you know, kind of the outlook and really the strength of the portfolio.

Got it. Thank you. In fact, one more, and you've talked about it. I mean, it's still topical software, and you do have a good chunk of software, though. It tends to be specialized software. Anything you – have you seen any impacts on any of your software book from, you know, the AI discussions or pressures or anything like that, or is it just business as usual?

I think it's more business as usual. I think our, you know, software and tech-enabled services portfolio continues to perform well. You know, our debt portfolio with regard to our software and tech-enabled services is marked at 99% of cost as we sit here today. You know, we think we've invested in a very resilient group of companies. But as is typical of any, you know, 100-company portfolio or with regard to software, a meaningful portfolio, you know, from time to time, we have a few businesses dealing with company-specific issues. But really, as it pertains to AI risk, you know, we are not seeing any widespread performance issues showing up in the portfolio. What I would say is that most borrowers are investing in and adopting AI capabilities to reduce costs and also just improve their products. And, you know, we also believe many of them are well-positioned to capitalize on their, you know, advancing AI capabilities and software capabilities. So, you know, we are pleased with where the portfolio is and, you know, expect it to continue to perform well as we sit here.

Got it.

Thank you.

Thank you. Good talking to you, Robert.

As a reminder, if you have a question, please press star one. The next question comes from Christopher Nolan from Latinberg Thalem. Please go ahead.

Hi. Thanks for taking my questions. Follow up on Robert's question in terms of the pickup and deal flow. Ed, what does does all mean for terms and conditions? I mean, and I guess there's a, you know, in terms of the deals that you're seeing. And also, is the pickup and deal flow private equity sponsors just trying to find an exit after such a lull?

We just, you know, I think as uncertainties abate, we do, we do our activity. In conditions perspective, you know, one of the things we like about the lower middle market is our, you know, we have maintenance covenants. Our leverage levels are lower. If you look at our weighted average leverage of our cash flow portfolio, it's 4.1 times. So, it's materially lower than the broader market. Pricing's better. You can see that reflected in our spreads. And so, we like the market that we're in, and we expect those general terms to remain stable, you know, in terms of covenants and prices. The other one I would mention is just loan-to-value. Our portfolio today has a loan-to-value or weighted average loan-to-value of 41%. We target almost every deal having 50% loan-to-value or less, and that has, you know, I think been helpful to us, but also gives us a fair bit of cushion when things don't go exactly right to weather storms. And so, you know, we expect those opportunities to continue.

Gotcha. And I guess for Shelby as a follow-up, on Vertex Enterprises with the exit in the third quarter, it appears that you exit pretty close to the mark. Am I missing something or is that accurate? That's correct.

No, that's correct.

Okay. So it should be pretty neutral on that. Okay, great. Thank you very much for taking my questions.

Thank you, Chris. Good talking to you. us.

The next question comes from Paul Johnson from KBW. Please go ahead.

Yeah, good morning. Thanks for taking my questions, and congrats on a stable quarter. I'm just wondering maybe more broadly in terms of, you know, how you're looking at credit. I think it seems fairly obvious things are performing quite well, and you have a non-approval coming off here next quarter um but like in terms of the internal watch list if i can call it that um you know maybe how has that changed here this quarter if that's gotten any bigger or um going the other way if if that continues to get smaller yeah it's a great question paul we uh it actually did increase uh this quarter we had one addition to that list and that would be in what I call the grade three-plus names.

But, you know, it's, you know, but I think the good news from our perspective is, generally speaking, we're seeing growth, and we're seeing a pretty healthy portfolio. We always have some grade threes, for lack of a better word, and we're working through We do see, you know, several names that we think will actually exit, you know, be sold, and we'll get our money back in the next six to nine months. Hopefully that does happen, but that's what is being worked on right now. And so, you know, with a little luck, actually that grade three portfolio could improve. But overall, we're seeing, you know, generally growth.

I appreciate that. And then, you know, it's been a while since we've talked about, I guess, junior capital opportunities, and you guys have made more of the shift into the unit tranche structure. Sure. But, you know, what is, I guess, like the relative value if, you know, if those deal opportunities exist today? If there are any in terms of, you know, second lien, subordinated type of deals that you could potentially be reviewing right now, or if you're still kind of sticking to the knitting in terms of more of the senior tranche deals?

Yeah, it's a great question. You know, what has transpired for us and really the industry over the last five to ten years has really moved towards more of a first-lean solution. There are, obviously, junior capital opportunities that come up, and we do look at them. But what we're looking for with regard to junior capital opportunities are really superlative businesses, you know, attractive loan-to-values, obviously attractive pricing. But the real piece of the puzzle is where I started, which is, you know, there's just the market is very first-lean oriented. And so that's driving a large majority, you know, the originations for us. But we do see second-lean junior capital opportunities. we'll continue to look at those and be obviously the bar is extremely high from our perspective there uh always has been uh but it um you know we expect you know our first lien portfolio our debt portfolio is now 88 percent first lien and you know we we think that's probably where it stays or if not you know actually increases from there a little bit appreciate it uh thank you very much for that and i guess the last question would be um given you are uh one of the few bdcs in the space trading above nav at this point um gross leverage is as high as it's

probably been in a little while on a statutory base it's obviously much lower but how are you kind of balancing the uh the idea of potential equity capital raises here um with a potentially improving pipeline if we should expect you to potentially be a little bit more active with ATM issuance here in the second half?

It's a great question. As we move forward and we see the opportunity for growth, we also see repayments, you know, which have been relatively light this quarter or this year so far. We expect repayments to pick up a little bit here in the second half of the year as well. But having said that, if we are, you know, growing like we anticipate we're going to, then, you know, we would utilize the ATM program as appropriate for sure. You know, it makes sense. Our target leverage is more, you know, range is 0.9 to 1.1, but really, you know, the target being in the middle there at one-to-one. And so it would make sense to raise capital if it – I appreciate it.

That's all for me. Thank you very much.

Thank you, Paul. Good talking to you.

Again, if you have a question, please press star 1. This concludes our question and answer session. I would like to turn the conference back over to Ed Ross for closing remarks.

Thank you, Danielle. And thank you, everyone, for joining us this morning. We look forward to speaking with you on our third quarter call in early November. Have a great day and a great weekend.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.