Kyle Joseph: Yes, got it, helpful. And then, a follow-up for me, probably for Matt, appreciate the market commentary you gave, but from our side we’ve been seeing different headlines about banks exiting the space from Basel III Endgame or getting back in via BSL, but just give us a sense for competitive trends you’ve been seeing recently and we talked about yields being stable, but give us a breakdown between base rates and the spreads you’ve been seeing in recent quarters.
Matt Freund: Yes, happy to comment on it. And so, I think that what we’re observing in the marketplace is kind of a bifurcation based on size. And so, the first group of issuers that I think has been more substantively impacted is going to just be the larger end of the ecosystem. And I would tell you that our larger competitors who are competing squarely against the banking institutions are, frankly, have a more robust opportunity set from an issuance perspective than they have over the past few years. And so, as we think about your $120 million, $150 million EBITDA platform that is kind of deciding between a broadly syndicated execution or a privately placed solution, those terms, in our experience, are looking closer and closer to parity than they have over the past few years.
Now, whenever we start looking at the core of the markets in which we participate, call it sub 50 of EBITDA, I think the median issuer in the portfolio is just over 30, that isn’t really a competitive threat. But the banks don’t provide a competitive threat to the same degree. To be very candid with you, although we are seeing more private credit fund formation, and so we are aware that that may provide some competitive headwind here in the quarters to come, but based on what we experienced during this particular quarter, we feel very encouraged. And so, as we kind of set our path forward for the balance of 2024, I think that what we’re anticipating is to see a highly competitive environment on the larger end of the ecosystem. And perhaps a little bit more kind of price stability, as it were, with respect to what we define as the core of the middle market.
Eric Lloyd: Kyle, if you think of kind of supply demand, right? Just there’s an increase of private credit managers in general over the last couple of years. And M&A activity is lower than what it was two years ago. That is just generally going to lead to some form of spread compression in some shorter term period of time. But over time, we’re seeing kind of reasonable stability in kind of what that spread level is, because there’s an absolute return that needs to occur for private credit investors overall.
Kyle Joseph: Very helpful. Thanks for answering my questions.
Matt Freund: Thank you.
Operator: Thank you. Our next question is coming from Robert Dodd with Raymond James. Please proceed with your question.
Robert Dodd: Good morning, everyone, and thanks for all the color about the events of March 8th. On just one quick one for me. Matt, you mentioned that conversion rates or closed rates for transactions are trending towards the start, but can you give us any color on the drivers there? Is it bid asks on valuation for transactions not closing sufficiently informed through the last minute? Is it failures in due diligence as you get more advanced? I mean, any color you can give us on what’s the driver there.
Matt Freund: Yes. The most common response that we’re getting is that there just seems to be a bid-ask differential that I think a lot of folks anticipated a reduction in interest rates would have helped bridge. And so, I’m sure everyone knows that these processes take between three and six months by the time you launch a transaction to when you actually close it. We’re somewhere to the middle of the beginning or somewhere between the beginning and the middle of that process. And so, as these kind of sell side transactions have evolved, you get part of the way through and you recognize that your cost of capital isn’t ultimately what you had budgeted for. And I think that that creates some downward revisions on enterprise values.
And as we think about it, that obviously impacts the equity pretty substantially, but we generally feel pretty comfortable, regardless of whether someone is paying, call it 10 times or 12 times. And so, ultimately, our view on the credit profiles don’t often change, but there obviously is some capital below us, and when that cost of capital is changed, it creates revisionist expectations with respect to underlying EVs. So, that’s our leading contender right now. Of course, there are going to be transactions where they ultimately fall apart over credit or other performance metrics, but I think overwhelmingly it’s been a cost of capital discussion and a misalignment of expectations on the bid-ask spread.
Robert Dodd: Got it. Thank you.
Operator: Thank you. We have no additional questions at this time, so I’d like to pass the floor back over to management for closing comments.
Eric Lloyd: Well, first, I want to thank everybody for dialing in and taking the time to listen to what we communicated today. To the extent you have follow-up questions or conversations you’d like to have, please make sure you reach out to us and the team. We want to make sure we’re transparent and communicative as we go forward over the course of the next quarters. Thanks so much.
Operator: Ladies and gentlemen, this does conclude today’s teleconference. We thank you for your participation and you may disconnect your lines at this time.
