GBDC - NASDAQ

Hello everyone and welcome to GBDC's March 31, 2023 Quarterly Earnings Call. Before we begin, I'd like to take a moment to remind our listeners that remarks made during this call may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in GBDC's SEC filings. For materials, we intend to refer to on today's earnings call please visit the Investor Resources tab on the homepage of our website, which is www.golubcapitalbdc.com and click on the Events Presentations link. Our earnings release is also available on our website in the Investor Resources section. As a reminder this call is being recorded. With that, I'm pleased to turn the call over to David Golub, Chief Executive Officer of GBDC.

Hello, everybody, and thanks for joining us today. I'm joined by Chris Ericson, our Chief Financial Officer, and by Matt Benton, our Chief Operating Officer. For those of you who are new to GBDC, our investment strategy is to focus on providing first lien senior secured loans to healthy resilient middle-market companies that are backed by strong partnership-oriented private equity sponsors. Yesterday, we issued our earnings press release for the quarter ended March 31, 2023 and we posted an earnings presentation on our website. We'll be referring to that presentation during the call today. I'm going to start as usual with headlines and a summary of performance for the quarter then I want to talk about our outlook. Good news, I'm going to be less long-winded than last quarter. Next, Matt and Chris will go through our financial results for the quarter in detail. And finally, I'm going to come back to make some closing remarks and take questions. Before we jump in, I also want to mention that we intend to publish another update to our Equity Investor Presentation over the next couple of weeks. It will be available to you on our GBDC website. We hope you find these presentations a useful source of additional information on GBDC and on Golub Capital. Okay. Let me start with headlines. GBDC's performance for the quarter ended March 31, 2023 was solid and it was consistent with recent trends. Four highlights. First, adjusted net investment income per share increased by 14% to $0.42 from $0.37 per share in the quarter ended December 31. That's a record for GBDC, and it equates to an adjusted NII ROE of 11.5%. We believe this adjusted NII per share reflects how higher base rates and higher spreads have both materially increased GBDC's earnings power. Second, quarterly dividend coverage. Quarterly dividend coverage increased to 127% as adjusted NII per share significantly exceeded GBDC's dividend of $0.33 per share. Third, overall credit performance of GBDC's portfolio remained strong, and it remained strong despite rising interest rates and slower economic growth. Adjusted net realized and unrealized losses for fiscal Q2 came to $0.08 per share. Non-accruals did not meaningfully change and migration and performance ratings was in line with and in fact it was somewhat better than our expectations. Fourth highlight. GBDC executed on its share repurchase program during the quarter purchasing 750,000 shares at a weighted average price of $12.84 per share. This is the first time that we've repurchased shares and we believe this speaks to the conviction we have in GBDC's value proposition. Together the results drove a $0.02 increase in NAV per share quarter-over-quarter to $14.73 per share. While we're pleased with GBDC's performance for the quarter, I want to be clear that we don't view our calendar Q1 results as a reason for complacency. We anticipate and we're preparing for more challenging conditions. Now I'm not saying the recession is coming and I'm not predicting a soft landing. As we'll talk about over the course of this call, we see conflicting signals today. We want to talk about those conflicting signals and we want to talk about what we're doing in response to them. Let me start by describing the conflicting signals. On the one hand, we see indicators that are winning to a rough patch ahead. GDP growth has slowed. It's barely above 1% for calendar Q1 on an annualized basis. There are lots of layoffs in the news. A recent report by Challenger, an outplacement firm, said that employers have announced more than 330,000 layoffs year-to-date. We've seen high-profile companies announce weak Q1 results including the likes of Eli Lilly and Paramount and the chorus of economists and commentators predicting recession has grown louder. On the other hand, the Golub Capital Middle Market report for calendar Q1 showed double-digit revenue and earnings growth to the second consecutive quarter of surprisingly strong results. Our default rate also remains low. We haven't seen material movement in non-accruals or significant migration in performance ratings. So what do these conflicting signals mean? Well, I think the right way to think about these conflicting signals is to think about them in terms of potential scenarios. I'll talk about two, a good case scenario and a bad case scenario. A good case scenario is that inflation continues to decelerate and puts the Fed in a position to start cutting rates later this year or in my judgment more likely early next year. In this scenario, we'd expect to see muddling growth for the rest of 2023 and we'd expect to see an acceleration in growth when rates start to decline. The bad case scenario I want to talk about is that macro conditions keep getting worse. One potential culprit for this bad case scenario relates to the string of recent bank failures. Not yet clear what the full impact of these failures is going to be, but it's easy to imagine that the bank failures are going to cause a reduction in consumer spending, a dampening of business investment, a tightening of bank lending activity or all three of those outcomes. What are we seeing in the portfolio right now? Well, most of our borrowers are adapting well despite a challenging environment. We're generally seeing borrowers take steps to raise prices to cut costs and to shore up liquidity. Now this isn't surprising. We're very selective about the companies we lend to. We look for companies that are capable of adapting ably even under changing conditions and under challenging conditions. In our view this is the kind of market where strong management teams and strong sponsors are particularly valuable partners. On the other hand, this is also the kind of market where we expect to see some credit migration. We expect to see this in credit markets generally. We expect to see it in the BDC market generally and we expect to see it in GBDC's portfolio. To date we've seen less credit migration in GBDC's portfolio than we expected to see. We'll discuss this in more detail when we look at GBDC's internal portfolio performance ratings later in the presentation. The point I want to emphasize here is that based on Golub Capital's 28-plus years of experience, a more challenging environment typically leads to greater dispersion in borrower performance. And that typically leads to greater dispersion in lender performance. And that in turn leads to different outcomes for investors based on which managers they're invested in. Let me say that differently. While we expect most of our borrowers to continue to navigate the coming period successfully, we also expect to see more credit stress. Last quarter we talked about some of the things we're doing to prepare for that more credit stress. I want to reiterate some of that in this quarter's call. On last quarter's call we described in detail the enhanced portfolio monitoring procedures that we put in place last summer which we continue to use. These procedures help us identify less resilient borrowers and to allocate additional resources to those borrowers. To refresh your recollection, in our enhanced procedures we focused on six key risk factors: higher interest rates, higher inflation, recession resistance, international exposure, quality of earnings and software sector-specific issues. We evaluated Golub Capital's entire Middle Market loan portfolio on a company-by-company basis against these six factors and we were looking for potential vulnerabilities. We did this because in the words of Golub Capital's Head of Direct Lending Greg Cashman, there's just no substitute for granular credit analysis. So we keep revisiting our resiliency analysis. We're laser-focused on the relatively small tail of vulnerable borrowers in GBDC's portfolio. We're monitoring the performance of those borrowers closely and we're working with sponsors and management teams to increase their margin for error. One final thought before I pass the mic to Matt, this isn't our first rodeo. We believe the power of the Golub Capital platform is going to help GBDC navigate the coming period successfully much as we've successfully navigated prior bumpy periods.

Thanks, David. Let's turn to Slide 4 now. GBDC's adjusted NII per share increased by $0.05 quarter-over-quarter to $0.42, which represents a sequential increase of approximately 14%. On an annualized basis, the $0.42 per share of adjusted NII, represents an ROAE of 11.5%. This increase was primarily driven by the impact of higher base rates and increased spreads on GBDC's portfolio as well as GBDC's low cost of funding. GBDC had an adjusted net realized and unrealized loss per share of $0.08, primarily from unrealized appreciation due to the limited credit migration David discussed earlier. Adjusted EPS was $0.34 per share, representing an annualized ROAE of 9.4%. This represented a sequential increase of approximately 127% quarter-over-quarter. Finally, NAV per share increased by $0.02 to $14.73. Overall, we are pleased with GBDC's results and believe the quarter reflected solid performance, especially in the context of the current macro and market backdrop. I'm going to turn to Slide 7 now to walk through the drivers of the changes to NAV this quarter. On Slide 7, you can see that NAV increased quarter-over-quarter to $14.73 per share. Let's walk through the components. Adjusted NII was $0.42 per share and the company paid $0.33 per share of dividends. Adjusted NII was offset by a loss of $0.04 per share from net unrealized depreciation on investments. And finally net realized depreciation drove a loss of $0.03 per share. I think there are a couple of key takeaways from this slide. First, GBDC's strong growth in adjusted NII enabled GBDC to generate $0.09 per share of excess income above its dividend. This excess income allowed us to grow GBDC's NAV per share despite some net realized and unrealized depreciation. Given our cautious near-term economic outlook, we think it's prudent to hold the quarterly dividend constant at $0.33 per share for now. At the same time, we continue to believe in the strength of GBDC's forward-looking earnings potential, so we plan to reassess our approach to dividends in future quarters. Second, there's a new line item on our NAV this quarter: share repurchases. Simply put, we think the stock is undervalued. Share repurchases in calendar Q1 were accretive to NAV by $0.01 per share. We believe GBDC's strong balance sheet gives us valuable flexibility to continue to buy back shares opportunistically. Turning now to slide 10. This summarizes our origination activity for the quarter. Net funds increased modestly as new investment commitments and delayed draw term loan fundings exceeded exit sales and fair value changes of existing investments. The asset mix of new investments shown in the middle of this slide remained predominantly one-stop loans. Looking at the bottom of the slide, the weighted average rate on new investments increased by 70 basis points this quarter due to a combination of higher base rates and wider asset spreads on new originations. The weighted average spread on new investments increased by 40 basis points over the prior quarter, from 6.7% to 7.1%. While overall deal volume remains muted, we believe market conditions remained lender friendly for the deals that did happen, and we expect that to continue for the foreseeable future. Slide 11 shows GBDC's overall portfolio mix. As you can see, the portfolio breakdown by investment type remained consistent quarter-over-quarter, with one-stop loans continuing to represent around 85% of the portfolio at fair value. On slide 12, this shows that GBDC's portfolio remained highly diversified by Obligor with an average investment size of approximately 30 basis points. As of March 31, 2023, 94% of our investment portfolio was comprised of first lien senior secured floating rate loans and defensively positioned in what we believe to be resilient industries. Now let's turn to slide 13. As we explored in detail over the prior couple of quarters, the rising interest rate environment highlights the asset-sensitive nature of GBDC's balance sheet. Let's start with the dark blue line which is our investment income. As a reminder, investment income includes the amortization of fees and discounts. GBDC's investment income increased by 100 basis points primarily from rising interest rates. By contrast, our cost of debt the teal line only increased 40 basis points. Our cost of debt benefits meaningfully from our approximately $1.5 billion of unsecured notes that are fixed rate and have a weighted average coupon of 2.7%. Combining these two factors our weighted average net investment spread the gold line increased by 60 basis points over the prior quarter. We believe GBDC's adjusted NII per share still has some room to grow as existing loans reset to higher base rates and given the most recent Fed funds increase. However, we believe the growth from here will likely be modest unless the Fed decides to raise rates further. You'll see additional details on GBDC's asset sensitivity in the Form 10-Q. Finally, I'd note that the current lender funding environment also provides us opportunities from time to time to re-price existing loans at higher spreads. For example, when borrowers want additional financing or flexibility. This is a dynamic in the existing portfolio we anticipate will continue to provide additional upside over the near term. I'll turn it over to Chris now to cover credit quality.

Thanks Matt. Let's move on to slide 14 and 15 and take a closer look at credit quality metrics. On slide 14, you can see that the number of non-accrual investments as of March 31st decreased to eight from nine compared to December 31st due to the write-off of one non-accrual portfolio company investment, which had a fair value of zero as of December 31, 2022. Additionally, the percentage of investments on non-accrual measured at fair value as of March 31st decreased modestly to 1.7% of our total portfolio from 1.8% as of December 31, 2022. On slide 15 as David mentioned earlier, internal performance ratings have been strong and relatively stable. Approximately 87% of investments have an internal performance rating of four or higher, which means they are performing as expected or better than expected at underwriting, and only 1.2% of investments have an internal performance rating of two or lower, which means they are performing materially below expectations at underwriting. Our internal performance rated three bucket increased modestly as expected given where we sit in the current cycle to 11.8%. You'll recall that category three loans are performing below expectations or are expected to perform below expectations. When a loan migrates to category three, it automatically triggers enhanced monitoring and oversight and it doesn't mean that we necessarily expect a default or loss. Given the current dispersion of potential economic outcomes that David described earlier, we are currently and have in similar environments historically been more conservative in evaluating investments. We're going to skip past slide 16 through 19. These slides have more detail on GBDC's financial statements, dividend history and other key metrics. I'll just mention a couple of takeaways from these slides. On slide 16, you can see that GBDC's shares of common stock outstanding decreased this quarter to 170.1 million shares outstanding from 170.9 million shares outstanding as of December 31, 2022. This is a result of the share buybacks we executed. In addition, as noted in our 10-Q filing, we repurchased additional shares through May 8, resulting in aggregate share repurchases totaling over 930,000. Please note on slide 17, the reduction in GBDC's common shares outstanding didn't fully flow through to the weighted average share count during the quarter. We believe the full impact of the share repurchases made during the March 31 quarter and subsequently through May 8th will be beneficial from an earnings accretion perspective next quarter all else equal. Finally on slide 18 note that GBDC's quarterly return on equity was 2.4% this past quarter. The last slides I want to cover before handing it back to David are slides 20 and 21. We believe GBDC has meaningful value embedded in its funding structure. We ended the quarter with almost $960 million of dry powder from unrestricted cash, undrawn commitments on our meaningfully over-collateralized corporate revolver and the unused, unsecured revolver provided by our adviser. GBDC's robust liquidity represents over five times its current unfunded asset commitments and the funding structure is an important element that underpins our three investment grade ratings from Fitch, Moody's, and S&P. I also wanted to share some quick perspective related to GBDC's corporate revolver. On March 17th, we amended and extended GBDC's revolver with its bank group. First, we extended the term of the revolver by two years to March 2028. Second, we increased aggregate commitments under the facility by $250 million to approximately $1.49 billion. Third, we decreased the credit spread adjustment related to SOFR to 10 basis points, while all other material terms, including pricing, remained constant. We think our ability to close this transaction despite regional bank turmoil demonstrates the power of the Golub brand with the bank lending community. As of March 31st, 2023, GBDC's debt-to-equity ratio net of cash was 1.21 times. 46% of our debt funding is in the form of unsecured notes, the majority of which have maturities in 2026 and 2027. We issued these fixed rate notes with a weighted average coupon of 2.7% and did not swap these out to floating rate. Our weighted average cost of debt for the quarter ended March 31st, 2023 was 4.8%, which we believe is among the lowest in our peer group of publicly-traded BDCs. Now, I'll turn it back over to David for closing remarks and Q&A.

Thanks Chris. To sum up, GBDC's performance for the quarter ended March 31 was solid. Adjusted NII per share was strong and it was well in excess of our dividend. The portfolio is generally performing well from a credit perspective. And at the same time, we're starting to see more dispersion in borrower performance. We don't know exactly what the future is going to bring, but we're preparing for a future with more credit stress and more migration of loans from Categories 4 and 5 on our internal performance ratings to Category 3 in future quarters. Our game plan remains the same we talked about last quarter. It's to detect vulnerabilities early, to take corrective actions early, and to stay laser-focused on avoiding realized credit losses. As long as we can keep realized credit losses low, we should see a large portion of the unrealized losses that we've taken over the last 12 months reverse. Finally, I want to reiterate that we think GBDC is exceptionally well-positioned for the long-term. In part, this reflects the powerful competitive advantages of the Golub Capital platform, our strong relationships with sponsors and borrowers, our market-leading scale, our deep industry expertise, and our long track record of low credit losses. And in part this reflects the strengths of GBDC's balance sheet and fee structure. We were buyers of GBDC stock in fiscal Q2 because of our conviction about the company's prospects. And we've kept the dividend level constant to build NAV and to position ourselves to go on offense in a relatively attractive lending environment. With that, we'll open the line for questions.

[Operator Instructions] Your first question is from the line of Raymond Cheesman with Anfield Capital. Your line is open.

With all the volatility in the last several months, there has been increasing discussion in Washington about non-banks needing to have more supervision. I'm wondering what you think might come down the road and how it might impact Golub?

Thanks for your question. I think you're right there's an increasing amount of discussion about potential changes to regulatory frameworks. And it's interesting to think about these discussions in the context of the last 30 years of history. If you think about what's happened over the course of the last 30 years, starting with regulatory changes during the savings and loan crisis in the early 1990s, we've seen a series of moves by regulators and through legislation to get banks to be less involved in lending to private equity-backed companies. We saw it in the HLT phase in the early 1990s. We saw it in the telecom debacle of the early 2000s and we saw it maybe most particularly in the concerted effort of the three different bank regulators post Dodd-Frank. The result of these actions is in – to a very significant degree to privatize lending to private equity-backed companies. There's relatively little bank ownership of loans to private equity-backed companies. And I think that's been intentional. It's been the objective of the regulators to avoid having federally deposit-insured institutions be owners of these kinds of loans. I'm puzzled by what the goal would be of a new round of regulation. I don't think the goal is to bring back this kind of lending to banks. And because vendors like Golub Capital don't use deposits, we don't have the same dynamic. We don't have the same bank-run risk that we've seen in the case of Silicon Valley Bank or Signature Bank or First Republic. So I think your question is fair. We are hearing more about this. I think there's going to be a need for more discussion about what the goals are. And then about what the potential modalities for achieving those goals are. I don't think there's clarity yet about either.

If you'll let me I have a follow-up. Again, there's been kind of talking heads, Wall Street Journal, what-have-you about private capital coming to the rescue or helping to support the CRE rollover over the next 18 to 24 months. And while I don't think that that category of asset is necessarily attractive to you on a risk-return basis, I'm wondering what you think about private debt getting into the CRE swamp at this moment.

So again, a very interesting question. You're right, not one that's directly relevant to us because we don't do real estate lending. We don't think we're capable of doing real estate lending well. But I'll make a few observations. If you look at the data coming out of the Fed, the largest lenders to the local commercial real estate industry are regional and local banks. That data points to about $2 trillion of local commercial real estate lending. I think it's likely coming out of the bank runs and bank failures that we've seen that there's going to be pressure on those local and regional banks to reduce that level of lending. Partly this is going to be a function of continued consolidation in the banking sector. We've gone from 14,500 banks to a little over 4,000 over the last 30 years. I think recent troubles in the bank sector are going to accelerate that trend. So, partly, we're going to see lower commercial real estate lending from banks just because there are fewer local and regional banks. And partly, I think local and regional banks are going to respond to the recent events by reducing leverage and by increasing their cautiousness. So, I think there's going to be a need for incremental lending capital in the space. I think it's logical to look to the private credit -- the real estate private credit segment as a potential source of capital. I don't think it's going to be easy because this isn't just an issue of availability of credit. This is also an issue of creditworthiness. We've got a lot of commercial real estate in this country that is seeing declining rent trends and increasing interest expense trends. And there's not just a need for more debt capital. There's going to be a need for more equity capital.

Thank you very much.

Your next question comes from the line of Ryan Lynch with KBW. Your line is open.

Hey, good afternoon. I really appreciate all the comments you've given on kind of how you guys are viewing your portfolio and the economy as we go through these choppy times. I know each individual business that you lend to has individual circumstances that affect its performance. But I would just love to hear as you kind of take a step back and look at your overall portfolio in the different segments and sectors, are there any sectors in your portfolio that you are noticing having very strong returns in this current environment? And you expect that to continue throughout the year? And then conversely are there any sectors in your portfolio that are noticeably more challenged currently and the expectation is to run into additional challenges throughout 2023?

Sure. Good to hear from you Ryan. I'd point to a couple of observations. You're right everything's a situation at a granular level, but there are some trends that are visible. One trend -- and you can see this in the Golub Capital Middle Market Report numbers for the last several quarters, one trend is -- it's sustained strength in business-to-business mission-critical software companies. And I don't think this is surprising, right? If you think about these companies, they're selling services that are aimed at improving the efficiency of their clients. So, as their clients and their prospective clients are under more pressure to achieve efficiencies, it actually drives more business for them. So, I think we're likely to see continued reasonably strong results in the business-to-business software space. It's interesting because that's not what we're seeing in consumer-facing software. We're not meaningful lenders to consumer-facing software companies. But as investors we all know what's been happening in the large consumer-facing technology sector with companies experiencing falling demand. So, it's an interesting split between consumer-facing and business-focused software. Second trend I'd identify is in health service -- it's health care services. The companies that are very heavily reliant on Medicare, Medicaid payments and to some degree, those that are focused on payments from insurance companies, they're seeing a challenge, managing price as quickly as their costs are changing. So in many cases we're seeing a similar dynamic here. We're seeing costs go up primarily wage costs because of challenges filling positions. I think it's going to get a little easier with the slowing economy but this has been a challenge. And we're seeing these companies unable to pass through fully those cost increases in the form of higher pricing. And I think we're going to continue to see some healthcare service firms – it's not all of them but selectively we're going to see some continue to struggle with that. They simply don't have the same pricing power that they wish they had.

Okay. Yes, that makes sense. I was just curious on – obviously, it's been a pretty slow environment right now. Multiples are not necessarily high, spreads are wide, base rates are high, growth is slowing. So it's not a great time I don't think for – and there will be M&A and companies will really transact. I'm just curious, what type of companies do you see transacting in this current environment number one. And then number two, what do you think has to change – and maybe there's multiple things that need to change before you think there will be a more consistent level of deal volume out of the marketplace?

Sure. So first again, just share of fact base. M&A volumes have been very slow, not a little low, not a small decrease from 2021 or the early part of 2022 but a very dramatic decline. And it's small deals. It's large deals. It runs across the board. And I think to your point it's not entirely surprising. We saw – in the spring and summer of 2022, we saw a decline in public equity prices and we saw a very significant increase in financing costs. So when we've seen that pattern before, it typically takes a bit of time for buyers and sellers to recalibrate and to come to agreement again on what constitutes fair value. I think it is changing right now. We're seeing some improvement in deal activity, in our pipeline. I think private equity sponsors are in many cases eager to get new deals done. I think some private equity firms are now testing the market by bringing out for sale companies that are strong performers. So I think it's going to start improving over the course of calendar Q2 and more particularly over the second half of the year. But it would help us a whole lot, Ryan, if we also saw an improvement in the macro picture. So if we saw signs of continued deceleration in inflation and people could get more comfortable that the interest rates have already peaked and are going to head down in 2024. I think that would help a lot.

Yes. Makes sense. And then just one last question if I can. I don't remember if this has been addressed in the past but both your securitizations both exited – or both exited their reinvestment period earlier this year. I know there's not a lot of repayments in the marketplace occurring today. But as there's more repayments in each of those vehicles, I think they become less efficient from a capital funding source. I'm just curious longer term, what do you -- I would assume at some point you're going to want to replace those as they become less efficient. What do you anticipate replacing those with? And is there sort of any estimated timeline of when they would be replaced? And I would assume that that probably depends on the level of repayments in those vehicles, which I'm assuming is probably pretty low at this point.

Yes, as Chris Ericson said, we've got enormous liquidity. So, there's no rush to do anything. You are correct that over time it's good to refresh securitization so that at least some of them are in reinvestment period. And we do have two that are very attractively priced, but that are now out of their reinvestment period. It's not a problem. We have such ample liquidity that there's no need to manage this and prepay those early. We don't want to prepay them early because the pricing on them is below where market is today. But at some point in the future as we see repayments, it will make sense to refresh those securitizations. I like having a mix of different kinds of financing, a combination of unsecured notes and securitizations and the bank revolver. I think that combination works very well. So, I'd anticipate we'd continue to want to manage the right-hand side of the balance sheet with a mix of those three.

Okay. Understood. I appreciate the time today.

Your next question comes from the line of Robert Dodd with Raymond James. Your line is open.

Hi guys. I just want to go back to one of the visible trends you pointed out in terms of the health care services. I mean when we look at the Altman index in your portfolio, I mean health care has seen I think margin expansion in this most recent quarter. So, there’s that. Is there any connection between that industry and the increase in kind of Category 3 assets given – I mean you do – it’s 8% of your portfolio? If consumers learned anything in COVID as some health care things I think are maybe more discretionary than they thought in years past. I mean is there any connection between those issues, or any color there?

I think it’s fair to say, Robert, that we've had a higher proportion of our credits -- problem credits – we’re good at avoiding problem credits, but we don't avoid them entirely. We've had more in health care than I think in other sectors. And I anticipate that's a trend that's going to continue for a bit.

Okay, appreciate it. Thank you.

Your next question is from Jordan Wathen with Wells Fargo. Your line is open.

Hi. You've mentioned international exposure in the portfolio as something you watch on the potential credit risk. I'm curious if you view this as currency risk or different behavior from sponsors internationally, or just your views on growth outside the US? Any color you can give there on what in particular concerns you about international businesses more than others?

Sure. So, flash back to summer of 2022, the US has raised interest rates very rapidly, faster than we've ever raised interest rates before. That in turn has had a very significant impact on currency exchange rates. We believe that many companies were not expecting those changes. And that hedging forward exchange rate movements is very challenging for most companies. So we wanted to take a new look at cost structures and revenue structures for our portfolio with a real focus on companies where there were revenues in one currency and expenses in the second currency to determine whether they had found themselves in a difficult spot. There were some other factors as well. We also put on the list, related to the war in Ukraine and changes in trading patterns, associated with the war in Ukraine, but the major area that we found ourselves focused on was FX.

All right. Great. Thank you. That’s all for me.

[Operator Instructions] There are no further questions at this time. I will now turn the call back to the presenters for closing remarks.

Great. Thank you all for attending today. We appreciate your time. And as always, should you have any questions prior to our next quarterly scheduled call, please feel free to reach out. Look forward to talking to you all in three months.