Bo Stanley: The only thing I’d add is you had a specific question on what we give up. I think given there’s a serious value of capital, a lot the terms and document specific terms have gotten much tighter in these upper middle market deals over the past six months, and frankly, are not all that different from what you’re seeing your middle market document. So you have a large margin of safety at low LTV, a scale business market at very attractive adjusted returns in this current environment.
Joshua Easterly: Makes sense.
Finian O’Shea: Sure. That’s helpful. Thanks so much.
Operator: Thank you. And one moment for our next question. And our next question comes from the line of Mickey Schleien with Ladenburg. Your line is open. Please go ahead.
Mickey Schleien: Yes, good morning everyone. Josh, in the fourth quarter, we continue to see middle market loan spreads widen, which is obviously good for your financial performance, assuming the credit quality holds up, but it is stressing borrowers, as you mentioned in your remarks, with interest coverage declining to 2.2.? So I’d like to understand, when we think about those trends, what is your outlook on how private lenders will behave this year in terms of spreads and the amount of leverage they’re looking for on deals?
Joshua Easterly: Yes, so Mickey, I think when you look at the LCD first lien LCD second lien spreads, they actually tightened in Q4 slightly. So – but year-over-year, they’re significantly widened, which we’ve hit. So I just want to – want to frame up. We did not see – so when you look at unrealized gains and unrealized losses, they were negligible given that you actually had spreads tightened quarter-over-quarter slightly. Look, credit quality is top of mind. At what points – it looks like historically driven performance or outperformance or underperformance it’s credit losses for the industry. It’s been the biggest piece that – when you think about the unit economics of the sector, return on assets, is a point of differentiation.
Fees and expenses are basically all pinned near each other. Financial leverage is pinned near each other. Cost of leverage is pinned near each other. So it’s really return on assets and credit costs that, ultimately, drive returns to the sector. And that’s going be a function of the portfolio that were built in, their own place now. And we think our portfolio is differentiated and as robust given the nature of those businesses. But it is – in this economic environment where you have slowing growth and higher rates, you are most definitely going to have tails in credit. We have yet to see those in our portfolio, but they are most definitely emerging and they are accepting and most definitely emerging in the broadly syndicated loan market. So it’s all about credit.
I hope I answered your question.
Mickey Schleien: Appreciate that Josh, that’s it from me this morning.
Joshua Easterly: Thanks Mickey.
Operator: Thank you. And one moment for our next question. And our next question comes from the line of Kevin Fultz with JMP Securities. Your line is open. Please go ahead.
Kevin Fultz: Hi, good morning, and thank you for taking my questions. As Bo mentioned in his prepared remarks, volatility in the public markets and the pullback from banks has created an increased opportunity for direct lenders to finance larger deals. I’m just curious what your appetite is to act as a syndication provider to potentially generate additional fee income?
Joshua Easterly: Yes look, when there’s an opportunity, surely, we’ll take advantage of that. And so, we’ll surely take advantage for that. That’s historically been a relatively low level of attribution of our income. I think over the years it’s been somewhere between, at the high end, if you look back $0.05 since 2013 in the low end zero, and this year $0.01. So I mean, there surely will be an opportunity. I wouldn’t lean in – as a massive driver of outperformance of earnings.
Kevin Fultz: Okay, that’s fair. And then last one, you utilized the revolver to repay the 2023 notes. I’m just thinking about the right side of balance sheet and your funding mix. Do you see additional opportunity to further optimize or diversify your funding profile in this environment? And I guess if so, what structure is the most appealing?
Joshua Easterly: Yes, so credit – let me take a step back. And I think we’ve done a really good job of this, which is we’ve always built into the economics of our business, holding more liquidity than the rest of the space. And when you look at revolver size compared to assets or as a metric or availability compared to unfunded commitments. We’ve always created flexibility, so we were never a force issuer. And so when you look at our business model this year, we have a lot of flexibility about when we issue or if we issue in the unsecured market, which quite frankly, we think is the most attractive way to access markets, additional capital outside the revolver – and but we have the flexibility to do so given how much liquidity that we hold.
And then we burden the unit economics for and our shareholders – have paid for. What’s really amazing when you take a step back is, that we generated outsized return on equity compared to the space. We’re holding more liquidity and paying for that liquidity option than everybody else in the space. And I think that gives us a lot of flexibility. It gives us flexibility not to be a force issuer. It gives us the flexibility in COVID to actually have liquidity to be able to invest in the market, which created outsized return on equities for the following two years. And so we will most definitely be opportunistic. But how we’ve built our balance sheet, just we’ve created a whole bunch of flexibility that we think benefits our shareholders, Ian anything to add there?
Ian Simmonds: I think the flexibility and being willing to pay for that flexibility just really proved its worth. I guess it’s now three years ago, and we like that model. And we’re comfortable with what that cost burdens us with, given the flexibility it affords us.
Kevin Fultz: Okay that all make sense, Ian I will leave it there, congratulations for a really nice quarter.
