Finian O’Shea: I think that’s all for me. Thanks so much.
James Keenan: Thanks, Fin.
Operator: We’ll now take our next question from Melissa Wedel with JPMorgan.
Melissa Wedel: Good morning. Thanks for taking my question. My first one, I wanted to start with a clarifying question really around some of the investment activity levels in the portfolio. I’m curious if the pending merger decision and shareholder vote has impacted any sort of capital deployment activity in BKCC.
Nik Singhal: Hi, Melissa, this is Nik. So the short answer is no. From a deployment perspective, it’s been business as usual and the pending vote has had no impact on capital deployment.
Melissa Wedel: Okay, appreciate that. And then in terms of just sort of the outlook going forward, it’s interesting to hear your points about not seeing the core middle market as impacted by some spread compression and maybe slight loosening of terms that have happened in the upper mid-market. I mean, do you expect to see more M&A activity this year? And if so, how does that impact the portfolio potentially? Is that sort of a — does that put deleveraging pressure on the portfolio throughout the year as perhaps core middle market companies are acquired?
Nik Singhal: Yeah. And, Melissa, thanks for the question. So I would just make 1 slight clarification. I’m not saying that the core middle market is not impacted by spreads at all, just that the level of compression we’re seeing is less relative to the upper middle market. We’re seeing M&A activity starting to pick up. And I really think that, that’s, to a large extent, a function of the belief that interest rates have stabilized. And while there is a range of opinions about how fast or how much they will go down, we firmly believe that as there’s more and more conviction, more LBO, more M&A activity will take place because frankly having a confident view on the cost of capital, there’s a prerequisite to buyers being able to put on deals.
So we do expect certainly remainder of 2024 activity to happen. Again, could that lead to an increased level of prepayments? It is quite likely. Again, look, we operate in a competitive market. We always have, and historically, prepayment levels go up and go down. Our goal would be for companies that we like for good businesses should to try and find a way to stay in those businesses when refinancings occur. And it may even lead to opportunities where companies where — would rather get — take their money back and go home. It actually increases the probability that some of those events will happen. And just — sorry, I’ll add one more thing. So whether it’s going to be deleveraging event, it’s hard to say. I mean, quarter-to-quarter, it can be bumpy.
But we have a very diversified origination pipeline, very long track record of industry relationships, and we’re confident that we will be able to find employment opportunities but we’ll continue to be disciplined.
James Keenan: Yeah. Melissa, this is Jim. One other thing I would add that might be interesting, just from the portfolio, the market trends that you see based off of the increasing cost of capital, and obviously, that has an impact on some of the deals that exist today when it comes to the interest coverage ratios, on new deals from new sponsor activity and new M&A, because of the increased cost of capital, we are seeing lower leverage levels being put on those companies relative to two, three years ago. So inherently, there’s a lower leverage in today’s deployment than there was in the legacy — or things that were deployed two or three years.
Melissa Wedel: Got it. Thank you.
Operator: And that concludes today’s question-and-answer session. I’d like to turn the conference back to our presenters for any additional or closing comments.
James Keenan: I just want to say thank you, again, and appreciate the support throughout this and just thank you for the — our shareholders and our team to ultimately the work done over the course of the last year to get here. Thank you.
Operator: And once again, that does conclude today’s conference. We thank you all for your participation. You may now disconnect.
