Welcome everyone to BlackRock TCP Capital Corp's first quarter 2023 earnings conference call. Today's conference call is being recorded for replay purposes. During the presentation, all participants will be in a listen only mode. A question and answer session will follow the company's formal remarks. To ask a question, please press the star key followed by the digit one. I will repeat these instructions prior to the Q&A session. Now, I would like to turn the call over to Katie McGlynn, Director of BlackRock TCP Capital Corp Investor Relations team. Katie, please proceed.
Thank you, Sarah. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at the time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected. Any forward-looking statements made on this call are made as of today and are subject to change without notice. Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, we make no representation or warranty with respect to such information. Earlier today, we issued our earnings release for the first quarter ending March 31st, 2023. We also posted a supplemental earnings presentation to our website at www.tcpcapital.com.
To view the slide presentation, which we'll refer to on today's call, please click on the Investor Relations link and select Events and Presentations. These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today. I will now turn the call over to our Chairman and CEO, Raj Vig.
Thanks, Katie. Thank you all for joining us for TCPC's first quarter 2023 earnings call. I will begin today's call with a few comments on the market environment and provide an overview of our first quarter results. I will turn the call over to our President and Chief Operating Officer, Phil Tseng, who will provide an update on our portfolio and investment activity. Our CFO, Erik Cuellar, will then review our financial results as well as our capital and liquidity positioning in greater detail. I will conclude with a few closing remarks before we take your questions. As you all observed, market indices were generally down across the board in 2022. Even with the broader market weakness during the year, private credit assets generally held up well, further demonstrating the resiliency and stability of the asset class in different market environments.
During the early part of 2023, we saw notable recoveries across most asset classes from their respective 2022 performances. Markets stabilized as we entered the year, by the latter part of Q1, struggles that emerged in the banking sector understandably shook investor confidence and drove volatility that continues today, with now several bank failures crystallized. Notwithstanding the broader social and economic implications, weakness and even turmoil in the banking sector is hardly a new dynamic to established private market participants. Rather, it is a dynamic we have benefited from for most of our nearly 23 years lending to middle-market companies who continue to look in ever-greater numbers for alternatives to traditional forms of financing.
While it's too early to say when the current situation will be fully resolved, we believe the reaction to recent events in the banking sector will likely make it even less efficient and less economic for banks to lend to the middle market, and therefore further support, if not accelerate, the opportunity for well-positioned private credit lenders such as ourselves. The swift collapse of several banks and ongoing concern with the sector has been a reminder to borrowers of the benefits of working with a direct lender like BlackRock. Direct lenders can act quickly when needed and have locked up or permanent capital that facilitates stable, long-term financing solutions to borrowers that remain available during periods of market dislocation.
We have seen this firsthand many times, including during the early days of COVID, again more recently this past quarter with the few portfolio companies we have that had cash deposits with Silicon Valley Bank. When the news about the challenges at the bank started to spread and these companies had difficulty accessing their liquidity, our team was in position to provide short-term liquidity had it been required. Fortunately, the Fed stepped in to backstop their deposits, ultimately our capital was not needed, our ability to work directly with these borrowers and to act quickly were further reminders of the value that private credit managers can provide. I'd like to turn to our first quarter highlights. We delivered strong net investment income of $0.44 per share in the first quarter.
Given the floating rate nature of our portfolio, our net investment income continues to benefit from higher base rates as well as wider spreads on new investments, resulting in a run rate NII that is among the highest in TCP's history as a public company. In recognition of the higher ongoing earnings power of TCPC, primarily to provide the rate environment, our board of directors today announced an increase of $0.02 per share to the quarterly dividend distribution. The second quarter dividend of $0.34 per share will be payable on June 30th to shareholders of record on June 16th. As a reminder, our board has always taken a disciplined approach with regard to the dividend, given our emphasis on stability and strong coverage through our recurring net investment income. Throughout TCPC's history, we have consistently covered our dividends through recurring net investment income.
This commitment remains important to us, even accounting for the dividend increase declared for the second quarter, our first quarter dividend coverage ratio would have been approximately 129%. Phil will discuss our first quarter investment activity in more detail, but in summary, we are being disciplined in deploying new capital in this uncertain environment, while also selectively taking advantage of the more lender-friendly investment environment. We reviewed a substantial number of transactions during the quarter and deployed capital in a small percentage of those opportunities. Given the slowdown in private equity deal volumes, we are reminded of the benefits of our channel agnostic approach to deal sourcing. Our pipeline remains healthy, given our direct relationships with management teams and other industry participants, we continue to find attractive opportunities in the current environment.
Finally, the credit quality of our portfolio remains solid, with loans to just two portfolio companies on non-accrual as of the end of the first quarter, totaling just 0.3% of total investments at fair value, among the lowest non-accrual levels in TCPC's history as a public company. AutoAlert, which was placed on non-accrual in Q4 of last year, was successfully restructured in Q1, and our loans are now back on approval status. While still early, it appears that some of the macro headwinds that had been facing the company since the onset of the pandemic appear to be abating, and we have been encouraged by AutoAlert's relative performance year-to-date and post the completed restructuring.
Looking back at our historical performance as a public company, since 2012, we have generated a 10.3% annualized return on invested assets and a total annualized cash return of 9.3%. We believe this performance remains at the high end of our peer group and reflects our ability to consistently identify attractive opportunities at premium yields and deliver exceptional returns to our shareholders across market cycles. Now, I will turn it over to Phil to discuss our investment activity and portfolio positioning.
Thank you, Raj. I'll start with a few comments on our existing portfolio and then move on to highlight our investment activity during the first quarter. We continue to emphasize strong portfolio management and credit monitoring procedures for our existing portfolio companies. As a reminder, our investment team members specialize across industry verticals and are responsible for sourcing investment opportunities, underwriting and structuring those opportunities, and then monitoring them until exit. We view this as an advantage as it ensures that the relationships and the knowledge developed during the deal sourcing process and during the deep private equity-like due diligence process can be leveraged throughout the life of the investment. Our investment teams are continuously engaged in dialogue with owners and operators to assess both current and projected performance relative to our original underwriting assumptions.
In addition, deal team members review portfolio company performance with senior members of the investment committee on a quarterly, if not more frequent, basis. This process helps in proactively identifying investments that may require more engagement with management to ensure our loans remain well protected. Given the higher rate environment, higher input costs, and general uncertainty in the economy, we are working with a few companies to help them navigate slower revenue growth and/or margin pressure. We recently completed our quarterly review process and are pleased to report that their portfolio generally remains in good shape. Despite the margin pressure facing many companies across the market, the majority of companies in TCPC's portfolio with a cash flow underwriting continued to report positive EBITDA growth.
We believe our portfolio is well-positioned given our emphasis on companies with established business models that have a reason to exist and are core to their underlying customers to make these companies more resilient through difficult macro environments. At quarter end, our portfolio had a fair market value of approximately $1.7 billion. 88% of our investments were senior secured debt spread across a wide range of industries, providing portfolio diversity and minimizing concentration risk. We also continue to emphasize companies in less cyclical industries. The portfolio at quarter end consists of investments in 143 companies, an all-time high for TCPC, and our average portfolio company investment was $11.6 million. As the chart on slide six of the presentation illustrates, our recurring income is distributed broadly across our portfolio and is not reliant on income from any one company.
In fact, more than 90% of our portfolio companies each contribute less than 2% to our recurring income. 86% of our debt investments are first lien, providing substantial downside protection, and 94% of our debt investments are floating rate, an important benefit, of course, in this higher rate environment. Moving on to our investment activity, our deal source channel-agnostic approach provides us an important advantage, particularly at a time when we are seeing a slowdown in traditional sponsor-backed activity. Our industry-focused deal teams continue to identify unique investment opportunities from a wide range of sources, including directly through industry context, contacts and management teams. This is in addition to our traditional sponsor relationships.
In reviewing these opportunities, we emphasize transactions where we are positioned as a lender of influence, which enables us to leverage our two decades of experience in negotiating deal terms and conditions that we believe provide meaningful downside protection. These include substantial collateral and tailored covenant packages. In addition, our industry specialization, which our borrowers truly value, bolsters our ability to assess and effectively mitigate risk in our underwriting and when negotiating terms in the credit documentation. Despite the more modest pace of market activity, TCPC invested $76 million. Deployment in the quarter included loans to eight new and two existing companies, primarily in senior secured loans. Follow-on investments in existing holdings continue to be an important source of opportunity for us, accounting for 45% of total dollars deployed over the last 12 months.
BCIC's largest investment during the first quarter was a unitranche investment to support the acquisition of World Choice Investments. World Choice owns and operates a diverse portfolio of live dinner and family entertainment attractions across the Southern U.S. The company is strategically located in stable regional tourism destinations, including Pigeon Forge, Tennessee, in which it operates the Dolly Parton's Stampede. This market benefits from tourists visiting Dollywood, but also the Great Smoky Mountains National Park, which is the most visited national park in the country. We viewed this as an attractive investment opportunity given the company's demonstrated and stable growth over the past 15 years, including steady performance during the great financial crisis, due in part to its low fixed cost base and strong free cash flow generation.
Over World Choice's 30+ year history, they have consistently delivered high attendance and revenue growth, which has established them as the leading entertainment option with minimal direct competition in each of its core markets. Our second-largest investment in the quarter was a first lien loan to support the acquisition of Bynder. Founded in 2013, Bynder is a leading digital asset management vendor. We viewed this investment as an opportunity to lend to a premium product and its wealth position to benefit from strong tailwinds for products that enable sales, marketing, and commerce. We also view our loan as well-covered, given strong visibility on cash flows and Bynder's significant and diverse customer base. New investments in the first quarter were offset by total dispositions of $19 million.
The overall effective yield on our debt portfolio increased to 13.1% compared with 9.1% one year ago, reflecting the benefit of higher base rates and wider spreads on new investments. Investments in new portfolio companies during the quarter had a weighted average effective yield of 13.3%, exceeding the 13.1% weighted yield on exited positions. Given further pullback in banks' ability to lend in this environment, exacerbated by the regional bank turmoil in the first quarter, we are continuing to benefit from a more lender-friendly investment environment, with improvements in both pricing and terms relative to just 12 months ago. Post quarter end, we have been investing selectively, maintaining our underwriting discipline while being mindful of the inflationary environment.
We emphasize companies that have significant pricing power to pass on higher input costs, including increases in their cost of capital. It's also important to note that we do not underwrite to perfection. We seek to build in sufficient buffers to ensure companies can withstand changes in the microenvironment, including higher costs, without impairing their ability to service our loan. Our pipeline remains healthy, and the yields on investments in our pipeline are generally in line with our current portfolio. To date, we've had limited prepayment income in the second quarter. Let me now turn it over to Erik to walk through our financial results as well as our capital and liquidity positioning.
Thank you, Phil. As Raj noted, our net investment income in the first quarter benefited from the increase in base rates since March of last year. Net investment income of $0.44 was up 29% versus the first quarter of 2022 and exceeded the first quarter dividend of $0.32 per share by 34%. Today, we declared a second quarter dividend of $0.34 per share, an increase of $0.02 per share over the first quarter dividend. This is our second dividend increase in the last three quarters. We remain committed to paying a sustainable dividend that is fully covered by net investment income, as we have done consistently over the last 11 years. Investment income for the first quarter was $0.87 per share.
This included recurring cash interest of $0.76, recurring discount and fee amortization of $0.04, and PIK income of less than $0.03. Notably, PIK income was only 3% of total investment income. Investment income also included $0.02 of dividend income, $0.01 of other income, and $0.01 from prepayment premiums and accelerated OID and exit fees. As a reminder, we amortize upfront economics over the life of an investment rather than recognizing all of it at the time the investment is made. Operating expenses for the first quarter were $0.34 per share and included interest and other net expenses of $0.20 per share. Incentive fees in the quarter totaled $5.4 million, or $0.09 per share.
Net realized losses for the quarter were $30.6 million, or $0.53 per share, resulting primarily from the reorganization of our investment in AutoAlert. However, given the stronger performance by AutoAlert over the last few months and the improved capital structure after the restructuring, our investment in AutoAlert had a net appreciation during the quarter and is now back on accrual status. Net unrealized gains in the first quarter totaled $28 million, or $0.48 per share. Primarily reflecting a $36.2 million reversal of previously recognized unrealized losses from the AutoAlert reorganization. Partially offset by a $3.2 million unrealized loss on our investment in Astra Acquisition and a $2.9 million unrealized loss in Aventiv. The net increase in that asset for the quarter was $22.7 million, or $0.39 per share.
We have a robust valuation process, and substantially all of our investments are valued every quarter using prices provided by independent third-party sources. These include quotation services and independent valuation services. This process is also subject to rigorous oversight, including back testing of every disposition against our valuations. The credit quality of our overall portfolio remains strong. A total of only two portfolio companies were on non-accrual at the end of the first quarter, representing 0.3% of the portfolio fair value and 0.5% at cost. Now turning to our liquidity. Our balance sheet positioning remains very strong, and we ended the quarter with total liquidity of $307 million relative to our total investment of $1.7 billion. This included available leverage of $208 million and cash of $99 million.
Unfunded loan commitments to portfolio companies at quarter end equals 7% of total investments, or approximately $109 million, of which only $34 million were revolver commitments. Our diverse and flexible leverage program includes two low-cost credit facilities, two unsecured note issuances, and an SBA program. Last month, Fitch reaffirmed TCPC's investment-grade rating with a stable outlook. Our unsecured debt continues to be investment-grade rated by both Fitch and Moody's. Given the modest size of each of our debt issuances, we are not overly reliant on any single source of financing, and our maturities remain well-laddered. Additionally, we're comfortable with our current mix of secured and unsecured financing and do not have any immediate financing needs. Combined, the weighted average interest rate on our outstanding borrowings increased modestly to 4.19%.
This compares with 3.26% at the end of 2021. That is an increase of only 93 basis points over the last 15 months, while base rates increased approximately 480 points during that period. This is the result of having over 70% of our borrowings from fixed-rate sources. I'll turn the call back over to Raj.
Thanks, Erik. As a reminder, our annual shareholder meeting will be held virtually on May 24th, and all of our shareholders are invited to attend. Consistent with prior years and in line with many of our BDC peers, we have included in our proxy a proposal for shareholder approval to issue up to 25% of our common shares on any given date over the next 12 months at a price below net asset value. The purpose of the below NAV issuance proposal in our proxy is to provide flexibility. To be clear, at this point, we do not intend to issue equity below NAV, and certainly not unless it is accretive to our shareholders. This is the equivalent of an insurance policy which our shareholders have approved every year since we've been public.
Even as the economic outlook grows increasingly uncertain and market volatility persists, we are confident in our proven strategy and approach to investing that has delivered strong risk-adjusted returns for our shareholders throughout different economic environments. We believe we have demonstrated a consistent ability to execute throughout the credit cycles, enabling TCPC to deliver for our shareholders in both periods of economic growth and contraction. This also makes us a reliable partner for our borrowers and further helps us to attract appealing investment opportunities. With that, operator, please open the call for discussions. Questions.
Absolutely. If you would like to ask a question, please press star followed by one on your telephone keypad. To remove your question, press star followed by two. As a reminder, if you are using your speaker phone, please remember to pick up your handset before asking your question. Our first question comes from Robert Dodd with Raymond James. Please proceed.
Hi, guys. If I can go to AutoAlert, obviously, the company structured. It was marked up in the quarter, right? Do you think how can I put it? Was the restructuring too aggressive, since you restructured it, wrote off a lot, converted it to equity, and then effectively immediately wrote the equity up? Can you give us any thoughts on how it was repositioned and was it restructured?
Thanks for the question. Yeah, no, I hear what you're saying. I'll try to add a little color. I think the short answer is the restructuring, we hope, and, you know, from early indications may prove to be good timing. You know, this was a good business that had an impact coming out of COVID that was tied to, you know, supply chain issues, a fairly robust demand side for autos and used cars in particular. That, you know, essentially resulted in it mitigated its value proposition where, you know, they help dealers create demand and differentiate themselves when that's more valuable. It was a good business, but really a challenged balance sheet by factors coming into this environment.
The business and as we think about restructuring, you know, the two kind of went in different directions. The business environment improved for it, ironically, in this environment where, you know, where there's more inventory on dealerships and the supply chain issues abated. That helps them become more relevant again. The trends are showing that out of the box. Similarly, the balance sheet that was, you know, a challenge was something that we were able to be part of a solution to fix. I don't know that it was too aggressive. I think what time will tell when unless when you say aggressive, you mean in our favor.
I do think that it was well-timed, that it was something that we try to avoid doing by finding and working in conjunction with the company and its owners to a solution. I think the nature of the restructuring being relatively quick and efficient after a number of other, you know, types of processes were in place does highlight the benefit of doing this when you're, you know, one of few lenders or one of one. You can just do this much more efficiently than a large scale restructuring. I think the, you know, hopefully that what we're able to do is give the business the running room and the capital structure and liquidity to achieve its highest value, especially as those demand factors and economic factors are moving back in its favor.
Got it. Got it. Thank you for that additional color. I mean, just the other one. It's back on accrual now. Was it on accrual status for the full quarter, the partial quarter, or just back at the end?
It was right at quarter end, so there was no income recognized during Q1 from AutoAlert.
Got it. Thank you. The other one on credit quality, just to, based on Phil's prepared remarks. You said the majority of companies have positive EBITDA growth. Presumably, you know, some don't. Obviously, the recurring revenue business is one thing, but you mentioned that they were underwritten on a cash flow basis. Can you give us any color for that? Is that EBITDA decline for whatever proportion of businesses, is that new? Was that expected? Is that a result of macro or idiosyncratic issues? Anything we should be watching out for in the rest of the portfolio, I guess, is the real question.
Yeah. Thanks, Robert. I would say that, you're right. It was the majority, and it's a meaningful majority of our cash flow thesis loans have seen EBITDA growth. There are, of course, some businesses in our portfolio which have been impacted by, you know, what the Fed's doing. You know, the Fed's been very explicit about trying to slow growth and the inflationary environment has been, you know, quite meaningful. Not all companies are seeing EBITDA growth, just the vast majority. Are we concerned at this point? We feel like we have sufficient margin for error in these cash flow loans.
You know, just because they, you know, they're seeing some either flat year-over-year or sequentially EBITDA or in some cases down, you know, most of these situations aren't areas where we're terribly concerned or hit our watch list.
Got it. Thank you. That's it for me.
Thanks, Robert.
Thank you for your question. Our next question comes from Christopher Nolan with Ladenburg Thalmann. Please begin.
Hey, guys. Have you guys entered into any discussions with your banks providing your facilities, in terms of change of haircuts or change in terms?
No, we haven't needed to, and neither have they approached us regarding that.
Yeah. Just for some context, you know, our business, even before the TCP2 was public, has been doing leverage, you know, loans and facilities for over two decades. I think we try to think about, you know, the right type of structures, flexibility, etc. You know, we're not on the wrong side of the banking discussions, but there have been no discussions to date.
Any consideration in terms of adding additional credit lines?
I think, you know, we are comfortable where we are in terms of the capital structure today. I think we're always, you know, we're always in conversation with various providers, for flexibility and additional, you know, sort of thinking about diversifying the capital structure. There'll always be consideration of when and if that makes sense. I would just emphasize the point that we feel very well, you know, covered today and are very appreciative of the banks we work with being, you know, good financing partners.
We do have accordance in both of the facilities. One thing we do, always look at is continuing to add perhaps other banks to the lineup within the facilities. That's a regular thing we do.
One of the things that occurred in the last banking crisis was, you know, banks basically cut off the lines of credit. I'm not saying that that's happening or it's gonna happen, but, you know, just sort of as a insurance policy, would BlackRock, your parent, be able to backstop if the worst came to worst and the banks started cutting off credit lines?
I think that's a question I will not answer for BlackRock. I like my job here. I would say that, you know, when you go back through the prior crises, the one thing I would say is that private credit assets have just held up very well. I mean, and BDCs, even the marks to NAV, you know, have not dropped historically as much as other credit, you know, or even liquid asset classes. I think there's a benefit to the lock-up structure and the permanent capital nature. There's a benefit to the way we underwrite that allows us to, you know, keep a healthy portfolio and take protective actions. I think our lenders see that historically and have seen our ability to protect their capital.
While I won't answer the question on the BlackRock side of it, I will say that historically, even in the worst crises, it wouldn't have been needed or it wasn't needed. We take encouragement that, you know, we can kind of conduct the business the same way and hope for the same type of protections going forward.
Sounds good. Thank you for taking my questions.
Thank you. Our next question comes from Ryan Lynch with KBW. Please proceed.
Hey, good morning. Thanks for taking my questions. First one I had, I know the deal opportunity environment is really strong today, you know, just with the availability of capital being a little bit limited out there. You guys, you know, I think probably put out some really high-quality loans this quarter, I would guess. Is there any point where you guys look at the balance leverage and look to manage the level of deployments, you know, based on your leverage range? Are we getting to that point yet?
So let me answer it this way. We have definitely, we haven't given formal targets on our leverage range. I think we've historically given some guidelines of where we're comfortable. We absolutely look to maintain buffer and, you know, in the leverage facilities when we don't, we don't use leverage as part of our investment decision. It's really a portfolio optimization tool. I would say that the other thing we are very conscious of is maintaining the investment-grade rating. We have a frequent, I think, healthy dialogue with the rating agencies. So, you know, in the current environment, you know, a couple of things. One is, given where we're underwriting, I think you can see that from the current portfolio and the new deals.
You know, even the leverage we have is, you know, it's a great environment on an unlevered basis, and the leverage, I think, is helpful. We are not going to push that in any way that compromises, you know, the balance sheet, the ability to protect our portfolio or our investment-grade rating. Without giving formal guidance on a target range, I'll leave it at that for, where we are levered today and how we're thinking about operating in the current environment.
Okay. That's fair enough. Then kind of, flipping back to some of your prepared comments, you kind of talked about with the current kind of mini banking crisis we have going on. I think you said it'll further reduce banks' willingness to lend to middle market companies. I would love to just hear you provide some more thoughts on two areas in regards to this. One, how much today or in the past, you know, two years are you actually competing with banks per deal? To the extent that banks pull back, that would obviously be a beneficiary to you if there are, you know, meaningful competitors, you know, in your space.
I'd love to hear how, if at all, banks are really in the space that you're competing with for deals, that you're actually putting your portfolio, number one. Secondly, on the flip side, you know, if banks do potentially pull back from lending, which is I think likely, how do you think that impacts your portfolio companies or borrowers that may have additional lines of credit outside of your debt with banks?
Thanks, Ryan. I'll address the first part of the question. We do compete on occasion, directly with banks. Those are more the, I'd say, regional banks, who are committing and underwriting, let's say, loans of anywhere between $200 million to $300 million, $400 million maybe in terms of tranche size. They'll, you know, they'll put together their own solution and try and syndicate that deal out. That's one part of the market, and that is a part of the market given that we compete with given our focus on the core middle market. There's another part of the market where the banks participate, and that's on the larger cap direct lending side.
Clearly the $1 billion, $2 billion, $3 billion, $4 billion unitranche deals that you're seeing now that some of the large cap direct lenders are focused on, that is competing head-on with what, you know, the large cap banks would otherwise be doing. You know, so I would say that, you know, for us, the competition is more on the regional side. You know, the likes of SVB and First Republic and so on, you know, those aren't banks that typically trap in middle-market direct lending. There's certainly others that do on the regional side.
The fact that they are, we expect them to be more constrained either for their own risk management or from a regulatory standpoint, we think will benefit us. Even if those regional banks do come in the market, you know, we think it'll be perhaps, they'll pull back on risks, maybe be less aggressive on quantum or terms. Or maybe they'll wanna do it on a best effort basis, which obviously is less reliable for a borrower in terms of execution. That's where direct lending comes into play, where we can provide certainty of execution. We've done that for the better part of two decades now.
I'll try the second part of the question. I think you were asking about if they pull back on, you know, revolvers and liquidity and things of that sort, you know, how does that impact companies? I think that, you know, if you think about what's happened with the banks over the last two decades, there was an effort, you know, my former employer, I was part of it as a learning experience to do what we do directly, and they're just not built for, you know, that long-term type solution. They did, they were effective, and we, you know, partnered with a lot of regional banks and others on the short term, revolvers and facilities. I think that's been a good place for them.
You know, these are asset-backed, very, very well protected and, essentially, you know, swing lines, if you will. To the extent they pull back from that business, which I think is really more their core, you know, competency and a big part of their relationship effort with companies. I think there will. Like many, many cases in the past with financing markets, you know, necessity will drive a creative solution, and that may be something that we do, you know, as part of it. We may be partnering with other types of parties. For, you know, for where we sit right now, the cost of capital for those solutions is below our targets. It wouldn't be appropriate for this business unless that changes.
That doesn't mean there aren't, you know, private market solutions or some hybrid or something that comes up to the extent demand is there and there's a good place to obtain, you know, risk, you know, reward type financing opportunities. That's happened time and time again. I would imagine there'd be something like that that emerges. It's just too early to tell. It's also unclear where the banking sector ends up, but I think them exiting that type of business would be a more wholesale change in their business model, which we don't see or anticipate or even hear about in the current environment.
Yeah. I'll just add-
Okay.
You know, one of the, one of the things we've seen, due to some of the pullback, especially from the larger banks, is that as our portfolio companies continue to grow, obviously they're making tuck-in add-on acquisitions. They're growing their cash flow tremendously, and they at some point may be ripe for a refinancing by one of the larger banks. Given what's going on, we expect them to stay in our portfolio longer and we can continue to finance them, you know, given that we know the business really well. As you've seen, as we've talked about, you know, in the recent quarters, the amount of origination that we get out of our existing portfolio continues to be pretty high. I think it's 45% over the last 12 months.
That's partly due to us, the existing lenders, providing that solution for the borrowers instead of them going out and getting cheaper cost of capital, from, you know, the banks in what would have been, you know, the case 1 to 2 years ago.
Understood. I appreciate the time today.
Thank you.
Thanks, Ryan.
Our next question comes from Kevin Fultz from Citizens JMP Securities. Please proceed.
Hi, good morning. Thank you for taking my question. You know, just one question from me relating to Edmentum. You know, you've obviously seen the headlines around the adverse impact that AI is having on the online education space. You know, some publicly traded education platforms are down more than 60% year to date. I was curious if you could share your high-level thoughts on the impact that AI is having on Edmentum's business model. You know, if they're experiencing the same degree of disruption that other online education platforms are facing. I'm just trying to get a better understanding around the movement and fair value marks for the company and what the outlook is as well. Thanks.
Yeah, I can give you some perspective, 'cause we've talked about it and then, you know, time will tell. But I think if you think about what Edmentum has successfully done in moving its business forward, excuse me, over time, it's made a big push from going from analog to digital. Obviously, that's where the market is going for ed tech. And they've done a very good job, I think, proactively of going from broader-based assessment and targeted content to much more personalized assessment and targeted content to move students forward from a, you know, where they are to a baseline or ahead of it. A big part of that, you know, value proposition going forward is the ability to do that very proactively and in a very targeted manner.
Not surprisingly, some AI, you know, type of technology is actually additive to that. You know, it makes it a more robust function. The product set will certainly incorporate that. Edmentum as a company, I should let the, you know, the CEO, who's exceptional in his field, speak to it directly, but has, you know, even before AI became kind of the topic of the day, were exploring incorporating that into their product set because that is where the market ultimately will go and will benefit from. I think that makes it a better product, not a less relevant product. That's one that I think will only enhance, you know, what they're doing on a personalized basis with students.
How that ultimately rolls forward, I think time will tell. From a point of view of the thinking at the company level, they've been thinking about AI and incorporating it, you know, for quite some time now. I haven't tracked the other online education performance. I don't think they're necessarily comparative businesses. At least from my perspective, you know, it's something that would be additive to what they do and they certainly see that that way as well.
Okay. I appreciate the insight, Raj. Congratulations on a nice quarter.
Thank you.
Thank you for your question. There are currently no questions registered. As a reminder, it is star one to ask a question.
Okay. We appreciate your participation on today's call. I would like to thank our team for all the continued hard work and dedication. I would also like to thank our shareholders and capital partners for their confidence and their continued support. Thanks for joining us. This concludes today's call.