Art Penn: I don’t think there’s anything that’s under 1x interest coverage right now.
Max Mosbacher: Great. And if I may sneak in one more. Is there any material or noteworthy sales and repayments thus far in fiscal 1Q?
Art Penn: Yes. We put in a recent development, subsequent event about our deal flow. There’s been very limited repayments quarter-to-date.
Operator: We return to Paul Johnson with KBW.
Paul Johnson: Hey, guys. Sorry about that. I’m not sure I think it’s on my end here. But just kind of given like the growth, obviously, you’ve had in the JVs for both of the BDC vehicles over the last few years. I’m just curious, for the Pennant platform, what is kind of like the ideal hold size, I guess, including, again, all the JVs, the other funds that are managed in the platform in terms of the commitment from the Pennant platform?
Art Penn: Yes. So it is public information. We put this out there. We have about $6.8 billion of investable capital across the platform, including the BDCs, the JVs, a variety of private funds, SMAs, CLOs. So if you think about it in terms of proper diversification, a 2% position would be kind of a typical position that we take. So 2% times $6.8 billion, it’s about $135 million that would be a 2% position. So we say we can kind of 50 to 150 is kind of our zone.
Paul Johnson: Got it. Thanks for that. And then kind of a last one, just a little bit of housekeeping, but since we don’t have the filings available, I was wondering if you could just give the distribution on the JV for this quarter.
Rick Allorto: Sure. Sure. So the distribution from PSLF was $4.4 million, and the distribution from PTSF was $700,000.
Paul Johnson: And then, does that also include, it probably doesn’t, but the income from the sub note piece, your sub-subordinated membership in the JV as well?
Rick Allorto: It does not. That is just the equity dividend.
Paul Johnson: Thanks. Can you give have that as well or?
Rick Allorto: I don’t have the quantification of that, now.
Art Penn: It’s in the SOI. You can see the amount of the sub debt and the SOI and the coupon on it. So we can try to get it for you here, but it’s in the statement of investments that’s part of the filing.
Operator: We’ll go next to Kyle Joseph with Jefferies.
Kyle Joseph: Art, I just want to pick your brain on competitive dynamics in the market. Obviously, we’ve seen headlines and rumors of banks pulling back even further from the space given everything that’s going on in that industry this year. And then on the other hand, there’s been a ton of private capital raised. So I just want to get kind of your thoughts on competitive dynamics for the industry as we head into ’24.
Art Penn: Yes. And you’ve highlighted, Kyle, some good crosscurrents. Certainly, we’re seeing banks and regional banks exit the middle market on one hand, on the other hand, the private BDCs or perpetual BDCs have been raising capital. Most of those private perpetual folks are focused on the upper middle market, adding to the fire that’s going on there. And there’s been reports and press about the erosion of covenants and covenant protections in the upper middle market. So we’re not really seeing that maybe on the upper end of our — we say we go from 10% to 50% of EBITDA. As I said earlier, maybe at the upper end of that, we’re seeing a little bit more competition on deals or in industries that are very popular. Everyone thinks are very strong at this point.
So we’re seeing in our world kind of in this under the radar core middle market. We’re seeing the same players. And there’s very little overlap among the players. I think S&P actually does an interesting chart, which they do as part of their CLO research and kind of middle market players and kind of the players we run into the most, maybe we share deals with them 5% of the time. So it’s a massive market. We think over 2,000 middle-market private equity firms in America. They have lots of dry powder. They’re trying to do deals. Yes, there’s peers of ours, but there’s not that many, particularly those focused on the core middle market which is why we can be very thoughtful and careful and do proper due diligence where we’re not rushed and where our capital is real meaning to the borrower.
So we’re just kind of taking a one deal at a time. Thankfully, our default rate is very low, remains low, and it’s because we have this defensive posture.
Kyle Joseph: Got it. Very helpful. And then just how the Board is thinking about the dividend, given kind of the shift in the forward curve and the potential for rate reductions next year and the type of cushion you’re looking to have there?
Art Penn: Yes. It’s a good question. It’s an evolving question. Obviously, up until this quarter, I’ve raised the dividend for many, many quarters. As our income rose and as our default rate remain very, very limited. We pivoted to a monthly dividend a couple of months ago. So here, this quarter, we earned 24, we’re paying out $0.21 I think for now, we’re just going to let a percolate kind of keep a nice cushion to the monthly $0.07 per share dividend. We’ll come up for air in a couple of months and see how things are looking and see about the trends in the portfolio, see about interest rates. This PSLF JV has been really, really accretive to earnings and hopefully, we’ll continue to be very accretive to earnings. And no decisions, but it’s something we’re watching and we’re focused on.
