Tom Hennigan: Arren, it’s Tom. When we look at other income or event-driven income, we look at a combination of total OID acceleration plus other income. And that line item generally will move based on repayments, amendment activity. And historically, that has been a little under $4 million per quarter. Earlier in ’23 based on lower prepayment activity, it was lower in a couple of quarters. It was more like $3 million per quarter, even less than $3 million. This quarter, that combined number was about $4.5 million. So relative to the historical trend, it was about $0.5 million, about $0.01 higher than the historical trend line. It was a pop versus the rest of 2023, which was abnormally low. So you have a pop for 20 — for the fourth quarter, but only about $0.01 higher than the historical average.
Operator: [Operator Instructions] And our next question comes from the line of Melissa Wedel from JPMorgan.
Melissa Wedel: Most of mine have already been asked and answered. I wanted to follow-up on one of the slides in particular with the risk rating distribution. This is a really — it seems like an aside, given how strong it seems like the fundamental performance is of companies across the portfolio broadly. But I did notice a very small tick up in 3- and 4-rated portfolio companies. I guess the question is, to the extent that you are seeing portfolio companies with any particular challenges, where is that coming from? Is it still inflationary pressures? Is it labor cost? Curious what you’re seeing.
Aren LeeKong: So maybe I’ll start, and Melissa, thank you for the question, and Tom, hop in. So risk ratings — and just so you have it, we — behind these risk ratings, we have three or four other processes that we run to ensure that we have our arms around everything. The overarching theme I’d give you, though, is sometimes when we’re moving things from 2 to 3, 3 to 4, it is less a function — certainly if it’s a 5, there’s a function of there are serious issues. But in many cases, Melissa, it’s more of a function of us ensuring that we are putting the appropriate level of resources around Carlyle on names well ahead of when something goes well. So I think one of the issues that we’ve forgotten in direct lending sometimes is, if something is wrong, if you are managing your book and you actually are looking at your numbers and you designed the documentation correctly, you have 12 months, 24 months, long ahead of time to start preparing.
So I’ll start that with the slight movement from 2s — or from 3 to 4, that’s generally going to be, particularly if a slight, not fire alarms, that’s generally going to be us saying “Hey, we want more resources to look at a name or two.” Then the last piece I’ll tell you is relative to a year ago. A year ago, a lot of what we’re seeing was inflationary driven. So you would have heard us a year ago when we had our issues in the health care space and then took care of them. We’ve taken care of them at this point. A lot of that was about inflationary pressures. This past year, if you look at our overall portfolio, and then I’ll hand it to Tom, the inflationary theme may still be there in small parts. But I think our average business was up about 13% in revenue and just a little bit north of that in EBITDA.
So by definition, revenue and EBITDA are either growing in line. And as of late, EBITDA is outpacing that. So I’d say, a year ago, the inflationary theme was the conversation. Today, not as much. And by the way, Melissa, I’d tell you like a year ago, it was a theme. Today, not as much. Today, it’s changed so much that we — you and colleagues in the analyst field, one of the other questions no one’s asked is what your view on forward interest rates. So think about the fact that we’re asking — we’re talking about interest rates being cut and on the same call asking about inflationary pressure. So I think we turned that corner generally, knock on wood, on our portfolio. Tom, what did I miss?
Tom Hennigan: When I say specific to the changes in the risk ratings this quarter or the dollars on the page, that 4 category is 2 loans, 2 positions that contributed to the fair value increase. One is dermatology, which has continued to inch up every quarter. The other is Pro-PT, which is now called Bayside. That’s the other deal that’s on non-accrual with value that again improved. So it’s slightly up. So that’s the forward movement this quarter. That’s a positive. Our two deals on non-accrual with the value actually going in the right direction. In the 3 category, that increase of about $15 million was driven primarily by two deals. When I say that 3 category, it means to Aren’s point, we’re focused on it. Risk has increased probably for those particular credits.
Leverage is up, EBITDA is likely down from when we closed. But importantly, we’re not worried about losing money. And so we’re focused on it, but we’re really not worried about losing money. The particular themes for those deals, one is consumer discretionary deals. We don’t have very much in the portfolio, but we’ve seen lower demand in consumer-driven businesses and then across our industrial book, just destocking, and one of the credits just had — we’ve had a couple of credits in the book, and that was one of the downgrade just the general destocking in the current environment. So those are a couple of themes I’ve mentioned in terms of — as we’re looking at deals that migrates from that 2 to 3 categories.
Aren LeeKong: But much more relative to a year ago, where everything was inflation, now just more idiosyncratic, and we’re on top of it. Does that help, Melissa?
Melissa Wedel: It’s very helpful.
Aren LeeKong: Thanks for joining the call.
