Good morning, ladies and gentlemen. Welcome to FS KKR Capital Corp.'s Fourth Quarter and Full Year 2022 Earnings Conference Call. Your lines will be in a listen-only mode. During remarks by FSK's management, at the conclusion of the company's remarks, we will begin the question-and-answer session, at which time I will give you instructions on entering the queue. Please note that this conference is being recorded. At this time, Robert Paun, Head of Investor Relations, will proceed with the introduction. Mr. Paun, you may begin.
Thank you. Good morning and welcome to FS KKR Capital Corp.'s fourth quarter and full year 2022 earnings conference call. Please note that FS KKR Capital Corp. may be referred to as FSK, the Fund, or the Company throughout the call. Today's conference call is being recorded, and an audio replay of the call will be available for 30 days. Replay information is included in a press release that FSK issued on 27 February 2023.
In addition, FSK has posted on its website a presentation containing supplemental financial information with respect to its portfolio and financial performance for the quarter ended 31 December 2022. A link to today's webcast and the presentation is available on the investor relations section of the company's website under Events and Presentations. Please note that this call is the property of FSK.
Any unauthorized rebroadcast of this call in any form is strictly prohibited. Today's conference call includes forward-looking statements and are subject to risks and uncertainties that could affect FSK or the economy generally. We ask that you refer to FSK's most recent filings with the SEC for important factors and risks that could cause actual results or outcomes to differ materially from these statements. FSK does not undertake to update forward-looking statements unless required to do so by law.
This call will include certain non-GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures can be found in FSK's fourth quarter earnings release that was filed with the SEC on 27 February 2023.
Non-GAAP information should be considered supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly named measures reported by other companies. To obtain copies of the company's latest SEC filings, please visit FSK's website.
Speaking on today's call will be Michael Forman, Chairman and Chief Executive Officer; Dan Pietrzak, Chief Investment Officer and Co-President; Brian Gerson, Co-President; and Steven Lilly, Chief Financial Officer. Also joining us in the room are Co-Chief Operating Officers Drew O'Toole and Ryan Wilson. I will now turn the call over to Michael.
Thank you, Robert. Good morning, everyone. Thank you all for joining us for FSK's fourth quarter and full year 2022 earnings conference call. This past year was a year of significant accomplishments for FSK. We continued rotating our investment portfolio into FS KKR-originated assets as our investment team originated over $4.5 billion in new investments. We achieved the strategic goals outlined in our September 2021 analyst and investor day. We hosted another successful investor day this past November.
We issued $500 million of three and a quarter unsecured notes in January 2022. These efforts, as well as the positive impact of rising interest rates, have resulted in meaningful earnings growth as our adjusted net investment income per share for the full year grew over 10% as compared to 2021.
While 2022 was also a year of market volatility and economic uncertainty, we are pleased to have concluded the year with strong results as we exceeded our quarterly guidance each quarter and rewarded shareholders with both an attractive base and a supplemental dividend every quarter. In terms of our fourth quarter results, we generated net investment income totaling $0.80 per share and adjusted net investment income totaling $0.81 per share as compared to our public guidance of $0.74 and $0.75 per share, respectively.
Our net asset value declined 1.6% quarter-over-quarter as our investment portfolio decline was offset slightly by outearning our $0.68 per share dividend on accretive share repurchases. During the fourth quarter, our investment team originated approximately $863 million of new investments.
From a liquidity perspective, we ended the quarter with approximately $3 billion of available liquidity. Through 24 February 2023, we have repurchased $87 million of shares under our $100 million share repurchase program. In the fourth quarter, we repurchased $23 million of shares, and subsequent to quarter end, we purchased $19 million of shares. As of 24 February 2023, we had $13 million remaining under the $100 million program. Based on our positive fourth quarter financial results, our board has declared a first quarter total distribution of $0.70 per share.
As part of this distribution, we're also pleased to be raising our quarterly base dividend to $0.64 per share, which represents approximately a 5% increase over our last quarter's $0.61 per share base dividend and approximately a 7% increase in our base dividend from a year ago.
The increased quarterly base dividend reflects our positive outlook on the long-term earnings power of the company. Additionally, based on the overall strength of the company's earnings power, we expect our quarterly supplemental distribution to total a minimum of $0.06 per share throughout 2023, and possibly beyond, equating to a minimum of $0.70 per share per quarter of quarterly distributions during 2023.
On an annualized basis, our first quarter distribution represents an attractive 11.3% annualized yield on our 31 December 2022 net asset value at an annualized yield of approximately 14.3% based on our share price. I'm extremely proud of the accomplishments of the team during the past 12 months. Based on our experienced team and the significant resources of our platform, I believe we are well-positioned for 2023 and beyond.
Before I conclude my remarks, I'd like to comment briefly on the recently announced merger between FS Investments and Portfolio Advisors. While the transaction is a significant one for FS Investments, accelerating the growth of our firm, it is important to note that the transaction has no impact on FSK and the FS KKR Advisor. With that, I'll turn the call over to Dan and the team to provide additional color on the market and the quarter.
Thanks, Michael. As I reflect on the time since the establishment of the FS KKR Advisor, I take great pride in the growth and capabilities of our investment team as we have originated over $21 billion of new investments in FSK. As Michael mentioned, we are pleased with the performance of these originated assets and how we have positioned FSK to provide an attractive dividend yield to our investors.
In terms of the market and economic environment, as we enter 2023, we continue to expect above average levels of volatility over the near term, given the Federal Reserve's continued focus on fighting inflation, as well as continued geopolitical issues, certain remaining supply chain constraints, and margin pressures on companies of all sizes.
There's still a lot of uncertainty over the direction of inflation and rates in the broader economy. We believe the macroeconomic environment will likely remain challenging throughout 2023. While we continue to exercise caution with respect to new originations, we believe the increased volatility and economic uncertainty has created compelling investment opportunities for us and other large-scale private debt investors. Sponsors continue to turn to large, stable direct lending platforms as alternatives to the more volatile syndicated debt markets.
Additionally, the economics and return opportunities on new originations are extremely attractive to us, driven by spread widening and the increase in base rates. Compared to a year ago, spreads on new originations are approximately 100- basis points higher, with enhanced call protection and attractive leverage levels for high-quality companies.
With that said, we believe M&A transaction volumes will remain below average until investors can gain confidence that inflation has stabilized and there is more clarity on what the broader economic landscape might look like going forward. In terms of portfolio company performance, we continue to see positive financial results from the majority of our portfolio companies.
We attribute these results to our focus on larger companies at the upper end of the middle market, companies with strong competitive positions, resilient cash flows, and businesses in non-cyclical industries. Our portfolio companies reported a weighted average year-over-year EBITDA growth rate of approximately 15% across companies in which we have invested in since April of 2018.
In addition to this EBITDA growth, by continuing to focus on larger companies, we have increased the weighted average EBITDA of our portfolio companies to $204 million as of the end of the fourth quarter, as compared to $164 million at the end of 2021. Certain companies in our portfolio have been impacted by a combination of inflation, supply chain issues, and increasing interest rates, which contributed to a meaningful portion of our portfolio depreciation during the fourth quarter.
While Brian will speak about specific names in more detail later, we continue to closely monitor financial performance and the positioning of our portfolio companies, leaning on the resources of our experienced investment team and portfolio monitoring unit.
We are extremely proud of the work we have done to rotate the portfolio over the last several years, and we remain focused on continuing this rotation in 2023. Turning to our quarterly investment activity, during the fourth quarter, we originated $863 million of investments. Similar to the prior few quarters, these primarily focused on fundings and add-on financings to existing portfolio companies.
Approximately 70% of our originations came from opportunities and companies previously invested in by KKR. During the fourth quarter, our new corporate lending opportunities carried a weighted average coupon of SOFR plus 660- basis points and a weighted average LTV of 40%.
Our new investments, combined with $1.1 billion of net sales and repayments when factoring in our sales to our joint venture, equated to a net portfolio decrease of $221 million during the fourth quarter. One new financing worth noting is our new investment in Lipari Foods, a specialty and branded food distributor that sources, manufactures, and distributes into the US grocery market, with an emphasis on the perimeter of the store products. In January 2019, FSK and other funds managed by KKR provided a $615 million unitranche and DDTL financing to support the buyout of the company.
Benefiting from our incumbency position, during the fourth quarter of 2022, we led a $790 million unitranche and DDTL financing to support the acquisition of the company by a new sponsor with more attractive economics and a lower leverage point than our original investment. In terms of interest coverage, at the end of the fourth quarter, our portfolio companies had a median interest coverage of 1.9 times.
While we have seen a slight uptick in amendment activity, we would note in situations where amendments have occurred, we are seeing meaningful equity support from our financial sponsors due to both the long-term viability of the business models of the companies in which we have invested in and the recent vintage of funds from which the sponsors have contributed their equity capital. With that, I'll turn the call over to Brian to discuss our portfolio in more detail.
Thanks, Dan. As of 31 December 2022, our investment portfolio had a fair value of $15.4 billion consisting of 197 portfolio companies. This compares to a fair value of $15.8 billion and 195 portfolio companies as of 30 September 2022. At the end of the fourth quarter, our 10 largest portfolio companies represented approximately 19% of the fair value of our portfolio. We continue to focus on senior secured investments as our portfolio consisted of 60.3% first lien loans and 68.8% senior secured debt as of 31 December 2022.
Our joint venture represented 9.3% of the fair value of the portfolio, and asset-based finance investments represented 12.4%, equating to an additional 21.7%, which is comprised predominantly of first lien loans or secured asset-based finance investments. The weighted average yield on occurring debt investments was 11.4% as of 31 December 2022, compared to 10.4% as of 30 September 2022. As a reminder, the weighted average yield is adjusted to exclude the accretion associated with the merger with FSKR.
The increase in our weighted average yield during the fourth quarter was primarily associated with the continued rise in base rates as well as higher yields on new originations during the past few quarters. During the fourth quarter, excluding the impact of merger accounting, we experienced net portfolio depreciation on investments of approximately $105 million. The largest negative movers in our portfolio, which were impacted by credit performance-related issues during the quarter, were Pure Fishing and KBS.
Pure Fishing is a leading global supplier of fishing equipment and gear that experienced weaker results due to retailer destocking as well as inflationary pressures. KBS is a provider of janitorial and facility maintenance services to a variety of end markets, typically under multiyear contracts. Performance has been negatively impacted by labor inflation and the roll-off of COVID-related work.
At this point, we would characterize the performance issues with both companies as transitory in nature. I'd also like to comment on another investment, Opendoor. The company is an online real estate platform facilitating the purchase and sale of single-family homes.
In October of 2021, we led an investment in a $2.2 billion asset-secured mezzanine debt facility, which has since been reduced to $1 billion through a combination of undrawn commitment amount cancellations and debt repayments at par plus the related prepayment premiums, which has meaningfully reduced our exposure. As of 31 December 2022, FSK's total investment had a funded principal amount of $71.1 million only, compared to a principal amount of $106.6 million and an undrawn commitment amount of $53.4 million as of 30 September 2022.
In terms of non-accruals, as of 31 December 2022, non-accruals totaled 4.9% of our portfolio on a cost basis and 2.4% on a fair value basis, compared to 5% on a cost basis and 2.5% on a fair value basis as of 30 September 2022. With that, I'll turn the call over to Steven.
Thanks, Brian. As Michael mentioned earlier, we are pleased to be able to reward shareholders with an increase in our base dividend. As well as to communicate the company's positive view that our supplemental distribution should equate to a minimum of $0.06 per share per quarter during 2023, and possibly longer, resulting in a total minimum distribution of $0.70 per share per quarter. On an annualized basis, our distribution totals $2.80 per share, representing an 11.3% yield on our 31 December 2022 net asset value of $24.89 per share.
Turning to our financial results for the fourth quarter, total investment income increased by $38 million quarter-over-quarter, driven by increased interest income. The components of our total investment income during the quarter were as follows: Total interest income was $360 million, an increase of $42 million quarter-over-quarter.
Dividend and fee income totaled $89 million, a decrease of $4 million quarter-over-quarter. Our dividend and fee income during the fourth quarter is summarized as follows: $53 million of recurring dividend income from our joint venture, other dividends from various portfolio companies totaling approximately $24 million, and fee income totaling approximately $12 million. Our interest expense totaled $109 million, an increase of $13 million quarter-over-quarter, largely due to the impact of rising base rates on our secure debt facilities.
Our weighted average cost of debt was 4.8% at 31 December 2022. Management fees totaled $59 million, a decrease of $2 million quarter-over-quarter. Incentive fees totaled $27 million during the fourth quarter, which is net of the $15 million incentive fee waiver.
As previously noted, as part of the FSK-FSKR merger, which closed in June 2021, the advisor agreed to waive $90 million of incentive fees spread evenly over six quarters, which began during the third quarter of 2021. As a reminder, the fourth quarter of 2022 represents the final quarter of the incentive fee waiver.
The detailed bridge in our net asset value per share on a quarter-over-quarter basis is as follows: Our ending third quarter 2022 net asset value per share of $25.30 was increased by GAAP net investment income of $0.80 per share and was decreased by $0.56 per share due to a decrease in the overall value of our investment portfolio.
Our net asset value per share was reduced by our $0.68 per share dividend paid during the quarter and increased by $0.03 per share due to share repurchases. The sum of these activities results in our 31 December 2022 net asset value per share of $24.89. From a forward-looking guidance perspective, we expect first quarter 2023 GAAP net investment income to approximate $0.77 per share. We expect our adjusted net investment income to approximate $0.74 per share. Detailed first quarter guidance is as follows: Our recurring interest income on a GAAP basis is expected to approximate $365 million.
We expect recurring dividend income associated with our joint venture to approximate $53 million. We expect other fee and dividend income to approximate $29 million. From an expense standpoint, we expect our management fees to approximate $58 million. We expect incentive fees to approximate $44 million. We expect our interest expense to approximate $117 million. We expect other G&A expenses to approximate $11 million.
As a reminder, the $0.03 per share difference between our GAAP net investment income and our adjusted net investment income relates to the expected accretion of our investments during the quarter due to merger accounting. This difference affects our recurring interest income. All other categories of our revenues and expenses are not affected.
In an effort to link our fourth quarter 2022 results to our first quarter 2023 guidance, the primary considerations are as follows: Starting with our $0.81 per share of fourth quarter adjusted net investment income, we subtract $0.05 per share of adjusted net investment income to account for the expiration of the fee waiver. We subtract $0.02 per share of adjusted net investment income to account for the fact that the first quarter has two fewer days than the fourth quarter.
The expected incremental growth in investment portfolio earnings during the first quarter, due in part to higher interest rates, is expected to be counterbalanced by lower fee and dividend income, as certain dividend-paying portfolio companies tend to pay dividends later in the year. We hope this information is helpful to investors and analysts in terms of creating an accurate starting point for 2023.
In terms of the right side of our balance sheet, our gross and net debt-to-equity levels were 125% and 118%, respectively, at 31 December 2022. This compares to gross and net debt-to-equity of 128% and 119%, respectively, at the end of the third quarter of 2022. At 31 December 2022, our available liquidity was $3 billion.
At the end of the fourth quarter, approximately 54% of our drawn balance sheet and 42% of our committed balance sheet was comprised of unsecured debt, and our overall effective average cost of debt was 4.8%. With that, I'll turn the call back to Michael for a few closing remarks before we open the call for questions.
Thanks, Steven. In closing, I'd like to thank our team for its continued strong execution throughout 2022, despite the challenging macroeconomic environment that led to significant market volatility during the year. As we look forward, we continue to believe we are well-positioned with respect to our investment portfolio, strong capital structure, committed liquidity position, and experienced team.
We are optimistic about the company's future and have confidence in our ability to generate strong results for our shareholders, including the continued strategy of sharing our performance with shareholders on a real-time basis through supplemental quarterly distributions. As a result, we believe the forward opportunity for the shareholders is extremely attractive. Thank you, all for joining the call and for your continued interest and support. With that, operator, we'd like to open the call for questions.
Thank you. Ladies and gentlemen, to ask a question, you will need to press star one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star one, one again. Please stand by while we compile the Q&A roster. Our first question coming from the line of Mark Hughes with Truist Securities. Your line is open.
Yeah, thank you very good morning. If we get to the scenario where interest rates are higher for longer, do you think the deal activity pick up? I mean, do expectations get set properly and the market starts to clear, or are we more dependent on the Fed for interest rates to slow down before you start to see more deals happen?
Yeah, good morning, Mark. You know, it's an interesting question. I think the market from a sort of, we'll call it M&A perspective, is looking for some comfort that inflation is under control, right? I think if you still are seeing, you know, interest rate increases, which we are expecting, I think you'll, you know, be able to believe that the Fed hasn't, you know, accomplished the mission that they've, you know, are trying to sort of do. You know, that said, I think you're starting to see a little bit of green shoots.
I mean, it's been a difficult last couple of weeks, but, you know, the year started off with some, you know, level of sort of normalcy. You know, I think our belief is M&A is gonna continue to be slow for the near term, but you'll probably see some pickup in the latter half of the year.
Appreciate that. The incentive fees after the expiration of the waiver, is there anything about the trajectory from here that is we should think about might be unusual, or is it kind of steady as she goes, depending on the performance of the portfolio?
It should be more as the steady-as-she-goes point. You know, I think Steven tried to lay out some pretty, you know, decent guidance there as it related to first quarter, also building the bridge from first quarter, you know, back to fourth quarter. Hopefully that provides a good starting point for you to, you know, consider how you think the rest of the year rolls forward.
Thank you.
Thank you.
Thank you. One moment, please, for our next question. Our next question coming from the line of Erik Zwick with Hovde Group. Your line is open.
Thank you. Good morning. First, just wanted to start, as I looked at the composition portfolio, there was an increase quarter-over-quarter in asset-based finance. Just curious how you view the opportunity to continue in that arena today, and whether you would expect that to continue to grow or kind of stay in the current range of its current composition in the total portfolio.
Yeah, good morning, Erik, and thank you for the question. You know, I do believe we, you know, remain confident from an investing perspective it's one of the more interesting parts of the markets. You know, we like the collateral, we like the, you know, generally front-ended sort of cash flows. We think the risk-adjusted returns, you know, are quite strong. You know, that said, I think as it relates to FSK specifically, we've talked to the market about 10% to 15% sort of allocation to asset-based finance.
We're sort of smack in the middle of that range. I think you should probably expect us, you know, to stay there, sort of, you know, plus/minus 1% or 2% points. Again, we do feel, you know, quite strongly about the attractiveness of it as an asset class to invest into.
Appreciate the color there. If I could move to just looking at, you know, slide 10 of the presentation, you mentioned there were some, you know, pretty strong improvement in portfolio company EBITDA, certainly in the second half of the year looking at that graph. Just due to the higher interest rates, the interest coverage coming down in that blue bar in the second half. If we get to a period where, you know, EBITDA is materially impacted, if we get into a recessionary environment, it seems like that would put additional pressure on that interest coverage ratio.
Just curious, you know, how you view that possibility and how you would, you know, manage the portfolio if some of these companies start to be more stressed from, you know, interest coverage and potentially operating environment.
That's a good question. You know, I think we are quite happy, you know, about that 15% number that we talked about on the call. You know, that's, you know, year-on-year EBITDA, so the growth numbers I think when you think about that from a practical perspective though, that's really, you know, 30 September 2021 to 30 September 2022. I think we are pretty mindful that that is a backward-looking number, and being risk managers, we're very focused on the forward. You know, I think that's sort of, you know, top of mind.
You know, if you do get a meaningful recessionary environment, you probably do have some correlation with rates coming back down, right? I think you could be net flat from an interest coverage perspective. You know, that said, I mean, all these numbers that we sort of talk about here are averages, right? You know, we don't run the portfolio based upon averages. Like, it's great data to provide, but we have to be focused on, you know, sort of the ones that sort of may or may not be, or, you know, may be sort of problematic.
You asked about how do we deal with these things. You know, I think we've built our team pretty meaningful over the last, you know, five-plus years. You know, specifically as it relates to managing the portfolio sort of post any new deal. We've got 22 people who, you know, have no arguably new deal responsibility, but are, you know, entirely focused on monitoring the portfolio, dealing with challenged credits. You know, they're an extremely important part of our investment team, and we'll deal with it case by case to generate the best outcome possible.
Thanks for taking my question.
Thank you. Have a good day.
Thank you. As a reminder, ladies and gentlemen, if you'd like to ask a question, please press star one, one on your telephone. We'll give it a moment. One moment for our next question. Our next question coming from the line of Ryan Lynch with KBW. Your line is open.
Hey, good morning. First question I had is, you mentioned a slight uptick in amendment activity, which is not surprising in this environment and likely expected to continue going forward. I would just be curious to hear your thoughts on, and this is gonna be difficult, but what is really driving that increase in amendment activity? Would you consider it these businesses not able to adjust to the rapid increase in rising rates and support that higher level of interest burden?
Is it more that there's something fundamentally weaker in that business? Then I'd also be curious to hear, you mentioned you're seeing support from the PE sponsor. Does that mean that they're injecting capital or explain what exactly that you meant by that?
Yeah. Good morning, Ryan. You know, I think, you know, we are seeing that slight uptick, but I think you're right. It's more normal course of business than I think anything else. You know, I don't think there's necessarily anything fundamentally wrong with some of these companies, you know, when this amendment activity, you know, does kick in. You know, that said, you know, a lot of times there very well could be, you know, a supply chain issue.
There could be a sort of inflationary pressure point like wages. Or quite frankly, you know, the majority of the deals in here do have covenants, and those covenants do step down over time, so that you're forced to sort of company to de-lever.
There is some financial performance metric that I think is usually driving that. A lot of times it will be some of the more credit metrics, but on the other side, it could just be, you know, the literal, you know, regular way kind of step down of the loan. You know, I think in terms of support, we've seen, we've been happy with that. I mean, we've, you know, focused the business on, you know, lending to companies in the upper end of the middle market.
You know, we think the value of those, or the value proposition of those companies remains strong. You know, I think we've built out our origination footprint to have real relationships with these financial sponsors.
You know, that doesn't mean at any sort of period they're just gonna inject capital in for the sake of it. I do think there's a longer term sort of relationship in mind. The one thing we have seen, you know, over not just where we sit today, but, you know, over the last, you know, sort of several years sort of plus, you know, it is more likely, I think that a financial sponsor is supporting a more recent, you know, new origination.
It's probably in the current fund. They probably have dry powder available. I think that's just much simpler than if it was in a fund that was, you know, seven, eight, nine years old. It's usually in the form of equity dollars, Ryan, to the point.
Okay. That's helpful. That's good backdrop. The other question I had, you mentioned the two loans this quarter that received sort of a credit-related markdown, Pure Fishing and KBS. You gave a background of why those businesses were feeling some pressure. You ended it with saying that you consider the both of the problems that these businesses are experiencing to be transitory. It wasn't clear to me why you thought that those issues were transitory. If you could explain your thought process behind that comment, that'd be helpful.
Yeah, I'm happy to, and Brian might wanna add to it. I mean, I think what we're saying is we believe in the strength of these companies, the size and scale of these companies. You know, it's, you know, probably between the two of them, you know, there's an average of, you know, $500 million or so of sort of equity, you know, sort of beneath, you know, the loans when the loans were sort of made. I think we've seen this in other retailers, just, you know, a bit of a glut of inventory. People overbought during some of the euphoria of COVID.
We think, you know, that sort of works its way out. You know, we think there's real brands there. I think on KBS, the same. We think it's a very large, you know, high quality business that, you know, fairly sort of tough times with wage inflation, et cetera. We think they worked ourselves out is the point. You know, obviously, we're reflecting the current moves, though, in the marks, which is why we're raising it on the call.
Okay. That's helpful. That's all for me today. I appreciate the time.
Good, Ryan. Thank you. Have a good day.
You too.
Thank you. Our next question coming from the line of Casey Alexander with Compass Point. Your line's open.
Good morning. Thanks for taking my question. If we can focus a little bit going back to slide number 10. As you said, you don't manage to averages, and I'm a little curious about sort of the tails of the portfolio. Can you share with us what percentage of the portfolio is currently under one time interest coverage and sort of what... you know, I know you guys do a lot of forecasting and are good at math. Kind of at the, at the terminal expected rate, sort of what percentages of the portfolio would it then at that point in time likely be under one time interest coverage?
Yeah. No, thanks, Casey, and good morning. You know, just a handful of names would be under sort of one time today. I think it's 2% to 3% of the total value of the portfolio. I don't think I have off the top of my head if we fast-forwarded to, you know, kind of the terminal rate point. I think you're right. I think the information on slide 10 is, I think, very important for someone to understand how the portfolio has evolved, right? I do think you end up being much more focused on the individual line items.
That said, to put in context, I think that 1.9x that you see there on slide 10, if you looked at the max forward curve with no change in sort of earnings, that 1.9 goes to 1.64. Right? Maybe that handful of names goes up a couple more names, and maybe it pops up, you know, a couple more percent.
Yeah. Casey, this is Brian. I think the other point to recognize that as rates, you know, go higher from here on a percentage basis, looking at the base rate plus the coupon, the change gets smaller and smaller, so the impact is less on a go-forward basis versus what it was in the past.
Okay. Thank you for that. My next question is in sort of a broader context. You know, the folks operating your portfolio companies are not operating in a vacuum. They see the news. They understand what's going on in the environment. How do you feel like your portfolio companies, I mean, they must be adjusting to an inflationary environment? So even if inflation sticks around for longer, how do you think your portfolio companies are adjusting to that and their ability to manage forward? Don't you think that would ultimately, companies successfully adjusting to that begin to enhance the M&A environment?
I think it will enhance the M&A environment. I mean, I think the M&A sort of environment probably needs, you know, that catalyst first. My gut is that catalyst is, you know, some view from the broader investor community that, you know, the world is at equilibrium, you know, or at a minimum, we've gotta, you know, stop the big inflation move sort of upward. I think that just gets into the simple idea of, you know, finding that willing seller and finding that willing buyer. We are still seeing some M&A activity out there.
I think, you know, honestly, it's probably skewed more towards, you know, the best-in-class businesses 'cause people want those businesses. People are willing to still pay, you know, multiples for them that are, you know, strong or sort of high and relate to maybe the multiples that would've existed for that business, you know, a year plus ago.
You know, in terms of the management teams, I mean, you know, I think one thing we have seen, you know, focused on this, you know, larger borrower or this upper end of the middle market, we've probably got a better CEO, better CFO, better governance, you know, sort of better controls, more support from their board. I think that's been positive. What have we seen? We've seen a fair amount of pricing increases go through. You know, we've seen one company do it nine times.
You know, I think we are a little bit mindful or maybe concerned that pricing increases are sort of at their last legs. We've seen companies being able to do that. I think people have looked for where they could take costs out. You know, something I think pretty normal in a time like this. I think those companies that have had some supply chain issues are looking to diversify, you know, their supplier base. I think that's a broader theme in the overall market. I think we've seen, you know, management teams do a very good job trying to be very forward-leaning.
I think just the reality is maybe two things. One, you know, the moves have been fast and meaningful, right? As it relates, you know, to rates. Obviously, the wage pressure's been building up for some time, but the wage pressure, we think, is very real, you know, across the market. You know, like I said, I think they've been doing kind of a good job, and we expect that to continue and hopefully enhance value for these companies going forward.
I didn't mean to chuckle, but when you said the world at equilibrium, all that could occur to me was after 40 years in this business, I'm not sure what the world at equilibrium means. I think it's always in sort of a state of change and flux. We're always adjusting to something... [crosstalk]
I think that's fair. That's the word that popped in my mind at the time, so.
All right. Thanks for taking my questions. I appreciate it.
All right. Thank you. Have a good day.
Again, ladies and gentlemen, as a reminder, to ask a question, please press star one, one. We'll give it a moment. All right. I see no further questions at this time. I will now turn the call back over to Mr. Daniel Pietrzak for any closing remarks.
Well, thank you to everyone... [crosstalk]
Sorry, one just queue up. Would you like me to take that question?
Yeah, sure.
One moment, please. Our next question coming from the line of Robert Dodd with Raymond James.
Hi, guys. Sorry, I pressed star one... [inaudible] and star one, one, my mistake. Following up actually to Ryan, got to my question, but in terms of the amendment activity, you talked about slight uptick. Any more color you can give on that on kind of thematically, where is it? Is it primarily on second liens, if we look at where it is in the capital structure or is it, you know, by any industry group that there's a little bit more exposure to like, you know, maybe capital goods or something like that or is it just totally idiosyncratic across the portfolio depending on individual business?
You know, probably a little bit. Thanks for the question. Probably a little bit more idiosyncratic. You know, that said, obviously, you know, a lot of the amendment conversations that you would come back to the table on would relate to a financial covenant, i.e., a leverage covenant. That is something that generally exists in a first lien or sort of unitranche deal. We wouldn't be doing a second lien deal if there was a covenant in front of us. I think it would be skewed to that part of the capital structure. That's 'cause where I think that test, you know, does sort of come into play.
Yeah, I think you could argue it's it could be impacting folks across sort of all industries just depending on, you know, a certain challenge that they may have been sort of having. Again, I think it's been a slight uptick, but I'm not surprised by it. You know, I think that will sort of continue, you know. It's nothing like the amendment activity that we would have seen in 2020, just to be clear.
Got it. Thank you.
Thank you.
Thank you.
I will now turn it back to Mr. Dan Pietrzak.
I will thank you to everyone for your time today. As always, we're available for any follow-up points. Thank you again. Have a good day.
Ladies and gentlemen, that does end our conference call today. Thank you for your participation. You may now disconnect.