Good morning, everyone. My name is Jack Rehberg with the Southwest Ideas Conference, produced by Three Part Advisors. Thank you all for coming out today. Our next session will begin with Capital Southwest Corporation, traded on the NASDAQ under the ticker CSWC. Presenting on their behalf today is Bowen Diehl, their CEO and President. And with that, I'll hand it over. Thank you.
All right. Thanks, everybody, for joining today. Like I said, I'm Bowen Diehl, CEO, Capital Southwest, and I'm going to kind of go through some slides, kind of tell you our story a little bit, and then hopefully have some time for questions and talk about whatever people want to talk about. So here we go. All right. So Bowen Diehl, I've got a CFO here in town that partnered with me back from 2015 and a Chief Investment Officer, Josh Weinstein, also when we took over the BDC back in 2015. So all right. So Capital Southwest, we're, like you said, public BDC. Capital Southwest actually was formed and went public in 1961, so it's an old firm. We took it over in 2015.
I'm not going to talk a lot about the history here, but if people want to hear it, I'll definitely talk about it at the end. We took over the BDC, turned it around, and it's been a nice success story. Publicly traded under CSWC. We also have some notes, retail notes, 7.75% notes that trade on the market as well. We're an internally managed BDC. That's important. We actually, our shareholders own both the manager and the managed assets. So I own the same shares that our shareholders own. So it's not a management contract where I'm getting management fees based on asset growth or whatever. It's personal. So same shares our shareholders own. We're a RIC for tax purposes. We have 33 employees, actually. Someone joined last week. 33 employees, all based here in Dallas, up in Preston Center.
We have balance sheet assets last quarter, at the end of last quarter, $1.6 billion. We have about $500 million of dry powder on top of that. We started, we took over the BDC, we started with about $250 million of assets. We also have an SBIC. We have one SBIC license. We have almost fully funded it. We have indications from the government as we should have our second one approved by the end of this calendar year, so pretty soon. Very, very interesting source of capital for companies that are SBIC eligible, which most of our businesses in the lower middle market are SBIC eligible. We have an investment-grade credit rating from both Fitch and Moody's . Sorry. That is important.
It affects our debt cost to capital, but it's also an important endorsement from those institutions on how we've built our capital structure and asset manager from our shareholders' perspective. So Capital Southwest is a lower middle market lender. And we lend to companies when we initially get in t heir EBITDA from kind of three to maybe as much as $25 million. Most of the companies are $8-$10 million, kind of general size. And we're typically lending 25% to maybe 50% loan to value. And we're typically financing the acquisition of a private equity firm buying a family-founder-owned business. And so, this is a world where there are private equity firms from $200 million in fund AUM size to $1 billion AUM size, a nd their mission is to buy controlling interest in founder-owned businesses.
And so you've got an aging demographic across the U.S., as people hear about in the terms of healthcare. Same thing among business owners. And so business owner, spouse, or advisor is telling them that they should diversify their assets. They're not getting any younger, they which went through a pandemic, whatever the narrative is. And they could sell their company to a corporate entity and work for a big bureaucracy and take all their cash home and go play golf or whatever it is. They don't really want to do that. An alternative, some do, but alternative is a PE firm buys 60% of their business. They get to roll over the rest of the equity in the new business. They get to do what they like to do.
Business owners do what they like to do, and they do all the other stuff in the business because they own the business, and so PE firm comes in, institutionalizes all the areas of the business, puts basic KPIs in place, lots of different things they can do to the founder business. Founder does what founder likes to do, and then now founder has partnered to go buy five or six of their competitors. Now, that's interesting to a lot of them. That's a whole different world that they've lived in before. So we're the financing behind that, so $80 million acquisition. Let's say we lend $25-$30 million on top of the capital stack credit, and we'll write a $1 or $2 million equity check, pari passu alongside the private equity firm. So that's our world we live in.
93% of our assets, our book, is backed by private equity firms, to give you an example. Why are we in this strategy? We like the lower middle market. Lower middle market, there's a lot of very interesting growing businesses. There's basic investment plans for these PE firms to take a business that is relatively unsophisticated, which comes with risks, of course, as well, but institutionalize things. For example, a lot of times we'll look at an industry and go, Why doesn't this person, this company, have eight salespeople? They only have one or two. It's because the founder didn't want to manage eight people. I mean, it's stuff like that, and so we can increase market share. We can increase the customers by adding salespeople. I think it's one example of many, but that would be an example of things like that.
So a lot of growth opportunities. It's a market where lenders like us often have times to invest in equity alongside the PE firm. So that creates a nice equity kicker in our portfolio. It's an important part of our strategy. And in the lower middle market, now there's smaller businesses, but loan terms are strong. We have tight covenants. We have loan to value, and our weighted average loan to value across our book is 40%. So we're not lending at the 60% world like the larger market. And we have tight covenants. We're a first lien lender. So when covenants breach, that means EBITDA is down maybe 25% or below what we thought. As a first lien lender, that is not necessarily a problem. And so we can go, but we have the right to sit down with a sponsor.
A lot of times we ask them to put equity in the business and we get to charge fees or whatever else. And so as a first lien lender, we have the ability to do that. So it kind of gets to the second one. As a first lien lender, we have better control of our outcomes. So we don't have a bank above us that's going to squash us when things start to bump in the night. And so we control the process. And we can sit down with a private equity firm in their conference room, talk about the plan, what are we going to do to fix the challenges in the business. And PE firm, you need to put money in the company, which 99 times out of 100 they do.
And we get to charge a fee for maybe giving some covenant relief for that type of thing. It's a controlled process. No one outside the room hears about it, which means their competitors don't hear about it in the market for the portfolio company. We don't have lawyers and consultants swooping down and charging fees. It's a very concentrated process to deal with issues. And we have about 10% of the time you have covenants that breach. You know, 90% of the time everything goes swimmingly, 10%, about 2%, 2 or 3% of the time it becomes a big problem. So that's kind of our world that we live in. But it's backed by private equity firms and with us at the top of the capital stack. Me as a shareholder, I like that.
Then as far as an asset class, first-lien book is more efficient for us on the right side of our balance sheet to finance. And so, our shareholders really let, they care about return on their equity. So we can take less asset risk and finance more efficiently our balance sheet with a first-lien book as opposed to a junior capital book. That's the theory behind it. That was the theory the last 10 years of doing it and the last 20 years of my career. That's kind of how we've built Capital Southwest. I added this slide in here, kind of why for this investor conference, why would you invest in Capital Southwest? Obviously, first-lien top of the capital stack portfolio. It's 93% now backed by private equity firms. We look at every loan.
We actually take that particular industry that we're looking at, that particular company, and our associates go and mine the data of how that industry peaked to trough, did in the Great Financial Crisis, and we assume the Great Financial Crisis happens within 12 or 15 months of our loan in a simulated model, and we want to see that our debt is well within enterprise value in that peak to trough simulation and our interest is being paid, so what that does is it syncs up leverage on a portfolio company with its potential volatility, and so then we have customers, certain customers will model in that we lose the customer or whatever. It's a lot of downside modeling, but from day one, we took over the BDC in 2015.
We assumed that we were long in the tooth on the economic cycle and we're kind of paranoid about recessions, so that's kind of just to share with you kind of the philosophy of kind of how we look at the world. Don't hope for a recession, but we model. We think we've got our firm very prepared for one if we were to have one. Internally managed BDC structure, as I mentioned earlier, we own the same shares our shareholders own. So I don't have a manager contract. If I double assets and destroy value, I've just shot myself in the foot. So that's important. T hen the capital structure, our strategy from day one was to be in multiple capital markets. The more capital markets, the better. So you have lots of options to raise capital.
We target a 50/50 mix between our liability structure and 50% unsecured covenant-light bonds and Secured credit, 50%. The Secured credit, typically I'll have a lower cost of capital, but Secured credit can hurt you, and so unsecured credit can't, and so that's just been our mentality from day one. We're one of the lower levered on our BDC. We're one of the lower levered BDCs in the space and one of the higher yield on our assets divided by net asset value, so we're getting nice earnings on our net asset value with less financial engineering, so as I think about our underwriting strategy at the portfolio level, we take the same mentality at the BDC level, so as we built our credit book, starting in kind of the bar on the left was 2016, we've kind of grown the book.
You can see the orange is first-lien so it's 98% first-lien, very small amount of second-lien and sub-debt in the book. The blue line from left to right is our average hold size, so it's granularity in the portfolio, and so as we've grown the book, obviously we've maintained discipline on the hold size, and so our average hold across the book is 1% of assets. That's also an element of risk management, as you can imagine, so that's an important metric that we look at. As we've grown the book, we've also grown operating expenses, but we look at a metric called operating leverage. That's super important, so it's basically our operating expenses divided by our assets, and so you can grow operating expenses, but you want to grow it slower than you grow assets under management.
And so we look at operating expenses as essentially the load or burden on our shareholders to manage the assets. And so it's very important to have a robust infrastructure, but it's also our board and the management team is very focused on that metric. And so our operating leverage was 4.9% early on because we were small, and now it's about 1.7%. And that's kind of where it might fluctuate between 1.6% and 1.8%. So that's very strong in the BDC space. We're a dividend payer. So we lend money and our interest and fees off the loan book minus our expenses, our profits, and those profits go out to shareholders and dividends. And so we pay dividends in our regular dividend. We pay two different kinds of dividends. We have a regular dividend, which we match up with net interest, recurring net interest income.
And so, we're setting that at a level that we think that there's no modeling scenario that we can conceive where we would ever have to cut it. And so, that's matched up with recurring revenue. We take into account future interest rates coming down, all those kinds of things. And then, we have a supplemental dividend, which is basically excess earnings over our dividend. So, our net investment income is higher than our dividend. There's a spread there. And we share some or most of that spread with our shareholders in the supplemental dividend, which comes from both the excess earnings off our loan book as well as our undistributed taxable income, which is generated through our books mainly from sales of our equity investments to create gains. And so, those come into the book, come to the mothership, and then those are Undistributed Taxable Income.
It's about $0.64 today per share. The UTI is $0.64. The regular dividend is $0.58, and our supplemental dividend is $0.05 this quarter. Since we took over the BDC, you can see the blue line is net asset value. The orange is supplemental dividends, and then the green is regular dividends. NAV has been very steady. It stepped down in 2020. We had a large equity gain investment that we sold in late 2019, pre-COVID, thank God. It was a legacy company that we took with the BDC, sold it for a really nice gain, and we distributed those. You could see how the top line, we distributed the gain to our shareholders and did a deemed distribution, paid some taxes. It's our shareholders' capital. Our board is very biased towards sharing the income and dividends or cash back to shareholders.
So you can see total value creation since we took over has been quite strong. Portfolio, if you zoom out on the left, our portfolio is about 90% first-lien debt, as I described, very small amount of sub-debt and second-lien debt, and then 9% of the portfolio is equity. We have 118 portfolio companies across the book, and we have 72 of them that we have an equity investment in. So we're not always making equity investments alongside our loans. Sometimes we like the credit story, don't love the equity story. That happens in the credit world. And so we won't invest in the equity. Diversified across industries, some less cyclical businesses like healthcare services and food and agriculture. And then our consumer products businesses and services tend to be very lower-levered businesses, more non-discretionary type purchases.
Portfolio, this is actually. I noticed this morning, this is actually a quarter old, but we have, like I said, 118 portfolio companies. We have average leverage across the book of 3.8 times and an average hold size of about, I think it's about $15 million now, average hold size and strong yield on the book. So we publish this slide in our earnings deck each time, each quarter. This is designed to give the shareholders an indication of kind of flow of health of the portfolio company. You can look at leverage statistics and all that, but then how is the portfolio really performing versus what we underwrote? Every loan stays as a two or starts as a two, and then it becomes a one if it significantly outperforms, and it becomes a three if it significantly underperforms.
We're concerned whether or not we will continue to accrue interest on it. It doesn't mean it will become a non-accrual, but we as a management team say, "Okay, we need to signal to the market that this could become a non-accrual." Then a four is where something just will completely off the rails and we're going to probably lose principal. That's the nature of those. You can see last quarter we had a bunch of upgrades. We had one downgrade. Actually, the upgrade in the two category actually was a company that was really struggling in the three category, and it's turned around significantly. That's and that happens. So it's 6.5% of the book is in the kind of lower tiers, and then the rest, 90+, +93% is in the top two categories.
I feel like this is a pretty strong profile. It's trending in the right way. We certainly have. We're always going to have noise in the portfolio. We have four or five companies that are struggling that we're dealing with. We're either converting debt to equity and turning them around or that kind of thing. It's not enough to really zone out, and you look at the portfolio and it affects our income materially, but from a granular perspective, we're always going to have that kind of noise. So, capitalization: we fund ourselves through a credit facility with 12 banks, and we have two credit facilities, actually. We've got an SPV facility with Deutsche Bank as well. We have two institutional bond issues outstanding and a retail bond issue outstanding, and we have, like I said, an SBIC license.
Our debt to equity on a regulatory basis is about 0.8 to 1. We can go up to 2 to 1. I have no interest in doing that. That was investment-grade credit ratings. Our target leverage is somewhere between kind of 0.8 and 1- 1 on a regulatory basis, and those Moody's and Fitch investment-grade ratings are super important to us. So we have no intention of losing those. So you should not expect us to lever this BDC up materially. We may be able to leverage from 0.8- 0.95, and that kind of balances falling rates on the loan book. But the leverage, the lower conservative leverage structure is fundamental to our strategy. This is kind of a layout of our structure or our credit facilities and when things are due. We just did a, in November we did an c onvertible offering,
I've got a slide on it here. If you look at the previous slide, we have $140 million of notes due in January 2026. So being conservative in how we manage our capital structure, we wanted to get way out in front of that. We were approached by the convert market, which is a completely different market for us. And we had an opportunity to do a convertible offering. We had, it was a $230 million offering, a lot of demand for it, $430 million, I think, of orders. And it's a complete 48 different institutions invested in it. It's a five-year deal. And we use that capital to redeem the 4.5% notes that were due in January 2026, which we didn't want that to become an overhang moving into 2025.
And then we paid down the rest of the facility, paid down the 7.25% credit facility. And just to lay out kind of why we did it, A, we did it to remove the overhang potential as we move into 2025. The 5.8 coupon versus a typical BDC coupon in this market, we'd be raising capital like other BDCs in the kind of ±7% . So 5.8 from an earnings perspective is very attractive. As we think about for the next year, these bonds are traded, whether it's a regular bond or a convertible bond, they're priced off of the treasury. And as we move into 2025, the prospects of treasury rate going down could happen, might not happen. If it happens, it's probably because the economy's weak and risk premiums on those bonds expand.
So the movement of the coupon is probably not going to move that much. And so as we move into it, and as we move much into 2025, people start worrying about how we're going to refinance the bonds. So a lot of BDC bonds coming due, and so that we got in front of that. And that was a big factor. You know, we have this quarter, as we've told the Street, we had originations in the September, June and September quarter were kind of average for us. The originations we're working on right now, it's a very active quarter right now. So this capital we put to work very quickly. And it's the convertible, it converts at $25 a share, which is one and a half times our book value. These deals don't really convert because there's a, well, there's a flexible conversion feature.
So let's say our stock trades at $35 a share and they want to convert. Well, a couple of the guys might convert. We have the ability to settle that up, settle that in either cash or shares. So we could settle it in cash and we turn around raise equity at $35. And so if the stock doesn't do well because the economy or whatever else, we'll look back and go, "That was 5.25, 5.8 bond was a really nice bond." So it was a really nice scenario for us in an upside scenario and a downside scenario. It's very accretive from our shareholders if they convert. They don't typically convert also because if they call up and say they want to convert, we settle it in 41 days based on the average VWAP.
So that shareholder, that bondholder is taking market risk while we settle or we determine the conversion. So they typically just sell the bond. And so these bonds are pretty interesting. It's a more complex security. Most of the BDCs, the vast majority of BDCs can't do converts because they don't trade materially above book. And so what's buying that rate down is the call option, theoretical call option on the conversion feature. And so the stock that trades for a long materially above book as we grow, that creates upside. And so there's a call option feature there. As long as we can settle it in a way that's accretive to our shareholders, it kind of works for us. And it works for the bond converts, it will convert guys, and it works for us as well. So it's a pretty interesting security.
I think there's three BDCs out there. Two of them are very large that have converts. Anyway, that's kind of a new security for us. That's the last prepared slide. I'd love to answer any questions or go down any kind of subject matter that people want to talk about. Any questions? You bet. I'm going to repeat the questions too for the recording as I was told.
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Yeah, so the question is to comment on the rate or the yield on our portfolios as it relates to interest rates and interest rates coming down and what our market looks like right now. Clearly with a floating rate loan book, as SOFR comes down, then all else, if there's nothing else going on, then the yield on our loan book will go down dollar for dollar, right?
There's a couple of other things going on. Typically as rates come down, you know, let me say it the opposite. At the peak of rates in my career, every time lenders are notorious for being somewhat punch drunk on the income and giving back spread. The opposite happens as rates come down. It's not a dollar for dollar. It's not like it stays even, but it's not a dollar for dollar move. The other thing is, and especially if the economy starts to weaken, I mean, one of the things in our market right now, what's creating the competition, there was a lot of capital raised back in, call it 2021 and through 2023, both on the private equity side and the private loan side. The loan you probably read about in the journal and other trade rags that M&A volume is down.
A lot of the narrative about the market is narrative around the market, which most dollars in the market are in the large companies. We're kind of down in the lower- middle market. A lot of people don't care about the lower middle market. Some do, so when you have the lots of, most of the capital was raised in the larger market, like super large market and the M&A volume in that market is PE firms selling businesses to each other. That's different than our world, but it affects our world, and this is why, so you have the super large funds justifying a little bit smaller deals than they typically like to do, which cascades down to the middle market, and then the middle market guys are getting more competition, and they cascade down into the lower middle market.
So we are definitely seeing. I'd say I'd describe it as at the margin, but we've definitely seen it, larger funds stepping down into our market. And it doesn't take a lot to disrupt supply demand. And that affects everybody. And the chameleon, in some instances, just mispricing risk in the lower middle market. So that's one thing. The other thing is right now, as we speak, the commercial, local commercial banks are definitely more aggressive than they were a year ago in lower middle market businesses. And so we compete with commercial banks, and that looks like a regional bank lending money and partnering with a mezzanine finance company.
And so let's say we're going to lend three times EBITDA on a business. Banks are lending two times EBITDA. The mezz guys are putting in one times EBITDA, and they have a two-handed deal, and they compete with our one-handed deal, right? And then, or maybe the mezz guys saying, You know what? To win, I'll go to four times EBITDA And we're just not willing to go to four times EBITDA, so we lose that deal. And so that creates. So right now, we're kind of in a somewhat of a perfect storm of competition, mainly because of the larger funds stepping down and the commercial banks competing in the market. So our spreads on our loans in the last year have come down on new loans of 125 basis points.
Now, a lot of our loans, like 35% of our originations are add-on acquisitions in our loan book, which are based on yesterday's pricing. Sometimes they reprice, but not always. But on our new loans, the spreads have come down about 125 basis points. Now, I personally expect, not necessarily modeling this from a dividend perspective and all that, but I expect the large funds to cascade the other direction. And the commercial banks in my career come and they go, and they come and they go. So I'm not super worried about that. But it also creates the whole desire for yield and the liquidity in the market, which is affecting all of this, benefits us on our capital raise. We've got $500 million of liquidity on our credit facility. It's an all-time high. We just did what we think is a very attractive convert offering.
But the asset side, I mean, we've done deals with 105 PE funds. They're continuing to do transactions. And we're competitive in the market. We lose the deals. We lose the deals usually on structure, not on pricing. I can live with a few basis points less on pricing on a good loan book. That works in our business. It doesn't work to stretch on leverage and create more problems. That does not work. And so if they're going to come down our market and misprice leverage, we're not chasing that. If they cause us, and we don't always have to, we're oftentimes not the cheapest financing. A new guy, the private equity firm, doesn't know. I mean, most of the IRR and the PE firm with this family-owned business is what they can do with the business. It's not the cost of the financing.
But a bad lender, when something bumps in the night, that drills them when they bust covenants, that's a problem. So they're also looking at that. We can't be 100 basis points high, but we oftentimes are 25-50 basis points high. Does that make sense? I mean, just kind of bringing it into our world and what it looks like. But so, Heather? Knock it out. Let's do it.
So have you guys incorporated more of cap floors, I guess, in terms of how you're seeing going forward, just to hedge on that potential interest rate risk? And then qualitatively, every BDC is starting to show more call it first lien loans, but I would say first lien has definitely expanded in terms of its deterioration in underwriting and what people are describing as first lien versus traditionally, whether it's unitranche getting labeled as first lien. So just thoughts on the qualitative approach on people labeling first lien in their books?
Yeah, we've always tried to keep it simple. At the end of the day, you're lending at value of the company and the cash flow of the business, and you want to be top of the capital stack. And what is your loan to value? What is your interest coverage? Now, that's setting aside all the things you go through about the fundamentals of the business model and potential volatility and all that. So like I said, we typically are lending from 25%-50% loan to value. And we're average loan to value, PE backed book at 40% average loan to value is first lien risk. But we don't really do a lot of, I think we have about 118 companies.
We have two companies where we've sold a first out position to a bank usually. Now, that's 25% of the loan we sell to a first out. Where the first out or where the senior loan unitranche narrative starts to get stretched across the, I'm not even going to pick on BDCs, BDCs, but also just general lending funds is when you sell, you take a loan and you sell 50% or 60% to a first out guy and you still call that first lien. We don't call that first lien. And we do deals which are split lien, which we think about where you got a lot of assets and we bring in a bank to finance cheaply the working capital of the deal. And then so they're first lien on the short, on the first lien or they're first lien on the current assets.
We're second lien on the current assets. We're first lien on everything else, real estate, whatever else long-term assets. They're second lien on our assets. We call that a split lien deal. Most lenders call that first lien. We call that. That's our second lien portfolio on our book, to give you an idea. It's really all about the fundamentals of the business, the loan to value, and more importantly, what does that capital structure look like as a potential volatility, all the things you don't want to have happen to the business. If they all happen, what does that look like?
So we call it unitranche risk, call it first lien risk, but we're not lending at super mez level leverage levels and then calling it. If we lend past what we think is first lien risk or past what we think is debt risk, we've done that in a couple of portfolio companies, but we get substantial warrants on that because we're now lending into the equity capital. So we need to get equity type returns. I mean, it's just simple credit. I mean, that's how we look at the world. So yes.
How big is your addressable market? And is it looked at like businesses, private businesses owned by 60-year-old people and older? Or kind of how do you look at that?
Yeah, I mean, it's fat. I mean, it's like, I'd say 50 and older founder-owned businesses.
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I don't really, honestly. A lot of people say, "Oh, our market's massive. And if we only get our market share up a little bit, look how big we're going to be." I mean, there's plenty of room for us to grow plenty big. And we've never looked at, we've never looked at our business, I mean, speaking as a shareholder, we've never looked at our business as something we've got to scale. Growth is not our number one goal. And credit's our number one goal. But if you create an engine, a capital structure that works for all the stakeholders and it trades meaningfully above book until you have access to the equity markets, growth kind of takes care of itself. Clearly, we've grown. Our goal is not to be $20 billion in size. I mean, we look at doubling assets from here before we decide the next. There's an enormous amount of value creation when we go from $1.5 billion to $3 billion-plus in assets. Yeah, it's a good question. We do deals with private equity firms all across the country who are doing deals all across the country. If you look in our public filings, we're like right at 25% of the portfolio in the four corners of the U.S. The PE firms are in all the major markets. It kind of works. I mean, our job 10 years ago when we took over the BDC was to build a franchise. I think of our franchise as our deal network. That's our franchise, right? We do the credit and we capitalize it in a way that is appropriate and is long-term. This is, I mean, this is personal to me.
This has got to work for the next 25 years plus, right, so you build that, that engine that works that attracts capital, and then you go out and you build your credibility among the PE firms, which are all across the country, and they start to trust you and know you, that's your franchise, and so it should and it has naturally diversified itself across the country. It's kind of our theory, and it's worked out exactly that way, so as far as for us to go to one and a half to three billion to four billion, is the market 20 billion or 25 billion? We haven't spent a lot of time thinking about that, to be honest, but it's plenty of room for us to grow this business in a way that works really, really well for our shareholders. So. Yeah, please.
So kind of building on that, what if I'm looking at an individual deal that shows up at credit underwriting from start to actually signing the docs and putting the money out to work? What is the kind of percentage that you guys actually pursue versus what you pass on? Yep. How is that trend over time in terms of that pipeline?
Yeah. So typically, so we look at somewhere between 850 and 900 deals a year. Lots of deal activities. And we close about 2% of the deals we see. And that's been pretty consistent over the last 25 years of doing this. And if you're much below 2%, one and a half to 2%, any below that, you're probably like, "Okay, are we missing something?" Don't really worry about that side of the equation too much.
But if we're like 3% or 4% of the deals, then you ask yourself the opposite question, right? You're constantly thinking about that. But that's the way that metric is pretty good too, 2.5% of the deals that we look at. And they kind of die as you go, right? So we sit down every Monday morning and we go through one-pagers. We have a one-page format that when the deal team comes up, sees a deal that they think is worth talking about, we sit down on Monday morning, we're going through, gosh, six to 10 of those one-pagers where the executive team and we have the whole company in there because I want everybody seeing how we do what we do. And we decide which ones we want to spend time on. And we think about structure. We think about pricing.
We think about what are the big risks or what, gosh, are there risks we can underwrite? Can we underwrite? Can't we underwrite? You know, kind of thing, and that arms the deal team to go back to their deal relationship and say, "Okay, here's what we're kind of generally thinking," and it's pretty high level, but we've chewed on it for 20 or 30 minutes on those deals, and then from there, they kind of work the system. We're all sitting next to each other, so they're talking to us real time as well, but the next step would be they would come to when they think the deal is something we definitely should pursue. We think it fits in our wheelhouse. We think we've got a reasonable enough chance of winning it. They come to the investment committee officially with an initial investment committee memo.
That's usually a 30 to maybe 50page slide deck, which is a detailed slide deck, but it's almost memo type, but it's a slide deck that walks through the deal. They've done modeling. They've done a base case, but also sensitized recession case modeling that whole dynamic we talk about. They talk about the merits of the business. They have a chance to meet with the manager team most of the time. We'll always meet with the manager team before we close the deal, but most of the time before the initial IC meeting. Talk about risks. So they get here from the investment committee, Here's what I'm really nervous about. I know there's six risks to the deal, but these two are the main ones, kind of thing. And then they go work to sign a term sheet, try to win the deal.
And then they go through all their diligence and they go to the final investment committee, come back to the investment committee with that initial memo expanded to confirm all the things we've talked about. They work to close. And that process is anywhere from 45-120 days, depending on how early we start running alongside that PE firm to negotiate the deal and do the diligence. So. Was that the hook that beep? I think it was. Okay. Thank you all very much. Appreciate it.