And that’s not really an option in the private credit market per se.
Operator: Our next question comes from Matt Howlett with B Riley Securities.
Matthew Howlett: I’m just intrigued by the improvement in the excess cash flow, the $0.90 per share. And obviously, you mentioned the difference between a month and 3 months so far is compressed, and that’s helped you obviously, you give the number in July. It’s off to a good start. At some point, I mean, how much can that — how much longer can I just run way above the dividend and GAAP NII is there — I know you don’t give a tax from them, but is it simple to be all kind of equate or do one have to go up, when does that go — just walk through how much of this excess cash flow can continue.
Thomas Majewski: Sure. So the most popular thing, I think ever downloaded from our website is a PowerPoint thing we posted in maybe August of 2015 which tries to lay out GAAP tax and cash on a representative CLO equity investment. And if you haven’t downloaded it, we’d encourage you to, if you have to click way back in the history of our website, but it’s up there. Maybe someday will update the format, but the numbers are unchanged. GAAP cash and GAAP profit, tax profit and cash profit, minus some odd nondeductible things for tax over time, will equate in the life cycle of nearly any investment, including CLO equity. In our experience, they never seem to equate however, in any given year, which caused those mismatches there’s been years we’ve had to pay large special distribution.
There’s been years where many of our distributions have been treated as a return of capital and not taxed from a tax perspective and everywhere in between. So there’s sadly the — I would struggle to see a scenario where they’re ever back in line where they’re in alignment in any given year, and that’s been my experience over 20 years. And the flip side to your question, how much — how in this persists. And what I would say is it’s less of an increase in cash flow, although, obviously, it’s a handsome increase and more of a return to normalization in theory. And really, the reality is until recently, when many people modeled the CLO, they just assume the same 3-month LIBOR for the assets and the liabilities. This is back before SOFR let me get to that in a minute.
But the reality is loans at their rate now at SOFR, 250 days of the year, CLOs set their SOFR 4 days of the year. So there’s always going to be a mismatch between the base rate on the asset side and the base rate on the liability side of a CLO. That’s just a given, it’s probably not given enough credit in the market. Then overlay the complexities that loans can pay off of 1 month, 3 months, 6 months SOFR they can even pay off a prime and sometimes there’s other rates. So there’s all kinds of rate stuff on the asset side. Our liabilities are set 3 months SOFR, maybe single quarter, once a quarter. The gap between 1-month and 3-month LIBOR and SOFR got really significant for a while. This has happened 2 times of note in — to my memory, once was in early 2017, when all the tax rules were changing, maybe as 2018 around bringing offshore corporate money back into the United States and that kind of mucked up some money markets for a while.
