Craig Packer: We expect to see — again, the public markets are wider than today. It’s not something we have to wait to see. It’s already happened is happening now. Our pipeline of deals we are looking at, the sponsors are actively making choices about how they want to finance them. And today, despite a wide open public market, they continue to choose [indiscernible] money for certain deals in the public market for certain deals. As it has been and as it will be, and that’s ordinary course decision making. I would expect in this environment that gets repaid from some companies that choose to refinance in the public markets. We’ve seen a little of that, I expect we’ll continue to see some of that, particularly, really [indiscernible] encompass our portfolio has been there for a while.
They have performed the other and can get a good execution. So that generally may come from us sort of the normal circle of life, if you will. I expect us to continue to do that. So I think it’s just a normalized market. I think we had an environment a year ago when it wasn’t a normal environment. Everything was going through [indiscernible]. If we go back, we would have cautioned you, not to assume that, that would stay [indiscernible]. That is not a normal state of affairs. This is an state of affairs. And a healthy one and one that we can continue to have really good success of remaining deals and getting new payments and keeping our portfolio invested.
Paul Johnson: Thanks. I appreciate that. And then public valuations have been surprisingly strong last year and into this year in the growth market, tech sector, I mean, really the broader market — the public markets as a whole. I feel like that’s maybe been a little bit contrary to kind of what’s going on in the private markets last year with the adjustment to higher peak rates. I’m just curious, how does that affect the companies in the upper middle market that you’re looking at today? I mean, have you seen this kind of multiple expansion that we’ve had in the public markets? Or I’m just curious to have that affects the market that you guys play in?
Craig Packer: We continue to see private equity firms have a tremendous amount of capital, a tremendous amount of expertise, and really a tremendous track record finding opportunities to deploy that capital, generate great returns for their equities. Private equity is a very — it’s a market that institutional LPs like quite a bit, have significant exposures to and have generated really terrific returns in excess of the public markets often over many, many years. That’s the market we choose to go back. We work really closely with the private equity firms. And they were active last year. It wasn’t quite sort robust years. They were all like, at some point, that we will pick up and resume. But I just want to make a point, which is an obvious one, but I’ll make it anyway.
We are on average lending at 40% loan to value. We’re lenders. We want to have a lot of equity cushion we have the commitment from the private equity firms and form capital in form of resources. Their role is to drive our and whether they get a very great return, our goal is to quite a loan that we feel really confident in a downside scenario, we can get repaid. I think that part of the reason why you haven’t seen as much as private M&A resuming is the sponsors, I think we’re being patient. They see some of what you’re seeing. They see the pulp market valuations high, and they’re not going to rush to sell companies they feel really confident they can get the valuation that they deserve. That needs to wait 6 months or a year, they’re doing that.
I think that’s part of why M&A has slowed down. But I don’t want to sound [ clip ] or trying it, but our problem is just making sure we’re backing good companies with significant equity beneath us, and that even if valuation comes down meaningfully we’re, going to be covered. And I think that’s central to our underwriting thesis, and we don’t get distracted by public market valuations at idea [ph] Federal or even private market value, which might be a bit too high or we just go through our downside analysis, assume operational results are off, value multiples are lower until will we get our money back and that’s how we look at it.
Paul Johnson: Got it. Thanks for that Craig. Those are all my question today.
Operator: Thank you. Next question is coming from Mickey Schleien from Ladenburg Thalmann. Your line is now live.
Mickey Schleien: Yes, good morning. I apologize if my question has already been asked, but I’m juggling multiple calls. Craig, you mentioned that the BSL market is normalizing, and I’m interested in understanding how you see that impacting the spreads that you may be able to capture as the year progresses and going into next year?
Craig Packer: Sure, Mickey. We did talk about this a bit. We — in my prepared remarks, I mentioned we don’t see stress hike. It’s tight in public markets have been open. They are open. They’re normalized. They’re not normalizing, they’re normalized. And so that’s a price tag that private equity firm look at. And generally, it’s a moderate deal environment in the public markets a lot of capital, it marks a lot of capital, so you’ve seen some spread compression. I think almost all of that is already taken effect in new deals. And I don’t know just going to go much higher than we are now. It’s on the tight end of historical ranges. Absolute returns on our lending remain very high because current short-term rates remain very high.
And so even if we do a unitranche at 5 of the over current base rates, we’re still earning 11%-plus, but we all recognize that there’s a good likelihood of that in 2 years at that base rate will be meaningfully lower. And so we’ll earn last over time. By the way, the [indiscernible] coming for exactly how fast rates will come down and what that will look like. And maybe there’s a bit of a reconsideration there. But we’re assuming we look at the forward curve. So spreads are tighter, they’re livable — in category than in the returns work for us. We still get great returns, and it’s a more just to back on more typical market with sponsors and companies picking between private and public markets. We continue to get a premium for [indiscernible].
And that premium not only higher spread, but essentially the OID that you, guys, underwrite at. We continue to offer a premium. But I always like to remind clients and shareholders is, you got to think about it on a relative basis, where we may not be earning as much, but all the markets tightened and we’re still running a nice premium, and we earn a premium in all market environments and will — the relative premium should stay the same, but the asset return will move around based on market conditions. So hopefully, that gives you a little bit of context.
Mickey Schleien: It does. I appreciate It. Thank you very much.
Craig Packer: Thank you.
Operator: Next question today is coming from Kenneth Lee from RBC Capital Markets. Your line is now live.
Kenneth Lee: Hey, good morning. Thanks for taking my question. Just to piggyback on the [indiscernible] syndicated loan questions. Do you anticipate any kind of shift in either of the sectors you’re focusing on or under writing or perhaps the types of investments you could be making either within the capital structure or the size just given the normalization of the leveraged loan markets. Thanks.
Craig Packer: We’re boring on this. I — it’s not sort of like black of thought on our part. We really like recession, resistance factors with very predictable earnings in noncyclical parts of the market. We’re not trying to time a comm cycle, and we track private equity activity. And so consistently where we find the best opportunities, software, insurance brokerage, some parts of health care, food and beverage, a lot of services businesses, distribution businesses, that’s our sweet spot. Those have been our most significant sectors for years, and we continue to see a lot of activity. Our software continues to be the best factor that we have. We offset several funds that is software space, but it’s the biggest single industry sector for many of our funds seems like that a lot.
And we’re not going to deviate from that. So I think that should be reassuring to investors, we make 7-year loans, if we thought the economy might be really good for cyclical for a year or two, we’re not willing to underwrite COF conditions for 7 years. And so we think that that’s the right growth. So no change. We lend a lot of businesses that the underlying economic feature is a very predictable and recurring revenue stream. That’s the single defining factor of our underwriting process. And you can find those types of businesses that serve a variety of end markets, depending on what they do and that’s really what we seek out.
Kenneth Lee: Got you. Very helpful there. And one follow-up, if I may. In terms of the new investments, I wonder if you could just give a little bit more color in terms of what you’ve been seeing in terms and documentation on new investments? And then whether there’s been any change just given the current landscape. Thanks/
Craig Packer: Overall, terms and protections remain very strong for draft lending. And I can sort of underscore this, that the protections that we get are significantly better than what’s in the public markets. That’s fundamental to what we do. We care not only about the business and the returns but the credit protections, given our significant exposure to the companies given the liquidity that we have. We need to be in a position to protect ourselves, the CLOs that buy pubic loans, they simply don’t have nearly the same credit protections. It’s really pragmatically different, in particular, in areas around protecting our collateral cash flow leakage and like. So we just — we just got a much better [indiscernible] fundamental.
You won’t sacrifice that, how not will not. There on the edge, there are a few things that can creep in when markets are as strong as they are now, which we will do selectively, if the rest of our credit protections and economics are appropriate. But the fundamentally, we can leverage on the deals and evaluate deals, credit agreements are fundamentally consistent what we’ve been doing in the last 7 or 8 years, no change. You’ll read about our ability to pick. There’s a couple of features that are wrapped in. We do those in very, very small number of circumstances for really high-quality credits, in a very reasonable way. It’s not reflective of overall market conditions, but you will see a couple of deals on that matter. And I think for the right credits, we are willing to or those markets will only do it, but nothing that we sacrifice our credit quality.
It’s fundamental to us, and I feel really good about that for every loan that we do, and if not be, we won’t do it.
Kenneth Lee: Got you. Very helpful there. Thanks again.
Operator: Thank you. Next question is coming from [indiscernible] from Truist Securities. Your line is now live.
Unidentified Analyst: Good morning. I’m calling in for Mark Hughes. In the prepared remarks, you mentioned that the net leverage ratio ticked down, which we’ve seen for the last several quarters. Is there a specific range you had in mind for ’24, ’25 as investment activity presumably starts ramping up?
Craig Packer: The roles in the same range, we’ve been at as we said a long time, [ $0.91 ] quarter. This quarter, we had $1 billion of origination, $1 billion repayments. We can’t manage that leverage ratio with a [indiscernible]. It’s a little bit just on deal flow. I look on the margin, I prefer to be particularly too higher, but there’s nothing deliberate about us trying to tweak it a bit lower. I think it’s just a function of the [indiscernible] we’ll try to optimize a little bit. Our returns are true wreak. We’re putting up record returns, record artery, record NII, record NAV and so I think it should be reassuring that we can do all that and have levers not be at our peak. We’re not stretching to the [indiscernible] we’re not stretching to mass leverage, attract wind out returns. We can do it but comfortably and it gives us a little bit of arrow and over time to offset if there is a little bit of rate reduction.
Unidentified Analyst: Yes, that’s helpful. And so you mentioned the industry that you find attractive, but are there any particular industries in your portfolio that are having more credit issues others?
Jonathan Lamm: We have very few credit issues. So there’s no factors are having more competition and there’s all those 9. I would say, overall, really consistent across the board low single-digit revenue and EBITDA growth. There was a couple of consumer-facing businesses that are having a bit of struggle. There’s a couple of industrial businesses that are benefiting when supply chains were loosening up, but maybe they’re facing some commodity price pressures or some supply chain challenges. So I’d say every company is doing perfectly well, we have a loss list. But there’s no thematic comments I would make about [indiscernible] grade weakness, and I think that speaks to the broad strength of our portfolio.
Unidentified Analyst: Okay, got it. Thank you.
Operator: Thank you. We reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further closing comments.
Craig Packer: Thank you so much, everyone, for joining. We are really pleased with the quarter. If you have any other questions, please, I love to engage with you, and we look forward to seeing you and speaking with you again soon.
Operator: Thank you. That does conclude the teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.