New Mountain Finance Corporation (NASDAQ:NMFC) Q1 2025 Earnings Call Transcript

New Mountain Finance Corporation (NASDAQ:NMFC) Q1 2025 Earnings Call Transcript May 6, 2025

Operator: Good day, and welcome to the New Mountain Finance Corporation’s First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note that, this event is being recorded. I would now like to turn the conference over to Mr. John Kline, President and Chief Executive Officer. Please go ahead.

John Kline: Thank you, and good morning, everyone. Welcome to New Mountain Finance Corporation’s first quarter 2025 earnings call. On the line with me here today are Steve Klinsky, Chairman of NMFC and CEO of New Mountain Capital; Laura Holson, COO of NMFC; and Kris Corbett, CFO and Treasurer of NMFC. Steve is going to make some introductory remarks, but before he does, I’d like to ask Kris to make some important statements regarding today’s call.

Kris Corbett: Thanks, John. Good morning, everyone. Before we get into the presentation, I would like to advise everyone that, today’s call and webcast are being recorded. Please note that they are the property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our May 5th earnings press release. I would like to call your attention to the customary Safe Harbor disclosures in our press release and on Page 2 and 3 of the slide presentation regarding forward-looking statements. Today’s conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections.

We do not undertake to update our forward-looking statements or projections unless required to by law. To obtain copies of our latest SEC filings and access the slide presentation that we will be referring to throughout this call, please visit our website at www.newmountainfinance.com. At this time, I’d like to turn the call over to Steve Klinsky, NMFC’s Chairman, who will give us some highlights beginning on Page 5 of the slide presentation. Steve?

Steve Klinsky: Thanks, Kris. It’s great to be able to address you all today both as NMFC’s Chairman and as a major fellow shareholder. Adjusted net investment income for the quarter was $0.32 per share, covering our $0.32 per share dividend that was paid in cash on March 31st. Net investment income was supported by consistent recurring income from our loan portfolio, no new non-accruals and a $1.5 million permanent waiver of incentive fees in connection with the Dividend Protection Program. Our net asset value per share of $12.45 declined $0.1 or 80 basis points, demonstrating relatively stable credit performance across our portfolio. Importantly, there were also notable strengths in at least two key areas. First, over 96% of our portfolio is green on our heat map with no red names.

Second, according to analyst estimates, NMFC has only 2% exposure to the sectors most at risk for tariffs, versus a 13% exposure for our peers on average. NMFC lends chiefly in sectors such as health care, information technology, software, insurance services, and infrastructure services, which generally have very low direct exposure to tariffs, federal funding changes and other potential regulatory impacts. NMFC’s portfolio’s loan-to-value stands at just 43%. Our lending lines are being refinanced at lower rates and our percentage of first lien assets is growing, while our PIK income and second lien income is falling. Looking forward to Q2, we would like to announce a $0.32 dividend payable on June 30th to shareholders of record on June 16th.

Our Q2 dividend will be supported by our strong recurring earnings, better fee income from increased portfolio activity compared to Q1, and if necessary, the Dividend Protection Program, which can provide up to $0.02 of extra dividend support per quarter. Our current stock price implies a 21% discount to book value, and the dividend of $0.32 quarterly or $1.28 annually represents a 13% yield, all with a 14 year track record of just 7 basis points of net realized loss per year. I and my fellow managers at New Mountain are the largest shareholders of NMFC, and have steadily increased our ownership level over time. We believe that, NMFC’s current trading levels do not reflect the intrinsic or fair value of the NMFC portfolio. As previously announced, our Board has authorized a stock repurchase program that enables us to buy back up to $47 million of NMFC shares.

In recent weeks, we have been in a blackout period, but we plan to be active in the market at these levels, as soon as our purchasing window opens later this week. We believe that our current share price represents a compelling entry point for prospective investors, as we seek to deliver stable, consistent yield and exhibits clear opportunity for equity upside in the months ahead through further advancing our strategic imperatives. Stepping back to view New Mountain Capital at the institutional level, we successfully raised our $15.4 billion Private Equity Fund 7 last year, which was one of the very largest PE fundraisers of any firm anywhere, and was up from $9.6 billion in size for the previous fund. New Mountain’s private equity funds have never had a bankruptcy or missed an interest payment, and the firm now manages over $55 billion of assets.

We employ over 90,000 people at our PE portfolio companies in the field, and our New Mountain team has now grown to over 280 employees and senior advisors, plus approximately 70 members of our Executive Advisory Council. Our goal is to apply all this same PE business building skill and knowledge to benefit NMFC as well. For example, when NMFC inherited control of UniTek Corp, Unitek was a failing provider of DIRECTV satellite dish services. The earnings power of UniTek has grown very substantially under New Mountain’s oversight, and the company has emerged as a leading service supplier to broadband companies and to a rapidly growing universe of AI data centers. NMFC received $42 million of capital from a partial sale of UniTek last quarter, realized a gain and monetized accrued PIK income.

Our goal at both New Mountain and at NMFC is to continuously improve each year. We thank you for your ownership and partnership, and we are working diligently to serve your interests in the months and years ahead. With that, let me turn the call to John.

John Kline: Thank you, Steve. I would like to begin by offering a brief review of our direct lending investment strategy. Starting on Page 8, we highlight our exposure to a diversified list of defensive, non-cyclical sectors. These sectors map to the industries, where New Mountain has made successful private equity investments and where our firm’s knowledge is the strongest. As Steve highlighted, our sector-focused advantage underwriting model and strong shareholder alignment are key strengths that will drive our future success. Page 9 addresses NMFC’s exposure to tariffs, which in our view is negligible. When we consider the overall direct lending market, we believe that, most tariff exposure can be found in the gray area of the pie charts on the top of the page, which include more capital-intensive sectors like industrial materials, consumer goods and building products, all sectors that we actively avoid.

Based on a comprehensive review of NMFC’s portfolio, we have identified only one position, which represents just 0.6% of total fair value, which is materially impacted by the current level of foreign tariffs. Conversely, over 99% of our portfolio is relatively insulated from this volatility, given our sector focus. NMFC’s tariff exposure stands in stark contrast to the overall BDC sector, which has approximately 13% exposure to tariff-sensitive industries. Page 10 provides key performance statistics showing a long-term track record of delivering consistent enhanced yield to our shareholders by minimizing credit losses and distributing virtually all of our excess income to our shareholders. Since our IPO in 2011, NMFC has returned approximately $1.4 billion to shareholders through our dividend program, generating an annualized return of approximately 10% with a current dividend yield of 13%.

Turning to Page 11. NMFC continues to make great progress on strategic priorities that we outlined back in February. During the first quarter, we increased senior oriented assets from 75% of the portfolio in Q4 to 77% as of the close of Q1. On the position diversity front, we continue to focus on reducing our top positions to less than 2% of fair value. In Q1, we had material partial repayments in UniTek and Kaseya, formerly two of our largest positions, and we have line of sight on a full repayment of Office Ally, which is a 2.5% position. Our liability stack continues to improve as we executed a re-pricing of the Wells Fargo credit facility from SOFR plus 215 to SOPR plus 195. In the income category, with the announced sale of Office Ally during Q2, we will monetize approximately $15 million of non-yielding equity, which will be redeployed into cash yielding loans.

Our cost basis on this investment is $2 million and as of Q4, NMFC marked a position at just $8 million. Finally, our percentage of PIK income decreased this quarter from 19% to 17%, primarily as a result of the exits shown in detail on Page 19. We expect continued steady improvement in PIK income over the remainder of the year. As shown on pages 12 and 13, the internal risk ratings of our portfolio were consistent with the prior quarter at 96.5% green rated. Similar to the prior quarter, we have no companies rated red and importantly, we had no negative risk rating migrations during the quarter. Our most challenged names, marked orange, represent only 1.2% of NMFC’s fair value, making them a negligible part of our portfolio. Turning to Page 14, we provide a graphical analysis of NAV changes during the quarter, resulting in a book value of $12.45, a $0.1 decline compared to last quarter.

Overall, the quarter benefited from good core credit performance, improvements at health systems and a $7 million write up in our equity position in Office Ally, offset by modest declines in the value of certain equity positions, the largest of which relates to UniTek. While we held the company’s enterprise valuation at the recent deal value, the Board implemented an updated management incentive plan, which modestly reduced NMFC’s holding value. Core operating performance at UniTek continues to be on plan, and we are hopeful for continued momentum throughout the course of the year. Page 15 addresses NMFC’s non-accrual performance. On the left side of the page, we show that non-accruals continue to be very low with only $38 million or 1.2% of the portfolio on non-accrual.

On the right side of the page, we show our cumulative credit performance since IPO. During that time, NMFC has made nearly $10.2 billion in investments, while realizing losses of just $29 million. This represents an average annualized net realized loss rate of approximately 7 basis points since IPO. On Page 16, we present NMFC’s consistent and compelling returns over the last 14 years. Cumulatively, NMFC has earned $1.4 billion in net investment income, while generating only $29 million of cumulative net realized losses and only $98 million of cumulative net unrealized depreciation, resulting in nearly $1.3 billion of value created for shareholders. I will now turn the call over to our Chief Operating Officer, Laura Holson to discuss the current market environment and provide more details on NMFC’s quarterly performance.

Laura Holson: Thanks, John. Episodic new deal activity continued in Q1, but our expectation for a significant uptick in M&A has largely been dampened by recent market events. We’ve seen a pause in most M&A activity, although certain high quality assets continue to trade, and the backlog remains exceptionally full given the extended hold times for many PE-owned assets. We believe direct lending remains an attractive asset class in today’s market and continues to provide attractive risk-adjusted returns relative to other asset classes. The direct lending market is inherently more insulated from volatility, as compared to other markets, given the senior oriented and floating rate nature as well as low loan to values. The certainty of execution that it offers sponsors also positions it well as a financing source relative to the broadly-syndicated market which has effectively closed at times recently due to market volatility.

Spreads while tighter than 12 months ago have stabilized at these lower levels even post Liberation Day. We attribute that to the lack of supply associated with a lower deal flow environment and the significant dry powder across direct lending. We continue to find opportunities in our defensive growth verticals, where we can make loans that attach $1.01 in the capital structure at 9% to 10% unlevered returns. Deal structures remain compelling with significant sponsor equity contribution, representing the vast majority of the capital structures. Page 18 presents an interest rate analysis that provides insight into the effective base rates on NMFC’s earnings. The NMFC loan portfolio is 85% floating rate, and 15% fixed rate, while our liabilities are 50% floating rate and 50% fixed rate.

Pro forma for the 2022 convert and 2021 unsecured notes maturities over the next nine months, we expect our mix will shift towards 75% floating and 25% fixed. As shown in the bottom table, while we would expect to see earnings pressure in the scenarios where base rates decrease, we are evolving our capital structure to help offset some of that pressure. Moving on to Page 19, in Q1, we originated $121 million of assets offset by $187 million of repayments and sales. Notable repayments in the quarter included preferred equity investments in UniTek, Nord Anglia and Kaseya, all of which represented an opportunity to collect our previously accrued PIK in full. Turning to Page 20, approximately 77% of our investments, inclusive of first lien, FLPs and net lease are senior in nature, up from 75% in the prior quarter.

Second lien positions represent just 6% of our portfolio. Approximately 8% of the portfolio is comprised of our equity position, the largest of which are shown on the right side of the page. We continue to dedicate meaningful time and resources to business building at these companies, all of which we believe are making positive progress. As evidenced by the UniTek strategic transaction, our ability to own and operate businesses is a key differentiator. We leverage the full operating capabilities of our private equity team and approach our credit equity position like any other New Mountain Capital owned business. As mentioned earlier, we have a strategic imperative to decrease our overall non-yielding equity position. We think examples like Office Ally are successful case studies of our ability to identify attractive equity co-investment opportunities alongside unitranche loans, monetize them at a significant gain, and then redeploy into cash-yielding assets.

Page 21 shows that the average yield of NMFC’s portfolio decreased modestly to 10.7% for Q1, due to the downward shift in the forward SOFR curve and repayment of higher yield preferred equity investments. Generally speaking, even though spreads are tighter, as evidenced by lower yields on our originations compared to on our repayments, total yields remain attractive for the risk. Page 22 highlights the scale and positive credit trends of our underlying borrowers. The weighted average EBITDA of our borrowers decreased in the first quarter to $170 million, due to the realization of some larger companies during the quarter, partially offset by underlying growth at the individual companies we lend to. We also show the relevant leverage and interest coverage stats across the portfolio.

These metrics have remained consistent over the last several quarters. Loan to values continue to be quite compelling and the current portfolio has an average loan to value of 43%. Finally, as illustrated on Page 23, we have a diversified portfolio across 119 portfolio companies. Excluding our investments in the SLPs and net lease funds, the Top 10 single name issuers account for 26% of total fair value and represent our highest conviction names. As mentioned earlier, following the partial monetization of UniTek, that position decreased from 3.5% to just 2.2% of fair market value. Kaseya also decreased from 2.8% to 0.4%, given the refinancing that occurred and we expect Office Ally to be removed from our Top 10 list following that transaction close.

I will now turn the call over to our Chief Financial Officer, Kris Corbett, to discuss our financial results.

Kris Corbett: Thank you, Laura. For more details, please refer to our quarterly report on Form 10-Q that was filed yesterday with the SEC. As shown on Slide 24, the portfolio had over $3 billion in investments at fair value on March 31st and total assets of $3.2 billion with total liabilities of $1.9 billion of which total statutory debt outstanding was $1.5 billion. Net asset value of approximately $1.3 billion or $12.45 per share was down slightly compared to prior quarter. At quarter end, our statutory debt to equity ratio was 1.15:1 and 1.09:1 net of available cash on the balance sheet, which is in the middle of our target range of 1x to 1.25x. On Slide 25, we show our quarterly income statement results. For the current quarter, we earned total investment income of $86 million, a 5% decrease over prior year.

Total net expenses of $51 million decreased 4% versus prior year, inclusive of the fee waiver previously mentioned. Our adjusted net investment income for the quarter was $0.32 per weighted average share, which covered our Q1 dividend. Slide 26 highlights that, 96% of our total investment income is recurring in the first quarter. For Q1, PIK interest income represented only 8% of total investment income, down from 10% in the fourth quarter. Non-cash dividend income from our preferred equity investments represented 9% of total investment income, consistent with prior quarter and aligned with our strategy to selectively invest in attractive, high conviction junior capital positions, where the risk-adjusted returns are especially compelling. Importantly, investments-generating, non-cash income during the first quarter are marked at a weighted average fair value of 92% of par and over 97% of this income is generated from our green rated names.

Additionally, over 80% of this income is generated by physicians that included PIK from inception to best enable these borrowers to execute on their strategic growth plans. In the first quarter, we collected $32 million of PIK income associated with partial exits of UniTek and Kaseya and full exit of Nord Anglia. We continue to make progress in monetizing PIK income and see continued opportunities to do so in the coming quarters. Turning to Slide 27. The red line shows the coverage of our dividend. For Q2 2025, our Board of Directors has again declared a dividend of $0.32 per share. On Slide 29, we highlight our various financing sources and diversified leverage profile. Taking into account SBA guaranteed debentures, we have $3 billion in total borrowing capacity with nearly $1.2 billion available on our revolving lines, subject to borrowing base limitations.

This more than covers our unfunded commitments $250 million and represents a substantial cushion in the event of continued volatility. As previously mentioned, we successfully amended our Wells ABL facility, which reduced our spread from SOFR plus 215 to SOFR plus 195. Additionally, we extended the maturity of the facility by seventeen months to March 2030. We believe this successful re-pricing represents best-in-class execution. We are thankful for Well’s long-term partnership and confidence in NMFC’s platform. Looking forward to the remainder of 2025, the facilities outlined in red represent opportunities we see to refinance and reduce our cost of financing in the medium-term. Finally, on Slide 30, we show our leverage maturity schedule. We continue to ladder our maturities and have sufficient liquidity to manage upcoming maturities in 2025 and early 2026.

Notably, over 65% of our debt matures in or after 2027, with near-term maturities representing an opportunity to continue to access the investment grade bond market. With that, I would like to turn the call back over to John.

John Kline: Thank you, Kris. NMFC’s investment portfolio is very well-positioned in today’s market environment. We are invested in the right sectors and our team continues to make material progress on our strategic priorities. We once again would like to thank all of our stakeholders for the ongoing partnership and support and look forward to speaking to you again on our next call in August. I will now turn things back to the operator to begin Q&A. Operator?

Operator: Thank you. [Operator Instructions] The first question comes from Finian O’Shea with Wells Fargo. Please go ahead.

Q&A Session

Finian O’Shea: Hi, everyone. Good morning. Congrats on the rotations announced. I actually wanted to ask about UniTek, which looked pretty complicated, so bear with me. Let me try. It looked like the warrants appreciated meaningfully. Those were realized as a gain. And then you characterized as a pay down on the second liens in pref. Those also, their cost basis was rolled into new prefs, but it looked like those had the consequent write downs. So why not charge them off, or is there any indication that, there should still be recovery there pursuant to the cost basis?

John Kline: Yes. Thank you for the question. Yes, UniTek capital structure is very complicated and we appreciate the question and we’re happy to walk anyone on this call through it on a separate call. But big picture, I’ll try to make sense of this all. Big picture, we have about $52 million of cash invested from NMFC into UniTek across all the different tranches. We also have about $62 million of accrued pick in UniTek, so that makes up a cost basis of about $114 million. When we look at this transaction, with the transaction, we paid $42 million was paid to NMFC, and we retained a stake of $67 million. So, that’s about $109 million of value that either we’ve received or we are holding on the balance sheet. So, that’s very big picture.

The complication on UniTek comes from two things. One, we have all these different layers of preferred stock that basically represent different periods of time where we put new money into the deal. And then, the most complicated, but also the most value-enhancing thing that we did was in 2020, when a lot of businesses were really struggling. We put in, along with a couple other co-investors, a second lien term loan that had a 15% PIK rate and warrants to take up to 50 of all the different tranches are preferred, 50% of the company in other words. And so, the way that second lien works was the second lien gets the greater of par plus accrued on the second lien or 50% of the company. So, when we exercised, when we entered into this transaction, the value of 50% of the company was greater than par plus accrued on the second lien.

So, we basically took a grossed up value of all the tranches across the entire capital structure, and that’s what we now hold. So, that was the way the warrant was effectively converted. And so, in the appendix, we did try to show the pre-transaction amounts, par basis of all the different tranches. We try to show the warrant conversion, and then, I think we very clearly showed the pay down of $42 million and then the residual fair value of $67 million, when we think about what is sort of what are the operable securities in the capital structure? It’s really the super senior preferred, where we have $56 million of par value and then we value that tranche at about $45 million. And then we have the senior preferred, which has no PIK rate at all on it, which we value at about $21 million.

Hopefully, that helps explain a complicated situation. But big picture, we have about $52 million of cash in this investment. We’ve accrued some PIK. We’ve paid out $42 million and we retain a valuation of $67 million on the securities that we currently hold.

Finian O’Shea: Okay. Appreciate that. I think I’ll have to study the transcript. But, the income was pretty stable overall. Is that, what we should still expect going forward on UniTek?

John Kline: Yes. So, we’re accruing income on just the super senior pref, which is the largest part of what we own in UniTek as shown in the appendix and in the SOI.

Finian O’Shea: Okay. And then I guess just one high-level follow-up on the control legacy names, Permian Benefits momentum as well. There’s interest dividend and other income parts to all of them. High level, is that how close to those numbers that you earn, the BDC earns reflect cash operating earnings, or is this more based on some long-term exit value, more of like a capital appreciation type income stream? Thanks.

John Kline: Fin, that final question. Are you talking about how we value some of our…

Finian O’Shea: No, no. For all the control and affiliate names, like, how you derive the income, like, there’s interest components, there’s dividend components, a little bit of other income across, say, the big four names. Like, do those quarterly amounts that you earn from your control book? Do those — how close are those tied to like underlying cash operating earnings?

John Kline: I see. Understood. Yes. Basically, there is a contractual rate on securities in the capital stack and we will take that contractual rate as long as we deem it to be collectible and well within the balance of reason, as it relates to valuation and that’s where we stand on, as it relates to UniTek and Benevis and any other control name.

Finian O’Shea: But is it fair to say that, when you deem that collectible, that’s based on a long-term exit under improved conditions?

John Kline: No. I think we deem it collectible based on fair market value today. So, we think it’s all very much collectible when we think about those names. So we’re not projecting forward. It’s collectible based on the valuation that we have the names at today.

Operator: [Operator Instructions] The next question comes from Robert Dodd with Raymond James. Please go ahead.

Robert Dodd: Hi, guys. On the kind of like the market outlook, I think Laura said spreads have compressed over time, but they’ve stabilized post kind of Liberation Day. Are you starting — are you seeing any evidence of spread widening with the current market volatility? I mean, I’ve heard mixed messages on this. On the one hand, there’s a lot of dry powder to be deployed. On the other hand, there’s not a lot of activity. I mean, any color on what you’re seeing kind of like live as we speak?

Laura Holson: Yes. I would say, live what we’re seeing is spreads and pricing be pretty stable. Maybe at the margin we’ve seen a little bit incremental OID on new deals that we’re looking at, but again it’s kind of around the edges. And I do think that’s largely driven by the technicals that I alluded to, which is just a lot — a lack of supply overall and a lot of cash on the sidelines. So that’s what we’re seeing live. But again, even at these tighter levels, we do think that the opportunity to generate 9% to 10% unlevered return at sub-40% loan to value in high quality businesses is still pretty attractive.

Robert Dodd: Got it. Thank you. Kind of a bigger question. I mean, obviously, the Dividend Protection Plan kicked in kind of a bit this quarter. Fee income wasn’t super high, but when we look at the forward curve, obviously, rates for the quarter were effectively in the low 4s and the forward curve a year from now is kind of in the low 3s. Do you think you have enough levers between things like Ally, reinvesting non-income producing equity between on the capital stack, your leverage isn’t super high. It’s not low, but it’s not super high. Do you think you have enough levers between all of those kind of tools faced up against, what it looks like we’re going to see on SOFR with the forward curve that the Dividend Protection Plan is sufficient to cover the dividend as we go through that part of a declining rate cycle? You’ve got a lot of tools, but you’ve got base rates. I mean, any thoughts?

John Kline: Yes. Sure. We see a really good opportunity to optimize some of our financing. We talked about that. One area that we haven’t talked quite as much about is, we think, we have a real opportunity to optimize financing on the SLPs, the senior loan programs, which is a material part of our portfolio. So, I think that’s a lever we have. Office Ally is a lever. We do strangely enough see good portfolio activity in Q2 despite the volatility. So, I think what we see is, we do see good companies have the ability to refinance and also do new deals. So, we see pretty good velocity right now in Q2. Of course, the dividend protection, which we talked about. And then, I think it’s unclear what way the market is going to go over the next three to four months.

Right now, as Laura said, it does feel like spreads are tighter than they should be, just given the amount of cash that we see in the market. But I think there could be some really good opportunities to deploy. Time will tell. We’ll just have to see on that. Long-term, when we look at the forward curve, it’s tough to read too much into it and there’s just so much volatility. I don’t think we spend a lot of time stressing about it. There’s no doubt that, if base rates are pressured, upfront fees are pressured and spreads stay a little bit compressed, that’s going to be a return on equity headwind for the entire industry. And, of course, we’ll be affected by that as well. But I think we do have a lot of leverage that I outlined. And the other thing that will be interesting for us is, we do have some high cost debt or higher cost debt that’s coming due.

So we have a little bit of a hedge there. If base rates come down, that could provide us with a good opportunity to refinance some of that debt. We’ll see. But, that’s another thing that we’re watching intently.

Robert Dodd: Got it. Thank you. And then, if I can one more, kind of flipping back to Fin’s question on UniTek and I’m looking at the appendix. I mean, to that point on the junior preferred, obviously, it was — pre-transaction was $15 million. It accounted for a large chunk of the allocation from the warrant conversion. And so, now it’s par 148 with zero fair value. To that point, is there a reason to not realize the loss on that? Like, I mean, it’s basically — I mean, there can be legal reasons, there can be all sorts of reasons from a structural perspective to not realize that, or is basically bottom line is kind of zero the recovery from that and if it is, why not take the realized loss on that now, unless there’s some kind of other structural reason not to do that?

Kris Corbett: Sure. When we look at the comment, the junior preferred, the amount of dollars we have in those, the cash dollars are actually very low. We haven’t been accruing on them for a while. They are part of the capital structure. So, I think from an accounting perspective, we do have the duty to show them. But the losses just aren’t that great and basically you can see that all the value really sits in that senior in the super senior preferred and senior preferred. We have co investors across the capital stack. So, if we control this just unilaterally, we could clean a lot of the stuff up and it would make my life a lot easier. But we do have different ownership percentages of minority investors across this stack. So, we can’t just wipe it away.

But there aren’t big, big losses that haven’t been taken. We have conservative marks on the junior part of the capital structure, and you can see that, the value really resides in the more senior prefs. Anything I missed Kris or no?

Kris Corbett: No.

Robert Dodd: No, I appreciate that. Thank you.

Operator: Thank you. The next question comes from Arth Winston with Pilot Advisor. Please go ahead.

Arthur Winston: Thank you and thanks for the continued credit performance. Obviously, thanks as a seven year shareholder. Thanks for the Dividend Protection Program and happy to see that hope you go after the stock repurchase program that you can do aggressively. I just had two less sophisticated questions. Number one, what you suggested on the PIK income, I think the implication is that, the PIK income should go down going forward is what you were trying to suggest?

John Kline: Yes, yes. We’ve really — we think we’ve been hit hard from a stock perspective based on our PIK levels, and we’ve acknowledged that they’re higher than we want them to be. To some degree, we feel like, we’ve gone out of fashion a little bit. We have a lot of really good PIK investments that are going to make our shareholders a good amount of money. But really, I think what the market wants are lower PIK levels and we understand that and we’re working to deliver that. So we made good progress this quarter in moving our total PIK income down. And based on our deal expectations, our repayment funnel, we really see continued progress on that front, so that, we can be more in the low teens, so 10% to 12% would be a target that we’ve talked about in the past. We’re at 17% today, so we’re not yet there, but we really we’re driving hard to get there.

Arthur Winston: Good. I hope it goes in the right direction. Next thing, just to follow on from what you said in February and on this conference call in terms of better matching the variability of the assets and liabilities. I think what you’re suggesting is that, everything else being equal, the opportunity to refinance some of the debt means that, the balance should improve slowly but surely going forward in terms of matching?

John Kline: Yes. I mean, I have Laura give some comments, but we think our balance sheet is in great shape. We have a massive amount of liquidity. We have a lot of undrawn credit lines. We’re laddered very effectively, and we have, I think, a near-term opportunity to potentially refinance certain of our unsecured debt tranches at better rates. So we’re excited about the direction that we’re headed and we really think we have made a lot of progress on the right side of the balance sheet.

Arthur Winston: Good. Just one last question. Could you just quickly review the extent that the Dividend Protection Program can last? What is the timing on that continuing?

Laura Holson: It’s in place for full year 2025 and 2026.

Arthur Winston: Calendar year 2026?

Laura Holson: Correct.

Operator: Thank you. [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Mr. John Kline for any closing remarks.

John Kline: Great. Well, thank you for joining our call today. Thank you for the questions, and we look forward to speaking to you after our Q2. Have a great day.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.