At this time, I would like to welcome everyone to the Barings BDC Incorporated Conference Call for the quarter ended September 30, 2018. All participants are in listen-only mode. A question and answer session will follow the company's formal remarks. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. Today's call is being recorded, and a replay will be available approximately two hours after the conclusion of the call on the company's website at www.baringsbdc.com under the investor relations section. Please note that this call may contain forward-looking statements that include statements regarding the company's goals, beliefs, strategies, future operating results, and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from those projected in forward-looking statements.
These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled Risk Factors and Forward-Looking Statements in the company's annual report on Form 10-K for the fiscal year ended December 31, 2017, and quarterly report on Form 10-Q for the quarter ended September 30, 2018, each as filed with the Securities and Exchange Commission. Barings BDC undertakes no obligation to update or revise any forward-looking statements unless required by law. At this time, I would like to turn the call over to Jon Bock, Chief Financial Officer.
Thank you, Daniel, and good morning. We appreciate everyone joining us for our first quarterly earnings call at Barings BDC. Please note, copies of our third quarter earnings release and investor presentation are available under the investor relations section of the website. This is, as was mentioned, www.baringsbdc.com. We'll be referencing the presentation during the call. On the call today, I'm joined by Barings BDC CEO and Head of Global Finance, Eric Lloyd; President and Co-head of North American Private Finance, Ian Fowler; and Tom McDonnell, Managing Director and Portfolio Manager of Barings Global High Yield. As you saw in our earnings release in 10-Q filed yesterday, the first two months since externalization have been extremely active. We're going to cover a lot, and we're going to be efficient with your time. Jump to slide three for a roadmap of the call.
To start, I'm going to hit a few summary points on the quarter. Eric Lloyd will discuss the broader Barings platform, the private finance team, and the BDC's fit within the Barings franchise. Tom McDonnell and Ian Fowler are going to discuss our BSL strategy and our private investment efforts. Finally, Eric and I are going to wrap up the call with a discussion on third quarter financials, business investment activity since quarter end, and our thoughts on alignment just before we open it up to Q&A. Jump to slide four. All right. As you know, on August 2, we closed our externalization transaction with Triangle Capital, where Barings assumed the investment advisory role over a BDC with an all-cash portfolio. Here's a list of a few summary highlights for that short stub period. I'd say there's two main points to take away.
First, our portfolio ramp's underway. As of September 30th, we've closed roughly $1 billion in senior secured loans across liquid BSL and traditional middle-market transactions. Second, that better-than-expected deployment managed by our leading liquid credit team, that gave us an ability to generate a better-than-expected $0.06 a share of net investment income during the period between that closing and September 30th. That exceeded our dividend of $0.03 a share. While we're pleased to see a building ramp, we know that investor trust is really a function of, one, steady and stable operating results, two, best-in-class investor alignment, and three, increased visibility and transparency into the breadth and depth of the platform and how we actually drive long-term investment results. To speak to that platform.
Let me now turn over the call to Eric Lloyd, Barings BDC CEO and Head of Global Private Finance.
Well y ou never can plan exactly what's going to happen on an earnings call, bear with us for a second.
The good news is that ended. All the good news is alarm bells are not what we're going to talk about here today. Apologies to everybody for that. Thanks, Jon. First, again, let me reiterate how excited we are at Barings about the opportunity to manage the BDC. We appreciate the trust shareholders have placed in us to serve as your investment advisor. Referring to slide six, the strong start that Jon referenced for the company following the externalization was enabled by our very experienced high yield team within Barings. On this slide, we show a high-level overview of Barings with over 1,900 professionals across 16 countries worldwide. Importantly, Barings is a wholly-owned subsidiary of MassMutual, and this relationship provides a level of platform support and long-term stability that is unique within the BDC marketplace.
Barings is a deep and experienced credit manager with over $310 billion of investments under management worldwide, including over $229 billion invested across various fixed income markets. It's this strong partnership between our liquid and illiquid credit teams that further differentiates our underwriting and sourcing with a perspective that reaches across all credit classes. Turning to slide seven, you'll see members from our liquid credit team, led by Martin Horn. They have over $69 billion in AUM. On slide eight, you'll see the scope of our Private Finance Group, as well as the executive management team of the BDC. Barings BDC is supported by a team of 200 professionals around the world that have been investing in middle-market companies in North America since the early 1990s. Slide nine outlines the key aspects of our leading franchise. Namely, first, we're global.
Our platform finances private equity sponsor-backed deals worldwide in multiple currencies. Second, we're aligned. You'll hear the word aligned a lot today. Barings and MassMutual remain the single largest investor in Barings BDC shares and also invest in deals originated by this private credit platform. Three, we're experienced. We've originated sponsor transactions across the senior and mezzanine portions of the capital structure for a very long time. MassMutual, our parent company, has been a long-term investor in the middle market for over 30 years. Lastly, we're flexible. Our platform is not a one-product business. We're capable of financing up and down the capital stack to meet sponsor needs, as we have a wide variety of institutional accounts and mandates. Let's move to slide 10 for a few financial highlights.
Our $1 billion investment portfolio was partially supported by $210 million of borrowings under a new $750 million credit facility, resulting in ending debt-to-equity of 0.34 x or 0.69 x when adjusted for unsettled transactions. As a reminder, our shareholders approved the reduction in our minimum asset coverage ratio from 200% to 150%. Notably, our private, predominantly first-lien, floating rate, senior secured debt strategy fits well with increased leverage levels. Additionally, we look to manage our leverage prudently over time, balancing the desire to deliver a levered return while also ensuring adequate liquidity to take advantage of market downturns. Slide 11 outlines our investment deployments and repayments for the third quarter. As you can tell, it was a very active quarter. To give you more detail on the investment portfolio, I'd ask you to refer to slide 13.
As of September 30th, our investment portfolio was invested in approximately $950 million of liquid broadly syndicated loans and $86 million in private middle market loans. These do include some delayed draw term loans. Recall, it is our intention for the BDC to invest primarily in private, directly originated senior secured investments over time. However, it takes time to originate these high-quality, attractive risk-return investments. As a result, we are currently in a transition period during which the company has invested in liquid broadly syndicated loans. While these investments generate a slightly lower yield, they are associated with large issuers in resilient industries that we know very well within. We're going to finish our set.
Well, hopefully, that'll be the second and the last interruption we'll have. As I said, you never do know what'll happen on calls. What I'll say is these liquid broadly syndicated loans, they generate a little bit lower yield, but they're associated with larger companies in resilient industries that we know very well within our Barings Global High Yield franchise. Instead of hearing from me on this, I'll actually turn it over to one of our most senior portfolio managers on liquid credit, Tom McDonnell, to discuss the BDC's portfolio ramp and these liquid broadly syndicated loans.
Thank you, Eric. It's a pleasure to join the call today to discuss the Barings BDC portfolio and showcase our liquid credit capabilities, which are central to our middle market portfolio transition. As background, Barings manages over $69 billion in loans and bonds globally and has 72 professionals on our high yield investment team. We adhere to a strict bottom-up fundamental approach to investing and have a 20-year track record of investing in the liquid credit space. As Barings became the BDC external advisor, I worked very closely with both Eric and Jon to formulate the proper risk-return parameters in constructing the company's liquid portfolio during this initial phase. Looking at the liquid credit BSL stats in the BDC portfolio on slide 13, I'll point out that all investments are first-lien loans with a weighted average spread of 332 basis points and a yield of 5.6%.
In addition to our focus on adequate risk per unit of return, we are strong proponents of diversification with 120 issuers in the portfolio. Our average liquid credit position is 75 basis points of portfolio assets, and our holdings are well diversified by industry. More importantly, these are credits that our liquid team knows very well that we own across the firm and often in sizable amounts. Taking a closer look at the portfolio, you'll see relatively modest issuer leverage with blended weighted average senior leverage of 4.9 x. Taking a moment to discuss liquid credit fundamentals, overall corporate credit quality remains very strong. We experienced very strong earnings growth in the first and second quarters of this year, with a slight moderation in earnings growth thus far in the third quarter.
Importantly, our expectation for defaults remains low as we expect default rates in the 2% range for the next year. From a technical perspective, loan demand remains strong from CLO buyers, institutional investors, and retail investors through the third quarter, and we don't expect this to change as we look forward to the fourth quarter and beyond. Let me now turn it over to Ian, who leads our private investment efforts, for a discussion of the middle market assets.
Thanks, Tom, and good morning, everyone. Staying on slide 13 for a moment, I'd like to direct your attention to the middle market column. As of September 30th, our BDC had approximately $86 million of middle market assets spread across six portfolio companies. 100% of our middle market assets this quarter were in first lien investments with an average senior leverage profile of 4.6 x and an average total leverage profile of 5.1 x. Note that the median EBITDA size of our middle market exposure is approximately $40 million. Similar to our liquid credit team's focus on capital preservation through meaningful diversification, our average position size in middle market credit is 1% of the total portfolio size, with our top exposure at just 1.7%, as outlined in our top 10 exposures on slide 14.
Jumping to slide 16, it may be helpful for investors if I walk through a few market slides and put into broader context our narrative on how we look at current trends in yields, leverage, risk-adjusted return, and ultimately, portfolio construction. In terms of evaluating individual credits and how they relate to portfolio construction, let me say that diversification is key and must be achieved through multiple lenses, including position size, origination sources, industry, portfolio company EBITDA, and most importantly, risk-adjusted return. You can't just look at the yield of first lien middle market loans without considering the risk profile and how deep you are in the capital stack. Third-party data from Reuters on page 16 illustrates the quarterly middle market yields across the capital structure from first lien to mezzanine.
The trend to focus on here is that senior debt yields, on average, have been rising gradually since the beginning of the year. Middle market institutional term loan yields are currently 7.4%, up from 6.1% at the beginning of the year. Now, to be clear, the LIBOR component has risen, but spreads have generally widened slightly as well. Here at Barings, we do not assign much meaning to the various categories of first lien debt. Terms like unitranche are widely used, but they can mean a multitude of things in reality. We prefer to look at each issuer and capital structure individually. We focus on if we have true first lien security or not. We focus on the strength of our structural protections, and we focus on other risk factors like the strength of our sponsor.
On slide 17, you'll see that leverage has been trending up on average across the board, as well as over the last few years, including 2018. Slide 18 shows a similar trend in purchase prices for middle market LBOs across various end markets. In this environment of high purchase prices and leverage, we believe it is important to maintain discipline and deploy capital prudently rather than relaxing standards on leverage returns just for the sake of doing deals. Lastly, slide 19 provides support for my statement earlier that there is not one single definition of unitranche. Some deals that are classified as unitranche look like deals classified as all senior and vice versa. You really can't rely on these definitions to tell you about the true risk return of the underlying loans in a portfolio.
Still, amidst these broader market trends, there remain many high-quality borrowers in the market, and investors should consider the following. Is the lender appropriately incented and designed through its platform to originate the right types of loans to these high-quality companies in a competitive marketplace? Investors should consider the DNA of the platform. We, as a principal investor embedded in a large, globally diversified asset manager with the backing of MassMutual, who's been an active investor in this asset class for over 50 years, is appropriately placed to generate strong investor returns while also continuing to adhere to our core philosophy of fundamental credit selection, diversification, and capital preservation. I'll now turn the call over to Jon to provide additional color on our financial results for the quarter.
Thanks, Ian. If you turn to slide 21, you're going to see the company's net asset value as of September 30th was $11.91 per share. This is the NAV bridge again. Three important points to make. First, Triangle Capital's June 30 NAV of $13.70, that was reduced primarily due to their sale of the investment portfolio at a realized loss, as well as employee severance and transaction-related expenses and debt extinguishment costs. Second, once the Barings transaction closed on August 2, we, Barings, as the advisor, took over management of the company at an intra-quarter NAV of roughly $11.72 per share. Now, that's our starting point. Third, since we took over as the advisor, NAV's increased to $11.91 a share, primarily through the BDC's tender offer, as well as net investment income in excess of our quarterly dividend.
If you jump to slide 22, you're going to see our income statement for the third quarter, as well as some pro forma income statement for the beginning on August 3, the first full day of our operations for Barings BDC with Barings as the external advisor. Now, on a GAAP basis, including Triangle Capital results, BBDC's net investment generated net investment loss per share of roughly $0.60 for the quarter. But once you exclude TCAP's legacy results, you can see BBDC earned NII of roughly $0.06 a share. I also want to draw investors towards our calculation of base management fees for a moment. As many of you know, the management fee calculation approved by shareholders is really based on an average of gross assets, excluding cash, at the end of the two most recently completed calendar quarters.
Now, given that Barings BDC's balance sheet was effectively reset intra the third quarter, i.e., it just became all cash after the closings of the asset sale. We at Barings believed it was appropriate to calculate the management fee based on the post-transaction balance sheet, resulting in a fee waiver of roughly $1 million for the quarter. Additionally, we generated net realized gains of $575,000 during the post-transaction period, as we sold a portion of our highest quality, low-risk broadly syndicated loans at bids above our entry level. Slide 23 shows our balance sheet as of September 30th. We ended the quarter with an investment portfolio over $1 billion, and note that our investment transactions are booked based on the trade dates.
They typically settle seven or a few more business days after, resulting in payables and receivables from those unsettled transactions on our balance sheet. The only third-party debt for the quarter is $210 million of borrowings under our new $750 million credit facility, and that was executed immediately post the closing of the externalization transaction. Given the large number of unsettled transactions and the requirements for readily available liquidity, there are days when we have both cash on hand and borrowings under our credit facility, as we expect meaningful settlements to occur as they come in. That was actually the case at the end of the third quarter. Slide 24 shows our paid and announced dividends since the closing of the externalization transaction.
Our $0.03 dividend paid on September 27th, that's just affirmation of our desire to align our dividend policy with the true cash earnings power of the investment portfolio. In that same vein, we announced on October 11th that our fourth quarter dividend of $0.10 is going to be paid on December 21st. Our objective is not to lock the company into a particular dividend level, but rather simply just pay out our net investment income as we earn it. Eric's going to close it out with some thoughts on subsequent investment activity for remodeling, as well as some of our views on investor alignment.
Thank you, Jon. Slide 26 shows our investment activity since September 30th, which includes new middle market commitments of $80 million, with a weighted average yield of 8.9%, and net new broadly syndicated loans of approximately $60 million. Slide 27 shows our North America Private Finance investment pipeline of roughly $859 million. Importantly, this represents the pipeline available to all vehicles managed by the Barings Global Private Finance platform, including the BDC. There can be no assurances that all these deals actually close. Finally, I'd like to conclude with a few comments and views on investor alignment and how important that is to our investment philosophy. As many of you know, Jonathan Bock, as a sell side analyst, was a very strong proponent of BDC shareholders.
Importantly, both I, Mike Freno, Tom Finke, and Barings share in these long-held beliefs of alignment. Because of that, I want you to turn to slide 29. To focus on long-term alignment post-transaction, we made a $100 million investment in Barings BDC at NAV at close of the transaction. In short, we feel it's important to be aligned with shareholders from day one. To further outline our level of commitment to shareholders, Barings BDC repurchased in its tender offer of $50 million of stock at $10.20 a share. Through that, we generated $0.13 in NAV accretion for shareholders. Beyond our original investment and the tender offer, we remain active in our 10b5-1 purchase plan, with purchases of $19 million in BDC stock as of November seventh.
Barings is the single largest shareholder in the company, owning approximately 20% of the outstanding shares of Barings BDC. Expect this percentage to grow as we fulfill our commitment to purchase $50 million of Barings BDC stock pursuant to this plan. Barings also has a firmly grounded belief that BDC fee structures influence the type of assets that BDCs choose to originate. As a result, we felt it important to design a long-term fee structure that allows for a strong risk-adjusted ROE to shareholders, complements our ability to originate first lien senior secured investments. Once ramped, this fee structure fully aligns our incentive fee with the actual credit performance of the asset.
Our decision to establish an 8% hurdle rate is an important factor, as we believe it is important to not collect an incentive fee until we've generated strong, long-term shareholder returns of 8% on senior secured collateral. Let me close by saying this. This is just the start. Long-term success in lending is a marathon that requires strong credit discipline, a focus on asset liability management, a leading investment platform, and a deep commitment to long-term investor alignment. It's my sincere hope over the next several quarters and years, we'll be able to demonstrate all these attributes to you. We thank you for your trust and time you spent with us this morning. With that operator, we'll open the line for questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star, then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, that's star then one to ask a question. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from Ryan Lynch with KBW. Your line is now open.
Hey, good morning, guys, and thanks for taking my questions. Congrats on officially closing the transaction and getting off to a fast start. Jon, I would say given you've punished so many on calls for so long, I'm looking forward to asking you a question on this call. I understand that you like math and you like fee structures, you've written a little bit about these topics in the past. Do you believe that the fee structure that BDC has put into place with assuming one-to-one leverage is now appropriate given that now you guys can go to two-to-one leverage once you're fully ramped into middle-market assets?
First, Ryan, I thank you for actually reading those extremely boring reports. Maybe what I'll do is I'll take a step back and I'll go to an overall theme that we're trying to get across on this call, and that's one of alignment. If you look at some of the analysis that we've done in fee structures over time, if you're very focused on aligning your credit results, that's extremely important. Two, I want to outline how important the hurdle rate actually is. If you realize, as we see moving from a one-to-one to two-to-one environment, hurdle rates matter a lot. Importantly at Barings, what we've chosen to institute was a hurdle rate that is exactly aligned with what we would expect our long-term dividend yield payout to be, 8%, which basically means this.
We won't earn a penny in incentive until we've delivered what we've promised investors. That doesn't really change whether it's one-to-one or a two-to-one environment. I'll give you two second points that go along with that. If you realize the hurdle rate is one of the primary drivers of a fee take as well as a driver of net return to investors, because remember, it's so important that once you exceed that hurdle, 100% of that income is subject to a full catch-up to the manager. If you get that right, you'll find that both base and incentive fee gets a little less impactful relative to where you choose that hurdle rate. What we'll say on a go-forward basis, alignment absolutely matters, number one.
Number two, you start with the hurdle rate and you'd say that today, is the fee structure appropriate, argue to do what we do? The answer is absolutely yes. Thankfully, over time, we'll have more opportunity to keep delivering on alignment across a number of different categories. I'd say it starts first looking at where you set that hurdle and where you set your incentive. I'd also say it's more important for me to also have Eric outline our view on incentives as well.
Yeah, it's really consistent with what Jon said. I think it's a package of fee structures, not one piece in isolation. I think importantly that just a few months ago, we got approval by shareholders for the IMA in totality. Obviously, we've talked about alignment a lot, and I think you'll see over time, whether it be through share repurchases, whether it be through our investment in the BDC, whether it be through other attributes, we hope, and taken in totality, people view us as a best-in-class alignment with shareholders.
That's helpful, I think that makes sense. You guys have quickly built a diversified BSL portfolio and really ramped to a nice leverage level at the end of the quarter. It appears so far from the activity in the fourth quarter that the BSL activity has slowed down the fourth quarter. Is this the size of the portfolio and the leverage level that you intend to operate at during the time period where you're rotating from BSLs into the private credit process? Should we expect additional BSLs, a larger portfolio, and a little bit more leverage over the coming months or quarters? How does that shake out? What leverage levels you guys plan on operating at a portfolio size during this rotation process?
Yep. Ryan, I'll make sure I answer your questions. If I don't, please keep making sure I get it directly. As we look at the current return in broadly syndicated loan assets that are appropriate for the liquidity profile and risk profile for the BDC, we don't see a material increase to net dividend yield to shareholders by increasing the size of the AUM. The way we would increase the size of the AUM would obviously be by taking leverage up. Under the current risk return environment we're seeing on the broadly syndicated loan side, we don't see a benefit to shareholders to take AUM up because the net return to them is not any higher, and yet the inherent risk to NAV is higher by taking leverage up.
If we were to see a benefit of having the market conditions such that there is a benefit to dividend yield to shareholders, we may consider then taking leverage up in order to broaden the size of the portfolio. For us, this is not ramping AUM up to some maximum level to collect fees and the like. It's really about making sure we're doing a prudent liquid portfolio that allows us to get into and out of those assets at the best way that also benefits shareholders in the best way. As I said, today's yields just don't generate an incremental dividend. Therefore, it's just not prudent to take the leverage up.
That makes sense. That's a really thoughtful response considering shareholders trying to make sure that they get the benefits from the higher AUM, if there is any. Kind of maybe a broader term question. You guys have executed a nice credit facility right away which has given you guys some runway as you guys have ramped the portfolio. Maybe longer term, I'm sure you all know, and I know Jon knows having a diverse liability structure is very prudent. We saw that during the last downturn. Longer term, what is kind of your philosophy regarding building out your liability structure?
I'd argue, Ryan, this is Bock. What I'd say is we absolutely share in your views on diversified liabilities. A couple of points, because over time, you want to make sure that you're going to structure a partnership with your credit stakeholders that's going to be beneficial to your shareholders, beneficial to your debt holders, as well as beneficial to the operator, which is ourselves as the manager. I'd say that you probably will see over time a line of progression of trying to close one item as it relates to revolver financing, and then on a go-forward basis, additional layers of liabilities that go in a part of that. Maybe more importantly than that, Barings has a significant amount of experience structuring and managing a number of levered facilities across the platform.
Whether it's middle market CLO financing, whether it's revolver SPVs, et cetera, the breadth and depth of the platform is already in place. You can imagine too, with Chris Carey, who arguably is the one individual that touched and influenced all BDC liability structures. Having him as a part of management in this process and our long-term liability strategy is a key competitive advantage, and you'll see us execute that on the coming quarters. Couldn't agree with you more.
Okay. That's helpful. Just one last one if I can. Just because you guys are so new to the space, just want to hear a little bit more of your investment philosophy. I know you guys want to focus on senior secure given where we are in the credit cycle and the risk-reward dynamics there. Can you just give us a flavor of your target market, where you guys are going to focus from maybe an EBITDA standpoint, from middle market, private credit, how you define that? Because that's really defined differently by every BDC. Can you maybe speak to the hold size that you guys would ideally like to hold on the balance sheet as well as I know you have exemptive relief to invest across the Barings platform, so how much you guys could actually hold across the platform?
Trying to get a sense of what sort of solution size you guys could provide to borrowers.
Thanks, Ryan. It's Ian Fowler. I'll start and then maybe throw it over to Eric if he wants to add anything. In terms of the target market that we're focused on, it's really companies from $10 million of EBITDA up to $50 million-ish. The reality is, and what we've seen over the last five to seven years, is a lot of these sponsors are buying platforms, growing the platforms through add-on acquisitions. What we like, and what is very attractive to us, is actually supporting these companies as they grow in size. We do end up with some companies that have EBITDA as high as we've had deals as high as $100 million before they go broadly syndicated. That's the targeted market that we're focused on.
I would say, as part of that, as we look at the market, we're very focused on, we call it the three legs of the stool. We focus on the company fundamentals. We focus on the equity ownership, and then we also focus on the structure. One of the issues as you move into the larger market is you start losing some of the structural protection that we have. The other thing in terms of hold size, I guess, the way to answer that is if you look at our platform in terms of our focus, we're looking for, obviously, attractive credits. As we think about competing in the marketplace, I would say that a number of things are important, including hold size. As you look at the marketplace today, sponsors want lenders that can eliminate the execution risk on their deals.
The key criteria that you need, competitive advantage that you need in this marketplace, number 1 is hold size. That target range that I talked about, $10 - $50, we can basically as a platform, if we like the deal, we can effectively hold that whole deal or speak for that whole deal. The reality is that most sponsors want to diversify their funding sources, and so they're going to bring in partners that are going to take part of that away. If we really like the credit, we're going to try to get as much as we can, but it's fungible. It's going to move around. I guess the other point I would make is, along with that, being a capital solution provider in this market is really critical for a couple reasons.
One, it makes you more relevant to the sponsors, and also deals can move around. They can start off traditional first lien, second lien, and then they can move into a unitranche. If you can't do the other, then you kind of lose that opportunity. If you're kind of a one-trick pony or a one-product pusher in this market, then you're kind of dealing with adverse deal selection.
Great. That's helpful. Those are all my questions. I appreciate the time today, guys.
Thanks, Ryan.
Thanks, Ryan.
Thank you.
Thank you. Our next question comes from Finian O'Shea with Wells Fargo Securities. Your line is now open.
Hi, guys. Good morning, thanks for having me on. I want to start just to kind of continue that dialogue Ryan and Ian were just having on the platform's value proposition. You did give us a lot of color on the opening remarks and in that dialogue. As to the competitive edge of the Barings platform. You principally outlined your hold size. As we know, there are many lenders who can offer $100 million , $200 million , $300 million. Can you go a little bit more into what brings you into the fold to get good first looks for sponsored transactions?
Yeah. Again, Ian Fowler speaking. I think you have to break it down a couple of ways. Let me just start off by saying, I'll talk about from the marketplace and how we compete in the marketplace as an originator. I also think just to back up a little bit and make it a little broader, I think we should talk about it also from an investor perspective. I think that's important because, and I alluded to this in the comments, the DNA of the platform as an asset manager really does influence your credit selection and your strategy. As you think about us as a platform, Barings as a platform, our DNA is in asset management, but we also are a principal investor embedded in that asset manager. That means that we're investing our own dollars.
We're in alignment with our investors. We have real dollars at risk, and we're focused on capital preservation. We have a lot of resources. We work with Tom's group a lot in terms of looking at broadly syndicated loans, looking at comps so that we can focus on that illiquidity premium. We have over 40 high-yield industry experts that we can dial into. In terms of the credit selection, we're leveraging those resources that the firm brings to the table. On the origination side, you're right. I would say historically, if you go back pre-crisis, when the industry was much smaller, it was basically all relationships. As you spoke to managers, they would tell you that I get deals because I have a better relationship than someone else.
Really what's happened since the crisis is you've had a fragmentation of managers in the marketplace, and those relationships have been diluted. Relationships are spread around, and you can't rely on that relationship anymore in entirety for winning that transaction. If you don't have that relationship, it's really hard to get in the door. From a sponsor perspective, if you have relationships with multiple lenders, you're getting multiple calls. If I'm the sponsor and I have an opportunity and I'm getting calls from 20 people, I don't want to spend time talking to 20 people. I want to spend time talking to a handful of people. The things that sponsors looking at are the following. First of all, hold size, like I mentioned. Can you speak for the whole transaction? If the structure changes, can you move with that change in the structure?
Another area where we differentiate ourselves is on our international capabilities. Not only just on cross-border deals, but also if you think about the sponsors, a lot of them are doing add-on acquisitions overseas, and we can actually provide financing for those sponsors as they look at acquisitions overseas. We have one facility that's got six different currencies that we're funding. I would say that your portfolio. If you're a new player in this space, it's really tough to compete. We have a portfolio that's well over 200 companies that basically becomes a source of origination for us, where we're the incumbent. Team experience. Think about the team having diverse skill sets, reputation, relationship. We've been in this asset class for a long time. That's important.
Finally, I would say sponsors do care that we have our own capital and that we really are committed to the space. The analogy I use to bring it to a head is, it's like you're deep-sea fishing. You got eight lines in the water. All these are different advantages that we bring to the table. If you're a lender that only has one line, we have a better chance of catching the fish.
Thank you. That's very much appreciated. I'll move on to Eric on the subject of alignment. This might be a bit long-winded, but I'll start by saying that the series of commitments from the sponsor level buying in at NAV, the accretive tender offer in parts and as a whole, this was truly a first for the industry, and I think we're all hopeful that it moves the bar going forward. That said, you're at a discount about 85 as of yesterday's close, I believe, which is moderate, but still surely worthy of consideration to put more capital there. Also, we understand BDCs trade at discounts for different reasons. For some, it's alignment, credibility. For some, it's credit. Neither of those are the case for you, I'd assume. Rather, today for Barings, it's an earnings ramp issue.
Another part of your commentary touched on a slow, measured ramp of the portfolio, which means that this discount might persist even though it may be transient. With those points in context, as your 10b5-1 runs its course, how do you look at share repurchases during this earnings ramp period as it may keep a discount in the market over that time?
Yeah. Thanks, Fin. First to ramp, because I think that's an important thing for us to address. We are not going to be beholden to some eight quarter, six quarter, seven quarter, 10 quarter ramp, right? As Ian said, we originate and underwrite assets that we think are prudent risk-adjusted returns for our capital and our clients' capital. The reason we put the pipeline in here was our intention is to do that every quarter so that people can see exactly how we have ramped and what the go-forward pipeline looks like so that they can get a sense as to what the time to get transitioned from liquid to illiquid credit will look like. That being said, to your point, I think at the heart of your question is basically BDC shareholder tender versus the outside capital that we purchased.
I guess I'd ask to take a step back and just to your point, look at things in totality at this stage, right? The fact we put $100 million in at NAV. We didn't put it in at market knowing that it was likely to trade down. We did the $50 million tender, at the time, within the BDC. We're investing another $50 million. I guess what I really hope does to shareholders is allow them to see that we're putting our own capital right there and trying to make good, prudent, long-term shareholder decisions, and if I could give us some time to see what we can do and to prove out our strategy. I think that as we hopefully have shown good stewardship of capital and a good alignment of interest, and I think that hopefully through that, we'll have time to prove out our strategy.
We think that people who stick with us over time, long term, that gap will narrow, and the yield will increase. That being said, we have to be good stewards and allocators of capital. We'll always evaluate what we should do with your capital, because ultimately it's the shareholders' capital, of which we're the largest shareholder. We're going to be there doing what's in the best interest of that. I think it's a balance of that with time right now, and I hope that what we've done has shown how important it is to us to have that alignment, though.
Thank you, Eric. One more. I'll involve Jonathan Bock here. You spent the better part of your career, Jon, digging deep to learn the mysteries of BDC collateral. Actually, you would just usually have me do it. If you were to leave us with one thought for the industry with how underwriting is done in today's markets, I would appreciate that.
Thank you, Fin. There's no doubt, we both have worked a lot on the BDC collateral piece. To be clear, Ian really dug deep into the collateral itself. In particular, sometimes the misnomers, and more importantly, over time, how things can get mispriced. What I'd probably say is something that, Fin, that you and I have probably worked together on a lot, and you continue, and as well as the sell side continue to kind of put forth. It's more of an incentive perspective. If I was going to give one thing on the collateral, my point is that collateral at times is the output and sometimes not the input.
Most folks love to come and say, "Look at our assets, and if we put these assets in, they're going to generate a set return." Unfortunately, in the BDC space, you start by promising a yield, applying a fee, applying leverage, right? You'll see that over time, the tail at times can wag the dog. Meaning that assets get originated in order to fit the fee structure as well as the set dividend yield and not necessarily tied to the exact risk-adjusted return of the credit. If there's one point that matters a lot to me coming from public to private, it's that you always want to make sure that you test not only the platform, the depth, et cetera. People work with sponsors because of the nice haircuts they have or whatever the case may be.
It's also a function of the incentives that go into what creates that risk-adjusted return. At Barings, we talked about the hurdle rate. You can look at our set fee structure, and you know the deeply embedded beliefs that we all share, particularly through alignment. I'd argue that flexibility on the management fee and a focus on alignment can give us an opportunity to finance the right type of assets at this point in the cycle, which is extremely important when a number of folks will be looking for higher spread collateral and may not be pricing that risk appropriately. Does that help?
It does, Jon, and thank you, everybody, for taking my questions.
Thank you.
Thank you. Our next question comes from Mitchel Penn with Janney. Your line is now open.
Thanks, guys. You guys manage a lot of assets in your platform. Where do you think we are in the economic cycle? Can you talk about how it's impacting your investment strategy? Yeah, that'd be great.
Got it. This is Eric. I think a couple fundamental premises of Barings, whether it be our liquid team, as you heard Tom reference or refer to some of the investments today, who's partnering with us or our illiquid team. We're really all about capital preservation in our debt investments, right? We're not the firm who's looking to kind of shoot for the moon on things. It really starts with capital preservation. That's our philosophy. Second, we're a committee-based structure across all of our investment classes, so we don't have kind of the star PM model. Those are a couple of our fundamental thoughts. Getting specifically to your question as to where we are and what we're seeing in the economy, I'll really focus on, given those two fundamental premises of capital preservation.
On the illiquid side, we underwrite every asset, assuming there's a credit or in an economic cycle during the life of that asset. That was true five years ago, four years ago, three years ago, two years ago, today. Because what we don't know is when that cycle is going to happen. We always underwrite assuming that cycle is going to happen. Obviously, we're closer to that next downturn than where we were a year or two ago. What does that mean? First of all, it means, in our opinion, more highly diverse portfolios are critical. Usually, when you look at a debt portfolio, it's that diversification that protects you from the unknown. Diversification, we referenced it here earlier today, asset level diversification, industry level diversification. On our origination side, sponsor diversification. All of those are key elements.
Also the correlation of those assets or industries are important when you think of the diversification. We're running more diversified portfolios today on the illiquid side than we were even a couple of years ago. That's one way we've protected around it. Two, there just are obviously certain industries that have more cyclicality that you probably avoid in all markets, but you just have a heightened level of avoiding them today. Did that answer your question?
Yeah, no, that's great. Just one last one. You guys are affiliated with MassMutual. They have a lot of resources. Can you talk about the impact that the relationship's had on the BDC?
The relationship with the BDC as much as just kind of Barings, right?
Right.
Barings. We're wholly owned by MassMutual. They're our parent company, and they're also our client. It's an arm's length relationship where we manage money on their behalf and are held to performance on their behalf. I believe that ownership by Mass is a positive for shareholders, given the capital and the resources around it. To be really clear, Barings is an independent entity that operates with our employees and our business as an asset manager on behalf of them and the capital we manage for them, and on behalf of all of our third-party clients.
Got it. Thanks, guys.
Thank you. Our next question comes from Mickey Schleien with Ladenburg. Your line is now open.
Yeah, good morning, everyone, and congratulations on your first earnings call. I wanted to ask about the co-investment policy. When we see BDCs as part of large platforms, that tends to be very beneficial. I just want to understand whether it's purely based on available liquidity and investment objective, or is the BDC receiving some sort of preferential treatment to help it ramp up?
Got it. This is Eric, and I'll take that one. To be specific with the second part of your question, the BDC does not get any form of preferential treatment for it to ramp up. We treat all third-party clients the same. Here's how that operates from a co-investment perspective. We generate an asset of a certain return profile, certain leverage characteristics, and all the other attributes that would come into play. We then look at our third-party accounts as well as including in that is MassMutual as a third-party account, of what the investment guidelines for each account are and whether they match the asset that we've underwritten and originated. If it's eligible for that particular portfolio, that creates, think of it as the pool of capital or resources that could invest in that asset.
Let's just say for sake of argument, that adds up to $125 million in a given deal when you look across all of our various accounts. What is to happen is assume that we invest $100 million, to Ian's point that sometimes the sponsors today want to diversify their investment base. Instead of having $125 million, we get $100 million of that asset. All the vehicles get their pro rata share of that investment. We don't pick winners and losers or rotate around allocations. Everybody gets their pro rata share. Now, to your point, some vehicles may be at the end of the life of their liquidity, right? What we do on that, just so you know, is we look at the aggregate amount size of the fund. We don't look at the remaining liquidity within that fund.
All right. That's very helpful. For those of us that are maybe newer to the story, it might be helpful if you could just describe the scope of your middle market origination team and their go-to-market strategy because that tends to differentiate one BDC from another.
Yeah. This is Ian. I'll take that question. Our North American middle market team is close to 40 people. Everyone on the team is focused on relationships with the sponsor. I would say that to become efficient and effective, we do break out the team into risk and origination. What's really important on the origination side is having diverse skill sets. We have people that have senior secured experience. We have people that have mezzanine experience. We actually have brought on a number of folks from the private equity world which has really been helpful because they bring with them relationships with investment banks
They are able to leverage our relationships with the investment banks and the sponsor in auctions to win transactions. They've sat on the other side of the table, so they really understand what's critical and important for the private equity firm. The one thing I'll say about all originators is they all have an investment background, which is really important because, A, you need credibility when you're out there talking to sponsors about transactions and what you can do and how to look at companies and whether they're financeable or not. B, internally, to make us more efficient, we can't have people throwing deals at the wall. We really require our origination team to desk kill deals that just aren't appropriate and will gum up the system. On the risk side, we've got a deep bench of folks that have a lot of experience.
I can tell you, in today's market, documentation is extremely challenging and complicated. We've got folks that have decades of experience negotiating contracts or documents and credit agreements. We have one person on our team that was a chief restructuring officer during the last downturn. Again, at the end of the day, everyone's rowing in the same direction. Everyone's focused on the customer. They work as one team from beginning to end on deals, even if we have a deal that's a focused credit. The originator is right there with the risk team. It's all about diversity of skill set.
Eric, add two things to what Ian said. First, on the 40 people he referenced, that's on our investment team side. It's a much broader team when you include compliance, risk, finance, all the partners that we work with, which is an important part of what the Barings platform brings to shareholders. Second one, as Ian was talking about, origination and risk. It's an integrated deal team, and they all own the performance of that asset from origination through resolution of that asset. It is a one team philosophy that everybody is part of the origination and part of risk, but they have primary responsibilities within those two.
That's great. One last question, sort of a follow-up. I think in your prepared remarks, you mentioned 40 industry analysts, if I recall correctly. My question is the following. Everybody's seeking late cycle deals. Software is very popular or healthcare with low reimbursement risk, things of that nature. What I'd like to understand is how the person responsible for covering that sector is going to be a very popular person right now within your platform or any platform. How does that person's time get allocated amongst all of these various platforms in terms of analyzing deal flow?
This is Eric. I'll take a crack at it, see if Tom wants to supplement what I said. These are public side research analysts who primarily have responsibility to support our liquid broadly syndicated loan and high yield teams. That's their primary responsibility. What Ian was referencing is, at times, we'll get deals in the middle market that have an industry angle or the importance of industry knowledge is more enhanced than certain other industries. We have a process internally that allows us, in a compliance appropriate way, to work with that research analyst to get their perspective on how that company will fit within that industry or the sub-sector of that industry, and maybe some areas to focus on due diligence within that. We do not have that industry analyst supplement the underwriting and join the team.
It's really a resource that provides industry expertise to our underwriting team as a resource. Their primary responsibility is on the liquid side. One of the things I hope we show over time is really, it's a hard thing to quantify for people, but the way we work with lines of businesses and our resources internally. We all come at the business knowing our job is to make the best investment decisions on behalf of our clients. Whether that means the resources sitting in private finance or liquid credit or structured credit, we need to make sure we bring in those resources to bear.
I think Tom and Mike and others have created a culture by which we work well when it's compliance appropriate across those lines of business to make sure we're sharing information that help us make the best decisions that we can make on behalf of our capital and others' capital.
Okay. I appreciate that. It's a good answer. It's very clear. Thanks for your time this morning. Again, congratulations on such a great start.
Thanks so much.
Thank you. Our next question comes from Robert Dodd with Raymond James. Your line is now open.
Hi, guys. Hope you can hear me. Going back to one on the dividend policy. Obviously, you declared the $0.03 for third quarter, $0.10 for the fourth. Jon, you made a comment about not wanting to lock in a particular dividend level, also target is to pay out NII as it's earned. As a long-term policy, is that an indication that we should expect the dividend to vary quarter to quarter depending on earnings? Is that just a transitional issue? Just kind of what's the right framework to think about the dividend policy going forward?
Thanks, Robert. To be clear, the work that you and Leslie have done that effectively outlines that $0.01 of NAV is effectively worth $0.02 a share in stock price really ties into this.
In terms of variability, you can look at it this way. The dividend is set to a conservative level to mimic our earnings power, it always is going to have what we'll call a lag to the effective return of the portfolio. What you don't want to do is effectively give investors a return of capital, particularly when you're paid to manage it. The way I'd outline it is, expect the dividend yield to go towards where we guided our target return of 8% over time. Also realize that in the event the markets choose to show us that it is a poorer idea to be originating in a set part of the stack that you do not want to originate given your yield profile.
We fundamentally believe that massive credit mistakes are made when folks choose to strictly adhere to a set dividend, not taking into account the industry changes, right? What matters to us is preservation of your capital as well as the return. The idea is to target exactly what we've stated on the call, the transaction call in April. See no changes to that. Are also smart enough to realize that if the market does change dramatically, we want to make sure we adapt to it to preserve folks' NAV over time, because NAV is really easy to lose. It's really hard to build and to get back. Does that answer it?
Yeah. Absolutely, that answers it. Perfect. Thank you. Then on the buyback question, obviously the manager, the parent is buying back stock, which I think is a positive and aligns, obviously the manager interest and the shareholder interest. Going back to a point, Eric, that you made that right now, obviously BDC has available capital. You adjusted 69 leverage with a max at two, and you've drawn $210 of a $750 credit facility, right? You have available capital. To the point that Jon's been making about fee alignment, and Eric, you said incremental growth in the BSL side of the business right now just doesn't make sense because it doesn't generate incremental earnings to shareholders. It just generates fees to the manager. I respect that, and I think that's a very important point to make.
The second point being, though, obviously you have available capital. The other way to utilize that would be to buy back stock, which does generate an incremental return to shareholders through growing NAV. I realize you talked about being patient, et cetera. We're a remarkably impatient people when it comes to analysis. You showed an awareness of the importance of that at the beginning of this transaction with the tender, which grew NAV $0.20 roughly from when you took over to where we are today. Can you explain to us why you wouldn't use the incremental capital you have available right now to generate economic return to shareholders when you consciously and deliberately don't want to use it in the BSL market for appropriate reasons? You have the opportunity. Why not do it?
I apologize if I wasn't clear earlier. I'll try and continue to refine my answer on this. I am going to take a step back and say yes, the math today would generate that type of return, and I'm respectful of that and understand as stewards of capital, we need to be good allocators of capital. I am going to ask everybody to take a step back and look into totality, right? $100 million at NAV, $50 million tender within the BDC. That was a 1.3% increase to NAV. $50 million of incremental 10b5-1 plan we're purchasing today. I think we need to get through those stages of equity purchases, allow shareholders to see our investment strategy play out. We will always evaluate what's prudent and beneficial to our capital as a single larger shareholder as well as other shareholders.
As we sit here today, we believe in a short period of time of just a couple of months, we believe we've shown a number of actions that are consistent with shareholders. I believe if they stay with us over a long period of time, they'll be rewarded. We will evaluate this like we will everything all the time. As we sit here today, I think we're kind of focusing on getting through the 10b5-1 plan, then we'll look forward to looking at everything in totality.
I appreciate that. I do believe you deserve a lot of credit for how you've structured things and what you've done. The only sidebar that when I get into a car and somebody else is driving, I hope they're looking through the front and not watching the rearview mirror all the time. Moving on to the next question. On credit facility, you partially answered this, Jon. Obviously, I presume the 210 outstanding is the class A1s, which have a maturity in 2020. Obviously historically, BDCs having a liability, an asset liability mismatch in durations haven't done so well. You do today. That's obviously not the long-term plan. Can you give us a little bit more color on timeframe before investors won't have that shorter liability duration than asset duration to weigh with that?
Absolutely. Given a focus on asset liability mismatch, you can kind of see it go a couple of ways. First is A, you established the revolver, and you established the revolver on market terms that are going to be beneficial for both the lender as well as us, the borrower. Two, after once that's structured, you can imagine we will take a very hard look at the liability side on our BSL. To that point, I'll make one comment is there's a couple of ways to effectively deal with that mismatch over time. More importantly, our strong partners on the lending side, we have been able to go over that in grave detail. You want to set up your revolver first and then effectively at the same time, come in and fix what we'll argue is really temporary. To be clear, let's outline this.
When you think of liquidity, you do want to measure kind of what's owned against that facility. We at Barings took a very hard look at what our illiquid credit team was originating where they were focused, and paid particular attention to make sure that the assets met both a high yield liquidity profile as well as a high credit profile as well. We absolutely understand that's the part of our liability strategy as we move on. This was just a temporary ramp. We also made sure that what's pledged against that facility is of a high degree of liquidity over time that'll allow us to manage that asset liability match well in the future. The point is still made, and you'll see the liability strategy come forth in the next quarter or two.
Okay. I appreciate that. One more, if I can. You gave a lot of color on the market. Maybe this question is more for Ian. How should investors view the credit risk in the portfolio, and you gave a lot of color on that, given that the relative, at least going forward on the middle market, I mean the BSL market, they're not all '18 vintages, obviously, because you can buy them in the liquid market. Going forward on the middle market side, there's going to be a lot of vintage concentration in '18s and '19 vintages, presumably. Given, looking at page 17 and through 19 of the presentation. We've got record high attachment points. We've got record low structural protections. We've got record uncertainty on what first lien really is on whether it's a stretch unitranche, et cetera.
How should investors view that credit risk given the trends in the slides that you show us, and the fact that a lot of this portfolio is going to be built on the far right of those sides of those risk charts?
Yes. Robert, there's a couple things here to think about. One, which we've discussed and mentioned multiple times is just a large part of it's portfolio construction, right? Diversification. As I mentioned, probably one of the most important things is just diversification of risk-return profile. Think about a portfolio where you have a foundation of sleep-at-night loans that low volatility, low leverage. Yeah, maybe you're getting a little less return on those, but it creates stability in the portfolio. The job of the manager is to opportunistically find situations where you can generate a little more return. That might be proprietary deals. It might be an industry where we have an edge. We have a lot of expertise, and we can leverage that, and we're willing to go deeper in the capital stack.
It might be a company that we financed in the past that we see an opportunity to finance again, and we've gone through a cycle. It's all of those things from a portfolio standpoint that are really critical, and that we focus on as we think about this portfolio construction. To me, portfolio construction is the key. If you're just one-dimensional and you're just focused on that return, as you go deeper in a credit cycle, you're going to have more risk in that portfolio because the correlation of that risk is 100%. You need to have diversification of that risk return.
Got it. I appreciate that.
The other thing-
Oh, sorry.
Sorry. The other thing I would say is we look very closely at some pretty key metrics as we evaluate portfolios. We focus on the fact today our senior leverage, our first lien investments are at 4.6% or 4.6 x. That tells you where we're invested from an attachment point. Look at the total leverage of the companies that we're invested in. It's just over 5%. It's not 4.6 in companies that are invested that are leveraged 7x. We look at the senior leverage attachment point. We look at the total leverage attachment point. Yes. Enterprise value is, and purchase price multiples are up today. I would argue that the increase in the purchase price multiples have far exceeded the increase in the leverage that's provided to those companies. I'll use software as an example.
You have deals out there that are 20x EBITDA. We're not chasing the market. Like Eric said, we're not swinging for the fence and providing a 7x or 7.5x unitranche because we feel like from an LTV perspective, that's comfortable. We're not going to chase deals. We're going to focus on structural protection. If we're focused on the right things in terms of structural protection, we can find deals that we're very comfortable from a structural protection standpoint.
Got it. On the top of slide 19, one of the things you talk about is senior loans with embedded risk or embedded risk. How are your shareholders and investors going to be able to see that in your metrics? As you say, like 4.6 x attachment point right now. What should we look for, so to speak, to call you out if that goes up too much. What is too much where it becomes embedded credit risk embedded in the portfolio? Yeah. What should we look for on that front?
Well, what I'd argue I'd be looking at would be Robert, start with the flexibility that's offered to originate loans. I'd say yield is an important component, right? At times you'll find if we're dictating that we want to operate in a conservative leverage profile, particularly for the industry, that we want to be really boring in our portfolio construction or diversification. You could arguably understand that there's not going to be a significant amount of movement over time, particularly in those average points. I'd probably say this, it's a difficult item to easily look on the other side, just given the fact that no BDC provides every individual portfolio company, EBITDA with the name and their sponsor, et cetera.
You can understand that given how we're incented and how we choose to and who our backer is and how we choose to look at the market, that that is arguably going to get you 95% of the way there, right? If you realize that incentives drive results, a study of the incentives will probably over time show you where folks are going to be willing to take risk-adjusted return. Our focus on incentive and alignment is arguably going to be putting us right in the case where capital preservation's the goal. Appreciate the question, Robert. Also understand that we'll happily take your questions on this every quarter, but it'll really be more philosophical than something that's easily identified from the data that gets provided by any BDC for that matter.
That's a very fair point in terms of the averages. To your point, Jon, credit issues don't come from the 95% core, though, right? They're from the average and the medians. They come from the edges usually. That's one thing. You look at page 34 in your 10-Q, in your first new BSL portfolio, the high attachment point's 8.5. That's significantly higher, almost double, the attachment point on your average attachment point in the middle market. Is there, given the disclosures that you've given us, is there more embedded risk in the edge of that portfolio than the averages make it seem?
I'll argue. You see 8.1 x on an illiquid loan, right? Now, granted, there's always those structural industry factors. That's one thing. What we'd outline, too, is when you look at the BSL portfolio overall and kind of its barbell approach, there's always going to be a name that maybe is a higher, more profitable software company, et cetera, but then has a high degree of liquidity that offsets what you'd argue is presumably higher, on the face of it, higher credit risk. I'll let Tom speak to that. The point generally is that even if you think of the 5% loan basket, which is not, right? The point of alignment and more importantly, when you think of the long-term fee structure that effectively outlines our performance fee versus your results and effectively subordinates that incentive fee to the credit performance of this BDC.
I'll argue that anything that goes into this portfolio is arguably going to have a high degree of focus on capital preservation over time. There's no strategy to take high risk or low risk. Risk has always been the same. I'll have Tom actually outline kind of a view as it relates to leverage in that liquid market and that trade-off.
Thanks. In certain names like the ones where we have higher attachment points, we look at first of all, usually there is a little bit of a credit story there. The reality is we have a lot of subordinated capital still behind that. For every investment that we put into this portfolio, we own it elsewhere on our platform. A couple of the names in the platform have higher leverage, it's an improving credit story. When using our team, using our analysts, looking at forward-looking for a year to 24 months, we expect a de-leveraging profile there. That would probably be some of what you're seeing.
Those, though, again, the outliers that you refer to will be some of our higher conviction names across our platform, where we see some real upside and would like to take advantage of it in this framework.
Thank you. I appreciate the responses and congrats on your first quarter as Barings BDC.
Thank you. As a reminder, ladies and gentlemen, that's star then one to ask a question. Our next question comes from Christopher Testa with National Securities Corporation. Your line is now open.
Hi, good morning. Thanks for taking my questions. Just wanted to discuss a little bit on the difference between the broadly syndicated and middle market. When you guys are assessing both of these at the time of underwriting, obviously the former has less protections but more staying power at larger borrowers. How do you look at this and the difference in how you stress test both of these with the potential of a credit cycle?
Yes, I'll start with on the broadly syndicated side. As mentioned, we have the largest team when you look at globally, our research analysts, portfolio managers. We have the largest team that's out there that underwrites credit on the broadly syndicated side. By doing that, we have roughly 40-45 credits per analyst. We do take that very deep dive into our view of it. Ultimately what we require our analysts to do is to have a forward look of what we think these companies will do. If we're in an industry where it's cyclical, we'll look at how will this company perform in a downside scenario and how much cushion do we have? What does liquidity look like? Where can leverage go? From there, we make a judgment call on where we think this thing may trade.
There's a lot of work that goes into it on the front end that ultimately gets us comfortable about holding that position on the broadly syndicated side of things. We have a long history of doing it, over 20 years of doing that through multiple cycles.
I would just say on the middle market side, again, the big difference between the two is liquidity. On the middle market side, you don't have liquidity, we focus on things like structural protection, does it have covenants, is there any leakage, definition, EBITDA, things like that. Capital structure. We like simplified capital structures, that if there's an issue, all the lenders are in alignment and you can work through any issue. Critically, I think, the sponsor is really important. We underwrite every sponsor that we do business with. If you have a problem, we're working with sponsors that have a history of supporting their companies, either operationally or with capital to get that company through an issue or over-equitize an acquisition. They just do the right thing.
Those would be kind of the key things that we focus on in the middle market.
Okay, thank you. That's helpful. Are all the broadly syndicated loans that were on the balance sheet in the quarter, are all of those held by Barings in either the CLO or a different account?
Yes. They are on our platform. Most of what we did is we ramped in the secondary. They are all existing positions that come off of our investment committee-approved buy list.
Got it. Okay. That's helpful. Obviously, the target for the BDC is to be mostly middle market, and I know that these are largely placeholder assets, but what do you guys anticipate being the pace of you kind of getting the middle market to be at least over 50% of the portfolio as you kind of look ahead at the pipeline and the ability to sell off some of the broadly syndicated products?
Yeah. That's one we talk about a lot. Which is what's the pace of that transition? The frank answer is, we don't know what it'll be, because we don't know what the market environment will be and whether our sponsors when and the like. The reality of it is our broad origination network, though, and our current pipeline would say that kind of $100 million-ish a quarter is a very achievable goal on an average basis. We're going to have some quarters less than that, we're going to have some quarters more than that. History is a good guide post, would say that the BDC, taking this back to the question we had earlier about the co-investments, the BDC's portion of their origination using around $100 per quarter is probably a good proxy for what it would look like going forward.
That ties into leverage as to what you'd have on the leverage given the equity. I originally talked about in our transaction description when we first announced the deal, an eight-quarter ramp. We had a one-to-one leverage then. As I said earlier, we're not going to be beholden to eight quarters or six quarters or nine quarters. It will be what makes sense. If you're looking for kind of 50% +, I would kind of model out that $100 million per quarter as the best guess. We'll just update you every quarter on exactly where that stands, and we're going to update you with our pipeline. Through that, hopefully, the transparency we provide will give you a good ability to model this out going forward.
Got it. Okay. No, that's very helpful. Just touching a little bit on the co-invest AUM, I know Barings obviously is a really large platform. What's the exact AUM that BBDC is able to co-invest across?
The exact AUM, I wouldn't want to give you a specific number. The reality is it could move. As you sit here today, we have liquid assets, as Tom referenced earlier, that on a blended basis have about a 330 over spread. As we're originating middle market deals that have a 400 or 425 spread that we have, to Ian's point, high conviction that they're a foundational part of a portfolio, economically makes sense to trade out of that liquid asset into this L400 or 425 asset. I could fast-forward four years from now. The market could look materially different. We could have a portfolio that's all, let's just use on average L plus 525, and that same L400 or 425 asset that today makes sense from a portfolio perspective may not make sense at that point in time.
Also the reality is that number moves. As private commingled funds we have ramp and then they pay down, as separately managed accounts become more or less active. The hard number is not one that I could provide tangible. I think to Ian's question around hold size is probably the best proxy, which is our average leverage, he referenced at 4.6 x in this portfolio, is consistent with our platform. The average EBITDA size on the median in that $30 million-$40 million range is consistent with our platform. Our ability to speak for $100-plus million in those deals and really drive the lead is what's critical. What percentage of those deals we get, frankly, is as much up to the sponsor as anything else.
Got it. Okay. Last one for me, just philosophically, obviously Barings is a large group and has been around for quite some time, and you guys now have a public vehicle with the BBDC product. Just curious kind of what the thinking was on having a public vehicle and what your thoughts are there.
This is Eric again. Take a step back. We do believe having diversity of capital for our platform is important. That comes in a couple different ways. First, it really comes in the diversification of the risk return within our capital providers. On one end, let's think of a middle market CLO
Right? That could take a L 400 asset, at a very low OID. A diversified pool of that could make a lot of sense, all the way ranging out to a mezzanine strategy that we've been doing for over 25 years in the U.S. and have strong returns in that. Having the diversity of capital, back to Ian's point, really gives us the flexibility to speak across the capital structure, across multiple deals with our private equity clients. I think that's kind of the first thing I would say. Second, within the diversity of capital, we operate third-party commingled funds that are private funds. We operate separately managed accounts on behalf of clients. Those clients also would come from LPs or separately managed accounts from across the globe, from our distribution network and our relationships there.
Really, the part that we didn't have was a listed public vehicle to complement our private third-party funds and our separately managed accounts. Strategically, we made the decision, prior to this transaction, Tom Finke, our CEO, Mike Freno, who runs global markets, and myself, to look at a permanent capital vehicle as a proactive strategic effort. This was not a reaction to the fact that Triangle put itself up for strategic review. It was something that we had intended to do and wanted to look at a BDC. It really came down to an unlisted private one versus the purchase of one. We felt like this was attractive to get a listed vehicle where we were able to have a third party purchase the portfolio and frankly start from scratch.
One of the things I love about this transaction is, typically, when you buy a portfolio, all the good deals are your deals, and all the problems were the prior person's, right? The good news on this is it's going to be really clear how we perform to ourselves and to our shareholders. That transparency and that clarity is something we're very comfortable with.
Got it. Okay. That's great detail, appreciate your time this morning.
Thank you. Our last question comes as a follow-up from Fin O'Shea with Wells Fargo Securities. Your line is now open.
Hi, guys. Thanks so much again for having me on. I just want to circle back to both Jon and Eric on the issue of buybacks again before you go home for the weekend. Just putting everything together we heard today, I'm again agreeing with you that the totality perspective is impressive on your behalf, also that at this juncture, it is appropriate for you to have your shot at portfolio construction to ramp your return and bring the discount in that way. That may be even the best value proposition to shareholders at the 85 of NAV context. Shareholders, of course, accepted your proposal to manage the BDC, it's reasonable that you should get a shot at expanding before being asked to contract.
That said, please give us some texture on what standard you're setting for yourself in terms of a timeline of a ramp to deliver a closing of that discount to shareholders through a higher return before you would then say, "Hey, we couldn't hack this. We'll buy back more stock.
Yep. Hey, Fin, it's Eric, I appreciate how you asked the question really very much. I think it gets to the heart of it, right? Which is, I said earlier, we're not going to chase a quarterly target or say we're going to generate X amount of directly originated middle-market deals, put ourselves in that kind of box. If we wake up in 2020 or some timeframe down the road, we have not proven our ability to ramp the portfolio with illiquid credit at a measured pace and risk return that we believe makes sense, we're still trading at this type of a discount, we have to ask ourselves the question that you just asked us, right? Does it make sense? Is the best interest of our capital as a shareholder and our other shareholders to do something else other than what we've done?
I can't tell you that's going to be the end of 2019 or middle of 2019 or beginning of 2020. What I look forward to is every single quarter, sharing what that ramp looks like. Every single quarter, let's look at where the stock's trading and what the go-forward pipeline looks like. Our team collectively, internally, I believe, has shown to what you said, the willingness and the ability to invest our capital, to shrink the corpus of the BDC, to benefit shareholders, to make what's in the best decisions of long-term shareholder value. It's not a hard date for you, that is kind of the philosophy of how I'm coming at it.
Thank you, guys. I appreciate that.
Thank you. Ladies and gentlemen, that concludes our question- and- answer session for today's call. I would now like to turn the call back over to Eric Lloyd for any further remarks.
Thank you, operator, and on behalf of all of my team members at Barings, I want to say thank you to all of you who participated in today's call and all of you who've entrusted your money for us to manage. We look forward to continuing our discussions in the future. Have a wonderful day, and thank you for dialing in.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.