Good morning, and welcome to Sixth Street Specialty Lending, Inc.'s June 30, 2020 Quarterly Earnings Conference Call. Before we begin today's call, I would like to remind our listeners that remarks made during the call may contain forward-looking statements. Statements other than the statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results, and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as result of a number of factors, including those described from time-to-time in Sixth Street Specialty Lending, Inc.'s filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. Yesterday after the market closed, the company issued its earnings press release for the second quarter ended June 30, 2020, and posted a presentation to the Investor Resources section of its website www.sixthstreetspecialtylending.com. The presentation should be reviewed in conjunction with the company's Form 10-Q filed yesterday with the SEC. Sixth Street Specialty Lending, Inc.'s earnings release is also available on the company's website under the Investor Resources section. Unless noted otherwise, all performance figures mentioned in today's prepared remarks are as of and for the second quarter ended June 30, 2020. As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Josh Easterly, Chief Executive Officer of Sixth Street Specialty Lending, Inc.

Thank you. Good morning, everyone, and thank you for joining us. With me today is my partner and our President, Bo Stanley; and our CFO, Ian Simmonds. We and everyone here at Sixth Street, hope you and your loved ones are able to stay safe and healthy in this uncertain environment. We spoke in May. Our hope has been that by August there would've been -- there would be more clarity on the path and timeline of return to full business activity. However, the current health crisis continues to take a toll on human lives, as well as the economic health of households and businesses around the world. While the Fed and U.S. government have provided rapid extraordinary fiscal and monetary support, it remains to be seen how long are we turned to normalcy will take and what the long-term impact of COVID will ultimately be. As shared in our Stakeholder Letter less than two weeks ago, we've always believed that any business model, including the BDC model has inherent constraint and risks. These risks make it fragile and particularly vulnerable to market shocks and uncertainty. That is why over the last years, we've taken steps across our business, not only to mitigate the undesired outcomes of inherent fragility, but also to allow us to create value in periods of volatility. These elements we've introduced into our business model include our focus on high-quality underwriting and cycle appropriate portfolio construction match funding, the nature of our liabilities with our assets for actively meeting general liquidity and liability low risk setting a financial policy that preserves our reinvestment option and finding the optimal business model to provide both the benefits of scale and outsize returns for stakeholders. While still early in the unfolding of this COVID induced downturn, we believe that…

Thanks, Josh. I'll begin with a quick overview of our market backdrop during the quarter. Amid economic uncertainty, M&A activity continue to be significantly muted as buyers and sellers struggled to agree on valuations. Meanwhile, in the second quarter, there was significant tightening of risk premiums in the broader credit markets. A disconnect emerged between asset prices and economic reality, which we believe was primarily fueled by extensive fed and government and intervention driving investor demand back into risk assets. As a result, secondary prices across credit rose sharply in Q2, and there's an abundance of liquidity in the investment grade and high yield markets for a broad variety of issuers, including those in sectors most impacted by COVID. In light of these market dynamics, and given our focus on maintaining strong risk adjusted returns across our portfolio, Q2 origination's activity was relatively light at $89 million of commitments and $77 million of fundings. These fundings were across six new and six existing portfolio companies. The majority of our fundings on a dollar basis this quarter was providing a new financing in connection with the recapitalization of Moran Foods, where we replaced our existing ABL loan with a new one at a higher spread and refresh call protection. Other new investments included small opportunistic purchases of triple B CLO liabilities and limited junior debt co-investments alongside our affiliated funds and growth businesses with attractive risk adjusted returns. As a result, our portfolio's first lien exposure decreased slightly from 97% to 96% quarter-over-quarter on a fair value basis. Repayments during Q2 totaled $211 million across three full and two partial paid outs. Ferrellgas and Nektar, which were our two largest portfolio names at the end of Q1, were both fully repaid early in the quarter. As a result net repayment activity…

Thank you, Bo. I'll begin with an overview of our balance sheet. Total investments at fair value decreased slightly from $2.05 billion to $1.99 billion quarter-over-quarter, primarily due to net repayment activity in our portfolio, partially offset by the positive valuation impact of tightening credit spread on the fair value of our investment. Total principal amount of debt outstanding was $875 million and net assets was $1 billion or $16.8 per share. Average debt to equity ratio was 0.87 times, and our ending debt to equity ratio was 0.81 times, down from 0.96 times in the prior quarter. At quarter-end, we had $1.08 billion of liquidity under our revolver against $73 million of unfunded portfolio company commitments available to be drawn. Given the net funding activity thus far in Q3, our leverage today is approximately 0.91 times. And that liquidity stands at $975 million with an estimated $75 million of unfunded portfolio company commitments available to be drawn. In our recent letter to stakeholders, we discussed at length the structural limitations that make the BDC model innately fragile. To review, these include the requirement to be loan only, the need to be fully invested in order to generate a dividend level that the market expects, and the fact that there are limitless alpha generating direct middle market lending opportunities. This is further complicated by strict regulatory requirements and a mark-to-market valuation framework. Bo discussed the elements we've introduced to the left-hand side of that balance sheet to address the inherent fragility of our business model. And I'll now cover our efforts on the right-hand side of the balance sheet. As risk managers and capital solutions providers, we believe paying for the option on liquidity during periods of low volatility is critical in our ability to operate and create value for…

Thank you, Ian. While we're pleased with our Q2 results and proud of what the team has been able to accomplish to date in these challenging times, we're operating with the mindset that there will be prolonged economic challenges ahead of us. However, our deliberate efforts in creating a business that not only survive volatility and uncertainty, but thrive on that continues to result in small wins. Hindsight is always 2020, and therefore, we are continually learning along the way. We will continue to evolve and refine our thinking in our processes to create a differentiated business model and experience for our stakeholders and our clients. Before moving to Q&A, I'd like to spend a moment to reflect the impact of COVID on our communities. When we take a step back, it's evident that the economic fault of this pandemic has had a disproportional impact of people with lower incomes, less job security, and those lacking caregiver flexibility. The regressive impact of COVID was magnified by the inherit inequalities, racial, gender, socioeconomic, to name a few, as a built into our institutions over time. As a result, in a business that strives to be leaders in our communities, we can't help a fill an imperative that support change that helps create a better and more inclusive society. Over the past few months, in addition to trying to facilitate honest conversations with our teams on these topics, Sixth Street has been contributing resources to organizations, addressing inequality as well as those directly counteracting COVID economic impact. We've also been for some time now been exploring ways to addressing under representation in finance through our recruiting and business partnership efforts. We think of silver lining of COVID is that these issues of inequality are being brought to the forefront. And we will continue doing our part as an organization to be an agent of change. With that, I'd like to thank you for your continued interest and your support today. Operator, please open up line for questions.

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

Good morning, guys and thanks for taking my questions. I'm glad everybody's doing well. I wanted to talk to you a little bit about your relative cost of capital versus peers in your relative multiple. I know that -- in general, you think of cost of capital on an absolute basis in terms of your investment strategy. But, right now, your relative advantages are so significant. I'm wondering how you think it's about monetizing that? Is it through the possibility of acquisition? Is it through growth in a period when your peers can't necessarily grow and access capital in the same way that you do for good.

Hey, Rick. Good morning. Thanks for the question. So, look, I don't think we get caught up in a moment and moment looking at our cost of capital. We kind of have a view of the world, which is the market will tell you our costs -- the market will tell us our cost of capital, but that will fluctuate during times. And so, we can try to look at our cost of capital across cycles. On the M&A front, I think, it's very hard to -- at this moment in time to get any accretive M&A done. Historically, the only kind of M&A in the BDC space has either been very, very small, externally managed BDCs that have really, really deep credit problems where we're at the time we have done work. We don't think that the kind of the valuation -- we think the market valuation is kind of reasonable to reflect those credit problems or on internally managed BDCs where it's easier to get something done. Quite frankly, there's not that many scaled internally managed BDCs left. So, I think as we think about the path forward to create value for our stakeholders on a go-forward basis, my view is continuing to find high-risk adjusted return, opportunities to put our balance sheet to work. And we'll see if -- and I think that is ultimately the path for value creation, and that's kind of been our North Star since inception, and I think it's worked pretty well for stakeholders. So, I think what we're most definitely in the latter camp versus a former camp as it relates to the value creation path going-forward.

Got it. My head is spinning between latter and former in the context of your …

That was organic -- the organic growth, putting capital work in high-risk adjusted opportunities where our competitors are more capital constrained, and we're not capital constrained versus the integrated acquisition path.

Got it. Okay. I appreciate that. Look, to some extent -- obviously, you're a financial company, but if you think about it in the context of being a manufacturing business, you will make loans and write-down and it's been persistent. But I think right now, more disparate than it's been at any point in a long time. Your cost of goods sold is so advantageous versus your peers. I'm just wondering if -- more aggressive ways to take advantage of that.

Yeah. I mean, to be honest -- like it's a little bit circular. I think, our cost of goods sold -- so our cost of capital is low on a relative basis, because the market thinks we are a very prudent allocator of capital. And that we try to build in a large margin of safety as it relates to the assets we're creating versus our cost of goods sold. I have high gross margin, and when things go get go wrong, that we're still able to create high returns on capital. I think the more you lean into the -- hey, I'm super low on the cost curve, the more you'll probably end up eroding that relative advantage, if that makes sense.

It absolutely does. And again, understanding what motivates you guys and incense you, helps us understand sort of where you're going. And then that makes a lot of sense. So, thank you.

Thanks, Rick.

Next question comes from Ryan Lynch with KBW. Your line is open.

Hey, good morning. Thanks for taking my questions. First off, I really appreciate that the shareholder letter that you guys provided that was very thoughtful and informative. So, thank you for that. Bo, some of your comments earlier, you mentioned that that M&A has been really muted and then the market, which is pressured market activity as buyers and sellers struggled to agree on valuation. But then you also mentioned that you're -- you have a robust pipeline today. And so, I'm just wondering what has really changed in the marketplace to grow your pipeline. Has there been more market activity generally speaking? Or are you guys just getting better hit rates on some of the deals that you guys are searching for? As well as, can you kind of clarify when you talk about a robust pipeline, are you talking about just the potential for deal activity to pick up from the depth you talking about the pipeline returning to levels more seen in 2019?

Sure. Thanks, Ryan. As I mentioned, I think, we're encouraged by both the depth and quality of the pipeline recently and really all channels we focused on, so direct to company ABL, and now we're starting to see some sponsor led opportunistic M&A activity. So, we're encouraged to see that. I will say as compared to Q2 where there was a pipeline, that quality is getting better. So, we're continuing to be selective and we'll always be selective, and really focus our capital on the opportunities that we think are best for our shareholders, but it is across each of those channels. We're not seeing yet as a lot of new platform M&A from sponsors rather more opportunistic M&A from existing platform portfolio companies, but still again, I think the quality is up from what we saw, not only in Q2, but really throughout 2019.

Do you guys have a -- do you guys have a preference, or do you guys favor in this environment more deep value sort of rescue financing deals given just the tumultuous market backdrop. And I would assume that those opportunities are probably going to come up quite a bit and you can get obviously extremely good pricing in terms? Or would you guys want a more lean into a more secular grower stories companies that are -- don't have a really bad affected by COVID downturn, but obviously the structures in terms of those aren't going to be as favorable. Do you guys have a preference?

We really don't have a preference. I think the beauty of the platform is that the expertise of our people and it goes across each of those channels. We're, obviously, very active in rescue financings from time-to-time when we think the opportunity set is good. And we also like to pursue growth opportunities for businesses that are growing closer than GDP have sets of tailwinds and come to other downturns, economic downturns better. So, we really focus the opportunity set based on like core conversations with our team, which is very diverse.

Okay. Fair enough. And then just one last one. You mentioned really only one investment outside of the two retail. Once you talked about have completing an amendment, you don't expect any new defaults in the near term. I mean, that's surprising, but obviously in a very positive way that you guys have a lot of confidence in your portfolio going forward. Can you just talk about with the -- that assertion you guys made, what is the economic backdrop that you guys are using as a base case to make that assertion? And then from a higher level, why do you think that your portfolio has held up so well and performed so much better than other BDCs thus far in this?

Hey, Bo, let me hit some of that and you can jump in or fishy can jump in. Look, I think, I think when you look at our portfolio, we didn't have -- we had very -- we had a full amount of cyclical exposure. And cyclical business models typically have high fixed costs. And so that we avoided kind of the typical cyclical business model. Generally, when you look at our top three industries, which include business services, financial services, but really fintech and healthcare, which has really either form a royalty financings or a healthcare IT, you just had -- those typically had variable cost structures and a strong kind of -- less cyclical exposure and strong secular tailwinds. And so, to me, it was just a -- most of the outside of retail, which obviously has been impacted, we were just setup to have a kind of a cycle, what we would call late cycle minded portfolio construction, or cycle appropriate portfolio construction, because that might change over time. And so, when we look at our portfolio, it's really a bonds up view versus a top down view, i.e. slow recovery V-shape, U-shape. It's really, how are these companies doing? What are their forecasts? Are those realistic forecast? And so, our view is really a bonds up view. I don't know, bow or fish -- fishy, or any have anything to add, but it was really just business model and sector exposure.

I think that's exactly right. I don't have a lot to add. I think that we also had -- as we mentioned in the script, we had a lot of really high quality management teams. That's focused on liquidity and appropriate cost structures early in the cycle. And that is a created to our benefit as well.

Okay. Understood. I appreciate the time today. Those are all my questions.

Thanks, Ryan.

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

Hi. Good morning, guys.

Hey, Fin.

How are you? First question on new deals this quarter. There were a couple that are paying service channel sprinkler, I believe. You historically shied away from that reasonably so for the BDC structure. But what makes these more suitable or safer than opportunities that might be very attractive if it weren't for their peck [ph] structure?

Yeah. So, look, TSLX affiliated funds that our growth platform, originally it was investments. And quite frankly, you hit it on the nail on the head. Given the underlying business models that we're growing at significant rates and that the capital requirements for that growth, we did a -- we did structures that allowed the peck. We're really bullish on the companies, really bullish in the markets they serve, really bullish on the management teams, unfortunately that the BD -- the Sixth Street Specialty Lending only could take small amounts, given we have a policy about how much peck we're wanting to have in the book. And so, if those structures were not peck structures, we would have had -- we would have had significantly more appetite for those in the BDC. But given our financial policy and given our risk limitations around peck, there were relatively small size in -- what was the -- I think they were each like kind of 5 million or 7 million bucks or something like that.

Yeah, that's right.

So then that -- Bo, do you have anything to add there?

No. You hit it on the head.

I think the sprinkler was $3.75 million, and it was a convertible note and service channel was a $5 million investment at 12% peck. Again, those were much larger deals. We have -- but we thought they were very, very high risk adjusted returns. Quite frankly, those companies might need more capital in the future that have a -- that are not tech nature when they -- when growth slows and they become more mature. And quite frankly, one of the reasons why we actually made the co-invest even in small sizes, if they -- if you -- if we weren't in those capital structures, we would not be able to provide those financings on a go-forward basis when they become appropriate for the BDC, given that the rules around joint transactions and affiliate transactions with the affiliated funds. And so, we love them as a standalone investment. We also think there's going to be opportunities to put more capital in that are more appropriate for the BDC going forward.

Okay. Thank you. And another portfolio name AvidXchange. You've had that for a while, and I think the growth platform also took part in an equity round or -- I'm not sure if there's a few capital structures there. But the BDC got a very small piece of this too it looks like. Can you give us some color on the nature of that capital raise and why the very small BDC allocation?

So there was a -- Bo, correct me, I think there were two pieces. There was a -- there was a staple finance in between a senior secured facility and a redeemable prep with warrants. Correct, Bo?

Correct.

And they were a strip. And so the redeemable prep with warrants was much larger than the senior secured facility. So, again, the exact same considerations that we discussed before. AvidXchange is actually a kind of a more mature business. It's in B2B payment space, but much more mature business. But, again, it came down to having the right -- having been appropriate for the BDC, which has a cash pay dividend as a liability that we're always thoughtful about.

That's right. The only thing that I would add is that's a business that we've grown well since 2015. We've excellent risk reward. But again, size appropriately given the peck component.

Okay. That's all for me. Thanks so much.

Thanks.

Thank you. Our next question comes from Robert Dodd with Raymond James. Your line is open.

Hi. Morning, guys. Just kind of general question. I mean, obviously, in the prepared remarks, you brought up -- obviously the amount of stimulus that's been put in. And that's one of the contributing factors to spreads retracing so much in the widening they went through before. So, is there -- obviously there's benefit to NAV on that. What do you think that the lists are given how much private capital there still is out there as an evaporator, as a result of this COVID issue, that those spreads continue to retrace to NAV benefit, but potentially to the opportunity set getting excessively competitive again, as it was, call it, last year, but before we had this COVID event.

Yeah. So, you hit it, Robert, as you always do. The good news and the bad news. The good news is the -- with the spread retracing, there has been a benefit to NAV, a benefit of the capital in the BDC space, a benefit people not getting close out -- stakeholders not getting close out of their option, i.e. having issues with -- from a regulatory framework or from vendors in the space. So, that's the good news. The bad news is the question of how the truncated, that coupled with the amount of private credit, dry powder. Has it truncated the go forward opportunity? I think, is that the question?

Yes.

Yeah. So I would look -- I would say, it's surely -- it's most definitely -- I want to say Uber competitive is a lot less competitive than a year ago. We actually saw -- when you look at the data, you actually saw yields, absolute yields, not only on a spread basis, but actually come up quarter-over-quarter, I think, in our book. And so, I think in -- so I think last -- yield amortized cost last quarter was 99. Is that 10 -- is at 10% on a spread basis against LIBOR it's much wider. The new investments we put in Q -- that we've put in, in Q3 to date have been much wider. And so, it's surely not -- it's it -- I don't think it's been -- it's surely not what it would have been if the Fed hadn't stepped in. There would have been a ton of issues across the BDC space, I think, and across -- generally across risk assets at the Fed didn’t step in. I think, we would have been very well-positioned to take advantage of that, but we would've had less investment capacity. We would have been more concerned about liquidity. So, I think it is what it is. I don't think that there's the go-forward opportunities that at least what we're seeing today has been completely truncated. And we feel like there's probably some good -- there is some good opportunities out there and we've executed on that in Q3.

Got it. Got it. If I could …

Mike, do you have anything to add fishy? I wish I felt fishy in the mix just to keep them on -- on the West Coast.

No. I have nothing. Thanks.

If I could ask just kind of why to take that a little bit, maybe because to your point, spreads widen in Q3, but the biggest investment in Q3 was the extension of renewal, if you will, of the ABL with whose name -- misplaced it. So is that is -- is the opportunity set given ABL financing is a much more specialized labor intensive business? I mean, is that where the spreads and yields are staying wide of versus in the traditional cash flow lending such that it is, given activity -- is there going to be an increased divergence between available returns in a specialized book versus a commodity lending book? And should we expect maybe the ABL book to grow faster as a result?

Yeah. I think, that's a good question. So, what I would say is, is that we -- so we made two large investments in Q3. One was ABL deal, receivables financing and one was a -- which quite frankly, had very much wide spread. It was complicated, had very much wide spreads historically available. And then one was a -- we don't call it a cash flow loan, although, it's a company that has high recurring revenue embedded -- ERP like embedded in their customer base. So, we think there's a second way out. And so, it's not -- and so we don't think about -- we're not pure cash flow lenders in that sense that. That loan we had -- we got warrants -- I think Bo, correct me if I'm wrong. 7% of the company is struck at the money. And so -- and it was done at probably 200 -- 150 to 200 basis points wider with more call protection than what would have done -- been done pre-COVID. And …

Correct.

So, look, I think you're going to see wider spreads across credit asset classes. And quite frankly, if lenders are not pricing stuff with wider spreads, they're effectively telling their investor base and telling their stakeholders that they see no uncertainty in the world. Like, there is no -- like wider spreads are to compensate us -- because compensate investors for uncertainty. And I can't imagine anybody in the world, if they're being disciplined, as it relates to allocating capital, doesn't think that uncertainty has increased significantly over the last six months. And so, I expect that you'll see wider spreads, or you should see wider spreads if people are doing their jobs and being fiduciaries to their stakeholders across the opportunity set. My guess is on the margin, you're going to see wider spreads -- you're going to see wider spreads for specialized and -- for specialized kind of lending opportunities or where there is complexity, you'll see more drastic because people -- when they already have problems in their book, don't want to take on more kind of problems through complexity. But it would be shocking to me if people are trying not -- are pricing the same things as competitive as they were a year ago, a year ago, there was a lot less uncertainty. And again, you got it -- you got to get paid for the uncertain world we are in.

I appreciate the color, Josh. Thank you. Yeah.

Our next question comes from Mickey Schleien with Ladenburg. Your line is open.

Yes. Good morning, everyone. Glad to hear you're doing well. I sort of want to follow-up on Robert's question and ask you about the markets stone, Josh. We're, obviously, in a yield hungry world, and there's a lot of capital, which is formed to invest in private debt and disintermediate the banks. And when we look at the forward LIBOR curve, which has been wrong many times, nevertheless, it implies that very low interest rates will persist for years. But like, we've all talked about this morning loan spreads are tightening again. GDP looks like it'll bounce back a lot in the third quarter with the economies reopening, obviously from very poor results in the first half of the year. But after that the forecast looks pretty weak, which could keep the Fed from tightening again. So, this scenario to me seems to point to continued pressure on portfolio yields. A lot of that has been in place for a while. But as you pointed out, you generally maintained excellent portfolio yield. So, I just like to step back for a moment and ask what factors in your origination process and perhaps your relationships provide you the ability to generate the loan terms that we see -- particularly the fee structures that have helped you mitigate that pressure, like we saw with Ferrellgas this quarter.

Yeah. So look, I think, A, we are willing to -- I think there's a couple of different pieces of our business. Good question, Mickey. The first one is, is like we have really deep expertise in some sectors. And we're involved in those sectors. We're involved in those ecosystems. And so, I think, as it relates to those -- as it relates to that piece of our business we -- our counterparties don't think we're a commodity lender. They think they can -- it's speed and certainty because we have deep knowledge of the nuances of how those industries and how those ecosystems work. And so, I think that's most definitely been helpful on a response for business. The second thing is, is that we're not in the -- we're not in the asset gathering game. Like, we're in the creating returns, serving our clients and return -- and creating returns for our stakeholders game. And so, I think part of the spread widening -- I mean, as far as spread tightening over time as people -- or competitors or the industry growing much faster than the actual true demand for capital from GDP. And you've seen this in. When you see -- when you look at historically over time, right, the corporate sector has -- is massively levered that corporate debt has grown faster than GDP. And so, asset managers have leaned into growing assets and they've traded growing assets for creating high stakeholder returns. And so, we surely have a different model on that front. And just -- and if people haven't looked at it, the corporate sector had -- it's going to be really interesting. And actually, this is why I think -- this is why I'm quite bullish on the opportunities that. If you look…

I appreciate your thought. Does it -- it's a great philosophy, and I really appreciate it. In light of what you just said Josh, how do you see LIBOR floors trending on new deals over time? In other words, for the most part everyone's deals are now benefiting from LIBOR floors that were negotiated two or three years ago, but LIBOR was crashed. Is the market -- be more accommodative or our lenders sort of sticking to their guns on LIBOR floors?

Look, I think the -- if you look at our -- the vintages across our LIBOR floors to -- 2020 vintages for LIBOR floors, really no different than 2019.

And post-COVID, is that still the case?

Yeah.

Okay. That's good. That's good to hear.

And quite frankly, again, like, I actually think to Rick Shane's point is, we sit the lowest on the cost curve, right? And the fact we have lower fees. We have lower -- given our floating rate liability structure, we're the lowest in the cost curve. So, I would -- if things work the way they should work, people should be more focused than we are, and we should have -- there should be less pressure on keeping and maintaining net interest margin, which we should benefit from, because we're lowest on the cost curve.

I understand. Josh, in terms of your particular expertise, obviously, one area is taking advantage of the tailspin and the brick and mortar retail space. And we've seen a number of bankruptcies in the last few days, and you've been very adept there. How do you see competition developing in that segment? Or are there new entrance coming in to try to take advantage and dislocating deal terms? Or are you still in a position where you think you can get comfortable risk adjusted returns there?

Yeah. So, the good -- most definitely more competition. The good news is the more supply of opportunity as well.

Yeah.

So -- in that space -- quite frankly, that's not good news, right? It's obviously very -- as being a little bit flipped, it's obviously very -- it's -- when you take a big step back and you look at communities and there's a lot of hourly workers that are being affected, but from an opportunity set there was a lot more opportunities. There is slightly more capital formation. But it feels like there's decent risk adjusted -- continues to be decent risk adjusted returns there as well.

I understand. That's really helpful. Those are all my questions for the -- this morning. I appreciate your time and wish everyone well there.

Great. Thank you.

Thanks.

Thank you. Our next question comes from [indiscernible] with Delphi Capital. Your line is open.

Yes. Thank you very much for the presentation. I have two questions. The first question is that how many loan modifications out of total brought out [ph] did you make last quarter? And how are you going to deal with loan modification requests? This is my first question. Then the second question is that, I'd like to know the impairment -- loan impairment session last quarter? And if you have loan impairment I directly hear from you the expected recoveries of those loan impairment. Thank you.

Well, let me answer the second question first. So, the -- I would refer you to our schedule investments. The schedule investments have -- and BDC adjusted market assets of fair value. And so those would incorporate recoveries and timelines, those fair value. So, you -- and on level three assets, those are mark-to-model, but again, they incorporate time and recoveries in the fair value. And then on level two assets that incorporates -- effectively the markets collect a view on timelines and recoveries for fair value, i.e. if a loan trades at $0.40 the recovery -- the market view that the recovery is something above $0.40 based on whatever the -- the ultimate recovery based on an assumed timeline. So, I would refer you to schedule investments, and you can look at fair value. On the -- first question was, there were effectively three -- there was no really uptick. And we constantly are doing amendments and waivers for companies given the structure of our loan agreements that relate to -- quite frankly, if they open -- typically if they open up a new checking account, they need to come to us and get amendment and waiver, we need to get a control agreement in place. And so, generally there was not a material uptick in amendments and waivers. The -- there was three COVID related -- kind of what I would say, non-normal amendments and waivers. Two of those were Neiman and J.C. Penney which is obviously retail related and had filed a bankruptcy that we're involved in. And the third one was a consumer company.

Thank you.

Thank you. And I'm currently showing no further questions at this time. I'll turn the call back over to Joshua Easterly for closing remarks.

Great. Well, look, we really appreciate people's time, and we hope everybody has a good remainder of the summer and a good Labor Day. And clearly, it's going to continue to be interesting for anybody who's a parent to figure out what's happening with their kids going to school and not going to school. And obviously, the investment environment continues to remain tricky, but we'll continue to work very hard for our stakeholders and for our clients, and providing valuable creative solutions so they can create value for their stakeholders and we'll continue to work for our stakeholders. Thank you very much.

Thanks, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.