Tanner Powell: Yes, sure. Thanks, Kenneth. As we alluded to in the prepared remarks, we are seeing spread compression. When you step back, there’s broadly been a rally in credit markets, and you’ve seen spreads compress, kind of across the spectrum, private and public. And we’ve seen that within the middle market as well. I think, as we think about spread compression, and we look at where we were able to deploy in 2023. We were very cognizant of the fact that if you look at the last couple quarters, the spread had been in the high sixes to seven, which we did not believe was sustainable, was actually against the backdrop of, 10-year low and private equity activity. As we look forward in what is often the case in the, sort of incipient rally of credit markets, the activity itself tends to concentrate in repricings and refinancing.
And that was very true within Q4. As we look at the market environment now, with that decline in spread, as well as, broadly speaking, a more constructive view on one, the economy, as well as also that, while I guess not completely no chance for an increase in rates, but probably speaking market consensus that, rates will not go up further. You’re starting to see the pipeline for M&A and LBO volume build. Typically, if we look back, as LBO volume – builds, that typically helps to provide some stabilization in spreads. And that’s what we would expect, as we’ve started to see, some of the pipeline activity. Your comment about, lender friendly, I think it’s helpful to call to attention, our focus on the middle market. And broadly speaking, more frothy markets result in more borrower friendly terms.
But I think the emphasis for us and what, kind of corroborates our focus on the middle market, it’s partly documentation. And in particular, as we mentioned in our prepared remarks, over 98% of our corporate lending portfolio has covenants. And that’s a dynamic that, we see continuing in one kind of, ballast against frothy market conditions, and what that has a tendency to do. In markets in terms of reducing those lender friendly provisions that, have been more attendant over the last couple years. So our focus on the middle market and continued ability to get covenants is one aspect that we point to and helping to, continue to have a strong, lender friendly provisions in our documents.
Kenneth Lee: Got you. Very helpful there. And just one follow-up, if I may, the portfolio average interest coverage ratios, I think there were a close about 1.8, 1.9 times. I wanted to get your thoughts around where you think the ICR could trough over the near term? Thanks.
Gregory Hunt: I mean, it’s an interesting question and we’ve done a number of different modeling scenarios. But I think if you expect rates, to kind of stay where they are and you look at, and you expect revenue and EBITDA to continue to grow, which is what we’re seeing in our portfolio, that would suggest that perhaps, we’re at a trough Although there could be a bit of a lag, I think, we’ll continue to watch and see where the SOFR curve goes. I think the underlying portfolio continues to perform and it just kind of depends on the timing of when the SOFR curve moves.
Tanner Powell: Yes, I would add to that, Kenneth, that certainly there’s a lot of assumptions that go into trying to put, more specific estimation on where it goes. I think, when we look at the performance, of our underlying borrowers as Ted alluded to. And we spoke to more broadly in the prepared remarks, there was resilient performance, economic performance in the portfolio. And in particular, which is a continuation of the kind of, like last two quarters, as we saw EBITDA growing more than revenue, after quite a few quarters, wherein that was not the case. And I think one of the reasons that we saw, stability in terms of that interest coverage, was that at this juncture, you can look at companies and whether through putting through price increases and/or, just lapping the most acute effects of inflation, again, we saw, you know, EBITDA growing faster than revenue.
And I think notwithstanding as Ted alluded to, we could have different trajectories in terms of interest rates, which would affect that. One dynamic, which is helping that ratio in particular and by extension, the cash flow dynamics in our underlying companies, is that at this juncture, price increases have been put through, and we’ve lapped some of the worst, of the inflation and helping to provide, for some resilient performance in our underlying companies.
Kenneth Lee: Got you. Very helpful there. Thanks again.
Operator: Thank you. [Operator Instructions] Our next question comes from Paul Johnson with KBW. Please go ahead.
Paul Johnson: Yes, good morning. Thanks for taking my questions. I’m just curious, if there’s any sort of material update in terms of kind of the pro forma leverage, for foreclosing the two mergers, you know, at the time it was expected to be a deleveraging event, close to like 1.2 times. So I’m wondering if there’s any kind of, material update there, as well as kind of your outlook, just given the, some of the spread compression that we’ve seen last year, and perhaps that could continue to occur, this year as activity comes back into the market. If you have any sort of thoughts around, the expected accretion from the merger, and whether that’s changed at all, just simply from kind of, a spread compression standpoint? Thanks.
Tanner Powell: Thanks for the question, Paul. I’d make a couple of comments to address your questions there. First of which we are not changing our leverage guidance. I think consistent with what we said, what we have said, is you saw pick up a activity and notably we saw a number of refinancings in Q4 that served to take us into the 1-3-4 range relative to the 1-4 that we operated at, on last quarter. So there’s no update to our leverage guidance. The second point and consistent, with what we said last quarter and you alluded to there, Paul, is that should the mergers be successful, or should we be successful in executing, the mergers day one, you would see a decrease in leverage. And would guide people, to the statements that we made in connection with the last range earnings release and investor presentation there.
