Blackstone Secured Lending Fund Q4 FY2021 Earnings Call

Welcome everyone to the Blackstone Secured Lending Fourth Quarter and Year-end 2021 Investor Call. My name is Tommy and I’m your Event Manager. I would like to advise all parties the conference is being recorded for replay purposes. And now I would like to hand it over to Weston Tucker, Head of Shareholder Relations. Please go ahead, sir.

Great. Thanks, Thomas, and good morning and welcome to Blackstone Secured Lending's fourth quarter call. I’m sitting in today for Mike Needham, BXSL's Head of Investor Relations, who is on paternity leave with his first child. Big congrats to Mike and his wife, Becky. Joining me on today's call are Brad Marshall, Chief Executive Officer; and Steve Kuppenheimer, Chief Financial Officer. Earlier today, we issued a press release with a presentation of our results and filed our 10-K, all of which are available on our website. I'd like to remind you that today's call may include forward-looking statements which are uncertain and outside of the firm's control and may differ from actual results materially. We do not undertake any duty to update these statements. For discussion of some of the risks that could affect results, please see the risk factors section of our latest 10-K. Certain information discussed on this call and the accompanying presentation, including information related to portfolio companies was derived from third-party sources and has not been independently verified. Accordingly, BXSL makes no representation or warranty with respect to this information. It's audio copyright material from Blackstone and may not be duplicated without our consent. So on to results. We reported GAAP net income of $0.73 per share for the fourth quarter. Net investment income was $0.67 per share. With that, I'll turn the call over to Brad.

Thank you, Weston, and good morning and thanks everyone for joining the call today. As Weston mentioned, BXSL reported a strong fourth quarter and full year results, highlighted by growth in net asset value, strong credit performance and a well-covered dividend. For the full year, the company delivered a total return of 12.6% based on NAV, including $2.03 per share on dividends. Looking ahead, we expect dividends to remain strong. Our regular fourth quarter dividend yield is annualized at 8% on quarter end NAV and we've declared a series of special dividends for 2022 that adds 2.5% to our regular dividend yield. We enter 2022 on solid footing, with a portfolio that is very well-positioned. We believe that BXSL has one of the most secured portfolios among public BDCs with approximately 98% invested in first lien, senior secured loans and 99.9% of debt is floating rate. BXSL is also the only BDC among the large public peers with over $750 million of assets that has no loans on non-accrual based on the latest available information. In fact, across Blackstone's entire direct lending portfolio of over $60 billion, there were no loans on non-accrual at year-end, nor were there any loans marked below 90. We've accompanied that by following a simple formula: have some of the lowest fees and expenses in the industry, build a high-quality portfolio, stay disciplined in an environment where others are tempted to chase risk and return and leverage the power and scale of the Blackstone expansive platform. Today I'd like to cover a few key themes before turning it over to Steve to review our financial results. First, I'll discuss BXSL's competitive advantages and superior risk-return profile. Second, I'll provide an update on our portfolio in the current market. Third, we will outline potential benefits from a rising rate environment; and lastly, we'll cover deployment opportunities. So firstly, we're seeing our competitive advantages play out. BXSL was designed to pass-through more cash flow to investors from the loans that we originate. We have some of the lowest management fees of all public BDCs before and after our fee waiver. We also have some of the lowest G&A expenses as a percentage of NAV among public BDCs with more than $750 million of assets; and some of the lowest cost liabilities despite having 58% in unsecured fixed rate debt based on drawn amounts. Taken together, this creates a structural advantage that we believe enables us to stay invested in the highest quality part of the market and produce attractive and defensive returns for our investors. As of year-end, 98% of BXSL's portfolio comprise of first lien, senior secured loans and the other 2% is predominantly in equity, provided alongside our first lien, senior secured loans. We intend to maintain that focus going forward. BXSL benefits meaningfully from Blackstone scale and expertise. Blackstone is the number one BDC manager by AUM. That buying power enables BXSL to move up market and lend to large companies that often have better risk profiles, which we believe further de-risks the portfolio. Furthermore, Blackstone's credit platform has over 400 employees, regional offices around the country, deep sector teams, over 2,000 corporate investments, and it's supported by the overall Blackstone ecosystem. The senior team in Blackstone Credit has worked together for over 16 years, which provides extensive market relationships and incumbency. For the borrowers, we differentiate ourselves by offering a better product. They benefit from our scale, speed, certainty of execution, and access to a suite of value-added services from Blackstone. Those services range from procurement to operational support and cross-selling opportunities. We call it the Blackstone Advantage and believe it's a unique program in the industry, with over 100 Blackstone professionals available to help our portfolio companies. In one example, Blackstone helped a portfolio company generate over $2 million of revenue by expanding their client base in a time of strategic change. Blackstone also identified over $4 million of cost savings for that same company through our procurement services, and they took advantage of other Blackstone corporate services, including cybersecurity evaluation, and health care consulting. The Blackstone Advantage Program has a dedicated team within Blackstone Credit, whose sole mission is to help drive value creation for our sponsors and our companies. That partnership builds upon itself, increasing the likelihood of us winning future investment opportunities. As we mentioned earlier today, BXSL's portfolio is in great shape. As of quarter end, all loans are performing, covenant released, and company fundamentals are broadly healthy. Across the private portfolio, revenue and EBITDA grew nicely in 2021, and margins expanded. Net asset value per share increased 0.5% in the fourth quarter, and 4.2% in 2021 to $26.27 net of $2.03 per share of dividend payments. We are focused on investing in good neighborhoods and avoiding secularly disrupted businesses. Most of the portfolio is comprised of non-cyclical sectors, and for loans originated pre-COVID, borrowers' aggregate revenue and EBITDA are generally above their 2019 levels. Our privately originated loans have an average loan-to-value of 44%, the significant equity or subordinated debt below us. We're investing in many companies that have leading positions in their industries. That's evidenced by a weighted average EBITDA of $116 million across the private loan portfolio. Larger companies tend to have stronger competitive positions, including more pricing power in an inflationary environment, now more diversified, which we believe helps eliminate single points of risk. Looking ahead, we feel very good about the quality and resiliency of the portfolio. Interest rates have begun to rise due to higher inflation and the likelihood of Fed hikes. If that trend continues, our investment income should benefit. 10-year treasuries are now yielding just below 2%, up from 1.5% at the year-end 2021. The short end of the curve has also risen with 3-month LIBOR currently at 52 basis points. We believe that private floating rate debt is one of the best assets to invest in against a backdrop of rising rates. BXSL's debt portfolio on a fair value basis is 99.9% floating rate, while 58% of its liabilities are fixed rate based on drawn amounts, creating attractive upside potential. BXSL is currently benefiting from interest rate floors on most of its assets. The 3-month LIBOR would have to rise above these floors, which average about 80 basis points for us to start seeing a benefit to investment income. Beyond that point, we estimate that a 100 basis point increase in LIBOR would result in incremental earnings of $0.08 per share, $0.52 per share from a 200 basis point increase, and $0.96 per share on a 300 basis point increase. Our weighted average cost of debt in the fourth quarter was 2.9%, which we believe is one of the lowest in our industry. Our scale, reputation, and quality of our portfolio gives us a major advantage in the financing markets. Low-cost debt directly contributes to higher investment returns for our investors by creating a wider asset liability spread. We executed on attractive deployment opportunities in the fourth quarter and our portfolio is fully invested. BXSL invested $2.4 billion across 41 portfolio companies in the fourth quarter and $6.8 billion for the full year. That brought the portfolio to $9.9 billion at year-end, which was well diversified across issuers with a total of 148 loans, and an average position size of less than 1%. No single loan accounts for more than 5% of the portfolio. The large scale segment of the private debt market is growing, as financial sponsors are increasingly working with private lenders versus going to the syndicated markets. We think that trend is here to stay, which could bode well for BXSL as we optimize the portfolio when we have available capital to invest. Blackstone is winning in this area, leading the majority of the largest unit tranche loans in 2021 and so far in 2022. We see a healthy backlog of large transactions today, and believe Blackstone will remain in that pole position. While we believe the risk profile is generally better at the larger end of the market, we will continue to evaluate small, medium, and large transactions for BXSL; the funnel has widened. The outlook for BXSL is exceptionally bright. We've proven our model by financing strong companies, which builds upon itself as we bolster our reputation as a differentiated lender. We think BXSL represents the best version of a public business development company with a stable high-quality portfolio, and competitive advantages that make us the lead lender of choice for companies looking to finance their growth. And it's backed by a leading alternative investment platform, which offers additional support around sourcing diligence and financing. We've married that expertise with low management fees, low operating costs, and attractive financing rates to create a powerful economic engine that we think will drive results for our investors going forward. With that, I'll turn it over to Steve.

Thank you, Brad, and thank you all for your time today. It's a pleasure to be speaking with you on our first earnings call following the IPO of the company shares in October of last year. The fourth quarter of 2021 was remarkable for BXSL and saw continued strong performance, record investment activity and a successful listing of our shares. Brad mentioned performance earlier, but I want to reiterate a few of the highlights as we go through financial results. The company produced very strong results for both the quarter and the full year. We ended the year with a dividend yield on ending NAV of 8.1% after raising our regular quarterly dividend from $0.50 to $0.53 per share. Total return on NAV was 2.5% and 12.6% for the quarter and year, respectively, bringing our inception to date annualized return to 10.1%. The company ended the fourth quarter with total portfolio investments of $9.9 billion, up 20% from the previous quarter, outstanding debt of $5.5 billion and total net assets of $4.4 billion. Net asset value per share increased to $26.27 from $26.15 in the prior quarter. This increase was primarily driven by the growth in our net investment income, which exceeded our dividend by $20.8 million, as well as $11.4 million of net realized and unrealized gains. Our net investment income was $0.67 per share, up from $0.63 in the prior quarter, which exceeded our declared dividend of $0.53, resulting in quarterly dividend coverage of 126%. The primary driver of our increase in net investment income was $19.9 million of accelerated accretion of OID and prepayment income related to $441 million of prepayments in the fourth quarter, in addition to higher average leverage over the quarter. We expect ongoing prepayment-related activity in the near-term as our portfolio continues to mature. Turning to investment activity during the quarter. The company made $2.4 billion of funded investments, offset by $347 million of sales and $441 million of repayments. This $1.6 billion of asset growth at fair value is the most in our operating history, and reflects a robust credit market as well as the continued expansion of Blackstone's origination capabilities as a firm. We also continue to increase the diversity of the issuers in the portfolio during the quarter, with our total number of portfolio companies growing from 117 to 148, representing an average issuer concentration of less than 1% with no single issuer representing more than 5% of the portfolio. We ended the quarter invested across 35 separate industries with our largest exposures in health care, software, and professional services, each of these are industries where we continue to see strong tailwinds, economic growth and well-positioned companies backed by strong sponsors to lend to. As Brad mentioned, the credit performance of our portfolio continues to be outstanding with no assets on non-accrual, 98% first lien assets and 99.9% of our debt investments as floating rate. Moving to our capitalization and liquidity, our balance sheet is comprised of efficient, diversified sources of capital, including a significant amount of fixed-rate unsecured debt. As of quarter end, 58% of our debt outstanding was in the form of unsecured bonds, which provides the company with significant flexibility. Of our $6.3 billion of committed debt, $5.5 billion was drawn at quarter end, representing an ending an average debt to equity ratio of 1.25x and 1.22x, respectively, which is consistent with our near-term goal to operate with leverage at the high end of the range of 1x to 1.25x. This active balance sheet management allowed us to continue to keep our cost of leverage down with an average cost of debt over the quarter of 2.9%. Additionally, we have low levels of debt maturities over the next few years with our nearest maturity in 2023, and the weighted average maturity of our debt at 4.2 years as of quarter end. We ended the year with over $700 million of undrawn debt capacity. Turning to the IPO of the company shares. On October 28, BXSL successfully listed its shares on the New York Stock Exchange at a price of $26.15, which was equal to NAV. The related IPO was one of the largest in the BDC industry and resulted in $262 million of new capital raised. In connection with the IPO, the company announced several programs and economic changes, which we believe are accretive to shareholder value. These include: first, a 2-year waiver period during which our management fees and incentive fees will remain at 75 bps and 15%, respectively. Second, $0.65 per share of special dividends paid in four installments in connection with each unlock of company shares. In terms of the $0.65, $0.10 had a record date of January 18, $0.15 will have a record date of March 16, $0.20 on May 16 and the remaining $0.20 on July 18. Third, we announced a share repurchase program equal in size to the IPO. This is a $262 million 10b5‐1 share repurchase program, which went into effect shortly after IPO and is triggered if BXSL's shares were to trade below net asset value. Given our shares' trading levels post IPO have been above NAV and our IPO price, there have been no repurchases under the program to date. And fourth, and finally, we added an incentive fee look back. This is a 3-year total return look back feature on our income-based incentive fee, which may reduce the income-based incentive fee if our portfolio experiences aggregate write-downs, or net capital losses during the applicable trailing 12 quarters. Overall, the fourth quarter of 2021 was a momentous period for BXSL, which saw record deployment, continued strong performance and a successful listing of the company shares. BXSL continues to take advantage of strong tailwinds in the U.S private credit markets to invest across a strong portfolio of assets, increase diversity, optimize leverage and bring liquidity to our investors. And with that, I'll ask the operator to open the call to questions.

Absolutely. And we already have a couple of questions queuing up. And our first question is coming from Finian O'Shea from WFS. Please go ahead. Your line in the call.

Hi, everyone. Good morning. Thank you. Brad, first question on some of your opening remarks for the Blackstone Advantage Program. I think you mentioned there's a new credit-oriented arm of this. Can you outline a bit of what that entails? Is it essentially similar, just targeted toward your origination vertical? Or is it providing a different sort of service to compete for deal flow?

Yes, Thanks, Fin. Why don't I give a quick summary of the program, probably not everyone is familiar with it? Blackstone, as a large private equity firm has an operating team of over kind of 200 operating professionals, their job is to help make our companies better, more profitable. And within Blackstone Credit, we have the same access to those resources. So, when we finance a company, one of the first things we do is we reach out to the sponsor, we reach out to the company themselves, and figure out how we can help them either buy things cheaper, help them cross-sell products across our platform, or use our data science team, our cybersecurity team to ultimately make them a better company. Within Blackstone Credit, we have a team of about 5 people, all they do every day is call our portfolio companies and ask that question, "How can we help you?" So, to use an example, we funded a $1 billion loan to Data Sites last year, a little over a year ago, and what we have is a weekly call with that company to figure out how we can save them money or cross-sell their products across the broader Blackstone ecosystem. We've made 66 introductions across our platform, we've driven revenue growth as a result of that, and we've driven about $0.5 million in cost savings for them. The net value of that for the company is somewhere between $20 million and $30 million of enterprise value that we've helped create for that company because this team embedded within Blackstone Credit is finding ways to use the broader Blackstone ecosystem to drive value. So that team has grown. To answer your question, Fin, it's dedicated to Blackstone Credit portfolio companies, and helps us win transactions, helps us create more partnerships with our portfolio companies and private equity sponsors, and continues to differentiate our platform.

Awesome. Thank you. And just as my follow-up for you, or perhaps Steve. Also, in your opening remarks, we found the item of lower G&A. Interesting if you could help us shine some light on that. Are there any major items that you aren't charging to the BDC that your peers may be?

Hey, Fin. It's Steve Kuppenheimer. Thanks for calling in today and for the question. I would say we're probably simply charging less overhead to the BDC. I don't know exactly all the line items that our peers charge for having looked at. Historically, there are some items that some managers historically have charged such as rent, or other kind of related items that can overstate direct overhead. So, in terms of the services, kind of third-party services or costs, I don't know that we're materially different, but in terms of our own costs and what gets billed as a BDC, I think that's probably where we outperform.

Yes, and then just add to that, we do have the lowest G&A expense across all BDCs. We are leveraging the scale Blackstone. We do take a best-in-class mentality when we approach as we've talked about before with you and others, in terms of kind of how we want to deliver returns to investors. So, whether it's lowering our G&A, not scraping fees, for the benefit of the manager, having the lowest kind of management fees, all those things are towards the same goal of lowering our expenses, so we can de-risk the portfolio and drive better returns over time.

Very well, that's helpful. Thanks, everybody.

Our next question is coming from Kenneth Lee from RBC Capital Markets. Please go ahead.

Hi, good morning. Thanks for taking my question. Just in terms of originations, wondering if you could just further elaborate on comments on opportunities across the spectrum of company sizes, or more specifically, how you think about the risk return for smaller corporate borrowers versus some of the larger ones. Thanks.

Our primary focus is on risk when we evaluate any opportunity. This is reflected in how we structure our portfolio, which is primarily senior-focused with an average loan-to-value of 44%. We believe larger companies generally present lower risk compared to smaller ones for several reasons. Larger companies usually offer better products or services, which contributes to their scale. They tend to attract stronger management teams, have larger and often superior sponsors, and are more diversified. There is no single point of failure in these businesses, and they often possess more equity and subordination. Additionally, in the smaller segment of the market, there's greater competition; many credit managers can handle a $300 million loan, but there are only a handful that can manage a $1 billion loan without syndicating it. For loans above $2 billion, there are usually only 1 or 2 entities capable of doing so. Therefore, we view the larger segment of the market as less competitive and the businesses as stronger, leading us to believe that this is where risk is more favorably positioned.

Great. That's very helpful. And one follow-up, if I may. I wonder if you could just share with us your outlook for prepayments. You mentioned that as the portfolio matures, there could be an elevated level, just wondering if we can get your thoughts on that, especially given the current environment. Thanks.

Yes, listen, repayments are one of the return drivers for the fund. It also gives us more investment capacity to invest in the current environment, just given that BXSL is fully invested right now. Usually in a spread tightening environment, you will see repayment activity pick up. So, I would expect that, that over the course of the year, given the vintage of the portfolio, given that we may see spread tightening as base rates continue to increase, you would expect to see some pickup in turnover or repayment of the portfolio. We saw that a little bit going into the end of the year last year, and we've seen it pick up a little bit at the start of this year.

Great. Thank you very much. I’m sorry.

And, Ken, just to be clear about that too, we view that as a huge positive for BXSL, because that is ultimately our kind of source of capital to invest into new deals, that helps drive additional return for investors. And so, we view it largely as positive.

Our next question is coming from Casey Alexander from Compass Point. Please go ahead.

Yes. Hi, good morning. First of all, congratulations on a successful IPO process and on your first quarter out-of-the-box. I have a couple of questions. First of all, some folks in sort of your peer set have pursued some second lien strategy for companies that have EBITDA that is 2x or 3x what they invest in, in the first lien category. Is that a sector that eventually may become attractive to you? Or is that just something that you're diametrically opposed to?

Thanks, Casey. Yes, I think every manager has their own strategy, so hard to comment on what others are doing. I think for us, again, it comes back to risk. And we're trying to deliver a low-risk return to investors. So going more junior in the capital structure would be contrary to delivering that strategy. And I think in this environment, where the outlook is generally cautious, just with more global unrest, with inflationary pressures and market volatility, we think it's more prudent to be further out the capital structure and going further down the capital structure to try and reach for a little bit more yield. Our fees are so much lower than everyone else. We can hold the line at staying senior versus having to go junior.

Okay, great. Secondly, it might have been, especially given the size of the share repurchase program that you laid out, some expectation that you were going to use some of it, at least to this point in time, you haven't had to use any of it. And with such a senior first lien strategy, there's not having to utilize the share repurchase program and having such a senior strategy potentially give you more flexibility to expand the balance sheet a little beyond where the current leverage ratio is?

So, as I understand the question, is our goal to take leverage up right now?

Kind of two questions in one.

Yes, I will begin with our leverage target, and then Steve can provide more details. Currently, our leverage is about 1.25 times, which we consider a good range and target for us, with some flexibility.

I think the other part of your question may be whether we anticipate needing to use the $262 million of capital or if we can invest it instead. The share repurchase program is in place for a year, and while the stock has been performing well, we are still unlocking shares. So, as we move through the unlocks and monitor trading levels, we can have a more concrete perspective on this. However, currently, we don't want to assume that we won't use the share repurchase program at all. Many BDC share repurchase programs are utilized, and we are pleased with the current trading of the stock, but we are keeping a close watch on it.

Okay, great. Thank you for that answer. Last question and this is more just sort of a maintenance thing. Not notable, but a small pickup and picking come in the quarter. Is there anything we should have our eyes on in relation to that?

Nope. We made I think, one in particular investment during the fourth quarter that caused that to tick up a little bit. But as you point out, it is very low as a percentage of our overall income. It's about 2%. So, somewhat immaterial. I don't see that to change much from there.

Okay, thank you. I appreciate your taking my questions. And again, congratulations on the successful listing.

Thank you.

Our next question is coming from Robert Dodd from Raymond James. Please go ahead.

Hi, everyone. Congratulations on the quarter and the IPO. I have a couple of related questions. First, regarding LTV, it dropped from 46 to 44. Can you provide some insights on how much of that is influenced by the Medallia transaction, which I believe you just mentioned has an LTV below 30? Is that the primary factor driving the decrease? Additionally, SAS-type deals typically have lower LTV as well. Should we expect a like-for-like decline in LTV, or is this change mostly due to the mix, and can we anticipate LTV to improve going forward?

So, it is 100% mix related, Robert. If you think about our focus, our orientation, it is ultimately to invest in good neighborhoods. So that what that means is very high-quality businesses with strong recurring revenue characteristics, those tend to be higher multiple businesses, tend to have more equity subordination, and therefore our loans will have lower loan-to-value. If you take stamps that we did last year, where the sponsor bought the company for $6.6 billion, and the term debt was $2.6 billion. Those are the types of businesses, those are the types of profiles that we think are better risk. They're also the profiles that we think perform much better in an inflationary environment, very different than an industrial business that may be levered 4x, but is 60% kind of loan-to-value, that to us is a lot more risk than something like a Medallia or something like a stamp.

I appreciate that. Regarding the second part, which is related to Casey's questions, Medallia was entirely pick, right? So, it was a $300 million all pick transaction, and there was another asset that converted to pick this quarter. Should we expect to see more transactions in those favorable areas? Are you open to doing more pick because you believe the credits are solid, allowing you to collect the pick at the end? If we observe that loan-to-value ratio decrease as you concentrate on those better credits, are you more willing to exchange cash for pick in a competitive environment as well?

Yes, so all pick transactions are quite rare. It's the reason why it only makes up 2% of our overall income in our portfolio. I would not expect to see a material uptick from there. Sometimes we like to give companies some operating flexibility for high-quality businesses, but that'll be a case-by-case. It's not a general strategy or target. But rather, it is more the exception rather than the rule.

Okay, appreciate it. Thank you, and congrats on the quarter again.

Thanks, Robert.

The next question is coming from Melissa Wedel from JPMorgan. Please go ahead.

Good morning. Appreciate you taking my questions today. I had a quick follow-up question. I think to what Ken was asking about earlier related to prepayment fees in the fourth quarter. Can you give us some context around how much you think that contributed either on a total revenue basis or on a per-share basis?

Sure. In the fourth quarter, it contributed $0.10.

Got it. Thank you. And then switching gears a little bit, could you give us an update on how you think about the energy space given your focus on being in the right neighborhood as you put it, but then also any opportunities that might be there, how that area might stay on to benefit from the inflationary environment? Thank you.

Yes, Melissa. Traditional energy, encompassing upstream, midstream, and downstream sectors, is not a primary focus for BXSL. However, we have established a new group within Blackstone Credit called the Sustainable Resource Group. This group is dedicated to companies in transition, specifically those investing in or offering services related to sustainable resources. It comprises a large team based in New York and Houston, concentrating on the service aspects of this transitionary market and the generation of sustainable resources, including alternative power sources. These types of businesses could be of interest to BXSL, but we are less focused on the traditional oil and gas sector, which, while currently benefiting from rising commodity prices, remains volatile. Our aim is to create a more stable income profile for our investors.

Thank you.

You're welcome.

Our next question is from Ryan Lynch from KBW. Please go ahead.

Hey, good morning. Thanks for taking my questions. First one was just surrounding some of your prepared comments. You talked about revenue and EBITDA in the portfolio grew nicely in 2021. But you also mentioned that the margin expanded throughout the year. I was just curious, there have been some pretty major trends with labor inflation as well as some material inflation kind of in the back half of 2021 and accelerating into 2022. I would just love to hear you guys comment on those good growth numbers and margin expansion that you guys saw in 2021? How do you think your portfolio is positioned to handle those pretty significant headwinds that are coming down the pike in 2022?

Yes, thanks, Ryan. So, we agree with your statement around inflation. We have been kind of talking to investors about this for over 6 months. One of the advantages of being part of Blackstone is we're invested in thousands of companies. On the private side, hundreds of companies that we control, and we are constantly in front of them, asking about not just what happened last quarter, but more so what is in their outlook, what are they seeing in their company, what are the trends. That helps us inform our investment team on where to invest capital, how to structure our debt. It's a real competitive advantage that we have in this market. So, on the matter of inflation, we think a lot of inflationary pressures are real, are going to continue to be headwinds, especially as you point out in shelter and wages. And so, we've factored that into what Robert was just mentioning around, asset mix towards the types of companies that are less impacted by those types of inflationary pressure. So, high cash flow. Software companies are an example of that where sheltering wages are lower contributor to their cost structure, certain kind of sectors in health care, logistics distribution. So, for us, those inflationary pressures have informed us on where to invest our capital. And so, we've seen just less margin compression in our overall portfolio. In fact, we've seen the opposite as revenue has grown, it's given a lot of these companies more scale, which has driven margins up. So that's kind of we agree with everything you say, and it's kind of driven and will continue to drive our portfolio construction.

Thank you for the insights on those discussions. My next question is about overall portfolio yield and your approach to managing risk. You have a strong fee structure in the BDC space, which gives you flexibility regarding asset allocation and yield generation. However, I've noticed that the portfolio yield has declined from 7.7% last year to 7.2% now, with new investments yielding around 7% in the fourth quarter. How do you balance investing in high-quality companies within favorable sectors against the decline in portfolio yield? Is there a specific yield level you aim to maintain? Additionally, considering the potential for rate hikes that could be beneficial, I've seen other BDCs engaging in yield enhancement strategies like joint ventures and specialty lending, which they perceive as low-risk. Would you consider similar one-off strategies for enhancing your overall portfolio yield?

Yes. So let me try and hit most of that, if I miss something, just come back to me, Ryan. But let's just start with your question around yield. As I said earlier, our biggest focus is risk. And when you start solving for yield, you take a little bit of eye off the ball on risk, starts to kind of drive some of your portfolio construction, maybe go junior in the capital structure and start to justify being more in second lien assets or junior debt. That is not us, Ryan. We are going to first and foremost focus on risk. If you look at kind of portfolio for us, our EBITDA has doubled, the companies that we finance loan-to-values dropped about 20%. So, we're taking on safer, bigger companies and that'll continue to be the driver for us. We have plenty of other return drivers. For the fund, like I said, repayments, lower expenses, as you point out, the fact that we can add value, the companies that we invest in to our Blackstone Advantage Program, and rising rates are clearly also a focus for us, given how much of our debt is fixed, right? There are plenty of return drivers for us, but we don't feel like we're going to have to chase yield to do that. Just to give you a little bit of an example and you said 7%, so let's just use 7%. If you overlay kind of our fee structure with the average BDC, that's let's just say pursuing a riskier 8% loan, because it's smaller, because they're junior in the capital structure, we will still deliver 100 basis points of additional return to investors. So, we've taken on a lower yielding asset, but still delivered 100 basis of additional return. And so, we think we've created better risk and better return by doing that. In terms of the JV, specialty finance companies, and other things like that, what we said during our Analyst Day, and we'll continue to iterate, we're trying to keep the BXSL story as simple and straightforward as possible. JVs are good vehicles for a lot of managers. It's basically of balance sheet leverage. We're trying to create a simple portfolio of high quality first lien assets, and largely larger businesses to create a stable, consistent, and defensive return for our investors.

Okay, great. That's a very, very helpful response. I think you hit all my points. And I definitely agree in particular with your first point of how you're managing the BDC because we've too often seen some BDCs manage the BDC, targeting a certain yield profile versus a certain risk profile. And that usually doesn't end up well for shareholders. So, I appreciate the time today and taking my questions.

Thanks, Ryan.

Our next question is from John Rowan from Janney. Please go ahead.

Good morning, guys. Just two kind of housekeeping questions. Can you remind me when the share lockups expire and also when the share repurchase authorization expires?

Yes, absolutely. Thanks for your question, John. The share unlock, the last one is on July 1st. So, the remaining unlocks on the 1st of March, May, and July, respectively. We will unlock 15%, 25%, and 50% of the shares on January 1st. You may remember we unlocked 10. In terms of the share repurchase program that is in place for the first year, which I believe will take us to the end of year next year.

All right. Thank you very much.

Thanks, John.

Our final question comes from the line of Derek Hewitt from Bank of America. Please go ahead.

Good morning, everyone. Most of my questions were already addressed, but kind of could you talk a little bit kind of circling back to prepayment fees. And at what level do you expect prepayment fees to kind of normalize from the elevated? I think you said $0.10 per share for the fourth quarter. And over what time period do you think that process would occur?

I hope we have a clear answer for that, Derek. It's a great question. We typically model about 20% in prepayments annually, which is something we consider when planning our dividend payouts to investors. Regarding how this impacts income, it's somewhat specific to individual assets. For instance, we had one asset with a very high prepayment penalty in the fourth quarter that contributed a significant portion of that $0.10. Therefore, it varies by asset. Some of the assets we invested in shortly after COVID had higher prepayment penalties, so as those loans begin to repay, we may see an increase, but I cannot provide a precise estimate at this moment. We'll aim to clarify this further and follow up with you later.

And just a high-level little bit of what Brad was saying. Sorry, Derek, just want to get add a little bit of context to Brad's answer. The single asset that prepaid in the fourth quarter that Brad mentioned was 8 of those $0.10. And so, what you can see with this item is it can be somewhat lumpy. So, over a year, over a couple of years, I think we have a pretty good view of what the average candidate should be. But in any given quarter, you can see move around a bit driven by specific deal activity.

Okay. Thank you.

And now, I'd like to turn it back to Weston Tucker for closing remarks.

Great. Thanks, everyone for joining us today and look forward to following up after the call.

Goodbye.

Thank you so much, everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.