Blue Owl Capital Corporation (OBDC) Q3 2022 Earnings Report, Transcript and Summary

Hello, and welcome to the Owl Rock Capital Corp. Q3 2022 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Dana Sclafani, Head of Investor Relations. Please go ahead, Dana.

Thank you, operator. Good morning, everyone, and welcome to Owl Rock Capital Corporation's third quarter earnings call. Joining me this morning are our 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 number of factors including those described in ORCC's filings with the SEC. The company assumes no obligation to update any forward-looking statements. Certain information discussed on this call and in our earnings materials, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. The company makes no such representations or warranties with respect to this information. ORCC's earnings release, 10-Q and supplemental earnings presentation are 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 all for joining us today. We are pleased to report very strong results and are announcing today a number of shareholder-friendly initiatives that reflect this strength. Our net investment income in the third quarter was $0.37 per share, up $0.05 from last quarter and roughly 20% in excess of our previously declared $0.31 per share quarterly dividend. This is the highest quarterly NII we have earned since the first quarter of 2020. We are very pleased with the significant growth in earnings, which was largely driven by the pull-through of higher rates on our investments. We have seen a dramatic move in base interest rates with SOFR up roughly 350 basis points this year. The impact of this move drove our third quarter results and will further increase earnings in the fourth quarter. The earnings power of our portfolio is strong and growing. We are announcing today that we expect to earn at least $0.39 of net investment income per share in the fourth quarter. This estimate assumes a continuation of the very low repayment environment we have seen and any increase in repayment activity in future quarters would provide further upside to NII. We are putting out this guidance because we have clear visibility on the impact that elected base rates will have on fourth quarter NII, and we are confident in our portfolio. The credit quality of our borrowers remain strong, which is seen in the consistency of our internal portfolio ratings and average marks of our investments as well as the 2.5% increase this quarter and NAV per share to $14.85. We are also announcing several capital actions to ensure that our shareholders benefit from this earnings momentum. First, we are increasing our regular quarterly dividend. Our Board has declared a fourth quarter dividend of $0.33 per share, up $0.02 from our third quarter dividend of $0.31 per share. We also want to ensure our shareholders benefit from the consistent earnings we expect in excess of our regular dividend going forward. And as such, we are introducing a new quarterly supplemental dividend in addition to our regular dividend. For the third quarter, our Board has declared a supplemental dividend of $0.03 per share. Jonathan will discuss the framework for this dividend in more detail later in the call. Assuming the supplemental dividend is constant in the fourth quarter, the combined $0.36 per share dividends would generate an annualized yield of 12% at ORCC's current trading levels. We believe the increase in the regular dividend and the addition of the supplemental dividend is a balanced approach to maximize distributions to shareholders. The increase in our regular dividend reflects our confidence in the earnings power of the portfolio and positions us to evaluate further increases in the future, while the supplemental dividend provides additional predictable cash flow to shareholders. While fundamentals are strong and we are increasing shareholder distributions, our stock continues to trade at a significant discount to NAV. As a result, we are also announcing that ORCC and Blue Owl employees each intend to purchase stock in the open market to take advantage of this discount. First, ORCC's Board authorized a new $150 million repurchase program, which replaces our previous program. Second, Blue Owl employees have opted to participate in an investment vehicle that intend to buy an additional $25 million of ORCC's stock. In the near-term, the company plan and the investment vehicle intend to purchase $75 million of stock in aggregate, a portion of which will be executed under programmatic 10b5-1 plans so they are able to continue buying after the trading window closes. Our Board and the Blue Owl employees believe it is an attractive time to be buying ORCC shares, and we value this alignment between the company to allow our employees and our shareholders. I would also like to spend a minute on the economic outlook. Given the current Fed monetary policy environment, market consensus expectations indicate we will enter a recessionary environment in the near- to medium-term, and we are well prepared for that outcome. A recession in conjunction with the higher rate environment, will likely cause increased pressure on borrowers in the leveraged finance market and elevated levels of credit challenges. As we have said many times, since inception, we have been an upper middle market lender. We believe this approach positions us well going into this environment that our companies will fare better than most. Our borrowers are large with an average EBITDA of approximately $160 million and benefit from strong competitive positioning. We believe larger companies are able to generate more stable results as they benefit from deeper customer relationships and increased pricing power with suppliers. They have greater financial flexibility, often benefiting from non-core assets they can sell to enhance liquidity or delever and are often strategically important in their market, making them attractive to acquirers. We have always focused on investing in stable, noncyclical annuity-like businesses in sectors like software, insurance brokerage and health care. Our investments are primarily first lien loans and are supported by significant equity cushions with an average loan-to-value ratio of roughly 45%. The vast majority of our investments are supported by sophisticated financial sponsors, who provide both operational and financial resources, which is particularly valuable in evolving economic conditions. We recognize that some companies will have challenges over the life of our investment and have built a robust portfolio management process, which allows us to proactively identify areas of concern and to work directly with our borrowers to understand and mitigate issues. To date, we have not yet seen evidence of economic weakness in our borrowers' operating performance. Across our 180 portfolio companies, the vast majority saw top line revenue growth in their latest financial reporting with an average increase in revenues of 7% and EBITDA of 4% quarter-over-quarter. Of course, we are not just looking at the current performance of our borrowers, we are also looking forward and are acutely focused on the impact of a higher rate environment on cash flows. We have run various sensitivity analyses looking at implied interest coverage in a period where higher rates are sustained and reflected in a full year of cash flows. Even in these scenarios, we believe that the vast majority of our borrowers will maintain adequate interest coverage cushions. In addition, most of our borrowers are entering this period with ample available liquidity, and we believe most would benefit from additional sponsor support, if needed. So while we remain vigilant, we take great comfort that our portfolio was built to endure challenging times, and we believe any defaults or ultimate losses in the portfolio will be manageable, especially in light of our material -- of our materially higher earnings trajectory. With that, I'll turn it over to Jonathan to provide more detail on our financial results.

Thanks, Craig. We ended the third quarter with total portfolio investments of $12.8 billion, outstanding debt of $7.2 billion and total net assets of $5.8 billion. Our NAV per share was $14.85 versus our second quarter NAV of $14.48, an increase of 2.5%. This increase was driven by the continued strong credit performance of our borrowers in a relatively flat spread environment. At quarter end, our net leverage remains within our target range at 1.18x net debt to equity, a slight decrease from last quarter. Repayment activity remained low in the third quarter, which drove a modest quarter of originations, given the portfolio is fully invested. We also ended the quarter with liquidity of $2.1 billion well in excess of our unfunded commitments of approximately $1 billion, roughly half of which are revolvers. Turning to the income statement. Our net investment income was $0.37 per share, took sense above our previously declared third quarter dividend of $0.31 per share. As Craig mentioned earlier, our Board declared a $0.33 per share regular dividend for the fourth quarter which will be paid on or before January 13, 2023, to shareholders of record as of December 30. This $0.02 increase in addition to the $0.03 supplemental dividend represents a 16% increase in our quarterly distribution. I'd like to spend a few minutes discussing the framework for the new supplemental dividend, which is also laid out on Page 17 of our earnings presentation. The supplemental dividend will be variable each quarter, calculated at 50% of NII in excess of our regular dividend, rounded to the nearest penny and subject to certain measurement tests. It will be approved by our Board, announced with quarterly results and paid in the following quarter. So for the third quarter, our Board declared a supplemental dividend of $0.03 per share, which is 50% of the difference between our NII of $0.37 per share and our previously declared $0.31 per share third quarter dividend. This supplemental dividend will be paid on December 15, to shareholders of record on November 30. As a result, ORCC shareholders will receive a dividend 8 times a year. We are also accelerating the dividend payment date going forward to roughly 15 days from the record date, which will allow us to deliver income to shareholders in a more timely manner. Turning to our balance sheet. We have a flexible balance sheet with a well-diversified financing structure. With only 50% of our liabilities exposed to rising rates, our weighted average total cost of debt remains low at 4.3%, and we have no maturities until April 2024. From an earnings perspective, we are experiencing a meaningful benefit from rising rates on our investments, which is driving materially higher interest income. In the third quarter, the average base rate for our portfolio was roughly 2.3%, which reflects a mix of base rate elections in effect for the quarter. We have visibility that our average base rate will increase in the fourth quarter as the elections made as of September 30 have already increased the beginning average fourth quarter base rate to approximately 3% with the likelihood that it will further increase during the quarter as more resets take effect. Looking forward, holding all else equal, we expect each additional 100 basis point increase in our effective base rate from the third quarter's rate of 2.3%, generate approximately $0.04 per share or a roughly 11% increase in quarterly NII after considering the impact of income-based fee. With that, I'll turn it back to Craig for closing comments.

Thanks, Jonathan. The current market opportunity for direct lending is probably the best we have seen since we started Owl Rock in 2016. Public markets are effectively shut and sponsors are primarily turning to direct lenders. On new loans, we're typically earning more than 11% with extended call protection, attractive leverage profiles and credit protections for high-quality, strategically important companies. Given our scale and resources, we are continuing to see solid deal flow and having excellent competitive success in leading highly attractive investment opportunities. The opportunity set has further swung our way, and we expect that to continue. However, in our discussions with shareholders, we know the topic on their minds is not the market opportunity. but rather the dynamics driving ORCC's share price, which currently trades at a significant discount to net asset value. Often, this gets framed to us when shareholders ask, is there something we are missing? We believe the answer is no, and that there's a disconnect between where ORCC is trading relative to the fundamental credit quality of the portfolio and the future earnings power available for distribution to shareholders. To put this into context, the current ORCC valuation is implying a default rate of more than 20% on the entire portfolio and a 60% recovery rate. This default rate would be a far worse default rate than the 10% default rate that the leveraged loan market experienced in the great financial crisis. In a downturn, any credit challenges would typically first show up in the form of amendment requests and additional capital needs from our borrowers. To date, we have not seen any increase in activity that would indicate heightened stress at our portfolio companies. We are not seeing any increase in amendment requests, any increase in request for extra funding or revolver draws or any request to pick loans for performance reasons. Our watch list remains around 10% or about 15 companies where they for the last 2 years. Although we had one small additional non-accrual this quarter, our non-accruals remain much lower than the industry average. We are extremely careful in our evaluation of accrual status, and I would highlight that 90% of our loans are marked at 95% or higher. 100% of our borrowers are current on their interest expense, and we have no loans that are in uncured covenant violation. Another key data point for the health of our portfolio is our quarterly valuation process and corresponding marks. We have previously highlighted our consistent practices since inception, but feel it bears repeating now. Every quarter, we use a third-party valuation firm to mark every name in our portfolio. They provide a valuation point, not a range. The marks on our investments largely increased this quarter, reflecting the continued strong credit performance of our borrowers and relatively flat market spreads. In addition to the stability of our investments, there is also clear evidence of the improving earnings power of our portfolio. Our portfolio level asset yield has increased to 10.2%, up over 200 basis points in the beginning of the year and will further increase with higher rates. Our earnings this quarter well exceeded expectations, and we have put out guidance for a further increase in the fourth quarter. Of course, a weakening economy will create some portfolio issues. We do not expect to nor will be perfect. We will see some challenges and could see defaults tick up from the current levels, which are at historical lows. However, we believe these issues will be manageable and the significant increase in earnings we are experiencing will more than offset any modest pickup in losses. We are also very proud to have paid the same regular dividend since our IPO, even through COVID and are excited to take this step today to raise our dividend, which we believe we can comfortably cover going forward. And in light of ORCC's earnings trajectory, we think the addition of the supplemental dividend enhances our distribution profile while leaving us flexibility to evaluate further increases in a regular dividend if performance warrants it. Further, we are pleased to demonstrate the commitment and alignment between the company, Blue Owl employees and ORCC shareholders through the new share repurchase initiatives. Since inception, we have successfully delivered on the objectives we laid out for the company. Our returns continue to improve, generating an ROE of over 10% in the third quarter, up 100 basis points from last year, and our credit performance has been one of the best in the space with a loss rate of less than 15 basis points per year since inception. In aggregate, we hope these comments and the actions we are taking convey the high level of confidence we have in the outlook for ORCC and underscores our continued commitment to deliver value to our shareholders. With that, I will thank you for listening, and we will open the line for questions.

[Operator Instructions] Our first question today is coming from Mickey Schleien from Ladenburg Thalmann.

Craig, thanks for your in-depth prepared remarks. It's very helpful. I want to ask a high-level question. in terms of the volatility in this market environment and how that may be impacting the amount of demand and the sort of demand for your capital clearly, you've been very successful in intermediating other channels. And my sense is that if anything, that's acceptable [indiscernible] very helpful.

Sure. Mickey, you cut out at the end, but I think I got the gist of your question. So you're right. I mean we think this is maybe the best environment we have seen since we started the business, the public markets are shut. It's well reported that the banks are sitting on $50 billion of leveraged finance inventory that they were unable to sell. And therefore, they are very likely to want to underwrite new deals. And if they do, the terms will be really difficult to accept. And so really, I think most, if not all, opportunities the private equity firms we're working on are coming direct to direct lenders. And fortunately, we're -- we feel like we're at the top of that list, and we're getting called on pretty much every opportunity out there and we get to pick and choose the ones that we find the most attractive. We are -- we have capital across our platform. And although it is a decreased bite size from our peak, it's more than almost any other vendor out there. And so we're using it in a selective manner for attractive credits. We're getting wider spread. Today, we're getting routinely 700 over SOFR, we're earning more than 11% on unitranche investments. We're getting more fees, more call protection just general better structures. So -- and there are enough deals for us to be very active. There certainly is not the same level of deal flow that we saw prior to the market volatility, but since all the deals are coming to direct lending, there's more than enough demand for our capital. And frankly, our conversations with the private equity firms, they wish we had more capital. They're giving us the opportunity to do as much as we would like in each deal, and then sort of pushing us to allocate our scarce capital to their deals. So it's a great environment. ORCC is fully invested at this point. We're going to continue to stay in our target leverage range. And so our deployment out of ORCC specifically is going to be driven as much as anything by repayments, which remain very modest. But across the Owl Rock platform, this is a very active time in some of our ramping funds, we are putting out a considerable amount of capital.

I appreciate that, Craig. That's really helpful. And in your prepared remarks, you said that by and large, the portfolio is not really showing signs of consistent credit problems, but you did have this one new non-accrual. And I was wondering if that was idiosyncratic? Or is there something that, that company is facing -- the other portfolio companies that you've invested in May, may start to see as we go into next year?

Sure. So Walker Edison, we put on non-accrual, it's about an $85 million position. I think the issues there are specific to that company. I don't think there's any read-through to other portfolio companies. They are a supplier of affordable ready-to-assemble home furnishing. So think TV stands, consoles, they were impacted by 2 things: one, supply chain issues; and two, they've really benefited from COVID and stay-at-home. And while we had underwritten that, that would that return to work would impact them, I think it impacted them to a greater extent than we had expected. So no particular read-through to the rest of our portfolio and we're going to continue to work with the company and the sponsors there. But we felt at this point, it was appropriate to put it on non-accrual.

I understand. That's helpful. And congrats on a very good quarter.

Our next question today is coming from Robert Dodd from Raymond James.

So just on the theme of -- I mean, congratulations on the quarter and the new dividend program, et cetera. But on the theme of credit, I mean as you said -- I mean 10% of the portfolio on your internal watch list, Walker Edison was one of your most markdown assets. So it's been well, flat in advance of going on a call. But can you give us any more color about any themes of -- I mean, probably just inflation, et cetera, et cetera, in the tail of the portfolio. I mean you said that -- the vast majority of fine. That means 1 minus the vast majority. There were some incremental problems. Can you give us any color on what the themes are there? And you said you're not seeing amendment requests -- when do you think that might start to happen?

Sure. Look, I don't want to skip the headline. The vast majority of our companies are doing really well. 7% revenue growth, 4% EBITDA growth. And that's really the message. We certainly have companies that have had issues, and it's really the same group of companies this quarter then that would have showed up a year ago or 18 months ago. So the issues are not different than they were because the companies have idiosyncratic things going on in their business. I will certainly acknowledge that there is margin pressure in the companies. There is strong demand, I think, across the board. The economy remains strong but there is margin pressure, which depending upon the company, depending upon the sector, will show up as increased labor costs, increased supply chain, increased commodity prices, what have you. And so there's some margin pressure throughout the portfolio, and that's why the EBITDA is not growing as fast as the revenues. We're not seeing -- sorry, when is it going to show up? I mean I hope it never shows up. We're not seeing declining results, but we understand that the Fed is quite clearly committed to addressing inflation, they're going to keep raising rates until inflation comes in line. And at some point, I think most people and we certainly would expect that to cause an economic contraction. And so when that happens, it stands to reason that, that will pressure some of our companies. They are certainly paying much higher interest rates. They don't have as much cushion as they did. And so that will start to pressure. So -- the answer to your question is you tell me when the economy will slow and that was when we'll see a pickup in amendments and the like. I don't -- I just don't know. Second quarter, third quarter, it's just guesswork at this point. But it's not any different guess work for us than it is for any other lender or any other vendor out there. But I will tell you it's the portfolio and the companies are doing, I think, meaningfully better than the way our stock is trading. Our stock is trading as if we're having lots of issues in the portfolio, and we are not.

Understood. Yes, I think all the sentiment currently is -- credit is doing a lot better than the stock market makes it look like. So one more follow-up if I can kind of flipping the other way on when this is going to happen, prepay activity and repayments obviously low again, I expected that. And your guidance assumes that, that continues for Q4. How long do you think that can persist, right? I mean people can essentially -- do you think we're likely to see some rebound in that next year? Or is it just going to persist as long as there's a lack of clarity in economic outlook? Any idea any color?

Sure. We obviously track carefully the maturities of all of our borrowers. And there's not a significant pickup in maturities in next year or really even the year after. So there's not a contractual reason why we should see repayments pick up. I think it's going to be driven by just a general resumption in M&A activity, which is going to -- I would expect to happen when there's just a little more clarity out of the course of the rate environment and the economy. I think right now, most private equity firms, they have lots of capital, but they're looking at the same factors we're talking about and they'd like to pay less for companies because they're taking into account some of this near-term uncertainty. Sellers don't want to sell for less. And so there -- this isn't really an ideal time to put a company up for sale because you don't want to take less and I think they perceive that whatever issues we're going through now are going to be relatively manageable in duration. And so there's a bit of a standoff. It's a typical ebb and flow of an M&A cycle. There's nothing profound. At some point, you get clarity on the economy, clarity on rates. And I would expect the M&A activity to pick up. So again, I'd just be totally guessing, but by the second or third quarter of next year, could you see that? And sort of by the back half of next year, are we seeing repayments pick up, it's certainly possible. But we -- just to be clear, that's for ORCC's earnings, that's all upside. We've baked in like really low repayments for the foreseeable future in all of our commentary on guidance and the tone that we've struck and the dividends that we were paying. And so to the extent we get that, that's all going to improve NII and fall to the bottom line.

Next question today is coming from Ryan Lynch from KBW.

Nice quarter, guys, and really appreciate the very thorough prepared comments over your business. One question I did have was -- if we look at you guys' prepared comments regarding kind of the interest rate environment, you're talking about spreads increasing and gain wider, which is providing a more attractive investment opportunity. But yet in the quarter, your overall portfolio was written up and I believe it was written up mostly just kind of overall increasing fair values of your debt portfolio, which would assume, I think, the fair value -- valuation process assume maybe tighter spreads in the valuation process. So I'm just trying to square those two. Why was the portfolio overall written up pretty meaningfully, which obviously is a good thing, but I'm trying to understand why the portfolio was written up this quarter pretty meaningfully.

Sure. So just as a reminder, Ryan, I know you know this, but for the broader group. We use the same process this quarter as we have every single quarter since our IPO. And frankly, since the inception of Owl Rock even when we were a private BDC, we use a third-party evaluation firm. They mark every name every quarter since inception, same methodology, same practices, same discussion. As you know, when we make a new investment, it goes in at our cost basis. It's typically, call it, 98%, 98.5%, depending. If there's no change to the credit performance or market spreads, that loan will accrete to par over the life of the loan. So there's general upward trajectory on the marks of all of our names, all else equal, because they're marching towards their maturity. The valuation firm that we work with looks at a number of market indices to make the judgments about the market spread in addition to the credit performance. And they look at the same metrics that they've looked at since inception. In the second quarter, you'll recall, public spreads, which is -- which are the most visible or meaningfully wider about 150 basis points wider and public loan prices were off about 5 points, so a meaningful move in the second quarter. In the third quarter, and I know this may surprise some they don't stare at these market indices every day, spreads were basically flat in the public markets in the third quarter. depending upon what index you look at, instead of 150 basis point move, there was a less than 15 basis point move wider. And public loan prices were basically flat quarter-over-quarter. Our book continues to have really strong credit performance. And so given that strong credit performance, most of our loans, not only March to -- March to par, but some of them were improving credit performance and had a bump a bit more than that. So basically, the march to par in a relatively flat spread environment resulted in a move on asset prices of about 1 point, which is not a dramatic move, but I recognize that -- there are others out there that had modest NAV decreases. So our asset prices are up about 1 point. When you add in leverage, you get a 2.5% increase in NAV. The average mark in our portfolio is about 97% to have some frame of reference. So it was in a relatively flat environment for market indices, good credit performance, you saw a modest increase in NAV of 2.5%.

Okay. Understood. Thanks for going through that exercise. The other question that I had was just on the share repurchase. I'd love to hear your framework of where you guys see the allocation of capital to the share repurchase today at these sort of valuations. In the past, you guys have had a share repurchase in place. It didn't have, I believe, the programmatic features that you have in this new share repurchase. So it gives you more flexibility. But I assume you have to sort of set levels that you want to be purchasing -- repurchasing shares given the current market opportunities to deploy capital, which has obviously gotten better over the last 6 months. Where do you view share repurchases in comparison to opportunities to deploy capital? And how does that change if your valuation would increase higher from here or lower from these levels?

Sure. So we replaced our previous program of $100 million with a new $150 million program. And as you know, we're introducing a programmatic element. And the reason for that is -- and we get asked us a lot, why haven't you bought about stock. We are -- like every public company, there are windows where we were able to buy stock, and there are windows where we can't. And frankly, the window where -- well, if you look in the past year, and we don't disclose the windows, but I will share with you that when the windows have been opened, stock has traded at a relatively higher multiple of NAV. And the more lower valuation periods have coincided with when the window is closed, which is frustrating. And so when we put in place this new program, we wanted to address that. And by putting in the programmatic piece to it that allows us to buy stock even when the window is closed and we have to -- as you're alluding to, we've got to put some metrics around that in terms of volume and price. And so we will do that. And we will give ourselves the flexibility to take advantage of weakness in the stock. Generally, when the windows have been opened, stock has traded at $0.9 NAV or higher. Today, we're about $0.8 NAV or higher. So I won't be specific to like draw conclusions from that, but it's a lot more attractive now than it has been when the windows have been opened before. In terms of just some directional sense, at $0.8 of NAV, that's about a 12% yield. We -- I've already commented today, we're able to extend first lien term loans at about a 12% yield. And so there's -- you could make an argument in both directions on the relative attractiveness, keeping the permanent capital, making new investments versus buying back the stock at $0.9 of NAV, it's 11%. So certainly, in this environment, I think shareholders would say you'd rather have us create assets at 12% and buy the stock at 11% If you go below $0.8, obviously, you get to quickly get to 13%, 14%. But I will say this, we're really frustrated by where the stock trades. Hopefully, that's clear in our action and what we're doing. And we have given visibility on earnings performance. And while there are attractive investment opportunities, we think it's important that we also address the stock price and the stock buyback is a way to do that. And so we're not going to shy away from it either. I would also add that, as I've said, -- we've got employees of Blue Owl are also going to buy shares in the stock. And there's a lot of -- it was totally optional program that we got a very high participation rate in and they obviously know the portfolio quite well. So hopefully, that's all read as a sign of confidence in what we're doing.

[Operator Instructions] Our next question today is coming from Kevin Fultz from JMP Securities.

I just want to dig into the investment landscape a bit more. Given the evolution of market conditions over the past 3 to 4 quarters, I'm curious if you could talk about how that has translated to deal price leverage or improved documentation deals that you're originating right now compared to 6 to 12 months ago?

Sure. As I said a bit ago, but I'm happy to spend a little more time on it. It's a terrific environment for us. These are some of the best investment opportunities that we've seen in 6 years. In terms of spreads, and I'll -- it's hard to be precise about this, but call it, 9 months ago, spread on unitranche term loans was as tight as 550 over. today, that spread is more like 700 over. Depends on the credit some are wider. Some are at 675 over. But let's call it 700 over. Obviously, the base rate 9 months ago was 1% were at our [ 4s ], -- so that was 6.5%. Today, it's 4%. So it's -- that's 11%. it's almost double just by taking the spread and the base rate. In addition, before we were getting maybe 2, 2.25 points in fees today, we're routinely getting as much as 3. Previously, our call protection was maybe 101 for a year, and then it would go down to par. Obviously, we don't want to extend capital today only to get repaid in a short period of time. So we are consistently getting call schedules of 103, 102, 101, which means if a loan gets repaid and say the second year, we get another 2 points of return. So that adds another 1% annualized. But I think the most important point is not the economics. The economics are really attractive, but we're also able to get really good leverage profiles and document structures so that we're making great investment decisions. So it's harder to be -- to generalize. It depends on the credit. But just on the margin, there's less capital for each deal. We're all underwriting to recession environments, and we're just making sure that everything we're doing is going to work in this higher interest rate environment in terms of leverage and cash flow and covenants and structure and all the things that we do every day. And so I think this vintage is extremely attractive and both for the economics and for the structure.

That's all really helpful, Craig. And then a follow-up I appreciate the detail you provide on a typical borrower profile around how revenue, EBITDA and interest coverage are trending. Can you provide an update on where portfolio company leverages currently and how that has trended over the past few quarters?

Sure. I can call -- we can call you separately with like precise numbers. But generally, it's in the low to mid-6s of leverage, give or take. And the interest coverage is about 2.5x.

Okay. That's helpful. Congratulations on a really nice quarter.

Next question today is coming from Kenneth Lee from RBC Capital Markets.

Just a follow-up question on an earlier one around the deal flow. You talked about seeing a solid deal flow. Just wondering how that squares with the potential slowdown in M&A activity? What's driving the deal flow there?

Sure. I think that the single most active pocket for deal flow is in the technology area and software, which is a sector that we really like and have. It's our largest sector across our platform and the largest single sector within ORCC. But as folks probably know, we have several other funds that invest exclusively in technology. And so what you're seeing is private equity firms are looking at some really attractive businesses that are publicly traded with very predictable contractual revenue streams, significant growth very sticky business models and their stocks have traded off to the point where they are attractive take private candidates. There's been a number of these. I won't go through them all on this call. I think folks generally aware of them. And we are a leader in providing financing for those take privates. And so it's an area that we really like. We think they're some of the very best credits. They have an even lower loan-to-value than our typical deal instead of 45%. Many of them is 30%, 35%, some less than that 20%, 25%. We get even wider spreads than what we've been talking about, good covenant packages. We think they're an area, you need domain expertise to be able to underwrite. We have it, and we're doing it. And so that's -- and these deals are large. They're $1 billion, $2 billion, $3 billion at a clip. And so in an environment where many direct lenders don't have as much capital as they did before, and we do. We can write very substantial checks for those deals, and we have been doing that to great success. The other area where you're seeing activity is the sponsor's existing portfolio companies doing add-on acquisitions and they're coming to us for more modest amounts of capital to help them continue to grow even in this environment. A lot of those deals don't make the newspapers, they're small, $100 million here, $150 million there for existing portfolio companies. But obviously, that's the power of incumbency. And we have at this point, we've got 300 companies, where they're lender, and so they're coming to us to provide that capital. What's interesting about that dynamic is I would say, pretty routinely when we provide that additional capital, most of our loans will have some type of MFN structure, essentially where we are repricing the existing loan that we already have in conjunction with pricing that incremental capital for the acquisition. And so you're seeing -- and you saw this quarter, spreads in our portfolio widened again for the fourth quarter in a row because we are able to get increased spread on our existing book just by being willing to extend additional capital and sort of taking advantage of that MFN provision. So there's plenty to do. Again, ORCC itself doesn't have a lot of capital to put out. So it just doesn't take much deal flow. But across the platform, we're finding robust opportunities and find ourselves in a leadership position in most of the deals that are happening.

Got you. Got you. Very, very helpful there. Just one follow-up, if I may, and this is also another follow-up on an earlier question about the unrealized gains. And you mentioned during the valuation process, a lot of it is driven by much stronger credit performance I assume that the credit performance is being driven by the revenue and EBITDA growth that these portfolio companies have been seeing? Or are there any other factors to note there?

So the single biggest driver of the unrealized gain is just the lapse of time for credit even if it's doing flat, that we're just accreting the loan that's marked below par or average loans 97%. We're just accreting it to par. If the entire credit performance of the portfolio was flat and the markets are flat, our NAV will go up. That is the driver. However, we've certainly had companies that continue to do well within that subset. And so they may go up modestly more than the average. But the message is not that we're making some aggressive judgments about how strong companies are doing. The message is we have a large portfolio of performing loans that we feel really confident we get repaid at par at their state of maturity, and they're going to -- we're going to continue to accrete them to par. And then some of our outperformers will mark up more than that.

We reach the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thank you so much, everyone, for joining. This was a really important quarter for us. We put a lot out there in terms of rising dividends, forward guidance, buybacks and the like. we welcome calls and follow-ups. If folks want to talk more about it. Our portfolio is doing really well. And -- we want to make sure we're accessible. And if you have any questions or concerns, please do reach out. We'd love to have a chance to chat. And with that, I hope you all have a great day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.