Golub Capital BDC, Inc. (NASDAQ:GBDC) Q1 2024 Earnings Call Transcript

Golub Capital BDC, Inc. (NASDAQ:GBDC) Q1 2024 Earnings Call Transcript February 6, 2024

Golub Capital BDC, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, everyone, and welcome to GBDC’s Earnings Call for the fiscal quarter ended December 31, 2023. Before we begin, I’d like to take a moment to remind our listeners that remarks made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time-to-time in GBDC’s SEC filings.

For materials we intend to refer to on today’s earnings call, please visit the Investor Resources tab on the homepage of our website, which is www.golubcapitalbdc.com, and click on the Events Presentations link. Our earnings release is also available on our website in the Investor Resources section. As a reminder, this call is being recorded. With that, I’m pleased to turn the call over to David Golub, Chief Executive Officer of GBDC.

David Golub: Hello, everybody, and thanks for joining us today. I’m joined by Chris Ericson, our CFO; and Matt Benton, our Chief Operating Officer. For those of you who are new to GBDC, let me review quickly our investment strategy. It’s today and since inception has been to focus on providing first-lien senior secured loans to healthy resilient middle market companies that are backed by strong partnership-oriented private equity sponsors. Yesterday, we issued our earnings press release for the quarter ended December 31, and we posted an earnings presentation on our website. We’ll be referring to that presentation during the call today. I’m going to start as usual with headlines and with a summary of performance for the quarter, then Matt and Chris are going to go through our financial results for the quarter in more detail.

And finally, I’ll wrap up with an outlook for the coming period and with some Q&A. The headline is that GBDC had an excellent fiscal first quarter. GBDC’s results for the quarter were right in line with the prelim results the company filed on January 17. Adjusted net investment income per share was $0.50, that was tied with fiscal Q4 2023 for the company’s highest ever adjusted NII per share. It corresponds to an adjusted NII return on equity of 13.3% on an annualized basis. Adjusted earnings per share came to $0.45 and this corresponds to an adjusted return on equity of 11.8% on an annualized basis. We had a small net realized and unrealized loss for the quarter of $0.05 per share, but overall credit results were very strong. We saw no new defaults.

We saw a decrease in what was an already low percentage of non-accruals and we saw stable internal performance ratings. We’ll talk about all three of these in more detail later in this call. Finally, NAV per share increased by a $0.01 quarter-over-quarter to $15.03 as of December 31. While we’re proud of GBDC’s results for the first fiscal quarter, we’re even more excited about the two strategic announcements that we made in connection with the earnings pre-release. To refresh your recollection, first GBDC announced it entered into a definitive merger agreement with Golub Capital BDC 3 Inc, or what we call GBDC 3, with GBDC as the surviving company subject to certain stockholder approvals and customary closing conditions. Second, GBDC’s investment advisor agreed to reduce GBDC’s income incentive fee and capital gain incentive fee from 20% to 15% in connection with and in support of the proposed merger.

The reduction in incentive fees was made effective as of January 1, 2024, and it will be in effect during the pendency of the proposed merger that will become permanent upon closing of the merger. You’ll recall that GBDC’s investment advisor previously announced the permanent reduction of the company’s base management fee from 1.375% to 1% effective July 1, 2023, with a 1% management fee, a 15% incentive fee, an 8% hurdle rate and the cumulative since inception incentive fee cap, we believe GBDC has set a new gold standard for shareholder alignment among publicly-traded BDCs. I’d encourage you to look at the investor presentation on GBDC’s website and the announcements to learn more about why we think these are so exciting and important. With that, let me hand the floor to Matt to walk through our results for this quarter in more detail.

Matthew Benton : Thanks, David. I’m going to start on Slide 4. As David just previewed, GBDC’s earnings for the quarter ended December 31, 2023 were excellent. Adjusted NII per share was $0.50 corresponding to an adjusted NII ROAE of 13.3%. Adjusted NII per share this quarter was tied with the September 30 quarter is GBDC’s highest ever. Compared to fiscal Q1 of 2023, GBDC’s adjusted NII per share increased by $0.17 year-over-year or about 35%. Adjusted earnings per share was $0.45, corresponding to an adjusted ROAE of 11.8%. GBDC’s strong profitability was driven by three key factors. First and foremost, strong credit performance. I’ll go into more detail on this in a moment. Second, high base rates consistent with prior quarters.

And third, sustainably lower expenses due to the reduction in GBDC’s base management fee rate, which took effect in July of 2023. The portfolio balance sheet updates generally reflect the continuation of trends from the 9/30 quarter. Net funds declined by $73.2 million sequentially. While we saw an uptick in market-wide deal activity in calendar Q4 relative to the rest of 2023, GBDC’s new pace of investments remain measured. This was by design. GBDC’s model doesn’t depend on fee income from new originations or repayments to drive strong returns. The overall credit performance of GBDC’s investment portfolio also remains strong. First, we saw a reduction in non-accruals. As a percentage of total debt investments at fair value, non-accruals decreased to 1.1% at 12/31/2023 from 1.2% at 9/30/2023.

Second, internal performance ratings remained strong. Investments in Rating categories 1 and 2 represented 40 basis points of the total portfolio at fair value. NAV per share increased by $0.01 on a sequential basis to $15.03. NAV per share is now more than 200 basis points higher than the prior year, even as GBDC delivered higher distributions to shareholders during this period. And turning to financial leverage. Net leverage declined modestly to 1.18x. This is consistent with our plan to reduce leverage gradually to 1.15x debt-to-equity or lower. Let’s turn to distributions now. The Board approved $0.46 per share of distributions, our regular quarterly distribution of $0.39 per share, and a fiscal Q1 supplemental distribution of $0.07 per share.

Taken together, these distributions correspond to an annualized dividend yield of 12.2% based on GBDC’s NAV per share as of December 31, 2023. As a reminder, we’ve previously announced that the Board increased the company’s regular quarterly distribution from $0.37 per share to $0.39 per share in conjunction with the proposed merger announcement and corresponding reduction and incentive fee. Adjusted NII per share significantly exceeded the company’s regular quarterly distribution, resulting in a distribution coverage ratio of 128% on the increased regular quarterly distribution of $0.39 per share. The Board also authorized a supplemental distribution of $0.07 per share based on the company’s variable supplemental distribution framework. You’ll recall that the framework was introduced in 2023 to help shareholders understand how we plan to balance the likelihood that GBDC will continue to generate excess income, all else equal on the one hand, with our focus on NAV growth and resilience on the other hand.

You can find more information about the record dates and payment dates for fiscal Q1 distributions on Page 23 of the earnings presentation, and about the variable supplemental distribution framework on Page 24. Before I hand off to Chris to go through the quarter in detail, I do want to emphasize that GBDC’s strong results for fiscal Q1 don’t yet reflect the impact of the lower incentive fee rates GBDC is expected to have going forward. The analysis on Slide 5 quantifies how much GBDC’s earnings power has already increased as a result of its lower base management fee rate and how much incremental earnings power we expect to see from lower incentive fee rates. As you can see by comparing the June 30, 2023 column with the September 30, 2023 and December 31, 2023 columns, lower base management fee rates drove an increase in adjusted NII ROAE of about 80 basis points or $0.03 to $0.04 per share quarterly.

The right column shows GBDC’s pro forma results for the quarter ended December 31, 2023, as if its incentive fee rates were 15% instead of 20%. We estimate GBDC’s pro forma adjusted NII per share would have increased from $0.50 to $0.53, representing earnings accretion of approximately 6%. So all else equal, we expect lower incentive fee rates to increase GBDC’s adjusted NII per share going forward by about $0.03 to $0.04 per quarter or about $0.13 annually. This translates to approximately 90 basis points of incremental adjusted NII ROAE. You’ll start to see this incremental potential earnings power in GBDC’s results for fiscal Q2. GC Advisors is voluntarily weighting incentive fees in excess of 15% effective January 1, 2024, while the merger remains pending.

Assuming the merger closes, the incentive fee rate reductions will become permanent and GBDC will be set up to permanently benefit from higher earnings power going forward. I’m going to turn it over now to Chris to provide more detail on our results.

Chris Ericson: Thanks, Matt. Turning to Slide 8, you can see how the key earnings drivers Matt just described translated into growth and NAV per share. The combination of high short-term interest rates, attractive credit spreads and GBC’s low-cost leverage profile resulted in adjusted NII per share of $0.50 per share, matching a record level from last quarter, a level meaningfully higher than dividends paid out during the quarter. In addition, the exit of an equity position during the quarter drove a net realized gain of $0.01 per share, whereas modest net unrealized losses resulted in adjusted net realized and unrealized losses of $0.05 per share during the quarter. Together, these results drove a net asset value per share increase to $15.03, up $0.01 per share from the prior quarter.

Let’s now go through the details of GBDC’s financial results for the quarter ended December 31, 2023. We’ll start on Slide 11, which summarizes our origination activity for the quarter. Net funds growth quarter-over-quarter decreased by approximately $73.2 million as new investment commitments and delayed draw term loan fundings were outpaced by the net impact of exits and sales of investments. Market-wide deal activity and Golub Capital’s level of origination activity both improved in the December 31 quarter, while GBDC’s origination activity remained measured as part of our plan to reduce GBDC’s leverage ratio to 1.15x debt-to-equity or lower. We expect deal activity to continue to improve in calendar 2024, though this may be more of the case in the second half as opposed to the first.

Golub Capital has remained highly selective, closing approximately 2% of deals reviewed during calendar year 2023. That’s on the lower end of our typical 2% to 4% selectivity rate and reflects our focus on quality over quantity. The asset mix of new investments shown in the middle of the slide remain predominantly one-stop loans. Looking at the bottom of the slide, the weighted average rate on new investments decreased by 80 basis points this quarter. The decrease was primarily due to tighter spreads on new investments, which tightened by 40 basis points sequentially. This is generally consistent with what we are seeing in the market. Spreads on new transactions have tightened since earlier in 2023, but they’re still relatively attractive. Slide 12 shows GBDC’s overall portfolio mix.

As you can see, the portfolio breakdown by investment type remained consistent quarter-over-quarter, with one-stop loans continuing to represent around 86% of the portfolio at fair value. Slide 13 shows that GBDC’s portfolio remains highly diversified by Obligor, with an average investment size of approximately 30 basis points. We are big believers in modulating credit risk through position size, which we believe has served GBDC well in previous credit cycles and will continue to be important in the context of future credit cycles. As of December 31, 2023, 94% of our investment portfolio consisted of first-lien senior secured floating rate loans to borrowers across a diversified range of, what we believe to be, resilient industries. The economic analysis on Slide 14 show little quarter-over-quarter change.

Let’s walk through the highlights. Let’s start with the dark blue line, which is our investment income yield. As a reminder, the investment income yield includes the amortization of fees and discounts. Consistent with interest base rates, GBDC’s investment income yield has leveled out in recent quarters, increasing modestly on a sequential basis, up 10 basis points to 12.6%. Our cost of debt, the teal line, increased modestly by 20 basis points. And as a result, our weighted average net investment spread, the gold line, declined slightly by 10 basis points over the prior quarter to 7.2%. And with that, I will now turn the floor back over to Matt.

Matthew Benton: Thanks, Chris. Let’s move on to Slides 15 and 16 and take a closer look at credit quality metrics. The punchline is that credit remains solid and stable. On Slide 15, you can see the non-accruals decreased by 10 basis points sequentially to 1.1% of total debt investments at fair value. This represents a continuation of trend as this level has decreased consistently since the quarter ended 12/31/2022. The number of portfolio company investments on non-accrual status remained at 9 as of December 31, 2023. Slide 16 shows the trend in internal performance ratings on GBDC’s investments. As of December 31, 2023, around 86% of GBDC’s investments were rated 4 or 5, which means they’re performing as expected or better than expected at underwriting.

The proportion of loans rated 1 and 2, which are the loans we believe are most likely to see significant credit impairments, remain very low at 40 basis points of the portfolio at fair value. The proportion of loans rated 3 decreased modestly to 13.7%. As we usually do, we’re going to skip past Slide 17 through 20. These slides have more detail on GBDC’s financial statements, dividend history and other key metrics. I’m going to wrap up this section by reviewing GBDC’s liquidity and investment capacity on Slide 21 and 22. First, let’s focus on the key takeaways on Slide 22. Our weighted average cost of debt for the quarter was 5.4%, which we believe is among the lowest in our peer group. 62% of our debt funding is in the form of unsecured notes, with laddered maturities ranging from 2024 through 2028.

The fixed rate notes coming due in 2024, 2026 and 2027 were issued with a weighted average coupon of 2.7%. And as you’ve heard we said in prior occasions, we did not swap any of them out for floating rate exposure. During the quarter, GBDC returned to the investment-grade debt markets for the first time since 2021, with a $450 million 5-year term issuance, with a stated maturity of December 2028, and a fixed coupon of 7.05%. Subsequent to quarter end, GBDC again accessed the investment-grade debt market with an additional $600 million 5.5-year term issuance, with the stated maturity of July 2029, and a fixed coupon of 6%. These 2029s were not included in the 62% figure I mentioned earlier, given we issued them post quarter end. Both issuances improve upon GBDC’s debt maturity ladder while continuing to support new portfolio company investments and addressing refinancing risk with respect to the $500 million of notes maturing in April 2024.

In addition, with a view toward the forward curve and match funding a predominantly floating rate investment portfolio, we entered an interest rate swap on half of our new 2028s and all of our 2029s. The weighted average floating rate equivalent is SOFR plus 268 basis points, which we believe is a highly attractive cost of funds in the context of unsecured notes versus our secured borrowing costs. Overall, our liquidity position remained strong and greatly enhanced by the December 2023 issuance. We ended the quarter with more than $1.3 billion of liquidity from unrestricted cash, undrawn commitments on our meaningfully overcollateralized corporate revolver, and the unused unsecured revolver provided by our advisor. GBDC’s robust liquidity represents 8.2x its current unfunded asset commitments.

The diversification, flexibility and low cost of GBDC’s funding structure is an important element that underpins our three investment-grade ratings from Fitch, Moody’s and S&P. GBDC has a ratings profile for Moody’s and Fitch that is differentiated relative to the majority of the rated BDC sector provided for deeper and more cost-effective access to the debt markets. Now I’ll hand it back over to David for closing remarks and Q&A.

David Golub: Thanks, Matt. To sum up, GBDC started fiscal year 2024 with an excellent first quarter. Strong credit results were the key driver. Higher rates and lower fees help, but GBDC’s long-term performance always comes down to credit first and foremost. Let me wrap up with our outlook, and then I’ll open the line for questions. To set the stage, it’s helpful to look back at calendar year 2023. From a macro perspective, 2023 wasn’t the year that most investors expected. The consensus view of economists at the start of the year was that we were headed towards a recession. But we didn’t get a recession. In fact, we got pretty robust growth. This divergence between consensus expectations and actual outcomes, it’s become a recurring theme.

The consensus views turned out to be wrong over and over again in the last four years. COVID was supposed to have created a depression, but we got a boom. Inflation was supposed to be transitory, and then it was supposed to be stubborn, but it was neither. Given this pattern, we think it’s important to stay humble about predicting the course of the economy in the coming period, particularly given the backdrop of two wars, polarized politics and upcoming elections. So in this context, I like to think in terms of tailwinds and headwinds instead of making specific predictions. And I’m going to frame our outlook in terms of the tailwinds and headwinds that we’re seeing in two key areas: credit and deal activity. Let me start with credit. Economic growth in credit performance for Golub Capital companies was stronger in 2023 than expected.

It was stronger for the economy as a whole. Will this continue? Let’s talk about it. One tailwind is momentum. The Golub Capital Middle Market Report for calendar Q4, which we published a few weeks ago, generally showed robust growth and solid margins. Recent economic data is also encouraging. It shows low unemployment, normal inventory levels, solid job growth and moderating inflation. Another tailwind is that, businesses in general appear to be adapting well to the challenging environment. We think this is particularly true of businesses owned by private equity firms. In our view, this is the type of environment where private equity’s business model is particularly valuable. About headwinds. The big one is uncertainty. Two wars and a polarized presidential election make it harder for businesses, including private equity-backed businesses, to have confidence to make the sort of meaningful investments that pave the way for future growth.

So as I think about balancing these key tailwinds and headwinds my base case scenario is that economic growth will probably muddle along. I expect the companies that have adapted well so far, in general, are likely to continue to do well. I expect that companies that have struggled to adapt, they’re unlikely to find an easier sledding in 2024. In terms of the outlook for private equity deal making, we saw in Q4 a big improvement in deal volume relative to the first three quarters of calendar 2023. And we’ve heard a lot of bank CEOs predict that this trend is going to accelerate. I agree in the medium term, but I’m more cautious about the short term. I think it’s quite likely that we’re going to see M&A activity pick up in 2024, but maybe not in Q1 or in Q2.

The reason for my optimism is this/ There are a lot of private equity sponsors that have meaningful amounts of unspent commitments where the clock is ticking. They need to spend the money or they’re going to run out of investment period. There’s a second group of private equity firms that want to get out and raise a new fund, and they’re hearing loud and clear from their investors that they need to get distributions going if they want to raise more money. So we’ve got a group of motivated buyers, and we’ve got a group of motivated sellers. And this in my mind, makes it more a question of when and not if M&A activity improves. There’s a second likely catalyst for an improvement in deal activity, and that’s taxes. We’re not going to make any sort of political predictions, but I am willing to bet that we’re going to hear more and more rhetoric about taxes over the course of the year since the Tax Cuts and Jobs Act is set to expire in 2025.

In our experience, the prospect of higher tax rates has a way of getting sponsors and business owners to focus on transactions. Finally, let me sneak in one last point about our outlook. We think the coming period is going to be very exciting for GBDC. Assuming the proposed merger with GBDC 3 closes, we believe post-merger GBDC will have higher earnings power than ever, underpinned by very strong credit quality, shareholder aligned fees and the benefit of increased scale. With that, operator, can you please open up the line for questions?

Operator: [Operator Instructions] Your first question comes from the line of Robert Dodd with Raymond James.

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Q&A Session

Robert Dodd: On to your point, David, I think credit is always what matters ultimately. So can you give us any color on the deployments in the quarter? It looks like you had quite a lot maybe of drawdowns on revolvers. Certainly, the gap between your fundings and your repayments, there’s a spread, which could be follow-ons on existing portfolio companies. So can you give us any color on the mix? And was there anything unusual relative to prior patterns in those drawdowns during the quarter?

David Golub: Thanks for your question. I don’t think there’s anything unusual in terms of revolver activity. Revolver activity is remarkably steady. It tends to be volatile for individual credits, but when you look at the kind of number of borrowers that we have in GBDC, it rarely moves very significantly. There often is a bit of revolver drawdown activity at the end of the year, as companies whose fiscal year is ending on December 31 are drawing cash to be able to show some cash on their balance sheet. But I don’t think there’s anything unusual or anything to worry about related to revolver draws. If you look at the last calendar year, I do think there’s been an unusually high percentage of new investments that are add-ons.

In a world where buyers and sellers have had difficulty reaching agreement on price, on value, add-ons have been an area where that’s been a bit easier because buyers have special economics. They have the ability, through synergies, to get more out of what they’re buying than the seller can. Those are the only things I would say in response to your question.

Robert Dodd: Got it. And then on the two specifics. Sorry about the background noise. I mean, most of your unrealized markdowns in the quarter seem to come from Elite Dental and Rubio’s, both already on non-accrual, right? So no impact on earnings, even if something, which, you put incremental capital into both as well. So can you give us your thoughts on the work-through process, maybe specific to those, if you wanted to talk about it or in general, about when you’re marking down, but when you’re also putting additional capital into those businesses at the same time?

David Golub: Sure. So what I think has served us really well over time is an ability to step in and be a sponsor, in contrast to banks that make loans and want to avoid taking the keys. We’re willing to, in fact in some cases eager to, take the keys and to work turnarounds. If you look at the variety of the companies that we’ve taken over as de facto sponsor, we often do quite well in these companies. Some are challenging. The two you mentioned have been challenging. They’ve been challenging because of operational issues in both cases that we’re working on. I think one of the things I said in my prepared remarks is that, this last year or two years has been one in which most companies have done well in adapting to changed market conditions, but that some are struggling. We’re not immune to that. And the two you’ve mentioned have been ones that we’ve been working hard on. I think we ultimately will prove successful on both of them, but they’ve been challenging.

Robert Dodd: And also just a comment on the fee reduction, just very significant positive for shareholders. So congratulations on that side.

Operator: Your next question comes from the line of Ryan Lynch with KBW.

Ryan Lynch: First question I had, overall credit quality in your portfolio has been really good thus far, and we started to see a little bifurcation across the BDCs this quarter. I was just curious, when you look at your rated 3 credits, which again, aren’t really that high in credits overall, relative to your portfolio. I’m wondering, have you guys seen any sort of trends in those investments, whether it’s industry concentration? Or I was also curious about if there was anything to do with sort of vintage exposure? There is obviously — we started to see some loans, I think, in that 2021 vintage start to maybe struggle a little bit more just given the more frothy conditions. I was just curious if you guys have observed any sort of trends in those rated 3 categories in your portfolio?

David Golub: So first, Ryan, I’d agree with the insight you just mentioned. I think we’re in an environment right now and have been for the last several quarters where we’re starting to see more and more meaningful dispersion in results of different credit managers in the BDC space. And we’re very proud to be on the good side of the divide. I think you’re going to continue to see that dispersion. I think we’re in a period, as I mentioned in my prepared remarks, where some companies are having difficulty adapting to higher interest rates, and in some cases, slower economic growth. And so you’re starting to see bump-ups in defaults, bump-ups in the proportion of some BDCs more challenged credits, non-accruals, low performance ratings and marks.

I think we’re very likely going to see more of that over the remainder of this reporting cycle and going into the next several reporting cycles. In terms of our 3 rated credits, and just to remind everyone what a 3 rated credit is, it’s a credit that’s either performing now or is expected to perform at a level that’s lower than what our expectations were in underwriting. It’s not a seriously impaired credit, if it were more seriously impaired, it would be rated 1 or 2. Our experience with our 3’s is that they’re rather idiosyncratic. I’m not seeing patterns by vintage or by industry. I’d say where we have seen a pattern, the pattern I would describe is a little different from where you were headed. The pattern is that companies that have been challenging or companies that have underperformed, they are the ones who are having the hardest time improving.

So this is an environment in which companies that are winning are continuing to win and companies that are losing are continuing to do so. And my guess is that that’s a pattern we’re going to continue to see.

Ryan Lynch: Okay. That makes sense. And then I think one of the comments you made was pretty interesting. In your prepared comments, you kind of were talking about motivated increased deal activity throughout the year, maybe in the back half of the year, because increased motivations with both buyers and sellers. Sellers because they need to return capital back to their LPs and buyers not wanting to return capital and hence, so they’re trying to deploy that. I would think providing leverage or debt to a motivated — and to a deal with a motivated seller would probably be pretty good because the seller may be willing to sell it at a lower purchase price, which gives you a lot more equity cushion. I would think the opposite would occur with a really motivated buyer, who may just be deploying capital, deploy capital and may be a little aggressive in terms and structures, at least from a purchase price multiple because they need to get that capital.

So it seems like those are maybe two opposite sort of deals. I would just be curious, if deal activity does pick up in the second half of the year due to both motivated buyers and sellers. What do you think that’s going to mean from a lending perspective in terms of quality of deals, given the vast majority — the terms and leverage and structures and all that?

David Golub: So it’s a good question, Ryan. And I think we tend to focus much more on who the buyer is than the dynamics you just described. I’ll remind you of some statistics that many on this call probably are familiar with. We have over 200 private equity firms that over Golub Capital’s history, we’ve done multiple transactions with. In calendar 2023, 97% of our direct lending was with repeat sponsors, 97%. In most years over the last 10, it’s been around 90%. So we’re very careful about who we work with. We are very thoughtful about working with sponsors that we have a lot of conviction are good at what they do. They’re good at picking good companies, they’re good at adding value after they buy the companies, and they’re good at fixing things if they make a mistake. So I think our model is very much sponsor-focused in that respect.

Ryan Lynch: Okay. Makes sense. And then one more, if I can. Just on the — and maybe this is more for Chris. But just on the interest rate swaps you guys did on the liabilities. You guys did a portion of your previous bonds, you swapped out all of the current unsecured notes from fixed to floating. Is that something that is more of a change in philosophy that you guys are just going to swap out all the fixed rate to the floating rate? Because there’s certain BDCs out there who do that, that no matter what the market conditions are, they just swap fix to floating every time. Or is it more sort of a kind of a taking advantage of the current marketplace as well as where short-term base rates are today kind of and the forward curve, kind of taking advantage of that marketplace and that outlook? What is sort of the thoughts behind that? Long-term philosophy or more sort of one-off given market conditions?