Blue Owl Capital Corporation (OBDC) Q4 2021 Earnings Report, Transcript and Summary

Good morning, and welcome to the Owl Rock Capital Corporation’s Fourth Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I’d like to advise all parties that this conference is being recorded. I’ll now turn the call over to Dana Sclafani, Head of Investor Relations for ORCC.

Thank you, operator. Good morning, everyone, and welcome to Owl Rock Capital Corporation’s fourth quarter earnings call. Joining me this morning are Chief Executive Officer, Craig Packer; our Chief Financial Officer and Chief Operating Officer, Jonathan Lamm; and other members of our senior management team. I’d like to remind our listeners that remarks made during today’s call may contain forward-looking statements, which are not a guarantee of future performance or results and involve a number of risks and uncertainties that are outside the company’s control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described in ORCC’s filings with the SEC. The company assumes no obligation to update any forward-looking statements. We will also be referring to non-GAAP measures on today’s call which are reconciled to GAAP figures in our earnings press release and supplemental earnings presentation available on the Investor Relations section of our website at owlrockcapitalcorporation.com. With that, I’ll turn the call over to Craig.

Thanks, Dana. Good morning, everyone, and thank you for joining us today. We are extremely pleased with our fourth quarter and full year results. We’ve been able to fully deploy the portfolio, operate comfortably within our target leverage range, over earned our dividend, improved our ROE and further optimized our balance sheet. Our net investment income per share was $0.35, up $0.02 versus the third quarter and up 35% since the first quarter, which we believe reflects the strong earnings potential of the business and once again provided strong coverage of our dividend. The growth in earnings reflects another quarter of strong and accretive origination and repayment activity and continued strength in our dividend and other income. As a result of over earning our dividend and the net markup of our portfolio, our net asset value per share increased to $15.8. While origination levels were lower relative to our record setting third quarter, it was one of our strongest quarters since inception. We also had especially lucrative repayments, which drove healthy fee income. As has been the case every year since inception, we continue to experience strong credit performance across our portfolio. We have only one portfolio company on non-accrual status, representing 0.1% of the portfolio based on fair value, one of the lowest levels in the BDC sector as our annualized loss ratio is very low at 15 basis points. Turning to our investment activity. We originated $1.6 billion of investments with $1.5 billion of funded activity and $910 million of repayments, resulting in net funded originations of $550 million. The continuation of an active M&A market backdrop and a trend towards increasingly larger deals allowed us to selectively add attractive investments to our portfolio and efficiently redeploy capital from repayments. We see the trend towards large unitranche continuing to accelerate, which plays directly to our strength given the size and scale of our platform and our expansive private equity coverage efforts. Across the platform in 2021, we evaluated over 40 deals with facility sizes in excess of $1 billion and signed or closed on approximately half of them. This quarter, we also saw increased deal activity across second lien and junior capital opportunities. Our mix can vary in any given quarter, and this quarter, we saw several extremely attractive junior capital opportunities to help private equity firms invest in some terrific businesses where they wanted Owl Rock as their financing partner. When we do invest in second lien or junior capital investments, we are highly selective and primarily engaged only with larger companies with the breadth and scale to provide the significant downside protection that we require. In the junior debt deals we executed this quarter, the average enterprise value was more than $6 billion and the average EBITDA exceeded $350 million, well in excess of the size of our average borrower. As a result of our investment mix this quarter, the weighted average spread on new investments was 680 basis points. In comparison, the average spread on our sales and repayments was approximately 600 or 80 basis points lower than our originations. As a result, the total spread on the debt portfolio improved by 5 to 654 basis points. We believe this is a very attractive level given at the portfolio remains focused on senior secured investments at the top of the capital structure with roughly 75% held in first lien and unitranche term loans. Today, the portfolio stands at $12.7 billion across 143 companies, which we believe gives us a unique perspective into the health of the broader economy and some of the challenges companies are encountering, such as supply chain disruption and labor shortages. Across our borrowers, we see companies navigating through these pressures effectively, ordering early, raising prices and anticipating pressure points. Consumer health remains strong, and many companies have been able to pass through some increased costs to the end consumer. We continue to believe larger businesses are better equipped to manage through these pressures and protect profitability. This is one reason we like to lend to non-cyclical service-oriented businesses with enduring revenue models that are somewhat insulated from these issues. To this end, we have seen both revenue and EBITDA growth across our borrowers year-over-year. We believe this strong borrower performance validates our portfolio positioning and investment strategy. In addition, we are assessing the impact of a rising rate environment on our borrowers’ ability to service their debt. Our borrowers benefit from strong interest coverage metrics today. And based on our analysis, we believe they have sufficient cushion to manage if rates increase in line with the current market expectation. While we’ll continue to monitor these issues closely, overall, our observations suggest that the positive tailwinds from healthy consumer spending and strong demand will outweigh these headwinds in 2022. With that, I will turn it over to Jonathan to discuss our financial results in more detail.

Thank you, Craig. We ended the fourth quarter with total portfolio investments of $12.7 billion, outstanding debt of $7.1 billion and total net assets of $5.9 billion. Net asset value per share increased to $15.8, up $0.13 from last quarter, driven by net markups in the portfolio and NII that exceeded the dividend. We ended the fourth quarter with net leverage of 1.13 times debt to equity, within our target leverage range, and with liquidity of $1.8 billion. Our net investment income was $0.35 per share, $0.04 above our previously declared fourth quarter dividend of $0.31 per share. For the first quarter of 2022, our Board has again declared a $0.31 per share dividend payable on May 13 to stockholders of record on March 31. Our total investment income for the quarter increased to $282 million. Our dividend income was stable. However, as we highlighted last quarter, we expect dividend income from Wingspire and our senior loan fund to continue to ramp as our committed capital is deployed. As Craig mentioned, we experienced another active quarter of repayments with prepayment related income up from the prior quarter. Interest expense was $60 million, up from the prior quarter as our leverage increased modestly. From a capitalization perspective, we continue to be pleased with the strength and flexibility of our balance sheet, which includes 58% of our debt outstanding in the form of unsecured bonds. Further, the average stated interest rate on our debt outstanding has decreased by roughly 50 basis points over the course of 2021. Before I wrap up, I wanted to spend a minute on a topic that is top of mind for investors across all asset classes. We closely monitor the potential impact of rising rates on our earnings. We are well positioned to benefit from the increase in rates given our assets are essentially all floating rate and roughly 50% of our financing is fixed rate, which would create margin expansion. As a reminder, the majority of our loans have LIBOR floors. The weighted average floor for the portfolio is 85 basis points. Once rates rise through the floor on the asset side, we begin to see incremental benefit to our investment income. For example, a 200 basis point rate increase would generate approximately $0.04 per share in quarterly net investment income after considering the impact of income-based fees. With that, I’ll turn it back to Craig for closing comments.

Thanks, Jonathan. To close, I would like to provide some commentary on the market outlook and our positioning coming into 2022. Looking at the current market, as we’ve noted before, we have seen an increase in the amount of capital being raised in private credit to match the substantial amount of private equity dry powder that is being deployed. This has led to some ongoing pressure on spreads generally. However, we have also seen a commensurate growth in the direct lending opportunity set. More private equity sponsors are embracing direct lending solutions and, as adoption increases, they’re seeing the value of executing many of their larger financings in the private market. The flexibility and certainty direct lenders can offer are extremely valuable for sponsors pursuing large strategic buyouts and acquisitions. In addition, if we see increased public market volatility due to the Fed tightening cycle, we expect private markets to further benefit. So while spreads remain pressured, we are optimistic that we will continue to source high-quality, attractive investments as we are able to capitalize on the trend towards larger deals executed in the private market given the scale and breadth of our platform. Looking at Q1 specifically, we are seeing a moderated pace of origination and repayment activity relative to the very active past six months. However, we do expect to see deal activity pick up as the year goes on. I also wanted to spend a moment reflecting on where the portfolio stands and the many milestones we achieved in 2021. Last year, we added nearly 70 new companies and deployed a record $6.8 billion in total capital. Net of repayments, the portfolio increased by almost $2 billion to $12.7 billion today, primarily comprised of first lien and unitranche term loans. In addition, we were able to achieve a fully levered portfolio even as repayments increased to a more normalized pace. Our credit performance has been very strong, with minimal losses, and the vast majority of our borrowers continuing to perform in line with or exceeding our expectations. Despite spread pressure, we’re able to maintain our overall portfolio spread through careful credit selection and successful redeployment of lower spread investments. In 2021, we redeployed roughly $800 million of debt investments with spreads less than 550 basis points, decreasing our low-yielding investments from 15% to 7% of ORCC’s overall portfolio. We have also deployed additional capital into two strategic investments, Wingspire and our senior loan fund, which are generating increasing dividends and attractive returns. As a result of these efforts, ORCC is now consistently exceeding its $0.31 dividend and we expect to drive further increases in our net asset value over time. I’d also like to highlight that in the last six months, we generated an attractive ROE of roughly 9%. Our trailing 12-month return of 8.3% includes the six months where we were operating below our target leverage range. We believe going forward we can earn an 8.5% to 9% ROE, depending on repayments, and hope to increase that range over time through continued mix shift, increased dividend income from our strategic investments and further improvement in our cost of debt. Finally, to conclude, I’d highlight that this was also a transformational year for the broader Owl Rock platform. We ended the year with over $39 billion of assets under management, up from $27 billion a year ago. We continue to add expertise and resources to our team and made significant investments in our origination, underwriting, financing and portfolio management teams. Owl Rock recently announced the acquisition of the Wellfleet CLO business, making significant additional credit resources available to our team. We have deep private equity relationships, having transacted with over 100 sponsors since inception, in each quarter, that number continues to grow as adoption increases. As a result of our broad sourcing capabilities and rigorous underwriting process, we have experienced strong credit performance across each of our funds. Owl Rock has deployed over $50 billion of capital since inception and has an annualized loss rate of 5 basis points across the platform. We are proud of the platform we’ve built and how it continues to grow. When we look at the direct lending landscape, we believe that the market will favor the largest and highest-quality platforms. ORCC was our first fund when we founded Owl Rock in 2016 and is well positioned today to benefit from the continued growth and success of the broader Owl Rock platform. Thank you all for joining us today. And operator, please open the line for questions.

Thank you. [Operator Instructions] We’ll take our first question from Kevin Fultz with JMP Securities.

Good morning, and thank you for taking my questions. Looking at Slide 5, the weighted average spread over LIBOR of new floating rate investments driven during the quarter was 6.8%, which is a function of leading into unitranche and some second lien origination, as you mentioned in your prepared remarks. Just in terms of spread over LIBOR, could you talk about where true first things unitranche and second liens are pricing today as well as how attractive the opportunities are there from risk-related perspective?

Sure. Obviously, it’s a range, and it moves week to week and month to month. I would say, true first lien can be anywhere from L400 to L525. When you get to more of a stretch first lien, that tends to be more L475 to L550. Unitranche today is L550 to L650, depending upon the credit. You may see some outliers around that, but I think that’s the center of gravity. Second lien could be as low as L625, L650 and as high as L850, again, depending upon the credit. So broad ranges, just given – so credit-specific. In terms of relative attractiveness, we – our investment activity I think we find the most attractive is unitranche products given the higher spread and the dollar-one attachment point. And it’s also the product that I think is most – it’s where direct lenders compete the most effectively because it’s really not a product offered in a syndicated market. So if we had our druthers, we do as much unitranche as we could in the portfolio, and we’ve been really reducing our first lien and stretch first lien as I commented on the call over time. I would just point out that, that was very deliberate on our part. We called out for four quarters now that we had the opportunity to do that. I’m really pleased on our execution on that mix shift. We do find second liens attractive given the higher spread. But given the junior debt position, we are extremely careful about where we do second liens. And we really do them for much bigger companies than our average borrower, with very significant equity checks beneath us, so that to the extent there’s an issue with those credits, that we’re still well protected. So this quarter, we did a little more second lien. In the third quarter, we did that very little. So it will go up and down. That product, I would say the syndicated market has been receptive to that product last year. But we know that, that receptivity varies very much on market conditions. And it would not surprise me that if we saw some volatility in the public markets that the syndicated second lien option would be very difficult to achieve, allowing us to get better spreads on second liens on a direct basis.

Great. That’s really helpful color, Craig. And then just looking at non-accruals which are in very good shape overall, one new investment to CIBT Global was added to non-accrual during the quarter. Just curious if you could provide some high-level comments on the developments with that portfolio company.

I can’t go in much detail on the company itself, it’s a private company. We don’t share a lot of detail on the borrowers. This was a business, it’s been on non-accrual. It’s a business that provides travel-related services for business and leisure travelers. Obviously, with the COVID environment travel being down as much as it has, obviously, it’s had a very significant impact on that company. We had – we are in very, very close dialogue with the company and the sponsor and they’ve been – sponsor has been supportive of the company. And we’re hopeful that as global travel recovers that this company will recover, but it’s going to take some time. We have – almost entire investment in that company is in a second lien loan which had previously been on non-accrual. We had a really de minimis amount of a first-lien term loan. I think it was $1 million, and so we put it on non-accrual. Obviously, it’s immaterial to the portfolio, but it’s a second investment, if you will, although it’s the same company. We feel – we obviously marked the position down substantially and in line with the performance and hope for some recovery, but it’s going to certainly take some time.

Got it. That’s helpful. I’ll leave it there. Congratulations on a nice quarter.

Thank you.

Next, we’ll go to Robert Dodd with Raymond James. Your line is open.

Hi, guys. Congratulations on the quarter. I mean, just looking at things slightly different angle. When we look at a Wingspire and the senior loan fund, it’s about 3.5% to 4% of the portfolio, depending whether I look at costs or fair value. Obviously, the return prospects look quite attractive and the ROIC on that is higher than doing a large unitranche, for example. Where do you think – neither of them are at max size currently in the portfolio. Obviously, the SLF hasn’t reached the existing commitments yet. But where do you think, on a combined basis, or maybe in addition to other differentiated verticals, you would like to take that as a percentage of the portfolio? And do you think that can be a material contributor to ROE trends or just a slight offset to potentially competitive pressures elsewhere?

Thanks, it’s a great question. So we have 250 committed to Wingspire today and 350 committed to the senior loan fund. Neither of those commitments have been fully funded yet. As we fund – as all that capital is deployed, we will get some NII benefit from that, call it a penny or two, just from deploying the current committed capital. We’re really pleased with the performance of both of these investments and think that there’s room for meaningful additional growth over time in terms of our commitment to them. And we will support that growth, and we’ll take advantage of those opportunities as these portfolio grow. But it takes time, we’re very deliberate. The Wingspire team is very careful in their underwriting as we want them to be. And our senior loan fund investing with our partner is very deliberate as well. So in terms of what – where could it go, I mean, we would – I would be very pleased to continue to meaningfully add to those investments as with the opportunity set grows. I don’t really have a number targeted, but just to cuff it, if we have $600 million committed today if that number got to $1 billion, $1.1 billion, I’d be very pleased with that, assuming that performance and the returns are all there, so you’re getting close to 10% of the portfolio, give or take. So I don’t think that’s going to happen in the next six months because we’re in a deliberate pace, but we would be happy to see that happen if the returns are tending to be strong. We’re also going to have increased pure dividend income from each of these over the next 12 months as they scale. So does that give you some context?

Yes. Yes. No, that’s very helpful. Thank you. Just one more. Really good acceleration income in this quarter. Less about the origination outlook – more origination though sometimes repayments to somebody else as well. But looking through this year, do you expect repayment activity and potentially accelerated OID and some prepayment piece to be lower? Obviously, I think, lower than Q4 is realistic, but how do you think that’s going to look in 2022 versus 2021?

So it’s a little bit complicated for us because there are several moving pieces. What I would say for this quarter is there was about a $0.01, $0.015 of income from repayments that I would say was unusually large for – for a couple of specific deals. So the dollars of repayments was down in a quantum basis, but the benefit from the repayments was higher than would typically be the case. I mentioned in the script that our first quarter volumes are looking lower and our repayment volumes are looking lower. So I just repeat that, that was intentional. I would say as we – and I think that direct lending in the first quarter seems a little light across the market. I think the sponsors are a little less active. I don’t have any particular attribution for that. These things [indiscernible] but I have to think that some of that relates to just a really significant amount of activity we saw in the last six months. In terms of – back to your question, repayments generally, we’re a little different than the market because relatively our vintages are a little younger and we still have not hit the pace of repayments that I think that a mature – portfolio maturity should be at. I mean we should be experiencing – we’ve always assumed a three-year life on our loans, that would equate to, give or take, $1 billion of repayments a quarter. I would say we’ve been running longer than three years on our experience to date. It’s been running more like 3.5 to 4 years. And so if that continues, then maybe the $1 billion is going to be lighter than that. It’s hard to predict, because it’s just driven by – mostly by M&A activity. In terms of refinancing, which is another driver of repayments, there’s probably a school of thought that says higher rates might reduce refinancings. I’m not sure I totally buy off on that because I find a lot of our refinancings are driven by just selling the company or company does an acquisition and refinances his debt. So I expect, bottom line is, 2022, I’ll bet you we’re at or above our 2021 repayments. We’ll start out with a solid first quarter, but I just – the math would tell you that as – on repayments will pick up, but it’s just really hard to project out.

I really appreciate that color. Thank you.

Next, we’ll go to Ryan Lynch with KBW. Your line is open.

Hey, good morning. Thanks for taking the questions. First one just has to do with kind of your overall leverage and portfolio growth outlook. Obviously, net portfolio growth is largely determined by the opportunity and what you guys are seeing in the market. But you guys have a very large platform where you can allocate deployments to certain funds. And so as I just look at your overall leverage right here at 113 net leverage, that’s right kind of in the midpoint of your targeted leverage range, but you’re starting to kind of get closer to the upper end. So I’m just wondering, are you guys comfortable at this level? Or now that you guys are well over-earning the dividend or probably being able to earn the dividend even if prepayment fee income would slow down significantly. Are you guys fine just kind of sitting at this level? Or is the intention to continue to grow leverage close to the upper end of the range if the market opportunity exists?

Sure. I’ll comment. And Jonathan, feel free to add anything you’d like. I think that – I think we’re in a good place. I think, look, we’re going to stick within our range of 0.9 to 1.25. I think where we ended the quarter feels very comfortable to us in balancing returns and generally trying to stay comfortably within our range. I don’t think – we’re not targeting getting to the high end of our range. But I think we’re in a good place now. We’re very pleased with the NII that was able to generate. And so I think this is a good place. The exact number in any given quarter will move around based on deployment and repayment. It’s – it’s not – it’s – given the episodic nature of repayments and new investments, we don’t always have the ability to calibrate it perfectly, but I think this is – if we had our druthers, this would be a reasonable place for us to be quarter in and quarter out. So I – so hopefully that answers your question.

Yes. Yes, yes, that makes sense. I mean, you guys are now growing the portfolio and the yield has improved the size, where dividend coverage is really strong. So it makes sense. And then on Wingspire this quarter, it looked like it was written up – the fair value above the cost is written up around $40 million this quarter. What drove that increase?

Sure. We go through the same process with Wingspire that we do with all of our investments, which is we use an outside firm that comes through every quarter and does a valuation for us, every name, every quarter, which we think is best practices. We’ve been building the Wingspire business. The Wingspire team’s been building that business for several years now. And we’re really pleased with its results. And the valuation firm did the same work they do on all of our investments and looked to comparables and performance and returns and deemed it appropriate to mark the Wingspire equity position up to 1.2 times based on – particularly based on where other specialty lending businesses are valued in the market. So yes, you are correct, that happened, and we think it reflects the strong equity value that we’re creating at Wingspire.

Okay, understood. I appreciate the time today. Thank you.

Thanks, Ryan.

Next we’ll go to Mickey Schleien with Ladenburg.

Yes. Good morning, everyone. Craig, most of my questions have been asked, but I do have a couple that I want to follow-up. Unitranche pricing, as you mentioned, has been under a lot of pressure, considering how much private debt capital is available. So I’d like to ask whether you would consider further using the non-qualified asset bucket following the Wellfleet acquisition to potentially invest in CLO equity, which, as you know, has performed really well in this cycle.

In terms of unitranche pricing, although there’s been some spread pressure, I would say at this point that, that has bottomed out. And if anything, given some of the recent market volatility, maybe come off the bottom a bit. And we continue to think that even with today’s unitranche pricing, it’s very attractive and accretive for our portfolio. So that will remain our bread and butter. In terms of the 30% bucket, we’re going to continue to look at ways to take advantage of the opportunities there and our Wingspire and Senior Loan Fund investments are examples of that. The Wellfleet acquisition, just for the avoidance of doubt is not an investment in any way, shape or form related to ORCC. It’s – it’s an acquisition at the Owl Rock platform level. We are quite excited to bring the Wellfleet team as part of our platform, and ORCC will very much benefit from that because Wellfleet has a very significant team of credit analysts that follow close to 500 companies in the public markets, which will just bring a tremendous knowledge base and expertise to our team that will make us better investors overall. In terms of your specific question, we don’t have any plans to invest in CLO equity in that 30% bucket. We – no plans to do that. Certainly, never rule anything out, but I don’t think that’s in the cards in the short-term. But we’ll watch that opportunity set. Certainly having the Wellfleet team as part of the Owl Rock team will open up other possibilities given their expertise and more presence in the market. And if at some point, that seems attractive, I suppose we could revisit it. But certainly, that was not a part of that – part of the rationale for doing the acquisition.

Yes, I understand. Thanks, Craig. Just one housekeeping question. At a high level, what were the main drivers of the net realized losses and the unrealized gains this quarter?

Mickey, that’s the QC Supply, which was restructured in the fourth quarter and taken off of non-accrual recognized. So we recognized a realized loss for QC Supply and a reversal of the previous unrealized loss that we had taken on QC Supply. So we had marked QC Supply down in prior quarters, and this was just a realization event. So the two roughly offset each other.

Jonathan, was there any unrealized gains in the portfolio apart from QC Supply, such as the equity portfolio or something else?

So Wingspire is really the driving factor behind the gains on the portfolio that we discussed. That markup that Craig was discussing was the driver there, accounting for about $0.11.

And Jonathan, just to confirm, the fund carried no undistributed taxable income, at least on an estimated basis, at the end of 2021. Is that correct?

That is correct.

All right. That’s it from me. Thank you.

Thanks, Mickey.

Next, we’ll go to Casey Alexander with Compass Point. Your line is open.

Well, good morning. I’m glad to hear that you thought Robert Dodd’s first question regarding sizing the Wingspire and the Senior Loan Fund was a great question because that was basically word for word my question. So I’ll step back into the queue. Thanks very much.

All right, Casey, we’ll give you 50% credit for the great question.

Not necessary.

All right. We’ll go to our next question, Kenneth Lee with RBC Capital Markets. Your line is open.

Hi, good morning, and thanks for taking my question. This one just on the junior capital opportunities. Wonder if you could just talk a little bit more about the opportunities there. Are these just relatively episodic kind of opportunities? Or are there underlying factors that could be driving more of these opportunities in the near-term? Thanks.

Sure. I think that – look, we since inception, we have seen a steady flow of junior capital opportunities. We attribute that to our great relationships with the financial sponsors. And I think when it comes to junior capital, they really like to work with parties that they have strong relationships with because by sort of by their very nature, junior capital is a little more – a little trickier and they care about who owns that and they would prefer to place it with firms that they know and trust and have a history with. And so we’ve been very privileged to get a lot of opportunities. They’re riskier. So we’re super selective on them. The size of the second liens we’ve been doing over time, the companies are 2 to 3x times the size of our typical first lien borrower. And we only do them with very substantial equity cushions beneath us. As far – so we’ve been seeing them throughout. I would say, in particular, over the last year or so, valuations – enterprise valuations have gone up and up and up. And the private equity firms are having to pay higher and higher multiples to buy companies and they’re putting in very substantial equity checks. And as a consequence of that continued grinding higher on valuations and the size of companies they’re buying, it’s opened up more second lien opportunities but also opportunities to do some preferreds that are in between the debt and the equity, just given valuations are stretched. And so both second lien and preferreds, we think for the right companies can be terrific risk reward, but it’s really hard for us to find those right situations. So we do them very selectively. There’s quarters we do none. There’s quarters, this quarter, we did some. I expect we’ll continue to see them as valuation remains high. I think it’s appropriate given now that we fully scale the portfolio, to have a portfolio of these second liens and the occasional preferreds, they help drive returns. But it’s really – you really have to be rock solid on your credit underwriting. And so we’ll just be very careful about that. I made some comments on my script. Just to cite, the average borrower of our junior capital is $6 billion I mean it’s really quite substantial.

Great. That’s very helpful. And just one follow-up, if I may. Wonder if you could just further elaborate upon the competitive activities you’re seeing in the markets right now. Which specific areas are you perhaps seeing a little bit more competitive activity? Thanks.

I don’t think about it as specific areas. And certainly in the private credit space, I made a comment in the prepared remarks that we’ve seen increased fundraising. And so generally, we’ve seen private credit become even more popular with institutional and retail investors given the attractive risk-adjusted returns, especially heading into a floating rate – higher interest rate environment, the attractiveness of the floating rate, I think, is very apparent. While there’s more competition, we still see the market as a very attractive one. It’s really very much a pyramid. There’s a handful of firms at the top of that pyramid that have the size, scale and resources to compete for the largest, highest quality deals. And we consider ourselves one of those firms. And so it’s more competitive, but it’s only relative to maybe a little less competitive a year or two ago. So I’d say where is that most acute? It’s in the unitranche product. That’s where, as I said earlier, that’s somewhat attractive generally for direct lending firms and second liens as well. But by the same token, one of the things I like about the private credit market compared to other markets is it’s not a winner-take-all market. If a private equity firm is trying to buy a company, there’s only one firm that’s going to buy that company. And so you’re competing with every other private equity firm and one wins. Not the case in private credit. And we have some wonderful relationships with private equity firms, but they’re not exclusive. And oftentimes, the private equity firm is pairing us up with another lender or two. And I think that’s terrific. It allows all the lenders to have more diversified portfolio, especially on these larger deals, which, candidly, would stretch any one individual lender’s capacity. So I think that we compete as much with the syndicated market. Syndicated market conditions were strong last year. There’s been a little more volatility recently, certainly in the high-yield market, but also in the loan market. And so I pay as much attention to that as I do capital raising from other private credit providers. So if there’s – I didn’t answer your question, feel free to ask again, but that’s my perspective.

Great. That’s very, very helpful color there. Thanks, again.

Thank you.

There are no further questions at this time. I’ll now turn the call back over to Craig Packer for any additional or closing remarks.

Well, terrific. Thanks, everyone, for spending some time with us this morning. We’re really pleased with the quarter and the NII and the coverage and returns and the credit performance. Where if you had additional questions, we’re easily accessible and look forward to talking with you. So thanks, and have a great day.

This concludes today’s conference call. You may now disconnect.