Blackstone Secured Lending Fund (NYSE:BXSL) Q3 2026 Earnings Call

0:00 Thank you for standing by. You're on hold for the Blackstone Secured Lending Third Quarter 2026 Investor Call. At this time, we are gathering additional participants and should be underway shortly. We appreciate your patience and ask that you continue to hold. Good day and welcome to the Blackstone Secured Lending Third Quarter 2026 Investor Call.

5:40 Today's call is being recorded. At this time, all participants are in a listen-only mode. If you require operator assistance, please press star zero. If you'd like to ask a question, please signal by pressing star one. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. At this time, I'd like to turn the conference over to Stacy Wang, Head of Stakeholder Relations. Please go ahead.

6:07 Thank you, Katie. Good morning and welcome to Blackstone Secured Lending Fund's third quarter results conference call. Joining me today are Brad Marshall, Chief Executive Officer, and Teddy Desloge, Chief Financial Officer, along with other members of the management team available for Q&A, including Carlos Whitaker, President. Earlier today, we issued a press release with a presentation of our results and filed our 10-Q, both of which are available on our shareholder resources section of our website, www.bxsl.com. We will be referring to that presentation throughout today's call. I'd like to remind you that this call may include forward-looking statements which are uncertain and outside of the firm's control and may differ materially from actual results. We do not undertake any duty to update these statements. For some of the risks that could affect results, please see the risk factor section of our Form 10-Q filed earlier today. This audio cast is copyright material of Blackstone and may not be duplicated without consent.

7:03 With that, I'll turn the call over to Brad Marshall.

7:06 Thank you, Stacy, and good morning, everyone. Today, I'll cover three key areas, the market backdrop, our third quarter results, and portfolio performance, and how we are thinking about the macro environment going forward. Starting with the market backdrop, U.S. economic data continues to show strength in corporate earnings growth is both strong and broadening across sectors. This is consistent with what we see within Blackstone's portfolio, where 97% of CEOs surveyed expect stable to improving conditions over the next 6 to 12 months. The third quarter also brought a clear shift in the rate environment. The Fed raised its policy rate for the first time since 2023, and longer-term yields rose sharply, with the 10-year Treasury moving above 5.3%, its highest level since 2002.

8:03 before settling in around 4.9% today. While the Fed held rates steady in October, the forward curve is pricing in an additional increase by year-end. For a predominantly floating rate, senior secured private credit strategy like BXSL, we believe the current environment is increasingly attractive. Higher base rates continue to support income, while our healthy fundamentals support borrowers' ability to service their debt. Sentiment towards private credit has also stabilized and begun to improve from earlier this year when investor concerns centered on defaults, software exposure, and systemic risk. To date, those concerns have largely not played out in many fundamentals.

8:50 On average, across BXSL's portfolio, borrowers have grown EBITDA year over year at approximately 10% with interest coverage at 2.1% 2.1 times. A growing economy with higher yields due to rate increases, wider spreads compared to last year, and an improved competitive backdrop all help drive better overall outcomes for our investors. With that in mind, institutional investors are recognizing these favorable conditions with fundraising for institutional U.S. closed-end direct lending funds up 45% over the last 12 months compared with prior year periods. Turning to the quarter, BXSL generated net investment income, or NII, of 68 cents per share, representing a 10.7% annualized NII yield.

9:41 NAV per share was $25.25, down 1.1% from 25.53 last quarter, and we maintained our 77% per share dividend supported by income and undistributed earnings. BXSL's net return for the quarter was 2.2% and 10.5% annualized since inception. As discussed on previous calls, we regularly evaluate our dividend relative to the long-term earnings power of the portfolio. As we communicated earlier this year, our 77 cent per share dividend would serve as a bridge to a level aligned with the earnings power.

10:30 supported by undistributed earnings we have built over time. As a result, our dividend has represented an annualized distribution yield of over 11% on NAV in every quarter for the past three years and approximately 12% this year among the highest across our traded BDC peers. We're now completing that transition and resetting the dividend, which is more closely aligned to our traded BDC peers. Our board has declared a 77 cent per share dividend for the fourth quarter, maintaining our existing dividend rate, and then a 60 cent per share dividend for the first quarter of 2027. This reset will represent an annualized distribution yield of approximately 9.5% on our Q3 ending NAV. We believe this is an attractive level for a portfolio that is nearly 96% first lien among the highest across our traded BDC peers.

11:32 And that benefits from among the lowest operating and financing costs in the peer group. While asset yields are improving, as I mentioned earlier, we are also midway through refinancing approximately $3.2 billion of lower cost fixed rate notes issued in 2020 and 2021 at an average coupon of 2.97% fixed. Moving to our portfolio, which remains nearly 96% First Lending Secured, the story this quarter is one of broad-based stability. Underperformance remains limited to a few isolated situations, which are reflected in our marks and where we remain highly proactive in driving outcomes. Away from these names, the broader portfolio continues to perform well.

12:19 We're also seeing encouraging results in some of the companies where BXCI led restructurings and now owns equity, which I'll discuss shortly. Software, which represents 19% of the portfolio at fair value, continues to generally perform well across nearly 70 borrowers with weighted average LTM EBTA of over 290 million and interest coverage of 2.3 times. More broadly, the market continues to differentiate between software businesses. High quality, Growing software companies similar in profile to many in our portfolio traded over 13 times EBTA in public equity markets as of quarter end. And firstly in loans to these businesses trade above 98 in the broadly syndicated loan market as of quarter end. We believe this continued market demand for high quality software credit supports the strength of our position in the capital structure. where our software loans sit above substantial equity cushions.

13:25 Non-accrual ended the quarter at 2.1% at fair value and 2.8% at cost compared to 1.8% and 3.6% respectively last quarter. Three names exited non-accrual status during the quarter, including Medallia, while three were added. Across the BDC space, non-accrual rates have remained relatively stable this year, albeit closer to historical averages. However, as we have stated previously, what matters in our view is what happens before and after an investment becomes challenged. We want to identify stress early. We want to reflect the performance in our marks proactively. And if a restructuring is required, we want to use our senior secured position and resources across the Blackstone platform to drive recovery and preserve value, particularly relative to equity holders who absorb the losses first.

14:25 In those situations, we draw on Blackstone's nearly 40 years of private equity experience, the workout expertise of BXCI's 120 plus person office of the CIO, insights from our 50 plus data scientists and AI experts, and BXCI's value creation team working closely with sponsors and management teams to provide operational support and maximize recovery. A multi-site healthcare company in our portfolio illustrates this approach. Following a restructuring in the third quarter of 2024, the business has benefited from active involvement by BXCI's workout team and value creation team on initiatives that have contributed to margin improvement.

15:10 And EVGA has grown more than 35% year over year. Reflecting that recovery and fundamentals, its current mark is more than 20 points above its trough mark in 2024. Affordable Care and Dental Care Alliance, both previously on non-accrual, we believe are benefiting also from Blackstone's operating resources, including procurement, employee healthcare benefits, and cost optimization initiatives. More broadly, across all of BXEL's restructured positions since inception, the realized principal recoveries, excluding coupons, plus the current unrealized value through the end of the quarter is 0.76 times. For positions that have been fully or substantially realized, recovery rate excluding coupons was 0.87 times.

16:06 We also continue to benefit from selective equity upside. During the quarter, Audax announced the sale of Genuine Cable Group, also known as GCG, or EIS, to Rexel for 1.4 billion. GCG, a distributor of wire, cable, and related products, has benefited from demand tied to power infrastructure, data centers, and electrification. BXSL's recognized approximately 10.5 million of unrealized gains on its equity position this quarter. Subject to satisfactory and the Board of Directors of BXSL. which provides liquidity for new investments at today's more attractive terms, can pull marks to par on repaid positions and can generate additional income through repayment fees and accelerated OID while supporting portfolio diversification over time.

17:29 We funded approximately 250 million in the quarter with new deals and add-ons at all in spreads over 500 basis points. spread and deal fees in BXCI's North American Direct Lending Pipeline are approximately 25 to 50 basis points wider than in the fourth quarter of last year. And we're seeing strong demand from large corporates alongside opportunities in infrastructure, art assets, aerospace and defense, and life sciences, where Blackstone has scale and expertise. As we suggested on prior calls this year, we brought leverage down to 1.22 and we intend to continue to manage within our target of 1 to 1.25 times.

18:14 While the forward curve is pricing in higher base rates, we believe the portfolio is well positioned to manage through higher yields with average interest coverage of 2.1 times and LTM growth of nearly 10% today. Importantly, our portfolio has been tested through a significant steeper hiking cycle. When the Fed raised rates from zero to more than 5% by 2023. Average EVDA growth for our portfolio companies remained positive each quarter. Interest coverage remained at or above 1.8 times, and non-accruals remained low throughout the rate hike cycle. Today, nearly half our portfolio at fair market value was funded when base rates were higher than today, meaning these borrowers have already demonstrated their ability to service debt at higher interest costs.

19:09 As a reminder, BXSL was designed to deliver premium current income and attractive long-term returns across multiple cycles and has delivered a 10.5% annualized net return since inception, over 500 basis points above leveraged loans in that same period. That performance has been driven by senior secured positioning, disciplined marks, pull to power from repayments, active asset management, and one of the most shareholder-aligned fee structures in the industry. The decision we announced today on our dividend reflects that same discipline. With that, I'll turn it over to Teddy. Thanks, Brad.

19:54 First, on performance, VXSL generated net investment income of $158 million, or 68 cents per share, for the third quarter, compared to 77 cents per share dividend paid. This equates to a 10.7% annualized NII yield and a 12.2% annualized distribution yield. NII declined from 75 cents per share last quarter primarily due to a smaller benefit from our three-year incentive fee look back. The quality of our earnings continue to remain strong in the quarter. Interest income excluding payment in kind, fees, and dividends represented more than 94% of total investment income. PIC income declined to 5.8% from 6.6% last quarter and over 8% in the fourth quarter of 2025.

20:44 Turning to the dividend, as previously communicated, we funded the quarter's 77 per share dividend through a combination of current quarter NII and undistributed prior period earnings. Undistributed earnings totaled approximately $1.68 per share at quarter end, compared with $1.80 at the beginning of the year. This reflects our deliberate use of retained earnings to bridge to what we view as a normalized dividend aligned with the portfolio's long-term earnings power. For the first quarter of 2027, we have reset our quarterly dividend to 60 cents per share consistent with its previously communicated approach. At that level, the dividend will represent an annualized yield of approximately 9.5% on third quarter ending NAV, remaining above but more closely aligned with our publicly traded BDC peers.

21:37 As a reminder, BXSL's distribution yield as of the third quarter was more than 250 basis points above the average of our traded BDC peers, despite having among the highest first lien exposure in the peer group. Turning to the balance sheet, we ended the quarter with $12.9 billion of total portfolio investments at fair value, $7.2 billion of outstanding debt, and $5.9 billion of total net assets. NAV per share was $25.25 compared with $25.53 last quarter. The $0.28 decline primarily reflected $0.19 per share of net realized and unrealized losses and $0.09 per share by which the dividend exceeded quarterly NII.

22:23 Realized losses totaled approximately a dollar per share, primarily related to the realization of previously recorded unrealized losses on Medallia upon completion of the restructuring. We continue to work constructively with our portfolio companies on amendments that support growth and M&A activity while improving lender protections and economics where appropriate. During the quarter, we completed amendments involving 25 issuers, and over 97% of the portfolio's fair market value either was unaffected by amendments or related to amendments associated with what we believe were positive events or immaterial technical matters. Our liability structure remains well diversified with a low cost of capital. At quarter end, we had $9.7 billion of committed debt capacity and $7.2 billion of funded debt, of which 62% was unsecured and 38% was secured.

23:16 Further, during the quarter, we completed an upsize and extension to our revolving credit facility, bringing total commitments to approximately $2.5 billion and extending the facility's tenor by one year to August 2031. with no change to pricing at 153 basis points over the base rate on drawn amounts. In September, we paid down 700 million of lower cost investment grade bonds maturing in Q3, which brings total maturities in 2026 to 1.5 billion. While these maturities had a weighted average coupon of 3.2%, we issued two new unsecured borrowings in 2026 that swapped to floating at a weighted average price of 197 basis points over the base rate.

24:02 We have an additional 2.5 billion of maturities through September 2028, including 650 million in the first quarter of 2027. Our all-in cost of debt was 5.14%, and we ended the quarter with a total of $2.6 billion of liquidity. Gross and net leverage declined to 1.22 and 1.2 turns debt to equity, respectively, from 1.28 and 1.25 last quarter, and both remained within our long-term average or long-term range of 1 to 1.25 turns. As a reminder, BXSL's Board of Trustees approved a Discretionary Share Repurchase Plan under which BXSL may repurchase up to $250 million in the aggregate of its outstanding common shares in the open market at prices below NAV per share.

24:53 While we did not repurchase shares during the quarter, we continue to evaluate repurchases relative to new investment opportunities, taking into account, among other factors, the discount to NAV and our target leverage range. Stepping back, BXSL demonstrated a few enduring strengths this quarter. First, a predominantly first lien portfolio that continues to perform well. Second, BXCI's ability to actively manage the full life cycle of investments. And third, a disciplined approach to capital structure and distributions designed to support attractive and sustainable shareholder returns across market cycles. With that, I'll ask the operator to open it up for questions. Thank you.

25:39 Thank you. As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We ask you to limit yourself to one question and one follow-up question to allow as many callers to join the queue as possible. We will take our first question from Finn O'Shea with Wells Fargo Securities.

26:02 Hey, everyone. Good morning. Just the first question on the credit picture. It looks like at this point you've gotten through a lot of the 2021 vintage underperformers. Would you agree with that, or do you think you're mostly through, or is there still a bit of a tale of underperformers that might carry credit headwinds into 2027?

26:40 Great. Hey, Finn. This is Brad. I can take that. I think as you look at the 21 vintage assets, you'll start to see those assets have maturities coming up in 27 and 28. So we have about 28% of our assets that mature in that timeframe. So over the next couple of years, and what's interesting, if you just look at the top 10 names that make up that percentage of our near-term maturities, I think that's roughly about half of the names, maybe a little bit more. 100% of those names are either seeing very strong performance, are seeing equity come into the business because of acquisitions.

27:35 Some of them are for sale or going to be sold like Genuine Cable. So we're seeing kind of very good tailwinds actually in those near-term maturities because that would kind of be the 21 kind of, you know, vintage assets. You know, there's a handful of assets outside of those top ten positions that we're focused on, but they're a smaller portion of VXSL and the overall portfolio.

28:09 Great, very good. And also appreciate you moved with the dividend, much cleaner picture. Does the 60 assume you're able to hang on to spillover, or should we expect something perhaps on the special dividend side next year? and would that impact ability to pay out on the 60 base dividend?

28:47 Yeah, thanks, Finn. This is Teddy. I'm happy to take that. So I think you're right. We wanted to provide some very clear visibility to the market. We have stated on past calls excess earnings have been a temporary bridge to reset to a longer term level that aligns with our earnings power and we're now completing that transition. on your question on spillover. I think what we guided to was that we would draw down spillover this year while maintaining our dividend. We've been very deliberate with that approach. We were at $1.80. We're now at $1.67 of undistributed earnings per share. We expect a further decline expected through Q4. And we're still, you know, well inside of three quarters of spillover relative to the reset dividend. which represents valuable cushion, right?

29:33 That's been capital that's been reinvesting accretively in the portfolio that's in NAV. I would say we're always going to continue to evaluate that level with the board. Certainly a sustained discount to NAV is a consideration. Other considerations would be, you know, reinvestment economics or cost of capital relative to our excise tax. Neither of those are triggers or relevant today. So very comfortable where we are from a spillover perspective. and wanted to give the market clear visibility into aligning our dividend with the longer-term earnings power of the portfolio. Awesome. Great color. Thank you. We will take our next question from Rick Shane with JP Morgan.

30:17 Hey, guys. Really two questions. Look, third quarter was a very unusual quarter in terms of deal flow. As we know, typically August tends to be slow.

30:27 It tends to be a quarter that's very weighted towards September activity.

30:34 I am curious, given the unique dynamics, what the sort of cadence of third quarter was and what that suggests as we enter into the fourth quarter and perhaps into a slightly more stable, predictable environment.

30:55 Thanks, Rick. This is Brad. I'll take that one. I think your summary is a good one. I think with rates moving higher, the election, I think that dampened some of the pickup and M&A activity that we were expecting. For us in particular, we saw more activity actually from our existing portfolio companies, which were out doing acquisitions and drawing on capital. which we like because we obviously are invested in these companies. So that kind of drove most of our deal flow for this quarter and probably next quarter for this current quarter as well. So that's kind of generally the backdrop that we're seeing now that we're past the election, now that we have maybe a little bit more clarity on rates.

31:45 Our expectation is that deal flow will accelerate next year, the first half. We're starting to see signs of that because we do get early requests from M&A advisors to look at financing for companies that they're going to put up for sale, and that's picked up by about 30% from where we were maybe two or three months ago. So that's the picture. A lot of activity in existing portfolio companies, M&A starting to reaccelerate into next year.

32:22 got it and with that in mind look the portfolio peaked in size almost six months ago or a year ago actually it was a year ago exactly and in terms of portfolio size you're back to late 24 levels do you think that Q3 represents a trough in terms of the size of the balance sheet should we expect growth from here or at least sort of stability

32:54 Yeah, we'd love to continue to build the portfolio, Rick, either through, primarily through, you know, equity issuance and so we can invest new equity dollars in new opportunities as the market accelerates next year. For now, we're a little bit more reliant on turnover in the portfolio, which was actually pretty decent this year. We had about in the middle of our range of 15 to 20%. And I think next year we'll probably see something similar. So that'll drive a lot of the kind of deployment dollars in the absence of equity capital that we continue to raise, but we're also continue to evaluate other options and other ways to continue to grow the portfolio over time because I think we're in line with kind of your view that it would be helpful to keep continue to expand our assets.

33:52 Got it.

33:53 I have a funny feeling you're going to get some questions about alternative ways to grow from my peers following, so I will turn it back to you guys. Thank you. Sounds good. Thanks, Rick. We will take our next question from Melissa Waddell with UBS. Good morning.

34:12 Thanks for taking my questions. Why don't we go ahead and pick that one right up there? that's an alternative place to grow the portfolio.

34:20 Well, again, turnover is the clearest way to kind of continue to grow the portfolio. Recycling out of the names that we've been working on as equity owners is another way. We constantly look at whether we want to, you know, consider a JV structure for the benefit of our shareholders. equity issuance continues to top of mind. We are always open-minded to M&A, but it has to be creative to shareholders. We want to make sure that there's a portfolio of assets that would come into BXSL that is consistent with our strategy of trying to primarily focus on first lien performing assets.

35:07 And so those are all the different ways that we can continue to you know, build the portfolio so we can drive, you know, shareholder value.

35:19 Got it. And speaking hypothetically around potential M&A, I mean, obviously shares are trading at a discount to MAD and have been for a little bit, but there are certainly other portfolios that trade at much larger discounts to MAD. Would you potentially consider issuing shares and a bunch of other people. So I think that's kind of what we're looking at right now.

36:11 and so there's growth that we want to do that is higher quality and that's our primary focus. But of course, if there's a portfolio out there that we could bring into BXSL to help grow, then we're going to be entirely open minds to that. The problem is, as we see it, things that trade at deep discounts to NAV trade there for a reason. and so we're very, very cautious about what's out there as potential M&A. Understood. Thanks, Bob. Yeah. We will take our next question from Robert Dodd with Raymond James.

36:58 Hi, everybody. A couple questions. On the first one, going back to the dividend issue, if I can, not really what the level is, but if I look forward to expectation of increase of activity in the first half, which would probably be an increase in the back half as well next year, you read about on the new, with the spillover that goes down a little bit, you'd be about two and a half quarters, give or take. I mean, it looks like there may need, to Fin's question, be a need for something incremental above the base if the market shows any kind of real activity next year. Has there been any consideration of kind of like a formulaic supplemental program if earnings do perform better with higher rates and maybe more activity fees? Or is it, you know, should we be more thinking about, you know, if anything, it'd be bought discretion quarterly and a little less predictable than a formulaic approach?

37:59 Yeah, thanks, Robert. I'm happy to take that. I think first, just to answer your question directly, we have been evaluating all different types of structures. As we think about sort of the level that we set, we're resetting at a level that considers sort of all knowable pieces of the long-term model today, right? So we've talked about a refinancing of over $3 billion of bonds issued pre-rate hike. We expect that to offset potential benefits from rate hikes. You know, we do have incentive fees that were lower this year structurally just tied to our look back mechanism and unrealized marks that's been concentrated to a small handful of assets that we're now working through. And overall, the level is supported by broad-based portfolio health, right, where challenges have been well identified and being addressed.

38:49 Ten percent EBITDA growth, some re-acceleration of growth in the portfolio, non-accrual down for the second consecutive quarter, you know, interest coverage over two times over two turns for five consecutive quarters. So, you know, we're taking all sort of pieces of the model into play here. I think on spillover, we feel comfortable where we are today. We'll continue to reevaluate that, but at this point in time, giving clear visibility to a dividend level that's still on the higher end of peers with a portfolio that's highest first lien exposure, lowest G&A, and lowest financing costs across our peer set.

39:24 And the only thing I would add to that. Yep. Robert, one of the things that we're focused on is just the predictability of income stream. It's the reason why we don't really factor in fees that come in depending on turnover of assets. That's certainly upside when that happens. We don't rely on dividends that are coming up through other structures. So it's very kind of a high-quality income stream that we're evaluating. and we want to be able to have access coverage at all times. And if we do have and continue to have that access coverage, that only helps with, you know, build NAV.

40:13 Got it. Got it. Thank you. One more if I can. And this relates to your point. I mean, credit's only part of the picture for, well, not credit. Credit is the picture for BDC to a large degree. but not accruals and not the only component of credit, like recovery. So can you give us, I mean, to your point, right, your realized recovery so far, excluding coupon, thank you for that, 87 or maybe it was 86%, right? So, you know, well north of 80, significantly above the long run industry average. Small data set, obviously, so far for this portfolio. But I mean, can you give us any more other than, It's the Blackstone secret sauce and we're bigger than everybody else as a kind of catalyst for why that's sustainable.

41:04 Because obviously if it is, you know, if you get a 90% recovery on a default, I worry a lot less about a default than if it's your average recovery rate 20%, right? So, I mean, it kind of changes the outlook materially for me and my suspicion is other investors as well.

41:22 Yeah, thanks, Robert. Maybe I'll answer it in two parts. One, as you think about your restructurings, we're trying to do a couple of things. One, we're trying to make sure there's no surprises. So we're marking assets down as they underperform. Last thing we want is an asset to go from 98 to 50. So you're seeing kind of that movement in some of these underperformers. The second thing is we're trying to pull forward Thank you for joining us. to hand over the keys to Blackstone. And we give them some sort of equity participation once we fully recover some of our debt. So we're trying to actively mark the portfolio, pull assets forward.

42:36 And then as you put it, sprinkle the Blackstone pixie dust on these companies. And the way we do that is obviously bring in all the private equity resources that we have to bear. and sometimes that has a meaningful impact and sometimes it has a marginal impact, but it always is impactful to the business. Even something like Medallia, for example, which is going through this kind of more transformative change in their business model. And by the way, I'll give a plug for them. Forrester just ranked them as the number one product in their space above all their peers. But even with someone like that, we're bringing them into our health care program.

43:22 That's going to save them a million dollars in expenses next year. So all these things are actually quite additive, and that's what we're trying to do, and that's been something we've been focused on since we started 21 years ago. The second thing I'll just say as it relates to restructurings and maybe more relevant on NAV, If you look at our portfolio, roughly two thirds of our assets are marked below par. Getting back to my comment on marks, 80 plus or around 80% of these assets are seeing very attractive EBDA growth. So there is, as these assets start to turn over in your portfolio, you see this NAV kind of pulled apart. that we've mentioned on several calls. Take Genuine Cable where we just marked the equity up.

44:23 We're going to make four times our money on the equity. That asset last year, the debt was marked at 94.

44:28 They had a tricky quarter.

44:29 So turnover in assets is a real driver of return for our investors. And that's why you hear us talk about it a lot. I appreciate it. Thank you. We will take our next question from Ken Lee with RBC Capital Markets.

44:50 Hey, good morning. Thanks for taking my question. And I realize it's difficult to predict here, but any sense of an outlook for prepayment activity over the near term, or is this going to be once again tied to M&A and we probably would have to wait until early parts of next year to see an acceleration there? Thanks.

45:13 Yeah, so a little bit tied to my comments earlier to Rick. I think this past quarter and the quarter we're in, we're seeing investment activity predominantly from our existing portfolio companies that are doing M&A and looking to grow their businesses. That's driving a lot of the deal activity, which, again, we're actually quite supportive of. In terms of kind of the broader market, M&A activity was a little bit slower in the second half of the year than I think we were expecting, but you are seeing it start to reaccelerate.

46:00 You're seeing it reaccelerate, Ken, in digital infrastructure, for example, in life science and pharma. You're seeing more industrial activity. you know, demand for capital as we think about reshoring and onshoring aerospace and defense is another kind of area that's seen an uptick in activity. So the market is re-accelerating and it's re-accelerating in certain sectors that were historically maybe a little bit less active.

46:34 Gotcha. Very helpful there. And then just one follow up, if I may, just within the software portfolio there, any color around the average LTVs that you're seeing within the portfolio now? Thanks.

46:52 Yeah, thanks, Ken. I'm happy to take that. I would say no specific change over a quarter. I will say, you know, we did get through sort of full Q2 numbers, not seeing the deceleration that I think the market was expecting in the first quarter. In fact, our software companies are growing in line with our broader portfolio. Again, we're fairly diversified. We have over 65 positions. We're financing larger companies, larger end of the market, near $300 million of EBITDA. And nearly all of our first-line exposure was set up with LTVs below 40%. So certainly, you're going to see a little bit of re-rating of LTVs just tied to the market. That said, Where we're invested, we sort of map those to multiples in the public markets. And what we see is, you know, public market multiples of well north of 13 times. That implies pretty significant equity cushioned below our exposure where we sit in the capital structure.

47:50 Great. Very helpful there. Thanks again. We will take our next question from Aaron Saganovich with Truist Securities.

48:00 Thanks. Good morning. There was commentary about some amendments, I think 25 issuers that were done in the quarter. Maybe just talk a little bit about the areas that you were focusing on there. Any notable themes across that group?

48:24 Yeah, absolutely. I'm happy to take that one as well. Thank you for the question. I would say, as we look at amendment activity, we want to give this data every quarter just to give some transparency into what's really happening in the portfolio. We are constantly working with our companies on DDTL refreshes. We are working proactively to retain exposure for companies that are performing well. In a lot of cases, we're also seeing equity come into our capital structures to support M&A. So as you put numbers to it, we saw about 25 amendments in the quarter. Over 97% of the portfolio was either unaffected by amendments or the amendments were benign or positive. So certainly to Brad's comments, where we can be proactive with our companies underperforming, we are doing that.

49:13 You see that in our numbers, but the vast majority of the portfolio is unaffected or seeing positive or immaterial amendments.

49:25 Thanks. And then on the competitive environment, historically we kind of see these kind of spreads widen, spreads get tighter. What are you seeing in the upper middle market from a competitive environment in terms of structuring and are we starting to see spreads kind of come back in, etc.? ?

49:50 I think what we're seeing from a spread standpoint, Aaron, is that they've definitely tightened from the start of the year where there was a little bit more kind of market volatility. But they haven't tightened all the way to kind of where they were at this time last year. So we're seeing 25 to 50 basis points, you know, spread widening to last year. I will say however that the public markets are actually quite strong in the broadly syndicated market and in some cases that's leading to some refinancings of our existing positions which we're perfectly fine with but if a company is large and for a variety of reasons it wants to or needs to be done privately then those are actually representing some of the best and many more. Thank you.

51:18 So that's what I would say about that. And again, it is centering around some of these assets that are in digital infrastructure, life science, things that are a little bit more complicated. You're seeing relative value actually quite a bit better than what you're seeing even in the middle market. Thank you. We will take our next question from Jason Stewart with Compass Point.

51:51 Hey, good morning. Thanks. If I could ask a question on rates, I know you talked about the cycle historically and the underlying portfolio companies performing quite well going from, say, zero to five. But if I could ask you to just shift that commentary a little bit and talk about, you know, assuming normalized credit in the portfolio forwards are realized is this 9.5% payout on NAV indicative of a new paradigm of returns? Or are there other factors that we should be thinking about going forward in terms of spreads and funding rates? And basically my question is can underlying borrowers support higher rates and higher spreads, or is this 9.5% a new paradigm?

52:33 Yeah. I'm happy to take that. Thanks for the question, Jason. I'd probably answer that two ways. just in terms of the reset level, we mentioned that there are a couple of moving pieces in the model long-term and the level takes into account all of those pieces as we sit here today that are knowable. So again, halfway through refinancing over 3 billion of bonds, the impact of that likely offsets potential rate benefits from higher rates on a floating rate portfolio. We did see incentive fees lower this year due to the look-back mechanism and unrealized marks. That was concentrated. That was about a six-cent benefit in the quarter. And overall, as we think about the fundamentals, the second part of the question, what we see is now five consecutive quarters of over two times interest coverage ratios.

53:27 We've seen, as Brad mentioned, over half of the portfolio operate in a different paradigm than today, where rates were were higher. We've generally seen larger companies operate in more stable ways in terms of fundamentals and margin resilience through that period. So we feel very well positioned. You also see that in non-accruals now having declined for two quarters in a row. Brad also went through some of the tail stats and where we're addressing any near-term challenges that are well identified. So overall, seeing healthy growth in the portfolio. as well as healthy cash flow trends, which should support our companies in a potential environment where there's deceleration of growth from higher rates.

54:12 Yeah, I think the big kind of push there, Jason, is that one, interest coverage is actually pretty good today. It's whatever, 2.1 times. But the economic backdrop is actually quite favorable. And it's not kind of just around kind of the AI kind of ecosystem. We're seeing broad-based kind of momentum in the economy, and that's quite supportive of our companies and is an additional kind of tailwind to their already high interest coverage that their cash flows are supporting. So we feel good about any sort of near-term rate increases and their impact on the companies.

54:56 Okay. That's great, Colin. Thank you. We'll take our next question from Chris Muller with Citizens Capital Markets.

55:05 Hey guys, thanks for taking the questions and nice to be on with you this morning. It looks like you guys are picking up some yield on new investments versus what is repaying. If you guys look at your upcoming maturities versus current market pricing, do you expect that dynamic to continue?

55:23 Yeah, I think what you've seen to Brad's comments is We've been able to take advantage of a little bit of a wider spread environment this year. And that's true for both new deals as well as add-ons in the portfolio. Typically, when we're committing to a newly underwritten add-on to an existing portfolio company, we're generally able to price that in line with market. So as older vintages at lower spreads pay off, we can potentially see some upside over time to put some numbers to it. We had around a 9% yield for new versus what was repaid in the mid to high eights.

56:05 And Chris, as I look at the fourth quarter, I think you'll see a similar pattern to what you saw this past quarter with new investments spreads being higher than repayments from what we see today.

56:24 Got it. And then I think you guys said three new non-accruals in the quarter. Are there any common themes in those like sector, geography, or sponsor?

56:34 Great question. No common themes. And I would say that's consistent with the past. It's very idiosyncratic. One case, they grew the business too quickly and and weren't able to manage their costs appropriately and now we just need to kind of reset kind of the business, the base business and grow the business. By the way, not terribly dissimilar to what we're seeing in some of our other kind of healthcare service businesses where the sponsor goes in and tries to do a bunch of M&A and really accelerate the growth of the business because that's what they're kind of their focuses.

57:23 And then along the way, they may kind of, you know, lose control over kind of the cost side of the business or, or integration, they have integration issues. So our job in those situations is pause, reset the capital structure, and rebuild from a base. And that's been a pretty good playbook for us historically.

57:43 Got it. It's very helpful. Appreciate you guys taking the questions. Sure thing, Chris. Thank you. We'll take our final question from Paul Johnson with KBW.

57:55 Good morning. Thanks for taking my questions. I was just wondering if you can kind of talk to just competition from banks in the BSL market, what you've seen there, and I guess have you seen more of, I guess you would call them these crossover refinancing deals of any sort of borrower within the BSL market that having potential refinancing challenges, looking to kind of move over to the private credit market for capital, if that's something you've seen more of or not.

58:31 Yeah, so thanks, Paul. The liquid broadly syndicated market is actually quite strong. There's not a lot of supply of new deals, but there's a lot of demand of capital that's in that market. looking to deploy. So you've seen spreads kind of decline in the broadly syndicated market. So you're seeing a lot of, I wouldn't say it's competition from the banks because the banks are just underwriting and distributing. It's more from kind of CLOs, which have a lot of appetite. What CLOs don't have appetite for is underperforming assets. and so you've seen those assets that are typically downgraded to B3 or CCC. You've seen those kind of trade down quite a bit.

59:21 Those are not assets that the private markets are looking to rescue. You do have more distressed funds that are potentially providing kind of capital solutions that may be parry or senior to the liquid loans, but those are more distressed. type activities. So to summarize, the broadly syndicated market is quite strong, but only for kind of higher quality assets.

59:57 Got it. Thanks. That's very helpful. That's all for me and appreciate all the additional color that you guys provide on credit metrics. You bet. Thanks, Paul. Thank you. With no additional questions in queue at this time, I'd like to turn the call back over to Stacy Wang for any additional or closing remarks.

1:00:17 Thank you. That concludes our call for this quarter, and we look forward to continuing our dialogue next quarter.