Earnings Call Transcript - BBDC Q4 2023

Operator, Operator

At this time, I would like to welcome everyone to the Barings BDC, Inc. Conference Call for the Quarter-Ended and Year-Ended December 31st, 2023. All participants are in listen-only mode. A question-and-answer session will follow the company’s formal remarks. Today’s call is being recorded, and a replay will be available approximately 2 hours after the conclusion of the call on the company’s website under the Investor Relations section. At this time, I will turn the call over to Joe Mazzoli, Head of Investor Relations for Barings BDC.

Joe Mazzoli, Head of Investor Relations

Please note that this call may contain forward-looking statements that include statements regarding the company’s goals, beliefs, strategies, future operating results, and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from these projected and forward-looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled Risk Factors and Forward-Looking Statements in the company’s annual report on Form 10-K for the fiscal year ended December 31st, 2023, as filed with the Securities and Exchange Commission. Barings BDC undertakes no obligation to update or revise any forward-looking statements unless required by law. I’ll now turn the call over to Eric Lloyd, Chief Executive Officer of Barings BDC.

Eric Lloyd, CEO

Thanks, Joe, and good morning, everyone. We appreciate you joining us for today’s call. Please note that throughout today’s call, we’ll be referring to our fourth quarter 2023 earnings presentation that was posted on the Investor Relations section of our website. On the call today, I’m joined by Barings’ Co-Head of Global Private Finance and President of Barings BDC, Ian Fowler; the BDC’s Chief Financial Officer, Elizabeth Murray; and BDC’s Co-Portfolio Managers, Bryan High and Matt Freund. We will dive into some quarterly results momentarily. But first, I would like to comment on some of the successes we experienced during the entirety of 2023. Investing in illiquid assets is often not well-suited for short-term investors. Measuring performance in a single quarter gives investors a proper lens to assess a manager’s performance. Net investment income, total dividends paid to shareholders, and NAV for BBDC all increased during 2023. While these items are important, we are equally focused on some developments not immediately captured in these metrics. During 2023, we continued executing on our commitment to rotate out of non-core assets, including three legacy MVC Capital positions and more than $25 million of investments to legacy Sierra Income positions. We again demonstrated our best-in-class alignment with shareholders, repurchasing more than 1.8 million shares for nearly $15 million. The number of issuers on non-accrual declined from 7% at December 2022 to 4% as of December 2023. We manage our portfolio based on operational metrics that drive stable returns, and we expect that in the coming quarters, our commitment to core strategies will continue to deliver for shareholders. Successful financial results, as measured by NAV and distributions over time, are outputs, not inputs to a successful asset manager. BBDC exhibited stability and strong operating results during the quarter ended December 31st. Our focus on the top of the capital structure and investments in sponsor-backed issuers is serving investors well in these uncertain times. Our portfolio is predominantly sponsor-backed and is complemented by a selection of non-sponsored and platform investments. Our portfolio strategy is outlined in greater detail on Slide 5. This strategy serves as our guiding light as we continue to successfully invest throughout the market and deliver compelling returns to our shareholders. Net asset value per share was $11.28 compared to the prior quarter of $11.25 and $11.05 at December 2022, reflecting a year-over-year increase of 2.1%. Net investment income for the quarter was $0.31, unchanged from the previous quarter. Our performance is the result of our focus on the top of the capital structure and within more defensive industries. We believe BBDC remains well-positioned for any further volatility and uncertainty in the market going forward. Investment activity during the quarter reflected a modest degree of net repayments, driven by light transaction activity during the quarter and balancing the use of our share repurchase program with other opportunities. As our shareholders know, we are actively working to maximize the value of the legacy holdings acquired from MVC Capital and Sierra Income and rotate them into compelling Barings-originated positions. Non-Barings-originated assets now only amount to 11% of the portfolio at fair value, down from 24% at the beginning of 2022, and potential losses from these assets are protected by the credit support agreements limiting downside risk for BBDC investors. Our investment portfolio continued to perform well in the third quarter. Including the acquired Sierra and MVC assets, our total non-accruals are 2.5% of the portfolio on a cost basis and 1.5% on a fair value basis, with three assets being removed from non-accrual during the quarter. With the exception of two investments, all of our non-accrual assets were from acquired portfolios and are covered by our credit support agreements. Subsequent to year-end, we removed our investment in Core Scientific, Inc. from non-accrual status in connection with its January 2024 exit from Chapter 11 bankruptcy and our receipt of shares of its common stock in exchange for the debt investments that we previously held in part of the bankruptcy proceedings. On a pro forma basis, this removes accruals to 0.6% on a fair value basis and 1.3% on a cost basis. Turning to the earnings tower of the portfolio. The increase in base rates has been largely reflected within the portfolio, with weighted average yields on floating rate investments stabilizing at 11.2%, substantially comparable to the prior quarter’s figures. We remain conservative in our base dividend policy and our Board declared a fourth-quarter dividend of $0.26 per share, consistent with the prior quarter. On an annualized basis, this dividend level equates to a 9.2% yield on our net asset value of $11.28. Now, I’ll turn the call over to Ian.

Ian Fowler, Co-Head of Global Private Finance & President

Thanks, Eric, and good morning. Recall that BBDC is managed by Barings LLC, a credit-focused asset manager with more than $300 billion of assets under management. The bulk of the portfolio is sourced from the Global Private Finance team, an organization with more than 100 investment professionals located around the globe, providing financing solutions to preeminent middle market companies sponsored by private equity firms. BBDC’s portfolio decreased by $51 million on a net basis in the quarter, with gross fundings of $192 million, offset by $244 million of repayments and sales, which included approximately $50 million of sales to our Jocassee joint venture. Activity during the fourth quarter continued to be tempered as private equity buyers take a pause in the rising rate environment, which we believe has a meaningful impact on enterprise valuations. Based on recent conversations, investment bankers, who serve as the tip of the spear, have reiterated their expectation that LBO activity is expected to meaningfully increase in the quarters to come. With that said, the messaging has been consistent for the past 12 months, as more opportunities are added to the backlog, but the dam has not yet broken. Consistent with the prior two quarters, we have seen an increase in the number of early-stage opportunities within the platform, but unfortunately, conversion rates to close deals are trending towards historic lows. Sponsors continue to execute on add-ons for companies already within their portfolios, which makes sense as add-on multiples are below the original platform purchase price, enabling sponsors to reduce their cost bases and hedge against any compression in exit multiples. Investors in Barings BDC benefit from having a seasoned portfolio that provides opportunities to deploy capital in issuers we already know well. Refinancing activity has started to increase as performing issuers have plentiful access to capital without the need to sell. There is a logical reason to believe transaction volumes will improve in the months to come, namely a record backlog of sell-side mandates among the investment banking community and a need for private equity managers to show distributions to their LPs. Counter to those facts is a high level of uncertainty created by two armed conflicts, persistently high inflation, rapid increase in interest rates, and the forthcoming political cycle. When opportunities ultimately convert into an increase in closed transactions, we will continue to use our disciplined underwriting strategy to invest capital in the most compelling opportunities. Our current portfolio consists of 74% secured investments, with approximately 67% of investments constituting first-lien securities. Interest coverage within the portfolio stood at 2.2 times, a modest decline from 2.3 times a quarter earlier. We forecast that a steady-state weighted average interest coverage for the portfolio will ultimately fall between 2 and 2.25 times, as the full impact of higher rates is reflected in issuers’ financials and performance. Our avoidance of various industries prone to economic volatility, such as oil and gas, restaurants, retail, and metals, has proven to be a sound strategy against a backdrop of less economic predictability. One of the benefits to a predominantly sponsor-backed strategy has proven out over the past several quarters. Combined with what we believe were reasonable-going-in leverage multiples, the median gross margin in the North American Global Private Finance portfolio, a portfolio similar to BBDC, stood at 49%, up from 45% one year earlier, giving us confidence that our issuers are successfully pushing through price increases to combat inflationary pressures in their businesses. Adjusted EBITDA margins for the same sample set were 22%, up from 21% in the prior year’s period, believed to be a reflection of the fact that wage gains have consumed some degree of gross margin expansion previously noted. While not perfectly comparable metric period-to-period, as the volume of transaction activity in the past five quarters will skew these metrics somewhat, we believe we have reason to feel comfortable with the performance of the portfolio. The portfolio composition remains highly diversified, with the top 10 issuers accounting for 20.1% of fair market value. Recall that the two top positions within the portfolio, Eclipse Business Capital and Rocade Holdings, are our platform investments originating middle-market loans. These positions have a number of underlying issuers. Assets included in the other classification include structured positions and certain acquired positions that will not be originated on a new basis going forward. As Eric highlighted, we anticipate rotating these positions as market conditions allow in the quarters to come. Risk ratings exhibited minimal movement during the quarter as issuers exhibiting the most stress classified as risk ratings 4 and 5 were 7% on a combined basis quarter-over-quarter. We anticipate this figure to decline when rolling into the first quarter in light of public developments with one of our issuers, Core Scientific, as Eric mentioned. Encouragingly, we also experienced positive movement at certain issuers performing consistent with expectations at underwriting and have outperformed during the fourth quarter. We remain confident in the credit quality of the underlying portfolio. The uncorrelated nature and associated value of investments in Eclipse and Rocade should bolster the portfolio in the event the economy enters into a long-expected recession. BBDC is committed to delivering an attractive risk-adjusted return to shareholders over a long time horizon. We are investors of credit and middle-market companies. Our global reach and significant scale across asset classes gives BBDC a unique ability to select risk and return compared to other managers, but our core middle-market credit is what we do. I’ll now turn the call over to Elizabeth.

Elizabeth Murray, CFO

Thanks, Ian. On Slide 15, you can see the full bridge of the NAV per share movement in the fourth quarter. NAV per share was $11.28 as of December 31st, which is an increase of 0.3% over the prior quarter and more than a 2% increase versus December 31st, 2022. Our net investment income exceeded the $0.26 per share dividend by 19%, and share repurchases added another $0.01 per share. This was partially offset by net unrealized depreciation and realized gains of $0.03 per share. The valuation of the credit support agreements increased by approximately $3.6 million, driven by unrealized depreciation in the underlying Sierra portfolio and a reduction in the applicable discount rates during the quarter. Our net investment income was $0.31 per share for the quarter or $0.33 per share on a pre-tax basis, compared to $0.31 per share in the prior quarter. This was driven by continued benefits from higher base rates and dividend income from our platform investments and joint ventures. Our net leverage ratio, which is defined as regulatory leverage net of cash and net unsettled transactions, was 1.15 times at quarter-end, down modestly from 1.18 times in the quarter ended September 30th, and currently sits within our long-term target of 0.9 to 1.25 times. Our funding mix remains highly defensible, both in terms of seniority and asset class, including the significant level of support provided by unsecured debt in our capital structure. At December 31st, our unsecured debt accounted for $725 million of our fundings and equated to 50% of our outstanding balances. During the first quarter of 2024, Barings BDC issued a new $300 million senior unsecured note to enhance the flexibility of our capital structure. The net issuance was significantly oversubscribed, and we are pleased to position BBDC with significant operating flexibility in the quarters to come. Pro forma for the note issuance, BBDC now has more than $1 billion of unsecured debt liabilities accounting for more than 70% of our debt outstanding. We continue to maintain significant flexibility in our capital structure, with the next bond maturity in the second half of 2025, and pro forma for the $300 million notes issued, we have expanded our ladder of maturities out to 2029. Barings BDC currently has $241 million of unfunded commitments to our portfolio companies, as well as $65 million of outstanding commitments to our joint ventures. We have an available cushion against our leverage limit to meet the entirety of these commitments, if called upon. Eric noted earlier that we have actively been utilizing our share repurchase plan during 2023. The fourth quarter was no exception, as we repurchased nearly 450,000 shares during the period and over 1.8 million shares in total for 2023. In addition, the Board authorized a new $30 million share repurchase plan for 2024. Our focus on share repurchases is one example of BBDC’s thoughtful approach to aligning our interest to shareholders. As mentioned earlier, the Board declared a first-quarter dividend of $0.26 per share, a 9.2% distribution on net asset value. We consistently evaluate our dividend policy in the same manner we manage our broader business, driven by stability. Since Barings became the adviser in 2018, we have a track record of increasing or maintaining a stable dividend. We believe we can maintain a stable dividend even in a normalized rate environment, and we expect that our platform investments, Eclipse and Rocade, as well as our Jocassee joint venture, will continue to generate significant dividend income. These investments help highlight the importance of less correlated assets and the benefit of a diverse portfolio. I’ll wrap up our prepared remarks with a note on our investment pipelines. Thus far, in Q1, we have made $42 million of new commitments, of which $35 million have closed and funded. With that, operator, we’ll open the line for questions.

Operator, Operator

Thank you. The floor is now open for questions. The first question is coming from Finian O’Shea of Wells Fargo Securities. Please go ahead.

Finian O’Shea, Analyst

Hey, everyone, good morning. A question for Ian. I appreciated your color on transaction volumes being slow to transpire. Question is, if that continues to stall, do you think we’re looking at sort of a triage from private equity? And if so, if you then have to take keys for companies, can you talk about how well you are positioned for that? Maybe how many sets of keys you could practically take on at the platform? Thank you.

Ian Fowler, Co-Head of Global Private Finance & President

Good morning, Fin. Yeah, so like I said, we had hoped that things were going to pick up as investment bankers are pretty good about talking their book. And that really hasn’t happened thus far this year. Now, what I will say is, there’s a lot of pressure for this market to open up. So, unless there’s some kind of black swan event, I would be really surprised if we have a low anemic year again of M&A activity. I mean, we’re looking at base rates having plateaued. The Fed has telegraphed that they’re likely coming down. That’s obviously a positive considering the valuation gaps that exist in the market between buyers and sellers. We have the election, so we need to get through that political uncertainty. I think most importantly, though, and you raised private equity and obviously, we’re focused on private equity. I think one of the biggest triggers is the pressure on private equity and the fact that a lot of LPs now are tying LP commitments to realizations. To be frank, I think, based on what we’ve seen—the data we’ve seen—the valuation gap isn’t huge, but it’s not what private equity firms were expecting. Ultimately, they’re going to be forced to realize some companies, maybe lose a turn or two on the exit multiple, but still generate historically decent returns. I think volume is going to pick up in ‘24 as we get later in the year and ‘25. If rates come down materially, it could be a watershed environment. Of course, if that doesn’t happen, we’re still in this period. For those platforms that have mature portfolios, there’s still that incentive to do add-on acquisitions and create value, allowing us to put more money to work. 70% of our origination last year came from our portfolio. It also means low runoff, which creates AUM stability. That’s positive. If this really stretches out, I think this is where you’re going with your question, then we’re going to have to figure out how to deal with some of these companies if they’re not performing. We’re, of course, prepared. It’s something we don’t want to do, to take the keys. I can tell you that it’s not in the BBDC, but we had one company during COVID that we had to take the keys in North America, and the company is up for sale. We’ve got experience doing that. We also have a very large team, over 100 people globally. So I think we’re pretty well prepared if we have to go down that road, but that’s something you don’t really want to go to unless you have to.

Eric Lloyd, CEO

And I’ll just build on that. The $100 million that Ian referenced—that’s just on the investment side in the direct lending area. In addition to that, we have a deep legal team internally that has strong experience working through situations like this. We have a special situation now called the Capital Solutions team, which has a lot of experience working through issues like this. So at a firm level, we bring all resources and expertise to bear to ensure we have the best outcome for our investors in those challenging situations.

Finian O’Shea, Analyst

Very helpful. Thank you. This is a follow-up on the recent bond issuance this quarter, January or February. Understanding the benefit of unsecured, it’s also a more expensive market. It looks like you already had adequate unsecured debt for your ratings and so forth. So, can you provide color on the thinking there, the timing, and why more unsecured?

Elizabeth Murray, CFO

Yes. Thanks, Fin. When we originally went to market in 2021, we had messaged at that point that we would be a serial issuer. The markets have been closed for the past couple of years, and they recently opened up with several other BDCs in the market. Looking at our maturity ladder and mix between secured and unsecured, we felt like it was an appropriate time, and this again extends our maturity ladder. As soon as the $300 million came in, we used that to repay some of our credit facility. I think long-term, this really sets us up for success. I’ll also say, Fin, that we did swap the interest rate on this, so we have a swap in place.

Operator, Operator

Thank you. The next question is coming from Kyle Joseph of Jefferies. Please go ahead.

Kyle Joseph, Analyst

Thanks, guys. Good morning. Thanks for taking my questions. First one for Ian. I just want to get your take on how the competitive environment has evolved over the last few years with slower deal flow, as you mentioned, but also recognizing BDCs at least publicly have been resilient to higher rates and inflation. But give us a sense for what spreads have been doing, and what if the deal environment were to come to fruition; expectations for spreads in that environment?

Ian Fowler, Co-Head of Global Private Finance & President

Yeah. Great question, Kyle. Good morning. As I said, obviously, the economy is slow, and M&A activity is down in our space in the last few years. More platforms have been created. A lot of capital has been raised but not deployed, just given the conditions in the M&A market. There’s a lot of pressure coming from investors for managers to deploy capital. Again, I think if you’ve got a portfolio, you’re in a sweet spot because at least you’re putting capital to work in companies you know well and helping those companies become bigger, better, stronger, more diversified credits. So, that’s sort of a safer bet. If you’ve got to play the new M&A market, which is now low in volume, the quality of deals has been inconsistent. That’s a tough place to be to have that pressure to put money to work. I think there’s so much capital being raised because we’re in this unique situation where for this asset class, it’s the first time historically in years where you’ve had both an increase in base rates and spreads. As we’ve talked about in the past, you’re generating all-in yields in the low double digits. I will say that just given the competitive nature and the number of platforms, it is getting competitive, especially for good quality deals. You can’t compete on leverage due to current rates. We’re seeing deals being moderately levered around 4.5 times senior. Documents are still in our favor as lenders, but regarding spreads, we are seeing some compression in the last quarter of last year. I’d say spreads compressed about 50 to 75 basis points; upfront is about 50 basis points, but all in all, you’re generating upper single-digit yields. I think as the market opens up and more attractive opportunities come, that competitive nature will continue. Historically, this asset class generates senior debt returns of 6% to 8%. We’re over that right now. I think you have to expect that as the market normalizes, there will be some reversion of all-in yields back to historical returns.

Kyle Joseph, Analyst

Got it. Helpful. And then one follow-up just on repayments. They were elevated in the fourth quarter, but it sounds like some of that was self-induced, as you guys are rotating out of Sierra and MVC. But if we pick up in deal flow, would you expect a corresponding increase in repayments as well? Or how does the higher rate environment influence that?

Matt Freund, Co-Portfolio Manager

Yeah, Kyle, this is Matt. I would certainly agree with the sentiment that if we see an increase in deployment opportunity, that’s going to correlate with increased exit opportunities on the other side. I think if we look at the portfolio, the average hold horizon has stretched to about four years. While we feel good about the credit quality in the portfolio, eventually we’re going to see some turnover. So it’s not something that concerns us, but I think it will start to return to historical levels.

Kyle Joseph, Analyst

Yeah, yep. Thanks, guys. Appreciate it.

Matt Freund, Co-Portfolio Manager

Of course.

Operator, Operator

Thank you. The next question is coming from Robert Dodd of Raymond James. Please go ahead.

Robert Dodd, Analyst

Hi guys. On Core Scientific. You mentioned, by my math, you probably got a little over 6 million shares now on that after the exchange. I mean, is it the same price of stock that’s publicly traded? And what’s the intent there? I mean, are you intending to hold that? Are you locked up or looking to liquidate the shares you’ve got from that position and maybe rotate them into something income-producing?

Bryan High, Co-Portfolio Manager

Yeah. Hey, Robert, this is Bryan. In terms of the stock itself, it is the same stock you would see on the public markets. Our intent is to maximize recoveries, but also I think we’ve been clear that this is not part of our ongoing strategy. So marrying those two things together over the coming quarters is sort of on us to make decisions around what to do with that. Obviously, having a public stock gives us some liquidity, and that was the intent in making that election within the bankruptcy proceeding.

Robert Dodd, Analyst

Got it. Thank you. And because it ties in, your 15% equity, some of that obviously is income-producing, etc. But obviously, this, as of today, pro forma for this equity, is going to be 16% plus. I think if my math is right. Can you give us a recap of what’s a reasonable timeline to get at least the non-income producing piece of equity down into maybe the mid-single digits?

Bryan High, Co-Portfolio Manager

It’s a great question. As we’ve described in past quarters, our investment philosophy includes various buckets around strategy. As it sits as of 12/31, we have about 8% of the portfolio in the 'other' category, with some noteworthy items including two large European equity positions. The position in Core Scientific that was previously a debt security is now an equity position, in addition to several non-core, non-future style strategies. As we think about that 8%, our hope is that we could cut that number to something closer to 4% to 5% by the end of the year, with the largest moves coming from the two large European equity positions and Core Scientific public equity, which we plan to monetize at levels we find to be reasonable returns. I would guide you to that benchmark as we look forward to the next several quarters.

Eric Lloyd, CEO

And as a reminder, those two large European equity positions that don’t have yield were acquired. Those aren’t investments that we made an underwritten investment on, unlike Rocade or Eclipse, which have attractive yields.

Robert Dodd, Analyst

Got it. Got it. Yeah. One more, if I can. It relates to Rocade. I mean, you made a $15 million incremental investment. I’m sure this platform made more, but in that business, was that opportunistic, or is that a temporary increase? Should we expect it to continue to grow at that pace? I mean, it grew about $30 million during 2023. Is that the kind of growth that platform could add, and it’s income-producing with a good return as well? So not criticizing, just trying to scale the growth opportunity there.

Elizabeth Murray, CFO

Yeah, Robert, good question. On Rocade, when we initially made the investment, the platform as a whole had a $250 million preferred equity target. They’re able to draw on that, and so the $15 million you’re referencing was just a preferred draw. We have about $17 million left on that draw. We don’t anticipate much to be drawn in 2024. It was a ramp-up in 2023 to get a credit facility in place, but once that unfunded amount has been drawn, we do not plan to make any additional commitments at the BDC level.

Operator, Operator

Thank you. The next question is coming from Casey Alexander of Compass Point. Please go ahead.

Casey Alexander, Analyst

Hi. Good morning, and thank you for taking my questions. First off, there’s been some off-hand criticism of the BDC surrounding the degree of complexity that the BDC has. A good instance here in this quarter, is the puts and takes from forward currency contracts that cost about $9.5 million or about a $0.09 per share swing that had not happened at all. If this had not happened, this would have been a fabulous quarter. So I think investors would benefit if you could explain why these puts or takes are there, what the foreign currency contracts are covering, are they doing what they’re expected to do relative to the investments that they’re covering? And what should we expect from that in the future? Because that’s a pretty big swing to earnings that could have made this a good quarter a really fabulous quarter.

Matt Freund, Co-Portfolio Manager

Thank you for the question, Casey. I certainly agree that there are layers to our strategy and structure, based on a historical makeup that had clouded some of the picture. We’re working to simplify it and will continue. Specific to your question, let me briefly describe why these are in place and give you some perspective on how to interpret them this quarter and where we expect them to go in the future. We have a global focus at Barings, and historically, we’ve used a fair percentage of European assets when the public vehicle was acquired in 2018 and ramped up. As we think about the non-USD-denominated portions of our portfolio, we don’t take FX risk on those par and principal positions, so we maintain rolling FX hedges that insulate the portfolio performance from FX movement. Admittedly, as you noted, this can create volatility if FX movements occur and then the FX hedges are rolled. That did happen this quarter, and coincidentally, it happened last quarter too. If you look at the movement between the USD and EUR FX rate from October 1st to December 31st, you’ll see that the euro strengthened significantly. As part of that, when those contracts were rolled, a meaningful FX gain was recognized with respect to that position. For our go-forward strategy, I’m confident in saying that foreign transactions will become a lower percentage of the portfolio, and we will actively work to mitigate the severity of movements we see on the FX line, as we agree it creates more cloud than the intended neutral impact to the underlying shareholder.

Casey Alexander, Analyst

All right. Thank you. Lastly, in the originations and repayment schedule, there was a significant amount of repayments that were actual sales, not to the JV, but outside the platform. I’m looking at the net debt to equity ratio you’re reporting on the last page of your release of 1.15 times. Should we think of that as the sweet spot of where you’d like to stay? Or do you think that you’ve calmed things down in the portfolio a little bit as you get rid of some of the non-income producing equity, and you can take that number up a little bit and generate a higher ROA? How are you thinking about managing to that level?

Matt Freund, Co-Portfolio Manager

I’ll start, then let Elizabeth add to the leverage targets generally. Our stated target is 0.9 to 1.25 times, and we intend to operate within that range. This quarter, we wanted to demonstrate flexibility, so we focused on the senior unsecured issuance, which gives flexibility to our capital structure. We appreciate that historically, we’ve run a little higher in terms of our leverage ratio than we ideally wanted. There was momentum around freeing up some capacity for investment opportunities moving into 2024. We have no change to our guidance of 0.9 to 1.25 times, but to your point, there is capacity to increase that leverage ratio if we see investment opportunities.

Elizabeth Murray, CFO

What I would add, Casey, is that we’re trending between 1.1 and 1.2 times and I think you’ll continue to see that trend. But we also want the flexibility to seize investment opportunities. We balance that with share repurchases and don’t want to be in a position where leverage is so high that we aren’t able to repurchase shares.

Casey Alexander, Analyst

Well, fair enough. Thank you for that, Elizabeth, because I do think that where the stock closed last night at 0.81 times, shareholders would like you to continue with share repurchases. My last question, and you may want to pass on this, but I’m going to throw it out there anyway. The core position, equipment leasing position was actually significantly larger than just what you held on balance sheet at Barings. It was probably close to double that size. So I’m just wondering, are you guys managing the equity position in coordination with the rest of the platform? Or are you managing your position independent of that held at the rest of the Barings’ platform? And that will be my last question. Thank you.

Bryan High, Co-Portfolio Manager

Yeah, Casey, I appreciate the question. It’s Bryan again. I don’t think we’re going to comment on the broader Barings platform strategy, so I’ll pass on that question.

Casey Alexander, Analyst

I’m not surprised, but it was worth a shot. It cost me nothing to ask the question.

Bryan High, Co-Portfolio Manager

No worries.

Operator, Operator

Thank you. At this time, I’d like to turn the floor back over to Mr. Lloyd for closing comments.

Eric Lloyd, CEO

I just want to thank everybody for dialing in and your interest in us, and we look forward to following up with you and putting together another great quarter for you. Thanks very much.

Operator, Operator

Ladies and gentlemen, thank you for your participation. This concludes today’s event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.