Monroe Capital Corp (MRCC) 2019 Q1 法說會逐字稿

Welcome to Monroe Capital Corporation First Quarter 2019 Earnings Conference Call.

Before we begin, I would like to take a moment to remind our listeners that all remarks made during this call today may contains certain forward-looking statements, including statements regarding our goals, strategies, beliefs, future potential, operating results or cash flows. Although we believe these statements are reasonable based on management's estimates, assumptions and projections as of today, May 8, 2019, these statements are not guarantees of future performance.

Further, time-sensitive information may no longer be accurate as of the time of any replay or listening. Actual results may differ materially as a result of risks, uncertainties or other factors, including, but not limited to the factors described from time to time in the company's filing with the SEC. Monroe Capital takes no obligation to update or revise these forward-looking statements.

I will now turn the conference over to Ted Koenig, Chief Executive Officer of Monroe Capital Corporation.

Good morning, and thank you, everyone, who has joined us on our call today. As always, I'm joined by Aaron Peck, our CFO and Chief Investment Officer.

Last evening, we issued our first quarter 2019 earnings press release and filed our 10-Q with the SEC.

We had another strong quarter. We generated adjusted net investment income of $0.35 per share, in line with our first quarter dividend of $0.35 per share. This represents the 20th consecutive quarter we have covered our dividends with adjusted net investment income.

Our continued dividend coverage is a testament to the overall Monroe Capital firm platform scale, our unique origination capabilities and our credit underwriting and portfolio management process.

At quarter-end, our investment portfolio had a fair value of $596.9 million, a $43.3 million or 8% increase from the prior quarter-end, and included investments in 80 companies across 21 different industry classifications. The increase in the size of the investment portfolio was primarily due to an increase in new deal fundings during the quarter.

In the quarter, we had $70.1 million of investment fundings, partially offset by $29.1 million of sales, repayments and prepayment activity. This new deal momentum and asset growth is the direct result of our proprietary deal origination team located in multiple offices throughout the U.S. and our broad industry vertical coverage of the following areas: business services, healthcare, technology, software, specialty finance and, of course, the middle market PE community.

Incidentally, our investment manager platform, Monroe Capital, had a record first quarter with over $1 billion of senior secured debt funded in 26 transactions. This was the highest activity level in any first quarter experienced by our platform manager, Monroe Capital.

During the quarter, MRCC completed an amendment and extension of our revolving credit facility with ING Capital as agent, which increased the maximum amount of borrowings under the facility from $200 million to $255 million, extended the maturity to March 2024, reduced our required asset coverage covenant from 1.5:1 from 2.1:1 (sic) [from 2.1:1 to 1.5:1] and decreased pricing from LIBOR plus 2.75% to LIBOR plus 2.375%. We believe this amendment will give us ample room to continue our portfolio growth, increase our regulatory leverage and drive improved returns for our shareholders.

In addition, on March 20, we completed a registered direct offering of $40 million in additional principal amount of our 5.75% notes due in 2023, which we'll refer to as our 2023 Notes. After this issuance, there are now a total of $109 million in 2023 Notes outstanding.

As of March 31, our largest position, not including the investment in our MRCC senior loan fund joint venture, which we refer to as SLF, represented 3.4% of the portfolio. And our 10 largest positions, excluding our investment in the SLF, was 28.5% of the portfolio.

Our portfolio was heavily concentrated in senior secured loans and specifically first lien loans 93.4% of our portfolio consists of secured loans, and approximately 90% is first lien secured. We are pleased with the construction, diversity and the senior secured nature of our investment portfolio at this point in the credit cycle.

As of the end of the first quarter, our SLF had experienced portfolio growth to $191.2 million in value -- in fair value, a nearly 10% increase from the $174.3 million at fair value at the end of the prior quarter. The weighted average yield in the SLF portfolio was stable at 7.6% when compared to the end of the prior quarter. As of quarter-end, the SLF had debt outstanding on its leverage facility of $121 million at a rate of approximately 5% or LIBOR plus 2.25%.

As we have discussed in the past, MRCC is well positioned for future interest rate increases. Most all of our loan portfolio is invested in floating rate debt with rate floors. Given the current LIBOR level, we have surpassed the level of the LIBOR floors on all of our loans, and therefore, MRCC is situated to meaningfully benefit from an increase in short-term interest rates going forward.

In addition, we have $115 million outstanding fixed rate debt from our SBA debentures at attractive rates and $109 million outstanding in fixed rate debt from our 2023 Notes, which will allow us significant interest rate arbitrage on any increased interest rates in the future.

We have worked purposefully to create approximately $224 million of fixed rate liabilities going into the next credit cycle. The recent amendment and upsize of our revolving credit facility, coupled with the increase in 2023 Notes, provides us with both a significant amount of additional borrowing capacity to help fund and fuel our growth and the flexibility to take advantage of the reduced asset coverage ratio requirement so that we may implement the regulatory relief from the Small Business Credit Availability Act.

We have purposefully positioned MRCC to be able to proactively take advantage of organic growth as well as any inorganic growth opportunities that may be presented to us.

I'm now going to turn the call over to Aaron, who is going to discuss the financial results in more detail.

Thank you, Ted.

During the quarter, we funded a total of $66 million in the loan investments. Additionally, we funded $4.1 million in equity to the SLF. This growth was offset by sales and complete prepayments on 2 deals and partial repayments on other portfolio assets, which aggregated $29.1 million during the quarter.

At March 31, we had total borrowings of $370.3 million, including $146.3 million outstanding on our revolving credit facility, $109 million of our 2023 Notes and SBA debentures payable of $115 million. Future portfolio growth will predominantly be funded by the substantial availability remaining under our revolving credit facility, which was increased due to the amendment and extension we closed on March 1.

As of March 31, our net asset value was $259.1 million, which was up from the $258.8 million in net asset value as of December 31. Our NAV per share increased from $12.66 per share at December 31 to $12.67 per share as of March 31. This increase was primarily a result of unrealized mark-to-market valuation adjustments.

Turning to our results. For the quarter ended March 31, adjusted net investment income, a non-GAAP measure, was $7.1 million or $0.35 per share, a decrease when compared to the prior quarter. At this level, per share adjusted NII covered our quarterly dividend of $0.35 per share.

The reduction in our adjusted NII was largely the result of an increase in incentive fees paid during the quarter as incentive fees were no longer materially limited by the terms of our investment management agreement due to the improvement in our net earnings. We believe that the full quarter impact of portfolio investments made during the first quarter, coupled with the continued portfolio growth in the second quarter, should continue to increase our core per share NII. We continue to believe that our adjusted NII can cover our dividend, assuming no other material changes in our portfolio.

Looking to our statement of operations. Total investment income for the quarter was $16.2 million compared to $14.8 million in the prior quarter. The increase in total investment income for the quarter was primarily a result of an increase in interest income, principally due to portfolio growth. While we experienced some prepayment activity in the quarter due to the older vintage of these loans, there was no appreciable amount of prepayment penalty due.

Moving over to the expense side. Total expenses for the quarter of $9.1 million included $4.4 million of interest and other debt financing expenses, $2.5 million in base management fees, $1.3 million in incentive fees net of voluntary fee waivers of $0.3 million and $0.9 million in general, administrative and other expenses. Total expenses increased by $2 million during the quarter, primarily driven by an increase in interest and other debt financing expenses as a result of growth in our borrowings to support the growth of the portfolio as well as an increase in incentive fees as our first quarter incentive fees were no longer significantly reduced.

Regarding liquidity. As of March 31, we had approximately $109 million of capacity under our revolving credit facility. At the end of the quarter, we had fully drawn all of our available $115 million in the SBA debentures.

As of March 31, the SLF had investments in 55 different borrowers, aggregating $189.6 million of fair value with a weighted average interest rate of approximately 7.6%. SLF had borrowings under our nonrecourse credit facility of $121 million and $49 million of available capacity under this credit facility. We would expect the SLF to continue to grow over the next few quarters.

I will now turn the call back to Ted for some closing remarks before we open the line for questions.

Thank you, Aaron.

We were very pleased with the quarter, stable adjusted net investment income covering our dividend and stable NAV.

Since going public with our IPO in 2012, we have generated a 47.3% cash on cash return for our shareholders based on changes in NAV and dividends paid since our IPO, assuming no reinvestments of dividends. We believe this performance compares very favorably to our peers and puts MRCC in a small group of BDCs that have delivered this level of consistent performance for shareholders.

Based on our pipeline of both committed and anticipated deals, we expect to continue our new investment momentum for the remainder of the year with growth in both our core portfolio and within the SLF.

We believe that Monroe Capital Corporation provides a very attractive investment opportunity to our shareholders and other investors for the following reasons: number one, our stock pays a current dividend rate in excess of 11%; number two, our dividend is fully supported by consistent adjusted net investment income coverage for the last 20 straight quarters; number three, we have a very shareholder-friendly external adviser management agreement in place that limits incentive management fees payable in periods where there is any material decline in net asset value; and number four, we were affiliated with a best-in-class external manager with offices located throughout the U.S., over 100 employees and approximately $7.7 billion in assets under management.

MRCC is one of the very few BDCs that has the access to direct proprietary deal flow through its platform manager, which, over the long-term, should result in differentiated returns and increase in shareholder value.

Thank you for all your time today, and with that, I'm going to ask the operator to open the call for questions.

(Operator Instructions) And our first question comes from Tim Hayes from B. Riley FBR.

Can you just expand on the competitive environment? Lending activity remains strong. The pipeline sounds robust, and yields seem to be holding up. So it doesn't really seem like you're struggling to find good deals or being able to put capital to work at the yields you're looking for.

So just curious if you can comment a little bit more on the competitive environment. And then just as it relates to structure and credit, if you're continuing to see some of your competitors loosen up on underwriting standards.

Tim, good question, probably the biggest question I get when I tour the world speaking to CIOs for LP funds. The market is competitive. By no stretch of the imagination is this an easy market to navigate, I think, for private credit platforms.

We've got an increased amount of competitors. There's been an increased amount of capital raised. And because of the competitive pressures, if you look at all the stats that LCD puts out, Standard & Poor's and any other agencies, what we've seen is we've seen an increase in leverage from kind of the 4, 4.5 turns to over 5 turns. The average LBO today in the middle market -- upper-middle market is over 6 turns. And pricing has come down in the last 18 months, and documentation is worse. Covenants are worse, and EBITDA adjustments are worse. There's much more in the way of EBITDA adjustments.

So the general market, I think, is competitive and is difficult. And we've been a credit shop. We've been doing this for 15 years. So we've got some perspective on history as well as pre crisis, during crisis, post crisis. And in our business, credit is really the driver of our business.

We're fortunate that MRCC is part of an overall platform, a very large platform. We have probably about 350 borrowers in our overall platform. And my guess is probably 1/3 of our deal flow comes from within our own platform, which is a significant advantage that the others' platforms don't have.

So we looked at about 2,000 investment transactions last year, and of the 2,000 investment transactions we looked at as a platform, we did about 75 of those. So about 3% of the overall look-to-book ratio, as I call it, or the amount of transactions that we look at, do we actually end up closing. I'm comfortable at 3% that everything is in place on our side from a credit standpoint, from an underwriting, from a portfolio review, that we're doing the right things as good asset managers in protecting our capital and being good stewards for our shareholders.

I can't comment on what other platforms are doing. I think that there are some platforms that have raised a lot of money in the last few years, particularly the newer platforms that are trying to create scale. And it's very hard, I think, to create scale in an environment where you've got bad loan documents, high leverage, relatively low pricing and EBITDA adjustments and bad definitions of EBITDA.

So I think if you look across the industry, and I do this every once in a while, I was talking to my team yesterday, the consistent theme is that the platforms that tend to be affiliated -- the BDC platforms, that tend to be affiliated with best-in-class, larger-scale managers. And what I mean by that is we've got 20 originations-sourcing professionals located throughout the U.S., looking at individual deals and creating a proprietary flow upon which we can invest in. And if you look across the board, the BDC platforms that have access to that type of origination capacity and sourcing tend to be the ones that perform the best. And the platforms that tend to be subscale or are not affiliated with a best-in-class asset management firm, I think, are the ones that are struggling. So for your first part of your question is on corporate overall competitive environment, I think that answers that.

The second part of the question, you talked about structure and credit, and it's all about discipline. And I will tell you, the market has become much more undisciplined in the last 2 years, particularly the last 18 months, because of the amount of capital that's been raised and some of the newer entrants in this space. And we have not wavered.

Our weighted average attachment point for leverage still remains around 4 turns in an environment where companies are being bought and sold for 10 to 12 turns.

So from a disciplined standpoint, if anything, going into this cycle, we are very, very conscious of what can happen late this year, early next year. We've rotated out of some cyclical industries. We're avoiding some industries altogether. And we're really, I think, taking the position now of making sure that our portfolio is defensible and that our net income is defensible, and we are very focused on our dividend and making sure that we can be a consistent provider of stable cash flow to our shareholders. So hopefully, that answers your question.

It definitely does. I appreciate all those comments, Ted. And then can you size your pipeline today? And maybe just touch on how much you would say is sponsored versus nonsponsored, senior versus junior, maybe average EBITDA of the companies you're looking at. And then you touched on leverage multiples a little bit, but just wondering if those are consistent with the portfolio average.

Yes. So the last was the easiest. Our leverage multiples are very consistent with the portfolio average. Those are numbers that I see every month, and we're staying in that same kind of around 4, between 4 and probably 4.5 turns from an average portfolio leverage standpoint.

Pipeline standpoint, I will tell you that we've got a very significant pipeline. We always do. It is a platform we put $1 billion to work in Q1. That's how much actually got funded versus what was on our platform. Obviously, we've got a [exempt of] relief. So MRCC shares, generally pro rata based upon the suitability across the board in that pipeline. So that's a significant advantage that MRCC has. We've got a very significant pipeline going forward.

Historically, first quarter is the lowest pipeline because we just come off of a year-end, where our fourth quarters are always pretty big. If you look at our fourth quarter, I think we grew the BDC 12% in Q4 of 2018. I think you'll see that we grew another 8% in total assets in Q1. So if you look at the last 2 quarters, we've had a 20% growth, which is just pretty darn good in an environment that we're in today.

But going forward, I would expect, depending upon the overall deal environment, credit environment, we're not going to vary off of what we've done in the past. So to the extent we can continue to find good deals, many of these are proprietary deals, where we're dealing with sponsors that we've got relationships with; number two, we deal with companies on our own portfolio, which is a huge advantage that most don't have.

And number three, unlike most -- many of our other competitors, we do nonsponsored transactions, as you know. And these nonsponsored transactions are all 100% proprietary to the firm based on relationships we have.

So any given point in time is a platform. We like to be 65%, give or take, sponsored and 35% nonsponsored in high-velocity times, high-transaction times like we have now a frothy market that those numbers tend to move around a little bit. We're probably closer to 80/20 today sponsor/nonsponsor, but that's only because the sponsors have an inherent advantage when the M&A cycle is hot. They're able to move quickly. They're able to bank deals themselves and then refinance post-close.

So I would expect the current level of sponsor/nonsponsor to stay about where it is this year. And then as time goes on, I would expect it to kind of revert back to the mean, for us, more 65/35, over time.

Interest rates and rates we're charging, we don't really see much deterioration there, frankly, because we're not going to allow it to happen. The good news is we have a choice. Aaron and his team of investors every day has a choice whether to do a deal or not do a deal. We happen to be lucky enough as a platform that we've got a very large pool to choose from.

If we didn't have that large pool to choose from, then I would say that Aaron and his team would be under a significant pressure on maintaining the interest rates and maintaining leverage. But that's not the way we're wired here or the way we're set up.

And our next question comes from Leslie Vandegrift from Raymond James.

I just wanted to -- I wanted to begin by asking about a couple of the new loans in the first quarter. You had [Kuerch], BJ Services and MINDBODY. These were larger tranche loans when you look at the total size, but the BDC took a smaller part of it. So how much of those loans that the overall Monroe platform do?

Yes, good question. Unfortunately, it's not something we really disclose publicly, but you can assume in all of those cases that there are multiple other Monroe funds that have invested alongside as they usually are for deals in the BDC. And so that is the case for those deals.

Okay. And on the more directly originated loans for the quarter, they're really focused in media and business services. Is there something that makes those industries particularly attractive right now?

Yes. I mean I don't read too much into that, Leslie. Again, it's more of a opportunistic -- timing is -- tends to be more opportunistic in closing of transactions. But I will tell you that today, we see some particularly good proprietary nonshopped relationship transactions coming out of several industries. And business services and media technology software, those tend to be areas where we've got a fair amount of traction due some -- due to some of our firm relationships, I'll call it, that other platforms don't have.

Okay. And on -- excuse me, on just your spillover income at the end of the quarter?

Yes, it's basically on a per share basis unchanged. It's around $0.49 per share.

And then just last -- it seems a bigger portion of your portfolio recently in first quarter and the few quarters running up into that seem to be moving into a higher PIK income portion of a coupon. Is there a particular reason behind that, market-related, specific credit-related?

Yes, I mean I think it's a combination of things. I think some of it has to do with just trying to be market competitive in certain industries where you can have a little PIK component in order to stay competitive. In other instances, it's just a matter of us managing in -- at least one case, a difficult deal, where it makes sense and prudent to reduce the cash burden on the company as it was going through a turnaround. So we moved a little of our income to PIK, and we usually also increase the total rate associated with that as a trade-off. So sometimes, we'll do that for a portion of our income on a difficult deal. That's really what changed this quarter. It wasn't a materially big jump from last quarter.

And our next question comes from Bob Napoli from William Blair.

Ted, you mentioned looking -- talking about growth, looking at inorganic growth opportunities. Is that something new? And did you have any -- have you been looking at inorganic opportunities? Or are you just talking about loan portfolios?

I knew you would pick up that comment, Bob, so that's a good question. You know me, and you know that there's going to be more consolidation in this industry as time goes on. That's a fact that everybody knows. And I believe the stronger platforms will be in a position to act as a consolidator as opposed to a consolidatee. And like everything, we plan to grow -- continue to grow our platform thoughtfully. And on an opportunistic basis, I believe there will be some things that come our way over the next few years, and we want to be in a position that we can take advantage of those opportunities when and if they're presented.

Okay. That makes sense. Just a follow-up on credit quality. And I mean it looked like a pretty stable quarter from a credit perspective. What's your feel, Ted, on the quality of the portfolio today? And just the nonaccruals, do you expect resolution? Any update on Rockdale or the resolution of the nonaccrual loans that you have today?

Yes. I think the first -- the answer to your first question is I'm comfortable that we have a stable portfolio. We have a -- we've got some pickup in NAV. And that was primarily, as Aaron mentioned, as a result of some mark-to-market adjustments that occurred in the fourth quarter and some mark-to-market adjustments that occurred in the first quarter.

Overall, if you look at our portfolio, it's very stable, and I'm happy about that.

Going forward, I look at -- every month, we look at kind of a portfolio review. I like where we're at given where the market's at. I think we've got -- it gives us a little bit of room to be creative in terms of dealing with companies, both on our sponsored but also nonsponsored. We have a stable portfolio. We can do some things on the nonsponsored side that can create some upside value with warrants, with equity coinvest, with things like that. So I'm comfortable where we stand today.

The second part of your question relates to some of the nonaccruals. We have a couple of those. Aaron mentioned that on our last call, Rockdale. We feel good about where we are on that. We expect resolution on that in the near future. That's something that -- as Aaron mentioned on the last call, we've got an insurance company. Insurance companies exist because they retain money for as long as they possibly can, and we're trying to do everything we can within the boundaries of a good portfolio management, good legal management in an -- exists in a process currently going on to extract some of that money from the insurance company. And I feel good about where we are on that. So I expect that one to get resolved here in the near term.

A couple of the other ones that we're working through, we don't have exact time frame on yet, but we feel good about where we are on the credits, and we're going to continue to work to collect every dollar that we have in these things. And some may take a little bit longer than others, but I think Rockdale, we've got some decent visibility on the end zone there.

And I'll just add on the nonaccruals, there really wasn't any change this period. We've added nothing to the nonaccrual status, and so that's stable.

And our next question comes from Christopher Testa from National Securities.

Just wondering, with spreads tightening again and you guys having a lot of unrealized depreciation last quarter, I guess I'm just wondering why now those are not more on the quarter because your internal rankings were consistent, your nonaccruals weren't really -- didn't really depreciate much more. Are there some other individual credits that were marked down that kind of offset some of the spread tightening effect?

Yes. Good question, Chris. The answer is yes, we have one name in particular that took a smaller mark this period, which was ACH. That's really the only material mover on a single-name basis. And that movement was offset, as you pointed out, by some mark-to-market improvement on the general portfolio due to spread tightening as well as the investment in the SLF, which also benefited from that. So that was really the one name that saw any material decline.

And that name, just to be more clear, is that was a company -- it's in the mortgage servicing business. And in general, the mortgage servicing rights as a fair value come down in the industry. And so what we did and our third-party evaluation firm did, more importantly, is they looked at industry norms for valuation of mortgage servicing rights there.

I don't believe that there is any deterioration in overall enterprise value or the value of the company. But when you value particular companies based on underlying rights or commodity items, it's right to do what they did. So we did -- we took the adjustment on that. But at the end of the day, as Aaron mentioned, we have no additional nonaccruals, and I believe our portfolio is stable.

Got it. And does ACH, do they do agency servicing? Or do they also do more specialized high-touch servicing?

They're not really like a special service or a high-touch service, but they do both Ginnie Mae servicing as well as sort of other prime mortgage servicing. They're not a special service.

Okay. So it's really -- their speed of amortization is really just sensitive to interest rates. There's not much for credit component for this?

No. I mean look, there is definitely -- there's been a change in management. We've put a new management. There's some things that could be done on the operating basis to make the company more profitable and better. We feel we've done all that. And from here, it looks really good in terms of the company's evaluation. We feel solid, and the future should be very strong because we've done a lot to change the management team there and how they approach the business, and it looks good in the future.

Even if we have a protracted slowdown in mortgage originations, which appears to be the case right now, we still think there's value being created in the business.

Got it. Okay. No, that's helpful. And I know this is something that we discussed previously, but the issues in the syndicated market of collateral dilution and covenant-light have made their way down to a kind of core $50 million EBITDA market, and obviously, that's where the SLF is investing. Just wondering if you could kind of just provide some detail on if you're seeing an increase and running into these sorts of issues in that sort of core middle market, if that's picked up speed, if it's actually lessened and some of the more aggressive lending's pulled back. Just curious what you're seeing in terms of SLF opportunities with those things.

Okay. I'll speak to the market and our portfolio, and then I'm going to have Aaron speak to your -- specifically to the SLF. The market in general, as I mentioned earlier when Tim asked the question, it's a -- we're doing what we've always done. The market may bob and weave a little bit. But fundamentally, we're staying -- all of our loans have covenants. All of our loans have multiple covenants. We're very focused on covenants. We're very focused on EBITDA definitions. We're not buying into a lot of the add-back noise. That's not realistic. We're very focused on add-backs.

So if you look at our portfolio on a general basis, it's the same underwriting that we have done over the last 5 years.

Aaron, why don't you comment on the SLF because that's a little bit different in terms of the average borrower size.

Yes. So the SLF is a combination of buying into club transactions, which are very much like the ones that we closed as agent, as well as some middle-market small syndications and larger middle-market syndications.

So as such, there are some deals in that portfolio that will be covenant-light. It's by no means the majority. It's the minority of the deals that we're doing. And as you would expect from a platform like ours, we approach the syndicated market very much like we approach the nonsyndicated agent market, which is we're very diligent on deals and credit.

And so when we're willing to accept the covenant-light loan, it's, first of all, loan that's typically being purchased across multiple portfolios in our CLOs. Second of all, we're trying to limit the covenant-light loans we do to industries that we know very well and have a great deal of confidence in how those companies will perform in a downturn. And we're trying to stay away from heavily-cyclical businesses, in particular when it's in businesses that are covenant-light.

But -- so we are participating, in some degree, in the covenant-light market in the SLF, but it's by no means the majority. And in fact, it's a minority, a small minority of what we're doing.

Got it. That's good detail. And last one for me, and I'll hop back in the queue. Just what was the $10.7 million transfer from a -- reclassification, excuse me, from senior secured to unitranche?

Yes. So occasionally, we'll have deals where we update on what's happening with the revolver and first-outs. And so as we reviewed ESG, that became a unitranche loan because it's a first-out there, and so we're a last-out, and that's usually the characterization of how we look at those names. And so that's what happened for that particular name.

You don't have to hop back into the queue, Chris, because you're the only one in the queue. So if you have another question, go ahead.

And we do have one more question from Christopher Nolan from Ladenburg Thalmann.

The new bank credit facility at $400 million is quite large. Is the plan to use that as your primary funding vehicle going forward for the next several quarters?

Yes. So the $400 million size includes an accordion, so we aren't paying for all that capacity today. We just have it built-in so that if we want to expand it, we can. And so we think it's prudent to do that. And so it shouldn't be a signal to you that we're necessarily expecting to drop to $400 million. I think that's very unlikely given our current equity base and given where we expect to be.

But as for the future, yes. For now, I think our expectation is that we will use the revolving credit facility to fund our deal growth. And then as we always do, we'll look as time goes on at where we are on our capital base and what our needs are. And if it makes sense, we'll consider additional bonds. And if it makes sense and the stock price is at the right level, we'll consider equity offerings and everything else. But for now, the near-term growth will be likely funded through the drawers in the revolver.

And it's fair to say that you're expecting a prolonged low interest rate environment?

I think that we always want to have a mix of what we have on the revolver and what we have in fixed rate notes. And as you will recall, we're fairly match-funded on the revolver and on our loan portfolio. So rather than trying to speculate about where rates are going by making a large statement and converting our entire book, for example, to a bond book, at fixed rates, we made the determination that we'd rather not try to predict rates because they've gone up and down. And we'd rather have a mix of our liabilities from a combination of covenant-oriented revolving credit facilities with borrowing bases and no covenant longer-term, fixed-rate liabilities, and that gives us the most flexibility and the most comfort as we look at the way that we've constructed our balance sheet.

And then final question. What's a good quarterly run rate for operating expenses going forward?

Yes. I mean I think we're kind of where we are. I think I don't expect any material changes to things like SG&A here. The biggest mover, as you know, is the interest expense based on the size of the portfolio, which is easy for you to estimate, and whatever happens with regards to incentive fees based on our performance and our marks in the book. So we've been relatively consistent on the SG&A side operating expenses over the last several quarters.

And I'm not showing any further questions at this time. I will now turn the call back to Ted Koenig, Chief Executive Officer, for any further remarks.

Thanks, everyone, for joining us on the call today. I think as Aaron said, this is a -- this quarter is -- we're very happy with our -- the performance of the portfolio. We're happy with where we are with NII, with NAV, and I think it's a -- this quarter is a good indicator for the future. We've got lots of things that we're planning internally here to try and continue to grow our business and to grow our value for our shareholders, and we look forward to speaking to you again on the next quarter call.

So everyone, have a good day, and we will speak to you soon.

And as always, if anyone has any individual questions, please don't hesitate to reach out to Aaron. He's happy to talk to you on an individual basis.

Thanks again, and have a nice day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.