Operator: Our next question will be coming from Finian O’Shea of WFS.
Finian O’Shea: Josh, on your sort of the segueing there, but on your opening comments on the firming of the rate curve and the expected dispersion we’ll see — is that happening in real time, say, in response to the rate curve? Are you seeing reorgs or LMEs and so forth and on the — in private credit. And on the flip side, should that translate to a more abundant deployment opportunity?
Joshua Easterly: Let me hear [indiscernible] I think hopefully you’re on the West, but we’re kind of just waiting on there, [Technical Difficulty] your question. So I think our theme has been that higher longer is kind of the two [Technical Difficulty], the first [indiscernible] is companies are going — some companies are going to have problems in that environment, both due to demand, we should monitor [Technical Difficulty] demand for the products and services. The second is their balance sheet and their cost of increasing most definitely their interest costs. And so there is most definitely going to be issues. Hopefully, I think in general, those — and that will cause dispersions between — and net income and to economic return.
And we’ve seen that a little bit on that margin. [indiscernible], we put it out there like nonequivalent well for us at fair value 1.1% anthology, which is we [Technical Difficulty], we put out on accrual, we took the work down. That is still paying cash, by the way. That will still pay cash, I think the maturity that will be the cash-on-cash returns are like in the 30s on compared to fair value. That should be a tailwind on net asset value as we’re taking that into an amortized costs. But there are real tales that pop up to be [Technical Difficulty] manageable for the industry. And given how much capital the industry holds, it shouldn’t create any existential risk for the industry. On the [Technical Difficulty] provide a great opportunity for those who can deploy capital into those companies that help facilitate those LMEs or those restructurings like Equinox.
So I think its a doublet, I think in the [indiscernible] you were good on credit, which we think we are and that we — you have capital deployed either because the market trusts you where you can raise more capital, which they historically have or you have excess balance sheet plus you have the requisite skill set to actually execute those transactions, which we most definitely have, which will create good deployment opportunities. And so that’s the Goldilocks, we think we’re in that. We think we have all those pieces of the [indiscernible] — but we think it’s going to be a really interesting environment for the next couple of years given higher for longer. it’s going to — and capital is allocated in some ways given low rates that this will be a good opportunity to participate in the opportunity set.
But I think you need capital, which a lot of the industry doesn’t have given more trades, you need the requisite skill set and then you need a clean portfolio.
Finian O’Shea: Very good. And a follow-up, the — looks like the last-out leverage has been somewhat declining the last handful of quarters at least. You’re seeing if this is market-related or portfolio-related are you managing it down and if we should expect that to continue and what it means for returns?
Joshua Easterly: Yes. Look, what I would say is — we have — we think on the margin, there are opportunities that today is in larger companies, larger capital structure. And those companies, given how big those credit facilities are, it’s hard to club together somebody taking a first our revolver. And so by number, my guess is that’s going down given what we think the opportunity set is. But that will kind of go up and down. That’s a combination of, I think, two things. One is the large capital structure and the second thing is banks are still capital constrained. And we see that with a lot of our bank partners are [indiscernible]. So it doesn’t have a huge [indiscernible] have a huge impact on economic returns. But it’s really those two things, which is where we see the opportunity that is and how big they’re positioned.
Operator: And our next question will be coming from Robert Dodd of Raymond James.
Robert Dodd: Hope you can hear me okay. On the comment Josh you made, the tails going to get fatter. I mean the longer rates stay up, obviously, it’s going to get longer and I mean — but look, your portfolio pick went up a little bit sequentially. It looks like that was mainly new investments, though, our unfunded commitments ticked up again, it looks like it’s making new investments, but it’s hard to tell. Can you give us any color on are you seeing incremental revolver draws more broadly? I mean, obviously, there’s a couple of assets, right? Astra, for example, you just put on [indiscernible] having some you have some credit issues. But are there any emerging signs in the portfolio that this hire for longer is starting to create pressure in terms of liquidity and liquidity leads?
Joshua Easterly: No. And just coverage would actually flatten out the increase. Earnings, I think on a same-store basis grew about 10% quarter-over-quarter. Revenues grew by about 5%. I think the — the answer is no. I think the — I think some of the unfunded commitment increased quarter-over-quarter was all tariff-setting where they’re going to be — with going through a process to — with a [indiscernible] with the bond orders to call those bonds in. But no, broadly speaking, we don’t haven’t seen that pressure. And then obviously, from a [indiscernible] perspective, we reserve from funding commitments in that close to 3x post bond maturity of liquidity for unfunded commitment. So how does the in stress, like broad-based stress, interest coverage was kind of bottomed out as on the rise, given the earnings growth plus the combination of the forward curve, although higher for longer, it’s still declining. So no.
Robert Dodd: Second one, if I can. On the other fee income, obviously, it was low again this quarter, not a huge surprise. But if we go higher for longer, if there’s less activity there, are we in — do you think there’s a risk that in relatively prolonged period of lower other fee income from the portfolio given, obviously, the less activity, the older the assets get — the older they get, the less fee income they generate if they do anything anyway. So is there a little bit of a low cycle here that could progress all the way through ’24, maybe even 25% until the portfolio gets recycled? Or is it just transitory?
