Golub Capital BDC, Inc. (NASDAQ:GBDC) Q2 2024 Earnings Call Transcript

Golub Capital BDC, Inc. (NASDAQ:GBDC) Q2 2024 Earnings Call Transcript May 7, 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 March 31st, 2024. 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, our investment strategy is focused on providing first lien senior secured loans to healthy resilient middle market companies that are backed by strong private equity firms with a partnership orientation. This is the same strategy we’ve had since our IPO 14 years ago. Yesterday we issued our earnings press release for the quarter ended March 31, and we posted an earnings presentation on our website. We’ll be referring to this 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 financial results for the quarter in more detail. And finally, I’ll wrap up with our outlook for the coming period and with some questions and answers. The headline is that GBDC had an excellent quarter. GBDC’s results were right in line with the preliminary results that the company filed on April 22nd. Adjusted net investment income per share was $0.51. That’s the company’s highest ever quarterly adjusted NII per share. It corresponds to an adjusted NII ROE of 13.5% on an annualized basis. Adjusted earnings per share came to $0.55. This corresponds to an adjusted ROE of 14.6% on an annualized basis. Overall credit results were strong. We had a small net realized and unrealized gain for the quarter of $0.04 per share, we saw no new defaults, we saw a decrease in an already low percentage of non-accruals and we saw stable internal performance ratings.

NAV per share increased by $0.09 quarter-over-quarter to $15.12 as of March 31st. While we’re really proud of GBDC’s results for the quarter, we’re even more excited about two strategic announcements that GBDC made in January. To refresh your recollection on these two announcements, first, GBDC announced that it entered into a definitive merger agreement with Golub Capital BDC 3. We sometimes call that GBDC 3, with GBDC as the surviving company subject to certain shareholder approvals and customary closing conditions. Second, GBDC’s investment adviser 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 by waiver as of January 1, 2024, and it’s going to continue to be effect during the pendency of the proposed merger.

It will become permanent upon closing of the merger. We recently distributed proxy materials related to the merger and we anticipate that the merger will close in the second calendar quarter of 2024. You’ll recall GBDC’s investment adviser previously announced the permanent reduction of the company’s base management fee from 1.375% to 1% per annum effective July 1, 2023, with a 1% management fee, a 15% incentive fee, an 8% hurdle rate and a cumulative since inception incentive fee cap, GBDC has set a new gold standard for shareholder alignment among publicly traded BDCs. I would encourage you to review the proxy and the investor presentation on GBDC’s website to learn more about why we think these two announcements are so exciting and so important.

And with that, let me hand the floor to Matt to walk through our results in more detail.

Matt Benton: Thanks, David. I am going to start on Slide 4. As David just previewed, GBDC’s earnings for the 3/31/24 quarter were excellent. Adjusted NII per share was $0.51, corresponding to an adjusted NII ROE of 13.5%. Adjusted NII per share this quarter outpaced the 9/30 and 12/31/23 quarters, as GBDC’s highest ever. And compared to fiscal Q2 of 2023, GBDC’s adjusted NII per share increased by $0.09 year-over-year or about 21%. Adjusted earnings per share was $0.55, corresponding to an adjusted ROE of 14.7%. GBDC’s strong profitability was driven by three key factors. First and foremost, strong credit performance. I’ll go into more detail in a moment. Second, high base rates consistent with recent quarters. And third, sustainably lower expenses due to the reduction in GBDC’s base management fee, which took effect in July of 2023 and the reduction in incentive fee that David highlighted earlier from 20% to 15%, which took effect for the first time this quarter.

Let me briefly summarize portfolio and balance sheet changes. Net funds declined by $48.7 million sequentially, this is intentional. We constrained GBDC’s pace of new investments to bring down GBDC’s leverage. GBDC ended the quarter with a GAAP debt-to-equity ratio, net unrestricted cash of 1.15 times in line with our targeted range. The overall credit performance of GBDC’s investment portfolio remained strong. First, we saw a reduction in non-accruals. As a percentage of total debt investments at fair value, non-accruals decreased to 0.9% at March 31, 2024, from 1.1% at December 31, 2023. Second, internal performance ratings remained strong. Investments in rating categories 1 and 2, represented just 50 basis points of the total portfolio at fair value.

NAV per share increased by $0.09 on a sequential basis to $15.12. NAV per share is now 265 basis points higher than the prior year, even as GBDC delivered higher distributions to shareholders during this period. Let’s turn to distributions now. The Board approved $0.45 per share of distributions, a regular quarterly distribution of $0.39 per share and a fiscal Q2 supplemental distribution of $0.06 per share. Taken together, these distributions correspond to an annualized dividend yield of 11.9%, based on GBDC’s NAV per share as of March 31, 2024. As a reminder, we 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 in incentive fee.

Adjusted NII per share significantly exceeded the company’s regular quarterly distribution, resulting in a distribution coverage ratio of 131% on the increased regular quarterly distribution of $0.39 per share. The Board also authorized a supplemental distribution of $0.06 per share based on the company’s variable supplemental distribution framework. You’ll recall that this 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 Q2 distributions on Page 22 of the earnings presentation and about the variable supplemental distribution framework on Page 23.

I’m going to turn it over to Chris now to provide more detail on our results.

Chris Ericson: Thanks, Matt. Turning to Slide 7. You can see how the key earnings drivers, Matt just described translated into growth in NAV per share. Record adjusted NII per share of $0.51 per share was meaningfully higher than the $0.46 per share of dividends paid out during the quarter, a net realized and unrealized gain of $0.04 per share was driven by unrealized appreciation across the portfolio and the reversal of unrealized depreciation associated with the exit of one portfolio company investment during the quarter. These gains were partially offset by $0.08 per share of net realized loss recognized during the quarter. Together, these results drove a net asset value per share increased to $15.12, up $0.09 per share from the prior quarter.

Speaking of NAV increases, we also anticipate a level of NAV accretion related to the merger with GBDC 3. In the joint proxy statement filed on April 15, 2024, we estimated $0.38 per share of NAV accretion for approximately 2.5% from GBDC’s 12/31/23 NAV, based on GBDC stock price of $16.60 as of April 9, 2024. GBDC’s closing stock price on May 6, 2024, was $17.09, a level that would imply $0.50 per share of NAV accretion or approximately 3.3% upon GBDC’s March 31, 2024, NAV per share of $15.12. As a reminder, the level of NAV accretion achieved in the proposed merger is a function of the exchange ratio upon merger close. I’d encourage you to review the investor presentation on GBDC’s website for additional detail. Let’s now go through the details of GBDC’s financial results for the quarter ended March 31, 2024.

We’ll start on Slide 10, which summarizes our origination activity for the quarter. Net funds growth quarter-over-quarter decreased by approximately $48.7 million, as new investment commitments and delayed draw term loan fundings were outpaced by the net impact of exits, sales of investments and fair value changes of the existing investments. Market-wide deal activity and origination across the Golub Capital platform both improved in the March 31 quarter. We expect it to continue to improve over the remainder of the year. Having said this, we proactively sought to adjust GBDC’s holdings in order to achieve our leverage goals, which resulted in reduced new originations at GBDC during the quarter. Subsequent to quarter-end and based on GBDC being at its leverage target, we did see increased allocations to GBDC that reflect its reduced financial leverage profile.

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 was stable quarter-over-quarter at 11%. Slide 11 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 85% of the portfolio at fair value. Slide 12 shows that GBDC’s portfolio remains highly diversified by portfolio company 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 on previous credit cycles and will continue to be important in the context of future credit cycles. As of March 31, 2024, 93% 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 13 show little quarter-over-quarter change. Let’s walk through how to interpret the chart. We 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 is leveled out in recent quarters, increasing modestly on a sequential basis, up 20 basis points to 12.8%.

Our cost of debt, the teal line, increased modestly by 10 basis points to 5.5%. As a result, our weighted average net investment spread, the gold line increased slightly over the prior quarter to 7.3%. We anticipate seeing some reduction in GBDC’s income yields in future quarters, as a consequence of market-wide spread compression, but we did not see this reflected in this quarter’s numbers. Going to hand it back over to Matt now.

Matt Benton: Thanks, Chris. Let’s move on to Slides 14 and 15 and take a closer look at credit quality metrics. The headline is that credit remains solid and stable. On Slide 14, you can see the non-accruals decreased by 20 basis points sequentially to 90 basis points 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 March 31, 2024. Slide 15 shows the trend in internal performance ratings on GBDC’s investments. As of March 31, 2024, approximately 87% 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, 2, which are the loans we believe are most likely to see significant credit impairment remain very low at 50 basis points of the portfolio at fair value. The proportion of loans rated 3 decreased from 13.7% to 12.3% sequentially. As we usually do, we’re going to skip past Slide 16 through 19. These slides have more detail on GBDC’s financial statements, dividend history and other key metrics. I’ll wrap up this section by reviewing GBDC’s liquidity and investment capacity on Slides 20 and 21. First, let’s focus on the key takeaways on Slide 21. Our weighted average cost of debt this quarter was 5.5%, which we believe is among the lowest in our peer group. 66% of our debt funding is in the form of unsecured notes, which includes the post-quarter end repayment of the April 2024 unsecured notes with laddered maturities on remaining unsecured notes ranging from 2026 to 2029.

The fixed rate notes coming due in 2026 and 2027 were issued with a weighted average coupon of 2.3%. And as you’ve heard us say on prior occasions, we did not swap them out for floating rate exposure. During the quarter, GBDC issued $600 million of 5.5-year bonds with a stated maturity of July 2029 and a fixed coupon of 6%. And in connection with the issuance entered into an interest rate swap to a floating rate of SOFR plus 2.444%. This issuance, along with our December 2028 unsecured notes, improve upon GBDC’s debt maturity ladder, while addressing refinancing risk with respect to the $500 million of notes maturing in April 2024, which we subsequently, successfully paid off post quarter end. In April, we entered into a second interest rate swap on the December 2028 unsecured notes, resulting in a combined weighted average floating rate on the 2028 and 2029 notes of SOFR plus 272 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 remains strong and greatly enhanced by the December 2023 and February 2024 unsecured notes issuances. We ended the quarter with approximately $1.9 billion of liquidity from unrestricted cash, undrawn commitments on our meaningfully over collateralized corporate revolver and the unused unsecured revolver provided by our adviser. Incorporating the impact of the April 2024 repayment of $500 million in 2024 unsecured notes, available liquidity remained high at approximately $1.4 billion. GBDC’s robust liquidity represents 13.1 times its current unfunded asset commitments or 9.6 times inclusive of the 2024 unsecured notes for payment. 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 stronger ratings for Moody’s and Fitch 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 we can open it up to Q&A.

David Golub: Thanks, Matt. So to sum up, GBDC had a strong start to calendar 2024. Strong credit results, high base rates and lower fees, all three together drove another record quarter for adjusted NII per share. We think these performance drivers as well as the pending merger with GBDC 3 are powerful tailwinds for the company for the coming period. And speaking of the pending merger, the 2024 Special Meeting of Stockholders is scheduled for May 29th. For those of you who’ve already submitted your vote, thank you. For those investors who haven’t yet voted, we ask that you please do so. While the quarter was strong, it did present some headwinds, and I want to talk about those headwinds before opening the call for questions.

The first headwind, middle market M&A remains relatively slow. You may recall around the turn of the year, a number of bank CEOs were predicting that M&A activity would accelerate. But we said last quarter that while we were optimistic about deal activity accelerating over the medium to long-term, we were more cautious about the short-term. And in hindsight, our caution was justified. While first quarter M&A activity was much better than a year ago and about on par with the fourth quarter of 2023, it was still weak on a relative basis compared to what we see as normal. The M&A market, which dislocated in the spring of 2022, is taking a long time to recalibrate. It’s taking longer than we’d like. A second industry headwind was the significant tightening of spreads across credit markets generally, from investment grade to high yield to broadly syndicated loans to private credit.

Now our focus on core middle market businesses helped insulate our portfolio from the full-on effect of spread tightening. We weren’t entirely immune. Broadly syndicated loan spreads on new transactions narrowed by 50 to 100 basis points and in a few cases, even more. Many existing loans were repriced and more repricings are on the way. While spread compression has been a bigger story in the large deal market than in the core middle market, it has been a story in the core middle market, too, and we anticipate spread pressure is going to continue for some time across the whole market. On balance, we think GBDC is well positioned to face these headwinds. We’ve said many times before that we’ve built GBDC to be resilient across a wide range of potential scenarios.

We expect post-merger GBDC to be more resilient than ever, especially in the context of the current market backdrop. Our focus on core middle market versus being heavily overweight large companies is going to prove to be a very important strength. We’ve never been members of the bigger is better cult, and the truth is that the specter of BSL execution gives large borrowers leverage over private credit providers, especially during periods when the BSL market is resurgent as it is now. So despite light M&A and tightening spreads, we expect our competitive advantages, including our industry-leading fee structure to permit GBDC to continue to outperform. Let me wrap up with our outlook for the coming period. I expect more dispersion among BDC managers.

Every quarter recently, there’s been one or more BDCs announcing unexpected bad news, usually in the form of high levels of realized and unrealized losses. We’ve also seen instability in firm leadership at several BDCs. I think these trends aren’t over. We’re going to see more negative surprises. Having said this, I think GBDC is well positioned to be on the favorable end of the manager dispersion spectrum. This is because we believe Golub Capital does a complementary set of things really well. We focus on resilient borrowers in resilient industries. Our relationships and incumbencies make us a preferred partner. We’re unusually good at underwriting. Our investment processing protocols enable us to identify and address issues early and our depth of expertise in managing problem credits helps us preserve value.

We’ve built these competitive advantages over time and with intent to achieve our mission to be best in sponsor finance. With that, operator, please open the line for questions.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Finian O’Shea of Wells Fargo. Your line is now.

Finian O’Shea: Hey, everyone. Thanks and good morning. We’re interested in the comments on spread compression, if you could put some more meat on the bone there. Are you seeing meaningful repricing activity? Or is this mostly on new origination? And kind of what is the sort of level of spread versus the back book that you’re seeing or expecting to play out?

David Golub: Sure. Thanks, Fin, for your question. So the – it’s important to make some distinctions between what size borrower we’re talking about. In the larger market, we’ve seen in the last four months, a resurgent broadly syndicated market. CLO formation has come back in a giant way. Secondary prices in the broadly syndicated market have risen enormously, and banks who were very reluctant to take underwriting risk are now back, prepared to take underwriting risk and aggressively pitching broadly syndicated refinancings of formerly private credit deals. That situation, combined with a relatively low level of M&A that I alluded to in my comments, is translating into a lot of repricing activity and refinancing activity in this larger market.

Some of that refinancing activity and repricing activity is resulting in spread compression. If you look at the publicly released data for the broadly syndicated market in Q1, it shows approximately 50 basis points of spread compression. But I think in the B3 market and the large unitranche market, the degree of spread compression is actually larger than that. I’d say it’s between 50 basis points and 100 basis points. In many cases, we’ve seen private credit providers accept lower pricing instead of being refinanced out. And in a number of cases, we’ve seen sponsors and borrowers choose to replace private credit deals with new broadly syndicated deals. We’re seeing both those phenomenon. I don’t think this trend is ending soon. I think we’re going to continue to see it in calendar Q2 results.

I don’t think that what we’re talking about here is some phenomenon that’s unique to private credit. I think we’re seeing spread compression in investment grade and high yield and asset backed in CLO liability land. It’s a very broad phenomenon. And I think the key to understanding it is that we’ve seen a very significant shift in investor sentiment. If you go back a year ago, the overriding investor sentiment was negative. There was an expectation that we were going into a recession. There was a lot of concern that might be a very deep recession. I think today, the general investor mood is much more buoyant. There is still a debate about when we’re going to get cuts in interest rates, but the very debate illustrates the strength of the economy and the generally positive view about prospects for the economy.

Now I’m focusing those comments on the larger market. In the core middle market, the repricing activity and the spread compression is more modulated. It’s always – moves less than the larger market. But we’re insulated. We’re not immune from changes in the larger market when we talk about the middle market. I think we’re seeing some degree of spread compression there as well. And I expect that we’re going to continue to see some spread compression in the middle market. I think this is the biggest headwind facing the private credit universe right now. It’s been a period of very strong results, and we’re now in a period where the pendulum is swinging more toward borrower-friendly conditions, where for a long time, they were quite lender-friendly.

Finian O’Shea: That’s helpful. Thank you. And as a follow-up on the merger, thinking back to the first one, GCIC that it felt like it came with a bit of a technical headwind. Of course, it’s a different market now versus then, but we’re seeing if you anticipate a similar dynamic of shareholder turnover through the discussions you’ve had so far?

David Golub: So by way of context, what Fin is alluding to is that in the GBDC/GCIC merger, there were concerns expressed that at the time of the merger that we’d see some sustained amount of selling by GCIC investors. In fact, my recollection is we didn’t. We saw the stock perform reasonably well, following the merger and the fears that folks have that we’d see choppiness really did not come to fruition. My expectation is that this time will be similar. We’ll have some shareholders in GBDC 3, who will want to lighten the positions. We’ll have some investors who, in the context of GBDC becoming larger, will want to take up larger positions. I’m optimistic that it’s not going to be exciting.

Finian O’Shea: Great. Thanks so much.

Operator: Your next question comes from the line of Robert Dodd of Raymond James. Your line is open.

Robert Dodd: Hi guys. Just on the credit quality side, and to your point, I mean no particularly negative things in the quarter. When we look at the three new non-accruals, you did have very small combined. One of them really tiny. None of them in healthcare, but two of them in software. So has the – has there been kind of a shift in anything in terms of trends you’re seeing where margin pressure exists or where stress is coming again? These are small numbers, but we’re looking for any indicators here. Or were either of those or both of the software business recurring revenue? Were they cash flow business? Any color on that.

David Golub: So Robert, I think it’s a great question. And again, let me put some context around it. So sometimes when you see trends in credit, there are themes that you can look at and you can say, oh, well, this industry or this subsector is showing particular weakness or businesses that are heavily dependent on compensation expense. They are having difficulties. I think there have been times over the last couple of years where we’ve been able to talk that way. We were able to talk about some challenges in healthcare service businesses. We were able to talk about some challenges with businesses that weren’t able to increase prices at the same pace that they were seeing increases in costs, particularly labor costs. To some degree, we’re still seeing those two trends across the industry.

I think we’re pretty much through those two trends within our portfolio. But I’d expect that you’re going to see both of those trends play out across the broadly syndicated market and across much of the BDC market, where I think there’s still a significant number of companies that are having challenges because of healthcare-related issues with reimbursement levels and cost structures and with an absence of pricing power. If you look at what we’re seeing in our portfolio right now, I’d describe it as very idiosyncratic. To your point, the three additions to our non-accrual, all very small. One of them is a recurring revenue loan. But I don’t draw any conclusions about there being some trend in health care. We’ve had challenges from time-to-time with software companies.

We’ve had very good success in working them out. I anticipate that we’ll continue to see that.

Robert Dodd: Got it. Thank you. And then just kind of parallel to the spread compression; usually, when a spread compression is not the only thing lenders are giving up. But so the weighted average upfront fee was down a little bit in the quarter as well, but also typically structures, covenant packages, et cetera, have some losses in rigorousness in an environment like this. Can you give us any color on how dramatically is that shifting, if at all? Is that more of a concern than the spread compression? Or is the spread compression or you said that’s the primary worry right now in public credit, but that’s a near-term phenomenon, if the structures weaken to the point that future credit becomes a risk. I mean any thoughts there?

David Golub: So I think you make a very important point, which is you’re right that, generally speaking we’re either – we’re always either in an environment where the pendulum is moving toward more borrower-friendly or more lender-friendly. And when it’s moving in the direction of more borrower-friendly, it tends not to move just in terms of spread it also tends to move in terms of documentation terms, in terms of leverage, in terms of structure. I emphasize spread in my comments today because I think that’s the area we’ve seen the most significant movement. And I think that all of these changes highlight another really important point, which is origination strength is going to become a larger and larger source of differentiation amongst managers.

What I mean by that is managers who have large portfolios with a lot of incumbency opportunities who have particularly strong relationships with sponsors, who have scale and depth of expertise, they’re going to be able to navigate this coming environment much – with much more aplomb than folks who don’t have those kinds of advantages because this is the kind of environment where it gets harder to find attractive loans.

Robert Dodd: Understood. Thank you.

Operator: [Operator Instructions] Your next question comes from the line of Paul Johnson of KBW. Your line is open.

Paul Johnson: Hey, good afternoon. Thanks for taking my questions. On those situations where you are, facing refinancing spread compression or possibility of fee compression. I mean, what is the overall philosophy on refinancing those incumbent borrowers at accepting lower free fees, lower spread versus letting one go?

David Golub: So we’re in the make good investments business. I know that sounds silly in apple pie, but I actually think it’s a really important distinction because we do compete in the marketplace where some folks are more focused on quantity than quality. So we make all of our assessments based on risk-reward, Paul. And we do sometimes come to conclusions that a borrower who’s requesting a lower spread that the right answer is to say yes. We also say no sometimes. And in the last quarter, a number of examples I can think of where we said no. And in some cases, we were refinanced out. So it’s Important, I think, to maintain discipline. Part of maintaining discipline is being good at originations so that you don’t feel pressured to accept a situation where the risk-reward on the credit is unattractive just because you need to keep your book full.

Paul Johnson: That makes sense. And I appreciate the thoughtful answer there. And my last question was just on the change in the portfolio yield, this quarter it ticked higher by 20 basis points. Just wondering if there’s anything specific there to drive that just kind of given the spread compression we’re talking about maybe more on a forward basis, but any color there would be great. Thanks.

David Golub: I think it’s just noise. I wouldn’t draw any conclusions from that. I agree with you that, that seems surprising in the context of the theme of spread compression.

Operator: There are no further questions at this time. I will now turn the conference back over to David Golub, for closing remarks.

David Golub: Great. Well, thanks, everyone, for joining us today, and we look forward to talking to you again next quarter. As always, if you have any questions in the meantime, please feel free to reach out.

Operator: Thank you. Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.