Barings BDC Inc (BBDC) 2016 Q1 法說會逐字稿

Welcome everyone to Triangle Capital Corporation's conference call for the quarter ended March 31, 2016. All participants are in a listen-only mode. A question-and-answer session will follow the Company's formal remarks. Today's call is being recorded and a replay will be available approximately two hours after the conclusion of the call on the Company's website at www.TCAP.com under the investor relations section.

The hosts for the call are Triangle Capital Corporation's President and Chief Executive Officer, Ashton Poole; Chief Financial Officer, Steven Lilly; and Chief Investment Officer, Brent Burgess.

I will now turn the call over to Sheri Colquitt, Vice President of Investor Relations for the necessary safe harbor disclosures.

Thank you, operator, and good morning. Triangle Capital Corporation issued a press release yesterday with details of the Company's quarterly financial and operating results. A copy of the press release is available on our website. Please note that this call contains forward-looking statements that provide other than historical information including statements regarding our goals, beliefs, strategies, future operating results and cash flows. Although we believe these statements are reasonable, actual results could differ materially from those projected in forward-looking statements.

These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks including those disclosed under the section entitled risk factors and forward-looking statements in our annual reports on Form 10-K for the fiscal year ended December 31, 2015 and quarterly report on Form 10-Q for the quarter ended March 31, 2016. Each is filed with the Securities and Exchange commission. TCAP undertakes no obligation to update or revise any forward-looking statements.

At this time I would like to turn the call over to Ashton Poole.

Thanks, Sheri. My comments this morning will focus on three primary topics, our view of first-quarter in current transaction activity in the lower middle market, our first-quarter financial results and our thought process behind the dividend adjustment.

After a near record second half of 2015 in terms of new investment activity, we did not make any new investments during the first quarter of 2016. Those of you who know us well know that we do not have quarterly investment targets but rather long-term investment objectives. The first quarter started off slowly across the entire lower middle market, a pace which was consistent with the fourth quarter of 2015 but activity has picked up meaningfully in the past two months and as a result, we expect to see our fair share of new investment opportunities over the balance of the year.

In fact, as you may have seen in the recent development section of our 10-Q, we made two new investments in April totaling just north of $25 million in aggregate.

In the first quarter, we experienced repayments within our portfolio of approximately $49 million. Our repayments were mostly due to M&A transactions versus refinancings thus reaffirming the broader market view that high-quality companies are still attractive to both financial and strategic bidders.

In terms of our first-quarter results excluding one-time expenses associated with the retirement of our former CEO, Garland Tucker, our net investment income was $0.45 per share. Impacting our results was a $1.3 million or approximately $0.04 per share reversal of dividend income related to a portfolio company distribution that we received last year. Steven is going to provide you with more information on this reversal in his comments.

Turning to the adjustment of our quarterly dividend of $0.45 per share, Triangle Capital has always approached its quarterly dividend with two underlying principles. First, our long-held belief is that we should comfortably over earn dividend through the generation of net investment income which is what we have done historically.

Second, our dividend should be foundational in nature for our investors. That is, investors should have a high degree of confidence that our dividend is a stable cash flow stream supported by the recurring revenue and recurring cash flows within our investment portfolio. Since 2013, we like other BDCs and indeed almost all lenders, have experienced significant interest-rate compression across our debt portfolio.

In the first quarter of 2013, the weighted average interest rate across our debt portfolio was 14.8%. Today it is 12.3%. Given that our debt portfolio today totals just north of $800 million, the 250 basis point yield compression has resulted in annual lost revenue of approximately $20 million. This equates to approximately $0.60 per share or $0.15 per share per quarter of lost NII. Needless to say but had we not lost $0.15 per share of quarterly NII over the past three years, it is highly unlikely that we would be making an adjustment.

In certain recent quarters, we have been able to earn or even over earn our dividend. However, our ability to do so increasingly has been due to elevated one-time fees and dividends from existing portfolio companies. On principle, we believe that over relying on one-time fees and dividends is not a sound basis on which to maintain a dividend policy.

The adjustment to the quarterly dividend reflects our desire to ensure that our dividend remains foundational in terms of our ability to over earn it from net investment income on a long-term basis. Additionally it reflects my desire to ensure that our investment professionals never feel pressure to stretch or sacrifice our investing principles by trying to chase a level of yield that is just not available in today's market.

Our core investment principles and our ability to make good credit decisions are the most critical determinants of our ability to continue to generate above average returns for shareholders and personally I am not willing to sacrifice either of those two determinants in an effort to try to support a quarterly dividend level that was set at a different time in a very different market.

Before I turn the call over to Steven, I would like to take a minute to acknowledge the incredible track record that our former CEO, Garland Tucker, and the full Triangle team established during the first 9+ years of our operating history.

In February 2007, Triangle Capital went public as a small BDC that few if any had ever heard of. Since that time the Triangle team has helped professionalize and institutionalize the lower middle market providing over $2 billion of much-needed capital to almost 200 companies. Along with Triangle, the BDC history collectively has grown to become a recognized force in the financing landscape for some of our country's best private companies.

By keeping our expenses low and structuring attractive debt and equity investments, TCAP has generated more base dividends per share for its shareholders over the past nine years than any other BDC. Additionally, our portfolio has generated meaningful capital gains, approximately $18 million of which have been paid to shareholders in the form of special distributions totaling $0.60 per share since January 1, 2014. These distributions are over and above the industry-leading base dividend we have paid over the entire period of time.

So today as we adjust our dividend to a level that reflects more appropriately the realities of the current market environment, we do so with a singular goal of maintaining and building off of a very firm foundation so that over the next 10 years we can continue to lead the BDC industry by structuring high-quality investments and top-tier companies by providing rewarding career paths for our team members and by delivering stability and above average returns for our shareholders.

With that I will turn the call over to Steven.

Thanks, Ashton. Given that much of our standard financial disclosure is contained in our quarterly podcast which was released at the time of our quarterly earnings press release, my comments will focus more on the color behind our results.

Our revenue for the quarter was less positively impacted by one-time fees and dividends than it was during much of 2014 or 2015. While we expect to continue generating one-time fees and dividends from portfolio companies, we continue to acknowledge as we have on recent conference calls that as we move further into the later stages of the current economic cycle, we expect these fees and dividends will be more modest as fewer financial sponsors pursue dividend recaps and as repayments in our portfolio return to a more historic level.

As Ashton mentioned in his comments, impacting our first-quarter results was a $1.3 million or approximately $0.04 per share reversal of dividend income related to a portfolio company distribution that we received last year. At the time of the distribution, it was estimated by the portfolio company's sponsor to be dividend income. However once we received the final K-1 early this year, we learned that the distribution was primarily a return of capital as opposed to dividend income. As a result, we trued up our revenue recognition to account for the change in treatment.

Portfolio company estimates of tax treatment for distributions are by their very nature an inexact forward-looking science so we reflected the change once the tax accounting was finalized so that our treatment of the distribution would be in concert with the true tax character.

From a pricing standpoint, our new investment pipeline continues to yield weighted average rates in the 11% to 13% range and based on the trends we see today, we expect these yields to remain somewhat constant without meaningful moves either up or down.

From a G&A perspective, we continue to focus on G&A as a percentage of revenue and also G&A as a percentage of assets under management or AUM. For those of you who have followed Triangle for some time, you know that we have consistently been a leader in the BDC industry in terms of maintaining cost controls with the underlying goal of generating the maximum amount of net investment income per share that we can.

At this point we expect our efficiency ratio will remain in the 20% range plus or minus from quarter to quarter and that our G&A as a percentage of AUM will continue to be between 2% and 2.5% of our AUM, again acknowledging quarter-to-quarter fluctuation.

Including our first-quarter net investment income per share of $0.45, we expect to comfortably over earn our dividend for the full year as we expect our net investment income on a per share basis will range from $1.90 to approximately $2.00 per share. And for clarity, this NII per share guidance adds back the $0.16 in one-time expenses related to Garland Tucker's retirement that we experienced during the first quarter.

From an NAV perspective, our NAV as of March 31 was $15.02 per share as compared to $15.23 per share at December 31, 2015. The slight movement in NAV primarily is primarily related to the excess of our dividends paid over investment income and the annual granting of restricted shares during the quarter partially offset by write offs across our investment portfolio.

From a liquidity standpoint, early March we repaid $7.8 million of SBA debentures and in early April, we received a recommitment from the SBA for those debentures as well as an incremental $25 million of immediately available SBA debentures to be utilized in our already existing Fund II. We believe we are one of the first BDCs to receive an incremental commitment from the SBA under the recently passed SBA expansion legislation.

In addition, we are working closely with the SBA on the establishment of what we hope will become our third SBIC Fund and we hope to be in a position to announce positive progress toward that goal in the near future.

The SBA has been a wonderful partner for Triangle Capital and we are very proud of our long-term track record with them. As a result of the SBA's additional commitment to our Funds II, our total liquidity today approximates $265 million through a combination of cash on hand, incremental SBA draw capacity and borrowing availability under our $300 million line of credit.

With that, I will turn the call over to Brent to provide an update on our investment portfolio.

Thanks, Steven. During the first quarter our debt repayments and proceeds from equity realizations totaled approximately $54 million. The vast majority of the repayments and equity realizations were the result of a positive sale and exit of four portfolio companies whereas a small amount of repayments came as a result of partial recaps where performing businesses were able to partially refinance us with cash on hand or lower cost senior debt.

Recent market data have highlighted both the relative strength and the lower volatility of the lower middle market. As such, our predominantly lower middle market portfolio companies have attractive exit opportunities as well as add-on acquisition opportunities. As we have noted in prior calls, we remain very active in supporting our existing portfolio companies including three financings in the first quarter for add-on acquisitions.

From a valuation perspective, we experienced a write-up totaling $2.2 million in the investment portfolio. Our portfolio remains very diverse and overall exhibits growth in excess of the broader economy.

In terms of specific sectors, we saw noticeable strength in a number of healthcare related businesses while some of our consumer oriented portfolio companies turned in mixed results. While our portfolio companies related to aerospace and defense have generally struggled in the last few years due to sequestration and defense budget cuts, we are beginning to see signs of reversal in this sector.

In addition to the modest write-up in our portfolio value, we also experienced net realized gains in the quarter of $600,000. These net realized gains consisted primarily of a $1.7 million gain on the sale of our equity in Danville materials and a gain of $400,000 from the sale of our equity position in Electronic Systems Protection. We would like to express our appreciation to sponsors and management teams of those companies as well as to our investment teams for delivering excellent results.

These gains were partially offset by the $1.6 million loss on the conversion of our legacy debt investment in FCL Graphics, which was a 2007 vintage investment into equity.

Our nonaccrual assets totaled 3.6% of the portfolio on a cost basis and 0.9% of the portfolio on a fair value basis. During the quarter, we placed one new investment on PIC nonaccrual, a $3.6 million investment in [BP II]. Given the small size of our investment the impact on our quarterly results was negligible. The average leverage across our investment portfolio through the last dollar of our debt is approximately 4.2 times and the fixed charge coverage range in our portfolio is generally between 1.4 times and 1.5 times, in line with our long-term experience.

With that I will turn the call back over to Ashton to provide some final comments.

Thanks, Brent. The lower middle market remains rich with opportunity and continues to be the focus of our investment strategy. While yield compression certainly has impacted our market pricing and the weighted average yield of our investment portfolio, private credit investing in the lower middle market continues to provide excellent opportunities to generate superior risk-adjusted returns for those with the right platform and the right team. The adjustment of our dividend reflects the reality of yield compression as well as our deep conviction that investors should be able to invest in our stock with a high degree of confidence while knowing that we will be able to over earn our dividend just as we have in the past.

With that, operator, we will open the call to questions.

(Operator Instructions). Ryan Lynch, KBW Broker Dealers.

Good morning. Thank you for taking my questions. So the first one is just regarding the level that you guys set the dividend at, the $0.45 quarterly level. Is that something, is that level -- are you guys able to earn that dividend going forward assuming that you guys have zero nonrecurring income on a quarterly basis? Now I expect you guys will have some every quarter, I know it is very lumpy but did you guys set that at a level where if in any quarter you guys have zero nonrecurring fee income you guys think you will still be able to over earn that $0.45 quarterly dividend?

It is Steven, appreciate your question. When we think of net investment income across the portfolio, we think of it as definitely including some nonrecurring fees and some dividend income given that we have equity investments in such a high percentage of our portfolio companies. We do recognize those things are sometimes cyclical and even I guess one could say seasonal depending upon one's point of view.

So we clearly have been at record levels in the last couple of years of those types of things. And so while we have some allowance for that, we don't run the model at zero. We think of core NII containing a bit of it but not as much as we have had in the past.

Another way I might just bring this for you if it is helpful, Ryan, is to say that I think when we look at our earnings ability, we think of it as I guess one could say plus or minus $0.50 a share in today's world. So if you view that as being anywhere from $0.47, $0.48 to $0.51, $0.52, that type of range again on a per share basis, then I think you can get a view that a dividend level of $0.54 per share is one that you are sort of always trying to get to. But a dividend level of $0.45 is one that we with confidence as we have been able to say in the past, echoing here some of Ashton's prepared remarks, that we can look at and say this is a very foundational dividend that should provide some upside over time. Does that help?

Yes, that is helpful. Just one follow-up then on the nonrecurring income and I understand my question is going to be probably pretty difficult to answer because nonrecurring income is very lumpy, I get that. But you did mention nonrecurring income, you expect that to be lower in the future than it has been in the past. Can you provide any kind of guidance on what sort of average we should be expecting while fully knowing that again nonrecurring income is very lumpy and you could have big quarters and low quarters of it? But just any color around what kind of an average we should be thinking about for nonrecurring income going forward?

Yes, good question and yes, it is very difficult to answer. I think over the Company's lifecycle, you would say that nonrecurring items have probably averaged in the 5% to 8% of revenue I guess is the total investment income. However, if you looked at 2013, 2014 and 2015, the years we have talked up out so openly of having elevated nonrecurring fees and dividends in those years we averaged between 11% and 13%. So I think if you were striking a model somewhere in that 7% range, 8% range wherever you find comfort, I think would be reasonable and appropriate. Does that help?

Yes, yes, that is helpful. And then you guys got some additional SBIC debentures in the second quarter. Assuming that you guys receive more of that in the future with the expanded SBIC maximum capacity, how does that change your view on regulatory leverage as well as GAAP leverage that you guys want to place on your balance sheet? Does that change your views at all? And can you just remind us what are your targets for both regulatory or GAAP leverage going forward?

Sure. First, I would say that again to echo I guess they were in my prepared remarks, the SBA it is just a really wonderful form of capital for the type of investments that we make and we are so incredibly respectful and appreciative of the relationship we have with the SBA and obviously we do hope to expand it. So if we were to be granted a third license, I think we would want to capitalize that entity which would be a $100 million debt capacity if ever granted in the future so we'd capitalize it with $50 million of equity capital. And we are very comfortable like the SBA is in having at that fund level that two to one leverage. Obviously it comes down for the total company at something call it closer to 1 to 1. But we have been north of 1 to 1 on as you call it a GAAP basis many times before over our lifecycle. Today I guess we are around 0.6 from a regulatory standpoint and I think from that standpoint again just regulatory, you want to be sure you keep that at something probably realistically 0.75 or below so you can be cognizant of various ratios that obviously the SEC has and then the rating agencies and other folks who watch our industry closely would have.

But again on a GAAP basis, we are very comfortable with the SBA capital because it is just such a great form of capital for what we do.

Sure. And then just two more if I may. What was really driving the unrealized appreciation in the quarter? I know you guys had some nice equity realized gains but what was driving the unrealized gains of $2.2 million in the quarter?

Well, and I will let Brent chime in if he has any more specific comments. But if he doesn't after what I say, that is fine too. But we had across our equity portfolio, we had some nice write-ups. We also experienced some write-ups in our debt portfolio specifically one company I will just mention to you, Dialogue Direct had been carried last quarter at I think maybe 86% of cost and then this quarter it was back to full cost. And so that was helpful to us.

So I wouldn't say it was categorized to a single account but it did reflect and I think you are frankly seeing this from some other BDCs in this sector that when most people reported fourth-quarter results in the middle of the first quarter of this year, spreads had widened in the market and there was some credit born kind of questions about things as the markets were trading off and a lot of those yields have tightened again. So I think you are seeing some natural book value accretion with BDCs but certainly for Triangle, we are pleased that it has been not related just to one account but across the portfolio.

There is one account in particular that took a large write-down and that was Capital Contractors. That is a company that has been struggling for some time. A few other write-downs really not related to more ASPA 20 sorts of evaluations or just slower business performance but we are not concerned about those companies at all. And then a significant number of reasonable increases just based on company performance or expected M&A events for those companies in the next one to two quarters and based on indications of value that were significantly higher than where we were carrying those assets.

So overall, the portfolio is performing reasonably well particularly in light of the rather weak economic environment that we are in so we are quite pleased overall.

And then just one more if I can. You guys mentioned $25 million of originations quarter to date or I guess you have done those all in April. Were there any repayments quarter to date in Q2? And if so, how much?

We haven't experienced any material repayments in the portfolio over and above normal things. I think this quarter we have had maybe one, we have announced two investments, we have had one repayment so nothing earth-shattering there one way or the other.

Thanks for answering my questions.

Robert Dodd, Raymond James.

Just on the portfolio yield compression, I mean the yield now at 12.3, market yields are 11 to 13 so you are right in the middle. How much of the portfolio, the debt portfolio obviously, would you say is still at above market yields in terms of how much more repricing negative hit is still to flow through?

Good question, Robert. It is well under 10%, sort of in 6% to 8% range so there is still a little bit a little bit of that hangover from call it the 2010, 2011, 2012 vintages when we enjoyed those higher yields and one can reasonably expect that as long as those companies are performing that those will probably in the next 12 to 18 months exit from our portfolio, in line with what we have seen. So there is still a little bit of that left to go but not too much.

Got it, got it. Thank you. And then Ryan asked a lot of my questions, on the dividend fees, the nonrecurring income side, Steven, we try and put you on the spot on this every quarter, you have given indications in the past that the long run average might be call it $2.5 million. The 7% of revenue now might indicate that would maybe be $2 million. So a little bit of a decline on a kind of an overall from long run averages rather than the last couple of years which have been running high. I mean is that the right kind of ballpark and are there any other dynamics that are going to result in that being more volatile than normal?

You know, in terms of the volatility question or part of the question, Robert, there just really is no way to know. Most if not all of the sponsors that actually have the control investment in our portfolio companies, they will call us and say we are going to pay a dividend and here is your fair share, that type of thing. So I hear you on your differential between the $2.5 million a quarter of what we said before and $2 million a quarter. I think in fairness to the conversation when I said to Ryan, 7%, 8% wherever you find comfort I guess I would acknowledge that if you use 7%, it would be $2 million, if you use 8% it would be $2.42 million or something like that so I think fairly close to that $2.5 million. So I am not sure I could profess to trying to be smart enough to get it that refined on a quarter-to-quarter basis but it does looking at long-term history feel like an appropriate range to us if that makes sense.

Thank you. Those are all of my questions. Ryan got most of them already. Thanks.

Jonathan Bock, Wells Fargo Securities.

Joe Mazzoli filling in for Jonathan Bock here. A lot of the questions about dividend policy have already been asked. But when thinking about the opportunity to grow the portfolio and utilize that I think it was $260 million of liquidity, I think even by your own estimates, NOI for 2016 is well above the dividend. If the portfolio continues to grow, do you see an opportunity to increase the dividend if the stable cash flow from earnings is consistently above?

Joe, it is Steven. Let me address the liquidity piece of your question first and then I will let Ashton talk about maybe some of the potential new investment activity.

From a liquidity standpoint, what we like to give on each of our earnings calls as you guys certainly know from past history is what the true stated contractual available liquidity to the company is. As you look at our $265 million plus today, the components of that are our cash on hand which is approximately $95 million, $96 million, SBA capacity -- excuse me -- cash on hand and SBA capacity of about $95 million, $96 million. And then you get into credit facility borrowings and I think we should acknowledge we are never going to utilize the entire credit facility, you want to hold back some cash for operational flexibility and not run it to its nth degree so to speak in terms of maxing out a borrowing base.

Now other people may have other views on that but that is Triangle's maybe tilting slightly conservative view. So of the total available liquidity there, we would use certainly call it the cash and the SBA and then some of the bank facilities. So pick a number of the bank going up maybe $75 million to $100 million or something like that. We want to be sure we leave that question.

The other piece before I turn it over to Ashton I would say in terms of growing the portfolio, one of the things that we acknowledge that's so difficult for folks in the investment community to do with any BDC but speak of Triangle particularly on this call, is the timing difference between when a BDC like Triangle receives repayments and then the latency period if you will before that cash is redeployed. And most people's models just kind of frankly assume perfection in redeployment of capital once a loan is repaid.

And if you really run the model with great precision and I know it is hard for all of you guys to do when you are covering lots of companies, but an operator standpoint, the differential if it takes you 60 days to reinvest cash or it takes you 90 days or 120 days to reinvest cash, it can have a really big impact on your reported results in a quarter.

It may not change your run rate results at the end of a period but it will have a big impact on your quarter-to-quarter stated results.

So with that, let me turn it over to Ashton just for some thoughts on new activity.

I just want to make sure I do answer the question you had about investment activity. Was your question more about the investing environment and how we are seeing things or going forward with incremental capacity, our ability to transact on the opportunities we see and how that might affect our policy going forward. Could you clarify your question just so I make sure I answer it correctly.

Sure and this is actually John so I appreciate Joe with -- I had a headset misfunction and so he was able to pick up the question. But Ashton, the real forward question we are trying to put forth as it relates to spread and opportunity set is effectively this. Yes, we understand that spreads have tightened and yes, we understand that returns generally speaking have kind of come in a bit and you are not interested in stretching for yield which is completely respected.

However, when we start to think about volatility and we start to think about general credit fear and we think about the potential for tighter liquidity, banks, etc., it makes sense that we should actually be seeing spreads on your new assets widening and widening meaningfully from a market perspective unless there is just too much competition in the mezz category that is going to effectively keep these spreads down for a very long time.

Can you kind of help us, that is the new market question we are trying to ascertain because spreads, they are not high for long but they are not always going to be that low for long either.

John, your question is very perceptive and if you were to listen to our investment committee discussions, I think you would get a sense where you are headed is exactly right. The market right now and has been literally for the last six to nine months kind of bifurcated between what we would call A deals and then B and C deals.

The higher spreads that you are talking about that are being realized in today's market aren't happening with the A deals, the A companies. They are happening with the B and C companies and those are companies that exhibit different characteristics such as cyclicality, lower free cash flow conversion, they may be carve outs, they may be having management changes, they may be having ERP implementations, they may have a whole host of risk profiles that are different than what you see in the A deals.

So we are seeing kind of a bifurcated competition for the deals whereby in the A deals you will see 11% routinely and you will see higher leverage levels. You will see on the B and C deals, you will see 12%, the 13% pricing but again, you have to put on your credit hat, your risk management hat and figure out given where we are in the cycle are those the kinds of companies we want to go for? Or are we going to feel better with the more recession resistant consumer staple healthcare oriented type transactions that either are better by definition as structured businesses or we even have a chance to go in maybe in a unitranche way and have a more first lien position as opposed to a sub debt position.

So I'm not sure I'm answering your question directly but the short answer is the different deals are driving different pricing and we as investors are having to appropriately balance the types of deals that we are going into, the types of securities that we are investing in and then we are subject to the market forces of pricing and I would say competitively the landscape has not gotten any softer.

Some folks have weakened in terms of their competitive profile but also new entrants continue to provide alternative choices for those seeking financing.

I don't know if that answers your question. Brent is waving at me, indicating he wanted to add a comment or two as well.

Jon I think it is a great question. I mean I think that was certainly one of our hopes in the last year is that we would see yields begin to move back up and I think with the dislocation in the market in the third quarter last year, we saw a little bit of movement but I think we can't base our dividend policy on a hope that yields will increase. And frankly as we have talked about, there are superior risk-adjusted returns in our space and that is attracting new entrants. And so there continues to be a reasonable amount of competition. We continue to believe we have a great platform, great relationships and can compete very effectively but that is the fact that there is a lot of talk about both A, the lower middle market and B, private credit being a very attractive place to invest.

The other thing is if you look at the global macro picture, you've got negative yields in Europe and Japan and I just don't see rates overall increasing materially and again we can't really base our dividend policy on that.

And the other point I will make is some of the spread widening we have seen is mostly influenced by what is going on in the oil and gas space and if you strip that out, spreads have been flatter.

And so with this newer cost of capital and again look as stock prices certainly normalize as they levels set, Ashton, would it be your view, we have seen some more mezzanine oriented lower middle market BDCs adopt a policy that shifted towards senior secured first lien-ish BSL type paper. Now granted their cost of capital allowed them to do so.

But do you believe that perhaps now a diversified business model across the credit landscape will better help, add stability to the cash flows and stability to this dividend policy going forward so that we don't lock in one quarter thinking X and then next quarter realizing it is now Y?

I would say two answers to your question. First of all, we always will choose the type of structure and security that we believe provides the best risk-adjusted return for our shareholders. We get that question often on our quarterly calls. Sometimes we have a little bit more unitranche in our deal mix, sometimes we have no unitranche in our deal mix and all mezzanine. And the response always is that we pursued and we executed what we thought was the best risk-adjusted return on behalf of our shareholders.

The policy, the new dividend adjustment or the dividend adjustment and the new policy is clearly reflective of our belief that we can continue to be a leading provider of mezzanine capital to the lower middle market but it also does just as it has in the past, our business model has afforded us the ability to pursue unitranche as appropriate. I don't think you would see us go all the way down to pure senior with much lower yields. I think the bid ask in terms of our security selection at least for the near to medium-term certainly is going to remain mezzanine and unitranche.

So I would say first and foremost, we always put on the investing hat of what is the best risk-adjusted return for our shareholders and I would say that our new policy is not reflective of any material change in the historic mix of how we have invested.

Appreciate the answers. Thank you.

That concludes the Q&A session. I will now turn the call back over to Ashton Poole for closing remarks.

Great. Thank you, Stephanie, and thanks everyone for joining our call today and for your interest in TCAP. We are both excited and confident about our future and believe we are very well-positioned to continue to deliver industry-leading returns for our shareholders including a dividend that is still the second highest in the BDC sector by a wide margin and that is foundational in nature and which has the ability to grow over time.

We look forward to seeing many of you in the near future. Thank you.

Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect and everyone have a great day.