Bryce Rowe: Okay, okay. All right. Maybe last one for me. In terms of the joint venture, you saw a bit of an uptick in the dividend coming into OCSL from the — from at least one of the joint ventures. Just curious if that’s more a function of the higher ROEs that the joint ventures are generating, or is it a function of the, I guess, the increased investment you made in the JV here in the December quarter? Thanks.
Matt Stewart: Hi, it’s Matt Stewart. It’s a little bit of both. During the quarter, we drew down about $25 million of additional capital into the JV that we deployed into the market. But we did get the benefit of base rates that we saw in the portfolio, in OCSL as well. But it’s a little bit of both, and we were able to deploy a decent amount of capital during the December quarter.
Bryce Rowe: Okay, great. Thank you guys.
Operator: And our next question is coming from Kevin Fultz from JMP Securities. Kevin, please go ahead.
Kevin Fultz: I want to follow-up on Bryce’s question on the investment landscape. Clearly, it was a very active quarter of investment activity. And I’m just curious, how you would compare the attractiveness of the current vintage of deals that you’re doing relative to historical periods? And then if you can maybe parse out sponsor versus non-sponsor opportunities?
Armen Panossian : Sure. Thanks, Kevin. So I would say, let’s talk about non-sponsored first. Those deals are always bespoke. It’s hard to say what the “market pricing” is for a non-sponsor deal, because every one of the transactions are so different. The competitive dynamic is very different between non-sponsored and sponsored, while it feels like non-sponsored pricing is wider, it doesn’t feel several 100 basis points wider. It’s maybe 100 to 200 basis points wide of where it was a year or two ago. But more importantly, the legal terms and protections around non-sponsored transactions have always been tight, but I feel like they’re a little bit tighter these days versus a year or two ago. And the loan-to-values are a little bit lower these days than there were a year or two ago.
Now with that said, loan-to-values and non-sponsored transactions are always lower than sponsored deals, at least the deals that we do are always lower loan-to-value. So this is kind of incrementally tighter loan-to-values versus non-sponsor historically versus non-sponsor today. So it is certainly more attractive. But non-sponsor deals are certainly very difficult to find. And they’ve always been that way, and they continue to be that way. On the sponsored side, a typical first lien transaction for a new deal, I would say, has changed in two very important dimensions. One is pricing. A typical first lien sponsor deal with 4.5 to 5 turns of leverage was usually done at a roughly 55% or 60% loan-to-value and pricing of SOFR plus 500 to 550. That’s what it was — what the market was in for 2019 and 2021 and for the first half of 2022 that range kind of held true.
But pricing these days, especially since August or September of 2022, for that same deal loan-to-value has declined. So that’s the first dimension of change that’s important. It’s loan-to-values are now 40% to 50% rather than 55% to 60% and pricing has widened. And I would say, typically, pricing is SOFR plus 650, 675. And for — if leverage is a little bit higher, it could get as high as soups 700 for a sponsor transaction. These are for businesses that are not tech or software LBOs, tech and software LBOs are at least 50 basis points wide. They’re usually SOFR plus 725 to 800 in that range for a tech LBO deal. So again, pricing was wider by, call it, 150 basis points, 125 to 150 basis points and loan-to-values are lower by 10 to 20 percentage points in sponsor land.
I think in — on the third dimension that we would like to see more change is actually in the case of covenants. The middle market sponsor deals have always had a covenant, a maintenance covenant or two. They continue to have maintenance covenants. On the large cap end, it ebbs and flows, we saw a return of covenants in the fourth calendar quarter for large-cap deals, sponsor deals. So, companies with $100 million of EBITDA or more. We did see a return of covenants there, because the banks have stepped back with a broadly syndicated loan market, and we’re no longer an alternative for that borrower base. But that technical shifts pretty rapidly. We saw a deal that we were engaged on with a very large private equity sponsor a few weeks ago, very large equity check, something like 65% of the total capital structure, 35% loan-to-value on that deal.
And effectively, that sponsor was able to syndicate it out to a group of direct lenders, probably 10 to 20 direct lenders for a roughly $800 million transaction. And we’re — and in so doing, that competitive dynamic was able — they were able to remove the maintenance covenant and essentially execute a covenant-light deal. And we passed on that transaction when we saw that the covenant was falling away, because we thought that the company actually had cyclicality to it, and we’re not inclined to do a covenant-light deal for that. But — so that dimension in terms of maintenance covenants is an important one to us. And I think that in the fourth quarter — fourth calendar quarter, it looked really good, but it could — that could change kind of quickly depending on competitive dynamics in the sponsor space.
Kevin Fultz: Helpful color there. And I’ll leave it there. Congratulations on really nice quarter and for completing the merger.
Armen Panossian: Thanks, Kevin.
Operator: The next questioner is Kyle Joseph from Jefferies. Kyle, go ahead.
Kyle Joseph: Hey, good morning, guys. Thanks for taking my questions. Curious to get your take on expectations for credit this year. Obviously, it seems like rate increases haven’t yet impacted company credit performance broadly, including your portfolio. But is that kind of a timing thing? Like, how long can companies continue to perform under this higher rate environment? And how do you expect credit performance for the industry this year? And do you see any opportunities resulting from that?
