Christian Oberbeck: If I could just add in terms of the new deals, which are kind of — everybody who’s got what they have, they have what they have. But we’re looking at a lot of new opportunities, and we’re pricing in the new level of debt and companies and sponsors are happy to have it, happy to — I think we’re seeing quite a robust pipeline that it seems like the — if there’s a balance of power, if you will, between borrowers and lenders, I think for the last few years, the borrowers seem to have relatively more leverage in negotiations. And I think that balance is moving the other way, how far it is, it depends on the market, depends on the deal, depends on the sponsor. But we are seeing improvement in overall competitive dynamic and negotiating leverage. And as part of that, the rate structure that we’re seeing is being accepted for new deals.
Michael Grisius: No, it’s a good point, Chris. I mean I should have emphasized that. So one development that certainly we’re seeing, especially in this last quarter and in the environment that we’re in now is Bryce, is that spreads are widening as well. So just in terms of receptivity to a higher rate environment, not only are new borrowers seeing higher indexes but we’re able to get wider pricing now than we were even a few months ago. So we’re finally starting to see that in our market as well. So if there’s an indication of sort of the reaction to rates. Now I do think the higher rate environment is affecting M&A activity in general. So there may be in the broader market fewer deals just in general because of kind of the macro environment.
But for the deals that we are seeing, which are high-quality deals and kind of the micro market that we occupy at the lower end of the middle market, we’re seeing plenty of activity. And for those deals that we’re seeing, they’re expecting higher rates, and we’re getting them.
Bryce Rowe: That’s great. Appreciate the commentary guys.
Operator: Thank you. Our next question will come from Casey Alexander of Compass Point Research & Trading. Your line is open.
Casey Alexander: Hi, good morning. I think this quarter really highlights the underappreciated power – earnings power that you guys have many BDCs are exhibiting right now, and I don’t think the market is really appreciating it. And if it weren’t for spread widening, your NAV actually would have been up $0.40 a share. So I think it’s a very good, and I appreciate the commentary around the dividend because I think holding on to those excess earnings right now to allow NAV to build or to hold against potential credit issues is a great idea. With all those positives, I’m going to do my job and trying to find a couple of places to pick out here. One is looking at the new baby bond deal that you did in December, the absolute and regulatory leverage ratio is really quite high.
Can you speak to those leverage ratios and to the extent to which you’re comfortable — I mean, I calculate a regulatory leverage ratio close to 1.5x when you factor in the new baby bond deal. Can you speak to those leverage ratios and why you can comfortably carry a leverage ratio that high?
Christian Oberbeck: Sure. Maybe I’ll start and then and Henri, you can fill in. Well, first of all, Casey, there’s several components to anyone’s leverage, right? And the character of the leverage is very, very important. And I think one of the things that we’ve always carried and the market sort of come around to make our structure work very well right now. And what we have in our leverage is we’ve got a long-term fixed rate, interest-only covenant-free debt, and our maturity schedule is two to 10 years out. So it’s a long time from now before we have to repay any of our leverage. And the spreads off of the marketplace to our leverage are widening, both absolutely with the base rates and with spreads and in terms of our new deals coming on.
So our profit margins are expanding, and our leverage structure is very solid. And then on the other side of it, of course, is portfolio. And so when we look at our portfolio and the character and the stability of our portfolio, we look at all that together, and we think we’re very well positioned for really substantial earnings. And I think we’ve just demonstrated this past quarter. I think the earlier quarters in the year, there was a lot of things working through the system and LIBOR lags and adjustments and where our liabilities might have gone up a little higher — the CLO might have gone up earlier than our asset base rates and all those types of things, but we’re kind of through that period now. And so the incremental improvements are kind of flowing directly through to our bottom line.
So we have a tremendous amount of earnings that we’re generating against this leverage and the structure is extremely favorable. A further point picking up on what Bryce said earlier, there’s a question as to whether we’re going to see the same rates in two years or three years. And there’s a possibility that as rates come up, then they come back down. But I think what’s really important also about our leverage structure is — and Henri correct me on the number, but I think almost two-thirds of our debt is callable in two years or less. And so we do have the ability to reconfigure this fixed rate structure of ours should rates decline. And so I think those are elements that give us comfort operating within the structure. Another part of the dynamic that we’ve been experiencing is, as Mike said earlier, there’s been a slowdown in M&A as gaps between buyers and sellers, ability to finance, leverage all those things have come about.
And one of the benefits that we have received as a result of that is a little slower repayments than we might have had before. And so we have this phenomenon of a lot of our high-quality loans are not getting refinanced, right? The only time we get paid off is generally with an M&A transaction and M&A transactions have slowed down. So our core portfolio is sticking with us longer than it had before. And then as our scale is improving and our relationships are broadening and that type of thing, we’re getting a lot more new investments coming in. So there’s kind of — those two forces at work are allowing us to add very high-quality assets through our very high-quality asset portfolio right now with improving new relationships. And each of those as you can see, I mean, last quarter, we did 18 follow-on investments.
So we have a very solid portfolio with good demand in credits that we know extraordinarily well. The other thing I would say, too, about the leverage is we have very long duration leverage, and we have essentially on a historic basis shorter duration assets. And so we think we’re very well positioned, the way we’re set up. And I think that the earnings flow that we’re seeing is reflective of that.
