Jason Breaux: The other thing I’d add to agree with everything Henry said is that, as you know, we’ve talked in the past, Robert, about PIK interest and that as a percentage of our portfolio and of our top line, which is something we really try hard to minimize. And so as Henry mentioned, when buyers, private equity firms or other buyers are looking to put in place more full aggressive cap structures, there’s — you’ll oftentimes find in this environment, a PIK component in those cash structures given where base rates are. And those are the types of deals that I think we obviously see them. We evaluate them. We’ll participate on a very selective basis, but we overall are trying to keep our PIK income at a very modest level in our top line.
Robert Dodd: If I can ask you to stretch the time line a little bit more to your point, sponsors are going to look to monetize more assets in 2024, right? It looks like currently, later is still going to be pretty high in 2024. So do you expect that kind of structures we see in 2024 to be more reminiscent of what you’re doing in the third quarter here or do you think there’s going to be some different evolution as we go through 2024, if monetization for funds does increase, but rates remain high. Same kind of — does Q3 apply to next year, I guess, is the question.
Jason Breaux: I think that’s a great question. It’s something we’re thinking a lot about. And I think we’re going to see segments of the market evolve a bit depending on, I would say, the risk profile of the buyers and the lenders attached to those buyers in a very low rate environment, which we experienced for several years, you saw secured debt continue to grow at a multiple of cash flow and that wasn’t necessarily surprising. Now we’re in a different reality and with where base rates where they’re at. I think what you’ll start to see more of are these conservative structures, as Henry outlined, for Q3 activity or potentially more aggressive leverage levels, but with maybe a more traditional first lien loan that’s cash pay and more junior oriented piece of paper that might have a pick toggle option or a portion of it as PIK to help owners manage their fixed charge burden in these acquisitions.
So I do think it’s something that we’re going to start to see more of in ’24 than we’ve seen in some time.
Operator: Your next question comes from the line of Ryan Lynch from KBW. Your line is now open.
Ryan Lynch: First question I had, kind of following up on the previous line of question with the loan to value 30% below 30% loan to value on kind of on the investments made this quarter. It seems like that in combination with — if I look at your overall weighted average spread on new investments, which was 5.9% versus 6.7% in the prior quarter. It feels like you guys are purposely sort of derisking on the new investments or your willingness on the level of safety you guys want on new investments. Is that fair to assume that that’s what’s happening? Or are the terms and structures on these new investments coming to market? Or are these just representative of kind of what’s coming to the market today?
Jason Breaux: Ryan, it’s Jason. Thanks for the question. I think it’s a little bit of both. I think we are certainly trying to be selective in our underwriting in this environment. Not to mention, we’re sort of at a leverage level on the overall fund that we’re comfortable at. And so we’re not looking to meaningfully lever up from where we are. The second point I would say is that because we are in a slower volume environment, albeit certainly a tick up from Q2 that slower deal flow combined with significant capital that’s been raised targeting private credit has forced pricing to tighten a bit. So I would say we’re generally probably 25 basis points to 50 basis points inside of where we were a quarter or so ago where unis now are in the, I would say, 5.50, 5.75 range.
And first liens, not stretch are in the 5.00 to 5.25 range today. So I think you’ve got a little bit of our conservative bias, but in addition to that, just a supply-demand imbalance, which we hope to even out and become more rational in ’24.
