Nuveen Churchill Direct Lending Corp. (NYSE:NCDL) Q3 2024 Earnings Call Transcript

Nuveen Churchill Direct Lending Corp. (NYSE:NCDL) Q3 2024 Earnings Call Transcript November 9, 2024

Operator: Welcome to Nuveen Churchill Direct Lending Corp.’s Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] I’d like to turn the call over to Robert Paun, Head of Investor Relations. Please proceed.

Robert Paun: Good morning, and welcome to Nuveen Churchill Direct Lending Corp.’s third quarter 2024 earnings call. Today, I’m joined by NCDL’s Chairman, President and CEO, Ken Kencel; and Chief Financial Officer, Shai Vichness. Following our prepared remarks, we will be available to take your questions. Today’s call may include forward-looking statements. Such statements involve known and unknown risks uncertainties and other factors, and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about the company, our current and prospective portfolio investments, our industry, our beliefs and opinions and our assumptions.

These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in the forward-looking statements. We ask that you refer to the company’s most recent filings with the SEC for important risk factors. Any forward-looking statements made today do not guarantee future performance and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10-Q and supplemental earnings presentation are available on the Investor Relations section of our website at ncdl.com. Now, I would like to turn the call over to Ken.

Ken Kencel: Thank you, Robert, and thank you, everyone, for joining us on the call today. I’d like to start by discussing our results for the third quarter, and then I’ll provide some thoughts on the current market and economic environment and our outlook for the coming months. After that, I’ll hand the call over to Shai for a more detailed discussion of our financial performance. Overall, we are very pleased with the returns we generated this quarter, reflecting the strength of our platform, the earnings power of NCDL and the continued growth of the private credit markets. This morning, we reported strong third quarter results. We delivered net investment income of $0.58 per share, fully covering our regular quarterly distribution of $0.45 per share and our $0.10 per share special distribution.

Our investment portfolio continued to perform well, primarily driven by the strength of our senior loan investments and we had no new non-accruals during the quarter. Investment activity during the third quarter was approximately $226 million of new originations was primarily focused on senior secured first lien loans from our traditional middle market pipeline. As we discussed last quarter, now that NCDL’s portfolio is essentially fully ramped, we are focused on rotating out of higher priced, lower spread, upper middle market positions and into our traditional middle market pipeline, which benefits from wider spreads and generally more attractive terms. Our strong results in the quarter led to an increase in our net asset value to $18.15 per share at September 30 from the $18.03 per share that we reported as of June 30.

As we look towards the end of the year and into 2025, we remain optimistic about NCDL’s positioning as a leader in the core middle market. Given our long-standing performance track record, deep network of sponsor relationships and extensive LP commitments across the broader Churchill platform, which enable us to continue to see a wide range of attractive investment opportunities. As we assess the overall market, credit quality and portfolio company performance remains strong, despite the persistence of elevated interest rates. As inflationary pressures on borrowers eased moderately, we saw a long anticipated 50 basis point Fed rate cut in September. The other theme we’ve observed is an increase in the competitive dynamics in the private credit market, which drove additional spread compression in Q3, albeit at a slower pace than in the second quarter.

In the face of increased competition, we believe that our focus on the core middle market enables us to remain largely insulated from the pricing pressure, increased volatility and generally weaker terms that we see in the upper middle and BSL markets. We believe that traditional middle market companies with EBITDA of between $15 million and $75 million, tend to be lower levered, better structured, less cyclical and more focused on growth industries such as business and healthcare services. When backed by the operating expertise and capital support of leading private equity sponsors, we believe all of the elements are there to generate a strong value proposition for investors. As a result, we believe that the risk-adjusted returns available to scaled, highly selective managers like Churchill with deep, long-standing private equity relationships in the core middle market are among the most attractive in the private credit market today.

With respect to the macroeconomic environment, we believe a healthy and resilient U.S. economy will continue in the near-term. We continue to see steady revenue and EBITDA growth from our portfolio companies, with inflationary pressures moderating. We also believe at the beginning of a rate reduction cycle will spur increased M&A activity, which we have already begun to see in our investment pipeline. As a result, we feel quite positive heading into 2025 with respect to both deal flow generation and health of our underlying borrowers. Turning to deployment. Deal activity and originations across the Churchill platform continued at a strong pace this quarter, which benefited NCDL. Our investment team originated approximately $226 million of new investment commitments in NCDL during the quarter.

Our new commitments were focused on senior lending, which represented 98% of NCDL’s origination activity. First lien debt remained steady as a percentage of the NCDL portfolio, representing approximately 90% of fair value of the overall portfolio. We will continue to prioritize opportunities to deploy capital in core middle market senior loan investments, as we pursue portfolio growth and diversification as a public company. We feel this asset class provides strong long-term risk mitigation characteristics, including floating rates, generally lower leverage and traditional financial covenants and our core middle market transactions. One of the key benefits and differentiating factors of NCDL is the power of incumbency that the Churchill platform provides.

We continue to source attractive investment opportunities from our existing portfolio companies, and we believe that continuing to invest in these companies that we know well leads to better long-term credit performance and reduces underwriting risk. In terms of credit quality, company performance across our overall portfolio remains strong and healthy, reflecting the quality of the deal flow we’ve experienced over the last several years. Our weighted average internal risk rating remains at 4.2 versus an original rating of 4.0 for all of our investments at the time of origination. And our watch list remains at a very manageable level of 5.6% of fair value. Additionally, we are pleased with the credit fundamentals within the NCDL portfolio, with portfolio company total leverage of 4.9 times, interest coverage of 2.1 times on a first lien senior loans and a weighted average asset yield of just below 11%.

These metrics are a direct result of conservative structuring and relatively low attachment points that we target when underwriting new transactions. This conservative approach has served us well in the elevated rate environment. And we would expect these metrics to improve as rates come down further over the remainder of 2024 and into 2025. During the third quarter, we did not add any new non-accruals and the level of non-accruals remained very low as of quarter end at roughly 1.5% of fair value and 1.4% of cost. With a highly diversified portfolio of over 200 companies and only three names on non-accrual status, we believe this metric compares favorably versus BDC industry averages. We remain focused on diversification as a key risk mitigation tool in our investment portfolio.

This has been achieved with a continued high level of investment selectivity, facilitated by the significant proprietary deal flow, our sourcing engine is able to generate from the breadth and depth of our private equity relationships. As of September 30, we had 202 companies in our portfolio, and our top 10 investments represented only 14.1% of the total portfolio, down from 14.4% as of June 30. This diversification is critical as we seek to maintain exceptional credit quality and originate additional attractive opportunities. Looking ahead, we believe we are well-positioned for continued strong performance for the remainder of the year and into 2025, particularly given our standing as one of the largest and most active BDCs focused on the core middle market.

As we’ve spoken about in the past, our outlook is driven by our approach to portfolio construction and management with three key factors worth reiterating. First, NCDL has a strong focus on a high level of portfolio diversification across a number of key metrics. We have constructed a defensive portfolio that is balanced across multiple measures, whether you’re looking at sponsor, position size or industry. We’ve achieved this level of diversification across all our different investment vehicles across the platform, and it represents a consistent commitment embedded in Churchill’s DNA. Second, we have a rigorous investment process that puts credit quality above all else. As we look for opportunities to underwrite, we focus on high-quality, market-leading businesses that operate in recession-resistant industries with leading market positions and high barriers to entry backed by top-tier private equity sponsors.

Our strong deal flow and unique sourcing model enables us to maintain a rigorous investment process and strong credit discipline. We’re also carefully attuned to the interest burden facing both our existing portfolio companies as well as new borrowers. This consideration influences our conservative approach to structuring new transactions with lower overall leverage and tighter covenant packages. This discipline is crucial, particularly in an environment where spreads are tighter, and terms are more aggressive. That is why we’re willing and able to walk away from certain deals that we assess are too risky. And the third factor that is especially important is our highly differentiated origination and sourcing model. We enjoy strong private equity LP relationships.

Over nearly two decades Churchill has worked with approximately 500 middle market private equity firms. In fact, today, Churchill has commitments to over 310 leading U.S. middle-market private equity funds and sits on over 245 advisory boards. We have been and continue to be a trusted and established investor in the core middle market with deep long-term relationships, which provides NCDL with a strong information and sourcing advantage. Before handing it over to Shai, I’d like to add that we are extremely proud of our team and our recent results are evidence of their hard work and dedication. We believe NCDL is uniquely positioned for long-term success and remain optimistic about the company’s outlook. And we believe NCDL is well positioned to benefit from increased transaction activity that we expect in 2025.

And now I’ll turn the call over to Shai to discuss our financial results in more detail.

Shai Vichness: Thank you, Ken, and thank you all for joining us to review our third quarter results. For Q3, we generated net investment income of $0.58 per share compared to $0.57 per share in the second quarter of 2024. Our total investment income increased by $5.2 million or 9% quarter-over-quarter, driven by higher interest income as a result of continued strong deployment and increased leverage utilization, which helped to offset the modest tightening in spreads that we saw during the quarter as well as the decline in base rates. In October, we paid a total dividend of $0.55 per share, consisting of a regular dividend of $0.45 per share and a special dividend of $0.10 per share. In aggregate, this $0.55 dividend equates to an annualized yield of approximately 12.1% based on our quarter end net asset value.

As a reminder, the $0.10 per share special dividend that we paid in October was our second of four special dividends that we declared at the time of our IPO earlier this year. The two remaining special dividends will be paid through the second quarter of 2025 to shareholders of record as of November 11 of this year and February 12, 2025. As discussed previously, we intend to operate with a supplemental dividend program that sees us paying out a portion of the excess earnings over and above our regular dividend, allowing us to deliver the benefits of higher returns in the current environment to shareholders as well as grow our NAV. Our total GAAP net income for the quarter was $0.67 per share compared to $0.37 per share in the second quarter.

Our third quarter net income was positively impacted by $0.09 per share of net realized and unrealized gains. We generated approximately $0.02 per share of realized gains on repayments and sales, and $0.07 per share of unrealized gains, primarily due to improved credit metrics for a number of our portfolio companies. The realized gains on sales were generated from selling out of select upper middle market positions as we continue to rotate out of more liquid positions with lower spreads into our traditional middle market pipeline deals. Our debt-to-equity ratio at the end of the quarter was 1.11 times, which is consistent with the guidance we previously provided and within our target leverage range of 1 to 1.25 times. During the quarter, our net asset value per share increased to $18.15 from $18.3 at June 30.

This increase was attributable to the net realized and unrealized gains during the quarter as well as the excess earnings we generated over and above the regular and special dividends that we paid during the quarter. As of September 30, our investment portfolio had a fair value of $2.05 billion compared to a fair value of $1.99 billion as of the end of Q2. Similar to the prior quarter, the third quarter was a very strong one for us in terms of new origination, with $226 million in gross originations and $203 million of gross investments funding during the quarter. This increase in the fair value of our assets was largely attributable to new originations, which accounted for 18 of the transactions done during the quarter totaling approximately $120 million.

We continue to benefit from add-on financing opportunities, which allowed us to generate 11 deals in the form of incremental transactions for existing portfolio companies, totaling approximately $46 million. Lastly, we saw drawdowns of roughly $37 million on our delayed draw term loans as our portfolio companies continued to be active in growing the acquisitions. Repayments in the third quarter totaled 4.8% compared to 4.9% in the second quarter and remained in line with our long-range assumption of 5% per quarter. We had full repayments on nine deals, totaling $95 million and partial prepayments for another $8 million. We also sold $53 million worth of upper middle market transactions during the quarter. As we’ve spoken about in prior calls, we continue to benefit from the power of incumbency in our portfolio, reinvesting in four of the nine deals that fully repaid during the quarter.

Additionally, nearly two-thirds of the dollars that we invested during the quarter were inter portfolio companies, where we had an existing relationship across the broader Churchill platform. On a net basis, we deployed approximately $48 million during the quarter. As Ken discussed earlier in the call, the deployment that we saw in Q3 was consistent with our strategy of optimizing NCDL’s portfolio. We expect to continue to deploy capital primarily into traditional middle market transactions as we complete the rotation of the portfolio away from more liquid upper middle market assets, redeploy cash received from repayments and modestly increase our leverage utilization. Our total portfolio consisted of 202 names as of quarter end compared to 198 names at the end of the second quarter and remains highly diversified, with the top 10 positions representing only 14.1% of the fair value of the portfolio, down from 14.4% in the prior quarter.

Our largest exposure is only 1.5% of the total portfolio, and our average position size is 0.5%. We continue to view this high level of diversification by position size as a key risk mitigation tool. In terms of asset selection, our new originations during the quarter were again heavily weighted towards traditional middle-market senior loans, with only 1% of the investments made going into the upper middle market. This focus on the traditional middle market segment, we believe, will benefit NCDL shareholders as we see meaningfully higher spreads and tighter documentation terms in the traditional middle market versus the upper middle and BSL markets. Despite a further tightening of spreads across markets during the quarter, our continued focus on the traditional middle market segment allowed us to maintain spreads on new floating rate loans at 500 basis points over SOFR, which was the same level that we saw in Q2.

Our weighted average yield on debt and income-producing investments at cost declined to 10.9% at the end of the third quarter from 11.3% at the end of Q2, driven primarily by the decline in SOFR together with a handful of repricing transactions during the quarter. We continue to remain focused on the top of the capital structure with first lien loans representing 90.1% of the portfolio at quarter end, in line with what – at the end of the second quarter. We also continue to opportunistically invest in junior debt and equity, which comprised 8.3% and 1.7% of the portfolio overall as of the end of the third quarter. As a reminder, we remain committed to the target allocations that we communicated at the time of our IPO, with a target of 85% to 90% senior loans and the balance in junior debt and equity co-investments with equity staying in the low single-digit percentage range.

Turning to credit quality. Our investment portfolio is in very good shape, as our weighted average internal risk rating remained relatively steady quarter-over-quarter at 4.2 as compared to 4.1% at the end of Q2. We had no new non-accruals this quarter, with only three names on non-accrual status, representing just 0.55% of the fair value of the portfolio and only 1.4% at cost. The fair value of the non-accrual assets increased modestly from the 0.49% that we reported last quarter, as a result of modest improvement in valuations in two of the three non-accrual names. Our watch list did see an increase with four names added on a net basis comprised of five downgrades and one upgrade. As a percentage of NCDL’s overall portfolio fair value, our watch list remains at a relatively low level of only 5.6%.

In terms of leverage utilization, our debt-to-equity ratio increased to 1.11 times as of September 30 compared to 1.04 times as of June 30. We were pleased with this incremental leverage utilization, which was directly in line with our expectations at the time of our IPO. As we move through the balance of the year and into early 2025, we expect to continue to be able to deploy capital efficiently and move our leverage ratio up modestly within our target range of 1 to 1.25 times debt to equity. Subsequent to quarter end, we took an additional step towards optimizing our capital structure by paying off and terminating our asset-based credit facility with SMBC, replacing it with borrowings on our corporate revolver, which we repriced down to SOFR plus 200 basis points in October.

This eliminated our most expensive facility, which was priced at SOFR plus 2.65%, and will allow us to further reduce our borrowing costs going forward. As I mentioned last quarter, we continue to keep a close eye on the unsecured debt market as we evaluate a long-term capital structure and are encouraged by the pricing trends and issuance levels that we have seen over the past two quarters. With over $361 million of available liquidity as of the end of the third quarter and no near-term debt maturities, we remain incredibly well positioned to take advantage of attractive investment opportunities and to fund our unfunded commitments and share repurchase program. As discussed, our focus for the near-term is on optimizing the asset mix within the portfolio and actively reinvesting cash received and repayments, while modestly increasing our leverage utilization.

Our share repurchase program continues to operate effectively and represents a modest use of our available liquidity. Through October 31, we’ve utilized approximately $14 million under the program, leaving approximately $86 million remaining. Finally, our third lockup release occurred on October 21, which saw the remaining 50% of our non-affiliated pre-IPO shares released from lockup, bringing the total number of shares that are available for trading to approximately $37 million, a sevenfold increase from the 5.5 million shares that we issued in our IPO. As a reminder, at the time of our IPO, we put in place a thoughtful staggered lockup release schedule for our pre-IPO shareholders coupled with the special dividends payable over four quarters that I mentioned earlier.

Affiliated shareholders were locked up for a full year and non-affiliated pre-IPO shareholders were locked up for 90, 180 and 270 days. Our final lockup release for affiliated pre-IPO shareholders will occur on January 24, 2025, and will bring our public float to over 50 million shares. I’ll now turn it back to Ken for closing remarks.

Ken Kencel: Thank you, Shai. In closing, I want to congratulate our team on another strong quarter of results as we continued to fully earn both our regular and special dividends on a per share basis. We are excited about the prospects ahead, as we believe we are well positioned to take advantage of the significant market opportunities and our ability to continue to reward shareholders with an attractive distribution yield. I will now turn the call over to the operator for Q&A.

Operator: Thank you. We will now conduct a question-and-answer session. [Operator Instructions] Our first question comes from Brian Mckenna with Citizens. Please proceed.

Q&A Session

Brian Mckenna: Great. Thanks. And I hope everyone is doing well. I appreciate all the commentary on your origination platform and really your large network of middle market private equity firms. I’m curious though, is there any white space across the broader Churchill platform to further penetrate this part of the market in terms of expanding or adding new relationships from here? And I guess, are there any other ways to further leverage these relationships that can ultimately drive additional benefits to NCDL?

Ken Kencel: Yes. Thanks, Brian. It’s Ken. No, it’s a great question. And we focus a lot on the ongoing effort to expand firms that we’re seeing deals from and expand our relationship base. I would make a couple of comments. One is we’ve had pretty good success there this year, about 30% increase in firms where we’re doing new deals with those firms. So in that sense, expanding those relationships deal-wise. The other thing I would say is that we have – as I think you’re aware, an ongoing allocation to new investments in new private equity funds every year. So each year, we’re adding 7 to 10 new private equity LP relationships. Obviously, those relationships are based upon an assessment of their performance, their track record, their history of investing in complementary industries such as software and health care and business services.

So we have both the effort to broaden out our relationships with deal activity, but also new LP relationships being brought into the fold on an annual basis, and we’re constantly scouring the market environment for high-quality firms, maybe spinning off from existing relationships of ours or otherwise. So there is a continued white space, which is driving an increase in the scope of our investment activity. But I can’t overstate how important those relationships are to driving deal flow and investment activity. About 75% of our senior lending activity is with firms where we have an LP relationship. So we’ve done the homework. We’ve done the research. We understand their performance and their track record. And obviously, the ongoing dialogue with them as an LP drives tremendous continuity and deal activity with them.

Brian Mckenna: Okay. Great. That’s helpful. Thanks, Ken. And then just a question on deal activity more broadly. Sponsor deals are starting to pick up here, but we really haven’t seen a real inflection yet in related activity. I think, getting some clarity around the election helps. But what are you seeing across the platform today in terms of new deal flow? And has there been any change in tone with sponsors more recently? And then from here, I know a lot can change and happen across the markets, but what do you see as the biggest driver for an acceleration in sponsor M&A into 2025?

Ken Kencel: Sure. Well, it’s quite interesting. We actually have seen a continued increase in deal activity as we’ve gone through 2024. I think certainly, clarity around interest rates, a recognition that rates have peaked and are obviously coming down. And I think is lending to more clarity around opportunities in the marketplace. I think it’s lending itself to buyers and sellers coming together more regarding price and underlying terms. So deal activity, as we see it actually has already begun to pick up. In fact, if you look across our platform, Q2 was a very strong quarter for us in terms of deal activity. Q3 was even stronger. If you look at our level of activity in senior lending, in 2024, it’s up over 60% year-over-year from 2023, and we’re up about 30% overall, including all of our investments year-over-year on the platform.

So senior lending up 60% and quarter-over-quarter activity has been very strong. So I think a lot of that is attributable to the fact that in the core middle market, the primary amount of activity is really new deal LBO activity. In fact, about 88% of the activity in the core middle market lending space is new deals. And I think that is certainly benefiting us in terms of our level of investment activity and deal flow across the platform. So we’re super busy right now, and we continue to be – our pipeline is quite good going into the fourth quarter, and we expect a very solid color as we move forward.

Brian Mckenna: Got it. Thanks. I will leave it there and congrats on another strong quarter.

Ken Kencel: Thanks, Brian.

Operator: The next question comes from Maxwell Fritscher with Truist. Please proceed.

Maxwell Fritscher: Hi, good morning. I’m on for Mark Hughes. Can you give us a sense on how amendment activity was, if any, in the quarter?

Shai Vichness: Yes. Max, it’s Shai. Happy to comment on that. We really didn’t see a big pickup quarter-over-quarter. One of the things that we commented on both last quarter and this quarter, and you see it kind of in the yield metrics in the portfolio, this phenomenon around repricing of existing transactions for borrowers that we know and like and that are performing continued quarter-over-quarter, but frankly, it really wasn’t an uplift, if anything, it was kind of a moderation of that trend. And you also see that kind of translate into kind of the spreads that we were able to realize on investments quarter-over-quarter. We’ve actually been pretty stable on new floating rate investments at roughly 500 over SOFR. And I think that’s indicative of a market where activity, yes, is picking up. As Ken just commented on in terms of new deals, but I would say that the pace of repricing, if you will, and those related amendments has moderated quarter-over-quarter.

Maxwell Fritscher: Got it. Thank you. And you had mentioned that your top of the capital structure priority. But can you comment on how spreads and competition for the junior debt is holding up?

Ken Kencel: Yes. I’d comment on it. It’s Ken. I would say, it’s interesting. If you look at our junior debt strategy, it is heavily grounded in those LP relationships. In fact, virtually 100% of our junior capital investments are coming directly from those LP relationships. So where there is a subordinated debt investment, it is very much coming straight from the private equity from where we have that LP connectivity in that history. And the same, frankly, for equity co-investments. So while senior lending is probably 75% or so LP relationships, it’s highly curated and coming directly from the sponsors. If you look at the overall pricing in our junior capital business, it’s been extremely stable. It’s been running around 13.75% to 14% on a consistent basis, really over the entirety of 2024.

So we are seeing some very attractive opportunities. Obviously, it’s a much smaller percent of the portfolio overall. We’re being very selective. But where we can get good relative value, we’re dipping into those opportunities. And again, we’re not out in the market competing on price with other subordinated lenders. We’re really seeing those opportunities directly from the sponsor where they have a situation and they need a junior capital lender, and we’re obviously a long-standing partner of theirs.

Maxwell Fritscher: Okay. Appreciate the answers. Thank you, both.

Ken Kencel: Thank you.

Operator: [Operator Instructions] Our next question comes from Derek Hewett, Bank of America. Please proceed.

Derek Hewett: Good morning. So what’s the size of that upper middle market portfolio that will be rotated to the core middle market strategy? And then from a yield perspective, what’s the unlevered yields of those two strategies, so we can kind of get a sense of what the potential could be for top line growth?

Shai Vichness: Yes. Hey Derek, it’s Shai. Thanks for the question. A couple of comments there. I would characterize kind of the upper middle market, more liquid asset portion of the portfolio. It’s circa $200 million relative to the $2 billion, so call it 10%. And that number obviously has come down a little bit since our IPO. As you recall, obviously, we called in all of our sort of uncalled capital that we raised in the private phase, pre-IPO and then the $100 million or so that we raised in the IPO that we deployed, and we’ve been busy sort of rotating into the middle market, the traditional middle market pipeline and you saw that with the roughly $50 million of sales that we executed on. I would caution, though, that, again, not all of those assets are going to be readily liquid or readily liquid necessarily at a price that we like.

So we’re going to be thoughtful about how we execute on that rotation strategy going forward. But I would expect that we continue to execute on that successfully as we have done over the prior quarter. In terms of the differential in yields, and you kind of see it show up, you saw it last quarter, you see it this quarter in terms of the yield pickup, if you will. I would say that, that premium for traditional middle market relative to BSL certainly, obviously, upper middle market sort of somewhere in between is as wide as, call it, 200 basis points. So historically, that’s ranged between 100 basis points to 200 basis points in terms of that spread between traditional middle market and BSL. And I would say it’s at the wider end today because that spread tightening has really impacted the BSL market as that has come back really strong with increased liquidity there.

I would say, in our market, that spread tightening has been much more modest. So we’re executing today, call it, in and around 500 as you saw in the materials. And in the BSL and upper middle market, you could be down in the 300s, low 300s from a spread perspective. So hopefully, that gives you some context there.

Derek Hewett: Thank you.

Shai Vichness: Great. Thank you.

Operator: The next question comes from Paul Johnson with KBW. Please proceed.

Paul Johnson: Yes. Thanks for taking my questions. Can you just talk a little bit about just the increase in the watch list investments this quarter. Obviously, non-accruals were stable. How would you kind of describe some of the new companies going on watch list this quarter? Were the idiosyncratic and kind of what level of maintenance or does the company require at this point?

Shai Vichness: Yes. Thanks, Paul, for the question. So a couple of comments there, right? As you look across our portfolio and just the health overall, I would say, first, looking at non-accruals, obviously, no new non-accruals during the quarter. So we were very pleased with the ongoing performance in general. When you think about how we manage the portfolio, and I know we’ve got a pretty granular scale running from 1 to 10. I think the moves that you’re seeing within the risk rating table that we publish is really emblematic of our proactive portfolio management approach, right? We’re pretty quick to downgrade names slower to upgrade, and we’re really doing that in response to the conditions that we see. And as you look at the watch list and the moves in the categorization, obviously, the further down the list that you move, the more maintenance that’s required.

But again, overall, very good shape. There really aren’t any sort of trends or themes that we would call out on the names moving around. Obviously, we’ve used the term idiosyncratic before, but that modest increase in the watch list is going to be obviously, company specific. No major concerns to highlight. And as always, we’re going to work those situations to maximize value for shareholders here. So again, key takeaway here is portfolio is in really good shape. Obviously, no new non-accruals and the movement within the watch list is really just a function of our proactive management of the portfolio.

Paul Johnson: Thank you. That’s all for me.

Shai Vichness: Great. Thanks a lot, Paul.

Operator: The next question comes from Brian Mckenna with Citizens. Please proceed.

Brian Mckenna: Okay. Great. Thanks for the follow-up. I might have missed this, but on the stock repurchase plan, it looks like you bought back $40 million of stock to date through October. So how much came through in the third quarter? How much in October? And then just given where the stock is trading currently around 95% of NAV. Can you just re-highlight how the repurchase program is structured, and then ultimately, the magnitude of buybacks as the discount to NAV widens?

Shai Vichness: Yes. So we haven’t exactly published the specifics, Brian, on kind of the percentages at each level, but I can broadly comment as I’ve done in the past, that we are increasing our percentage of average daily trading volume that we purchased under the program as the discount to NAV increases. So modest purchases when we’re close to NAV and obviously increasing as a percentage of average daily trading volume as we move down in terms of price. So that’s active. It’s working. And again, we’re buying at a discount to NAV. I would say the trends in terms of the purchases obviously increased in the last quarter with the increase in volume, that we saw as we’ve got more shares coming off of lockup. So the amount that’s freely tradable is increasing our average volume, and I think has moved into kind of the 80,000 range from sort of 50,000 in the prior quarter.

So again, buying a little bit more shares, but just looking at the amount of the program that we’ve used, $14 million of $100 million, and based on how we’re trading and where we’re trading. We’ve obviously got a lot of firepower left on that program, and we’ll continue to utilize it as we’re trading at a discount here.

Brian Mckenna: Got it. Thank you.

Shai Vichness: Thank you.

Operator: Thank you. At this time, I would like to turn the floor back to Mr. Ken Kencel for closing remarks.

Ken Kencel: Great. Well, thank you all again for joining us on the call today. Hopefully, you found information informative and helpful as you assess our fund and performance. We’re obviously very bullish and excited as we move forward here into the fourth quarter. I feel very good about the investment opportunities we’re seeing and the opportunity to deploy capital. I want to thank you all again for joining us. And hopefully, everyone has a great holiday season. We look forward to our next call in the New Year.

Operator: Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.