Blackstone Secured Lending Fund Q4 FY2023 Earnings Call

Good day and welcome to the Blackstone Secured Lending Fourth Quarter and Full Year 2023 Investor Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Stacy Wang, Head of stakeholder relations. Please go ahead.

Thank you, Katie. Good morning and welcome to Blackstone Secured Lending fund's fourth-quarter and full year. Earlier today, we issued a press release with the presentation of our results and filed our 10-K, both of which are available on the shareholders section of our website, www.bxsl.com. We will be referring to that presentation throughout today's call. I'd like to remind you that this call may include forward-looking statements, which are uncertain and outside of the firm's control and may differ materially from actual results. We do not undertake any duty in updating these statements. For some of the risks that could affect results, please see the risk factors section of our most recent annual report on Form 10-K filed earlier today. This audio cast is copyrighted material of Blackstone and may not be duplicated without consent. With that, I'd like to turn the call over to BXSL Co-Chief Executive Officer, Brad Marshall.

Thank you, Stacy, and good morning, everyone. Thanks for joining our call this morning. Also with me today are our Co-CEO, Jon Bock; our President, Carlos Whitaker; and our CFO, Teddy Desloge. Turning to this morning's agenda, I will start with some high-level thoughts before Jon, Carlos, and Teddy go into more details about our portfolio and fourth-quarter results. If we start on slide 4, BXSL reported another strong quarter of results, including growth in net investment income, increased net asset value and continued solid credit performance. Highlights include the highest weighted average asset yield on the portfolio since inception at 12%, our second-best quarter of net investment income per share and the busiest deployment period in two years. Net investment income, or NII, per share increased by 1% quarter over quarter to $0.96 per share, which represented a 14.5% annualized return on equity. It is important to note that, along with strong earnings, the quality of our earnings remains high, with limited PIC payment, nonrecurring and fee-driven income. In fact, interest income, excluding PIC, fees, and dividends represented 95% of our total investment income in the fourth quarter. BXSL maintained its dividend of $0.77 per share, representing an 11.6% annualized distribution yield, one of the highest among our traded BDC peers with a significant portion of their portfolios in first-lien senior secured assets, while covering our fourth quarter dividend by 125%. We continue to focus on our mandate of protecting investors' capital by constructing a portfolio of first-lien senior secured loans. As of December 31, BXSL's portfolio is 98.5% first-lien senior secured debt with a 48.2% average loan-to-value ratio. We had strong credit performance, supported by a minimal nonaccrual rate below 0.1% at both amortized cost and fair market value, which is the lowest among our traded BDC peers. Approximately 1.5% of our debt investments as a percentage of total cost are marked below 90%. In the fourth quarter, BXSL saw a significant increase in investment activity, ending the period with over $1 billion at par in new investment commitments and $874 million in new investment fundings. New investments funded in the quarter were over 98% first lien with a weighted average EBITDA of approximately $130 million and an average loan-to-value of 41.5%, reflecting our continued focus on what we believe are high-quality investments. The weighted average spread was approximately 580 basis points with an average OID of 1.7% and nearly two years on average of call protection. From a market activity perspective, we saw strength building as fourth-quarter M&A volume increased almost $400 billion, a 40% boost year over year. We expect M&A activity to continue to build and accelerate in 2024, supported by our ongoing dialogues with top financial sponsors that we cover, as well as the sell-side advisers with whom we partner. M&A activities are expected to be largely driven by record levels of private equity dry powder, large amounts of unsold assets that sponsors are sitting on, and older previous vintage funds, along with the impact of lower M&A activity in 2023, which was 54% lower than the most recent peak in 2021. This expected market activity can be sustained by the prospect of lower interest rates and continued narrowing of bid-ask spreads between buyers and sellers. Moreover, the number of deals in the Blackstone credit and insurance pipeline doubled as of the end of the fourth quarter compared to the end of the first quarter. These pipeline deals predominantly have first-lien senior secured exposure on companies in historically recession-resilient sectors. Although we know that not every opportunity in BXSL's pipeline will convert into investments, and our underwriting bar remains high, the volume gives us a sense of the scale and presence that we believe we have as an institution to drive deal flow. BXSL's origination pace benefits from the scale and platform of Blackstone for BXSL, which is one of the world's largest alternative credit managers with $319 billion in assets under management and over 500 investment professionals across 18 offices globally. Our incumbency in over 4,500 corporate issuers allows us to access more deal flow, leverage our incumbency, and select what we believe to be the most attractive risk-adjusted assets. BXSI has been the sole or lead lender in approximately 84% of BXSL's direct lending transactions since inception. In the most recent quarter, 12 of 17 BXSL's funded transactions were for deals that Blackstone led, allowing us to negotiate terms and documentation effectively. During the quarter, we issued nearly $330 million of common shares through our ATM offering along with additional equity and increased capacity for our debt, which has a weighted average cost of just over 5%. We remain very well-positioned to take advantage of an improving M&A environment where we believe we can deploy capital and drive earnings for shareholders. 2023 was our best performance year since inception, with a 14.7% return on NAV, much of which was supported by higher rates. We believe there are multiple drivers of returns that could work in our favor in 2024, including sustained elevated interest rates despite potential cuts later this year, tightening credit spreads, possible asset appreciation, refinancings in our first-lien senior secured portfolio, and increased M&A activity, which we are beginning to see as evidenced by our fourth quarter activity. With that, I will turn it over to Jon Bock.

Thank you, Brad. Let's turn to slide 6. We ended the quarter with $9.9 billion of investments, an increase from $9.5 billion in the third quarter. We also modestly de-leveraged and ended the quarter at 1 times debt to equity, averaging 1.05 times in the quarter. We enhanced our liquidity position this quarter to $1.8 billion, which is comprised of cash and available borrowing capacity across our revolving credit facilities, including ABLs, which aligns with our expanded pipeline. The weighted average yield on debt investments at fair value was 12% this quarter compared to 11.9% last quarter. New investments continue to be accretive to investment income. The yield on both new debt investment fundings and assets repaid during the quarter averaged around 11.7%. Importantly, the weighted average base rate over the fourth quarter expanded approximately 120 basis points on our 98.9% floating rate debt portfolio compared to the same quarter in the prior year as rates remained elevated. BXSL continues to focus on its defensive positioning in the current market environment, reflected in our nonaccrual rate of less than 0.1% at cost and fair market value with no new nonaccruals in the quarter. Looking into 2024, we expect to see dispersion in performance across the market, with defaults increasing in certain areas, particularly in smaller companies and businesses with cyclical and capital-intensive profiles, neither of which are within BXSL's investment focus. We expect underperforming businesses with upcoming maturities, where sponsors have already taken value out, could also face more challenges. While we expect market defaults and non-accruals to pick up modestly, fewer than 10% of BXSL's loans have maturities in the next 24 months, and liquidity profiles overall remain healthy, with 9% of BXSL's exposure to revolver credit facilities drawn. While we're pleased with our non-accrual rate, we continue to monitor our portfolio companies closely, leveraging our team of 84 professionals in Blackstone's Credit and Insurance's strategic investment office. Over 98% of BXSL's investments are in first-lien senior secured loans, and 99% of those loans are to companies owned by private equity firms or other financial sponsors with generally significant access to additional equity capital. Equity owners of this type have historically shown a willingness to support borrowers, possessing substantial equity value in their capital structures, with an average loan-to-value of 48.2% in BXSL. Complementing healthy credit fundamentals and the possibility of a lower interest rate environment later this year, our portfolio starts from a robust EBITDA base. Looking at slide 8, you can see why we regard larger companies as higher-performing borrowers. Our portfolio companies generated an average of $192 million in LTM EBITDA, up from approximately $167 million at the end of the fourth quarter of 2022, significantly above the private credit market average. According to the Lincoln International Private Market database, larger companies, those with $100 million or higher in EBITDA, have experienced nearly four times greater EBITDA growth and defaulted nearly five times less than middle market transactions. These companies are not simply good because they are large; we believe they are large because they are good. With our extensive sourcing capabilities and origination engine, we can identify and select a wide array of investments that are, in our assessment, attractive risk-adjusted opportunities in an increasingly active market, as Brad outlined earlier. Slide 9 focuses on our industry exposure, another crucial aspect of our defensive positioning. This involves concentrating on key sectors with lower default rates and lower CapEx requirements. During the quarter, 30% of BXSL's deals were closed in the software industry as we continued to focus on more historically low-default-rate industries. We increased the number of portfolio companies while maintaining almost 90% invested at historically lower-default-rate industries, including software, healthcare providers and services, professional services, and commercial services and supplies, which are among the highest exposures and convictions across the portfolio. On slide 10, we compare BXSL's portfolio company fundamentals against the private credit market as recorded by Lincoln's database. BXSL's portfolio companies have demonstrated approximately twice the growth rate and nearly 15% higher profitability relative to the private credit market. The importance of interest coverage cannot be overstated; the average LTM EBITDA coverage of interest for BXSL portfolio companies over the past 12 months was 1.8 times in Q4, which again compares favorably to the private credit market's 1.4 times coverage in Q4. It is critical to analyze companies with interest coverage below 1 times. Only 6% of BSXL's portfolio reflected this metric, contrasting with the market's 15% on an LTM basis. It is vital to understand what's driving these tails and which companies comprise them. In the broader market, more than 70% of companies below 1 times interest coverage are small with less than $50 million in EBITDA. For BXSL, most of these companies are associated with recurring revenue loans, underwritten as higher-growth names with lower initial coverage ratios. Excluding recurring revenue loans from this analysis reduces BXSL's share of the portfolio below 1 times interest coverage to less than 1% versus the market's 13%. Relative to the broader private credit market, our portfolio companies continue to deliver robust fundamental performance. Looking ahead, the market anticipates that rates will begin to fall this year, with current pricing indicating an average SOFR rate in 2025 of 4.1%. As many of you are aware, lower interest rates reduce the burden placed on our portfolio companies, allowing more free cash flow for equity holders—all else being equal. With this trend regarding free cash flow and interest payments, borrowers can reinvest surplus cash into growth initiatives or prepare for sale or refinancing. To illustrate, at a 4.1% average base rate through BXSL's portfolio as of Q4 2023, we would expect a hypothetical increase in the portfolio's interest coverage ratio from 1.8 times to 1.9 times, holding other data constant. I will conclude with remarks on our documents and recent amendment activity. As Brad indicated, when we negotiate our credit agreements, particularly when we are the leading lender, we prioritize ensuring vital protections are in place. Almost 100% of Blackstone-led deals held in BXSL include measures against asset stripping and collateral release, along with caps on add-backs to EBITDA. This starkly contrasts with the syndicated market, where most loans lack such lender protections, which we believe have significantly driven depressed recoveries in liquid loans over the past year. Amendment activity remains relatively benign. In the fourth quarter at BXSL, there were 40 amendments, mostly associated with add-ons, DDTL extensions, and other minor technical matters. There were two amendments related to additional PIC flexibility and one concerning an underperforming investment. Among these two PIC amendments, one was related to a significant equity infusion from the PE sponsor, while the other involved an extension on a PIC option provided during initial underwriting. In extending the call, we also extended the call protection on one of the deals by two years. In the case of the underperforming investment, we proactively engaged the PE sponsor, who also contributed new equity. This amendment recognized additional equity in our covenant tests. With that, I'll turn it over to Carlos.

Thanks, Jon. Let's turn to slide 11. BXSL maintained its dividend distribution of $0.77 per share, a 28% increase from Q4 of last year and a 45% increase since our IPO two years ago. We have continued to focus on delivering high-quality yield to shareholders and building confidence through steady regular dividends while also increasing NAV per share. We expect this approach to continue. As the economic environment shifts, it's crucial to examine the market as a whole. We anticipate private credit spreads to tighten as M&A activity increases, a trend we began noticing in late 2023. To expand on Brad's points regarding deal activity, we remain optimistic about M&A volumes and the deployment outlook for 2024. Valuation expectations have improved, with record private equity dry powder of $1.5 trillion currently on the sidelines. Economic sentiment is improving, and fundamentals remain healthy, accompanied by a potential for lower capital costs if interest rates decrease—all of which are drivers for pent-up market activity. Given our broad origination platform and expansive credit footprint, we believe BXSL is well-positioned to capitalize on this environment. Furthermore, our scaled investment franchise enables us to enhance investor returns, which aligns with Blackstone's overarching focus. Our value creation program, accessible to all BXSL portfolio companies, aims to assist them by reducing expenses and fostering cross-sell opportunities across the broader Blackstone portfolio. We have created an implied $3.5 billion or more of enterprise value for our BXCI companies, in addition to our role as their lender. For instance, we facilitated over 20 introductions across the broader Blackstone ecosystem to a digital service provider, generating approximately $7 million in sales for this borrower. Additionally, we collaborated with a management service provider for healthcare to prepare a request for proposals for medical supplies, encompassing over 1,000 SKUs and saving the borrowers almost $2 million. Remarkably, we are merely the lenders in these arrangements, indicating our capacity to offer significant assistance. This point underscores our commitment to delivering value through BXCI services aimed at benefiting our companies. We offer our borrowers access to over 50 data scientists, more than 90 senior advisers, and a cybersecurity expert team, all of which ultimately position us as an attractive manager to partner with. This connects to our focus on shareholder experience and alignment. We established BXSL to foster attractive risk-adjusted returns for shareholders through what we consider to be industry-leading best practices. Even after the expiration of our fee waiver, BXSL continues to maintain one of the lowest fee structures, expense ratios, and costs of debt relative to our peer set as a percentage of NAV at the end of Q4. This enables us to build a resilient portfolio and deliver returns to our investors. We have a three-year look-back period for the total return hurdle related to income incentive fees. Importantly, we amortize OID over the loan's lifespan and forgo upfront fees to the manager, passing on all of BXSL's investment-related fees fully to the fund, further exemplifying shareholder alignment and differentiation. With that, I'll turn it over to Teddy.

Thank you, Carlos. I will begin by outlining our operating results on slide 12. In the fourth quarter, BXSL's net investment income was $172 million, or $0.96 per share, marking the second-highest NII quarterly performance since our IPO. GAAP net income for the quarter was $157 million or $0.88 per share, a 16% increase year over year. Our total investment income for the quarter rose to $53 million or 21% year over year, primarily driven by increased interest income due to higher rates. Payment in kind, or PIC income, represented approximately 5% of total investment income during the quarter. We acknowledge that the fee waivers in place since our IPO expired near the end of October 2023. While this quarter included partial waivers for about a third of the period, future quarters will fully reflect BXSL's management fee of 1% and its incentive fee of 17.5%. The partial waivers added approximately $0.02 of NII per share to the quarter. Regarding the balance sheet on slide 13, we ended the quarter with $9.9 billion in total portfolio investments at fair value, less than $5 billion in outstanding debt, and nearly $5 billion in total net assets. Our strong earnings exceeded the dividend in the quarter, leading to an increase in NAV per share to $26.66, up from $26.54 last quarter. Slide 14 outlines our appealing and diverse liability profile, with 57% of drawn debt consisting of unsecured bonds. These bonds have a weighted average fixed coupon of less than 3%, which we view as a crucial advantage in this elevated rate environment, contributing to an overall weighted average interest rate on our borrowings of just over 5%. In comparison, we have no maturities on our liabilities until 2026, and our funding facilities feature an overall weighted average maturity of 3.4 years. As mentioned in our previous earnings call, BXSL was the first traded BDC to receive an improved outlook from Stable to Positive from Moody's, and we maintain our three investment grade corporate credit ratings. We concluded the quarter with approximately $1.8 billion in liquidity consisting of cash and undrawn debt available for borrowing, ensuring substantial capacity for portfolio growth. The fourth quarter of 2023 marked our most active quarter since 2021 with BXSL committing to over $1 billion in investments in the quarter that have been closed to date, plus an additional $221 million committed to BXSL as of December 31 that have yet to close. As mentioned by Brad, Jon, and Carlos, we believe deal activity will increase in 2024, creating new deployment opportunities as reflected in our pipeline. We have observed spreads tightening and heightened activity in the syndicated loan market, generally a leading indicator for what we expect in the private market. Thus, we are actively leveraging incumbency to maintain exposure where capital structures were established in a wider spread environment, despite strong company performance exceeding expectations. For example, in the fourth quarter, we created repricings in the portfolio in exchange for, on average, nearly two years of additional call protection. Additionally, we are successfully delivering private solutions that differentiate us from what the syndicated market can provide, such as refreshing DDTL capacity or modest PIC flexibility. In conclusion, we remain optimistic about the upcoming year, our competitive advantages in the market, and robust performance across various metrics relative to our peers. We believe the positive factors driving returns for investors remain intact, including portfolio positioning for a moderately lower but still elevated rate environment, ample liquidity for deployment in what we anticipate will be a more vigorous deal environment, and continued elevated earnings driven by low-cost financing sources, all backed by Blackstone's platform advantages in scale and sourcing while maintaining a focus on protecting investors' capital. I will now turn the call over to the operator for questions. Thank you.

We will now go to Finian O'Shea with Wells Fargo Securities.

Hey, everyone. Good morning. Thanks for having me on. Interesting comment at the end by Teddy about the repricings. I guess first, how many, if you can offer us color, happened post-quarter with the major DSL comeback? Also, as a higher-level question, I'm not sure that repricing has been a concept in direct lending. Can you touch on whether this is an evolution in the market that is happening in real time? Thank you.

Yeah, thanks, Finn. On your first question, repricing activity has continued but not to an overly material extent. If you look at the capital structures where we've agreed to repricings, some of these were established in a clearly wider rate and spread environment. The average spread on the deal that we repriced in Q4 was just over or around where the market is today. All of those were matched with new call protection. So we made that trade to extend duration in the portfolio.

Finn, it's Brad. I would say this is somewhat of a new phenomenon, but you always have the option to take your capital back at your call protection. That's why it's crucial to have call protection in deals. For the high-quality assets, if they have de-leveraged, we're generally fine with extending the duration on those types of assets.

That's helpful. Thank you. For my follow-up, can you talk about the strategy with capital raising? You've seen leverage drop from 1.30 to 1 over the course of the year, mostly due to the ATM. I know you provided constructive comment on the deployment outlook, but it doesn't seem that meaningful yet. So, are you still fully engaged post-quarter, and how do you view that today? Thank you.

Hey Finn, it's Bock. I would explain that we're not fully committed at this time. You size equity capital based on the opportunity set as your forward pipeline develops. As you've heard from Brad's comments, there is a developing forward pipeline, and we have access to high-quality investors through the ATM program, some of which are quite substantial. Our goal is to ensure that we size the equity growth appropriately and generate attractive returns, continually monitoring that on a daily or quarterly basis. You're beginning to see some build in the pipeline, and you can expect to see a rise in capital but we do not want that to overwhelm the forward returns.

Finn, I'll just add to that. We tend to see developments in the pipeline and asset deployment a bit earlier than the market. The fourth quarter was indeed our busiest since 2021. We are witnessing a substantial uptick in activity, driven in part by incumbency—not just within the existing portfolio but across our BXCI portfolio, where we are originating deals on a proprietary basis. Just to offer some stats, our pipeline is approximately double what it was six months ago, and recently, deal flow from sell-side advisers has more than doubled. Thus, we are consistently evaluating our capital structure to ensure that we can capitalize on the opportunities available to us.

We will go next to Ken Lee with RBC Capital Markets.

Hey, good morning. Thanks for taking my question. Regarding the normalization of the broadly syndicated loan markets, could you share your thoughts on how this could impact either the pace or the mix of new originations this year? Thanks.

Yes, the broadly syndicated markets have been quite active. I wouldn't say active because most of the activity has revolved around repricing; there hasn't been much new issuance. However, the market has tightened considerably, probably by at least 50 basis points in the initial months of the year. The private markets are somewhat influenced by the public markets, so we could expect to see asset spreads tighten across the private market. We have a broad deal funnel globally, allowing us to select opportunities with BXSL. Regarding the fourth quarter activity, the spreads for the assets we deployed were consistent with what emerged in the market.

Very helpful. Just one follow-up, if I may. In terms of the pipeline activity, it sounds quite robust. Are there any common characteristics or particular drivers behind the activity there? I'd like to get more insight into what you're seeing.

Yes, regarding the pipeline, I’d like to highlight a couple of points: first, similar to sector exposures, what we deployed in the fourth quarter aligns with what we're seeing in the pipeline. Secondly, we've observed larger capital structures. As Brad mentioned, we've seen more than twice the volume of transactions exceeding $1 billion in the pipeline. Overall, we are optimistic about the M&A environment this year. That optimism is clear early in our pipeline. What we need to observe is the continued narrowing of valuations between buyers and sellers, which is beginning to happen, complemented by the prospect of lower capital costs on the horizon with spreads tightening modestly and the potential for lower rates by the year's end.

To add to Ken's point, I would say that at least half of our deal flow currently arises from our proactive initiatives. For instance, we dealt with a healthcare company in the fourth quarter and served as the only capital provider, leveraging our incumbency and strategic position to finance the entire capital structure. We are currently in discussions for another sizeable deal of over $1 billion, which doesn't have a competing bidder. Our ability to create opportunities does not hinge solely on the existing conditions in the public market, but we will continue to encourage deal flow that we find favorable for BXSL.

We will go next to Melissa Wedel with JPMorgan.

Good morning. Thank you for taking my question today. I wanted to follow up on the pipeline comment, which seems to be quite prosperous at the moment. While we have heard from several management teams about a pickup in activity, many believe that significant volumes will increase primarily in the latter half of this year. Are you observing anything different? Furthermore, what implications do you foresee for repayments or assets in contrast to that? Are we witnessing refinancing activity, or is this essentially a net originations environment? Thank you.

I can tackle the repayment aspect as it pertains to what Teddy mentioned regarding repricings. Then I'll allow other speakers to delve into the pipeline comments. Proactively, we have noted that repayments have remained modestly muted to date, both year-to-date and in the short term. The explanation behind this trend is driven by the choice we have made to retain assets on our books while they remain attractive from both liquidity and credit spread angles relative to our cost base. Hence, from a repayment standpoint, we are performing better than expected. As for deployment, I'll turn it over to my colleagues.

As Brad indicated, we are generally seeing early-stage deals. Many of our current activities revolve around sell-side commitments before deals are officially launched. A considerable portion of this expectation likely materializes in the latter half of the year. Simultaneously, a few situations from last quarter, specifically with sell-side processes or M&A processes, experienced delays owing to valuation discrepancies. We could provide rapid financing as a sole source for a recapitalization ahead of another process. These scenarios prominently involve our incumbency, whether it’s stemming from our positions in the liquid side or successful privatizations.

I concur that activity could pick up during the second half of this year. While I believe that most of our remarks emphasize our hope for increased activity in the second half, we are not operating on hope as a strategy. We are actively working to develop our own deal flow, even in the absence of a more dynamic M&A market. A logic holds that activity should indeed ramp up, but we will not sit idly and wait. Private equity activity has remained subdued for a couple of years; there is a considerable amount of dry powder waiting to be utilized, which is true. However, we are currently observing noteworthy insights: sell-side M&A inbound communications to us have doubled, and our pipeline has more than doubled compared to previously. These factors are all positive indications as we move forward, and we are intent on capitalizing on these opportunities.

We will go next to Casey Alexander with Compass Points.

Hi, good morning, and thanks for taking my questions. You mentioned that spreads appear to be tightening and that interest rates were down broadly in the fourth quarter, which should have supported the overall portfolio pricing. However, can you help contrast that against the $23 million of unrealized depreciation recorded in the quarter? What caused that, considering a generally favorable pricing environment?

I'm glad to clarify. The $23 million of unrealized depreciation includes a reversal of unrealized appreciation linked to repayments—we saw over $5 million in repayments this quarter, which corresponds to an annualized repayment rate exceeding 20%. When such repayments occur, it's not uncommon to observe a reversal of unrealized gains, constituting about a third of the total adjustments recorded. The remaining two-thirds were balanced out by some positive markups within the portfolio. Concerning valuations, the spreads for the quarter remained fairly flat. Most of the spread tightening we have committed to in the quarter relates to deals likely to close in the first or second quarter of this year, suggesting that we still have potential spread tightening that has yet to fully play out.

It's critical to note that rates shouldn't influence asset marks; rather, it's predominantly driven by spreads. Spreads have tightened more significantly in the first quarter. Just to share a few additional stats, only 1.1% of the portfolio is marked below 90, which comprises the assets we are most focused on; approximately 8.8% are below 95. Our overall portfolio remains in strong condition, but we mark our assets to market, which may result in movements both upward and downward.

Thank you for that. Secondly, I want to point out a noticeable rise in PIC income compared to the third quarter, totaling around 5% of total investment income. Can you clarify how this ties into your earlier comments?

Certainly. PIC income did experience a modest rise, increasing by around 4% to 5% this quarter. There's nothing specific to highlight regarding that change. One position we had rolled off in the quarter, which had fixed flexibility, paid out entirely in cash. In contrast, we encountered a couple of smaller PIC amendments where we agreed to various stipulations. Over time, this is an area where we might observe differentiation for higher-performing situations with low LTV and healthy fundamentals, creating potential opportunities vis-a-vis the syndicated market.

To add some numbers, we experienced a few smaller instances where assets were rolled in, a couple transitioned out, with the averages for those brought in being roughly around 97. That gives you an indication that these are effectively performing assets, marked similarly to cost but have chosen to use their PIC option. Overall, I would consider a 5% share for PIC income to be on the lower end of the industry spectrum.

We will go next to Mark Hughes with Truist.

Thanks, good morning. Regarding the new deals this quarter, I believe it averaged $130 million, while your overall norm is over $190 million. Could you comment on whether you found more attractive pricing at the lower middle end of the market?

I don't think there's anything particular to address on that topic. We have noted growth in our existing portfolio, both organically and through M&A, which is driving performance upward in our existing transactions. We did close a few deals that were sub-$120 million, yet these were still of very high quality, so there really haven’t been any substantial alterations in our investment strategy to note.

Regarding your healthcare exposure, are there any specific highlights or areas of concern given the current industry events and credit challenges?

We are paying attention to healthcare exposures and have assembled a team specializing in this sector within our investment group. We closely monitor trends, and we identify stress points, focusing our capital on specialized models that do not face much pressure—like potential labor inflation, regulatory scrutiny, or commoditization. We are tracking a couple of situations involving roll-ups that have experienced some cash flow constraints due to higher rates. Still, overall, we have witnessed relatively strong performance in that segment.

In our healthcare segment, while we're influenced by broader trends related to various pressures affecting other PPMs or physician practices, we cannot claim complete immunity. As such, we remain vigilant about any emergent signs of stress within those areas, which we closely monitor.

We will go next to Paul Johnson with KBW.

Good morning. Thanks for taking my questions. One point, Brad, you mentioned identifying 100 deals—would you categorize this as a noteworthy segment of your portfolio in terms of driving the pipeline, or is it merely low-hanging fruit that you expect to finalize relatively quickly? Additionally, regarding repricing transactions, how extensive is the process? Is it simply a matter of contacting the sponsor for discussions, or do you effectively need to re-underwrite the transaction?

Yes, to clarify for you, Paul, there is a significant difference between repricings and reverse deal flow. Repricing occurs when you own the asset and the sponsor reaches out to affirm that they want to engage in negotiations to reprice the asset. We're positioned to say yes or no based on our strategy. Typically, we seek some form of compensation in return. However, reverse deal flow pertains to transactions that we don't own but are attempting to create deals for. Out of the 100 identified deals, we've reviewed 33; many sponsors opted not to proceed, citing high pricing. In those situations, we actively work through the opportunities. We possess investments through BXCI in over 3,000 companies, which enables us to extract ideas and function like a banker with a balance sheet—a distinct platform comparison versus our competitors. Our focus is very much on reverse deal flow, which is markedly different from the repricing endeavors that will inevitably occur as market conditions improve.

Thanks for that, Brad. That was very insightful. The last point I want to highlight is, how do you anticipate the upcoming election will impact the pipeline this year? Do you expect it might prompt more transactions ahead of the election? What's your outlook on sponsor behavior, if anything?

Historically, in election years, deal flow tends to get pulled forward as entities become wary of changes and volatility. Reviewing past activities, we can see that this trend typically holds true. We already have indications of a heightened pipeline that suggests this could continue. Nevertheless, it remains unclear whether this trend serves as an accelerator or merely reflects the hesitance of private equity sponsors who have remained sidelined for the last couple of years. Only time will provide clarity on this.

That will conclude our question-and-answer session. At this time, I would like to turn the call back over to Ms. Wang for any additional or closing remarks.

Thank you. This concludes our fourth-quarter call. Thank you so much for dialing in, and we look forward to speaking with you next quarter.