BlackRock TCP Capital Corp (TCPC) 2023 Q1 法說會逐字稿

Welcome, everyone, to BlackRock TCP Capital Corp.'s First Quarter 2023 Earnings Conference Call. Today's conference call is being recorded for replay purposes. (Operator Instructions) And now I would like to turn the call over to Katie McGlynn, Director of BlackRock TCP Capital Corp. Investor Relations team. Katie, please proceed.

Thank you, Tia. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at the time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected. Any forward-looking statements made on this call are made as of today and are subject to change without notice.

Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, we make no representation or warranty with respect to such information.

Earlier today, we issued our earnings release for the first quarter ended March 31, 2023. We also posted a supplemental earnings presentation to our website at www. tcpcapital.com. To view the slide presentation, which we will refer to on today's call, please click on the Investor Relations link and select Events and Presentations. These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today.

I will now turn the call over to our Chairman and CEO, Raj Vig.

Thanks, Katie, and thank you all for joining us for TCPC's First Quarter 2023 Earnings Call. I will begin today's call with a few comments on the market environment and provide an overview of our first quarter results. I will then turn the call over to our President and Chief Operating Officer, Phil Tseng, who will provide an update on our portfolio and investment activity. Our CFO, Erik Cuellar, will then review our financial results as well as our capital and liquidity positioning in greater detail. I will then conclude with a few closing remarks before we take your questions.

As you all observed, market indices were generally down across the board in 2022. However, even with the broader market weakness during the year, private credit assets generally held up well, further demonstrating the resiliency and stability of the asset class in different market environments. During the early part of 2023, we saw notable recoveries across most asset classes from their respective 2022 performances. Market stabilized as we entered the year, but by the latter part of Q1, struggles that emerged in the banking sector understandably shook investor confidence and drive volatility that continues today with now several bank failures crystallized.

Notwithstanding the broader social and economic implications, weakness and even turmoil in the banking sector is hardly a new dynamic to establish private market participants. Rather, it is a dynamic we have benefited from for most of our nearly 23 years of lending to middle market companies who continue to look in ever greater numbers for alternatives to traditional forms of financing. While it's too early to say when the current situation will be fully resolved, we believe the reaction to recent events in the banking sector will likely make it even less efficient and less economic for banks to lend to the middle market, and therefore, further support, if not accelerate, the opportunity for well-positioned private credit lenders such as ourselves.

In addition, the swift collapse of several banks and ongoing concern with the sector has been a reminder to borrowers of the benefits of working with a direct lender like BlackRock. Direct lenders can act quickly when needed and have locked up or permanent capital that facilitates stable, long-term financing solutions to borrowers that remain available during periods of market dislocation. We have seen this first hand many times, including during the early days of COVID and again, more recently this past quarter with a few portfolio companies we have that had cash deposits with Silicon Valley Bank.

From the news about the challenges that the bank started to spread and these companies had difficulty accessing their liquidity, our team was in a position to provide short-term liquidity that had been required. Fortunately, the Fed stepped into back up their deposits and ultimately our capital was not needed, but our ability to work directly with these borrowers and to act quickly for further reminders of the value that private credit managers can provide.

Now I'd like to turn to our first quarter highlights. We delivered strong net investment income of $0.44 per share in the first quarter. Given the floating rate nature of our portfolio, our net investment income continues to benefit from higher base rates as well as wider spreads on new investments, resulting in a run rate NII that is among the highest in TCP's history as a public company. In recognition of the higher ongoing earnings power of TCPC primarily to provide the rate environment, our Board of Directors today announced an increase of $0.02 per share to the quarterly dividend distribution. The second quarter dividend of $0.34 per share will be payable on June 30 to shareholders of record on June 16. As a reminder, our Board has always taken a disciplined approach with regard to the dividend, given our emphasis on stability and strong coverage through our recurring net investment income.

Throughout TCPC's history, we have consistently covered our dividends to recurring net investment income. This commitment remains important to us, and even accounting for the dividend increase declared for the second quarter, our first quarter dividend coverage ratio would have been up approximately 129%. Phil will discuss our first quarter investment activity in more detail. But in summary, we are being disciplined in deploying new capital in this uncertain environment while also selectively taking advantage of the more lender-friendly investment environment. We reviewed a substantial number of transactions during the quarter and deployed capital in a small percentage of those opportunities.

Given the slowdown in private equity deal volumes, we are reminded of the benefits of our channel-agnostic approach to deal sourcing. Our pipeline remains healthy. And given our direct relationships with management teams and other industry participants, we continue to find attractive opportunities to the current environment. Finally, the credit quality of our portfolio remains solid with loans to just 2 portfolio companies on nonaccrual as of the end of the first quarter totaling just 0.3% of total investments at fair value, among the lowest nonaccrual levels in TCPC's history as a public company.

AutoAlert, which was placed on nonaccrual in Q4 of last year was successfully restructured in Q1, and our loans are now back on accrual status. While still early, it appears that some of the macro headwinds that had been facing the company since the onset of the pandemic appear to be abating and we have been encouraged by AutoAlert's relative performance year-to-date and post the completed restructuring.

Looking back at our historical performance as a public company. Since 2012, we have generated a 10.3% annualized return on invested assets and a total annualized cash return of 9.3%. We believe this performance remains at the high end of our peer group and reflects our ability to consistently identify attractive opportunities at premium yields and deliver exceptional returns to our shareholders across market cycles.

Now I will turn it over to Phil to discuss our investment activity and portfolio positioning.

Thanks, Raj. I'll start with a few comments on our existing portfolio and then move on to highlight our investment activity during the first quarter. We continue to emphasize strong portfolio management and credit monitoring procedures for our existing portfolio companies. As a reminder, our investment team members specialized across industry verticals and are responsible for sourcing investment opportunities, underwriting and structure of those opportunities and then monitoring them until exit. We view this as an advantage as it ensures that the relationships and the knowledge developed during the deal sourcing process and during the deep private equity-like due diligence process can be leveraged throughout the life of the investment.

Our investment teams are continuously engaged in dialogue with owners and operators to assess both current and projected performance relative to our original underwriting functions. In addition, deal team members reviewed portfolio company performance with senior members of the investment committee on a quarterly, if not more frequent basis. This process helps in proactively identify investments that may require more engagement with management to ensure our loans remain well protected. Given the higher rate environment, higher input costs and general uncertainty in the economy, we are working with a few companies to help them navigate slower revenue growth and/or margin pressure.

However, we recently completed our quarterly review process and are pleased to report that the portfolio generally remains in good shape. In fact, despite the margin pressure facing many companies across the market, the majority of companies in TCPC's portfolio, with the cash flow underwriting, continue to report positive EBITDA growth. We believe our portfolio is well positioned given our emphasis on companies and established business models that have a reason to exist and are core to their underlying customers which make these companies more resilient through difficult macro environment.

At quarter end, our portfolio had a fair market value of approximately $1.7 billion. 88% of our investments were senior secured debt spread across a wide range of industries, providing portfolio diversity and minimizing concentration risk. We also continue to emphasize companies in less cyclical industries. The portfolio at quarter end consists of investments in 143 companies, an all-time high for TCPC, and our average portfolio company investment was $11.6 million. As the chart on Slide 6 of the presentation illustrates, our recurring income is distributed broadly across our portfolio and is not reliant on income from any one company. In fact, more than 90% of our portfolio companies each contribute less than 2% to our recurring income. 86% of our debt investments are first lien, providing substantial downside protection and 94% of our debt investments are floating rate, an important benefit, of course, in this higher rate environment.

Moving on to our investment activity. Our deal source channel-agnostic approach provides us an important advantage, particularly at a time when we are seeing a slowdown in traditional sponsor-backed activity. Our industry-focused deal teams continue to identify unique investment opportunities from a wide range of sources, including directly through industry contacts and management teams. This is in addition to our traditional sponsor relationships. In reviewing these opportunities, we emphasize transactions where we are positioned as a lender of influence. Which enabled us to leverage our 2 decades of experience in negotiating deal terms and conditions that we believe provide meaningful downside protection. These include substantial collateral and tailored covenant packages.

In addition, our industry specialization, which our borrowers truly value, bolsters our ability to assess and effectively mitigate risk in our underwriting and when negotiating terms in the credit documentation. Despite the more modest pace of market activity, TCPC invested $76 million in the first quarter. Deployment in the quarter included loans to 8 new and 2 existing companies, primarily in senior secured loans. Follow-on investments in existing holdings continue to be an important source of opportunity for us, accounting for 45% of total dollars deployed over the last 12 months.

TCPC's largest investment during the first quarter was a unitranche investment to support the acquisition of World Choice Investments. World Choice owns and operates a diverse portfolio of live dinner and family entertainment attractions across the Southern U.S. The company is strategically located in stable regional tourism destinations, including patient 4 Tennessee in which it operates the Dolly Parton's Stampede. This market benefits from tourists visiting Dollywood, but also the great smoking National, the great Smoky Mountains National Park, which is the most visited national park in the country.

We view this as an attractive investment opportunity given the company's demonstrated and stable growth over the past 15 years, including steady performance during the great financial prices due in part to its low fixed cost base and strong free cash flow generation. Over World Choice's 30-plus year history, they have consistently delivered high attendance and revenue growth, which has established them as the leading entertainment option with minimal direct competition in each of its core markets.

Our second largest investment in the quarter was a first lien loan to support the acquisition of Finder founded in 2013 finders and leading digital asset management vendor. We view this investment as an opportunity to lend to a premium product and it's well positioned to benefit from strong tailwinds for products that enable sales, marketing and commerce. We also view our loan as well covered, given strong visibility on cash flows and binders significant and diverse customer base. New investments in the first quarter were offset by total dispositions of $19 million. The overall effective yield on our debt portfolio increased to 13.1% compared with 9.1% 1 year ago, reflecting the benefit of higher base rates and wider spreads on new investments.

Investments in new portfolio companies during the quarter had a weighted average effective yield of 13.3%, exceeding the 13.1% weighted yield on exited positions. Given further pullback in bank's ability to lend in this environment exacerbated by the regional bank turmoil in the first quarter, we are continuing to benefit from a more lender-friendly investment environment with improvements in both pricing and terms relative to just 12 months ago. Post quarter end, we have seen a modest pickup in activity and have been investing selectively, maintaining our underwriting discipline while being mindful of the inflationary environment.

We emphasize companies that have significant pricing power to pass on higher input costs, including increases in their cost of capital. It's also important to note that we did not underwrite to perfection. We seek to build in sufficient buffers to ensure companies can withstand changes in the macro environment, including higher costs without impairing their ability to service our loans. Our pipeline remains healthy and the yields on investments in our pipeline are generally in line with our current portfolio. To date, we have had limited prepayment income in the second quarter.

Let me now turn it over to Erik to walk through our financial results as well as our capital and liquidity positioning.

Thank you, Phil. As Raj noted, our net investment income in the first quarter benefited from the increase in base rates since March of last year. Net investment income of $0.44 was up 29% versus the first quarter of 2022 and exceeded the first quarter dividend of $0.32 per share by 34%. Today, we declared a second quarter dividend of $0.34 per share, an increase of $0.02 per share over the first quarter dividend. This is our second dividend increase in the last 3 quarters. We remain committed to paying a sustainable dividend that is fully covered by net investment income as we have done consistently over the last 11 years. Investment income for the first quarter was $0.87 per share. This included recurring cash interest of $0.76, recurring discount and fee amortization of $0.04 and pick income of less than $0.03. Notably, take income was only 3% of total investment income. Investment income also included $0.02 of dividend income, $0.01 of other income and gen from prepayment premiums and accelerated OID and exit fees.

As a reminder, we amortized upfront economics over the life of an investment rather than recognizing all of it at the time the investment is made. Operating expenses for the first quarter were $0.34 per share and included interest and other debt expenses of $0.20 per share. Incentive fees in the quarter totaled $5.4 million or $0.09 per share. Net realized losses for the quarter were $30.6 million or $0.53 per share, resulting primarily from the reorganization of our investment in AutoAlert. However, given the stronger performance by AutoAlert over the last few months and the improved capital structure after the restructuring, our investment in AutoAlert had a net appreciation during the quarter and is now back on accrual status.

Net unrealized gains in the first quarter totaled $28 million or $0.48 per share, primarily reflecting a $36.2 million reversal of previously recognized unrealized losses from the AutoAlert reorganization. partially offset by a $3.2 million unrealized loss on our investment in Astra acquisition and a $2.9 million unrealized loss in Ovintiv. The net increase in net assets for the quarter was $22.7 million or $0.39 per share. We have a robust valuation process and substantially all of our investments are valued every quarter using prices provided by independent third-party sources. These include quotation services and independent valuation services. And this process is also subject to rigorous oversight, including back testing of every disposition against our valuations. The credit quality of our overall portfolio remains strong. A total of only 2 portfolio companies were on nonaccrual at the end of the first quarter, representing 0.3% of the portfolio at fair value and 0.5% of cost.

Now turning to our liquidity. Our balance sheet positioning remains very strong, and we ended the quarter with total liquidity of $307 million relative to our total investments of $1.7 billion. This included available leverage of $208 million and cash of $99 million. Unfunded loan commitments to portfolio companies at quarter end equals 7% of total investments for approximately $109 million. of which only $34 million were revolver commitments. Our diverse and flexible leverage program includes 2 low-cost credit facilities, 2 unsecured note issuances and an SBA program.

Last month, Fitch reaffirmed TCPC's investment-grade rating with a stable outlook. Our unsecured debt continues to be investment-grade rated by both Fitch and Luis. Given the modest size of each of our debt issuances, we are not overly reliant on any single source of financing, and our maturities remain well laddered. Additionally, we are comfortable with our current mix of secured and unsecured financing and do not have any media financing needs. Combined, the weighted average interest rate on our outstanding borrowings increased modestly to 4.19%. This compares with 3.26% at the end of 2021. That is an increase of only 93 basis points over the last 15 months, while base rates increased approximately 480 points during that period. This is the result of having over 70% of our borrowings from fixed rate sources.

Now I'll turn the call back over to Raj.

Thanks, Erik. As a reminder, our annual shareholder meeting will be held virtually on May 24, and all of our shareholders are invited to attend. Consistent with prior years and in line with many of our BDC peers, we have included in our proxy a proposal for shareholder approval to issue up to 25% of our common shares on any given date over the next 12 months at a price below net asset value. The purpose of the below NAV issuance proposed on our proxy is to provide flexibility. To be clear, at this point, we do not intend to issue equity below NAV and certainly not unless it is accretive to our shareholders. This is the equivalent of an insurance policy, which our shareholders have approved every year since we've been public.

Even as the economic outlook grows increasingly uncertain and market volatility persist, we are confident in our proven strategy and approach to investing that has delivered strong risk-adjusted returns for our shareholders throughout different economic environments. We believe we have demonstrated a consistent ability to execute throughout the credit cycles, enabling TCPC to deliver for our shareholders in both periods of economic growth and contraction. This also makes us a reliable partner for our borrowers and further helps us to attract appealing investment opportunities. And with that, operator, please open the call for discussions.

Our first question comes from Robert Dodd with Raymond James.

On -- if I can go to order, obviously, the core structure -- it was marked up in the quarter, right? So do you think -- what's the restructuring too aggressive since you restructured roof a lot, converted your equity and then effectively wrote the equity up. So can you give us any thoughts on how it will be positioned? And was it restructured?

Thanks for that question. I hear you saying I'll try to add a little color. I think the short answer is the restructuring, we hope, and from early indications, may prove to be good timing. This was a good business that had an impact coming out of COVID that was tied to supply chain issues, a fairly robust demand side for autos and used cars, in particular, and that essentially resulted in being able to mitigate its value proposition where they help dealers create demand and differentiate themselves when that's more valuable. As we came -- so it was a good business, but really a challenge balance sheet by factors coming into this environment. The business -- and as we think about restructuring, the 2 kinds of went in different directions of business environment improved for it, ironically, in this environment where there is more inventory on dealerships and supply chain issues abated, that helps them become more relevant again and the trend you're showing that out of the box.

And similarly, the balance sheet that was a challenge was something that we were able to be part of a solution to fix. So I don't know that it was too aggressive. I think that time will tell, unless when you say aggressive, you meet in our favor, I do think that it was well timed that it was something that we try to avoid doing by finding and working in conjunction with the company and its owners to a solution. I think the nature of the restructuring being relatively quick and efficient after a number of other types of processes were in place does highlight the benefit of doing this when you're one of a few lenders one of one, you can do it much more efficiently than a large scale restructuring but I think hopefully, that what we're able to do is give the business the running room and the capital structure and liquidity to achieve its highest value, especially as those demand factors and economic factors are moving back in its favor.

Got it. Got it. For that additional color. I mean, just the other one is back on accrual now. Was it on a core status for the full quarter, the partial quarter or just packet at the end?

It was right at quarter end. So there was no income recognized during Q1 from AutoAlert.

Got it. And then the other one on credit quality, just to -- based on Phil's prepared remarks, you said the majority of companies have positive EBITDA growth. So presumably, some down obviously that the recurring revenue business is one thing, but you mentioned that were underwritten on a cash flow basis. So can you give us any color to that is that EBITDA decline for whatever proportion of businesses? Is that new? Is that -- was that expected? Is that a result of macro or idiosyncratic issues? Anything we should be watching out for in the rest of the portfolio, I guess, is the real question.

Yes. Thanks, Robert. So I would say that you're right, it was the majority, and it's a meaningful majority of our cash flow thesis loans have seen EBITDA growth. There are, of course, some businesses in our portfolio, which have been impacted by what the Fed is doing and the Fed has been very explicit about trying to slow growth and the inflationary environment has been quite meaningful. And so not all companies are seeing EBITDA growth, just the vast majority. So are we concerned at this point? We feel like we have sufficient margin there in these cash flow loans. And just because they're seeing some either flat year-over-year or sequential EBITDA or, in some cases, down, most of these situations are areas where we're terribly concerned or hit our watch list.

Our next question comes from Christopher Nolan with Ladenburg Thalmann.

Have you guys entered any discussions with your banks providing your facilities in terms of change of haircuts or change in terms?

No, we haven't needed to -- and neither have they approached us regarding that. Yes. And just for some context, our business even before the TCPC was public has been doing leverage loans and facilities for over 2 decades. So I think we try to think about the right type of structures, flexibility, et cetera. So we're not on the wrong side of the banking discussions, but there have been no discussions to date.

Any consideration in terms of adding additional credit lines?

I think we are comfort where we are in terms of the capital structure today. I think we're always in conversations with various providers more flexibility and additional sort of thinking about diversifying the capital structure. So there will always be a consideration of that when and if that makes sense. But I would template the point that we feel very well covered today and are very appreciative of the events we work with being good financing partners.

And we do have an accordion for of the facilities. One thing we do always look at is continuing to add perhaps other banks to the lineup within the facilities. And so that's a regular thing we do.

One of the things occurred in the last banking crisis was banks basically cut off the lines of credit. And I'm not saying that that's happening is going to happen, but just sort of as an insurance policy, would BlackRock your parents be able to backstop if the worst team to worst and the banks are cutting off credit lines?

I think that's a question I will not answer for BlackRock. I like my job here. But I would say that when you go back through the prior crisis, the one thing I would say is that private credit assets have just held up very well. I mean -- and BDC, even the marks to NAV have not dropped historically as much as other credit or even liquid asset classes. I think there's a benefit of the lockout structure and the permanent capital nature. There's a benefit to the way we underwrite that allows us to keep a good a healthy portfolio and take protective actions. I think our lenders see that historically and have seen our ability to protect their capital. So while I won't answer the question on the BlackRock side of it, I will say that historically, even in the worst crises, it hasn't -- it wouldn't have been needed or it wasn't needed, and we take encouragement that, that we can kind of conduct the business the same way and hope for the same type of protection going forward.

Your next question comes from Ryan Lynch with KBW.

First one I had -- I know the deal opportunity environment is really strong today, just with the availability of capital being a little bit limited out there. You guys, I think, probably put out some really high-quality loans this quarter, I would guess. But is there any point where you guys look at the balance leverage and look to manage the level of deployments based on your leverage range? And are we getting to that point yet?

So let me answer it this way. We have definitely -- we haven't given formal targets on our leverage range. I think we have historically given some guidelines of where we're comfortable. We absolutely look to maintain buffer in the leverage facilities. And we don't use leverage as part of our investment decision, it's really a portfolio optimization tool. I would say that the other thing we are very conscious of is maintaining the investment-grade rating.

We have a frequent, I think, healthy dialogue with the rating agencies. And so in the current environment, a couple of things. One is given where we're underwriting, and I think you can see that from the current portfolio and the new deals, even the leverage we have is it's a great environment on an unlevered basis, and the leverage, I think, is helpful. But we are not going to push that in any way that compromises the balance sheet, the ability to protect our portfolio or our investment-grade rating and without giving formal guidance on a target range, I'll leave it at that for where we are levered today and how we're thinking about operating in the current environment.

Okay. That's fair enough. And then kind of flipping back to some of your prepared comments, you kind of talked about with the current kind of mini banking crisis we have going on. I think you said it will further reduce the hedge willingness to lend to middle market companies. I would love to just hear you provide some more thoughts on 2 areas in regards to this. One, how much today or in the past 2 years, are you actually competing with banks per deal. So to the extent that banks pull back, that would obviously be a beneficiary if there are meaningful competitors in your space. I want to hear how, if at all banks are really in the space that you're competing with for deals that you're actually putting portfolio #1?

And then secondly, on the flip side, if banks do potentially pull back from lending which is think likely, how do you think that impacts your portfolio companies or borrowers that may have additional lines of credit outside of your debt with banks?

So I'll address the first part of the question. We do compete on occasion directly with banks. Those are more the, I'd say, regional banks who are committing and underwriting, let's say, loans of anywhere between 2 to 300, 400 maybe in terms of tranche is, and they'll put together their own solution and trying to syndicate that deal out. So that's one part of the market, and that is part of the market given that we compete with, given our focus on the core middle market. Then there's another part of the market where the banks participate, and that's on the larger cap direct lending side.

Clearly, the $1 billion, $2 billion, $3 billion, $4 billion unitranche deals that you're seeing now that some of the large-cap direct lenders are focused on. That is competing head on with what the large-cap banks would otherwise be doing. So I would say that for us, the competition is more on the regional side. the likes of SBB and First Republic and so on, those aren't banks that typically traffic in middle market direct lending, but there are certainly others that do on the regional side.

And the fact that they are -- we expect them to be more constrained either for their own risk management or from a regulatory standpoint that we think will benefit us. And even if those regional banks do come in the market, we think it will be perhaps pull back on risk and maybe be less aggressive on quantum or terms or maybe they'll want to do it on a best-efforts basis, which obviously is less reliable for a borrower in terms of execution. And that's where direct lending comes into play, where we can provide certainty of execution. And we've done that for the better part of 2 decades now.

Yes. And I'll try to the second part of the question. I think you were asking about if they pulled back on revolvers and liquidity and things of that sort, how does that impact companies. I think that if you think about what's happened with the banks over the last 2 decades, there was an effort, my former employer, I was part of it as a learning experience to do what we do directly, and they just have built for that long-term type solution. But they did -- they were effective and we partnered with a lot of regional banks and others on the short-term revolvers and facilities. And I think that's been a good place for them. These are asset-backed, very, very well protected and essentially swing lines, if you will.

To the extent we -- they pull back from that business, which I think is really more their core competency and a big part of their relationship effort with companies I think there will -- like many, many cases in the past with financing markets, necessity will drive a creative solution. And that may be something that we do, as part of it, maybe partnering with other types of parties. For where we sit right now, the cost of capital for those solutions is below our targets. It wouldn't be appropriate for this business unless that changes, but that doesn't mean there aren't private market solutions or some hybrid or something that comes up to the extent demand is there, and there is a good place to obtain risk reward type financing opportunities.

And that's happened time and time again. I would imagine there'll be something like that, that emerges. It's just too early to tell. It's also unclear where the banking sector ends up. But I think them exiting that type of business would be a more wholesale change in their business model, which we don't see or anticipate or even hear about in the current environment.

Yes. And I'll just add, one of the things we've seen due to some of the pullback, especially from the larger banks, is that as our portfolio companies continue to grow, obviously, they're making tuck-in add-on acquisitions. They're growing their cash flow tremendously, and they, at some point, may be ripe for refinancing by one of the larger banks. But given what's going on, we expect them to stay in our portfolio longer and we can continue to finance them, given that we know the business really well. And as you've seen, as we've talked about the quarter in the recent quarters, the amount of origination that we get out of our existing portfolio continues to be pretty high. I think it's 45% over the last 12 months. And that's partly due to us the existing lenders providing that solution for the borrowers instead of them going out and getting cheaper cost of capital from the banks in what would have been the case 1 or 2 years ago.

Our next question comes from Kevin Fultz from JMP Securities.

Just one question for me relating to Edmentum. You've obviously seen the headlines around the adverse impact that AI is having on the online education space, some publicly traded education platforms are down more than 60% year-to-date. I was curious if you could share your high-level thoughts on the impact that AI is having on Ventas business model if they're experiencing the same degree of disruption that other online education platforms are facing. I'm just trying to get a better understanding around the movement in fair value marks for the company and what the lives as well.

Yes, I can give you some perspective because we've talked about it and then time will tell. But I think if you can think about what Edmentum has successfully done in moving its business forward over time, it's made a big push from going from analog to digital. Obviously, that's where the market is going for ad tech. They've done a very good job, I think, proactively going from broader-based assessment and targeted content to much more personalized assessment and targeted content to move students forward from baseline from where they are to a baseline or ahead of it. A big part of that value proposition going forward is the ability to do that very proactively in a very targeted manner. And not surprisingly, some AI type of technology is actually additive to that. It gets -- it makes it a more robust function.

So the product set will certainly incorporate that meant them as a company, I should let the CEO who is exceptional in his field speak to it directly, but has -- even before AI became kind of the topic of the day, we're exploring incorporating that into their product set because that is where the market ultimately will go and will benefit from. But I think that makes it a better product, not a less relevant product. And that's one that I think will only enhance what they're doing on a personalized basis with students.

How that ultimately rolls forward, I think time will tell. But from a point of view of the thinking at the company level, they've been thinking about AI and incorporating it for quite some time now. And I haven't tracked the other online education performance. I don't think they necessarily comparative businesses. But at least from my perspective, it's something that would be additive to what they do, and they certainly see that, that way as well.

Raj, congratulations on a nice quarter.

Thank you for your question. There currently no questions registered. (Operator Instructions)

Okay. We appreciate your participation on today's call. I would like to thank our team for all the continued hard work and dedication. I would also like to thank our shareholders and capital partners for their confidence and their continued support. Thanks for joining us. This concludes today's call.

That concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.