New Mountain Finance Corporation (NMFC) Q3 2022 Earnings Report, Transcript and Summary

Welcome to today's New Mountain Finance Corporation Third Quarter 2022 -- my apologies. Welcome to today's earnings call. [Operator Instructions]. I would now like to pass the conference over to our host, Rob Hamwee, CEO of New Mountain Finance Corporation. Please go ahead.

Thank you, and good morning, everyone, and welcome to New Mountain Finance Corporation's Third Quarter Earnings Call for 2022. On the line with me here today are Steve Klinsky, Chairman of NMFC and CEO of New Mountain Capital; John Kline, President of NMFC; Laura Holson, COO of NMFC; and Shiraz Kajee, CFO of NMFC. Steve is going to make some introductory remarks, but before he does, I'd like to ask Shiraz to make some important statements regarding today's call.

Thanks, Rob. Good morning, everyone. Before we get into the presentation, I would like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our November 8 earnings press release. I would also like to call your attention to the customary safe harbor disclosure in our press release and on Page 2 of the slide presentation regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections. We do not undertake to update our forward-looking statements or projections unless required to by law. To obtain copies of our latest SEC filings and to access the slide presentation that we will be referencing throughout this call, please visit our website at www.newmountainfinance.com. At this time, I'd like to turn the call over to Steve Klinsky, NMFC's Chairman, who will give some highlights beginning on Page 4 of the slide presentation. Steve?

Thanks, Shiraz. It's great to be able to address you all today, both as NMFC's Chairman and as a major fellow shareholder. I believe, we have good news to report despite the difficult U.S. economic conditions of recent months. Net investment income for the third quarter was $0.32 per share, more than covering our $0.30 dividend per share that was paid in cash on September 30. Our net asset value was $13.20 per share, just a $0.22 or 1.6% decrease despite the rising interest rate environment as some gains on individual positions such as Haven helped offset the impact of rising interest rates on existing loans. We believe, our loans are well positioned overall in defensive growth industries that we think are right in all times and particularly attractive in the challenging macro conditions of today. New Mountain's private equity funds have never had a bankruptcy or missed an interest payment, and the firm overall now manages $37 billion of assets. Similarly, our credit funds, including NMFC, have experienced just 6 basis points of net default loss per year since we began our efforts in 2008. Looking forward, the rise in interest rates can be a substantial positive for our quarterly earnings going forward since we chiefly land on floating rates, which have been rising. Accordingly, we are pleased to announce that we are increasing our dividend to $0.32 per share, up from the current $0.30 per share, for the fourth quarter. And New Mountain, as the manager, will give dividend protection, in other words, waive incentive fees if needed, to maintain this level through at least the end of calendar year 2023. As Page 13 of the presentation shows, there is also the potential to significantly outearn this $0.32 per share level at current interest rates if all other factors hold constant. This extra earnings could appear as special dividends or as deleveraging of our balance sheet. We believe the strength of New Mountain and of NMFC are driven by the strength of our team. New Mountain overall now numbers 215 team members, and the firm has developed specialties and attractive defensive growth, that is acyclical growth sectors, such as life science supplies, health care information technology, software, infrastructure services and digital engineering. Talent has also been rising within this team. And to this end, we are pleased to announce the key promotion. John Kline, who has helped lead NMFC and our credit effort since 2008, will be named CEO of NMFC effectively January 1, 2023. Rob Hamwee will continue as a key leader of the effort as Vice Chairman of NMFC and its Investment Committee, where I continue as Chairman. Rob, John and I also continue as Managing Directors of New Mountain overall, working as we have before. Finally, we continue as major shareholders of NMFC, owning over 12% of NMFC's total shares personally. Rob, John and I have never sold a share of NMFC even as we have been buying. With that, let me turn the call back to Rob.

Thank you, Steve. We have included a few new pages this quarter as a high-level summary of NMFC, our priorities and our differentiated approach. On Page 7, we show NMFC at a glance, highlighting our best-in-class quality metrics, strong return track record over our 14-year history and detailed disclosure of the acyclical sectors we have exposure to through our portfolio companies. On the following page, we highlight NMFC's differentiated approach to lending. Our defensive growth strategy enables us to focus on investing in strong businesses in acyclical sectors, which provides insulation from macroeconomic headwinds, as Steve described earlier. We are not buying the market and proactively avoid the sectors of the economy where we think there is the most volatility and cyclicality. In addition, our credit business was founded with the idea of leveraging the intellectual capital of the full New Mountain platform. We have real sector expertise in these defensive growth sectors, thanks to a team of 89 investment professionals who focus day in and day out on these sectors. It is important to note our senior advisers, operating executives and portfolio company CEOs have actually run similar businesses, which allows us to identify the most attractive opportunities in the market. This breadth of resources at our disposal allows us to go far deeper on diligence than a stand-alone credit firm ever could, and ultimately allows us to make better credit decisions and avoid mistakes. Steve spoke earlier about our shareholder alignment. We believe that these 3 elements: our defensive growth strategy, our integrated research and underwriting model, and shareholder alignment, have resulted in a proven track record of execution. This is demonstrated by our total return performance, consistent coverage of our dividend and strong credit performance. Turning to Page 9. We believe, our portfolio continues to be very well positioned overall, particularly for periods of volatility. The updated heat map shows the positive risk migration this quarter with 2 positions representing $93 million of fair value, improving in rating and 2 positions representing just $34 million, worsening in rating. We are pleased that over 92% of our portfolio is rated green on our risk rating scale. Conversely, our red and orange names, which represent our most challenged positions, now represent just 2.3% of the portfolio. Starting with the positive movers on Page 10. Haven, formerly known as Tenawa, which, as a reminder, ceased operations at its plant on April 14 due to a fire, migrated from yellow to green as the insurance carriers deemed the plant a total loss and confirmed the full payout of the insurance policy. The company has now received the full proceeds from the insurance carriers which enabled them to repay our $46 million debt position at par post quarter end and left meaningful residual equity value, which we expect to monetize over the next several months. The education business improved from red to orange as the impact of COVID on the industry further recedes. The 2 negative movers are both, relatively small positions and include a business services company, which we placed on nonaccrual this quarter due to continued top line and execution challenges; and a health care business which has experienced some idiosyncratic headwinds, combined with staffing issues. The updated heat map is shown on Page 11. As you can see, given our portfolio's strong bias towards defensive sectors like software, business services and health care, we believe the vast majority of our assets are very well positioned to continue to perform no matter how the economic landscape develops. We continue to spend significant time and energy on our remaining red and orange names. We also wanted to highlight that we move the page detailing leverage migration on the underlying portfolio of companies to the appendix. We are committed to our best-in-class disclosure, so we will continue to share this information going forward but believe our heat map largely captures the impact of leverage migration. With that, I will turn it over to John to discuss market conditions and other important performance metrics.

Thanks, Rob. Good morning, everyone. Since our last call in August, the overall investing environment across most asset classes has continued to be difficult. The challenges associated with higher interest rates, inflation, geopolitical stability and pockets of economic softness have now receded. However, through this period, corporate direct lending continues to be one of the most resilient asset classes across all financial markets. Floating base rates, attractive spreads, secured debt structures and low loan-to-value ratios have provided investors with valuable stability in an otherwise volatile investing environment. Additionally, our strategy of making loans to noncyclical defensive businesses provide added margin of safety compared to that on the overall lending market, which generally has much higher exposure to inflation-sensitive, cyclical and capital-intensive businesses within sectors that we avoid. While new deal activity remains materially lower than last year, we continue to see good opportunities to make add-on investments into existing portfolio companies and to finance select sponsor-backed purchases in the upper middle market. In general, sponsor equity contributions remain very attractive, consistently ranging from 60% to 80% of enterprise value, while pricing is at the very wide end of historical ranges. Finally, it is important to highlight that the overall direct lending market continues to take meaningful share from the syndicated loan and high-yield bond asset classes as our private financing solutions offer an ease of execution, price clarity and capital certainty that is still not available in these other markets. Page 13 presents an interest rate analysis that provides insight into the positive effect of increasing base rates on NMFC's earnings. We have updated this page to give more clarity into the impact of increasing base rates on our portfolio as well as to the timing of that impact. As a reminder, the NMFC loan portfolio is 88% floating rate and 12% fixed rate, while our liabilities are 52% fixed rate and 48% floating rate. Given this capital structure mix, we are long LIBOR and thus have material positive exposure to increasing rates. As we reported last quarter, we have experienced a lag on our assets reset at a slower cadence than our liabilities. On the upper right side of the page, we show how this timing lag played out during the third quarter, where rate increases on assets occurred at a slower pace compared to that of our liabilities, resulting in a negative drag of 30 basis points. As shown on the lower bar chart, this mix net caused a $0.02 headwind during the quarter compared to a hypothetical scenario where base rates were 2.5% on both, assets and liabilities. To the extent rates stabilize at 3.5% or 4.5%, we would expect a material uplift in earnings to approximately $0.36 to $0.38 per share, all else being equal. Turning to Page 14. We present more detail behind the $0.22 decline in our book value this quarter. Starting on the left side of the page, we show that credit-driven fair value changes resulted in a net NAV decrease of $0.08 per share from Q2 to Q3. This minor decrease was driven by performance-related valuation decreases for 7 names, including Edmentum, which continues to have a strong outlook but modestly took down expectations for the year. These valuation declines were offset by a material write-off at Haven, which was unrealized at the end of Q3 but will be mostly realized by the end of Q4. Our remaining portfolio experienced $0.14 per share of depreciation associated with general spread widening in the overall credit market. In the context of the broader financial markets, NMFC's book value is very stable and reflective of a portfolio with strong credit quality and increasing future income potential. Page 15 addresses NMFC's long-term credit performance since its inception. On the left side of the page, we show the current state of the portfolio where we have $3.2 billion of investments at fair value with $59 million or 1.8% of the portfolio currently on nonaccrual. As mentioned earlier, we did put a business services company on nonaccrual, which represents $20 million or 0.6% of our current portfolio. NMFC's cumulative spread performance shown on the right side of the page remains strong. Since our inception in 2008, we have made $9.7 billion of total investments, of which only $347 million have been placed on nonaccrual. Of the nonaccruals, only $79 million have become realized losses over the course of our 14-year history. As shown on the next page, default losses have been more than offset by realized gains elsewhere in the portfolio. The chart on Page 16 tracks the company's overall economic performance since its IPO in 2011. As you can see at the top of the page, since our initial listing, NMFC has paid approximately $1 billion of regular dividends to our shareholders, which have been fully supported by over $1 billion of net investment income. On the lower half of the page, we focus on below the line items, where we show that since inception, highlighted in blue, we have a cumulative net realized gain of $16.8 million, which is basically flat with last quarter. This cumulative realized gain is offset by $73.9 million of cumulative unrealized depreciation on our portfolio, which increased this quarter by about $24 million, which was largely driven by valuation changes related to widening risk spreads in the general market. On the bottom of the page, in yellow, we show how cumulative net realized and unrealized loss stands at just $57 million, which remains a tiny fraction of the $1 billion of net investment income that we have generated since our IPO. As we look forward, our team remains very focused on reversing this small cumulative loss and maintaining best-in-class credit quality throughout the portfolio. Page 17 shows a stock chart detailing NMFC's equity returns since its IPO over 11 years ago. Over this period, NMFC has generated a compound annual return of 9.6%, which represents a very strong cash flow-oriented return in an environment where risk-free rates have been historically low. This year, NMFC's performance has compared favorably to most equity indexes and has materially exceeded that of the high-yield index as well as an index of BDC peers that have been public at least as long as we have. I will now turn the call over to our COO, Laura Holson, to discuss more details on our recent originations and current portfolio construction.

Thanks, John. As shown on Page 18, we originated almost $125 million in Q3 in our core defensive growth verticals, including software, business services and consumer services. We primarily funded these originations with repayments and a modest amount of sales, keeping us fully invested and at the high end of our target leverage range. We continue to have great success targeting and sourcing high-quality deals with the niches of the economy where we have the highest conviction and expertise. Since quarter end, overall deal activity has been consistent, but more borrowers continue to migrate to the direct lending market as the syndicated market remains somewhat close to new issue. As always, we remain extremely selective on credit and are focusing on the highest quality opportunities in a widening opportunity set. We expect to remain fully invested in our target leverage range as our deal flow absorbs any proceeds from ordinary course loan repayments. Turning to Page 19. We show that our asset mix is consistent with prior quarters, where slightly more than 2/3 of our investments inclusive of first lien, SLPs and net lease are senior in nature. Approximately 8% of the portfolio is comprised of our equity positions, the largest of which are shown on the right side of the page. Assuming solid operating performance and the supportive valuation environment, we believe, these equity positions could continue to increase in value and drive book value appreciation. We hope to monetize certain of these equity positions in the medium term and rotate those dollars into yielding assets. As discussed earlier, we expect Haven to be a near-term example of this as we realize the equity proceeds over Q4 and Q1. Page 20 shows that the average yield of NMFC's portfolio increased from 10.3% in Q2 to 11.3% for Q3, largely due to the benefit of the increasing forward LIBOR curve. Spreads remain wider and the supply/demand imbalance continues to favor lenders, which helps support our net investment income target. Turning to Page 21. We show detailed breakouts of NMFC's industry exposure. We have further enhanced our industry disclosure this quarter to provide more insight into the significant diversity within our software, business services and health care sectors. As we have stated, we believe these sectors are well positioned in an inflationary environment, given the pricing power and margin profile that comes along with the largely tech and services nature of these industries. In our view, the chart demonstrates the differentiated domain expertise our team has developed and shows why we operate with confidence in any economic cycle. The sectors we focus on, have neatly attractive cash flow characteristics such as high EBITDA margins, minimal CapEx and working capital needs and flexible cost structures. As a result, as interest rates rise, we believe, most of our borrowers have sufficient free cash flow to cover the increasing interest burden, which I will touch on more on the following page. We have successfully avoided nearly all of the most troubled industries while maintaining high exposure to the most defensive sectors within the U.S. economy that we believe can perform well in more volatile macro environments. We added Page 22 this quarter to highlight the trends in the scale and credit statistics of our underlying borrowers. As you can see, the weighted average EBITDA of our borrowers has increased over the last several quarters to over $130 million. While we first and foremost concentrate on how an opportunity maps against our defensive growth criteria and internal New Mountain knowledge, we believe that larger borrowers tend to be marginally safer, all else equal. We also show the relevant leverage and interest coverage stats across the portfolio. Leverage has been largely consistent. Loan to values continue to be quite compelling, and the current portfolio has an average loan-to-value of just 41%. From an interest coverage perspective, we've seen modest compression as base rates rise. But as I mentioned earlier, we think the free cash flow characteristics and growth profiles of the industries we focus on lend themselves to decent cushion. The weighted average interest coverage on the portfolio is still north of 2x today. Finally, as illustrated on Page 23, we have a diversified portfolio across over 100 portfolio companies. The top 15 investments, inclusive of our SLP funds, account for 38% of total fair value and represents our highest conviction names. With that, I will now turn it over to our Chief Financial Officer, Shiraz Kajee, to discuss the financial statement. Shiraz?

Thank you, Laura. For more details on our financial results in today's commentary, please refer to the Form 10-Q that was filed last evening with the SEC. Now I'd like to turn your attention to Slide 24. The portfolio had over $3.2 billion in investments at fair value at September 30 and total assets of $3.3 billion with total liabilities of $2 billion, of which total statutory debt outstanding was $1.7 billion, excluding $300 million of drawn SBA-guaranteed debentures. Net asset value of $1.3 billion or $13.20 per share was down $0.22 or 1.6% from the prior quarter. At quarter end, our statutory debt-to-equity ratio was 1.26:1. However, net of available cash on the balance sheet, net leverage is 1.23:1, within our target leverage range. On Slide 25, we show historical leverage ratios and our historical NAV adjusted for the cumulative impact of special dividends. Consistent with our goal of minimizing credit losses and maintaining a stable book value over the long term, you will see that current NAV adjusted for special dividends is not far off from our NAV, back to our IPO over 11 years ago. On Slide 26, we show our quarterly income statement results. We believe that our NII is the most appropriate measure of our quarterly performance. This slide highlights that while realized and unrealized gains and losses can be volatile below the line, we continue to generate stable net investment income above the line. For the current quarter, we earned total investment income of $78.1 million, a $5.3 million increase from the prior quarter. This was due to higher interest income from base rate resets, offset by lower fee income in the quarter. Total net expenses were approximately $45.6 million, a $4.2 million increase quarter-over-quarter due primarily to higher base rates on our floating rate debt. As discussed, the investment adviser has committed to a management fee of 1.25% for the 2022 and 2023 calendar years. We have also pledged to reduce our incentive fee, if and as needed, during this period to fully support our new $0.32 per share quarterly dividend. Based on our forward view of the earnings power of the business, we do not expect to use this pledge. It is important to note that the investment adviser cannot recoup fees previously waived. This results in quarterly NII of $32.5 million or $0.32 per weighted average share, which exceeded our Q3 regular dividend of $0.30 per share, as a result of the net unrealized depreciation in the quarter but an increase in net assets resulting from operations of $7.7 million. The Slide 27 demonstrates, 95% of our total investment income is recurring this quarter. You will see historically, on average, over 90% of our quarterly income is recurring in nature, and on average, over 80% of our income is regularly paid in cash. We believe, this consistency shows the stability and predictability of our investment income. Turning to Slide 28. The red line shows our dividend coverage. While NII exceeded our Q3 dividend, the dividend protection program could have provided additional coverage if needed. As previously mentioned, based on our preliminary estimates, we expect our Q4 NII will be in excess of $0.32 per share. Given that, our Board of Directors has declared a $0.02 per share or 7% increase in our Q4 dividend to $0.32 per share, which will be paid on December 30 to holders of record on December 16. On Slide 29, we highlight our various financing sources, taking into account SBA-guaranteed debentures. We had almost $2.3 billion of total borrowing capacity at quarter end with over $315 million available on our revolving lines, subject to borrowing base limitations. As a reminder, both our Wells Fargo and Deutsche Bank credit facilities covenants are generally tied to the operating performance of the underlying businesses that we lend to rather than the marks of our investments at any given time. Finally, on Slide 30, we show our leverage maturity schedule. As we've diversified our debt issuance, we've been successful at laddering our maturities to better manage liquidity, and over 75% of our debt matures on or after 2025. Post quarter end, we issued a $200 million 3-year convertible note at a fixed rate of 7.5%. Proceeds of the successful private placement will be used to tender for our 2018 convertible note due in 2023, and any residual proceeds will be used to repay other outstanding indebtedness. Furthermore, our multiple investment-grade credit ratings provide us access to various unsecured debt markets that we continue to explore to further ladder our maturities in the most cost-efficient manner. With that, I would like to turn the call back over to Rob.

Thanks, Shiraz. In closing, we are optimistic about the prospects for NMFC in the months and years ahead. Our long-standing focus on lending to defensive growth businesses, supported by strong sponsors, should continue to serve us well. We once again thank you for your continuing support and interest, wish you all good health, and look forward to maintaining an open and transparent dialogue with all of our stakeholders in the days ahead. I will now turn things back to the operator to begin Q&A. Operator?

[Operator Instructions]. The first question today comes from the line of Bryce Rowe from B. Riley.

I wanted to maybe start here on the dividend. Nice to see the uptick here to $0.32. Maybe you could comment a little bit on how you're thinking about the dividend from a future perspective, especially given the rise in rates and the favorable impact it might have on the earnings stream. Will you seek to maybe put in place some level of cushion so that dividend coverage will, in fact, be in excess of the dividend paid?

Yes, yes. It's a good question, and we certainly want to operate the business prospectively with a material coverage to the dividend. And I think the slide on Page 13 shows you a little -- gives you a little bit of sense of where we think the NII is going to, so long as rates set up to stay all the way to where they are but stay elevated for some period of time. So yes, certainly our intention to run the business with a meaningful cushion to the dividend from the NII.

Okay. And then maybe a follow-up on that, Rob. In terms of maybe terms and conditions right now with newer originations. Are you all seeing any higher type of floors within the transactions? With the thought that maybe rates are going up now, but perhaps they go back down at some point in the future, so are you seeing higher interest rate floors within your transactions?

No. The floors haven't really modified. Now that the spreads are higher, the market overall is dislocated. So we're getting the benefit on new deals, not just of the higher base rate, but also of higher spread and call protection in just better terms generally. But one term that hasn't changed materially is the floors.

The next question today comes from the line of Ryan Lynch from KBW.

And John, congratulations on the promotion. Well deserved. The other -- also I just wanted to congratulate you guys on a really nice slide deck. I love -- you guys have always had a great slide deck, but I really love the improvements you guys have made recently. My first question is kind of a complicated one. So I want to see if you can hopefully follow me through this. I was kind of trying to do some back of the envelope math on Slide 13 and Slide 22, kind of using those in combination. And if I assume that LIBOR in Q2 -- your effective LIBOR rate was kind of around your floor rates of around 1%, if it went from 1%-ish in Q2 to that 2.2% effective rate that you guys show on Slide 13, it looks like your interest coverage that you have on Slide 22 went down from 2.4x to 1 -- excuse me, 2.4x to 2.1x. So that's like around a 120-basis point increase, in rates decreased your interest coverage by about 0.3x. And so that's roughly a 100-basis point increase, reduces that interest coverage by about 0.25x. If I look at the forward curve today at 5% versus where your effective rate was at the end of the third quarter, it's 5% versus the 2.2%, you're talking about almost 300 basis points of potential rising rates, which my back of the envelope math would equate to about 0.7, 0.8x of lower interest coverage from your 2.1 today. So you're getting down closer to that 1x interest coverage level. Of course, that's just the average. There's guys who have interest coverage significantly above that, and guys have interest coverage probably meaningfully below that. And so this is the kind of math that I think investors are thinking about, of how credit quality, not just in your portfolio but across the BDC space. Now we're talking about your portfolio specifically, is positioned to hold up for a pretty substantial increase in interest rates over the coming year. So I'd love to hear your commentary on my quick back of the envelope sort of math as well as how should investors be thinking about the impact from rising rates. And how do you feel about that in your portfolio?

Yes. Ryan, it's a great question. We've been spending an inordinate amount of time focusing on exactly that question. I'm going to actually let Laura Holson get into some of the details there. Laura?

Yes. No, agree. It's a good question. And as Rob said, it's something that we spend a lot of time sensitizing kind of across the portfolio. I would say, the math isn't quite as draconian as what you laid out, and I think there's a couple of reasons for that. The first is, the analysis on Page 22 is kind of a point in time estimate, right? So it's using EBITDA for the LTM period, and so the math you're doing doesn't incorporate the growth of our underlying portfolio companies, which as we've talked about, these are pretty growthful industries, right? So I think one key benefit is that you just have some natural cushion quarter-to-quarter over the fact that these companies are growing nicely. And I think, beyond that, again, we do this -- as you said, this is kind of an aggregate average kind of across the portfolio. And we've actually done the kind of name-by-name build-up, at least for kind of all of our sizable positions. And when we do sensitize base rates up to 5% or north of 5%, we're still showing in excess of 1, 1.5x interest coverage ratio, again for our material debt positions, excluding things like ARR or recurring revenue loans. So hopefully, it gives you a sense of why we think we're comfortable as well as all of the other items that I mentioned around just the characteristics of the portfolio, and the fact that there's -- within the underlying portfolio companies, there's a lot of levers companies can pull in the event that rates continue to migrate in this direction. So again, the analysis on Page 22, while helpful, is kind of point in time and static, and doesn't reflect, I think, a lot of the levers, both on the growth side as well as on the cost structure side that we think provide additional cushion and coverage. And then you overlay that with something we talked about, not in this call but on prior calls, which is just the loan to values here. And we do think that sponsors -- again, given the sizable equity cushions that are junior to our debt and the capital structures, that sponsors would step up and help to fund things if everything else stays as is. So hopefully, that gives you some sense for how we're thinking about it.

Yes. It gives me some sense. I'm glad you brought up sort of the growth profile. I'm just curious, what are the current trends that you guys are seeing from a growth perspective in your portfolio? I'm not sure what sort of data you guys have, I know some companies report kind of on a quarter lag, some companies give you monthly financial statements. We've seen other -- there's another index out there that shows private middle-market businesses on a month-to-month revenue and EBITDA growth basis. And for the first 2 months of the third quarter, so July and August, the overall index had 2.1% decline in earnings and then particularly software -- or excuse me, technology had a 3% decline and health care had a 5% decline in earnings year-over-year from the first 2 months. And so I'd love to hear, what sort of trends you guys are seeing in your portfolio as of the most recent data? And I'd love to hear what sort of data -- what sort of timeframe we're talking about? Are we talking about the prior quarter? Or are you talking about any sort of current monthly information?

Yes. I would say, most of our borrowers provide us with quarterly financial info. So we have full Q2 numbers from all of our portfolio companies, and then within the next week to 2 weeks, we're going to start seeing a material portion of companies report Q3. So -- but I can talk a little bit about the Q2 numbers that we saw and then the handful of Q3 numbers that have come in so far, which is we're still seeing very strong top line growth trends. And it's a mix of price and volume, right? Again, given the pricing power of the borrowers within industries that we focus on, we are seeing the ability to get meaningful price even to the extent that volumes have flattened off a little bit. But in aggregate, still seeing nice top line growth. I would say the area that we'll continue to watch is just on the margin side for obvious reasons. But I think the good news is that, again, given the sectors which are largely tech and services in nature, we don't have a lot of supply-chain costs, freight costs, raw material costs, anything like that on the inflation side. It's really more around just labor and wage inflation and staffing, which actually we're starting to see maybe a little bit of improvement on, if anything. So the fact that we're starting from relatively high EBITDA margins to begin with, again, gives us the ability to withstand a little bit of margin pressure. But if I had to summarize, I would say, still very strong top line growth and a little bit of margin pressure, but nothing that we're concerned about, in aggregate.

Okay. That's helpful. So we covered sort of the interest coverage and EBITDA and revenue growth trends. I just wanted to hear, what does it mean -- so what has been -- so if I look at the public equity indexes for software-related companies, and I understand, your book is not completely software but that's the largest sector. That's down like 40% year-to-date, that index. And so I'd love to hear, what have software multiples been doing? How much have they compressed in private middle-market businesses kind of year-to-date? And what does that mean, if anything, for your current portfolio companies?

John, do you want to handle that one?

Sure. I'd be happy to handle that. Thanks, Rob. And thanks for all the questions, Ryan. When we think about software, and I'm just going to use revenue multiples to make it really easy, when we think about where good software businesses trade in the public market last year, we saw multiples of, in many cases, on great businesses, 20 to 30x revenue. So this year, we've seen a lot of those revenue multiples come down to as low to -- for really good businesses to the 6x to 10x level in the public markets. So when we see our sponsor clients buying great software businesses, they're generally still paying 6 to 10x revenue. And in some cases, that looks like a bargain to them relative to where a lot of these world-class businesses were trading last year. And on average, our attachment points through a total unitranche loan would be maximum 2 to 3x revenue, so still, worst case a 50% loan to value and, in many cases, a whole lot better than that. So to summarize, I think that the decrease in multiples in software is a public market's problem, much more than it is a problem for a unitranche lender right at the top of the capital structure, earning really good yield.

Okay. That's helpful. Again, I appreciate the updated slide that -- you guys always have a great slide, But I really appreciated the upgraded slide deck. And Slide 13 is super helpful to kind of show your earnings trajectory both from kind of the kind of the mismatch in rate resets for the third quarter and also just longer term what the LIBOR does. So that's all for me today. I appreciate the time.

Great. Thanks, Ryan, and thanks for the comments. We appreciate it.

[Operator Instructions]. We have a follow-up question Bryce Rowe from B. Riley.

Sorry to belabor the call here. I did have a couple more and thought, they might get asked. Let's see. In terms of kind of upcoming debt maturities, obviously, you've kind of tackled the larger one with the convertible notes offering here. What's -- at this point, how -- can you talk a little bit about how you're thinking about the unsecured notes that are coming due here in 2023? Do you feel comfortable just drawing down on the credit facilities to repay those? Or are you truly kind of exploring the unsecured market?

Yes. Go ahead, Shiraz.

Yes, Bryce. Yes, I mean, I think, on the unsecured side, we're always looking at the markets. It's not very attractive right now. The bond market is closed right now. The unsecured market is open, but rates are what they are. I think, we feel confident. We've got the convert done. We've tackled sort of the major item that's coming due next year. In terms of the maturities that's coming up earlier part of the year, we feel confident, we have enough availability and we're evolving lines to take care of those. And also, we touched on it briefly earlier. We potentially could delever the business as we get repayments coming in on some of our positions. So that's on the table as well for us to consider. But we feel like we have enough levers right now to take care of maturities without having to do something unnatural.

Great. Okay. That's helpful, Shiraz. And then maybe one more for me. I mean, you guys have had a good year in terms of realizing some gains. And so just kind of curious where you stand right now from kind of an estimated spillover position. Is that -- are we talking about some level of distributable event here, late '22 or early '23? Or can you carry a bit of that over into '23?

Yes, not much right now. I mean, so we did have some of the gains earlier this year from our real estate portfolio. We had losses from prior years to offset that. So there was nothing really that created any sort of spillover going into next year. We think, if some of the equity positions that Laura touched on earlier do materialize in the medium term, next year, potentially we could be in that position. But right now, we feel like we're not flat, but we have just a few -- a little bit above flat, but not a big spillover.

Thank you. There are no additional questions meeting at this time, so I'd like to pass the conference back over to Rob Hamwee for any closing remarks. Please go ahead.

Great. Thank you. And once again, thanks, everybody, for their time. We really do appreciate it. You obviously know where to find us for any potential follow-up. And otherwise, look forward to speaking to everybody in the weeks and months ahead. Thanks. Have a great day.

This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.