GBDC - NASDAQ

Hello, everyone, and welcome to GBDC's June 30, 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 CFO and Matt Benton, our Chief Operating Officer. For those of you who are new to GBDC, our investment strategy is, and since inception, has been providing first-lien senior secured loans to healthy middle-market companies that are backed by strong partnership-oriented private equity sponsors. We have a lot to talk about today. It was an eventful quarter. Record adjusted net investment income of $0.44 per share, strong credit results, an $0.08 per share dividend increase, $0.04 of that from an increase in the base dividend and $0.04 from implementation of the new variable supplemental dividend framework. A $0.10 per share increase in NAV and a permanent reduction in the base management fee going forward to 1%. Yesterday, we issued press releases describing both GBDC's quarterly earnings and the management fee reduction. We also posted two presentations on our website, and we'll be referring to both of them on this call. I'm going to start by discussing the management fee reduction and then my colleagues and I will walk you through the quarter, we'll plan on taking questions at the end. On August 3, GBDC's Board approved a permanent reduction in the base management fee rate from 1.375% per annum to 1% per annum, effective July 1. The basis for computing the management fee is unchanged. It's based on the fair value of assets other than cash. As you can see from the chart, all other terms of the company's investment advisory agreement remain unchanged. In other words, the lower base management fee rate applies in addition to the existing best-in-class features of GBDC's fee structure. And that includes one of the highest hurdle rates in the industry and a cumulative incentive fee cap that looks back to the company's inception. Slide 4 illustrates how the new lower management fee permanently increases GBDC's earnings power. I want to walk you through the chart. The left column reflects GBDC's actual results for the quarter ended June 30, and the right column reflects GBDC's pro forma results as if the lower fee rate had applied for the quarter. The rows outlined in gold show the key differences between the actual and pro forma results. So you'll see the base management fee decreases significantly in the pro forma analysis. And at the same time, the NII incentive fee increases slightly because pre-incentive fee earnings are higher. Pro forma for the management fee reduction, GBDC's adjusted NII increases by between $0.02 and $0.03 per share on a quarterly basis or over $0.10 per share on an annualized basis. Now the exact impact of the fee change is going to depend on a number of assumptions. But one way to interpret this analysis is that the lower management fee rate increases GBDC's expected profitability book today and its average level of profitability across various market and interest rate cycles. So that covers the what. Now let's turn to Slide 5 and talk about the why. Since GBDC's IPO 13 years ago, we've always sought to be at the front end of raising the bar for alignment between the company's shareholders and its investment adviser. GBDC pioneered the cumulative incentive fee cap and that set the standard for aligning BDCs and investment advisers on long-term credit performance. Now many things haven't changed since 2010. Our investment strategy, I started out today's call describing it's the same. So is our focus on delivering the attributes that we think BDC and investors care most about, including strong risk-adjusted returns on equity, a stable and well-covered dividend and consistent NAV growth over time. What has changed is GBDC's scale. In terms of total assets, GBDC today is over 15x the size it was at the time of the IPO. With that growth has come higher management fee revenues for Golub Capital. And consistent with Golub Capital's focus on win-win solutions, Golub Capital proposed to GBDC's Board last week that had shared the benefits of GBDC's growth by lowering its management fee. We believe this move is consistent with Golub Capital's long-standing commitment to having a BDC industry-leading shareholder-friendly fee structure. Let's turn to Slide 6 to wrap up this part of today's call. In our view, GBDC's value proposition to shareholders was compelling before this change. Now it's even more compelling. We believe GBDC has the right strategy for today's environment, a focus on floating rate senior secured loans to resilient sponsor-backed companies. With base rates and spreads both high, now is a particularly attractive time for sponsored finance. Second, we think GBDC's investment adviser is the right manager to execute on the company's strategy. Golub Capital has powerful competitive advantages you've heard me talk about on many prior calls. These competitive advantages include scale and sponsor relationships and incumbencies, a wide breadth of solutions and industry expertise. Golub Capital has also proven its credit prowess through a 20-year track record of low defaults and low credit losses. There's a reason private debt investor just named Golub Capital both lender of the decade and senior lender of the decade. Third, we think GBDC's funding model gives it low-cost leverage and structural resilience. And finally, we believe GBDC's fee structure is very attractive, even more attractive going forward and that it creates strong alignment between the company's shareholders and its investment adviser on the goal of long-term shared success. I'll now turn the floor over to Matt to start us off in the earnings presentation.

Thanks, David. Now let's turn to our usual earnings presentation. I'm going to start on Slide 6. GBDC's earnings for the quarter ended June 30 were a record setting. Adjusted NII per share increased to $0.44 from $0.42 per share in the quarter ended March 31. This equates to an adjusted NII ROE of 11.9%. Adjusted NII per share significantly exceeded the company's quarterly dividend. We'll come back to that point in a moment. Net income per share increased to $0.43 from $0.34 per share in the prior quarter. This equates to an ROE of 11.6%. The GBDC's NAV per share increased by $0.10 to $14.83 per share as of June 30. The portfolio and balance sheet update generally reflects the continuation of trends from the March 31 quarter. Net funds growth remained muted as the market-wide deal drought continued. Overall credit performance of the GBDC portfolio remains solid despite rising interest rates and slower economic growth. We've been anticipating the degree of credit migration, but to date, we've seen less credit migration than we expected. Internal performance ratings remained stable and non-accruals decreased to 1.5% of total debt investments at fair value. On the right side of the balance sheet, GBDC's debt funding remained low cost and highly flexible with unsecured debt representing about 46% of the mix. GBDC ended the quarter with nearly $900 million of total available liquidity. The last highlight on the page is an exciting change to GBDC's dividend policy. The Board raised GBDC's regular quarterly distribution by $0.04 to $0.37 per share. This higher distribution is well-covered with a coverage ratio of 119%. The Board also authorized a supplemental distribution of $0.04 per share on top of the new higher base dividend. The supplemental dividend was consistent with the new variable supplemental distribution framework that GBDC expects to implement going forward. Chris will discuss this in more detail shortly. In total, the Board approved $0.41 per share of distributions in respect of fiscal Q3 performance. This corresponds to an annualized dividend yield of more than 11% based on GBDC's NAV per share as of June 30. I'm going to turn it over to Chris now to provide more detail on our results. Chris?

Thanks, Matt. Turning to Slide 7, you can see how the key earnings drivers we mentioned earlier translated into solid growth in NAV per share. We've talked for several quarters about GBDC's enhanced fundamental earnings power in the current environment. Combination of high short-term interest rates, attractive credit spreads and GBDC's low-cost leverage profile drove a continued trend of record adjusted NII per share. As you can see, GBDC outearned its dividend considerably in the fiscal third quarter. We've also said that our confidence in GBDC's forward-looking earnings potential meant that we expected to reassess our approach to dividends in the future and we did. Let's turn to Slide 8 to walk through the details. Slide 8 provides additional detail on the two key changes to GBDC's dividend policy that Matt highlighted. We believe it's important for investors to understand the rationale for the change and supporting framework. So let's walk through the details. First, the Board increased GBDC's base dividend by over 12% to $0.37 per share. We believe this change is appropriate in light of GBDC's enhanced profitability. The new base dividend is well-covered by GBDC's adjusted NII and was assessed in the context of our objective to remain a stable and growing NAV over time. Second, the Board approved a supplemental distribution that was based on the variable supplemental distribution framework that GBDC expects to implement going forward. The goal of this framework is to give shareholders a clear line of sight into how we plan to balance the likelihood that GBDC will continue to generate excess income, all else equal, on the one hand, with our focus on NAV stability and resilience on the other hand. In short, the variable supplemental distribution framework will propose supplemental distributions paid quarterly in arrears based on 50% of the amount by which quarterly adjusted NII exceeds the regular quarterly distribution, subject to NAV stability requirements and the Board's discretion, oversight and approval. For fiscal Q3, the supplemental distribution amount is $0.04 per share payable in September. You can find additional detail about the variable supplemental distribution framework on Page 24 of the earnings presentation. The chart at the bottom of the slide shows how the two changes to GBDC's dividend policy translate into a higher go-forward dividend yield. We estimate that the increase in GBDC's base dividend to $0.37 per share corresponds to a 1.1 percentage point increase in GBDC's annualized dividend yield on NAV as of June 30 from 8.9% to 10%. The supplemental distribution shown in light blue further increases GBDC's dividend yield on 6/30 NAV by another 1.1 percentage point to 11.1% annualized. We're excited that these policy changes set the stage for more of GBDC's enhanced earnings power to be distributed to shareholders in a manner we believe is prudent and understandable. Let's now go through the details of GBDC's financial results for the quarter ended June 30. We've covered the key points on Slide 10. So we'll start on Slide 11, which summarizes our origination activity for the quarter. Net funds increased modestly quarter-over-quarter as new investment commitments and delayed draw term loan fundings exceeded exits, sales and fair value changes of existing investments. Market-wide deal activity has been slow since last year and remained slow in the June 30 quarter. We're seeing a modest improvement in our pipeline for the second half of the calendar year, but our sense is that a significant acceleration in deal activity is more likely to be a 2024 event. The asset mix of new investments shown in the middle of the slide, remain predominantly one-stop loans. Looking at the bottom of the slide, the weighted average rate on new investments increased by 20 basis points this quarter, primarily due to higher base rates. The weighted average spread on new investments tightened by 50 basis points to 6.6%. Spreads in the market are reasonably stable. This quarter-over-quarter change is primarily due to fluctuations resulting from modest origination activity rather than about a change in market conditions. Having said this, we have seen some signs of spread tightening in recent months. Slide 12 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. Slide 13 shows that GBDC's portfolio remained highly diversified by Obligor with an average investment size of approximately 30 basis points. As of June 30, 2023, 94% of our investment portfolio consisted of first-lien senior secured floating rate loans to borrowers across a diversified range of what we believe to be resilient industries. The economic analysis on Slide 14 continues to showcase the asset-sensitive nature of GBDC's balance sheet in an environment of rising interest rates. Let's walk through how to interpret the chart. Starting with the dark blue line, which is our investment income yield. And as a reminder, investment income yield includes the amortization of fees and discounts. GBDC's investment income yield increased by 40 basis points, primarily from rising interest rates. By contrast, our cost of debt, the teal line only increased 30 basis points. As a result, our weighted average net investment spread, the gold line increased by 10 basis points over the prior quarter. I'm going to hand it back over to Matt now.

Thanks, Chris. Let's move on to Slide 15 and 16 and take a closer look at credit quality metrics. The overall message is that credit trends remain solid and stable. On Slide 15, you can see that non-accruals decreased by 20 basis points quarter-over-quarter to 1.5% of total debt investments at fair value. As a percentage of amortized costs, non-accruals decreased by 80 basis points to 1.8% of total debt investments. We disclosed one non-accrual investment in fiscal Q3 for proceeds slightly higher than the investment fair value as of March 31, and we completed restructurings of two long-time watch list companies, both of which have previously been on non-accrual. Those two restructurings underpin the majority about the realized loss and unrealized gain this quarter. Also in fiscal Q3, one small and one tiny investment were placed on non-accrual status. Slide 16 shows the trend in internal performance ratings on GBDC's investments. As of June 30, around 86% of GBDC's investments were rated 4 or 5, which means they're performing as expected or better than expected at underwriting. The proportion of loans rated 1 and 2, which are the loans we believe are most likely to see significant credit impairments, fell from an already very low 1.2% of the portfolio at fair value to 30 basis points. That's the lowest level it has been since March of 2018. The proportion of loans rated 3 increased modestly to 13.7%. You'll recall that Category 3 loans are performing below expectations or are expected to perform below expectations. When a loan migrates to Category 3, it automatically triggers heightened scrutiny and oversight. It doesn't mean that we necessarily expect a default or loss. Now if we take a step back, what we're seeing in terms of overall credit quality is meaningfully better than our expectations at the start of the year. We expected the degree of credit migration, given rising interest rates and slowing economic growth. To-date, we've seen less credit migration in our portfolio than expected. Not zero migration is shown by the modest uptick in the rating 3 category but very heartening in terms of the movement in ones and twos. We also said that we expected to see increased dispersion on lender performance. What we've seen from GBDC earnings season is consistent with this. Finally, we talked about our view on dispersion made us laser-focused on a relatively small tail of our own borrowers. About a year ago, we first described the multifaceted portfolio resiliency analysis we undertook to screen borrower by borrower for potential vulnerability on a range of factors like interest rates, inflation, recession sensitivity and quality of earnings issues. We talked then about how we identified a small tail of borrowers with vulnerabilities and how we were working with our sponsors and management teams to increase their margin for error. We continue to do this work. Our underwriting team has taken advantage of the slowdown in deal activity to shift resources to early detection and early action. We're now updating our analysis on a quarterly basis for most of our portfolio, looking in particular at trends in actual versus projected revenue growth, earnings and liquidity. So far, our work continues to give us confidence that the vast preponderance of the portfolio is in good shape. Now let me be clear, we're not yet declaring victory on credit through the cycle. It's too early. But we are encouraged by the fact that we've had a few new credit surprises. I think we have a robust set of resources to work on problem children, and we're seeing a lot of data points suggesting the vast preponderance that our companies are adapting well to the current environment. We're going to skip past Slide 17 through 20. These slides have more detail on GBDC's financial statements, dividend history and other key metrics. The only item we would call your attention to is that we continue to be active under our share repurchase program this past quarter. During the quarter, we repurchased approximately 544,000 shares, bringing our total repurchase activity year-to-date to nearly 1.3 million shares repurchased at a weighted average price per share of $12.96. As a result, GBDC shares outstanding decreased to 169.6 million from 170.1 million in the quarter ended June 30. You can see this detail on Slide 18. I'll wrap up this section before turning it back over to David to close this out by reviewing GBDC's liquidity and investment capacity on Slides 21 and 22. Let's start by focusing on the key takeaways on Slide 22. Our weighted average cost of debt for the quarter ended June 30, 2023, was 5.1%, which we believe is among the lowest in our peer group of publicly-traded BDCs. 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 any of them out for floating rate exposure. We ended the quarter with almost $900 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 5x its current unfunded asset commitments. And importantly, almost 2x the amount of our unsecured notes due in April of 2024. The diversification, flexibility, and low cost of GBDC's funding structure is an important element that underpins our three investment grade ratings from Fitch, Moody's, and S&P. Now I'll hand it back over to David for closing remarks and Q&A.

Thanks, Matt. I'll keep my closing remarks brief since we covered a lot today. To sum up, GBDC's performance for the quarter ended June 30th was excellent. Adjusted NII per share was strong and well in excess of our dividends. The portfolio is generally performing well from a credit perspective and we're sustaining our focus on detecting problems early and taking corrective action early to minimize realized credit losses. Our robust multifaceted bottoms-up portfolio resiliency analysis has evolved into an ongoing quarterly review of more than 200 borrowers. We believe GBDC today has an exceptionally compelling value proposition. In part, this reflects the powerful competitive advantages of the Golub Capital platform including our strong relationships with sponsors and with borrowers, our market leading scale, deep industry expertise and a long track record of low credit losses. And in part, this also reflects the strengths of GBDC's balance sheet and fee structure. We've continued our history of raising the bar for shareholders by lowering GBDC's base management fee from 1.375% to 1% annualized. And our new dividend policy paves the way for more of GBDC's enhanced earnings power to be distributed to shareholders. With that, we'll open the line for questions.

[Operator Instructions]. Your first question comes from the line of Robert Dodd from Raymond James. Your line is open.

Hi guys. Congratulations on the quarter and the fee adjustment, obviously, very favorable to shareholders. On the credit migration topic. I mean, to your point, I mean, on a course of back down below industry averages, things are looking better. What sort of surprised you? I mean I was expecting credit to deteriorate more, it sounds like you were too, and it hasn't happened. So how have your companies, which you already expected to be robust, been more robust than expected?

So great question, Robert. And I think, one, we're going to continue to learn more about over the course of coming quarters. So I would point to several key factors that underlie the performance better than expectation. One is that the economy generally has been stronger than I at least expected it to be six or nine months ago. We talked last quarter about how the Golub Capital Middle Market Report for the fourth quarter of 2022 was a pretty significant surprise. It showed high single-digit growth in revenue and EBITDA for our companies for the fourth quarter. I did not expect the numbers to be that robust. We saw similarly strong numbers when we reported in April about the first quarter. The numbers weakened a little in the most recent quarter, we saw revenue and EBITDA growth that was mid single-digit instead of high single-digit, but still robust, still not looking at all like recessionary numbers. So I think one factor is the economy has been better than expected. A second factor has been that companies have adjusted to inflationary environment and to higher interest rates better than expected. I think this is particularly true of private equity-backed companies. I think as the data comes out, you're seeing a greater and greater distinction between the earnings performance of the private equity ecosystem and the earnings performance in public markets. And I think the private equity ecosystem is doing better. What that means is partly selection. I think our companies and PE-backed companies generally are proving to be less recession sensitive and have more pricing power. And I think it's also likely the case that they're better managed. It's very challenging to disentangle those two. But I would say from our look at our portfolio, we're seeing both. We're seeing that our portfolio borrowers are nicely resilient in a challenging environment, and we're seeing that they generally have pricing power. A third factor is our credit selection. It's unique to Golub Capital. I mean we are very downside focused in our underwriting. And so consistently over the life of the firm in booming times, we tend to not take enough risk and some of our competitors do better than we do, because they're taking more risk and in more challenging times, like what we're seeing now, our focus on resilient credits and resilient businesses pays off. And I think we're seeing some of that third factor at play here as well.

I appreciate. Great color. Thank you. On kind of the outlook for originations, I mean, there's a kind of emerging theme this quarter that the activity is starting to pick up. The bid-ask spread between sellers and buyers is closing and that could result in more activity later in the year rather than right now. But on that, are you seeing -- you mentioned spread compression. I mean, is that like-for-like, high-quality A-grade businesses seeing spread compression? Is there anything more broadly going on? And kind of tied to that as well as would we see more new platform companies rather than refinancing? And are the terms better on a new platform versus an add-on today? Or is that getting by emerging competition?

So a couple of points I'd make. One is I want to express a degree of caution about optimism on deal activity increasing. Yes, we're seeing some signs of an improved pipeline. But it's still not dramatic. We're still seeing a relatively slow environment. And we're also still seeing an unusually high proportion of deals not actually get to the finish line. So a common story, Robert, would be a company is for sale. There is a preliminary agreement reached between a private equity sponsor and a seller. There is due diligence that's needed to be done prior to a closing and somewhere between that conceptual agreement and the closing the deal falls apart. So I'm not expecting robust deal activity in calendar Q3. We may see a better environment in calendar Q4. But I actually think the more likely scenario is that we don't see a major pickup in deal activity until 2024. That's okay for us. We get a lot of our deal flow in the form of add-ons and add-ons continue to take place at a reasonably good pace. We have a lot of delayed draw term loans in the portfolio that are beginning to fund. Again, we're not we're not going to be greatly troubled at GBDC if we see a continuing slow environment. There was a second element to your question, which is -- so if deals are slow, how does that link up with the comment that we made that we're seeing some spread compression. I think we've seen some spread compression precisely because deal activity is so slow. There are relatively few attractive new transactions that are coming to market. And so when they come to market, you're seeing a great deal of lender interest in participating in those transactions. So we're seeing the impact in essence of low supply that is reversing some of the decrease in demand for loans that started in June of 2022 and led to some spread widening starting in May and June of 2022. Now conditions are still quite lender favorable. I don't want to make this sound like we've shifted to a borrower friendly environment. I don't think we have. But I think we're starting to shift away from the lender friendly side, and we're starting to see the pendulum move in the other direction.

Got it. I appreciate that color. Thanks a lot. Congrats on the quarter.

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

Hey good morning. I just want to reiterate Robert's comments. Congrats on the nice quarter and also the big win for shareholders in permanent reduction in the base fee. I think that's a really nice win for shareholders today. My first question had to do with the new dividend policy that you set up, specifically around the supplemental dividend program. I understand how that's set up, where there's going to be a 50% payout of excess earnings above the core dividend. So my question was longer-term, you guys are going to now be retaining some form of earnings on a quarterly basis, depending that you guys are over earning the dividend above the core dividend. Is it the expectation that you guys will continue to retain those earnings, grow NAV and pay excise taxes on those additional earnings? Or is the expectation that from time-to-time, there will be additional special dividends paid out with those excess earnings?

So it's a great question, Ryan. And just to highlight something that I know is obvious to you, but may not be obvious to others. There are a set of tests as a Registered Investment Company that we need to meet in order to sustain our pass-through tax treatment. And one of those tests is that we need to pay out above a certain portion of our taxable income. And on any amount that we don't pay out there's an excise tax that's due. It's -- I believe it's a 4% excise tax. I hate excise -- everyone at Golub Capital hates paying excise tax. We think that that's not in the long-term in shareholder interest. It, in essence, is a higher cost of capital on that portion of capital that we're keeping and paying excise tax on. Having said that, it sometimes makes sense to pay excise tax if we think that doing so is going to be transitory. There are differences between GAAP income and taxable income. And sometimes it can take one year or a couple of years in order for these to balance out. So there's no perfect answer of running a distribution policy to avoid paying any excise tax. That's not a good approach. Having said that, we factor minimizing excise taxes heavily into our assessment of whether to pay out specials, and if we get to a position where we need to pay a special in order to mitigate what would otherwise be a continuing excise tax, we very likely would pay that special.

Okay. I think that makes sense, and I understand it's not a one-size-fits-all answer. It's a complicated process with puts and takes. The other question I had was you mentioned a very small portion of your portfolio is maybe underperforming, which is to be expected with all BDCs in this environment. I think you said that you guys are basically putting some more investment professionals on those since deal environment has been a little bit slower and having more conversations with the private equity sponsor. I'm just curious -- I'd love to hear any insights you could provide us how those conversations are going? Obviously, I know each individual investment is going to have individual circumstances. But just from a high level, how are these conversations going with private equity sponsors as far as their willingness and ability to support these certain companies and work together on sort of joint solutions that can make this business more viable or perform better in the future?

I see, in general, good. I think private equity sponsors are very realistic about the reality that higher interest rates have eaten into the margin per error for many companies and that for many companies that want to continue a buy-and-build strategy, for example, that there's a continuing need for incremental capital. So a lot of the discussions that we're having, Ryan, are about what I think we would generally call liquidity solutions. These are efforts to give the borrower more capital in order to grow margin per error, in order to continue an acquisition strategy, in order to continue a capital program, things of this sort. Where those activities are value creating - sponsors are very interested in solutions. And I think the market is very receptive to solutions. The most challenging discussions are the ones, not surprisingly, where the issues are not a consequence of higher interest rates. The issues are a consequence of underperformance. And in those conversations, which are by their nature a bit trickier, we're seeing a lot of productive conversations with sponsors about augmenting management, changing strategy, adding additional junior capital, adding additional equity. I characterize those conversations, in general, as very constructive. Having said all that, there'll be some problem children. There always are.

Got it. And then my last question I had was, I know you guys typically aren't competing directly with banks, but obviously, banks play a big role in the credit markets broadly, both owning individual broadly syndicated loans, owning pieces of CLOs, providing credit facilities and then capital to private credit funds that you're ultimately competing with. So I'm just curious now that we're several months away of sort of the mini banking crisis that we had and banks are maybe adjusting their business models a little bit to the new world we're in. I'd just love to hear, have there been any sort of impacts that you've seen in the markets that you play in from kind of the -- all the volatility we've had in the banking sector? And do you think anything comes to that longer-term?

Look, I think this is a critical area and a lot is going to come of it in the longer-term. I think the central point for this discussions is not in our world. It's in commercial real estate. The largest investors in lending to commercial real estate in America are small and regional banks. And I think to a very substantial degree they pulled back from that activity. So real estate is going to need to go through an adjustment or recalibration period with respect to value. And a reengineering period with respect to where it finds its debt capital. I don't think we're directly impacted by that, but we're going to be indirectly impacted because capital that used to flow in other ways is now going to replace bank capital in real estate lending. I think we're just beginning to see the second order, third order impacts of that, Ryan. From our perspective, in terms of direct impact, the one area that I'd highlight is that bank lending against pools of middle market loans has gotten tighter. This is, again, not surprising in the context of higher interest rates and in the context of the amounts that banks have lost on their fixed income portfolios, which have eaten into their capital ratios. So I think this actually works to the advantage of market-leading platforms like Golub Capital, because when banks have to make prioritization decisions amongst their BDC clients and their private credit clients, they will prioritize their strongest, largest investor relationships. So I think that's currently a help for us from a competitive standpoint. It's also, to some degree, a challenge.

Okay. Understood. That's all for me today. I appreciate the time and again very much appreciate the -- and shareholders very much appreciate the change in the base fee structure.

Thank you, Ryan.

[Operator Instructions] There are no further questions at this time. David Golub, I turn the call back over to you.

Thank you, operator. Thank you, everyone, for sharing your time with us today. I very much appreciate the opportunity to go over with you the results of this quarter. I look forward to talking again next quarter. And as always, if you have any questions before then, please feel free to reach out. Thank you.