And then again, in a rapidly rising rate environment, as the short end of the curve got steep over the last 18 months. In many cases, we saw corporate CFOs moving from 3-month rates to 1 month rate. And the reality, and you have to then make a loan payment every single month, if you move to 1 month rate. That has a lot of pain to do that. You have to send a certificate and all this other work, which if you’re going to save 3 or 5 basis points, it’s probably not worth the company’s time. But if you’re going to say 40 basis points, it’s worth your time. So what we saw is when the short end of the curve got steeper, many companies were going on electing 1 month LIBOR or so far. That’s now undoing it at the short end of the curve flattens, and we’re seeing more and more — we’re seeing even if they are paying 1 month the differential is much lower.
So it’s more a return to normal is my expectation that it is a short-term spike. A and then B, we’re mindful that CLO equity is a decaying investment. And that if you invest $100 at the beginning or whatever you invest at the beginning, and our expectation, it’s very unlikely your terminal payment from that CLO will also be that same $100 you’ve invested. And so we talked about generating very strong cash on cash approximately 25% kind of cash on value has been distributed on our CLO equity portfolio, some years better, some years worse over the long term. Now a portion of that cash flow is a return of capital. So when I look at our cash flow of $0.90 being $0.20-odd above distributions and expenses, that actually makes sense and that 20-odd sense of excess really should be thought of generically as a return of capital into our system or if a CLO forgetting about tax or GAAP just as like an amortizing loan for CLO equity that would be like the principal payment on your loan.
You pay out, use the income portion to pay out expenses and distribution and then ideally seeking to reinvest repayment portion into new CLOs. So hopefully, we’re back to more of a long-term normal state in the short term, short end of the curve. Which I think is kind of proving itself out and that then manifests itself quite nicely on a levered basis within CLOs. I hope to see the excess of cash flow — cash flow will be comfortably in excess of our distributions and expenses on an ongoing basis.
Matthew Howlett: Right. So in summary to the NII of $0.32, what you’re saying, it sounds like that’s tremendously understated with conservative sort of assumptions in that relative to the cash or just I mean that’s not the way to kind of look at it, given that you said some of that return on capital of $0.20.
Thomas Majewski: Not of the NII, of the total $0.90.
Matthew Howlett: Right, of the $0.90. Yes.
Thomas Majewski: Yes, exactly. Yes, yes. Obviously, we like the cash to be as high as possible. That’s always the answer. But one of the things to kind of just get a general sense of is what is cash off the portfolio versus the expenses, a lot of which is preferred and debt coupons and distribution and then other expenses. And what we pay out in distributions to the common shares. I’d like to see it — I’d always like to see that difference be as high as possible, but that there is a comfortable difference. There were 1 or 2 quarters in our history where they were kind of neck and neck, but by and large, if you look and if you — we provide the historic cash flows, you can go back quarter-to-quarter. You can see, in general, it’s been a quite healthy spread between cash received and expenses and actual recorded income. And that’s effectively a return of capital on our CLO payments.
