre-COVID period, our platforms sourcing advantages are creating sustained deal flow. In our core markets, we are generally seeing a combination of higher yields, lower leverage, and improved documentation. In addition, transactions are concentrating in sectors relatively unaffected by COVID, like technology and B2B commerce, further improving risk reward. Finally, while there remains meaningful competition, it is relatively less intense than in past periods. All in all, we regard this new investment environment as attractive, and one in which the resources have an insights available from our broad platform offer meaningful benefits. As such, we have been actively evaluating new investments in recent funds. CGBD closed four significant deals in the quarter, two of which were pre-COVID commitments, and two of which were entirely new transactions. And we will continue to selectively deploy capital into this undeniably complex, but compelling investment environment. Turning now to the portfolio. At this point, having the benefit of four months of intense engagement, it is fair to say that performance is tracking ahead of our prior expectations. The liquidity needs of our borrowers have been less than anticipated. We have seen a reversal in calls and unfunded commitments, and we place only one additional borrower on nonaccrual this quarter. In May, we discussed how we anticipate levered credit portfolios will move through three stages this cycle, an initial liquidity draw, followed by a significant amount of amendment activity, and ultimately, the longer-term work of value recovery and maximization for more heavily impacted businesses. CGBD navigated the first stage extremely well, owing to our diverse, well-constructed liability structure. We're now in the midst of that second stage, and we feel equally well positioned. We are finding financial sponsor partners to largely be supportive of portfolio companies, while management teams are enacting impressive change in response to this difficult environment. In amendment conversations, we generally feel that fair exchanges are being conducted, with lenders receiving risk reduction or incremental return when granting relief to borrowers, always with an eye towards preserving value of the underlying company. This amendment activity began in late March, will peak in the coming weeks with the formal delivery of Q2 financials, and should be largely completed by year-end 2020. Given the excellent work of our team into and through this crisis, our significant roles in these transactions, as well as the depth of partnership we have with the management teams and owners of our portfolio companies, we feel we have a high level of visibility into which portions of the portfolio will require relief, and are increasingly confident that the vast majority of those borrowers will ultimately present little risk of principal loss for CGBD. That said, significant risk remains both in the macro environment and within pockets of our own exposures. In order to better communicate portfolio risk, we made the decision this quarter to update our risk rating methodology. The prior methodology's heavy tie to trailing 12-month financial performance came up short and communicating shifting risk, as reporting would have lagged in this rapidly evolving cycle. Our new methodology, which more appropriately weights qualitative, quantitative, and transaction dynamics, allows us to report earlier with more clarity and transparency, what we know about current and prospective performance. You will see under the new method that deals rated three to five account for approximately 30% of loan portfolio fair value. To be clear, we expect the preponderance of borrowers rated three or below will perform through this cycle. Within this group, our value maximization efforts are particularly focused in the hotel gaming and leisure, food and beverage, and aerospace and defense sectors, which collectively represent one-third of risk rated three to five borrowers. Across all of our risk rated three to five borrowers, 85% of fair value are first dollar exposures, nearly all of which are covenanted. Meanwhile, the 15% of our risk rated three to five loans and second lien investments is invested in high-quality issuers, averaging over $150 million of EBITDA with significant liquidity runways. We believe both profiles provide a very favorable backdrop to support ultimate realized performance. Putting all this in the context of our depressed stock trading valuation, for NAV to decrease the levels approximating CGBD's recent share price, future losses would need to equate to over 70% of the fair value of our entire risk rated three to five loan portfolio. Needless to say, given the senior positioning of our portfolio and its current performance trends, we think this is highly improbable. In fact, we firmly believe our current asset valuations are prudent and appropriately reflect our portfolio's value. While we cannot predict with precision the amount and timing of value recovery or loss realization, we are confident that our portfolio will perform through the cycle, both in terms of NAV preservation and delivery against our revised dividend policy. We look forward to demonstrating the same to each of our constituencies, and appreciate all their support and confidence. Thank you again for your time. I'll now turn the call over to our Chief Financial Officer, Tom Hennigan.

Thank you Taylor. Today, I'll begin with a review of our second quarter earnings, then drill deeper into valuations and our balance sheet positioning. As Linda previewed, we had another solid quarter of total income generation, particularly given the macroeconomic backdrop. Total investment income for the second quarter was $45 million, down from $51 million in the prior quarter. The decrease was driven by a few factors. First, interest income on the core investment book was down from $39 million to $35 million, driven by the combination of lower LIBOR and lower average invested loan balance. Second, OID accretions fell by almost $1 million this quarter, given we had zero non-scheduled loan repayments. And third, total income at the JV was about $1 million lower compared to first quarter, primarily due to running the vehicle at lower leverage. One offset to these top line headwinds was an increase in total fee income, driven primarily by higher amendment related fees. Total expenses were $24 million in the quarter, down from $27 million last quarter. The largest component of the decrease was interest expense due to lower LIBOR, with management and incentive fees also lower compared to first quarter. This resulted in net investment income for the quarter of $21 million or $0.38 per common share, which is below our historical trend line, but we think a solid result given the overall market backdrop. As Linda noted, we do see some pressure on this level going forward, driven primarily by some of the market factors that impact its second quarter results, including the sharp drop in LIBOR, lower income streams tied to M&A refinancing activity, and opting to run both the BDC and our JV at lower leverage. Based on a rigorous sensitivity analysis of these and other factors, including potential future non-accruals related to COVID-19, we're confident in our ability to continue to deliver an attractive sustained dividend. We intend to do so by not just meeting the new $0.32 regular dividend, but also consistently beating that level, resulting in special dividends each quarter that will be sized based on the prior quarter's actual earnings. On August 3, our Board of Directors declared the dividend for the third quarter of 2020 at a total level of $0.37 per share, and that's payable to shareholders of record as of the close of business on September 3. Moving onto the JV's performance, the dividend yield on our equity was about 10% in the second quarter. This is consistent with the 9% to 11% expected range we mentioned during last quarter's call, despite our decision to run at lower leverage. Onto evaluations, our total aggregate realized and unrealized net gain was $34 million for the quarter. Big picture, we saw valuations increase, based on the rebound and broader market yields. This was partially offset by negative fundamentals from the impact of COVID-19 on some investments. I'm going to bucket a portfolio into a few categories. The first is performing lower COVID impacted names, and I'm including our equity investment in the JV in this category, given the strength of portfolio. This bucket accounts for about 70% of fair value as of June 30. Based primarily on the rebound and market yields, these investments increased in value $40 million compared to March 31. The next category is our historically underperforming names, some of which have COVID exposure. We actually experienced a $6 million increase in this category, aided by some stabilizing to improving business trends, and a handful of favorable amendments, which included sponsors supporting these businesses with incremental equity. The final category is the moderate to heavier COVID impacted names. Some of these have more severely disrupted business models, as we look at both near-term performance and longer-term prospects. Given the uncertainty at this stage of the cycle and pandemic, we attempted to be appropriately conservative in our assessment of these names, which resulted in a $12 million markdown across these investments. You'll note the sizable realized loss of $48 million. This was primarily driven by the exit of our investments in Dimensional Dental, [indiscernible] that we previously marked it close to zero, so this realized loss is a reversal of prior period unrealized loss. The balance was from our secondary sales efforts, which we touched on during last quarter's call. From a non-accrual perspective, we added one new borrower while exiting another, so total borrowers on non-accrual status remained at five. As of June 30, non-accruals stood at 3.7% of fair value, and 6% based on cost. I'll finish with a review of our financing facilities and liquidity. Total debt outstanding was about $1 billion at quarter end, down $227 million from prior quarter. Statutory leverage improved from 1.6 times to 1.3. times, and more importantly, net financial leverage, which assumes the preferred is converted, was under 1.2 times. With this recent de-leveraging, unused commitments under our credit facilities plus cash increased from about $320 million at prior quarter end to over $500 million as of June 30. During the second quarter, we did elect to pause our repurchase activity, with capital preservation a primary goal at the onset of the pandemic. With our improved liquidity position, going forward, we intend to pursue the appropriate balance of both share repurchases and attractive new investment opportunities. And while we're very comfortable with our current leverage and liquidity position, we continue to look for ways to improve our balance sheet flexibility. Given recent improvement in the rate environment for BDC issuers, we're evaluating various incremental financing solutions with a primary goal to further optimize our liability structure and provide additional flexibility as we navigate through this period of market uncertainty. One final note; you'll see we filed a preliminary proxy for the ability to issue shares below NAV. We think this is prudent corporate finance policy, and provides us additional flexibility to defend the portfolio, primarily during periods of extreme market volatility. But given our current balance sheet positioning, we have no near-term need or intention to issue shares below NAV. So, we appreciate your support for this [indiscernible]. With that, let me turn the call back over to Linda for some closing remarks.

Thank you, Tom. I'll finish where I started. We have significant momentum in our company with a high quality, largely personally investment portfolio that is driving attractive investment income for our shareholders. We're strengthening our origination capabilities and fortifying our balance sheet. There's still work to be done, but TCG BDC is well-positioned to successfully manage through the current environment. Thank you. We are now ready to take your questions.

[Operator Instructions] Our first question comes from Rick Shane with JP Morgan. Your line is now open.

Hey guys, thanks for taking my question. And I apologize. I know we can pull this out of the queue but what are the non-accruals at cost for the second quarter? We're actually having some data problems today. Could you compare that to the first quarter as well, please?

Hey, Rick, it's Tom. The question was the percentage of non-accruals at cost?

Yes.

It was 6% on cost.

What was it at the first quarter? Again I'm having trouble accessing my normal resources. I apologize.

Sure. It was up -- it was upper here from -- on a cost basis, there was an uptick from the first quarter; it was 5.4% on cost as of March 31.

Okay, great, thank you. Then look, I think rationalizing dividend policy in light of all the way the stock is trading and is valued makes a great deal of sense and give you some more flexibility. I am curious to hear the other part of that is investing in your own stock through repurchase. What's the outlook there and what's the appetite given the levels?

Hi, Rick. It's Linda. Good question. It's something that we're consistently looking at given, as you pointed out where our stock price is trading. We definitely think our stock is an excellent buy. So we evaluate that in an ongoing basis. We have about $14 million left on our share repurchase program, and we're likely to go back to the board to re-up that. But what we want to do is there's still a lot of uncertainty so we do want to make sure that we're being balanced, and how we use our cash and how we protect our balance sheet. But as I said, we do think our stock is a pretty good buy, but we don't want to get too far out over our skis. We like where our balance sheet is positioned, and there's still a lot of uncertainty in the market so we do want to approach it pretty cautiously.

Look, it's a fair point. It's easy from this seat to say, buy the stock, buy the stock, it's cheap. But then as the world turns a little bit worse, you're going to wish you had that capital so we appreciate the balance on that. Sorry, Linda, I interrupted. I apologize.

I just want to say thank you for that. We're thinking the same way. So appreciate the question.

Thanks, guys.

Thank you. [Operator Instructions] Our next question comes from Ryan Lynch with KBW. Your line is now open.

Hey, good morning. Thanks for taking my questions. Just want to have a follow-up question with the supplemental dividend. Do you guys have a framework for the intention of paying out that supplemental dividend going forward? Is that going to be basically 100% payout of operating earnings at 50% payout above your core dividend? Just any sort of framework that you guys have set to pay out those supplemental dividends going forward.

Hey, Ryan, it's Tom. You'll see in particular as an example for this quarter, we size the $0.05 special based on effectively second quarter results. So paying out a majority of the excess above the $0.32 and we would anticipate doing the same going forward, effectively looking at the prior quarters' results and then paying out some supplemental size to our actual results. We anticipate the $0.32 we feel very comfortable with and we anticipate each quarter exceeding that level and paying a special amount will vary quarter-to-quarter.

Okay, got it. Then you mentioned because of the payoffs and the increase in loan valuations, you guys are now back within your target leverage ratio of 1x to 1.4x. Can you clarify -- you guys have a debt to equity at quarter end of 1.17x in a statutory debt to equity of 1.31x. Can you clarify from your target of leverage range is that going to be used in your debt to equity metric or your statutory debt to equity metric?

Ryan, it's something we look at both and particularly as the market evolves, we'll be conscious of both in terms of obviously the flexibility that we have with that preferred equity tranche. But it's something that right now we're comfortably right in the middle of that range, really with both metrics, and something we'll continue to keep an eye on as the market evolves.

Ryan, I might just emphasize the point there that when it comes to practically managing the balance sheet liquidity leverage how definitions of leverage flow through our different facilities and the like, really that financial leverage concept is a more applicable concept for the day-to-day operation of the right side of our balance sheet but we, of course, are mindful of statutory as well.

Okay, Makes sense. You mentioned having some loan modifications as well as think those will actually pick up as more results come in. Can you just talk about so far; one, how many new loan modifications were made in the second quarter; and two, out of those loan modifications that were made how many of those cases was the private equity sponsor willing to come in and provide additional capital support in order to get those loan modifications? What have those conversations been like as you guys are working through and all lenders are working through stress in their portfolios? What has been the dialogue with sponsors and their willingness and ability to support some of these companies that are challenged in this downturn?

Hey Ryan, it's Tom. I'd say that our level of amendment activity in the first -- in the second quarter was moderate and certainly picking up meaningfully here in the third quarter as we look at the second quarter covenants. Quite frankly [Technical Difficulty] most of our transactions have financial covenants. So quite a few borrowers dealing with second quarter breaches or anticipated breaches. So those are the amendments working on real-time. When we look at the amendments that were in the second quarter, you probably count on one hand in terms of the level of material amendments, but as I look across the board, three of the four material amendments included consisted of the sponsors injecting additional equity typically in exchange for us also getting additional rate, but in each of those cases, agreeing to some level of pick interest. Typically on a temporary period for the company to get through COVID or through any temporary performance challenges. So in each of those cases, equity, covenant relief, additional economics, some of them form of pick, and then we'll call it interim pick relief for some of our interest. Those are pretty standard across the board for our material amendments.

Okay, that's helpful commentary. Then just one last one. I think you said in your prepared remarks, as this quarter played out, this feels like some of the performance of some of your companies has improved. The liquidity needs haven't been as large as you guys were initially expecting and so it feels like things are going tentatively heading in the right direction, although obviously we're still in a pretty good downturn with a pretty slow recovery. I'm just wondering when we look at your current level of non-accruals or defaults in your portfolio, do you expect that we've hit peak levels at the end of this quarter or do you think that that will continue to trend higher going forward? Of course, knowing nobody really knows that outlook, but just based on the conversations you've had with your sponsors and the liquidity needs of your companies today.

It's Taylor. I think what I would say is that -- let me approach it this way. All of our current non-accruals today are first dollar exposures and so we really feel pretty strongly about our ability to recover that capital and get that capital earning again over time. I think that there is a significant amount of confidence in preserving our earnings level generally. The harder thing to predict, as you know is whether or not in one quarter we might bump an additional non-accrual when another one isn't rolling off. So there's a little bit of unpredictability quarter-to-quarter I would say but I think we're generally feeling like we're well accounted for in how we've established our new dividend and well accounted for in terms of the overall performance of the portfolio. So I don't think we are anticipating material increases going forward and I think there's a pretty balanced profile when I look at the risk and opportunity in that line item of our P&L going forward. But there is uncertainty out there and so we want to be cautious about that topic, obviously.

Okay, I understand, those are all my questions. I appreciate your time today.

Our next question comes from Finian O'Shea with Wells Fargo Securities. Your line is now open.

Hi, good afternoon. Taylor, just the sort of segway on that line discussion with Ryan. I want to go back to your comments on this downturn in recovery. You said the initial phase was way less bad than it could have been and now we're sort of in the amendments phase which is going well and you expect that to end with June financials. What level of re-underwriting are you doing as you make these amendments? My concern here is are you saying it's all over because you've gotten through the worst and now you make an amendment. Given we don't really know what the new normal is going to look like for these financials. We've got through the bottom, but how do we know where earnings will be for these portfolio companies say next year? So any comments on how conservatively these are being re-underwritten as you recapitalize and amend and so forth your borrowers.

Okay, Finian, good morning. I think that the first point of context I put around that is for most of the businesses that are seeing COVID impact or not businesses that have gone to zero from a top-line perspective and remain at zero, there's a significant portion of those portions of our portfolio where we actually can see the rebounding earnings occurring currently and can see positive earnings developments. So for those names, it is a relatively clear path to understanding where normalized earnings will settle for those businesses. The level of re-underwriting we're engaged in there is perhaps not as deep and as focused as those names that are deeply impacted. We call that a couple of sectors where that deeply impacted activity is more concentrated in our prepared remarks. In those businesses, I think we take our confidence from a couple of things. One is our senior positioning in the capital structure and generally, the amount of enterprise value behind us on a pre-COVID basis gives you a lot of room to absorb the detrimental actions around the value of the business through this crisis. I'd say as we approach the amendment conversations, you always have a choice of what to focus on. You can focus on risk reduction or return enhancement. In those names, we focus on risk reduction and making sure that businesses operate with enough liquidity because I think the most severe outcomes for lenders tend to be businesses that are run liquidity starved for a long time. So we're really in a broad-based partnership and those severely affected businesses with the owners to bridge through to the other side of this crisis. If it ends up being six months, nine months, 12 months, we've generally seen everybody in the boat rowing in the same direction to solve for that. The last point I'd make is there is enough data even in most of the severely impacted businesses to start to understand curves. If it's a multi-unit business to understand unit-level profitability at different levels of demand to inform your valuation conversation and strike a view about where the balance of risk and rewards should strike that ultimate valuation. A long answer, Finn, because that is a complicated topic, and I guess maybe it would be zipped up in a -- we're just learning a lot. We're four months into this and constant conversations with everybody around the table. The data is coming back and if we can just refine and tighten with a tweak that passes then we feel better and better. Again, not out of the woods, but feel better and better.

Hey, it's Linda. Maybe I just add to your point about re-underwriting. That really does tie into our decision to improve our risk grading methodology. I think like what COVID-19 really brought to light was that we want it to have a more risk rating policy that better incorporated our views going forward and even while still relies on historical performance. Especially in a time like this, it's really what do we think is going to happen in the future? That's one of the reasons why we did do the revision. I think yes, we're still doing rigorous credit work but with definitely an emphasis on how do we view the names in our portfolios in light of the uncertainty that we're saying, and in light of the global health crisis that we're all going through. So if you wanted to point to something tangible, that reflects the question that you asked, I would point to our revised risk grading policy.

Sure. I actually really am a fan of that and that was going to be part of my next question. Forgive me if you broke this out already but in the concept of re-underwriting or rating and valuing more forward-looking to reflect where you would do a loan today. Looking at your overall portfolio was up, but the names that were down. is there a breakdown from your new rating system versus incremental, fundamental decline? I guess ballpark is it 50-50 or tilted one way or another for the group of names that saw a decline?

Hey, Finn, it's Tom. I'd say it's difficult to put an exact number on that but there's certainly a correlation between deals that previously were risk rated two. By the way, first quarter results may have still been pretty good in a lot of cases, but we know that the second quarter was going to be difficult and the company may have headwinds going forward. That deal would potentially be a three under our new risk rating scale, and those more COVID impacted names, more likely to have a violation decline as of June 30 relative to March 31. [Technical Difficulty] Certainly a correlation between COVID impacted deals, risk-rated three under the new system and deals with valuation declines March 31 to June 30.

Fair enough. Tom, last question for you. Appreciating your color on the MMCF earnings. I believe last quarter you said that this quarter, next quarter would be trough earnings for the MMCF. Correct me if I'm wrong there. But is there any -- I think those COOs are static in there too. So it would keep declining if you don't ramp it in another way. But is that still the case? Do you have a more short term and medium term outlook for the leverage profile and therefore, earnings profile of the MMCF?

Sure. Finn, I'm not sure if I classified it as trough but more given an expected range that was a bit lower than we had historically. Historically, we've been more mid teens and last quarter and as we see it today, still expectation of about 9% to 11%. That's how dividend pays for the second quarter and that's what we see. We'll call it normalized earnings right now. If you look at that table book, it's performing very well. It has relatively light COVID impact. It's one that right now, given the market uncertainty. We plan to stay the course, keep leveraging more than it's been historically. We anticipate in the near term at the same relatively consistent 9% to 10% clip for that vehicle.

Okay, appreciate the color. And thanks, everybody.

Thank you, and I'm showing no further questions in the queue at this time. I'd like to turn the call back to the speakers for any closing remarks.

Thank you very much for all your time this morning. If you do have any further questions, feel free to reach out to Investor Relations at any time. Otherwise, we'll look forward to speaking with all of you next quarter.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect.