MidCap Financial Investment Corp Q1 FY2025 Earnings Call

Good morning, and welcome to the Earnings Conference Call for the period ended March 31, 2025, for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode. The call will be opened for a question-and-session following the speakers prepared remarks. I will now turn the call over to Elizabeth Besen, Investor Relations Manager for MidCap Financial Investment Corporation.

Thank you, operator, and thank you everyone for joining us today. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer; Ted McNulty, President; and Greg Hunt, Chief Financial Officer. Howard Widra, Executive Chairman is on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded. Please note, they are the property of MidCap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosures in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer.

Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MFIC's first quarter earnings conference call. I will begin today's call by providing an overview of MFIC's first quarter results and sharing our perspective on the current volatile and evolving market environment. I will then turn the call over to Ted, who will discuss our investment activity and provide an update on the investment portfolio, including some comments on the impact of tariffs. Greg will then review our financial results and capital position in more detail. Yesterday after market close, we reported solid first quarter results, including a healthy level of earnings and strong portfolio growth with net investment income or NII per share of $0.37 for the March quarter, which corresponds to an annualized return on equity or ROE of 9.8%. GAAP net income per share was $0.32 for the quarter, which corresponds to an annualized ROE of 8.7%. NAV per share was $14.93 at the end of March, down $0.05 or approximately 30 basis points. NAV per share benefited by approximately $0.01 from stock repurchases below NAV made during the quarter. We continue to observe stable credit quality trends in our portfolio. During the quarter, we saw sequential improvements in several credit metrics, including a decline in investments on non-accrual status, a decline in PIK income, and a decline in the weighted average leverage of our borrowers. MFIC has built a well-diversified portfolio of true first lien floating rate direct corporate loans invested in less cyclical industries with granular position sizes. At the end of March, 99% of our direct origination portfolio was first lien, and our average direct lending position was approximately $13.1 million or 0.5% of the total direct lending portfolio. These figures are at fair value. We believe the current uncertain and evolving environment will showcase the advantages of MFIC's portfolio construction and the strength of MidCap Financial's underwriting. That said, the current uncertainty stemming from trade tariffs could pose challenges that we expect to be relatively limited, as Ted will discuss later. We continue to be active in our investing and have continued to make progress deploying the capital from the mergers that closed last July. During the March quarter, MFIC made $376 million of new commitments. While we did observe some spread compression relative to last quarter's commitments, we also saw a slight decline in the net leverage of new commitments resulting in an attractive spread per unit of leverage. We also continued to sell certain assets acquired in connection with the mergers that do not align with our strategy and prudently deployed the proceeds along with the investment capacity generated from the mergers into first lien floating rate middle market loans originated by MidCap Financial. At the end of March, the non-direct origination assets onboarded from the mergers represented just 2% of the total portfolio at fair value. Among the biggest challenges for many market participants in this market environment, MFIC benefits from access to assets sourced by MidCap Financial. One of the largest and most experienced lenders in the middle market and which is consistently ranked near or at the top of league tables. Our affiliation with MidCap Financial provides a significant deal sourcing advantage for MFIC. We are fortunate to have access to the necessary origination to deploy this capital, given the significant volume of commitments originated by MidCap Financial. During the March quarter, MidCap Financial closed approximately $6.5 billion of commitments, which is particularly noteworthy, given the overall muted sponsor M&A activity in the market. MidCap Financial has what we believe to be one of the largest direct lending teams in the U.S. with close to 200 investment professionals. MidCap Financial is founded in 2009 and has a long track record, which includes closing on over $136 billion of lending commitments since 2013. This origination track record provides us with a vast data set of middle market company financial information across all industries that we believe makes MidCap Financial one of the most informed and experienced middle market lenders in the market. Key members of MidCap Financial's management team have been working together for more than 25 years, resulting in strong collaboration and an enhanced ability to navigate challenging market conditions, leading to improved credit quality and risk management. We believe the core middle market offers attractive opportunities across cycles and does not compete directly with either the broadly syndicated market or the high-yield market. Moving to Merx, at the end of March, MFIC's investment in Merx totaled approximately $185 million, representing 5.8% of the total portfolio at fair value. I'd like to provide an update on Merx Russia fleet insurance claims. As a reminder, at the time of Russia's invasion of Ukraine in February 2022 and the imposition of sanctions, Merx's portfolio included four aircraft on lease to two Russian airlines. Those aircraft are held in aircraft securitization known as MAPS 2019. In compliance with EU sanctions imposed on Russia due to the invasion, Merx terminated the leases of those aircraft, but three were not returned and were never made in Russia since then. Merx has brought legal action in the English Court seeking payment for those aircraft under both the lessee reinsurance policies and its own contingent policy. As mentioned on last quarter's call, we settled a portion of our contingent insurance claims with certain insurers during the first quarter. We recently reached a settlement with another insurer bringing Merx's total proceeds to $16.5 million so far. We're currently waiting for final judgment for our remaining claims, which we expect to be made in the very near future. As mentioned on last quarter's call, Merx has made substantial progress on multiple sales campaigns covering a majority of the remaining aircraft on its balance sheet. We look forward to providing further updates on the process as purchase agreements are finalized in the very near future. The blended yield across our total investment in Merx was approximately 3.2% in fair value, and the continued rotation of capital from Merx into directly originated corporate loans should have a beneficial impact on MFIC's income. Assuming we are successful with our sales campaign, we expect MFIC's exposure to Merx to decline in the coming quarters. Now let me discuss current market conditions. Market conditions in the first quarter started on a relatively strong note, as forward interest rates were expected to be lower but stable, and the economic backdrop was solid. As the quarter progressed, we saw conditions deteriorate amid federal government layoffs, increasing tariff concerns and their potential negative effects on business fundamentals and economic growth. Although the trade tariffs were largely expected, their size and scope were far greater than anticipated. Following the US-China tariff truce that was announced yesterday, the probability of a US recession in 2025 has decreased. Lower tariffs are positive for the economy and markets, but there are other headwinds to US economic growth. The key issue for markets is to monitor the speed with which confidence is restored among consumers, corporates and foreign entities. While markets may recover quickly from this episode, we believe it will take some time before confidence is restored among consumers and corporates. Amid ongoing volatility and uncertainty driven by the trade war and increasing fears of a recession, new issue activity has been fairly light as M&A activity remains slow. Due to the heightened economic uncertainty following the tariff announcements, there has been a lack of investor demand in the syndicated loan market and banks have become more cautious when launching new syndication transactions. Secondary loan and bond markets have experienced increased volatility and widening spreads. We believe this uncertainty in the public debt markets creates the type of environment that causes borrowers to seek solutions in the private market. On one hand, we believe direct lenders are particularly well poised to benefit in this type of environment as the syndicated loan market has become less certain and accessible for certain borrowers. On the other hand, we believe the trade war induced uncertainty may further delay the long-awaited anticipated increase in M&A activity. Depending on the timing and outcome of the tariff policies, it may continue to be a slow year for LDOs, M&A and IPOs which would negatively impact sponsor activity. That said, the mounting pressure on financial sponsors to return capital to investors could drive some activity. We believe the core middle market where we are focused does not compete directly with either the broadly syndicated loan market or the high yield bond market. Additionally, even with the slowdown in M&A activity, we see that many of our borrowers continue to have add-on financing needs. Now turning to our dividend. On May 7th, 2025, our board declared a quarterly dividend of $0.38 per share for shareholders of record as of June 10th, 2025, payable on June 26, 2025.

Thank you, Tanner. Good morning, everyone. I'm going to spend a few minutes reviewing our first quarter investment activity and then provide some details on our investment portfolio, including some comments on the analysis we've done with respect to tariff-related risks. In the March quarter, we continued to prudently deploy the capital acquired from the mergers into assets with what we believe to be strong credit attributes. As mentioned, MFIC's new commitments in the March quarter totaled $376 million with a weighted average spread of 513 basis points across 33 different companies. Although we observed the decline in spreads on new commitments compared to the previous quarter, we also observed a slight decline in the net leverage on new commitments. The weighted average net leverage on new commitments was 4.2 times in the March quarter, down from 4.3 times in the prior quarter. Our fee structure, which is one of the lowest among listed BDCs, allows us to produce attractive ROEs even at current spreads. For the March quarter, gross funding totaled $357 million, excluding revolvers. Sales and repayments, excluding revolvers, totaled $192 million, including $44 million of liquid assets acquired from the mergers. Net revolver fundings were approximately $3 million. In total, net fundings for the quarter were $170 million. Given commitments closed so far in the June quarter and our robust pipeline for MidCap Financial, we expect fundings for the June quarter to be strong. Turning to our investment portfolio, at the end of March our portfolio had a fair value of $3.19 billion and was invested in 240 companies across 49 different industries. Please note, we have transitioned our industry classification from the Moody's industry system to the Global Industry Classification System, or GICS, beginning this quarter. Direct origination and other represented 92% of the total portfolio, up from 90% last quarter. This quarterly increase is the result of growth in the portfolio from funding to MidCap Financial source loans and from the sale of non-direct origination positions from the mergers. At the end of March, the non-directly originated loans acquired from the closed-end funds, which included high yield bonds, broadly syndicated loans, and structured credit positions totaled $73 million, representing just 2% of the portfolio. Lastly, Merx accounted for 5.8% of the total portfolio. All of these figures are on a fair value basis. Specific to the direct origination portfolio, at the end of March, 99% was first-lien and 92% was backed by a financial sponsor, both on a fair value basis. Approximately 97% had one or more financial covenants on a cost basis. Covenant quality is a key point of differentiation for the upper middle market, as substantially all of our deals have at least one covenant compared to larger deals, which are generally without covenants. The average funded position was $13.1 million. The median EBITDA was approximately $46 million. The weighted average yield at cost of our direct origination portfolio was 10.7% on average for the March quarter, down from 11% for the December quarter. The decline in the yield was primarily due to the decline in base rates. At the end of March, the weighted average spread on the directly originated corporate lending portfolio was 569 basis points, down 9 basis points compared to the end of December. During periods of elevated volatility and uncertainty, we look at the potential impact on our existing portfolio companies. As it relates to the recently announced U.S. tariffs, we've done a comprehensive review on MFIC's portfolio to evaluate their direct impact on our borrowers. As Tanner mentioned, MFIC has been focused on building a well-diversified portfolio of true first-lien floating rate industries. We primarily lend to U.S. focused service-oriented businesses, and we're underway businesses that are heavily dependent on imports and exports. At the end of March, MFIC's top three industry exposures excluding Merx were software, healthcare providers and services, and financial services. MidCap Financial leads and serves as the administrative agent on the vast majority of MFIC's direct lending deals, which allows us to be in active dialogue with our borrowers and have enhanced information flow, which is particularly valuable during these uncertain periods. Being agent allows us to detect and address any issues early. At the end of March, MidCap Financial or Apollo is the agent on 72% of MFIC's direct lending portfolio at cost and at fair value. We believe the first order impact of the tariffs to our portfolio is limited. We've defined the first order impact as businesses which have labor or source products from outside the U.S. We've categorized our direct lending portfolio into four categories based on what we believe to be the severity of the tariffs: no impact, minimal impact, medium impact, and meaningful impact. We've enhanced our monitoring of companies, which we have identified as having a meaningful impact. Of course, there could be second-order impact from an economic slowdown or a recession, which is more challenging to quantify. We've supplemented our underwriting process in response to tariffs. Our underwriting process has always included a downside scenario, such as a mild recession. As Tanner mentioned, we continue to observe relatively stable credit quality trends in our portfolio. And we continue to believe that we have constructed a senior portfolio built for today's economic uncertainty. We are not observing any signs of general credit weakness. Our portfolio companies continue to show good financial performance as evidenced by a modest improvement in revenue growth with continued positive EBITDA growth. We saw an improvement in net leverage, or debt to EBITDA, of our borrowers. The weighted average net leverage was 5.25 times at the end of March, down from 5.5 times at the end of December due to lower leverage on new assets and an improvement on certain existing assets. At the end of March, the weighted average interest coverage was 2.1 times, flat compared to last quarter. This statistic is based on financial information as of the end of December 2024 and therefore does not reflect the benefit of lower base rates that occurred in the March quarter. We believe the stable level of revolver utilization we are seeing from our portfolio companies is an additional sign of portfolio health. At the end of March, the percentage of our leverage lending revolver commitments that were drawn did not change materially from the prior quarter. We believe a steady revolver utilization rate is an indicator of greater financial stability. The number and dollar amount of investments on non-accrual status decreased on both a cost and fair value basis compared to the previous quarter. No new positions were placed on non-accrual status this quarter. Our position in international cruise and excursion was restored to accrual status following a restructuring that occurred in the December quarter. Additionally, we received a pay down above fair value on a position acquired via the mergers, which exceeded our mark at the end of December. As a result, at the end of March, investments on non-accrual status were 0.9% of the portfolio at fair value, down from 1.3% last quarter. After quarter end we received information about the ongoing restructuring of the New Era Technologies business which will be reflected in our June results. MFIC's PIK income declined to 4.5% of total investment income, down from 5.7% last quarter, as a few borrowers switched to cash pay from PIK during the quarter. Our level of PIK remains well below the average of BDC peers. That said, we recognize that it makes sense to allow borrowers to elect PIK in certain circumstances. Our underwriting on MidCap Financial source loans has proven to be sound. Based on data since mid-2016, which is the approximate date upon which we began utilizing our co-investment order, our annualized net realized and unrealized loss rate is around 5 basis points on loans sourced by MidCap Financial. We think this performance data shows how well the strategy has performed. With that, I will now turn the call over to Greg to discuss our financial results in detail.

Thank you, Ted, and good morning, everyone. Starting with our operating results, total investment income for the March quarter was approximately $78.7 million, down $3.5 million or 4.2% compared to the prior quarter. This decline was primarily due to lower fee and prepayment income, as well as the decline in asset yield due to the impact of lower base rates on interest income, partially offset by the growth in the size of the portfolio. Fee income and prepayment income for the March quarter totaled $950,000, down from $2.3 million last quarter. Dividend income was approximately $250,000, essentially flat quarter-over-quarter. As a reminder, there's a lag effect between changes in base rates and their impact on interest income depending on the frequency of loan resets. During the December and March quarters, three months SOFR declined by approximately 28 basis points and 2 basis points respectively, while one month SOFR declined by 52 basis points and 1 basis point, respectively. MFIC's investments are linked to both one-month and three-month SOFR rates, with a great proportion tied to three months SOFR. In short, the decline in base rates during the December quarter was a contributor to the decline in interest income recorded in the March quarter. The average yield at cost on our direct originated portfolio was 10.7% on average for the March quarter, down from 11% last quarter, largely due to lower base rates. Net expenses for the quarter were $44.4 million, down from $45.1 million last quarter. This decline was driven by lower management fees, interest expenses, and G&A expenses, partially offset by a higher incentive fee. Interest expense benefited from the same base rate decline mentioned earlier, partially offset by a higher average debt balance, as well as the impact of the CLO, which closed during the quarter. As mentioned in last quarter's call, in late January, MFIC priced a $529 million CLO, which closed on February 24th. We sold through the single A tranche, adding approximately $399 million of relatively low-cost secured debt at a blended spread of 161 basis points. The proceeds from the CLO were effectively used to repay MFIC's $350 million, 5.25% on secured notes that matured on March 3rd, 2025. At today's base rates, the cost of the CLO is slightly higher than the fixed rate debt and effectively replaced. Other G&A expenses totaled $1.2 million for the quarter, down from $1.7 million in the previous quarter. During the March quarter, we received a reimbursement from Merx for certain expenses that MFIC previously incurred on Merx's behalf, which was recorded as contra expense. We expect other G&A to average around $1.6 million per quarter going forward. This is in addition to administrative expenses, which are around $1 million per quarter. MFIC's incentive fee rate is 17.5% and is subject to a total return with a 12-quarter look back. Given the total return hurdle feature and the net loss incurred during the look back period, MFIC's incentive fee for the March quarter was $6.4 million or 15.8% of pre-incentive net investment income. For the March quarter, net investment income per share was $0.37, and GAAP EPS, or net income per share, was $0.32. These results correspond to an annualized return on equity based net investment income of 9.8% and an annualized return based on net income of 8.7%. Results for the quarter include a net loss of approximately $4 million or $0.05 per share. The net loss was primarily driven by a few concentrated positions that were already on non-accrual status. We ended the quarter with net leverage of 1.31 times, up from 1.16 times last quarter. Our funding activity was weighted toward the second half of the quarter. Average leverage for the March quarter was approximately 1.2 times. During the March quarter, we continued to make progress deploying the capital acquired from MFIC's merger with the closed-end funds, although we were operating below our target leverage at 1.4 times. Gross and net fundings for the quarter were $357 million and $170 million, respectively. At the end of March, our portfolio had a fair value of $3.19 billion. We had total principal debt outstanding of $1.9 billion and total net assets of $1.39 billion, for a NAV of $14.93 per share. Lastly, during the March quarter, we repurchased approximately 477,000 shares at a weighted average price of $12.75 for a total cost of $6.1 million. These buybacks had an accretive impact on NAV per share of approximately $0.01. This concludes our prepared remarks. Operator please open the call to questions.

Thank you. We'll take our first question from Mark Hughes with Truist. Please go ahead.

Yes, thank you very much. Good morning.

Good morning.

Good morning, Mark.

The fundings in 2Q, I think you said they're strong so far. Kind of interesting to hear, given the kind of cautious commentary from you and others around the overall backdrop. Could you talk a little bit more about that, where you're seeing opportunity, what's driving that? And then any comment on the spread trajectory here in 2Q so far, relative to 1Q?

Yes, absolutely. Thank you, Mark. What we often mention regarding the lag is that we experienced a very strong deployment in the first quarter, with $376 million in new commitments. The strength we are witnessing in the current quarter reflects that activity, much of which actually began before the end of last year or at the start of this year, prior to the volatility in April. It is mainly a result of what was already in the pipeline being finalized. To clarify the seemingly contradictory results you pointed out, there is cause to believe that there will be fewer auctions launched in the latter half of the year or even in the second half of the current quarter. You should begin to see that materialize. However, the relatively strong activity we've observed is primarily a carryover from endeavors started earlier this year. Regarding spreads, our spreads decreased to 5.13 in the first quarter from the previous quarter. We have noted some stabilization recently, both in our indications and those of our peers. Moving forward, we acknowledge the abundant capital available for private transactions, alongside the anticipated subdued M&A environment which is expected to result in fewer credit creation opportunities. Despite some volatility, we anticipate a moderation from what we observed in the first quarter, with some widening, but not significantly, leading to stabilization and fewer deals being finalized in the broader market.

Could you discuss the sustainability of the dividend in relation to net interest income? How do you perceive the underlying trend compared to the current dividend as the year moves forward? With the numerous updates and changes being made in the portfolio, what are your thoughts on sustainability?

Yes, sure. So, as we alluded to the activity that we had in the quarter was back half weighted as well as also we were operating below our leverage level. And then furthermore, you know, many of the aspects of our earnings profile are stable but the prepayment income in a given quarter can ebb and flow and we were relatively light in this quarter. We also mentioned in our prepared remarks about the level of earnings that we're taking from our Merx investment, which is 5.8% and is only 3.2%. The combination of those gives us a lot of comfort in our ability to increase earnings. And with the caveat, particularly as it relates to prepayment fees that will ebb and flow. And so, we still are very comfortable in our earnings power and how we've slated our capital plan.

Very good. Thank you.

Thank you. We'll take our next question from Kenneth Lee with RBC Capital Markets. Please go ahead.

Hey, good morning. Thanks for taking my question. Just on originations, given the muted outlook for M&A activity there, could you just remind us again the extent of MFIC's dependence on M&A activity for new originations? What's the outlook for potential add-ons and other activity from incumbents? Thanks.

This is Howard. MidCap is not entirely dependent on M&A activity. There is a growing existing portfolio with ongoing opportunities, and we've observed this in the current quarter, which will likely continue in future quarters. Additionally, some of the decrease in M&A activity is being offset by continuation funds, which allow MFIC to engage in transactions they weren't previously involved in. There are also other products that contribute to this. While more M&A activity does increase volume, it's worth noting that even in the first quarter, the market didn't see significant volume, yet MidCap managed to originate $6.5 million, which flowed through to MFIC. As we've mentioned previously, if we were a $20 billion BDC, it would have a more significant impact on the assets that MFIC could select from MidCap's originations, but currently, it is not very impactful.

Got you. Very helpful there. And one follow up, if I may. Just on, in terms of the dividend coverage there, could you remind us again of the latest estimate for spillover income and perhaps just a reminder again, what's the overall policy and thoughts around usage of that? Thanks.

Yes. When it comes to spillover income, we have minimal spillover income at this point. We provided our shareholders with a dividend following the closed-end funds and Merx still will create, it does create at some points, additional spillover income and we'll evaluate that as we continue to reduce that position and move forward.

Got you. Very helpful there. Thanks again.

Thank you. Next, we'll take our question from Healy Seth with Raymond James. Please go ahead.

Hi, good morning. Thanks for the question. So, in your conversations with private equity sponsors and just looking at the current pipeline, what's your sense for M&A recovery and the timeline there, do you guys feel like it's more 2025 back end loaded or going into 2026?

Yes, I believe the situation is dependent on various factors. Currently, it's straightforward to assess the landscape of the sponsor community, but launching an acquisition is quite challenging right now, which is reflected in what we're observing. As Howard mentioned, we find reassurance in MFIC's relatively small balance sheet compared to a larger ecosystem and see opportunities for further investments within our existing portfolio companies. While it's tough to determine whether the timeline will extend to Q4 2025 or into 2026, we and our peers note a significant amount of private equity capital that has yet to be deployed, along with increasing pressure to return capital to limited partners. Although predicting the exact timing is difficult, there is a clear need to either return or invest the capital that has already been raised. Additionally, despite some current market volatility, there are numerous dynamics in the US that suggest significant capital expenditures and infrastructure investments in the coming years, which will create considerable credit opportunities for us and other private capital lenders in the market.

Got it. That's helpful. And a quick follow-up. With your new investments this quarter, can you provide any sort of breakout for how many were incumbent borrowers versus new borrowers?

Yes, sure. So, we did 33 new deals, 19 of which were to new companies and 14 of which were to existing companies.

Perfect. Thank you.

We'll take our next question from Melissa Wedel with J.P. Morgan. Please go ahead.

Good morning. Thanks for taking my questions. Following on your comments about the activity levels through to date, sort of second quarter, does it stand to reason that prepayment income and accelerated OID might remain on the lower end in the near term? I'm curious if you're seeing slower repayment activity like we've heard from a lot of teams and if I did miss your comment on that, I apologize. Thank you.

Hi Melissa. Yes, I think consistent with what you're hearing across the industry from our peers, we do expect that given the lack of M&A, that result in fewer prepayments and that's going to result in lower fees.

I appreciate the clarification. As a follow-up, I would like to ask about the limited direct tariffs exposure in the portfolio. Additionally, have you evaluated any potential exposure from government contracts that could lead to decreased revenues or reimbursements due to cuts in DOGE or health care spending?

It's always part of our underwriting. We have generally limited our exposure to government payments for many years due to the associated risk. This situation has become even more volatile, but our exposure remains minimal. Even our healthcare clients are not directly reimbursed by the government or engaged as direct government contractors, and I don't think we have any of those. We constantly evaluate these factors, but they represent underwriting risks no matter the administration, though this particular situation is more connected.

Got it. Thank you.

We'll take our next question from Paul Johnson with KBW. Please go ahead.

Thanks. Good morning. Thank you for taking my questions. I was curious about the extent of exposure you have to countries affected by tariffs or any higher risk tariff classifications within your portfolio.

So Paul, we are in single digits. As we mentioned in our prepared remarks, we are required by statute to focus on US companies, and the middle market is much less likely to have diversified supply chains. Additionally, we are overexposed to sectors that are more service-oriented and less capital-intensive. We aim to maintain a balance within the portfolio, as that number is significant. Regarding our underwriting, we and the market are not examining those areas too closely; instead, we are monitoring the single digits part of our portfolio very carefully. Our main focus is on the confidence levels of both corporations and consumers, as well as the subsequent effects, which are the primary drivers of credit performance moving forward. This is taking up most of our attention as we evaluate how the current environment impacts our portfolio.

Got it. Appreciate that. And then just on amendment activity, anything to note there in terms of just trends, frequency, how many amendments were addressed during the quarter in the portfolio?

Yes. So, amendments were relatively flat quarter-over-quarter, and in particular, some of the more involved amendments where you're talking about covenant violations or you're dealing with PIK or forbearance or those types of things, that particular segment was flat quarter-over-quarter.

Yes, I'd like to make another comment, Paul. This is the second time I'm mentioning the lag during this call, but remember, we are reporting March financials and the performance we assess this quarter is primarily from Q4. We receive monthly updates from some of our borrowers, but most information is quarterly, which indicates amendment activity based on Q4 performance. Given the different market conditions, it’s challenging to draw definitive conclusions from that data, so we weren’t surprised to see that it remained flat this quarter.

Thanks again. Appreciate that. And then just on repurchases going forward, congrats on the repurchases in the quarter. But with leverage kind of around 1.4 times, stocks still trading a little bit low below the repurchase price during the first quarter. But how are you kind of thinking about that with deployment of capital and where the stock trades today?

We hope that question will become irrelevant after this call, but that's unlikely. We always evaluate our capital use based on how it compares to other options. Other options, when we reach full leverage, primarily involve paying down debt and redeploying funds, making share buybacks a tougher decision. However, buybacks are always part of our strategy when it makes sense. As I mentioned in previous calls, the opportunity to buy back shares is limited to only a few trading days each quarter. When people track our buyback activity, it's important to note that we are constrained by the number of shares we can purchase each day and the limited number of days we can buy. This timing affects our share repurchases, especially in relation to stock price levels and other capital opportunities.

Thank you. That's all for me.

Thank you. We'll pause for a moment. At this time, we have no further questions. I'll return the call over to management for closing remarks.

Thank you, operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us if you have any other questions. Please have a good day.

Thank you. And this does conclude today's program. We thank you for your participation. You may disconnect at any time.