Portman Ridge Finance Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2024

Key Takeaways

  • Net investment income rose to $6.5 M ($0.70/share) in Q2, up from $6.2 M ($0.67/share) despite challenging market conditions.
  • Amended revolving credit facility with JPMorgan: capacity increased by $85 M to $200 M, margin cut from 2.8% to 2.5%, and reinvestment period extended to August 2026, enhancing liquidity.
  • Net asset value fell $1.36 to $21.21/share due to $12.8 M of realized and unrealized losses on debt investments, driven largely by markdowns in legacy positions.
  • Private credit spreads compressed by up to 75 bps year-to-date for borrowers with EBITDA above $50 M, reflecting increased competition from syndicated markets.
  • Repurchased 79,722 shares for $1.6 M in Q2, accretive to NAV by $0.03/share, and approved a $0.69/share Q3 distribution representing a 13% annualized return on NAV.
AI Generated. May Contain Errors.
Earnings Conference Call
Portman Ridge Finance Q2 2024
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Portman Ridge Finance Corporation's 2nd Quarter 2024 Earnings Conference Call. An earnings press release was distributed yesterday, August 8, after market close. A copy of the release, along with an earnings presentation, is available on the company's website at www. Portmanridge.com in the Investor Relations section and should be reviewed in conjunction with the company's Form 10 Q filed yesterday with the SEC. As a reminder, this conference call is being recorded for replay purposes.

Operator

Please note that today's conference call may contain forward looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward looking statements as a result of a number of factors, including those described in the company's filings with the SEC. Portman Ridge Finance Corporation assumes no obligation to update any such forward looking statements unless required by law. Speaking on today's call will be Ted Goldthorpe, Chief Executive Officer, President and Director of Portman Ridge Finance Corporation Brandon Satoran, Chief Financial Officer and Patrick Schaeffer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of Portman Ridge.

Speaker 1

Thank you. Good morning and welcome to our Q2 2024 earnings call. I'm joined today by our Chief Financial Officer, Brandon Satoran and our Chief Investment Officer, Patrick Schaeffer. Following my opening remarks on the company's performance and activities during the Q2, Patrick will provide commentary on our investment portfolio and our markets and Brandon will discuss our operating results and financial condition in greater detail. Yesterday, Foreman Ridge announced its Q2 2024 results.

Speaker 1

And despite operating under challenging market conditions, we reported net investment income of $6,500,000 or $0.70 per share, an increase in $300,000 or $0.03 a share as compared to the prior quarter. A well diversified portfolio remains one of our highest priorities for Portman Ridge portfolio and I'm pleased to share that we finished the quarter with exposure to 28 industries and 75 unique portfolio companies with an average par balance of $2,600,000 This compares to 27 industries and 79 unique portfolio companies with an average par balance per entity of $3,100,000 as of March 31, 2024. Further, subsequent to quarter end, we amended and extended our existing senior secured revolving credit facility with JPMorgan Chase Bank. Under the terms of the amendment, we increased the facility size by $85,000,000 to $200,000,000 and reduced the applicable margin by 30 basis points from 2.8% per year to 2.5% per year. Additionally, the reinvestment period was extended from April 29, 2025 to April August 29, 2026, terming out our revolving period by 2 years and improving the company's asset liability matching.

Speaker 1

The remaining $85,000,000 of secured notes will be refinanced with the upsides of the credit facility. We value the long term commitment and relationship we have with our lenders and JPMorgan, a world class financial institution. The amended credit facility will provide us with meaningful liquidity as well as the flexibility to grow the company's balance sheet as we look to capitalize on future investment and origination opportunities. We continue to believe our stock remains undervalued and as such, we continue to repurchase shares under our share repurchase program. During the Q2, we purchased a total of 79,722 shares from aggregate cost of $1,600,000 These repurchases were accretive to Portman's net asset value by $0.03 per share during the quarter.

Speaker 1

Additionally, Board of Directors approved a $0.69 per share distribution for the Q3 of 2024, which represents a 13% annualized return on net asset value amongst the highest in the BDC space. Turning to conditions in our primary market, the Q2 of 2024 continued the macro trends seen in the Q1. New deal activity has picked up pace and syndicated markets have continued to remain open, but borrowers have continued to rely heavily on private credit capital providers for M and A activity given the certainty they provide resulting in tailwinds for our industry. Having said that, the combination of continued private credit capital raising and a more competitive syndicated market alternative has led to meaningful spread compression in certain parts of the private credit market. According to KBRA DLD Private Data, private credit spreads for borrowers with greater than $100,000,000 of EBITDA and those between $50,000,000 $100,000,000 of EBITDA have both declined by approximately 75 basis points since the beginning of the year.

Speaker 1

That is compared to spread compression of approximately 50 basis points for borrowers between 20 50 of EBITDA and just over 25 basis points for borrowers with less than 20 of EBITDA. As always, our strategy at Fortman is to be selective regarding new investment opportunities by leveraging the platform scale of BC Partners and its robust deal pipeline, while also increasing the diversification of our investment portfolio through hold size. As an example, during the quarter, we made only 2 investments in portfolio companies, one comprising a 4 to support to support their add on acquisitions. Patrick will provide details shortly. This has allowed us to maintain a relatively consistent spreads on new origination as compared to our portfolio as a whole.

Speaker 1

As we enter the back half of twenty twenty four, we remain confident in our business With our amended credit facility, robust pipeline, strong balance sheet, we believe we are well positioned to continue executing our strategy and delivering strong returns for our shareholders. With that, I will turn over the call to Patrick Schaeffer, our Chief Investment Officer for a review of our investment activities. Thanks, Ted. Turning now to

Speaker 2

Slide 5 of our presentation and the sensitivity of our earnings to interest rates.

Speaker 1

As of June 30,

Speaker 2

2024, approximately 89% of our debt securities portfolio was either floating rate with a spread pegged to an interest rate index such as SOFR or prime rate, with substantially all of these being linked to SOFR. As you can see from the chart, SOFR rates have remained relatively consistent for the last 5 quarters. Skipping down to slide 10, originations for the quarter were lower than last quarter and were also below the current quarter repayments and sales levels, resulting in net repayments and sales of approximately $18,200,000 During the quarter, we took advantage of rising secondary prices to exit or materially reduce a number of our more liquid loans. This proactive rotation represents a substantial portion of the net repayment and sales amounts. Our new investments made during the quarter are expected to yield a spread to SOFR of 7 24 basis points on par value and the investments were purchased at a cost of approximately 98.6 percent of par.

Speaker 2

Our investment portfolio at the end of the second quarter remained highly diversified. We ended the 2nd quarter with a debt investment portfolio spread across 28 different industries, 1 more as compared to the end of the Q1 and 75 unique portfolio companies with an average par balance of $2,600,000 Turning to slide 11, in aggregate, investments by non accrual status were 9 investments at the end of the

Speaker 1

Q2 of 2024, representing 0.5%

Speaker 2

and 4.5% of the company's investment portfolio at fair value and cost perspective. This compares to 7 investments on non accrual status as of March 31, 2024, representing 0.5% and 3.2% of the company's investment portfolio at fair value and cost respectively. The main driver of this increase was due to placing an additional security of Palpek on non accrual. We were able to exit our entire Qualtech position shortly after the quarter end, but during the course of the quarter, the buyer for the company made a number of changes to the purchase price that ultimately resulted in our security receiving less than par and therefore we have included it on a non accrual lift for the quarter. As of today, we have completely exited all Qualified Securities and the ultimate NAV impact has been factored into the June 30 financial results.

Speaker 2

On Slide 12, excluding our non accrual investments, we have an aggregate debt investment portfolio of $383,600,000 at fair value, which represents a blended price of 93% of par value and is 91% comprised of 1st lien loans at par value. Assuming par recovery, our June 30, 2024 fair values reflect a potential of $26,700,000 of incremental NAV value or a 13.6% increase to NAV. When applying an illustrative 10% default rate and 70% recovery rate, our debt portfolio would generate an incremental $1.64 per share of NAV or a 7.7% increase as it rotates to maturity. Finally, turning to Slide 13, if you aggregate the 3 portfolios acquired over the last 3 years, we have purchased a combined $435,000,000 of investment, have realized approximately 85% of these positions at combined realized and unrealized mark of 101% of fair value at the time of closing the respective purchase. As of Q2, 2024, we have fully exited the acquired Oakfield portfolio and are down to a combined $13,800,000 of the acquired HCAP and the initial K CAAP portfolios.

Speaker 2

And I'll turn the call over to Brandon to further discuss our financial results for

Speaker 3

the period. Thanks, Patrick. For the Q2 of 2024, Wharton generated $16,300,000 of investment income, of which $13,900,000 was attributable to interest income inclusive of PIF income from the debt investment portfolio. This compares to total investment income for the Q1 of 2024 of 16,500,000 inclusive of PIK income from the debt investment portfolio. The decrease was driven by lower interest income due to net repayments and sales during the quarter as well as the reversal of $100,000 or $0.01 per share of previously accrued unpaid interest on a loan placed on non accrual status during the quarter, partially offset by higher dividend income from the Great Lakes joint venture.

Speaker 3

Excluding the impact of asset acquisition accounting, our core investment income for the quarter was $16,200,000 as compared to core investment income of $16,500,000 in the prior quarter. Total operating expenses for the quarter ended June 30, 2024 decreased by $400,000 to $9,900,000 as compared to $10,300,000 in the prior quarter. This decrease was largely driven by a decrease in interest expense as a result of the $6,600,000 pay down on the 20 eighteen-two secondured notes during the quarter as well as a larger 34,200,000 dollars pay down on the 20 eighteen-two secondured notes in the second half of the prior quarter. Our net investment income for the quarter increased to $6,500,000 or $0.70 per share. This compares to $6,200,000 or 0.67 dollars per share for the prior quarter.

Speaker 3

The increase in NII was primarily due to lower interest expense during the quarter. For the quarter ended June 30, 2024, net realized and change in unrealized losses on investments in debt was 12,800,000 dollars This compares to net realized and change in unrealized losses on investment in debt of $1,700,000 in the prior quarter. As of June 30, 2024, the company's net asset value was $196,400,000 or $21.21 per share, a decrease of $14,200,000 or $1.36 per share compared to the prior quarter net asset value of $210,600,000 or $22.57 per share. As of June 30 March 31, 2024, our gross leverage ratios were 1.5x and 1.4x respectively. For the same periods, our leverage ratio net of cash was 1.3x and 1.2x respectively.

Speaker 3

Specifically, as of June 30, 2024, we had a total of $285,100,000 of borrowings outstanding with a current weighted average contractual interest rate of 6.9%. This compares to $291,700,000 of borrowings outstanding as of the prior quarter with a then current weighted average contractual interest rate of 6.9% as well. Additionally, consistent with the prior quarter, the company finished the quarter with 20 $1,000,000 of available borrowing capacity under the senior secured revolving credit facility and no remaining borrowing capacity under the 20 eighteen-two secondured notes as the reinvestment period has ended. As Ted mentioned, subsequent to quarter end, we amended and extended our existing senior secured revolving credit facility with JPMorgan. Under the terms of the amendment, the credit facility was upsized by $85,000,000 for a total revolving capacity of $200,000,000 Additionally, the applicable margin was reduced from 2.8% to 2.5%, and the reinvestment period was extended by approximately 2 years to August 29, 2026.

Speaker 3

This amendment has reduced our overall cost of debt capital and extended the duration of our debt capital structure. Further, we intend to refinance the remaining $85,000,000 of 20 18 2 secondured notes outstanding with the proceeds from the upsized JP Morgan credit facility. Finally, the Board approved a quarterly distribution of 0.69 dollars per share payable on August 30, 2024 to stockholders of records at the close of business on August 22, 2024. With that, I will turn the call back over to Ted.

Speaker 1

Thank you, Brandon. Ahead of questions, I'd like to reemphasize that we believe we are well positioned to take advantage of the current market environment as shown in the first half of the year. Through our prudent investment strategy, we believe we'll be able to deliver strong returns to our shareholders in the back half of twenty twenty four. I would like to thank once again all of our shareholders for ongoing support. This concludes our prepared remarks and I'll turn the call over for any questions.

Operator

Thank you. And we will now begin the question and answer session. And your first question comes from the line of Christopher Nolan with Ladenburg Thalmann. Your line is open.

Speaker 4

Hey, guys. Hi, Chris. What was the driver for the realized loss, the unrealized appreciation, please?

Speaker 2

Yes. I'll turn the brand for the realized, but on the unrealized front, the primary driver is that Qualitech, which I talked about a little bit in my remarks. But we ultimately exited the investments sort of right after quarter end and had to take a unrealized write down in and around the exit price there that again will just flip from unrealized to realized in Q3. But for Q2, it was a significant portion of our unrealized loss.

Speaker 3

Yes. That's right, Patrick. Just on the realized front, Chris, it was an investment called Tank. We realized it at the mark we had last quarter. So that was already embedded in R and M, which is the flip from unrealized to realign.

Speaker 4

If I'm correct, TAC was on the old Capitala investments, is that correct?

Speaker 2

No. This was an old K cap like way legacy 1. It was on non accrual, it took over the portfolio. We've had like a $40,000 receivable or something left from like some state like a state liquidation that finally got resolved. So it's been running at like almost no value on

Speaker 1

our SOI for several, several years now.

Speaker 4

Yes. No. Okay. I'm getting your portfolio company excuse me, your BDC is confused. Qualtech, what should we expect in terms of a realized loss for 3Q or

Speaker 2

The short answer is it should be all flipped from unrealized to realized. There should be no NAV impact for Q3, Chris. I don't have the exact quantum of that. We can follow-up with you with the exact quantum, but it will be a complete flip for unrealized to realize. So we base in and again it closed in on like July 7 or something like that.

Speaker 2

So the price as of $6.30 bakes in the exit price, but we can follow-up the exact amount that you should expect.

Speaker 4

No need. That's fine. Okay. On the credit facility, the text of the press release says margin of 2.5% or so. Am I to presume that's a spread over some sort of index?

Speaker 4

And if so, what's the index?

Speaker 2

Yes, a sulfur. It's a 250 over sulfur.

Speaker 4

Great. And final question would be, can you give any sort of perspective as to what the BDC M and A market might be evolving like given many BDCs are starting to see asset quality deterioration this quarter?

Speaker 1

Yes. I would say, I think it's pretty I think it's still pretty quiet on that front. And we are there is a lot of strategic activity happening in the broader asset management space. So you've seen 2 big deals happen this past quarter. And we are M and A activities pick up a lot in the broader asset management space.

Speaker 1

So I'm not sure that applies. I wouldn't say we've seen that in the BDC space, but we are seeing it in the 40x space and we're definitely seeing it in the broader institutional space. And the theme is the same. The theme is scale matters. So I think costs keep going up.

Speaker 1

There's pressure on fees. So I think a lot of firms are having to put a lot of money into distribution in terms of expenditures. So I think the themes are becoming more pronounced. So I think some people in 2020 had issues with credit. I think now it's much more people have issues with scale.

Speaker 1

So I think you're going to see a lot of M and A over the next 12 to 18 months. But that's a comment more broadly around 40x and around asset management as opposed to just B2Cs.

Speaker 4

Got it. Okay.

Speaker 1

That's it for me. Thanks, guys. Thanks, Chris.

Operator

And your next question comes from the line of Deepak Sarpengal with Repertoire Partners. Your line is

Speaker 5

open. Thank you. Hi, good morning.

Speaker 1

Hi, good morning.

Speaker 5

So few questions. On the recent quarter, obviously, we'd all like to see 0 markdowns at any given point in time, but that's essentially impossible. Curious, I know Qualtech was one of the big drivers. It did seem like a lot of it was like a lot of the weakness has been primarily in the high-tech industry part of your portfolio. Is there something broader that you're seeing?

Speaker 5

I know that that's the size of that has come down now, which is good. But is there anything else, any other context with respect to that because it looked like there were a few of them that

Speaker 1

Yes, that's actually a very perceptive question. I would say, Haltech is not really a tech company. And again, it's a long term legacy position and we've now exited it. I will say across our tech portfolio, which is generally speaking enterprise software, so recurring cash flow. I will say that they've definitely seen 2 factors that impact them.

Speaker 1

1 is sales cycles becoming longer for new sales. So their existing base of business is still turning along. But number 2 is this AI theme and the spenders in AI, they are taking away a little bit of the budgets for what I'd call traditional software, it feels like, just looking at our portfolio companies. And then number 3 is, there has been some very, very company specific events that have impacted of our company some of our companies in the broader space. I mean, obviously, everybody knows the CrowdStrike example, but that's actually happened in a couple of other situations.

Speaker 1

We had a specific investment in a company that had a cyber issue this quarter that we think is totally we think it's a temporary markdown. We think the company is totally fine. But there is some idiosyncratic events happening in tech that are really we haven't seen before. CrowdStrike is a public example, but we're seeing it on a smaller scale.

Speaker 5

Okay. That makes sense. And then is there also is there anything I know your business isn't seasonal, but like it also just so happened that last year it was like Q2 that was maybe a tougher quarter, but then it kind of reverted. Is there anything maybe just kind of like where there's like you said, maybe there's company specific factors or like the overall market just happened to be in a particular position. Is there anything just in terms of kind of timing that contributes to maybe this being like a tougher quarter than most?

Speaker 1

Yes, another really good question. I would say thematically, the banks were really closed in 2020. So post Twitter, a lot of the investment banks were really reticent to take on risk. And then you obviously had the regional banking crisis. So we felt like there really wasn't a lot of issue like we've had more loan issuance year to date than we've had in the last 2 years combined.

Speaker 1

Hasn't really impacted us, we're at the smaller end of the market. So we've been seeing the refis that some of our larger peers have seen. Coming into this year, our portfolio our pipeline was not that great. We were incredibly busy up till June and now our pipeline slowed down again. The theme there is just there's just not a lot of new LDO activity.

Speaker 1

So when you're seeing M and A pick up broadly and you're seeing the investment banks comment on M and A, We're not seeing it on the private equity sponsor level. So exits are hard. Prices haven't come down that much. Financing costs are higher and the economy is slowing down. So I think we're seeing like our pipeline for new M and A activity in LBOs is pretty anemic.

Speaker 1

So I think that will pick up. Like if you look at our portfolio today, a very large percentage of them are supposed to go for sale in the Q4. Now again, that was the same thing last year. That doesn't mean they're actually going to transact, but there is a very, very large pipeline of companies in the middle market that need to be sold over the next 1, 2, 3 years. So this should revert to the mean at some point.

Speaker 5

Okay. And then this is

Speaker 1

more random I would say Deepak, I wouldn't say it's seasonal, it's more thematic, I would say.

Speaker 5

Okay. Yes, that makes more sense. And this question is a little bit more random, but I noticed that one thing I do like that again, the joint ventures in CLO, parts of your portfolios are smaller and continuing to get smaller. In your fair value disclosures and assumptions, it looks like you kind of value those with discount rates of over 20% on a weighted average. I'm glad that's conservative.

Speaker 5

It does seem like a high discount rate. Can you maybe explain a little bit more about how you come up with that and how to think about that?

Speaker 2

Yes, Tivak. So this is Patrick. So the short answer is for all of those valuations, we send those out to 3rd parties to be valued.

Speaker 1

So 3rd parties are kind of come

Speaker 2

up with the discount rates. But the reality is CLO equity and that's kind of generally where the discount rates are coming from, not as much like Great Lakes joint venture, but really more so the other CLOs. Candly, it's just a very opaque market and where spreads are right now, liabilities came down a little bit, but not nearly as much as spreads have come down. So like the return to equity in CLO land has been relatively compressed, which means you need to kind of price it at a much higher discount rate. So again, it's not like the most obvious of answers, But just in the CLO market in order to get potential buyers to transact, you really need to have a very healthy discount rate to that back end of, because of where like the liability asset spread is on BSLs.

Speaker 5

Okay. And then I know that As

Speaker 2

you mentioned, Tarika, as you mentioned, it's a very like it's a very small portion of our book, and obviously can be small. Our Great Lakes joint venture, which is the big piece of that, is not valued at a 20% discount rate. All the individual loans within that joint venture are valued at their own individual discount rates that then kind of And I don't know the exact numbers off the top of my head, but those are all substantially lower than 20%.

Speaker 5

Yes. And again, in the relatively smaller cases where you're using EBITDA multiples, it does look again, I know that these are not necessarily apples to apples, but to what extent are the businesses that you're valuing in like just lower multiple businesses versus maybe just like better priced investments. And the reason why I asked that is like for example like your multiples are like by far the low which is a good thing I think, but by far the lowest, like if you look at the larger BDCs, Ares, it's more like 11 or 13 times, I think, in terms of those EBITDA multiples. Now I know like those could be like software businesses or something like that. But just curious is there anything else that accounts for that?

Speaker 2

No. Another good question. So I'd say a couple of things, which is, one, I think generally we try and be pretty conservative on our valuations, particularly on equity securities, which is what you're referencing. Just because again like equity can tend to be volatile. So we prefer to be on the conservative side.

Speaker 2

I think the other little bit of a nuance there is generally speaking, our equity positions are tended to be some of the acquired portfolios from either Harvest or Garrison or even legacy KGaP where the bars themselves are probably a little bit smaller. And so we do tend to try and factor in a little bit of a like size discount in terms of size of the portfolio company relative to a peer set and where we think valuation should trade. So again, I think the combination of being able to conserve out the multiple and like if you're choosing areas as the example, going to have much larger portfolio companies. So they're kind of I guess able to or probably can look more similar to like the actual peer set from a valuation multiple perspective as opposed to ours, we tend to apply a meaningful discount to where the peers trade, just to factor in the fact that they're smaller companies than peers.

Speaker 5

Great. I think that's all my questions. I am glad to see that you're continuing to take advantage of your undervalued stock and it's not every company that demonstrates that kind of savvy capital allocation and especially in the BDC space. So thanks and look forward to more ahead.

Speaker 1

All right. Thank you.

Operator

And your next question comes from the line of Stephen Martin with Slater Capital Management. Your line is open.

Speaker 6

Hi, guys. You've addressed a lot of my questions. Can you comment on what the current trend is in amendments, extensions, waivers, etcetera?

Speaker 1

Yes. I don't think we've seen a material pickup in amendment and waiver activity. So again, a lot of companies who are not fully levered were having trouble not trouble, but they were asking for extensions the last couple of years. Now the market's kind of normalized. And so there is some repricing activity.

Speaker 1

And to the extent we're not willing to do it, there's other lenders why not to do it. So I don't think there's been I mean, obviously, we have some normal course amendments going on. I don't think we've seen a material pickup in amendment activity. Actually, it's pretty honestly, like this quarter has been relatively muted.

Speaker 6

Got you. Can you comment on the nature of your PIK income? It's been relatively flat. Is it penalty? Is it a little extra income?

Speaker 6

Are you eventually collecting? What's the status?

Speaker 2

Yes. I mean, the answer is hey, Steve, it's Patrick. The answer is, it's a little bit of all of the above. So there are some instances or have been historically where a lot of it was coming out of COVID, where you get an extra 100 basis points, 150 basis points of pricing concession for a covenant relief for a maturity extension or something and that typically came in the form of PIK. And so you have whatever it is 80% of your spread in cash and the extra 100 basis points to 150 basis points you get is more of picks.

Speaker 1

So there's a combination of that.

Speaker 2

I think more recently, and there's 3 good examples of this that we've done in the last handful of months, Riddell,

Speaker 1

which was done at the

Speaker 2

end of Q1 And then Princeton Med Spa and Care Connectors are the doing business as names that were the new portfolio company those 2 were the new portfolio companies in this quarter, where we as BC and Portman collectively, we did effectively like a 2 secondurity unit tranche where we provided, let's call it 80% of our capital in the form of a senior secured 1st lien loan and then 20% of our capital in the form of some kind of structured equity solution. And so that equity piece itself is all PIK, but the way we look at the investment is a combined investment in both the term loan and the preferred equity. And so from a cash PIK component in terms of our investment in the bar in aggregate, it's probably something like a eightytwenty, eightyfivefifteen type of a split. But on those two securities themselves happen to be all PIK because they're structured equity. So the answer, Steve, is we look at both cash and PIK is like a collective investment.

Speaker 2

And so more often than not, it is a little bit of extra PIK in addition to cash coupon for a borrower. But there are some instances like the handful of deals or 3 deals that we've done recently where technically once here it is all fixed, but we did it as a strip between a first lien that is all cash and then preferred equity that's all fixed. And so it kind of blends to again more something that makes more sense in terms of like again $85,000,000 $15,000,000 or whatever you want to think about a cash debt. Okay. Yes.

Speaker 1

I'll

Speaker 2

just point out that there's a

Speaker 3

little it looks like PIK increased by 1% this quarter over quarter. There's a little bit of a major effect there. The reality is PIK only increased PIK increased by less than 200,000,000

Speaker 6

dollars Right. I was more commenting on the last couple of quarters, it's been around the $2,000,000 level. So I was curious as to the composition. On the unrealized, Ted, you said spreads have tightened over the last couple of months. If spreads have tightened versus the prior 4 or 5 quarters where they were wider.

Speaker 6

Are we seeing or shouldn't we see a recapture of some of our unrealized losses?

Speaker 1

Yes, it's a good question. I mean, there's a bit of a lag. So I'll take a couple of things. Spread compression always starts at the top. So we've seen we've seen spread compressions at the big cap level.

Speaker 1

And obviously, over time, that will trip on our market. So that should be a tailwind for valuations. And again, Patrick gave some color around NAV upside in our book right now. And so I think it should filter through. There's always a lag though.

Speaker 1

So spreads have really come down pretty aggressively over the last, I'm going to say, 3 months. And again, the way our valuation methodology works is there's a bit of a lag on our matrix. So there should be some tailwind there. Obviously, recent volatility excluded like in the markets.

Speaker 6

Got you. With respect to position sizes, the last couple of deals you've added, you've Riddle as an example, you've taken very little of the deal. Is there a reason why the position sizes you've added are seem to be much smaller?

Speaker 2

Yes. I mean, Steve, I think the simple answer is, I think our view on BDCs specifically is that they should be very well diversified portfolios. I think where we sit from a leverage perspective, that's the capital perspective. I don't think we need to put out significant amounts of capital. And so for us, we've been focused on trying to continue to run a diversified book.

Speaker 2

And in our opinion, being able to take smaller bits of more deals is more advantageous for our shareholders, as they're able to invest in, again, a more diversified portfolio or any individual deal becomes less impactful either positive or minus and increase a lot more consistency of results.

Speaker 3

All right. Thanks a lot.

Operator

And we have no further questions at this time. I would now like to turn the conference back over to Mr. Ted Goldthorpe for closing remarks.

Speaker 1

Thank you all for attending our call. And as always, please reach out to us for any questions, which we're happy to discuss. We look forward to speaking to you again in November for our Q3 conference call and we hope all of our shareholders and stakeholders have a very good end of the summer. Thank you.

Operator

And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.

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