Earnings Call: Q1 2021

May 6, 2021

Good morning and welcome to Our Rock Capital Corporation's First Quarter 2021 Earnings Call. I would like to remind our listeners that remarks made during the call may contain forward looking statements. Forward looking statements are not guarantees of future performance or results and involves a number of risks and are in fees that are outside of the company's control. Actual results may differ materially from those in forward looking statements as a result of a number of factors, including those described from time to time in Allerock Capital Corporation's filings with the Securities and Exchange Commission, the company assumes no obligation to update any further looking statements. As a reminder, this call is being recorded for replay purposes. Yesterday, the company issued its earnings press release and posted an earnings presentation for the Q1 ended March 31, 2021. This presentation should be reviewed in conjunction with the company's Form 10 Q filed on May 5 with the SEC. The company will refer to the earnings presentation throughout the call today. So please have that presentation available to you. As a reminder, the earnings presentation is available on the company's website. I will now turn the call over to Craig Tacker, Chief Executive Officer of Alrock Capital Corporation. Thank you, operator. Good morning, everyone, and thank you for joining us today for our Q1 earnings call. This is Craig Packer, and I'm are the CEO of Alrock Capital Corporation and the Co Founder of Alrock Capital Partners. Joining me today is Alan Kirschendam, our CFO and COO and Dennis Caffani, our Head of Investor Relations. Welcome to everyone who is joining us on the call today. I will start today's call by briefly discussing our financial highlights for the Q1 before providing an update on our portfolio and deal activity in the quarter. Then after Alan covers our financial results, I will discuss our view on the current market and make some closing remarks. Getting into the Q1 financial highlights, Net investment income per share was $0.26 As we had expected, NII was down this quarter, and Alan will provide more detail on this later in the call. I will also discuss our future earnings outlook in my closing remarks. We ended the quarter with net asset value per share of $14.82 up $0.08 from the 4th quarter. The average fair value mark on our portfolio is 98% at par, back to where it was before COVID. We believe that the full recovery of the value of our assets over the course of the year reflects the strong credit quality of our portfolio and investment process. Looking forward for the Q2 of 2021, our Board has declared a regular dividend of $0.31 per share, the same amount we have paid each quarter since our IPO. We are pleased with our origination activity this quarter. Although, as we expected, volumes across the market were lower than the 4th quarter, given the pull forward of deals at the end of last year. We ended the quarter with net leverage of 0.92x, which is up from 8.7 times last quarter and up from 0.6 times year over year. We've made steady progress to get to the low end of our targeted range of 0.9 to 1.25 and expect to modestly increase our leverage within that range in the coming quarters. In addition, our balance sheet remains strong with $2,500,000,000 of liquidity available today, and we continue to lower our overall cost of financing. As mentioned on our last call, we held a special meeting on March 17 for shareholders to approve the change of control in our advisory agreement in connection with the Blue Owl transaction. We received shareholder approval for the proposal and appreciate our shareholders' overwhelming support for what we believe will be a beneficial expansion of our platform that will provide improved sourcing capabilities and expanded platform resources for ORCC. Earlier this week, Altimar announced that it will hold a special meeting on May 18 for its shareholders to approve the business combination with Dial and Allot Capital. If the proposals are approved, the business combination is expected to close on May 19. Turning to the portfolio, our credit performance remains very strong. We are optimistic about the economy given the pace of vaccinations and businesses reopening Our fundamental outlook for the performance of our portfolio companies is positive for the rest of the year. Across our portfolio, we continue to see many borrowers showing positive trends in operational and financial performance, trending back towards were in some cases already achieving pre COVID performance levels. Across the portfolio, our borrowers saw on average are nearly 10% EBITDA growth in the LTM period, and we expect to see this trend continue in coming quarters. We believe that economic conditions will continue to improve over the course of the year and our borrowers are well positioned for this environment. We believe one of the key drivers of the strong positioning of our overall portfolio is the strength of our largest industries, including software, healthcare, insurance, food and beverage and distribution. Many of these companies many of the companies in these sectors were either only modestly impacted by COVID and rebounded quickly or in certain cases actually saw revenue grow faster in the COVID environment. In particular, I want to call attention to the software sector, which is our largest sector. We like software businesses because they often have are predictable and consistent recurring revenue streams and many are experiencing growth well in excess of the broader economy. This trend continued throughout the COVID period. In addition, the software loans we provide often give us above average returns, solid credit documents and the lowest loan to value of any of the sectors we invest in. For other sectors, which were more meaningfully impacted, including consumer products, education and child care, we're now seeing a nice recovery and the outlook is strong as these businesses are expecting meaningful growth in 2021. Certainly, a small number of sectors have been more acutely impacted, including travel, leisure and aerospace. We have a few investments in these sectors, although they are a small portion of the portfolio. Still, even here, we have seen recent outperformance versus the revised forecast and are seeing reasons to be cautiously optimistic given the pace of reopening trends and improved travel industry performance metrics since the beginning of the year. Looking at our internal credit ratings, our portfolio remains quite stable with overall results largely consistent across the last few quarters. Names in our 1 or 2 rating categories remain at roughly 90% are the fair value of the portfolio. A percentage of our low rated names, rated 3 or 4, is largely unchanged, now below 10%, and there are no names in the lowest five rating category. No material amendments were signed in the quarter. Going forward, while we expect to have amendments from time to time, we believe the period of elevated amendment activity due to COVID has ended. As is typical, we would expect to have discussions with a small number of borrowers occasionally as part of our ordinary course portfolio management activities. As of quarter end, we continue to have just one name on non accrual, representing 0.5% of the total cost of the portfolio and 0.2% of fair value. No new borrowers were added to non accrual status in the quarter. Moving on to originations, we are pleased with our investment activity this quarter. Gross originations were $864,000,000 with $684,000,000 of funded activity. Net funded originations were $172,000,000 reflecting $512,000,000 of combined sales and repayments. We received full or majority repayments from 6 borrowers, which which we have anticipated given the strength of the financing and M and A markets as well as the vintage of some of our investments. In addition, similar to last quarter, we took the opportunity to sell some high quality, but lower spread paper at attractive prices. We added 8 portfolio companies in the quarter. Activity with new borrowers was well diversified across 6 sectors and we were pleased with the terms we obtained. We also executed add ons for 11 borrowers as we continue to see the benefits of incumbency. Almost all of our investments this quarter were 1st lien or unitranche term loans. We certainly evaluated many second lien deals, But ultimately, our bar for these types of deals remains high, and we did not close on any new second lien investments. Our average spread on new commitments was 6.4%, which we feel is attractive given our activity was largely in 1st lien and unitranche facilities. Overall, the portfolio yield was flat with last quarter at 8.1%, despite the fact that public loan markets saw spreads tighten 75 basis are subject to the Q1. This reflects our ability to originate new deals at attractive spreads and to continue to optimize the portfolio. Our portfolio now stands at over $11,200,000,000 across 120 portfolio companies. We are very happy with the continued strong credit performance. ORCC was formed in 2016. As we now approach the targeted fully ramped size of our portfolio, our focus is shifting from portfolio construction to portfolio optimization. We expect to see repayments increase. And as we get repayments, we will look to redeploy that capital in unitranche or on occasion select second lien investments. We will maintain the same rigorous credit quality standards and selectivity that we've employed since inception, having looked at over 5,000 opportunities across the platform and ultimately closing on less than 5% of those deals. Now I'll turn it over to Alan to discuss our financial results in more detail. Thank you, Craig. Good morning, everyone. To start off on Slide 7 of our earnings presentation, you can see that we ended the Q1 with total portfolio investments of $11,200,000,000 outstanding debt of $5,500,000,000 and total net assets of 5,800,000,000 our net asset value per share increased to $14.82 as of March 31, compared to $14.74 as of December 31. We ended the quarter with net leverage of 0.92x debt to equity and $2,500,000,000 in liquidity pro form a for post quarter end financings. Our dividend for the Q1 was $0.31 per share and our net investment income was $0.26 per share. As you recall from our remarks last quarter, we had $0.04 per share in one time items that benefited us, including $0.02 per share from the National Dentex paydown are $0.02 per share from the partial quarter fee waiver. As a result, the 4th quarter without the benefit of these one time items would have been $0.25 per share. So as compared to that, we grew NII by an additional $0.01 per share to $0.26 this quarter. This reflects the full quarter benefit of Q4 originations plus the net benefit of new originations and sales and repayments in the Q1. And please note that while we had approximately $500,000,000 of sales and repayments, roughly half of that was from sales which do not provide the same NII benefit as we see from repayments since sales do not generate accelerated amortization of OID or prepayment fees. As a result, fees from repayments continue to lag our expectations. As Craig and I have been discussing over the past year or so, we do expect repayments to pick up later this year based on the continued seasoning of our portfolio. I would also note that we had some higher yielding repayments are early on in the quarter. As Craig also noted, our originations were largely 1st lien investments, which once again were weighted towards the end of the quarter. And as a result, the net $0.01 per share of growth in NII is not reflective of the full benefit of Q1 originations. In addition, dividend income was lower this quarter, which also impacted NII by approximately $0.01 per share. The contribution from 1 portfolio company declined by $4,000,000 from last quarter. However, while the company continues to have strong performance, its dividend is variable and may fluctuate based on operating results and seasonality. Thinking ahead to the rest of this year, we expect interest income to continue to increase each quarter over the coming quarters as we modestly increase our leverage within our target range and as we optimize the left side of our balance sheet, as Craig just noted. On the expense side, you can see that management and incentive fees increased from $55,000,000 net of the final fee waiver in the 4th quarter are subject to $63,900,000 and interest expense increased from $42,400,000 in the 4th quarter to $48,100,000 in the 1st quarter. And as we expect expenses not to meaningfully change other than management fees and interest expense continuing to slightly increase with leverage going up. And as I've mentioned in the past, we continue to focus on optimizing our funding costs. In that regard, we had 2 notable transactions we did that helped further us in reducing costs on the right side of our balance sheet. We priced our 6th CLO, this one for $260,000,000 of incremental financing at a blended spread of 149 basis points, a great print and very cost efficient for us. And we issued our 7th bond, this one for $500,000,000 of incremental financing at a fixed coupon of 2.5eight percent, our tightest print ever. So overall, we feel we are in a good position starting off the year. We feel we continue to be on track to earn our dividend in the back half of this year, and we have one of the strongest funding profiles and balance sheets in the industry. Thank you all very much for your support and for joining us on today's call. Craig, back to you. Thanks, Alan. To close, I wanted to share our thoughts on the current market and provide some perspective on how we are thinking about our earnings trajectory over the course of this year. As we had anticipated, market conditions in the Q1 were constructive, but overall market activity was down relative to the very active levels seen in the Q4. While the market is competitive, we continue to find attractive investments with appropriate risk adjusted returns. We are pleased with both the level of deal activity and the quality of the deals we are seeing. Overall, the credit quality, leverage levels and covenant packages we see in our pipeline have not changed. Although we are seeing some spread compression given strong market conditions and the continued strength in the syndicated market. We continue to prefer sectors which have been either less COVID impacted or which have rebounded quickly from the economic impact. Lastly, we are pleased that we continue to be successful in winning the deals that we want to win. In names and situations where we have high conviction around the asset and the sponsor, we're able to demonstrate the value of our platform and often take a sole or lead position in these deals. As a great example of this, it was recently announced that Alrock is leading the $2,300,000,000 EBITTRAS loan to finance Thoma Bravo's acquisition of Calypso, which is expected to close later this year. We believe this will be the largest unitranche facility ever are being made in the U. S. And is a reflection of our ability to provide attractive, sizable financing commitments for top tier investment opportunities. It also highlights our expertise in the software space. Calypso reflects the continued growth of the private credit space as increasingly larger borrowers are choosing direct lending solutions over the syndicated market. Given our large capital base, Alrock is very well positioned for this trend. Overall, we believe that a strongly recovering economy and accommodative monetary policy will create attractive investment opportunities and our market outlook is positive for the rest of 2021. I also wanted to touch on the outlook for our earnings and dividend coverage over the remainder of the year. As we expected, Q1 NII was temporarily down. However, we expect that we will make meaningful progress in the Q2 towards earning our dividend and believe we are still on track to fully cover our dividend from NII in the second half we don't typically provide forward guidance, but I can say that sitting here today as we are expecting a very active second quarter in originations in excess of the Q1 and more in line with the Q4. Activity is driven by both new deals and the benefit of our incumbency positions. On the new deal front, we're seeing opportunities from a variety of sponsors and across the technology, healthcare, insurance and consumer sectors. And as many private equity sponsors continue to execute buy and build strategies across portfolio companies through tuck in M and A, We believe our permanent capital, scale and flexibility gives us a sourcing advantage. For the 2nd quarter, We also have visibility on increased repayments, which will generate additional fees from accelerated OID and call protection. Based on the net effect of the pipeline, barring something unexpected, we believe we will continue to modestly increase our leverage level as well as improve earnings in the 2nd quarter. As a result, we expect Q2 earnings to grow and to make solid progress towards covering our $0.31 per share dividend, which we ultimately expect to occur in the second half of this year. To close with some thoughts on our portfolio, I'd first highlight that since 2016 ORCC has deployed $17,000,000,000 of capital across 165 borrowers. Given the scale of the platform, we are very proud to have had only one single investment loss to date, an annualized loss rate of roughly 10 basis points since inception and to have come out of this challenging period with only one investment on nonaccrual at 0.2% of the fair value of the portfolio. Further, the average portfolio mark has rebounded to pre COVID levels and more than 90% of the portfolio today is marked above $0.95 on the dollar. We think our portfolio offers an attractive yield. We have roughly $11,000,000,000 of directly originated senior secured loans with strong covenant protections an average spread of LIBOR plus 6.50 basis points with an average mark of 98. We think that's a very compelling asset mix relative to other asset classes, for example, when compared to the S and P Leverage Loan Index, which currently yields approximately 3.75%. We have also successfully executed on the portfolio diversification we set out to achieve at inception. Today, the portfolio is well diversified across are in the top ten positions make up only about 20% of the total portfolio. We have continued our focus on sponsor backed upper middle market names with a weighted average EBITDA of $104,000,000 across our borrowers. Our platform is further bolstered by the strength of our balance sheet, which remains well capitalized and diversified across financing types with maturities well matched to our assets. Taken together, we feel we have built a diverse are in a defensive portfolio of scale supported by an attractive financing profile. Lastly, I would note the benefits that we see resulting from broader Alleroc platform. The total AUM of $28,000,000,000 much of it coming from permanent capital, we view this capital pool to be a source of strength and a significant differentiator. Having the scale allows us to support a large high quality investment team, including a significant group of originators, which produce a large funnel of deal opportunities allow us to remain highly selective. We've also invested significantly in underwriting expertise, portfolio management resources as well as finance, middle and back office. In addition, our scale keeps us top of mind for private equity sponsors who turn to us for sizable customized Financing Solutions. Finally, we're very excited about the continued growth of the platform and the sourcing opportunities that that we expect to generate as a result of the Blue Owl transaction closing. We look forward to discussing the Blue Owl platform in more detail in the quarters to come. We believe the outlook for the second half of the year looks strong and look forward to leveraging our competitive advantages to continue to deliver attractive risk adjusted returns for our shareholders. Thank you for joining us today. We appreciate your continued interest and support and look forward to speaking to you again next quarter. Operator, please open the line for questions. Your first question comes from the line of Devin Ryan from JPMorgan Securities JPM Securities. Yes. Hi, thanks, Kevin. I guess first one here, and we appreciate your remains Somewhat hard to predict, but just to comment on the expectation for a higher level in the second quarter, and I know that's Back to the outlook, as you think about kind of the back half of the year, if current conditions continue, is the expectations that we're just kind of in a higher Repayment environment, that's kind of just parts of the quarter's year and that's factored in? Or how are you guys thinking about that more broadly just with Very kind of constructive conditions. Sure. Well, let me try to break that into 2 pieces. I made the comments a couple of minutes ago that we expect to see higher repayments in the second quarter. I'll just call your attention to something that Alan said in his remarks, but I think it's important for us. About half of our repayments, if you will, this first quarter, half of those were sales. There weren't repayments. We sold the position. So So we only had about $250,000,000 of actual repayments, and we expect that number to go up materially in the second quarter. That obviously is very impactful for earnings because as we get through repayments, we are able to recognize the OID that remains on those investments and oftentimes prepayment penalties. So we're calling attention to that because it generates earnings and Actual repayments were light in the Q1. But the broader point to your broader question of how are things looking, The 2 biggest drivers of repayments are when one of our portfolio company gets sold And a new buyer comes in and redoes the capital structure and or a refinancing. I would say it's more tilted to the first one. And so it's more driven by M and A in our experience than it is a strong market where we're getting refinanced out. We certainly get refinanced out from time to time because we wind up our middle market companies that have access to the syndicated markets. But I would say more often it's companies getting sold. The environment that we're in is a very constructive one on M and A. M and A volumes are very high, Yes, particularly given the economic outlook, and it's also one where there's a strong syndicated market. So we expect, repaint sales of our companies and refinancings to pick up. In our case, in particular, we've just had very low repayments, which is somewhat a function of the vintage of our portfolio as well as COVID, I think, pushed out some of the repayment activity. So relative to what we've been experiencing in the last couple of years, in our case specifically, we think repayments will pick up to a normal level, not to an excessive level. And that's very healthy for earnings and something that I think will be good Not booked in terms of dividend coverage. So I think it's going to be one that all the managers will experience full and robust levels of repayments on kind of industry focus is obviously, you've done a great job navigating the pandemic and leaned into the right sectors in the areas like technology and healthcare have been active. I'm curious with the backdrop kind of evolving here and potentially a strong economic recovery and a vaccine available. Are there any industries or maybe pockets that are emerging as maybe more attractive risk reward areas that maybe weren't as interested in over the last 12 months, but maybe are kind of Popping on the radar in areas that are more attractive or maybe a little bit less saturated from an opportunity perspective. So we to state the obvious, when we make a loan, it's 5, 6, 7 years. And so and we're we hold it to maturity. And so we really consider ourselves long term in our orientation and fundamental credit investors. We're not traders. We're not trying to pick a moment in the market. And because we know economic conditions over the life of our loans are going to go up and down, and we've got to pick credits that are going to withstand that. So we think we've been well served throughout inception sticking to businesses that are going to endure regardless of the business cycle and regardless of where we are going in or going out. It's not to say, of course, that we don't pay attention to where we are in the cycle And on the margin that can influence us on the margin. But I would say, I don't we're not You shouldn't expect to see us after 5 years of really avoiding cyclicals to try to bet on cyclicals now because the economy is going to we are really, really potentially be very strong here. Those companies might do well for a year or 2, but we would be concerned what happens after that. As I said in my remarks, the sector we have found the most attractive and we are it is our largest sector, one we have really differentiated expertise Software and technology generally, but software in particular, and that we continue to find that sector particularly interesting And we'll have to go to a lot of resources to it. Certainly, there are sectors that were impacted by COVID that have now recovered very quickly. And so I would say those are sectors the pockets of healthcare that were really kind of shut during COVID that now opened back up and I think we would be very open minded about doing those where we might not have been 6 months ago. So we'll certainly adjust the dial there. But I for Alaroc, we shouldn't expect to see us really make any significant changes in the sectors. Do I other managers may view it differently and there may be good value in making a bet on the cycle, but it's just not really how we've run the portfolio. Your next question is from the line of Robert Dodds from Raymond James. Hi, guys. Thanks for taking the question. A question on the prepay. And obviously, there's you talked about elevated prepayments next quarter. If It does generate fees. There's 2 components to fees, obviously, accelerated OIB and then prepayment fees. Should Has with COVID kind of aging the portfolio somewhat, have you aged Out of the core protection part for a chunk of assets, we should expect the OID? Or are you still Going to collect the accelerator ID and call protection on the repayments. So do we have to kind of like reset the cycle for the core protection component within the portfolio that's starting to be paid. Hopefully, that makes sense. Yes. It's a great question, Robert, and I'll do my best to answer it, but I don't have a precise answer to you mathematically, but I'll try to give you the themes. I calculated this or recalculated this, but just This is information that's publicly disclosed. We've got about $170,000,000 of OID on the books today, So if every loan repaid tomorrow, which obviously isn't going to happen, that would be $0.44 a share Now that's going to get spread over the next few years. I'm not in any way suggesting that's going to happen this year, but I'm just giving you a specific number For part of your question, that's very material. If those loans got repaid on average over the next 3 years, that would equate to $0.03 of NII per quarter just from the amortization of OID. Any prepayments will come on top of that. We will get excuse me, call All premiums will come on top of that. I don't have it at my fingertips what that would amount to, but just the OIB alone is quite substantial. To the thrust of your question, have we quote aged out of it? We one of the attractive elements of the loans we offer is they don't have tremendous amounts of call protection. It's usually a year or 2, and maybe it's pretty payable at 102 or 101. Oftentimes what happens is some of the highest quality companies or some of the best performers, they repay you quickly because they Yes, the business does really well. A year or 2 later, they prepay you. So I don't think it's going to go to 0, and I don't, but I think it will be more weighted to the amortization Although I'd be sorry, I don't think that there's some impediment for us getting the kind of income pickup that we're expecting. Right, right. I really appreciate that granularity there. Just one more, if I can. On the dividend from the portfolio company, you dropped $4,000,000 this quarter. This is variable. And this may be more obviously, you don't control the dividend per se, but would you Expect that this level is the low end of the variable range? Or is it the middle of the range we should expect going forward? Or any color on that would be helpful. Sure. The investment we're referring to is more, I think it shows up on our schedule. Investments is Window Holding. It's been a terrific investment. It's very different type of investment than our normal investment. It's an equity investment, but it's in a company with no debt on it. So they we're a shareholder And they pay out a portion of their income in the form of dividends, and we enjoy those dividends. If you went back and looked at it, you would see it's been an extraordinarily profitable investment. We originally invested a little over $50,000,000 and we've already received $13,000,000 of dividends. So that's really extraordinary. It's variable. It's going to move up and down based on the performance of the business and the timing of when they choose to pay dividends. I think it's reasonable to assume this Q1 it's a business that's just driven by their underlying activity level. And so if you tweak it lower than that, I wouldn't be upset about that either. But there are going to be quarters where it does really well like the 4th quarter and will exceed. It's just not going to be as predictable as a debt investment because it's just inherently a variable dividend. Okay. Got it. Thank you. All right. Thanks, Robert. Thanks, Robert. Next question from the line of Mickey Schleien from Ladenburg. Good morning, Craig and Alan. Craig, I found your comment about the record size unitranche fuel very interesting. And I'm curious, with that in mind, how do you manage the structuring of those deals, given the size of the company and the size of the loan visavis the frothiness in the broader market Where I imagine this company may be able to go if they choose and obviously the broader market's pricing is very tight and deal terms are very loose when we think of covenants. So essentially, I'm asking how do you attack that market Without taking on the risk of the broader market. Well, let me try I'm not sure. You might have to re ask the question, but I'll give you an answer and see if I get close enough. The Calypso deal is an example of a trend that we've seen over the last few years. I mean, frankly, since the inception of Alloq, we're certainly not the driver of it, but are certainly one of the leaders in it, which is with bigger pools of capital, we can offer bigger solutions for direct lending for the private equity firms. And we there are many reasons why a private equity firm picks a direct lending solution. It's not just the rate. It's not just what the covenant package is. They like the privacy. They like the certainty. They like to know who their lenders are and know the lenders will be there when there are opportunities and challenges, we are seeing greater and greater receptivity to Direct lending solutions and it's penetrating deeper and deeper into the leveraged finance markets. And we've been a beneficiary Of it. And you've seen the $1,000,000,000 unit tranche and now you've seen the $2,000,000,000 unit tranche. So I think that trend is in our favor. And I would say, just to be slightly pointed about it, this is in a moment in time where the syndicated markets are on fire, And yet it's still trending in that direction. And if you think there'll be a moment in the next couple of years where the syndicated market gets choppy, then that trend will accelerate in my opinion. So it's a positive for our business. It's very much at the core of why we started AlloRock to be able to provide those kinds of solutions. There's certainly very spirited discussions with the private equity firms about what rate we charge and the covenants and all that, but we continue to feel really good. We get maintenance covenants, we get the spreads that you can see that we're continuing to get spreads in excess of the market. I'd also just remind you in terms of our economics, we get a premium to the syndicated market, but we're also able to capture the fees that would otherwise go to pay to the banks to distribute the deal. So that's economics that are not incremental to the sponsor, but benefit our investors. And so that's part of the economic competition for direct lending. Well, so I'm not sure I answered your question, but hopefully, you're welcome to ask something if I didn't quite get it. No, no, that was very much my question and I appreciate that description. A couple of simpler questions. What is the outlook for a dividend, if any, from Winspire, which is actually now larger than Sebaker? Good question. We're really pleased with the what we're building at Wingspire. We continue to we're more capital in there and they're building their portfolio out. We're being very thoughtful. David Weisand and the team at Run Wingspy are very thoughtful about a struck the portfolio. We really want to make sure that we build for the long term there. And I'm optimistic over the next are trending in the right direction and that will obviously help our earnings as well. Craig, could you give us Perhaps a range of ROE you're expecting on Wingspyre? We wouldn't have done Wingspyre if we didn't think we could get our ROE are at or above the ROE in our overall portfolio. I mean, I hope it's in excess, but if you want to just dig something in, you could take the we're mark to the average ROE for Alrock and use that as a proxy. We I'm really enthusiastic about Wingspire, but we also try to under promise and over So when we have the results to report, we'll go into it in a lot of detail. But over the next Few quarters getting to a run rate consistent with AllRock ROE would probably be a reasonable assumption to make. Okay. I appreciate that. And I'm not sure if Alan already mentioned it. What is the amount of undistributed taxable income per share that you have? We don't, Mickey. We don't have undistributed distributions. Okay. So, but you did accrue some excise tax, right, Adam? I believe we did. Okay. I'll probably follow-up with you on that later then. Those are all my questions. I appreciate you taking my questions. Thank you. Thanks, Matthew. Next question is from the line of Paul Johnson from KBW. Hey, good morning, guys. I'll be brief. Most of my questions have been asked. But one of my questions was just around your debt stack, you guys have obviously built a pretty attractive low cost liability structure. But I'm kind of curious, Going forward, what your appetite would be for additional unsecured debt, Just obviously given the extremely low costs sort of available to BDCs to issue at today, if you'd be comfortable Issuing more and potentially replacing some of your securitized financing or have you sort of kind of reached a balance that you're trying to maintain and maybe not looking to get too aggressive with more unsecured debt. Thanks, Paul. It's a good question. Look, we're always keeping our eye on the markets. You saw we just did a nice size deal a couple of weeks ago. In terms of unsecured taking out secured, we'll continue to look at that. We also do the CLO issuances, which is a really efficient way to finance our balance sheet. The most recent one I mentioned was just 149 basis points over LIBOR. So that is really efficient, and we continue to focus on optimizing the right side of the balance sheet. So you should expect over time to continue to see us doing CLO issuances as a great way to finance our portfolio and continue to keep an eye on the unsecured markets to see what pricing continues to go there. Sure. Okay. I understand. And lastly, just kind of bigger picture, I'm just curious your guys' thoughts on The tax proposal out there being floated by the President with Congress. Do you think that Any part of that proposal, obviously, more specifically around carried interest, would that have any effect on possibly Accelerating M&A PE deals in the near term or do you still kind of or do you look at this more of like Nonevent, just kind of given the sheer amount of capital that's been raised in that sector. Well, it's a fair question. I think that there's certainly We saw in the Q4 that the possibility of tax changes drove a good amount of activity getting done by the end of the year. Now that there are some specifics around estate taxes and cap gains, it certainly stands to reason that, that could caused sellers to want to sell prior to those types of changes. So I think It could be a propellant for M and A activity, which is already very robust. I don't think that it's going to alter the trajectory of private equity in general because the trajectory of private equity in general is are quite strong. There's $1,000,000,000,000 of dry powder sitting in private equity firms, and I'm not going to get invested even with all this what tax We live in and if anything private equity continues to be raising lots of capital. So There's nothing particular in the tax proposed tax changes that we've got our eye on. The markets tend to adjust to these things and we expect continued robust activity as we've been talking about. Okay. Thanks for that. Appreciate that. Those are all my questions. Thank you. Thanks, Paul. Your your next question from the line of Kenneth Lee from RBC Capital. Hi, thanks for taking my question. Just one on the expectation of seeing meaningful improvement in NII in the second quarter. Just want to get a better understanding of some of the we are making sure that we are making the key drivers there and how much of this could be driven by new investments that were completed in the Q1 and then ultimately generating Sure. I'm not going to be super granular, but certainly, a part of it is the investments in the Q1 that were done towards the tail end of the quarter that we'll now we'll get the full benefit of. But I would say that's only a modest part of it. I mean, we are we have high visibility on a very robust originations pipeline that remark That, as I said, is more aligned with the Q4 than the Q1. We wouldn't say that if we weren't highly confident in it. Some of the deals have already closed and others are expected to close imminently. So that's the biggest driver. And then we also have high visibility on actual repayments as well. So Barring something on porcine, we expect to make material progress on NII during the quarter Great. That's very helpful. And just one follow-up, if I may. You mentioned that you didn't close on any second lien loans in the quarter. I just want to get a little bit more color what you saw in some of the potential investments and what made the first things that the unit tranches more attractive at this point in time Sure. We've talked about this over the last few years. We For the right situations, we like second liens. We but we're so picky about those situations. So we only we really like to do 2nd lien to businesses that are very stable, substantial equity commitments and tend to be bigger companies on average than the 1st lien portfolio companies. If our average EBITDA is $100,000,000 across the portfolio, The average EBITDA for our 2nd liens are $175,000,000 give or take. So we tend to do it in bigger companies that have lots of wherewithal. And so we feel like we're getting a premium spread you get for doing 2nd lien, but get the same equity cushion and just high quality businesses. So, we just didn't see any of those in the Q1 that fit our parameters. But I'm also signaling that we will do more second liens And we're at a pretty thin amount of second lien. And I just when we do a few, I hope folks remember this quarter, but we did not Take it in the overall context, which is we're really selective. I could easily see our 2nd lien percentage going up, but we're going to remain very disciplined have been very high, and I think that served us quite well. Great. That's very helpful. Thanks. Thank you. Your next question is from the line of Casey Alexander from Compass point. Hi. Just because my attention span is not that great. When does Calypso close? And on a deal like that, how would you kind of size the position to the ARCC portfolio? And the closing, what type of fees does a deal like that generate? Well, Casey, we I will give since you said your attention span was short, I will give you a mulligan on the ARCC versus the ORCC. No problem. We haven't said when it's going to close. Frankly, it's not our business to say Sono Bravo signed the company. We'll defer to them on it. We wanted to call attention to it because it's extremely large. We one of the benefits of our platform is we have other funds that we manage. And so when there's an opportunity like we can take a very sizable position and the largest position in a deal like that, and we can have a very healthy investment for ORCC and put it in our other vehicles. As folks many folks know, we manage our AllRock Technology Finance Corp, which is a dedicated tech BDC as well. So It will be one of the largest investments across our entire platform. As the deal gets closer, we'll figure out the exact size based where we sit at that moment in time. So I can't be more specific, but it's a large deal and that's a great opportunity for us and high quality company to have a sizable investment in a really terrific business. Okay. Thanks for that. Would you But the guidance that you still believe that you can cover the dividend with NII by the second half, I mean, by the Q4, that would kind of be the core run rate, not including unusual deals such as Calypso. Is that correct? Yes. I want to thanks for reminding me. I meant to cover that. When we close on a deal, we the OID that we take in that deal, we amortize over the life of the loan. So we don't take, unusual amounts of income in when we close on deals. Other managers we are not going to comment on that, but we don't just because we're closing on a big deal unto itself isn't going to drive earnings in that quarter for us. Now occasionally, on a larger deal, we might Sell down some, that could generate some income, but we're not systematically our earnings are not systematically driven by originations in the way that a manager that picks all the up front would be. So I wouldn't get too focused on when Calypso is going to close. I I mean, I should say this just for the sake of clarity. I'm assuming it's obvious, but we're clearly not holding all the $2,300,000,000 Clarissa loan, And we didn't commit to the entire $2,300,000,000 Cliffsville under other lenders in it with us and there'll be other lenders that committed and other lenders that close with us And we'll have a very appropriate size for the Allrock funds. All right, perfect. Thank you very much. It's very helpful. Thanks, guys. And your final question comes from Fanyan O'Shea from Wells Fargo Securities. So the origination outlook is pretty strong. It sounds like, Tim, you touched on the yields or the yield impact You'll expect, obviously, some more activity will help. But does the pipeline look Flat, better, worse in terms of new yields. So the spread in our in the Q1 was down From the Q4, so the quarter we just put up, I would say our visibility and that reflects, I alluded to it in my remarks, There has been a bit of spread compression as the markets have been strong. The visibility we have on 2nd quarter Sitting here right now, I would expect spreads to be a bit wider than what we got in the Q1. So it will move around a bit. But we're continuing to find investments that have a spread consistent with today's weighted average spread in our portfolio, in some cases, higher, in some cases, is higher, in some cases slightly lower. But our visibility in the Q2, I would say, it's modestly higher. But I think that if the market conditions stay strong, we're probably going to stay in this kind of a range. Okay, that's helpful. And then with the advisor, it has a couple of press releases attached to Alaroc. It looks like that's With the BDC, Should we expect that the management team, yourself, Alan and so forth, mostly remain in place? Or will there be any shuffling around? Look, we're super committed to our strategy and our are in maintaining the success that we've had going forward. Obviously, it's a bigger platform and we'll We continue to be thoughtful about resources, but if anything, we're going to have more resources to be able to dedicate to LRCC. So nothing to report on any changes, excited to get the transaction closed here shortly and we'll continue to do the best for our shareholders. Okay, very well. That's all for me. Thank you. And I would now like to turn the call back over to Mr. Tacker for closing remarks. All right, terrific. Thank you all for the questions. Really appreciate the interest. We're generally accessible. So if we didn't get To take your questions, just reach out. We're happy to talk offline and appreciate everyone's support and we'll see you next quarter.