Michael Ewald: Yes. It’s certainly easier for us to comment on that core middle market since that’s where we are. But having a — or being affiliated with a large broadly syndicated loan business also gives us some insights into that upper middle market/large-cap corporate market. And we are seeing that there, it seems to be — the activity seems to be driven mostly by refinancings. And again, as we mentioned, there’s a lot of BSL takeouts of formerly private credit deals. I’d say from a new platform perspective, there’s been some change there. But if you just think about the number of companies that are that big, it’s just not that big of a universe. And so, I think that the volume there is always going to be somewhat spotty. I haven’t seen a wholesale return to fresh LDO activity there, similar to what we’ve been seeing in the core middle market.
Paul Johnson: That’s helpful. On the facility, it sounds like that you’re possibly in discussions and working on that. How is that going? Do you expect that to be pricing on that to be maintained or any changes there?
Michael Ewald: Sorry, Paul, you were saying on the — on our financing?
Paul Johnson: Yes, the credit facility.
Michael Ewald: Yes. Sure. So, conversations are ongoing. We’re not expecting any material change from existing structures as we look at that extension.
Operator: Your next question comes from the line of Derek Hewett from Bank of America. Please go ahead.
Derek Hewett: Good morning, everyone. So, given elevated base rates, could you provide some color on the overall portfolio interest coverage for the first quarter versus, say, the end of the year? And then also what percentage of the portfolio has interest coverage below 1 time as of the first quarter?
Michael Ewald: Sure. So, I’ll start with the — your — the last part of your question around what percent has interest coverage below 1 time. That really is aligned with our risk rating 3s and 4s so companies that are performing less below budget. So that’s about 3% of the portfolio that has interest coverage below 1 time. In terms of interest coverage trend, we are — it has — with base rates remaining high, interest coverage has come down slightly, although we still view it to be at a healthy level. So, we were around 2 times interest coverage if I rewind about six months. We’re now closer to between 1.8 times and 1.9 times interest coverage across the overall portfolio and we do run stress tests running forward our current base rates for the next 12 months, and we do not see a material further degradation in interest coverage from here.
So, we are feeling quite good about the fact that our capital structures are appropriately levered for today’s interest rate environment, and that does dovetail to the 4.7 times debt-to-EBITDA average across our portfolio, which we think is quite defensible in today’s interest rate environment.
Derek Hewett: Okay. And then in terms of just looking at a lot of the credit trends seem to be positive, whether it’s the net leverage or the improvement in nonaccruals or the positive movement in the risk rating. But when we look at the median EBITDA, it is down meaningfully if you look at it on a quarter-over-quarter basis or on a year-over-year basis. Could you — are there lumpy types of underlying borrowers in that number? And so, the numbers skewed a little bit? And would we expect this kind of stabilize going forward?
Michael Ewald: Sure. So that really — the reduction in EBITDA is really a function of many of the companies that we harvested in the first quarter were companies where EBITDA had grown meaningfully since inception. So, think of EBITDA between $90 million and $100 million for what we exited versus new loans where we — the entry EBITDA was about $37 million on average. And so as is often the case in our segment of the market, we’ll buy a company at, call it, $30 million of EBITDA, watch it grow to $90 million or $100 million of EBITDA as an exit. And so that’s a trend that we saw in the first quarter, and that’s the reason why our EBITDA trended down, you shouldn’t view that as an indication of the negative trends in the underlying portfolio companies, but more a trend in the overall portfolio composition.
Operator: There are no further questions at this time. I would like to hand the call back to Michael Ewald for closing remarks.
Michael Ewald: Great. Thanks, Constantine, and thanks, everyone, for your time and attention today. Again, we really appreciate the support and the interest, and we look forward to bringing you more results in the future. Thanks very much. Cheers.
Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.
