Stuart Aronson: Yes. What we’re looking at is we’re looking at the earnings health of the overall portfolio offset by any accounts that we think have a risk of going on nonaccrual. And as I mentioned, already, one of our accounts will go on and on accrual in Q1, although it’ll be a very small position in the overall portfolio. If we determine that based on the term structure of interest rates, and the strength of the portfolio, that we can consistently generate returns above the $0.355, then the Board and management will probably be okay with a long-term increase to the base dividend. If we conclude that there’s going to be more variability quarter to quarter in earnings, then we would probably stick with the $0.355, and then just declaring supplemental distributions when the earnings are higher.
But based on the modeling that we’re doing so far, it does look like the BDC — as long as interest rates certainly stay above 4% that the BDC should be able to generate income in excess of the current dividend level.
Bryce Rowe: And then maybe a follow-up to that, as we think about the portfolio yield, the weighted average portfolio yield having climbed with higher base rates. Is there a timing mismatch in terms of when assets reset in terms of a rate versus when liabilities reset?
Stuart Aronson: Not much of one. Joyson, do we really have any delay there at all?
Joyson Thomas: Yes. That’s correct, Stuart. Not much. The way to think about it, Bryce is the majority of our portfolio assets, either reset monthly or quarterly. And then, with respect to draws — on the borrowings on the facility, that would in theory, reset quarterly in conjunction with the waterfall.
Operator: Our next question comes from Erik Zwick with Hovde Group.
Erik Zwick: First, just a bit of a follow-up on the kind of the discussion on the dividend from that prior question. And if I look at the futures curve for three-month LIBOR, it looks like it potentially falls below 4% sometime in the second or third quarter of 2024. So not this year, but six quarters out, not that far from here. So just curious about is there anything you could do or strategies you have in place between now and then to potentially improve earnings, because, as you mentioned, you’re considering increasing the regular dividend. And my guess is you would not want to have to cut that at any point. So just trying to kind of connect the dots there, or maybe you’ve got a different view on market rates and think they’ll stay higher longer than the markets currently anticipating. Just curious if you could provide some color there.
Stuart Aronson: Well, Erik, we’re in a very, very attractive spread environment right now. And when you take base rates and spreads, senior debt is yielding 11.5% to 13%, which is a world away from where we were a year, year and a half ago. I don’t personally believe that spreads will stay this high for an extended period. I think this is evidence of a disrupted market, with disruptive liquidity. And people being very concerned about economic softening in the marketplace. And we also look at the yield curve. But the things that we’re doing to improve earnings are number one, operating at the 125 to 135 leverage; and number two, we’ve increased our allocation to the JV, which will create more core income coming out of the JV in the future.
Because as I mentioned on my prepared remarks, the IRRs on the JV investment are in the low to mid-teens. So, we just want to run sensitivity downside cases, including with SOFR going below 4%, to make sure that if we increase the dividend, that dividend should be able to be maintained through at a minimum and extended period of projected performance. And again, if we don’t believe we can do that, then we’ll stick with the $0.355, and do supplemental dividends as we did this quarter.
Erik Zwick: I appreciate the additional color there.
