Blackstone Secured Lending Fund (BXSL) Q3 2026 Earnings Call Transcript

Operator: Thanks For standing by. You are 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. Teddy's call is being recorded. At this time, I would like to-- all at this time, all participants are in a listen-only mode. If you require operator assistance, please press 0. If you would like to ask a question, please signal by pressing 1. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach. At this time, I would like to turn the conference over to Stacy Wang, Head of Stakeholder Relations. Please go ahead.

Stacy Wang: 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.exsl.com. We will be referring to that presentation throughout today's call. I would 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. Or some of the risks that could affect results, please see the Risk Factors section of our Form 10 Q filed earlier today. This call is copyright material of Blackstone and may not be duplicated without consent. With that, I will turn the call over to Brad Marshall.

Brad Marshall: Thank you, Stacy, and good morning, everyone. Today, I will cover 3 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. US economic data continues to show strength and 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 a 10-year treasury moving above 5.3%, its highest level since 2002, 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 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's fundamentals. On average, across BXSL's portfolio, borrowers have grown EBITDA year over year at approximately 10% with interest coverage at 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 period. Turning to the quarter. BXSL generated net investment income, or NII, of $0.68 per share. Representing a 10.7% annualized NII yield. NAV per share was $25.25. Down 1.1% from $25.53 last quarter and we maintained our $0.77 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 $0.77 per share dividend would serve as a bridge to a level aligned with the earnings power. 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 3 years, and approximately 12% this year among the highest across our traded BDC peers. We are now completing that transition and resetting the dividend to 1 which is more closely aligned to our traded BDC peers. Our Board has declared a $0.77 per share dividend for the fourth quarter. Maintaining our existing dividend rate and then a $0.60 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 senior secured. Among the highest across our traded BDC peers. 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 lien senior secured, the story this quarter is 1 of broad based stability. Underperformance remains limited to a few isolated situations, which are reflected in our NAV marks and where we remain highly proactive in driving outcomes. Away from these names, the broader portfolio continues to perform well. We are also seeing encouraging results in some of the companies where BXCI led restructurings and now owns equity. Which I will 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 EBITDA of over $290 million and interest coverage of 2.3x. 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 13x EBITDA in public equity markets as of quarter end. And first lien 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. Non accrual ended the quarter at 2.1%, at fair value and 2.8% at cost, compared to 1.8%, 3.6%, respectively, last quarter. 3 names exited nonaccrual status during the quarter, including Medallia, while 3 were added. Across the BDC space, nonaccrual 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. In those situations, we draw on Blackstone's nearly 40 years of private equity experience, The workout expertise at BXCI, the 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 health care 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. And EBITDA has grown more than 35% year-over-year. Reflecting that recovery in fundamentals, its current mark is more than 20 points above its trough mark in 2024. Affordable Care and Dental Care Alliance, both previously on nonaccrual, we believe are benefiting from Blackstone's operating resources. Including procurement, employee health care benefits, and cost optimization initiatives. More broadly, across all of BXSL's restructured positions since inception, the realized principal recoveries, excluding coupons, plus the current unrealized value through the end of the quarter, is 0.76x. For positions that have been fully or substantially realized, recovery rate excluding coupons, was 0.87x. We also continue to benefit from selective equity upside. During the quarter, Oddex 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, which has benefited from demand tied to power infrastructure data centers, and electric. BXSL recognized approximately $10.5 million of unrealized gains on its equity position this quarter. Subject to satisfaction of customary closing conditions, This would mark our seventh realized or substantially realized equity position in BXSL with a combined MOIC of nearly 3x. On activity, repayments and sales remain elevated this year at over $650 million or roughly 20% annualized. Following over $700 million last quarter. We continue to see healthy environment for repayments. 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. We funded approximately $250 million in the quarter with new deals and add ons at all in spreads over 500 basis points. Spreads 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 are 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 times, and we intend to continue to manage within our target of 1 to 1.25x. 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 EBITDA growth for our portfolio companies remain 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. As a reminder, BXSL was designed to deliver premium current income and attractive long term returns across market 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, discipline marks, pull to par from repayments, active asset management, and 1 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 will turn it over to Teddy,

Teddy Desloge: Thanks, Brad. First, on performance. BXSL generated net investment income of $158 million or $0.68 per share for the third quarter compared to $0.77 per share dividend paid. This equates to a 10.7% annualized NII yield and 12.2% annualized distribution yield. NII declined from $0.75 per share last quarter primarily due to a smaller benefit from our 3-year incentive fee look back. The quality of our earnings continued to remain strong in the quarter. Interest income excluding payment in kind fees, and dividends represented more than 94% of total investment income. PIK income declined to 5.8% from 6.6% last quarter and over 8% in the fourth quarter of 2025. Turning to the dividend. As previously communicated, we funded the quarter's $0.77 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 $0.60 per share consistent with this 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. 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 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 $09 per share by which the dividend exceeded quarterly NII. Realized losses $0.10 per share primarily related to the realization of previously recorded unrealized losses on Medallia on 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. 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 tenure by 1 year to August 2031, with no change to pricing at 153 basis points over the base rate undrawn 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 2 new unsecured borrowings in 2026 that swaps to floating at a weighted average price of a 197 basis points over the base rate. 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 times 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 times. 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. 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 will ask the operator to open it up for questions.

Operator: Thank you. Thank you. We ask you limit yourself to 1 question and 1 follow-up question to allow as many callers to join the queue as possible. Will take our first question from Finian O'Shea with Wells Fargo Securities.

Finian O’Shea: Hey, everyone. Good morning. Just first question on the credit picture. It looks like at this point, you have gotten through a lot of the 2021 vintage underperformers. How would you or would you would you agree with that? Or do you do you think you are mostly through Or is there is there still a bit of a tail of underperformers that might carry credit headwinds into 2027?

Brad Marshall: Great. Hey, Finian. This is Brad. I can take that. I think as you look at the 2021 vintage assets, you will start to see, those, assets have maturities coming up in 2027 and 2028. So we have about 28% of our assets that mature in that time frame So over the next couple of years, And what is interesting, if you just look at the top 10 names that make up that percentage of our near term maturities. I think that is roughly about half of the names, maybe a little bit more. A 100% of those names are either seeing very strong performance are seeing equity come into the business, because of acquisitions. Some of them are for sale or going to be sold, like genuine cable. So we are seeing kind of very good tailwinds actually. In those near term maturities because that would kinda be the 2021 kind of you know, vintage assets. You know, there is a handful of assets outside of those top 10 positions that we are focused on, but they are smaller portion of BXSL and the overall portfolio. Great. Very good.

Finian O’Shea: And I also appreciate you moved with the dividend. Much cleaner picture does the does the $0.60 assume your able to hang on to spillover or would. Should we expect something, perhaps on the special dividend side next year? And would that impact ability to pay out on the $0.60 base dividend?

Teddy Desloge: Yes. Thanks, Finian. This is Teddy, I am happy to take that. I think you are 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 are 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 have been very deliberate with that approach. We were at $1.80. We are now at $1.67 of undistributed earnings per share. We expect a further decline expected through Q4. And we are still well inside of 3 quarters of spillover relative to the reset dividend which represents valuable cushion. that is been capital that is been reinvesting accretively in the portfolio that is in NAV. I would say we are always gonna 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 I am very comfortable where we are from a spillover perspective. And wanted to give the market clear visibility into aligning our dividends with the longer term earnings power of the portfolio.

Finian O’Shea: Awesome. Great color. Thank you.

Operator: We will take our next question from Richard Shane with JPMorgan.

Richard Shane: Hey, guys. Really 2 questions. Look, third quarter was a very unusual quarter in terms of deal flow. As we know, typically, August tends to be slow, September tends to be a quarter that is very weighted, towards September activity. 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.

Brad Marshall: Thanks, Rich. This is Brad. I will take that 1. I think your summary is a good 1. I think with rates moving higher, the election, I think that dampened some of the pickup in M&A activity that we were expecting. For us, in particular, we were 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 kinda drove most of our deal flow for this quarter and probably next quarter for this current quarter as well. So that is kinda generally the backdrop that we are seeing now that we are past the election, now that we have maybe a little bit more you know, clarity on rates Okay. Our expectation is that deal flow will accelerate next year, the first half. We are starting to see signs of that because we do get early requests from M&A advisers to look at financing for companies that they are going to put up for sale, and that is picked up by about 30%. From where we were maybe 2 or 3 months ago. So that is the picture. A lot of activity in existing portfolio companies, M&A, starting to reaccelerate. Into next year. Got it. And with that in mind, look, the portfolio peaked in size almost 6 months ago. Or a year ago. Actually, it was a year ago exactly. And in terms of portfolio size, you are 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? Yeah. We would love to continue to build the portfolio, Rich, either through primarily through equity issuance and so we can invest new equity dollars in new opportunities as the market accelerates. Next year. For now, we are 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 will probably see something similar. So that will drive a lot of the kind of deployment dollars in the absence of equity capital that we continue to raise. But we are also continuing to evaluate other options and other ways to continue to grow the portfolio over time. Because I think we are in line with kinda your view that it would be helpful to keep continuing to expand our assets. Got it. I have a funny feeling you are gonna 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, Rich.

Operator: We will take our next question from Melissa Wedel with UBS.

Melissa Wedel: Good morning. Thanks for taking my questions. Do not we go ahead and pick that 1 right up there? Alternative ways to grow the portfolio.

Brad Marshall: Well, again, turnover is the clearest way to continue to grow The portfolio. Recycling out of the names that we have been working on as equity owners is another way. We constantly look at whether we wanna consider a JV structure for the benefit of our shareholders, Equity issuance continues to top of mind. We are always open minded to m and a, but it has to be accretive to shareholders. We wanna be sure that there is 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, 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. Got it. And speaking hypothetically around potential m and a, I mean, obviously, shares are trading at a discount to NAV. And have been for a little bit. There are certainly other portfolios that trade at much larger discounts than that. Would you potentially consider issuing shares below NAV in order to buy assets at a much greater discount? The going back to kind of what I mentioned, our core focus is we do not wanna go out and buy a portfolio of average or below average assets. that is our kind of primary kinda North Star because we wanna be able to continue to build a high quality performing you know, portfolio And so there is growth that we wanna do that is higher quality, and that is our primary focus. But if of course, if there is a portfolio out there that we could you know, bring into BXSL to help grow, then we are gonna be entirely open-minded. The problem is as we see it, things that trade at deep discounts to you know, to NAV, trade there for a reason. And so we are very, very cautious about you know, what we are-- what is out there as potential M&A. Understood. Thanks, Brad.

Melissa Wedel: Yep.

Operator: We will take our next question from Robert Dodd with Raymond James.

Robert Dodd: Hi, everybody. A couple of questions. On the first 1, going back to the dividend, issue, if I can, not really what the level is. But if I look forward to an expectation of increasing of activity in the first half, which would probably be an increase in the back half as well next year. You heard about. On the new with the spillover that goes down a bit, you would be about 2.5 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 what should we be more thinking about, if anything, it would be discretion-- Board discretion quarterly and a little less predictable than a formulaic approach.

Teddy Desloge: Yeah. Thanks, Robert. I am happy to take that. I think first, just to answer your question directly, we are. We are we have been evaluating all different types of structures as we think about sort of the level that we set we are resetting at a level that considers sort of all knowable pieces of the long-term model today. So we have 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. Been concentrated to a small handful of assets that we are now working through And overall, the level was supported by broad based portfolio health, where challenges have been well identified and being addressed. 10% EBITDA growth, some reacceleration of growth in the portfolio, nonaccrual down for the second consecutive quarter, interest coverage over 2 times over 2 turns for 5 consecutive quarters. So you know, we are taking all sort of pieces of the model into play here. I think on spill over, we feel comfortable where we are today. We will continue to reevaluate that But at this point in time, giving clear visibility to a dividend level that is still on the higher end of peers with a portfolio that is highest first lien exposure lowest G&A, and lowest financing costs across our peer set.

Brad Marshall: And the only thing I would add to that Yep. Robert Yep. Is you know, 1 of the things that we are focused on is just the predictability of income stream. it is the reason why we do not really factor in fees that come in depending on turnover of assets. that is certainly upside when that happens. We do not rely on dividends that are coming up through other structures. So it is very kind of a high quality income stream that we are evaluating. And we wanna be able to have excess coverage at all times and if we do have and continue to have that access coverage, that only helps with, you know, build NAV.

Robert Dodd: Got it. Got it. Thank you. 1 more if I can. And this relates to your point. I mean, credit's only part of the picture for wealth, not credit. Credit is the picture for BDC to a large degree. But not accruals and not the only part of the component of credit, right, 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%. So, well north of 80% significantly above the long run industry average. Small dataset, obviously, so far for this portfolio. But, I mean, can you give us any more other than it is the Blackstone's secret sauce and we are bigger than everybody else as a kind of catalyst for why that is sustainable. 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 is your average recovery rate of 20%. So, I mean, it kind of changes the outlook materially for me and my suspicion is other, you know, investors as well.

Brad Marshall: Yeah. Thanks, Robert. Maybe I will answer it in 2 parts. 1, as you think about restructurings, we are trying to do a couple things. 1, we are trying to make sure there is no surprises. So we are marking assets down as they underperform. Last thing we want is an asset to go from 98 to 50. So you are seeing kind of that you know, movement in some of these underperformers. The second thing is we are trying to pull forward restructurings if at all possible versus trying to delay them. I think that is maybe what some parts of the market do. The advantage of pulling forward a restructuring is that you can get in there earlier, And, ultimately, you are playing for a different outcome than the equity investor And so we are very focused on doing that. Where we can. And the way we do that is we incentivize the sponsor owner of the business, to hand over the keys to Blackstone, and we give them some sort of equity participation once we fully recover our debt. So trying to actively mark the portfolio, pull assets forward, And then as you put it, you know, 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, you know, sometimes it has a marginal impact, but it always is impactful to the business. Even something like Medallia, for example, which is you know, going through this kinda more transformative change in their business model And by the way, I will give a plug for them. Forrester just ranked them as the number 1 product in their space above all their peers. But even with something like that, we are bringing them into our health care program. that is gonna save them a million dollars in expenses next year. So all these things are actually quite additive, and that is what we are you know, trying to do. And that is been something we have been focused on since we started 21 years ago. The second thing I will just say as it relates to restructurings and maybe more relevant on NAV If you look at our portfolio roughly 2 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 EBITDA growth. So there is. As these assets start to turn over, in your portfolio, you see this NAV kinda pull the par that we have, you know, mentioned on several calls. Take genuine cable where we just marked the equity up We are gonna make 4x our money on the equity. That asset last year the debt was marked at 94. They had a, you know, tricky quarter. So turnover in assets is a real driver of return for our investors. And that is why you hear us talk about it a lot. I appreciate it. Thank you.

Operator: Will take our next question from Kenneth Lee with RBC Capital Markets.

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

Brad Marshall: Yeah. So little bit tied to my comments earlier to Rich. I think this past quarter and the quarter we are in, we are seeing investment activity predominantly from our existing portfolio companies that are doing M&A and looking to grow their businesses, that is driving a lot of the deal activity which, again, we are 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 You are seeing it reaccelerate, Kenneth, in digital infrastructure, for example, in life science and pharma, You are seeing more industrial demand for capital as we think about reshoring and onshoring. Aerospace and defense is another area that is seen an uptick in activity. So the market is reaccelerating. And it is reaccelerating in certain sectors that were historically maybe a little bit less active. Gotcha. Very helpful there.

Kenneth Lee: And then just 1 follow-up if I may, just within the software portfolio there. Any color around the average LTVs that you are seeing within the portfolio now? Thanks.

Teddy Desloge: Yeah. Thanks, Kenneth. I am happy to take I would say no specific change quarter over quarter. I will say, 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, you know, we are fairly diversified. We have over 65 positions. We are financing larger companies, larger end of the market, near $300 million of EBITDA. And, you know, nearly all of our first lien exposure was set up with LTVs below 40%. So, certainly, you are gonna see a little bit of rerating of LTVs just tied to the market. That said, where we are invested we have sort of mapped those 2 multiples in the public markets. And what we see is you know, public market multiples of well north of 13x. That implies a pretty significant equity cushion below our exposure where we sit in the capital structure. Great. Very helpful there.

Kenneth Lee: Thanks again.

Operator: We will take our next question from Arren Cyganovich with Truist Securities.

Arren Cyganovich: 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 areas that you were focusing on there. Any notable you know, themes across that group?

Teddy Desloge: Yeah. Absolutely. I am happy to take that 1 as well. Thank you for the question. I would say as we look at amendment activity, you know, we wanna give this data every quarter just to give some transparency into what is 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 are 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. You know, 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. You see that in our numbers, but the vast majority of the portfolio is seeing is unaffected or seeing a positive or immaterial amendments.

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

Brad Marshall: I think what we are seeing from a spread standpoint, Arren, is that they have definitely tightened from the start of the year. Where there was a little bit more kind of market volatility. But they have not tightened all the way to kinda where they were at this time. Last year. So we are seeing 25 to 50 basis points 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 is leading to some refinancings of our existing positions, which we are 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 risk adjusted opportunities in the market because the depth of capital today is not what it was last year. Which as I think about it, represents a pretty good road map to what next year could look like if deal activity starts to reaccelerate you have less supply of capital. And the demand, you know, starts to accelerate, and that should lead to you know, spreads being fairly attractive. So that is what I would say about that. And, again, it is centering around some of these you know, assets that are in digital infrastructure, life science, the. You know, things that are a little bit more complicated. You are seeing relative value actually quite a bit better than what you are seeing even in the middle market. Thank you.

Operator: We will take our next question from Jason Stewart with Compass Point.

Analyst: Hey, good morning. Thanks. If I could ask about rates. I know you talked about the cycle and the underlying portfolio companies performing quite well going from say 0 to 5. 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, you know, 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?

Teddy Desloge: Yeah. I am happy to take that. Thanks for the question. Jason. I would probably answer that in 2 ways. First, just in terms of the reset level we mentioned that there are a couple 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, that the impact of that likely offsets potential rate benefits. From, you know, higher rates on a floating rate portfolio. We did see incentive fees lower this year due to look back mechanism and unrealized marks that was concentrated That was about a $0.06 benefit in the quarter. And overall, as we think about the fundamentals second part of the question what we see is now 5 consecutive quarters of over 2 times interest coverage ratios we have seen as Brad mentioned over half of the portfolio operate in a different paradigm than today where rates were higher We have generally seen larger companies operate, you know, more stable in more stable ways in terms of fundamentals and margin resilience for that period. So we feel very well positioned You also see that in non accruals now having declined for 2 quarters in a row. Brad also went through some of the tail stats and where we are addressing in a near term near term challenges that are well identified. So overall, you know, seeing healthy growth in the portfolio, as well as healthy cash flow trends, should support our company's in a potential environment where there is deceleration of growth from higher rates.

Brad Marshall: Yeah. I think the big push there, Jason, is that 1 interest coverage is actually pretty good today. it is whatever, 2.1 times. But the economic backdrop is actually quite favorable, and it is not kind of just around kind of the AI kind of ecosystem. We are seeing broad based kind of momentum in the economy And that is quite supportive of our companies and is an additional 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 company. Okay. that is great color.

Analyst: Thank you.

Operator: We will take our next question from Chris Muller with Citizens Capital Markets.

Analyst: Hey, guys. Thanks for taking the questions. 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?

Teddy Desloge: Yeah. I think what you. What you have seen to Brad's comments is we have been able to take advantage of a little bit of a wider spread environment this year. And that is true for you know, both new deals as well as add ons within the portfolio typically when we are committing to a newly underwritten add on to an existing portfolio company, we are generally able to price that in line with market. So as older vintages at lower spreads, pay off, we can 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 in the mid- to high-8% range. And, Chris, as I look at the fourth quarter, I think you will see a similar you know, pattern to what you saw this past quarter with new investments spreads being higher than repayments from what we see today.

Analyst: Got it. And then I think you guys said 3 new non accruals in the quarter. Are there any common themes in those like sector, geography or sponsor?

Brad Marshall: Great question. No common themes. And I would say that is, you know, consistent with the with the past. It. it is very idiosyncratic. You know, in 1 case, they, you know, they threw the business too quickly and were. are not able to manage their costs appropriately. And now we just need to kinda reset kind of the you know, the business. The base business and grow the business. By the way, not terribly dissimilar to what we are seeing in some of our other kind of health care service businesses where you know, the sponsor goes in and you know, tries to do a bunch of M&A and really accelerate the growth of the business because that is what you know, they are kind of their focus is. And then along the way, they may kinda you know, lose control over kind of the cost side of the business 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 is been a pretty good playbook for us historically.

Analyst: Got it. it is very helpful. Appreciate you guys taking the questions. Sure thing, Chris. Thank you.

Operator: We will take our final question from Paul Johnson with KBW.

Paul: Hey, good morning. Thanks for taking my I was just wondering if you can kind of talk to just competition from banks. In the BSL market, what you have 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 is something you have seen more of not? Yeah.

Brad Marshall: So thanks, Paul. The liquid broadly syndicated market is actually quite strong. there is not a not a lot of supply of new deals. But there is a lot of demand. Lot of capital that is in that market looking to deploy. So you have seen spreads kind of decline in the broadly syndicated market. So you are seeing a lot of I would not say it is competition from the banks because the banks are just underwriting and distributing. it is more from CLOs, which have a lot of appetite. What CLOs do not have appetite for is underperforming assets. And so you have seen those assets that are typically downgraded to b 3 or triple c. You have seen those kind of trade down quite a bit. Those are not assets that the private markets are looking to rescue. You do have more distressed funds that are potentially you know, providing kind of capital solutions that may be pari or senior to the liquid loans. But those are more distressed type activities. So to summarize, the broadly syndication market is quite strong. But only for higher quality assets. Got it. Thanks. that is very helpful. that is all for me, and I appreciate all the additional color that you guys provide on, credit metrics. You bet. Thanks, Brad.

Operator: Thank you. With no additional questions in queue at this time, I would like to turn the call back over to Stacy Wang for any additional or closing remarks.

Stacy Wang: Thank you. That concludes our call for this quarter. And we look forward to continuing our dialogue next quarter. Thanks.