Operator: Our next question comes from Melissa Wedel with JPMorgan.
Melissa Wedel: I wanted to first thank you for the disclosure on activity levels in the December quarter-to-date. Just to clarify, with an 11.9% sort of average yield on that activity? Or should we think about that as sort of flow that would end up on balance sheet or would that qualify for some of the JV?
Art Penn: Yes. It’s a good question. So it would qualify for both. I know some of our peers have different types of assets that they put in their JV versus what they put on balance sheet at the BDC. Some of our peers do, maybe they put some broadly syndicated loans there in their JVs. We put the same exact loans and we really allocate based on available capital and both the balance sheet of the BDC and the JV have available capital today. . And there’s a couple of benefits of the JV. One is, we get the benefit of a smart institutional investor like our JV partner. Two, we can optimize leverage a little bit more. So it’s a more levered vehicle and it’s also our first lien. So we’re not putting any mezzanine or any equity in that JV.
It’s all kind of first lien, senior secured debt and then that gets levered a little bit more than we do on the BDC level. So let’s say, deliver 2 to 1 or maybe in an optimized case is up to 2.5 to 1, which is higher than on balance sheet in the BDC, but it’s also lower than it would be if we were kind of in a regular middle market CLO. We have a middle market CLO business with third-party investors and there the equity gets levered 4 to 1. So a little bit more levered than the BDC, less levered than CLOs. We do use CLO technology as a financing tool for the joint venture, and that’s very good financing, matched financing, long-term financing for that joint venture. But we keep a leverage kind of in that 2x to maybe 2.5x range. And if we can continue to have very high quality on this book of first lien loans, the ROEs can be very strong, which is what we’re seeing.
Melissa Wedel: So just a follow-up on that. You led right into my next question, which is leveraging the portfolio. Obviously, with some elevated repayment activity in the September quarter, leverage came down a bit. Your thinking evolving at all on where you’d like to see on balance sheet leverage within PNNT?
Art Penn: Yes. No, we’re still at PNNT targeting about 1.25x. We’re a little over 1x as of September 30. So there is some capacity on balance sheet at PNNT. And so we’re still targeting that 1.25x. Hopefully, over time, we can rotate some of this equity, which will be highly accretive. As we do that as middle market M&A comes back for sure. We’re going to be able to rotate it. It’s been slower. I mean deal flow has been slower, which means some of that’s been on our balance sheet a little longer than we would have hoped, but that remains an opportunity.
Operator: And with no other questions holding, I’ll turn the conference back to Mr. Penn for any additional or closing comments.
Art Penn: I just want to thank everybody for their participation today as we come to Thanksgiving next week. We certainly have a lot of gratitude for all of our investors. So thank you for spending your time and capital with us. We’re wishing everyone a Thanksgiving of gratitude. And we look forward to speaking to you next in early February after our next earnings release. Thank you very much.
Operator: Thank you. This concludes today’s call. Thank you for your participation. You may now disconnect.
