Nuveen Churchill Direct Lending Corp (NCDL) 2025 Q1 法說會逐字稿

Welcome to Nuveen Churchill Direct Lending Corp's first quarter 2025 earnings call.

(Operator Instructions)

I'd like to turn the call over to Robert Pawn, head of investor relations for NCDL. Robert, please go ahead.

Good morning and welcome to Naveen Churchill Direct Lending Corp's first quarter 2025 earnings call.

Today I'm joined by NCDL's Chairman, President and CEO Ken Kencel, and Chief Financial Officer, Shai Vikness.

Following our prepared remarks, we will be available to take your questions.

Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties, and other factors, and undue reliance should not be placed thereon.

These forward-looking statements are not historical facts but rather are based on current expectations, estimates, and projections about the company, our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions.

These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict.

Actual results may differ materially from those expressed or forecasted in the forward-looking statements.

We ask that you refer to the company's most recent filings with the SEC for important risk factors.

Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them.

The company assumes no obligation to update any forward-looking statements at any time.

Our earnings release 10Q and supplemental earnings presentation are available on the investor relations section of our website at NCDL.com.

Now I would like to turn the call over to Ken.

Thank you, Robert. Good morning everyone and thank you all for joining us today.

During my prepared remarks, I will discuss our results for the 1st quarter.

And then we'll discuss our origination activity, portfolio positioning, and our forward outlook.

After that, I'll hand the call over to Shai for a more detailed discussion of our financial performance.

Before I go through our financial results for the quarter. I'd like to take a moment to comment on current market conditions and our positioning as a leader in the core middle market direct lending space.

We have witnessed significant market volatility in the equity and credit markets over the past several weeks.

Driven by the announcement and implementation by the current administration of broad-based tariffs. Offending global trade, at least in the short term.

During periods of economic uncertainty like we're experiencing today, it is important to remain focused on our core values and pillars that have benefited Churchill over the past 20 years.

We have deep expertise, substantial experience, strong relationships, significant size and scale.

And a differentiated approach to sourcing and originating high quality deal flow.

Our ability to navigate these market conditions and environment stems from our experienced investment operating and management teams. Our leaders at Churchill have been investing and operating in the private credit market through various cycles, including the great financial crisis, COVID, the recent rate hike cycle, and other periods of volatility and challenging conditions.

But we expect near term volatility to continue, driven by uncertainty around tariffs and the impact of the US and global economies, we believe that we are well positioned to continue delivering strong returns for our shareholders.

We believe we are entering this uncertain economic time from a position of strength. Based on a number of key factors.

First, our investment portfolio is largely concentrated in non-cyclical and service-oriented businesses.

Second, our portfolio is highly diversified. Our average position size is 0.5%. Our largest investment is only 1.5% of the total portfolio, and our TOP10 portfolio companies represent only 13% of the portfolio.

Third, our conservative approach to underwriting is supported by several key metrics, including a weighted average portfolio company net leverage of under 5 times.

And an interest coverage ratio of 2.4 times at the end of the first quarter.

for our total non-accrual percentage remains extremely low at 0.4% of portfolio fair value at quarter end. And finally, our balance sheet and capital structure remains strong with no near term debt maturities.

But it is still too early to tell where trade policy lands and the ultimate impact on the economy.

We will lean in on our experience and conservative investment approach to navigate through these uncertain times.

Historically, periods of stress and volatility in markets have led to attractive opportunities in the private credit market and we are well positioned to take advantage of these opportunities as they present themselves.

Since the initial tariff announcements earlier this year, Churchill as a firm has been actively analysing the potential implications across our portfolio on a borrower by borrower basis.

This review has been updated biweekly to reflect the evolving landscape.

Following recent revisions to the previously announced tariffs, our team completed an updated assessment using the most current information available and held a comprehensive portfolio review with members of the investment committee, portfolio management, and risk teams.

Our early findings suggest that the majority of the portfolio remains largely insulated from direct negative impacts related to new tariffs, Due to several key factors.

A primarily domestic revenue base with over 90% of the NCDL's senior loan portfolio company revenues derived from the US.

A significant portion of our portfolio is comprised of domestic service oriented businesses.

And many portfolio companies maintain flexible supply chains capable of shifting sourcing to less impacted geographies.

And finally, our borrowers have historically demonstrated the ability to preserve margins by passing through changes to input cost to end consumers.

This analysis ultimately led us to categorizing each portfolio company as either low, medium, or high risk based on direct revenue cost and supply impacts from tariffs.

In NCDL.

High risk exposure is limited to less than 10% of our overall portfolio.

Well, we believe we are well insulated from the direct impact of tariffs.

We are cognizant of the elevated level of macroeconomic risk and uncertainty in the current environment and are continuing to monitor our portfolio closely for signs of stress.

We remain in close contact with private equity sponsors and borrowers, and our investment team will continue to monitor the portfolio as new information emerges and the impacts, both direct and indirect, become more evident. Now turning to our results for the first quarter. We generated net investment income of $0.53 per share. Which was impacted by one-time interest in debt financing expenses totalling $0.03 per share.

Excluding these non-recurring items, net investment income totalled 56pence per share in line with our 4th quarter 2024 results.

These results reflect the continued strong performance of our investment portfolio, as well as shareholder friendly actions we implemented following our IPO, including the maintenance of our pre-IPO management fee rate and full waiver incentive fees for 5 quarters, which concluded at the end of the first quarter.

New originations totalled 166 million for the first quarter compared to 163 million in the fourth quarter of last year.

Investment activity in the quarter was primarily focused on senior secured first lien loans, and we remain focused on investing into our core traditional middle market pipeline which we believe benefits from wider spread and generally more attractive terms in the upper middle and broadly syndicated markets our net investment value was $17.96 per share at March 31, 2025 compared to $18.18 per share as of December 31st, 2024.

The decline in net asset value, quarter was primarily due to modest valuation declines in some of our watch list names.

In terms of the recent market environment, following the tariff announcements in early April, public credit markets have experienced increased volatility and spreads have widened.

And the resurgence of the BSO market that we saw last year is taking abrupt pause.

On the other hand, the private credit markets continue to operate efficiently and direct lending deals are still getting done in this environment. In fact, nearly every deal that was in process prior to April has either gotten done or has continued to progress and our investment team remains very busy.

As I outlined earlier, historically, market volatility has led to attractive opportunities in the direct lending space. which has exhibited greater stability than the BSO market over time.

Although we haven't yet seen a material widening of spreads in our market, we would expect to see modestly wider spreads and more favourable lending terms to the current market volatility persist.

Turning to our investment activity at a platform level, Churchill continues to be extremely active.

As investment activity volume was up 60% year over year in the first quarter.

This follows a record year in 2024 for the Churchill platform, investing over $13 billion across approximately 400 transactions for the full year, NCDL also benefited from the activity at the platform level.

Our new commitments remain focused on senior lending.

Which represented 91% of NCBL's origination activity in the first quarter.

Firstly debt remains steady as a percentage of the NCDL portfolio, representing over 90% of the fair value of the overall portfolio.

One of the benefits of the Churchill platform is the size and scale of our incumbent portfolio.

Which we believe drives differentiated access to high quality investment opportunities from our existing portfolio companies.

We also believe that continuing to invest in these companies that we know well leads to better long-term credit performance and reduces underwriting risk.

In the first quarter, approximately 44% of our new commitments in NCDL were to existing borrowers or long-term Churchill relationships.

In terms of the portfolio and credit quality, company performance across our overall portfolio remained healthy.

Which we believe reflects the quality of the deal flow we've experienced over the last several years.

As well as our selective approach to investing in the diversification of our portfolio.

Our weighted average internal risk rating remains at 4.1 versus an original rating of 4.0 for all of our investments at the time of origination.

And our watch list remains at a very manageable level below 7% of fair value.

Additionally, as I mentioned earlier, we are pleased with the credit fundamentals within the NCDL portfolio.

With portfolio company total net leverage of 4.9 times.

And interest coverage of 2.4 times on traditional middle market first lien loans.

These metrics are a direct result of conservative structuring and relatively low attachment points that we target when underwriting new transactions.

The conservative approach has served us well in the elevated rate environment.

During the first quarter, One portfolio company was placed on non-accrual status with the cost of $14.5 million and a fair value of $4.8 million.

Despite this one addition, our total non-acquittal percentage is still extremely low at 0.4% of their value and 1% of cost as of March 31st.

With a highly diversified portfolio of over 200 companies and only 2 names on non-acal status.

We believe that this metric compares favourably versus BDC industry averages.

We continue to remain focused on diversification as a key risk mitigant tool in our investment portfolio.

This has been achieved with a continued high level of selectivity facilitated by the significant proprietary deal flow, our sourcing engine is able to generate from the breadth and depth of our P/E relationships.

As of March 31st, we had 210 companies in our portfolio. And as I mentioned earlier, our TOP10 portfolio companies represented only 13% of total fair value.

This diversification is critical as we seek to maintain exceptional credit quality and originate additional attractive opportunities.

From a forward-looking perspective, in an uncertain economic environment, we will remain focused on maintaining underwriting discipline, selectively investing in high quality companies and proactively managing our current investment portfolio.

Since the inception of the firm nearly 20 years ago, each time we have been faced with market dislocation, Churchill has not only navigated through these challenging conditions, but also opportunistically taken advantage of such environments.

We have been and continue to be a trusted and established investor in the core middle market with deep long-term relationships, which provides NCDL with a strong information and sourcing advantage.

And we remain confident in the company's positioning as a leader in the core middle market direct lending space.

Given our long-standing track record, deep network of sponsor relationships, and extensive LP commitments across the broader Churchill platform.

Which have enabled us to continue to see a wide range of attractive investment opportunities while remaining highly selective.

And now I'll turn the call over to Shai to discuss our financial results in more detail.

Thank you, Ken, and good morning everyone. I will now review our first quarter results in more detail.

We reported net investment income of $0.53 per share in the first quarter compared to $0.56 per share for the fourth quarter of 2024.

As Ken mentioned in his remarks, net investment income in the quarter was negatively impacted by approximately $0.03 per share of non-recurring interest and debt financing expenses related to the acceleration of deferred financing costs associated with paying off and terminating our credit facility with Wells Fargo, as well as the impact of the reset of one of our CLOs.

Both of these moves were aimed at optimizing our debt financing and reducing ongoing borrowing costs.

Excluding these non-recurring expenses, net investment income was $0.56 per share in the first quarter.

Total investment income decreased to $53.6 million in the first quarter compared to $57.1 million in the fourth quarter of 2024, primarily driven by a decline in interest income due to the decline in base rates.

In April we paid a total dividend of $0.55 per share, consisting of a regular quarterly dividend of $0.45 per share and a special dividend of $0.10 per share.

In aggregate, this $0.55 per share dividend equates to an annualized yield of approximately 12% based on our quarter end net asset value.

As a reminder, the $0.10 special dividend paid in April was the 4th and final special dividend that we declared at the time of our IPO in January of 2024.

In the first quarter, our total GAAP in income was $0.29 per share compared to $0.54 per share in the fourth quarter of last year.

Our first quarter net income included $0.24 of net realized and unrealized losses, largely due to valuation declines in a few watch list names.

Our gross debt to equity ratio at March 301 was 1.31 times compared to 1.15 times at year-end 2024, and our net debt to equity ratio, net of cash, was 1.25 times compared to 1.1 times at year-end 2024.

At the end of the first quarter, our net asset value was $17.96 per share compared to $18.18 per share at December 30, 2024.

The decline was largely driven by the $0.24 per share of net realized and unrealized losses during the quarter and slightly offset by the impact of our share repurchases, which had a positive impact of approximately $0.04 per share.

As of March 30th first, our investment portfolio had a fair value of $2.08 billion in line with the fair value at year end.

Gross originations totalled 166 million and gross investment fundings totalled $153 million.

This compares to 163 million and $151 million of gross originations and gross investment fundings respectively in the fourth quarter of last year.

New originations accounted for 12 of the transactions done during the first quarter, totalling approximately $90 million.

Additionally, we continue to benefit from add-on financing opportunities which allow us to generate 11 deals in the form of incremental transactions for existing portfolio companies totalling approximately $25 million.

We also saw drawdowns of approximately 37 million on our delayed draw term loans in the quarter as our portfolio companies continue to be active in growing via acquisitions.

Repayments in the first quarter to 4.7% compared to 4.6% in the fourth quarter of last year and remained in line with our long range assumption of 5% per quarter.

We have full repayments on 3 deals totalling $53 million and partial prepayments for another $31 million.

We also sold $65 million worth of upper middle market investments, continuing our strategy of rotating out of lower spread, upper middle market investments and into our traditional middle market pipeline.

On a net basis, we deployed approximately $5 million during the first quarter.

Looking ahead, we expect to continue to deploy capital primarily into traditional middle market transactions, rotate the portfolio away from more liquid upper middle market assets, and redeploy cash received from repayments.

Our total portfolio consisted of 210 names as of the end of the first quarter in line with the number of names at year end 24.

The investment portfolio remains highly diversified, with the TOP10 portfolio companies accounting for only 13% of the fair value of the total portfolio, down slightly from 13.2% in the prior quarter.

Our largest exposure is only 1.5% of the total portfolio, and our average position size is 0.5%. We continue to view this high level of diversification by position size as a key risk mitigation tool, particularly in today's uncertain economic environment.

As far as asset selection, Our new originations during the quarter were weighted towards traditional middle market senior loans, representing more than 83% of the dollars deployed during the quarter, with the balance deployed into the upper middle market as well as into junior debt and equity investments.

This focus on the traditional middle market segment we believe will benefit NCDL shareholders as we see meaningfully higher spreads and tighter documentation terms in the traditional middle market versus the upper middle and BSL markets.

Spreads in the quarter were largely unchanged again in the 475 over range.

Our weighted average yield on debt and income producing investments at cost decreased slightly to 10.1% at the end of the first quarter from 10.3% at the end of the fourth quarter of last year.

While new transactions during the quarter focused on first lien loans, we also opportunistically invested in a few subordinated debt transactions, which accounted for 8% of gross commitments.

At the end of the first quarter, first lien loans represented 90.5% of the total portfolio, while junior debt and equity comprised 7.8% and 1.7% respectively.

As a reminder, we remain committed to the target allocations that we communicated at the time of our IPO with a target of 85% to 90% senior loans and the balance in junior debt and equity co-investments, with equity staying in that low single digit percentage range.

Turning to credit quality, as Ken mentioned earlier, we believe we are entering this period of economic uncertainty from a position of strength based on the overall quality of our investment portfolio.

As an example, at the end of the first quarter, we had only two names on non-accrual representing just 0.4% on a fair value basis and 1% in cost, putting one portfolio company on non-accrual during the quarter.

Additionally, our weighted average internal risk rating remains steady quarter over quarter at 4.1 at the end of the first quarter.

Our watch list, consisting of names with internal risk ratings of 6 or worse, also remains at a relatively low level of 6.7% at the end of the first quarter.

And finally, our conservative approach to underwriting is highlighted by our weighted average net leverage of 4.9 times and interest coverage of 2.4 times for our traditional middle market senior loans at the end of the quarter.

As far as the right hand side of our balance sheet is concerned, specifically leverage utilization, our debt to equity ratio increased to 1.31 times at March 31st compared to 1.15 times at year end 2024.

On a net basis, our debt to equity ratio was 1.25 times net of our cash position at quarter end.

This incremental leverage utilization is in line with our expectations at the time of our IPO and was driven primarily by a reduction in our outstanding shares as a result of activity on our share repurchase program.

The issuance of debt in connection with the reset of NCDL CLO1, and associated borrowings on our corporate revolver.

We expect to continue to be able to deploy capital efficiently and operate towards the upper end of our target range of 1 to 1.25 times debt to equity.

As we spoke about on our last call, we also took an additional step towards optimizing our capital structure in the 1st quarter.

In January of this year, we issued $300 million of unsecured notes due in 2030 at a fixed coupon of 6.65%. which we swapped to a floating rate of sulfur plus 230 basis points.

We were pleased with the execution of our inaugural bond offering and the reception that we received from the capital markets.

This issuance further diversified and strengthened our capital structure and balance sheet.

In connection with our unsecured bond issuance, we received two investment grade ratings from Fitch and Moody's.

Also in January this year, we terminated in full our Wells Fargo financing facility using a portion of the proceeds from the unsecured node issuance to repay the outstanding borrowings on the facility.

And finally in February we priced a reset of the NCDL CLO1 transaction, reducing borrowing costs on the financing through the AA tranche from Sofer plus 166 basis points to Sofur plus 143.

In addition, we were able to secure a 5 year reinvestment period up from 4 years previously.

With this reset, we replaced approximately $59 million of CLO debt with borrowings on our corporate revolver.

In aggregate, these transactions reduce the overall weighted average spread on our debt from Sour plus 214 basis points to Sofur plus 202 basis points.

With over 200 million of available liquidity as of the end of the first quarter and no near-term debt maturities, we remain well positioned to take advantage of attractive investment opportunities, fund our unfunded commitments, and fund the remainder of our share repurchase program.

As discussed, our focus for the near term is on optimizing the asset mix within the portfolio and actively reinvesting cash received from repayments and sales.

In advance of the expiration of our share repurchase plan in March, we extended the program for another 12 months, giving us additional time to utilize the $99.3 million on authorization.

Through May 2nd, we've utilized approximately $85 million under the program, leaving approximately $15 million remaining.

The program increased its level of activity in early 2025 and in April, based on the increased trading volume in the shares of NCDL and the recent volatility in the public equity markets, allowing us to purchase shares at a meaningful discount to NAV.

I'll now turn it back to Ken for closing remarks.

Thank you, Shai. In closing, we believe we are well positioned with respect to our high quality investment portfolio, conservative investment approach, and strong capital structure to navigate the current market environment. Additionally, we continue to believe NCDL is uniquely positioned for long term success and remain optimistic about the company's outlook. Based on our experienced team and our long term successful track record of investing and operating across various market conditions and cycles.

Lastly, I'd like to thank our team for its continued strong execution.

And I'd like to thank all of you for joining us today and your interest in NCDL.

I will now turn the call over to the operator for Q&A.

Thank you. (Operator Instructions)

your first question comes from Brian McKenna with Citizens. Please state your question.

Thanks, good morning, everyone. I appreciate, the detail on the $0.03 per share of non-recurrent costs in the quarter. So, you know if I adjust for for this and then you know layer in full management and incentive fees that will kick in during the second quarter, the implied NII is about one penny above the $0.45 regular quarterly dividend. I am assuming you still feel good about the quarterly dividend moving forward and the coverage there, but any thoughts would be helpful, and then I guess too, are there any other leverage you can pull to drive some incremental NI NII throughout the year? I know you are still maybe remixing the portfolio, so maybe just hash out that that opportunity as well.

Yeah, hey, Brian, thanks for the question and shy here. So, on both of those with respect to the dividend coverage going forward, your math is directionally accurate right in terms of the effect of the increase in the management fee as well as the implementation of the of the incentive fee going forward. So that I think is correct with the. To our ability to continue to cover, we set that $0.45 and regular dividend level with that in mind, right? So, thinking about kind of what our forward assessment is of the earnings power of the vehicle and the ability to cover that dividend. So the short answer is yes, we continue to feel good about our ability to cover the dividend.

For the foreseeable future, obviously as we evaluate the macro situation and sort of where base rates go in the future, that'll be something that we discuss and focus on, but we did all that with the full view in mind and a high degree of confidence in our ability to continue to earn that. And at the at the $0.45 level in terms of the other levers that we can pull, I think there is a few factors there, right? One is we think about the current environment and what does that mean for ongoing sort of spreads in the marketplace. Interestingly, we have seen spreads be, unchanged for the last three quarters now if you look at our new origination activity, and we are really not seeing continued tightening of spreads. If anything, we would expect spreads to start going the other way. So, I think there is an opportunity there to eke out some incremental yield in the portfolio. We also still have a reasonable amount of rotation left to go.

You will have seen and heard in my comments we sold 65 million of upper middle market sort of liquid assets which tend to be lower spread last quarter. We'll continue to seek opportunities, for that rotation trade as we move forward. Obviously, the redeployment of any repayments that we get. So, I think there is an opportunity there to drive some incremental earnings. And then the last piece of it is just sort of the liability management exercise and thinking about, our financings, including, if you look at our COOs, we have a couple in there that have higher cost of capital than where the current market is and as those exit their non-call periods, we'll be evaluating those as opportunities to continue to bring down our cost of financing going forward.

Okay, great, that's helpful, and then just on a buyback, leverage is sitting kind of at the upper end of the target. I think you feel comfortable with it there, but stocks trading at almost 80% of NAV today. So does it make sense to lean in more opportunistically on repurchases and then. Did you disclose the actual amounts for how much you bought back in the first quarter and then how much you bought back quarter to date and then I know you mentioned you extended the buyback you have $15 million left on the remaining authorization. So did you keep the $150 million unchanged or you know why not increase that just given where the stocks trading?

Yeah, so a couple of comments there may be taken kind of in reverse order. So, in terms of the extension of the authorization we did extend the timing, so we kicked it out another 12 months. We did not touch yet the amount on authorization. That's a conversation that we have regularly obviously internally with our board, and we'll continue to evaluate sort of that trade, right, whether it is, appropriate to increase or not. One thing I would comment on though is in terms of just your question about being opportunistic is that the program is designed in and of itself to effectively be opportunistic on a programmatic basis and what I mean by that is it is structured. Such that as the discount to any of the increases, the percentage of average daily trading volume that we are buying increases, and that that is designed to do exactly that, right, take advantage of the deeper discounts. So, the level of activity under the program as we moved into this year and certainly kind of post, Liberation Day, became more active. So, we are taking advantage of that opportunity, and I think you can do the math right. In terms of what we disclosed last quarter in terms of how much we purchased versus how much we purchased through this quarter and then through the quarter to date which is the May date that we just referenced on the call so I believe that number was something like 35 to $40 million in purchases in Q1, and then an additional sort of 15 million or so in Q2 through the through the date that we just we just referenced.

Okay, that's super helpful. I will leave it there thank you.

Excellent, thank you.

(Operator Instructions)

Your next question comes from Doug Harder with UBS. Please state your question.

Thanks, can you just talk about your expectations for leverage, any willingness to kind of let that move a little bit higher if you see opportunities, kind of in the current market, or is it going to be coming more from a rotation.

Yeah, so I mean I think we really are committed to that that range that we put out there, Doug. So, it is really a function of, again 1 to 1 quarter. We have said previously and we've been consistent on this point all along is that, based on our view of the quality of our portfolio, the skew towards senior lending representing over 90% of the assets in the book that we're comfortable operating at the upper end of that target range, and I expect we'll kind of hold there, but. We do have levers to pull to allow us to continue to be opportunistic in the market, namely the rotation, obviously as we get repayments under our in our existing portfolio, the ability to redeploy. So, we do have dry powder, but you know I do not know that we would be comfortable taking that leverage ratio much higher than what it is today, but I do think they're still, presents an opportunity for us to be opportunistic to take advantage. Wider spreads and deploy as we see those opportunities. So, the answer to your question is kind of a bit of both, right? We will still remain active in the market, we'll be opportunistic, we have more to go in terms of rotation and given where kind of broadly syndicated loans or bid, right, there's still an opportunity to sell at attractive levels, in that upper middle market and kind of BSL category in our book and then rotate, and that's where we'll look to do that but. Again, our view right now is that we are really not intending to move leverage higher from here.

Thank you.

Thank you.

Thank you. (Operator Instruction)

Our next question comes from Mark Hughes with Truest Securities. Please get your question.

Hi, good morning. I am calling from Mark Hughes. You had noted that the direct lending or direct lending has taken back some share from the BSL market. Has this had any positive effects on competition in the core middle market? Maybe some, competitors going, back upmarket.

here is Kenneth. Thank you for the question. Look, you know our size and scale, in the core middle market and our ability to finance larger businesses is a real advantage right now. There are really just a handful of what I would call core middle market direct lenders that can step up and write. Significant checks to finance those businesses and as a result, I feel like we are in a very nice position to be able to take advantage of those opportunities. So, as we have seen over historically in times of market stress, the liquid market tends to go offline. The larger scale direct lenders and certainly the core middle marker like lenders like us can take advantage of that by stepping into that void. So, I would expect that the companies we finance would skew larger over the next quarter or two. I would also expect that they would continue to be of the highest quality. If you look at the market today. The deals that are really getting done are the A plus credits that can demonstrate no real tariff impact, strong businesses with significant cash flow, market leaders, I think mentioned on the call and I did as well that you know our deal flow remains very strong.

In fact, we didn't have a single deal as we moved from March to April and post liberation Day that did not continue to progress, and I think that speaks to the quality of the deals we're seeing, so. I think the competitive dynamics will be better as a result of that scaling to larger opportunities and the large cap market really being late. So, we are looking forward to good opportunities. We have not seen, interestingly, we have really not seen spreads move. Appreciably at this point, although the BSL market has moved a bit on the secondary side, 50 to 100 basis points, so we would absolutely expect spreads to move over the next several months in a positive way.

Spreads today for high quality mid-market deals in the core market are hovering in that 475 range, 475 500, I could certainly envision a scenario where they moved out a bit, and I certainly think the quality. Of the deal flow we are seeing and the size of the companies I would expect to be larger. So I think we're looking at an opportunity here, but an opportunity with what might be a somewhat reduced volume because it's really on the quality deals on the deals that can demonstrate really no tariff dynamics that are going to be the prevalence certainly of what we're financing. So, areas like software, healthcare business services that are primarily domestic businesses.

Where there is demonstrated market leadership, strong cash flow are really where we are going to focus, as we've never been.

Chasing, kind of yield and marginal opportunities. So I think, it's certainly possible that the overall level of deal flow in the core middle market may come in a notch just given the focus on quality, but I think that will be offset and potentially even more than offset by the runway and the widening of that aperture of deals that we'll see at the upper end of the market.

Understood, thank you, and you, you'd mentioned your strong deal flow and strong new investments in the quarter. So, I was just wondering how the pipeline is shaping up in terms of, the mix of new versus incumbent borrowers and maybe in your answer you kind of answered that, in a different way, but yeah, so how's the pipeline shaping?

The pipeline remains, quite good, and I think that, the fact that, we are, through our private equity and junior capital team in LP and 300 private equity funds gives us kind of a built in deal flow, if you will, when deals are getting done, the odds are very good, certainly with our LP base and our relationships we're seeing them, so it has led to ongoing new investment activity that has enabled us to remain very selective. So, pipeline is actually quite good, and I think that is reflective of the fact that, the quality that we are focusing on and the types of deals we are financing are non-tariff impacted. You see that in our current portfolio, we quoted 90%. Or so are companies that are either minimally or not impacted by tariffs. So, and that continues to be the case in terms of what we are looking at today. So as a result, pipeline looks quite good and certainly some of those deals are coming in that are a bit larger in size that historically might have gone to the BSO market, so we're seeing some of that as well.

We're certainly shying away from turning down, not pursuing credits where we think there is either a tariff implication in some way, shape, or form, either on the revenue side or the cost side or business. Is that we think have a higher probability of being impacted in any type of recessionary dynamic, I think overall, as we think about the market today we still see tariffs as a tariff dynamic that we would hope would see some resolution in a reasonable period of time here just given the dynamics, both political and economic, that would mitigate in Favor of that occurring.

But we of course are mindful of the fact that if we do slip into more of a recessionary dynamic, we need to be financing companies that have that are really in recession resistant industries and market leaders. So that being said, pipeline is good. We are staying very selective and it tends to skew larger, but at this point we haven't seen any appreciable widening of spreads, but we would certainly we're certainly hopeful that we would start to see it as we move through the quarter.

Thank you. And then last one for me and sorry if I missed this in the prepared remarks, but with the understanding that there's a little bit of a lag effect has the full impact of the base rate changes last quarter completely made its way through the portfolio.

Yeah, so I think you're right, max shy. So, there is essentially a one quarter lag, if you will, with respect to how the assets reset. Now they don't all reset exactly on quarter end, but again, our view is that when we think about the weighted average so far that we experienced during the quarter, it was roughly 4.3, so down about 15 basis points from the prior quarter.

So again, as you think about the forward curve and kind of what that means, I think it's fair to assume sort of a one quarter lag. Relative to the curve, noting obviously that you know the curve and then what really plays out in terms of so far obviously you know can differ materially.

Very good thanks Shai thanks Ken.

Thank you.

Thank you (Operator Instructions)

we have reached the end of the question and answer session. I will now turn the call over to Kenneth Kencel for closing remarks.

Great. Well, thank you, operator, and thank you all for joining us today. We remain very much open to taking your calls, any follow up questions you may have, we're certainly available to respond.

As a general matter, as we indicated, we feel we feel well positioned in the market environment going forward.

Significant dry powder across our platform and within the BDC ability to take advantage of those opportunities as they become available. And again, thank you for joining the call. We look forward to taking time to talk with you next quarter.

Thank you. This concludes today's conference. You may disconnect your lines at this time.

Thank you for your participation.