Barings BDC, Inc. (NYSE:BBDC) Q4 2022 Earnings Call Transcript

Barings BDC, Inc. (NYSE:BBDC) Q4 2022 Earnings Call Transcript February 24, 2023

Operator: At this time, I would like to welcome everyone to the Barings BDC, Inc. Conference Call for the Quarter and Year ended December 31, 2022. All participants are in a listen only mode. A question-and-answer session will follow the company’s formal remarks . Today’s call is being recorded, and a replay will be available approximately 2 hours after the conclusion of the call on the company’s Web site at www.baringsbdc.com under the Investor Relations section. Please note that this call may contain forward-looking statements that include statements regarding the company’s goals, beliefs, strategies, future operating results and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from those projected in the forward-looking statements.

These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the section titled Risk Factors and Forward-Looking Statements in the company’s annual report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the Securities and Exchange Commission. Barings BDC undertakes no obligation to update or revise any forward-looking statements unless required by law. At this time, I would like to turn the call over to Eric Lloyd, Chief Executive Officer of Barings BDC.

Eric Lloyd: Thank you, operator. And good morning, everyone. We appreciate you joining us for today’s call. Please note that throughout today’s call, we’ll be referring to our fourth quarter 2022 earnings presentation that is posted on the Investor Relations section of our Web site. On the call today, I’m joined by Barings Co-Head of Global Private Finance and President of Barings BDC, Ian Fowler; Barings Head of Capital Solutions and Co-Portfolio Manager, Bryan High; and the BDCs Chief Financial Officer, Jonathan Landsberg. As is customary, Ian, Bryan and Jonathan will review details of our portfolio and fourth quarter results in a moment, but I’ll start off with some high level comments about the quarter. Let’s begin with the market backdrop shown on Slide 5 of the presentation.

In a market characterized by significant concerns around inflation, economic growth and geopolitical risks and one in which the unprecedented pace of global interest rate hikes elevates volatility in both leveraged loans and BDC equities, Barings BDC continued to generate strong economic results. Turning to the fourth quarter highlights on Slide 6. Net asset value per share was $11.05 compared to the prior quarter of $11.28, down by 2%. We had one new non-accrual in the quarter, Core Scientific, which we discussed on our last call in November and on our unrealized write-down of the asset contributed $0.17 of NAV reduction. Outside of Core Scientific, the reduction in our NAV was driven primarily by unrealized write-downs tied to macroeconomic factors and spread widening as opposed to fundamental credit related factors in our portfolio.

Our net investment income was $0.34 per share compared to $0.26 per share last quarter, an increase of 33% quarter-over-quarter as our portfolio benefited substantially from the rise in base rates. In addition, Barings earned no incentive income incentive fee in the quarter due to the incentive fee cap in our shareholder friendly fee structure, which includes realized and unrealized gains and losses. Turning to new investments. We had gross originations of $240 million in the fourth quarter. This was offset by $113 million of sales and prepayments for our net portfolio increase of $128 million. Our investment portfolio continued to perform well in the fourth quarter, including the acquired Sierra and MVC assets, our total non-accruals were 3.9% of the portfolio on a cost basis and 1% on a fair value basis.

With the exception of Core Scientific, all of our non-accrual assets were from acquired portfolios and therefore, are part of our credit support agreement. Turning to forward earnings power. The increase in base rates have increased the weighted average yields in our middle market and cross platform investments to 10.2% and 11.1%, respectively, more than 100 basis points higher than last quarter. We expect additional revenue contribution given the inherent lag and higher base rates flowing through our portfolio, particularly in our European portfolio, where it’s customary for borrowers to elect a six month base rate contract. As a result, our Board declared a first quarter dividend of $0.25 per share, an increase of $0.01 from the prior quarter, equating to a 9% yield on our net asset value of $11.05.

Slide 7 outlines some refinancial highlights from the previous five quarters. As I mentioned, continued strong investment performance and higher base rates drove total investment income meaningfully higher to $63.5 million, up 13% quarter-over-quarter. Below the line, net unrealized depreciation of $56 million was primarily a function of mark to market on our assets as a result of higher credit spreads as well as the write down of Core Scientific. This unrealized depreciation eliminated the quarterly incentive fee because of our total return incentive fee cap, further allowing expenses and elevating NII in the quarter to $0.34 per share. Turning to liquidity. Net leverage, which is leverage net of cash and unsettled transactions, was 1.12 times, which is in the middle of our target leverage range of 0.9 times to 1.25 times.

This attractive liquidity position allows us to remain steady partners with our existing sponsor clients as well as look towards new investment opportunities that present themselves in the face of economic uncertainty as we believe in environments like this are fantastic opportunities to prudently deploy capital at higher spreads, lower leverage and with better structural protections. Looking ahead, we remain steadfast in our focus on risk management and prudent asset selection. The lagged impact of increasing rates will continue to work its way through the private markets with many credit stresses yet to come. We feel good about how our portfolio is positioned to weather a volatile environment with a diverse portfolio allocated across private asset classes and geographies, plus a best in class industrial alignment and a dynamic low cost liability structure that we believe positions us well for both current and future markets.

I’ll now turn the call over to Ian to provide an update on the market and our investment portfolio.

Ian Fowler: Thanks, Eric, and good morning, everyone. If you turn to Slide 9, you can see additional details on the investment activity mentioned previously. Our middle market portfolio increased by $184 million on a net basis in the quarter with gross fundings of $205 million, offset by repayments of $21 million. It is not surprising that repayment activity has slowed in this environment. As the market adjusts to the realities of higher interest rates and what that implies for company valuations and supportable capital structures. That said, new middle market investments included 21 new platform investments totaling $167 million and $39 million of follow-on investments in delayed draw term loan fundings as we continue to deploy capital at a very attractive risk return profiles in partnership with longstanding sponsors.

Our cross-platform portfolio decreased by $26 million on a net basis in the quarter with $35 million of new originations versus $61 million of repayments. We continue to remain active with realizations and sales at both MVC and Sierra, and this quarter generated $30 million of liquidity via sales, paydowns and prepayments. Slide 10 updates the data we show you each quarter on middle market spreads across the capital structure and clearly, investment spreads across public and private asset classes have widened. Most important, public market spreads continued to exceed those of private middle market loans. While it looks like the illiquidity premium or the extra spread to take a deal private to loan investors remains much smaller than in the past, there have been stretches where the liquid loan market has been effectively shut to new issuers, meaning the relative attractiveness of the direct lending solution in today’s marketplace for private equity sponsors is very high.

A bridge of our investment portfolio from September 30th to December 31st, is shown on Slide 11. On Slide 12, you’ll see a breakdown of the key components of our investment portfolio as of December 31st. As we have discussed in the past, the goal of this slide is to provide details on the key categories of our portfolio, which are the Barings originated middle market portfolio, the legacy MVC Capital and Sierra income portfolios, as well as our cross-platform investments. The middle market portfolio remains our core focus and makes up 61% of our portfolio in terms of total investments at fair value. Our Barings originated middle market exposure is heavily diversified amongst obligors of 231 portfolio companies with a geographic diversification across the US, Europe and APAC regions.

The underlying yield at fair value on our middle market investment portfolio is 10.5%, up from 9.2% last quarter and weighted average first lien leverage of 5.2 times with no loans on non-accrual. It is reflective of our Barings’ beautiful approach to credit. In addition to our middle market exposure, we continue to draw upon Barings’ wide investment frame of reference to complement our core portfolio with $335 million of investments in the legacy MVC and Sierra portfolios and $611 million of cross-platform investments. Turning to credit. One Barings originated asset, two MVC assets and four Sierra assets remain on non-accrual. The MVC and Sierra assets are covered by the credit support agreement. Eric discussed the one Barings originated non-accruals of Core Scientific, which is currently working through the Chapter 11 process.

Importantly, at a time when many borrowers are feeling the pinch of higher base rates and wage and raw material pressures, we don’t have any assets with restructured PIK interest in our portfolio. Restructured PIK is what we call loan that was originally underwritten as a fully cash pay loan where the borrower has asked for release by converting a portion of the cash interest coupon to PIK for a period of time. We view restructured PIK as one of the early signs that can foreshadow potential future problems. Slide 13 provides a further breakdown of the portfolio from a seniority perspective. The core Barings originated portfolio is 74% first lien. Note the combined MVC-Sierra portfolios are comprised of senior secured second lien, mezzanine debt and equity investments which brings the first lien component of the total portfolio down to 69%.

Our top 10 investments are shown on Slide 14. Our largest investment is 5.9% of the total portfolio and the top 10 investments represent 21% of the total portfolio. Recall our largest investment, Eclipse Business credit is backed by a large portfolio of asset backed loans conservatively structured inside the collateral net liquidation value. The Eclipse portfolio remains diverse from an industry perspective as well with 44 investments spread across 17 industries and that business continues to perform quite well, contributing healthy dividend distributions to the BDC as well as a sustained business growth. I’ll summarize my market comments with a view of how we think about portfolio management and risk management in a challenging environment like the one we are currently in.

The longer that base rates remain at elevated levels, naturally, the more stress we expect to see across our portfolio and the broader market. That said, maintaining a vigilant focus on the tail risk in the portfolio and help lessen eventual pain by being more proactive with borrowers and sponsors. We have a weekly focus and watch list call across our direct lending platform, and there are currently 17 names in the BDC portfolio that comprise our focus and watch list, representing 3.6% of the BDC’s portfolio at fair value. While there is no one common theme underpinning the names on this group, we have seen that it’s not just a higher base rates alone that results in borrower stress. Rather, these names were experiencing pressure before the move higher in interest rates, whether from wage costs, raw input costs or difficulty digesting recent M&A activity.

The increased interest costs exacerbated pressures that already exists in these businesses. That said, we maintain a very diverse portfolio with 322 issuers, no middle market loans on non-accrual, no restructured PIK and just two annual recurring revenue loans in the entire portfolio. So we feel cautiously optimistic about what we see today, but of course, need to remain vigilant. We think success in this environment will favor those with investment discipline and long institutional memory deploying capital in inflationary environments. At Barings, across our wide investment frame of reference, we demonstrate both. I’ll now turn the call over to Jonathan to provide additional color on our financial results.

Jonathan Landsberg: Thanks, Ian. Turning to Slide 16. Here is the full bridge of the NAV per share movement in the fourth quarter. Our net investment income exceeded our dividend by $0.10 per share. Share repurchases added another $0.02 per share and combined net realized gains and unrealized depreciation reduced NAV by $0.35 per share. Additional details on the net unrealized depreciation are shown on Slide 17. Of the total $56 million in unrealized depreciation in the fourth quarter, approximately $21 million was due to price or spread moves while $26 million were due to credit factors. The cross-platform portfolio contributed $9 million of the total price driven depreciation, primarily tied to the more liquid investments, such as situational BSLs or underlying investments in our joint ventures, while the majority of the credit related write down was due to Core Scientific.

Notably, the legacy MVC portfolio saw total depreciation of $9 million tied to underlying credit performance while the Sierra portfolio had total depreciation of $8 million, $5 million of which was due to price movements predominantly tied to the Sierra JV. Near the bottom of Slide 18, you can see that the credit support agreements increased approximately $4 million as a result of investment marks. Slides 18 and 19 show our income statement and balance sheet for the last five quarters. Our net investment income per share was $0.34 for the quarter, driven by an 18% quarter-over-quarter increase in total interest income and the elimination of the incentive fee because of our total return hurdle. From a balance sheet perspective on Slide 19, total debt to equity was 1.22 times at December 31s.

Although, as is typical, this level was elevated due to high quarter end cash balances. Our net leverage ratio was 1.12 times and we view this measure as more reflective of the true leverage position of the vehicle, which currently sits in the middle of our long term target of 0.9 times to 1.25 times. Turning to Slide 20. You can see how our funding mix ties to our asset mix, both in terms of seniority and asset class, including the significant level of support provided by the $725 million of unsecured debt in our capital structure. Details on each of our borrowings are included on Slide 21, which shows the evolution of our debt profile over the last year. As of year end, half of our funding was comprised of fixed rate unsecured debt with a weighted average coupon of 3.79% and we have two and half years until the next bond maturity.

Turning to Slide 22. You can see the impact to our net leverage of using our available liquidity to fund our unused capital commitments. Barings BDC currently has $241 million of unfunded commitments to our portfolio companies as well as $67 million of remaining commitments to our joint venture investments. We have available cushion against our leverage limit to meet the entirety of these commitments if called upon, as well as over $450 million of available dry powder between cash on hand and availability on our revolving credit facility. Slide 23 updates our paid and announced dividends since Barings took over as the adviser to the BDC. As Eric mentioned earlier, the Board declared a first quarter dividend of $0.25 per share, a $0.01 increase over the prior quarter and a 9% distribution on net asset value.

While the current environment does suggest base rates will remain slightly higher for slightly longer than previously expected, we aim to set a dividend payout that is achievable through a market cycle and not over correct based on temporary market factors. We believe our portfolio would continue to earn above the high hurdle in a normalized rate environment and we expect that several of our cross platform investments, including Eclipse and our Jocassee joint venture, will continue to perform and will continue to generate significant distributable cash even in an uncertain economic environment. As a result, given the visibility we see in the forward earnings profile, we believe a $0.01 increase in the quarterly dividend is proved. With that strong dividend base, we then seek to further enhance shareholder value through a combination of share repurchases, growing dividend spillover and steady and systematic future special dividends.

We have discussed in the past our philosophy that share repurchases must have a role in any long term capital allocation philosophy. In Q4, we finished the remaining repurchases under the $30 million share repurchase plan approved in connection with the Sierra merger. We are pleased to announce that we have received Board approval for a new share repurchase plan that seeks to purchase up to $30 million of stock over the next 12 months, subject to liquidity and regulatory constraints. Moreover, we will continue to assess this each year to determine the most effective level of buybacks to drive long term shareholder value. Turn with me now to Slide 25, which shows a graphical depiction of relative value across the BBB, BB and B asset classes.

Spreads remain elevated across nearly all asset classes as a result of increased economic uncertainty, those spreads in most cases are well off the three year wise, which still incorporates the COVID dislocation in 2020. Slide 26 outlines the spread premium on our new investments relative to liquid credit benchmarks. Notice that our investment in liquidity premiums in the fourth quarter remained low for middle market transactions given the current elevated secondary spreads in the liquid market. Excluding certain equity investments, Barings BDC deployed $229 million at an all-in spread of 758 basis points, which represents a 59 basis point spread premium to comparable liquid market indices at the same risk profile. I’ll wrap up our prepared remarks with Slide 27, which summarizes our new investment activity so far during the first quarter of 2023 and our investment pipeline.

The pace of new investment activity has slowed in recent months in concert with the slowdown in middle market M&A activity. That said, so far in Q1, we have made $119 million of new commitments, of which $74 million have closed and funded. The weighted average origination margin or DM-3 of those new commitments was 8.8%. We’ve also funded $4 million of previously committed delayed draw term loans. The current Barings Global Private Finance investment pipeline is approximately $1.1 billion on a probability weighted basis and is predominantly first lien senior secured investments. As a reminder, this pipeline is estimated based on our expected closing rates for all deals in our investment pipeline. With that, operator, we will open the line for questions.

Q&A Session

Operator: Our first question today is from Kyle Joseph of Jefferies.

Kyle Joseph: Congrats on a strong quarter. Ian, I just want to pick your brain on kind of that supply demand dynamics in the market. Obviously, from your comments, I got the sense that supply is constrained more on the liquid side. So the more borrowers are relying on the direct lending path. But in terms of demand, it seems relatively resilient in my mind, particularly when you look at what the Fed has done and how it’s impacted other sort of fixed income instruments, mortgage. So just talk about kind of how or why the origination environment has been as strong as it has been for you guys in the face of 500 basis points of Fed hikes?

Ian Fowler: There’s a couple of things I want to cover on that. First of all, just given the liquid market and the shutdown of the liquid market, I mean that really started happening last year, obviously. And as we look at last year, I think as we evolve further in the year, some of these geopolitical and macroeconomic issues became more significant, especially with the rapid rise in hikes by the Fed. And so I think before that really started to take hold, I think as the liquid market was shutting down and having difficulty, it was an opportunity for direct lenders to basically move up market and take market share from a dislocated liquid market. I think as the year progressed and some of these economic challenges became bigger or more significant headwinds, I think the capital that was moving into that segment of the market started to pull back.

And quite frankly, when you think about that part of the market segment, the larger part of that market, in the past, what’s been attractive for direct lenders in that space is the ability to recycle and recycle capital, and that’s a great return profile. But obviously, with the liquid market being shut down, there’s no recycling of that capital. So they’re really holding these big chunky positions. For us, focus on the middle of the middle market, a lot of our activity is coming from our portfolio, which is really attractive. It basically allows us to in a challenging environment to put capital to work in companies we know extremely well. The add-on acquisitions are effectively making these companies bigger, stronger, more diversified credits, which enhances our portfolio.

And in an environment where I think a lot of private equity firms are concerned about valuations and what they paid for the initial platform, the ability to play the multiple arbitrage game and do add-on acquisitions at a lower cost basis effectively brings down their cost basis of the original investment. So it’s kind of a win-win situation. I would say in the last year, about 50% of our origination is coming from our portfolio.

Operator: Our next question is from Casey Alexander of Compass Point.

Casey Alexander: Ian, I don’t — perhaps I’m not bright enough. I’m not even sure that maybe you didn’t just answer my question, but I’m going to ask it anyway. A clear defined strategy of Barings BDC when it originally came out was when the risk premium from the private debt markets was not a sufficient premium relative to the liquid traded markets that the BDC had the opportunity to pivot, and as opposed to making private loans, allocate more capital to the liquid markets at a discount to par, which could then be recycled out to private loans when the risk premium for private loans increased. And I’m curious, given this particular risk premium, why the company isn’t taking more advantage of that opportunity.

Ian Fowler: Well, I mean, look, I’ll let Eric jump into from a high level. But I mean, again, I think if you kind of look at what’s going on in the markets, right? I mean, the opportunity to take advantage — and things are changing. I think right now, you’re seeing some high quality deals in the liquid market — come to the market at attractive levels. But I mean, again, if you kind of look at what’s happened over the last year, with the liquid market shut down, it’s just — there’s just no good new issues that are coming to the market. And when you think about the

Casey Alexander: This isn’t a question about new issues. This is a question about liquid traded paper that you guys know that trades out in the market at a discount to par. This has nothing to do with new issue

Ian Fowler: No. I understand, Casey. I’m just saying, and I’m getting there. I’m just saying that when I’m focused obviously on the middle market, Barings has beautiful portfolio. And so when we look at that portfolio and we can generate with good issues, we can generate senior debt at 5 times at 10% to 11% in yield, that’s pretty attractive.

Eric Lloyd: I’d look at it this way. We evaluate it all the time. And one of the things that Bryan High, who’s one of our co-portfolio managers on here, too, and passed it then on the liquid investment committee, and we are plugged into that business very tightly. But when we look at it, we just don’t think it’s the right time on a relative basis of that asset relative to what we could get on the private side. As Ian said, you can put 5 turns of leverage on something, earn 10% to 11% with the best documentation we’ve seen in years — many, many years and we compare that to what we saw on the liquid side on a secondary basis, we looked at that and said it wasn’t the right time to go into the secondary part of the liquid market relative to what we can generate through our cross-platform and direct middle market business.

Casey Alexander: My second question is conditions underlying Core Scientific and the Core Scientific loan have changed since you guys had to make that mark at the end of the fourth quarter. Can you contour to a certain extent where your discussions are with Core Scientific and how you perhaps see that playing out now that you have some more price discovery for crypto here in the first quarter and maybe a little differentiated view towards the outlook?

Bryan High: Just in terms of giving too much detail, there’s not a lot we can share. Obviously, we’re engaged in the situation, we’re partnered with MassMutual and our meaningful equipment loan holder across the platform. But in terms — yes, the price of bitcoin, which helps buoy the business from a cash generation perspective, has increased 50%, and that’s kind of seem to have stabilize at the moment at higher levels. In terms of the engagement, I mean, obviously, it’s public, everything is out there. They’ve changed the dip lender. I think it’s going to take some time to work through the process, and we’re playing our part in that process.

Operator: The next question is from Robert Dodd of Raymond James.

Robert Dodd: Ian, on the names you said, there are 17 names on the watch list, 2.6%]. You said no particular theme. But any of those names — any of those on that solely because interest is higher? And separate related question, are any of those names non-sponsored? And what are the extra steps you take in — not in underwriting, but monitoring and discussion with the portfolio company when there isn’t a sponsor there given maybe in the high rate environment, more capital injections either and there’s no sponsor, who’s going to do it?

Ian Fowler: So first of all, just to clarify that we call it focus and watch list. So it incorporates watch list, I think we all understand what a watch list is. Focus means the company is — their performance is not tracking to what we underwrote in what we thought. It doesn’t necessarily mean it’s extremely bad. In some cases, it could be the company is generating performance that can be positive and it’s trying to — we’re trying to figure out what’s driving the change, the delta from how we underwrote it. So I want to be clear on that. Second of all, all the deals on this list are sponsored back. I think our focus, again, going back to the Barings is beautiful, is there’s just so many reasons to focus on sponsored deals, more information going in.

To your point, you have more levers to pull when you have issues. And most importantly, you’re not the only source of capital. And I think the deals are the most challenging, quite frankly, are the ones where the management team owns the company because, effectively, they have all the leverage in the world, they can just go across the street and open up another shop. And so I think as as a business and as a portfolio manager, the key in this market, as I referenced, is being really proactive with these companies and these management teams. Because what you really want to do is you want to identify issues early on, you want to identify trajectories that are not in line with expectations and start working and communicating with the interested parties, the management team and the sponsor to figure out how we’re going to get this company back on track.

And so when we’re — we’ve done a number of stress tests on the portfolio, the most important one, obviously, base rates, that’s the one I’m most concerned about and we took it up to 5.5%. We’ve looked at things on an LTV basis and EBITDA cushion basis. And I think just a couple of high-level things I’ll just point out. We’ve seen a continued resiliency in the portfolio despite the high inflation and varying environment, revenue and growth have continued. The management teams have been navigating through these challenges with limited impact on financial performance. So that’s obviously very important. We did see some margin contraction early on in the year. But that trend is reversed as companies have been able to put through price increases and inflation — or wage inflation, that’s one that sort of picked up later in the year.

That’s sort of unchanged in terms of — that’s a risk out there, but a very small percentage of our borrowers, we’ve identified as having high or medium risk with that. And in terms of interest rate, as we’ve seen so far, companies have been able to deal with interest rates. Obviously, the interest coverage has declined a little bit. But they’ve been able to — companies have been able to put through price increases and maintain margins.

Robert Dodd: I really appreciate all that color. And it’s not really about interest coverage, I’s about tails, but we’ve got an average interest coverage metric on Slide 12, 2.9 times I presume that’s the LTM. Where do you think — where would that have to go for you to really feel stressed about a broader part of the portfolio, right? I mean, obviously, it’s an average and the average is never the problem. But is there anything we can look at on that 2.9 times? I mean how far into comfortable range is that currently, and how much does it have to move before you’re actually stressed.

Ian Fowler: And again, I think this is the time where you have to prepare for the worst and hope for the best. None of us have a crystal ball. And so we’ve taken base rates when we’ve done our stress test, we’ve taken place up to 5.5%. And we’re just — we’re right around 2 times coverage, just under 2 times coverage. But you have to recall, right, or you have to remember that, that is just taking the existing LTM performance and of the companies, and putting in elevated interest rates, obviously, our goal here is to work with these companies. And hopefully, they’re doing things on their end to cut costs. Hopefully, they continue to put through price increases. So when we do these stress tests, we’re really assuming that none of these companies are doing anything to address the challenges out there.

And I guess the other thing I’ll point out is that well, unfortunately, we used to have it in our documents, which was taken out over the last five years, but we used to force sponsors to fix 50% of their interest rate exposure, that’s been taken out in the market. But I can tell you a lot of private equity firms that we’re working with on a portfolio basis have incorporated swaps and hedges to minimize the floating rate risk.

Operator: The next question is from Ryan Lynch of KBW.

Ryan Lynch: Just following up on Robert — last question, when you talked about stressing the portfolio, charge interest rates go 5.5%, base rates with 2 times interest coverage. Have you guys done an analysis that looks at what percentage of the portfolio would be below 1 times interest coverage with 5.5% interest rates?

Ian Fowler: Yes, we’ve done the — yes, that was really the focus of the stress test, and it’s a low single digit. And again, this is not on just the BDC. So we’re talking about our entire platform, which the BDC is a representation of. And again, I just want to emphasize, when you do the stress test, you’re again assuming these companies aren’t doing anything on their side. And you’re also assuming they’re completely exposed and unhedged. So again, we feel very comfortable about where we are if rates go to base rates of 5.5%.

Ryan Lynch: Another question I had was — and we’ve talked about this. I’ve talked about this with you all in the past. But when I look at your portfolio, the segmentation on Slide number 12, you guys have talked about in the past kind of Barings has beautiful strategy overall. But when I look at that portfolio, to me, there’s — at least when you compare it to a traditional BDC segmentation, it’s much more complex. And I know you guys think that there’s some value in that complexity, in particular with some of the cross platform investments. I’m just curious, obviously, some of those segments are going to roll off of actually, particularly the acquisitions of Sierra and MVC. I’m just curious now that there’s been some recent leadership changes at Barings, do you guys foresee your focus on sort of the segmentation of some of these different strategies of only right now having 46% in US middle market loans is quite a small percentage versus most other BDCs out there.

Has there been any sort of strategy shift with the leadership changes of how you guys want to mold and prep this portfolio over the next couple of years?

Eric Lloyd: I would say it’s much a strategy shift as much as a simplification around some things. Not all but some of the complexity in our portfolio is from the acquired portfolios that we put in place. I mean, now that we acquired as part of the two transactions. We don’t intend to do those type of deals going forward. And so as those roll off, I think you’ll see some simplification within the portfolio. I also think that we will continue to look for opportunities where the core Barings capabilities can be brought to bear on behalf of shareholders. But I don’t think you’ll see it in some of the more complex ways that it was some of the acquired portfolios that we did.

Jonathan Landsberg: The only thing I’ll add is that you’ve seen maybe on some of the JVs, right, this year JV, we’re returning capital, that vehicle is winding down. You’ve seen the same thing with Thompson Rivers as those loans were , we’ve been actively returning capital as that trade has sort of run its course. So at the margin, yes, you’ll see some vehicles that wind down going forward. But the view of finding relative value across the wide Barings frame of reference, no, we don’t think that strategy changes.

Operator: There are no additional questions at this time. I’d like to turn the call back to Eric Lloyd for closing remarks.

Eric Lloyd: Thank you. Thanks for everyone who participated today on today’s call. I appreciate you taking the time to listen to us and ask your questions. Please stay-safe. And everybody, have a great day and weekend.

Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.