So to some extent, we benefit, but as Michael touched on, we also benefit we think in a declining rate environment, just because many of these asset classes are more absolute return products that are less sensitive to both increase and decrease in interest rates. We feel like the stability of our earnings is better than it would be had we just been 100% cash flow portfolio.
Michael Gross: We also have a chunk of our portfolio in the equipment leasing sector that is fixed rate. So we’re putting on assets at higher yields today. And those won’t go down when rates go down.
Bryce Rowe: That’s great. Thank you.
Operator: [Operator Instructions] Our next question comes from Robert Dodd with Raymond James.
Robert Dodd: Hi, guys, congratulations on the quarter. A couple questions. On the kind of cash flow lending book, I mean, as you said, repricing is starting to creep in a lot of your cash flow book as it stands today with a 2023 vintage which is slightly higher spreads, lower leverage, really attractive vintage, but what do you — what risks do you consider those assets? Are they going to be sticky? Or are those at better leverage, better spreads? Are those the ones that are going to get refinanced relatively quickly if the market activity more broadly accelerates this year?
Bruce Spohler: So I would say that there is a component of our cash flow book, Robert that is extremely acquisitive, in financial services, in healthcare. And those sponsors are very focused in this environment, on making additional tuck in acquisitions. I think if they were done with their acquisition program, they might turn to optimizing the pricing of the financing. But right now they’re more focused on availability of financing. They may have a billion dollar credit facility and need another $200 million to make an add on acquisition. And so they’re coming to people like us, who can take down that $200 million add on and let’s focus started saving the 25 basis points. But I think as that portfolio matures and the sponsors are getting ready to exit the portfolio company then you might see them turn more towards repricing.
So I don’t think it’s going to be a major headwind for us just because these businesses are still in growth mode. But once you get into more of a harvesting mode, they will be back around looking to reprice, no doubt about it.
Michael Gross: The other factor that’s relevant also is the biggest source repricing today is investment banks getting back into syndicated loan market and being able to distribute those loans. The average EBITDA of our portfolio is $120 million. Those are on average, the bigger ones are — but those are not candidates for refinancings in the BSL market. So I think the people are truly at risk for immediate repricing are average EBITDA of $300 million, where $1.2 billion, $1.5 billion four to five times financing is extremely doable in today’s public market. The public markets never really did the $120 million EBITDA company. And so I think the risk of the repricing of our portfolio is far less than those in the bigger credits.
Bruce Spohler: Yeah. So to Michael’s point, the one or two names that have come in and asked in the last week or so are our larger $300 million EBITDA type names.
Robert Dodd: Got it? Got it. Thank you very clear. On — the other question, I mean, on the comprehensive portfolio at ABL’s about a third, equipment financing’s about a third. To your point, there’s opportunities for EB acquisitions JVs on asset based side, maybe acquisitions on the fragmented equipment financing side. I mean, where are you comfortable in the mix? I mean, would you be comfortable with having equipment financing at 50% of the comprehensive portfolio? I mean, do you like diversification by the specialty finance vertical? So where would you be comfortable?
Bruce Spohler: Yeah, and look, the equipment finance portfolio is one of the most diverse portfolios across the platform. So to your point, that is comforting. But I think that we’ve always said we’ve been blessed that we haven’t had to work with a finite capital pool base. We’ve always seemed to get repays at the time that we see a nice investment opportunity across different verticals. But we’ve always felt that at 15%, 16% life sciences with zero losses in the team’s history, it’s a pretty compelling asset class, but it’s not unlimited in terms of its need for capital. So we’ve tried to take advantage of life science as much as possible. I think asset based lending, where you’re lending against working capital assets, receivables, and inventory is another segment, that is incredibly scalable, to your point similar to equipment finance.
And obviously, we have the investment across three different ABL teams here. So we think we’re well positioned there. So I think, you know, the short answer without sponsor finance will ebb and flow between 15% and 30%, based on where we see the market opportunity. But I think asset based lending and life sciences, we’d like to scale up as well as equipment. But I think we see in the near term, a little bit more growth in ABL, and hopefully life sciences, equipment finance to Michael’s point, because it is a fixed rate asset. We need rates to come down a little bit more, but we are positioned for growth, as we look at ’24 having just sat down with the team and gone through the business plan there. There are some strategies where we’re going to take that up, but I think it might be even more accelerated growth on the ABL side.
Robert Dodd: Got it. Thank you.
Operator: It appears we have no further questions at this time. I will now turn the program back over to Michael Gross for any additional or closing remarks.
Michael Gross: Thank you all for your time this morning. No additional closing remarks but as always we are here and available if anybody has any follow up questions. Thank you.
Operator: This does conclude today’s program. Thank you for your participation. You may disconnect at any time.
