MidCap Financial Investment Corporation (NASDAQ:MFIC) Q2 2023 Earnings Call Transcript

MidCap Financial Investment Corporation (NASDAQ:MFIC) Q2 2023 Earnings Call Transcript August 2, 2023

MidCap Financial Investment Corporation misses on earnings expectations. Reported EPS is $0.37 EPS, expectations were $0.43.

Operator: Good afternoon, and welcome to the earnings conference call for the period ended June 30, 2023 for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode. The call will be open for a question-and-answer session following the speakers’ prepared remarks. [Operator Instructions] I will now turn the call over to Elizabeth Besen, Investor Relations Manager for MidCap Financial Investment Corporation. Please go ahead, ma’am.

Elizabeth Besen: Thank you, operator, and thank you, everyone, for joining us today. Speaking on today’s call are Tanner Powell, Chief Executive Officer; Ted McNulty, President; and Greg Hunt, Chief Financial Officer. Howard Widra, Executive Chairman, as well as additional members of the management team are on the call and available for the Q&A portion of today’s call. I’d like to advise everyone that today’s call and webcast are being recorded. Please note that they are the property of MidCap Financial Investment Corporation, and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I’d like to also call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information.

Today’s conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit our Web site at www.midcapfinancialic.com. I’d also like to remind everyone that we posted a supplemental financial information package on our Web site, which contains information about the portfolio as well as the company’s financial performance. Throughout today’s call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland.

At this time, I’d like to turn the call over to our Chief Executive Officer, Tanner Powell.

Tanner Powell: Thank you, Elizabeth. Good afternoon, everyone, and thank you for joining us today. I will begin call by highlighting our results for the June quarter, and will then provide our thoughts on the current environment. Following my remarks, Ted will cover our investment activity and portfolio, and we’ll also provide an update on credit quality. Lastly, Greg will review our financial results in detail. We will then open the call to questions. Beginning with our results, we are very pleased with our performance for the June quarter given our strong net investment income, a slight increase in net asset value per share, and stable credit quality. Net investment income per share for the June quarter was $0.44, well above the current $0.38 dividend, as we continue to see the benefit of higher base rates on our floating rate assets.

We are particularly pleased with these results when considering the relatively muted transaction environment which resulted in below-normal prepayment income. At the end of June, NAV per share was $15.20, an increase of $0.02 from the end of March, which reflects earnings in excess of a dividend, stable credit quality, and includes approximately $0.01 per share accretion from stock buybacks. We are pleased to report that we continue to observe relatively stable credit quality in our portfolio. We are seeing that most of our portfolio companies are able to handle higher interest costs, [reconstruct] (ph) their portfolio to withstand challenging periods. As a reminder, our corporate lending and other portfolio, which makes up 92% of our portfolio, primarily consists of first lien top-of-the-capital-structure loans is well diversified by borrower and industry, is largely sponsor-backed, and has what we consider to be robust documentation and financial covenants.

At the end of June, 96% of our corporate lending debt portfolio on a cost basis or 97% on a fair value basis had one or more financial covenants. Next, let me give a brief update on Merx. As discussed previously, we are focused on reducing our investment in Merx. While we don’t expect pay-downs to occur evenly, we believe aircraft sales and servicing income should allow for the pay-down of third-party trade level debt and MFIC’s equity and debit investment in Merx. Although Merx did not sell any aircraft in its portfolio during the June quarter, Merx repaid $3.5 million to MFIC, which was applied to the revolver. At the end of June, our investment in Merx totaled $193 million, representing approximately 8% of our total portfolio fair value.

Turning now to the market environment, the heightened volatility that we saw in the first quarter stemming from the regional banking crisis subsided as the quarter progressed despite ongoing concerns about inflation, higher interest rates, and fears about recession. Against this backdrop, new issue volumes were slow driven primarily by slower M&A activity partially offset by add-on activity as sponsors pursued bolt-on acquisitions. We still see financial sponsors, particularly those focused on the middle market, seeking financing solutions in the private credit market. We continue to observe more lender-friendly pricing and terms on new commitments compared to prior vintages, although we are seeing the pace of increases plateau. Moving to the dividend, our Board of Directors declared a dividend of $0.38 per share to shareholders of record as of September 12, 2023, payable on September 28, 2023.

A $0.30 dividend represents an annualized dividend yield of 10% on NAV. At current base rates, we are well-positioned to generate net investment income of excess of this dividend level. We believe our portfolio will continue to earn above the current dividend in a normalized rate environment. Our Board and management team continue to evaluate potential dividend increases versus retaining earnings. With that, I will turn the call over to Ted.

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Ted McNulty: Thank you, Tanner, and good afternoon, everyone. Beginning with investment activity, as a reminder, MFIC is focused on investing in loans sourced by MidCap Financial, an affiliate of Apollo Global, which provides MFIC with a large pipeline of investment opportunities. MidCap Financial is a leading middle market lender with one of the largest direct lending teams in the U.S., with close to 200 investment professionals. MidCap financial was active during the June quarter, closing approximately $4.4 billion in new commitments. Specific to MFIC, new corporate lending investment commitments during the quarter totaled $79 million, all first lien, across 15 different borrowers for an average new commitment of $5.2 million as we continue to emphasize diversification by borrower.

17% of new commitments were made to existing portfolio companies. We continue to observe favorable pricing at lower leverage levels for newly originated loans. The weighted average spread on new commitments was 681 basis points, with an average OID of approximately 266 basis points. This translates into a very attractive weighted average yield of approximately 12.5% based on current base rates. The weighted average net leverage of new commitments was 3.7 times. In terms of funded investment activity, gross funding excluding revolvers for the corporate lending portfolio totaled $73 million. Higher interest rates and a lack of new deal activity led to a slowdown in repayment activity. Sales and repayments totaled $58 million. Net revolver fundings totaled $11 million.

And we also received a $3.5 million pay-down for Merx as Tanner mentioned. In aggregate, net fundings for the quarter totaled $22 million. Turning to our investment portfolio, at the end of June, our investment portfolio had a fair value of $2.41 billion, and was invested in 150 companies across 25 different industries. Corporate lending and other represented 92% of the total portfolio, and Merx accounted for 8% of the total portfolio on a fair value basis. 95% of our corporate lending portfolio was first lien. We continue to have conservative weighted average attachment and net leverage on our corporate loans of 0.1 times and 5.45 times respectively. Both of these metrics were flat compared to the prior quarter, which we consider to be another indication of our portfolio’s stable credit quality.

At the end of June, the average funded corporate lending position was $15.4 million, or approximately 0.7% of the total corporate and other lending portfolio. MFIC is focused on lending to the core middle market where MidCap Financial has strong, long-standing relationships with sponsors and borrowers, and a proven track record across cycles. As of the end of the June, the median EBITDA of MFIC’s corporate lending portfolio companies was approximately $55 million. We believe the core middle market offers attractive investment opportunities across cycles, and does not compete directly with either the broadly syndicated loan market or the high-yield market. The weighted average yield at cost of our corporate lending portfolio was 11.7% on average for the June quarter, compared to 11.3% last quarter, driven by an increase in base rates.

These yield figures are an average of the beginning and the end of the quarter. At the end of June, the yield of the corporate lending portfolio at cost was 11.9%, up from 11.5% at the end of March. The weighted average spread across the corporate lending portfolio was 614 basis points, up one basis points compared to last quarter. Turning to credit quality, our portfolio of companies continue to have solid fundamental performance with positive revenue and EBITDA growth. We’re not seeing any signs of overall credit weakness, although we have observed a deceleration in top line growth and some margin pressure. We’ve not seen a meaningful increase in covenant breaches or a pickup in amendment activity. We believe our credit quality has benefited from MidCap Financial’s strong sourcing and underwriting capabilities.

Based on data since mid-2016, which is the approximate date upon which we began utilizing our co-investment order. MFIC’s annualized net realized and unrealized loss rate on loans sourced by MidCap Financial is extremely low at approximately one basis point. The weighted average net leverage of the companies in our corporate lending portfolio was 5.45 times, unchanged compared to the prior quarter. As mentioned, the net leverage on new commitments was 3.7 times, well below the portfolio average. Moving to interest coverage, the weighted average interest coverage ratio was 2.1, down from 2.3 times last quarter, with four companies below one times. If we utilize June 30 base rates, the interest coverage would be 1.6 times compared to 1.7 times last quarter in that stress-test scenario.

In the coming quarters, we are closely monitoring these situations which we believe are manageable as these companies either have strong current liquidity or the underlying businesses are performing well. We want to underscore that we have not increased PIK income to create interest coverage. Importantly, MFIC benefits from MidCap Financial’s large, dedicated portfolio management team of nearly 60 investment professionals, which helps identify and address issues early. It is also important to note that MidCap Financial leads and serves as administrative agent on the majority of our deals, which provides meaningful downside protection. As agent, we are in active dialogue with the borrowers and have enhanced information flow, which allows us to be proactive in resolving problem credits as issues arise.

We are also monitoring near-term maturities to identify any potential risk of repayment so that we can address any issues early, and proactively work with borrowers to help them meet their liquidity needs. As part of our investment process, we are mindful of the specifics on making an acquisition as we believe sponsors are more likely to support businesses and funds with greater remaining duration. We continue to have very low levels of non-accruals. No investments were placed on non-accrual status during the quarter. At the end of June, investments on non-accrual status totaled $7.5 million or 0.3% of the total portfolio at fair value. With that, I will now turn the call over to Greg to discuss our financial results in detail.

Greg Hunt: Thank you, Ted, and good afternoon, everyone. Beginning with our financial result, net investment income per share for the June quarter was $0.44, as we continue to benefit from higher base rates on our floating rate assets and improved net interest margin. Prepayment income declined quarter-over-quarter due to lower prepayment activity. Prepayment income was approximately $600,000, compared to $2.6 million last quarter. Fee income also declined compared to the prior quarter. Fee income was approximately $1 million for the June quarter, compared to $2.2 million last quarter. PIK income remained very low, representing approximately 1.2% of total investment income for the quarter. GAAP net income per share for the quarter was $0.39.

NAV per share at the end of June was $15.20, an increase of $0.02 since the end of June. The $0.02 increase reflects net investment income of $0.44, which is $0.06 above the $0.38 dividend, $0.05 per share net loss on the portfolio, and approximately $0.01 accretion from stock buybacks. Additional details on unrealized net gains and losses are shown on page 16 on the earnings supplement. Total expenses for the quarter were $39.8 million, up $1.5 million compared to the last quarter, primarily due to higher interest expense. Gross management fees totaled $4.3 million, essentially flat quarter-over-quarter. As a reminder, MFIC’s base management fee was reduced to 1.75 on equity, beginning January of 2023. Among listed BDCs, MFIC’s management fee is the lowest, and we are the only BDC to charge management fees on equity, which we believe provides a greater alignment and focus on net asset value.

Gross incentive fees totaled $6.1 million for the quarter. As a reminder, our incentive fee on income is 17.5%, and includes the total return hurdle with a rolling 12-quarter look-back. We believe our fee structure is best in class amongst listed BDCs, and provides a strong alignment of interest with our shareholders. For the quarter, we generated an annual ROE based on net investment income of 11.6%, and an annualized ROE based on net income of 10.2%. Moving on, from a balance sheet perspective, our net leverage stood at 1.4 times at the end of June. As highlighted last quarter, in April, we were pleased to extend the maturity of our senior secured revolving credit facility by over two years, to April, 2028. We also are pleased that Kroll affirmed our investment-grade rating in June.

During the quarter, we repurchased approximately $2.3 million of stock, which had a $0.01 accretive impact on NAV per share. This concludes our prepared remarks, operator. And please open up the call for questions.

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Q&A Session

Operator: Yes, sir. [Operator Instructions] Our first question comes from Arren Cyganovich with Citi.

Arren Cyganovich: Thanks. Maybe you just talk a little bit about how your conversations with equity sponsors are right now, are you seeing any kind of loosening up in terms of increasing activity? I know it’s August now, so I imagine a seasonal slowdown happening, but just in general, relative, since we have some better lender-friendly type of terms today?

Tanner Powell: Sure. Thanks for the question, Arren. So, in terms of — I’ll try to handle it in two aspects. As it relates to, I think which is primarily what your question is getting at, in terms of overall activity, notwithstanding the summer doldrums which we inevitably encounter in August; we are seeing a modest tick up from earlier in the year off of relatively low base. I think that there is a Bain Capital Report that came out that said LBO volume was down 50% in the second quarter. We’re seeing a modest uptick and a greater willingness to engage from LBO sponsors. The second aspect of our conversation of sponsors relates to companies where either they’re trying to do something strategic and/or things are moving sideways.

And we continue to see a very healthy level of support from the sponsors. And in particular, in this type of environment, one of the ways that sponsors are electing to try and counter the [indiscernible] spread, if you will, in terms of expectations of multiples is by completing add-on acquisitions. And that dialogue has been very, very healthy, and shows continued equity support for the underlying borrowers.

Arren Cyganovich: Thank you.

Operator: Our next question comes from Kyle Joseph with Jefferies.

Kyle Joseph: Hey, good afternoon. Thanks for taking my questions. Just on the portfolio yield, Ted, obviously you expect expanding. How much of that is base rate and how much of it is [spread within] (ph)? I know you mentioned it’s still kind of a more lender-friendly environment out there.

Tanner Powell: Yes, thanks, Kyle. In terms of the spread, let’s just talk spread to help you disaggregate it there. In the quarter, we deployed at 681, and a OID of just over 2.5 points, which reflects what we’ve seen for a number of quarters, which is a very attractive environment for private credit lenders, notwithstanding the downdraft in M&A, private credit is able to service a disproportionate share of M&A that’s getting done. And more broadly against that backdrop, it continues to be lender-friendly. To my response to Arren’s question, we’re seeing, if I were to look at the deals that are being screened today, there might be a slight tightening in terms of spread as M&A picks up and people feeling better prospects and/or there is some level of [stabilization] (ph), which is enabling new sponsors to make better decisions and/or risk appetite has improved as we get further from some of the stress that we saw earlier this year.

Not to say that all has been mitigated, but generally speaking banks and markets are feeling a little bit better relative to what was a relatively low base for much of the first-half of the year.

Kyle Joseph: Very helpful, thanks. And then one follow-up for me, you mentioned some of the banking volatility negatively impacted deal flow, but stepping from longer-term perspective with potentially higher capital requirements at banks, do you see that as a longer-term opportunity for MidCap, but also the BDC sector as a whole?

Tanner Powell: Yes, absolutely. I’m sorry; I should have drawn the distinction there. I think, Kyle, when we see periods of volatility, which in this case or this year happened to be related to banking stress, there was, more broadly, a greater reticence to transact. And it wasn’t necessarily a function of whether banks were able to provide that financing or not, but you just saw reduced volumes which were more connected to volatility, and had less to do on whether or not the banks were providing it. As we and our peers have stressed, and we are huge believers in, we continue to benefit very much from a secular trend that has private credit taking share from the banking system as we roll forward, and expect that to continue.

Kyle Joseph: Got it. Thanks very much for answering my questions.

Operator: Our next question comes from Sean-Paul Adams, Raymond James.

Sean-Paul Adams: Hey, guys. I think you guys said — shared some light on the amount of companies you guys had that have below 1X interest coverage ratio. Do you guys have the exact numbers about the portion of the total portfolio that those companies represent, and maybe share some thoughts on your total outlook for your general portfolio as interest coverage might continue to decline later in the year?

Greg Hunt: Yes, sure, and thanks for your question. I’ll start with the outlook, which is if base rates — to state the obvious, if base rates continue to increase, our borrowers as well as everyone else’s borrowers are going to face increased pressures. We’ve run a number of different stress tests and scenarios around what those numbers could look like in different types of situations. As to the existing portfolio, the ones that we have that are below one times now, in some cases sponsors are putting in equity to cover that. In other cases, there’s still sufficient liquidity, and we’re in active dialogue with those.

Sean-Paul Adams: Got it. Thanks, Greg, I appreciate your answer.

Operator: Our next question comes from Melissa Wedel, J.P. Morgan.

Melissa Wedel: Good afternoon. Thanks for taking my questions today. First, wanted to start with some of the capital returns on activities and comments you made on the call. I know, last quarter, you talked about a potential special dividend at some point. Based on the comments you made today about the Board continuing to evaluate over-earning and whether to pay that out versus retain it. I guess the question would be, is the Board still thinking about a potential payout in the form of a special or has that conversation evolved a bit to something else?

Howard Widra: This is Howard. I think, effectively, everything is on the table, meaning we have — it is a cornerstone of our — of the goal for us to have stable NAV. We are helped by that by over-running the dividend. We also have both requirements, obviously, to pay out a certain amount of income, as well as a desire, obviously, to return to the shareholders the — some excess return. And so, the answer is, if you did this over a longer period of time and we were out-earning what is our core dividend, $0.06-$0.07 a share each quarter, as were the last two quarters, there’s sort of room for both. But it’s a year — it’s effectively a decision, I would say as much as we — the thing that sort of has been decided is the decision that we will make at the end of the year, so that we’ll retain it for now, and then make a decision in a year about the size of what we may or may not do.

So, I know that’s not that definitive, but we’re just trying to balance all things. And obviously, if base rates continue to go up or even — they went up on July, obviously just now, and our fee income builds off a very low base, we could even out-earn the dividend by even more, and so then there’s even more room for both options.

Melissa Wedel: Okay, understood. I appreciate the building into the framework, that way it’s helpful. In terms of the share repurchase activity that you did, noticed that, obviously, it ticked up. I think the last repurchase activity was about a year ago. As we think about moving forward and the capital allocation choices that you have in front of you, you’ve got early attractive investment environment, you’ve got net leverage kind of where it is, I think towards the midpoint of your target range if I’m looking at this right. And how should we think about you guys evaluating those opportunities for appetite for additional share repurchase versus deploying capital into an attractive environment?

Howard Widra: Yes, the — the buying back of shares is definitely a function of the things you said. Obviously, how levered we are and how much capital you have. But more importantly is comparing against alternative investments. And we bought back those share much earlier in the quarter at markedly lower prices than we are at today, and so — which changes the return on that buyback multiple hundreds of basis points. So, it does change that metric. So, we’re always looking at it. And so, obviously, if yields on assets or opportunities went down, that could change the appetite at this price because we still think that it’s a good value. But when there are these lending opportunities at this level based on where we’ve traded to now, that balance is different.

So, I think the answer is we will buyback shares when it is clearly accretive to the shareholders versus all other options, right; Paying dividends, making a different loan, delivering. And we felt that was the case at the level we were able to buy shares very early in this quarter.

Melissa Wedel: Thank you. That’s really helpful.

Operator: [Operator Instructions] Our next question comes from Paul Johnson, KBW.

Paul Johnson: Yes, good evening, guys. Thanks for taking my question. I guess just with everything that’s occurred in the first-half of this year, and based on what you’re seeing from sponsors’ behavior and appetite for deals today, do you think that we’ve reached or maybe we’re approaching an inflection point in terms just risk appetite from sponsors. And if that is the case, what do you guys expect for the remainder of the year, and maybe more so like 2024? Are you expecting a big year or just a slower recovery to normalization?

Tanner Powell: Yes, sure. Thanks, Paul. And let me make a quick comment before opining on your question. I think one of the parts of our story that we try to stress quite a bit is that we’re at $2.4 billion of a $30 billion business. And that affords us a nice strategic advantage in that, in any given quarter, there is plenty of volume. And as we called out in our prepared remarks, the broader MidCap, the Bethesda MidCap did $4.4 billion of originations in the given quarter. And that gives us a dynamic where we’re less sensitive to the ebbs and flows in deal volume. In terms of the inflection point, what we hear from sponsors in our discussions, and not continue to have the answer by any stretch of the imagination. But what we have seen, while there is some volatility, the dispersion from the — has been reduced.

And there is some modicum of stabilization. While things were — and that’s not to say that no one is discounting the potential for a higher rate, and at least being able to say that, “I’ve got something that’s unlikely to go up materially from here,” has enabled sponsors when they digest the implications to the next buyer’s ability to pay, particularly if it’s a sponsor buyout, that enables models to be able to be run with a greater degree of confidence and precision. And so, I that’s the impetus currently, as well as also some distance from the stresses that we saw earlier in the year, as well as some upside to economic trends. But it would be very premature to call the inflection point as data on the — on the frontlines it is changing, but certainly some modicum of reprieve there, and that’s what we’ve seen in the post quarter-end period with some modestly higher M&A volume and activity levels.

Paul Johnson: Got it, thanks for that, I understand. So, it’s difficult to predict. My other question is just a little more specific to Merx. I’m trying to understand. As I do understand, these are obviously fixed rate — fixed payment leases on the underlying aircraft. This is obviously a portfolio company that’s in runoff with you guys. But in terms of aircraft leasing comparable lease rates, I guess is how I would term it, for any sort of borrower in the market, what are the current, I guess, set of comparable rates that are available to [lessees] (ph)? And what I’m getting at is are any of these borrowers, when they go to renew leases, or I don’t know if it’s possible to refinance leases, are these being done at higher fixed payments? Is that driving a longer average life of the assets, pushing out that sort of termination date? I’m just curious how that works.

Tanner Powell: Yes, absolutely. And what could be a very long answer, I’ll try to be succinct here. And first and foremost is with respect to the assets that we have in the books today. Yes, they are fixed leases, but we have fixed debt costs against those. So then as you play forward and we look at kind of a next-buyer analysis, so we look at transitioning those leases. Ultimately, a plane is an economic instrument utilized by airlines to make money. And in the same way, you see plane tickets going up to recover the broader increase in interest rates. And ultimately, because of the long duration of a lot of leases, that there is a lag there, maybe even more significant than what you’d otherwise see in maybe the leveraged loan market, but notwithstanding, that does adjust, and you will see that become reflected in how does — the lease rates.

One quick comment also, one of the aspects that gives us some cautious optimism in terms of reducing our exposure in Merx right now is that it is, generally speaking, a good yield environment for leasing companies. The increase in demand is well-documented, and at this juncture actually domestic revenue passenger miles are actually above COVID levels, internationally is lagging slightly, and overall right 96%, but importantly, with Asia having recently come back online we would expect increases in demand there. And that’s on the other side of the equation in terms of supply we continue to see issues with Airbus and Boeing to deliver significant amounts of list. And as a result, put aside the question you asked about lease rates and interest rates, notwithstanding we are seeing a healthy environment for lease rates and leasing on accountable supply/demand dynamics, which we hope will support our disposition efforts at Merx to reduce that exposure.

Paul Johnson: Thanks for that. I appreciate it. That’s an interesting dynamic, and obviously there is conversation that can go on a lot longer, but appreciate the abbreviating answer. And that’s it from me.

Operator: Thank you. Our final question comes from Kenneth Lee, RBC Capital Markets.

Kenneth Lee: Hey, good afternoon, and thanks for taking my question. Wasn’t sure whether this was discussed already, but wondering if you could just talk about any amendment activity you’ve been seeing the portfolio, whether it’s just a routine or whether they’re out of the ordinary? Thanks.

Tanner Powell: Yes, sure. So, the activity level on the amendment side of things has not picked up materially. We do have — most of our borrowers and most of our transactions how they set up covenants, and then, and so, when borrowers come back and want to grow, as we mentioned before, they’re looking to do accretive acquisitions, or if there are things where covenants are getting tied, and sponsors want to be proactive. That brings us to the table to have those discussions. Our stance when we have been doing that is looking to de-risk and/or get enhanced economics around it. And so, if a sponsor is looking for additional cushion on a leverage covenant, for example, we’re going to put — we make grant that cushion, but we’re going to have step-downs, and then also provides the opportunities for fees, and we can also look at the spreads as well.

So, the bigger picture is we have covenants, so we are in dialog, the tone and the pace of amendments has not increased materially as kind of at the same pace as it has been over the last several quarters. But when it does occur we view that as an opportunity as well to either de-risk or enhance the economics.

Kenneth Lee: Got you, got you, very helpful there. And then just one follow-up, if I may, and just to say a follow-up question from everyone about originations, given that you see allow the potential deal flow from the broader MidCap origination platform and perhaps a little bit less depend upon deal flow there or M&A activity. Would it be fair to say that the key constraints to originations over the near-term would be more on the underwritings, finding the appropriate deals, the appropriate returns, leverage constraints, more so than broader industry trends? Thanks.

Tanner Powell: Yes. I mean as we have mentioned, MidCap closed on over $4 billion of new commitments in the last quarter. We get to look at those. We look to see what gets into our portfolio from a diversification standpoint, and obviously from a yield and structure standpoint. So, in terms of constraints to new activity, it’s certainly not the top of the funnel, because we get that via MidCap. What we have continually expressed in terms of leverage is a range of 1-4 to 1-6, and a desire to stay at the lower end of that range. And so, you have kind of seen us in between 1-4 and 1-4-5 over the last several quarters. And so, as we think about deploying into new capital, we are balancing our desire to be in that leverage range with the attractive opportunities that are out there.

Kenneth Lee: Got you, very helpful there. Thanks, again.

Operator: We have no further questions in the queue at this time. I would now like to turn the call back over to today’s speakers.

Tanner Powell: Thank you, Operator. Thank you everyone for listening to today’s call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us if you have any other questions. And please have a good evening.

Operator: This does conclude today’s program. Thank you for your participation. You may disconnect at any time.