David Spreng: No, it’s pretty well spread out. I would say the one category that we’re leaning into a little less than the others is the consumer stuff. But we continue to find really interesting consumer products and services that are not really affected is marked by a recession, and those would be the ones that we would favor and I would mention Madison Reed is a great example there. But on tech and life sciences, and we use life sciences to refer to anything health care related. Where we continue to see enormous amount of deal flow, the next deal that will close is probably a life sciences deal. So in between tech and life sciences, it continues to be spread in about the right proportion, we’re more weighted towards tech, which we’re happy with.
We like the competitive nature of that market better than the life sciences side and where the returns in tech tend to be a little higher. The competition is a little lower and I don’t know if this is the right word, but it feels like it’s a little more disciplined where we’re able to get covenants and have more appropriate and lower loan to values.
Vilas Abraham: Alright. Appreciate it.
David Spreng: You bet, thanks, Vilas.
Operator: Thank you. [Operator Instructions] Our next question comes from Mickey Schleien from Ladenburg. Your line is now open.
Mickey Schleien: Hello, everyone. And David, welcome back. Yes, there have been a lot of comments and discussions about the pipeline and activity I think it would just be helpful if we – if you could step back for a moment. And just when we’re thinking about the backdrop with economic uncertainty, also uncertainty about interest rates still relatively muted M&A environment, but a lot of private debt capital available, what was your general thesis on the market and its activity levels, notwithstanding the pipeline, which can be very idiosyncratic?
David Spreng: Yes, again, and that’s an excellent question and one that we grapple with every day. And we tend to err on the side of conservatism because the loans that we’re making today we’ll be paying the dividend next year. So it’s really, really important that these be good loans. And as I said earlier, the venture ecosystem is really bumpy right now, and we’ve never seen so many venture-backed companies. According to PitchBook, there’s something like 50,000 venture-backed companies. And we know that most of them raised money if they could during the peak of the market and then move to a path to profitability mode, but so many of them need additional capital and so many of their VCs are being very stingy with that.
And one thing that a lot of people don’t pay enough attention to is that the folks that are really driving the pace of this market are the limited partners or institutional investors the university endowments, the foundations, the state pension funds, all that kind of stuff. The folks that give the money to the VCs are telling their venture partners to slow down because they have issues at the pension fund level. So until that changes, I don’t see VCs getting really, really more liberal with their investments and taking any of the tension off of the current market. They will continue to boatload on their best investments but on the ones that are more marginal, they’re pretty harsh and just basically set them free and say, go out in the world and survive if you can.
And if you don’t, so be it. We’ve got 40 other portfolio companies that will hopefully make up for it. So it’s just really a choppy environment, and we’ve been very conservative. We’re really focused on doing the best we can for our investors in terms of earnings, cash flow and ultimately, dividends. And of course, that requires avoiding losses. And I know we’ve had a couple of things that have gone on to non-accrual, which is very unusual for us, and we’re in the process of working through those. And I also know that this discussion and the path forward is really about credibility. And instead of saying words that mean nothing, we’re going to deliver. And over the course of this year, hopefully, avoid additional losses and fix the problems that we have and then move back into a position of portfolio growth.
We’re certainly not in this for growth at any cost. We think that’s the wrong way to go about it, and we’d rather build a solid foundation. And so we’ve been just a little slower than we might normally be. And hopefully, that will pay off in the long run.
Mickey Schleien: Thanks for that, David, that’s really helpful discussion. And just one follow-up, sort of a housekeeping question, maybe for Tom. The fund has consistently generated a somewhat small dividend, but I don’t see it this quarter. Was that due to the exit of a company? Or what’s the outlook for dividend income?
Tom Raterman: So we declared our dividend last week at the $0.40 base and the $0.07 supplemental. Certainly, we don’t anticipate any changes to the base and our objective is to maintain the supplemental dividend, while not compromising the spillover cushion that we have.
Mickey Schleien: Tom, I was referring to dividend income on the income statement.
Tom Raterman: Okay. So that – the dividend income on the income statement came from CareCloud. And in November, that’s a public company. We received that equity in the sale of one of our businesses. It was a company called CareCloud and a public company ultimately adopted its name. They suspended that dividend in November, which certainly created a lot of volatility in the valuation on that Level 1 asset. And so the company has indicated that they expect that dividend to resume later this year. So when CareCloud resumes their dividend, we would expect to see the dividend income come in again.
Mickey Schleien: I understand. That’s helpful. that’s it for me this afternoon. Thank you for your time as always.
David Spreng: Thanks, Mickey.
Operator: Thank you. Our next question comes from Erik Zwick from Hovde Group. Your line is open.
Erik Zwick: Good afternoon, everyone. And I just want to echo all the previous comments of David, it’s truly great to have you back and hear your voice again. So first question for me. Curious, David, both you and Greg mentioned some often business for a more friendly – lender-friendly market in the second half of ‘24. And I’m curious if you could maybe provide a little more detail or color around any kind of indicators or kind of activity you’re seeing now today because that gives you that optimism?
David Spreng: Well, so I’ll make a few comments and then turn it over to Greg. But especially on the tech side, we’re seeing terms that make a little more sense. And I think you know that we’re really big believers in covenants and in having appropriately structured loans, and that is starting to come back. And especially in the really late-stage larger deals we feel that that’s where and we’ve always thought that’s where the best risk-adjusted returns are. And those companies are now coming to grips with the interest rate environment. And for a long time, there was, I think, a little bit of sticker shop about the rate of increase in rates, which is very fair. But now companies are understanding the environment that we’re going to be in and that they can afford, maybe there needs to be some adjustments to the budget, but they can afford it.
So that’s the main basis for those comments. I will say the life sciences side remains a little bit more competitive and a little bit looser. I don’t know, Greg, do you want to add some additional color?
Greg Greifeld: Yes, I would definitely echo the sentiments in terms of just data level setting of structure and what the different companies and sponsors are willing to accept. And I’d add on to that, that their own expectations in terms of not only their value of the businesses but also just the ability to support amounts of debt has come in quite a bit, too. So opportunities that maybe 18, 24 months ago might have been looking for a certain amount of capital. We’re seeing those same sized companies come back to us today looking for maybe 60% to 70% of that kind of amount, which is much more attractive to us from a loan-to-value standpoint from other types of attachment points. and we’re just seeing a meeting of the minds in terms of what we believe is a reasonable structure as well as what the companies and the sponsors are actually looking for.
Erik Zwick: Thank you, that’s helpful. I appreciate the commentary there. And then just last one for me. I noticed in this quarter’s slide deck, you did not include the interest rate sensitivity slide. So maybe kind of two quick questions there. One, I’m guessing that it hasn’t changed a whole lot since last quarter, but I wonder if you could confirm that? And two, this absent there, just maybe indicative of your belief that we’re going to be at these levels of interest rates kind of this is higher for a longer period? Or just curious around that point?
Tom Raterman: Yes. We eliminated that slide because it was calculated based on rates going up to 200 basis points from the current level and we thought the utility of that was limited because I don’t think we see any increases in rates and our loans have floors that are at a variety of levels. Typically, it’s what the SOFR rate or the prime rate was at the time a loan closed plus the spread. So there’s no real change in it. We think it’s going to be pretty stable as we settle into this higher for longer, probably for the better part of this year.
Erik Zwick: Thanks for confirming. That’s all for me today.
David Spreng: Thanks, Erik.
Operator: Thank you. This concludes our question-and-answer session. I would now like to turn it back to David Spreng for closing remarks.
David Spreng: Thank you, operator. We believe our late and growth stage portfolio is well positioned for any economic environment. We’re in a strong position to deploy capital at favorable terms, and we will continue to maintain our underwriting rigor while evaluating future opportunities. Thank you all for joining us today. We look forward to updating you on our second quarter 2024 financial results in August. Thank you.
Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.
