FS KKR Capital Corp. (FSK) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to FS KKR Capital Corp's Second Quarter 2023 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. At this time, Robert Paun, Head of Investor Relations, will proceed with the introduction. Mr. Paun, you may begin.

Thank you. Good morning, and welcome to FS KKR Capital Corp.'s Second Quarter 2023 Earnings Conference Call. Please note that FS KKR Capital Corp, may be referred to as FSK, the fund or the company throughout the call. Today's conference call is being recorded, and an audio replay of the call will be available for 30 days. Replay information is included in a press release that FSK issued on August 7, 2023, in addition, FSK has posted on its website a presentation containing supplemental financial information with respect to its portfolio and financial performance for the quarter ended June 30, 2023. A link to today's webcast and the presentation is available on the Investor Relations section of the company's website under Events and Presentations. Please note that this call is the property of FSK. Any unauthorized rebroadcast of this call in any form is strictly prohibited. Today's conference call includes forward-looking statements and are subject to risks and uncertainties that could affect FSK or the economy generally. We ask that you refer to FSK's most recent filings with the SEC for important factors and risks that could cause actual results or outcomes to differ materially from these statements. FSK does not undertake to update its forward-looking statements unless required to do so by law. In addition, this call will include certain non-GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures can be found in FSK's second quarter earnings release that was filed with the SEC on August 7, 2023. Non-GAAP information should be considered supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly named measures reported by other companies. To obtain copies of the company's latest SEC filings, please visit FSK's website. Speaking on today's call will be Michael Forman, Chief Executive Officer and Chairman; Dan Pietrzak, Chief Investment Officer and Co-President; Brian Gerson, Co-President; and Steven Lilly, Chief Financial Officer. Also joining us in the room are Co-Chief Operating Officers, Drew O'Toole and Ryan Wilson. I will now turn the call over to Michael.

Thank you, Robert, and good morning, everyone. Welcome to FS KKR Capital Corp.'s Second Quarter 2023 Earnings Conference Call. We are pleased to report another quarter of solid results as we exceeded our quarterly earnings guidance. Rewarded shareholders with a base and supplemental distribution totaling $0.70 per share and also paid shareholders a special distribution of $0.05 per share. In total, these distributions equated to an annualized distribution of approximately 15% on our stock price. We are also pleased to report, as Dan will discuss in more detail, that deal flow is increasing, which should be positive for us going forward. During the second quarter, we generated net investment income totaling $0.82 per share and adjusted net investment income totaling $0.78 per share as compared to our public guidance of approximately $0.78 and $0.75 per share, respectively. Our net asset value per share as of June 30 was $2.69 as compared to $24.89 at the start of the year. And $24.93 as of March 31, 2023. Excluding the effect of the $0.05 special distribution, we paid to shareholders during the quarter, our net asset value per share would have been $24.74. Based on our continued strong operating results, our Board has declared a third quarter regular quarterly distribution of $0.70 per share, consisting of our base distribution of $0.64 per share and a supplemental distribution of $0.06 per share. As a reminder, we expect our quarterly supplemental distribution to total a minimum of $0.06 per share throughout 2023 and possible beyond. Equating to a minimum of $0.70 per share per quarter of quarterly distributions during 2023. Additionally, last quarter, we declared a series of special distribution payments totaling $0.15 per share. The first installment of the special distribution was paid in May and the other 2 will be paid at the end of the month and in November. In total, we estimate investors will be able to receive a minimum of $2.95 per share of total distributions in 2023, which we continue to believe is quite attractive in today's investment environment. Based on our experience team, the significant resources of our platform and the portfolio rotation work we've accomplished, I believe we are well positioned not only to continue producing strong financial results but to reward shareholders with attractive dividend over the long term. And with that, I'll turn the call over to Dan and the team to provide additional color on the market and the quarter.

Thank you, Michael. The resilience of the labor market and continued strong consumer spending during the first half of 2023, make it unlikely in our view that the economy will slow either as soon or as dramatically as some market participants have expected. That being said, over the near term, we continue to expect inflation to remain elevated. And as we have said on prior calls, we believe the higher interest rate environment will persist. While investment activity remained lower during the second quarter compared to historical averages, we continue to see compelling investment opportunities in a strong direct lending environment. We and other private debt investors are able to negotiate attractive pricing, enhanced call protection and lower overall leverage levels for high-quality companies. Given the still choppy nature of the syndicated debt markets, we believe private credit is poised to continue to be the primary financing alternative for many sponsors and portfolio companies. As Michael mentioned, recently, we have seen an increase in deal flow as M&A activity appears to be picking up. However, we would remind investors that given the traditional time line associated with new investments, the recent increase in new investment activity likely will not materially impact our financial results until the fourth quarter of this year or perhaps early next year. Nevertheless, we are pleased to see the increased activity levels. Turning to investment activity. During the second quarter, we originated $363 million of new investments. Not surprisingly, our investments primarily were focused on add-on financings to existing portfolio companies and long-term KKR relationships. Additionally, during the second quarter, we completed the sale of approximately $500 million of lower-yielding investments. This sale to a third party was proactive on our part as we sought to increase our go-forward investment capacity based on our view of the accelerating M&A environment. As a result, our new investments of $363 million when combined with $845 million of opportunistic portfolio sales and repayments equated to a net portfolio decrease of $482 million. In terms of recent deployment opportunities, at the end of the quarter, we closed an account receivable financing facility for Bausch Health Company. The company develops, manufactures and markets a range of pharmaceutical, medical device and over-the-counter products, primarily in the Dermatology and Eye health space. We provided the company with a $600 million off-balance sheet financing facility backed by accounts receivable from their customers who are investment-grade pharmaceutical distributors. Pricing was SOFR plus 665 basis points, with 2.5% fees upfront and a 75 basis point undrawn fee. FSK committed $120 million to the financing and has funded $70 million to date. This type of transaction is an example of our growing corporate ABL strategy in which we are finding compelling investment opportunities in the current environment. Additionally, we are seeing meaningful opportunities in our traditional asset-based finance business, particularly given the pressure on regional banks to optimize their balance sheets. Combining our asset-based finance activities with the recent increase for traditional unitranche financings associated with the improving M&A market creates an improved outlook as we begin to focus on the second half of the year. In terms of interest coverage, at the end of the second quarter, our portfolio companies had a median interest coverage of 1.6x. For clarity, this calculation uses base rates as of March 31, 2023, and to better align with portfolio company financials. From a forward-looking perspective, we continue to believe our portfolio is well positioned. In part, due to our focus on large, high-quality borrowers with strong operating margins and deep equity cushions. These statistics are evidenced by the weighted average EBITDA in our portfolio companies. Which was $202 million as of June 30, 2023. Additionally, our portfolio companies reported a weighted average year over year EBITDA growth rate of approximately 5% across companies which we have invested in since April of 2018. And with that, I'll turn the call over to Brian to discuss our portfolio in more detail.

Thanks, Dan. As of June 30, 2023, our investment portfolio had a fair value of $14.8 billion, consisting of 195 portfolio companies. This compares to a fair value of $15.3 billion and 189 portfolio companies as of March 31, 2023. The decline in the fair value of our portfolio is largely due to the lower -- to the sale of lower-yielding assets, which Dan spoke about earlier. At the end of the second quarter, our 10 largest portfolio companies represented approximately 19% of the fair value of our portfolio. We continue to focus on senior secured investments, as our portfolio consisted of 59.5% for same loans and 68.3% senior secured debt as of June 30. In addition, our joint venture represented 9.4% of the fair value of the portfolio and asset-based finance investments represented 12%, which are comprised predominantly of -- for same loans or secured asset-based finance investments. It's important to note, looking through to the investments in our joint venture, our portfolio consisted of 76% senior secured debt as of June 30. The weighted average yield on occurring debt investments was 12.1% as of June 30, 2023, compared to 11.7% as of March 31. As a reminder, the calculation of weighted average yield is adjusted to exclude the accretion associated with the merger with FSKR. The increase in our weighted average yield during the second quarter was primarily associated with the continued rise in base rates as well as higher yields on new originations during the past few quarters. Including the effects of the investment activity we experienced during the second quarter as of June 30, 2023, approximately 86% of our total investment portfolio is now comprised of investments originated either by KKR Credit or the FS/KKR Advisor. During the second quarter, excluding the impact of merger accounting, we experienced net portfolio depreciation on investments of approximately $77 million, primarily concentrated in a handful of names, including Wittur and NBG Home both of which we have mentioned on prior earnings calls. This past [indiscernible] Wittur with management the majority of first lien lenders as well as the equity sponsor to provide additional liquidity to the company as well as delever its balance sheet. Pursuant to this agreement, the first lien debt will be significantly reduced at the operating company level, FSK and other funds managed by KKR will provide EUR 85 million of new capital to the company to fund operations and our second lien loan will be converted into a majority equity ownership stake in the business. The transaction is subject to standard closing conditions and regulatory approvals. We also led a successful restructuring of NBG Home earlier this year, and the company emerged from Chapter 11 protection last month. Pursuant to the company's plan of reorganization FSK and other funds managed by KKR now own new debt securities and the delevered capital structure as well as the majority equity ownership of the surviving company. As of June 30, 2023, nonaccruals improved to 4.8% of our portfolio on a cost basis and 2.5% on a fair value basis compared to 5.5% on a cost basis and 2.7% on a fair value basis as of March 31, 2023. We believe it is helpful to provide the market with information based on the assets originated by KKR Credit. As of the end of the second quarter, nonaccruals related to the 86% of our total portfolio, which have been originated by KKR Credit and the FS/KKR Advisor were 2.2% on a cost basis and 0.6% on a fair value basis. And with that, I'll turn the call over to Steven.

Thanks, Brian. Our total investment income increased by $6 million quarter-over-quarter to $462 million, driven by increased interest income. The components of our total investment income during the quarter were as follows: Total interest income was $376 million an increase of $7 million quarter-over-quarter. Dividend and fee income totaled $86 million, a decrease of $1 million quarter-over-quarter. Our dividend and fee income during the quarter is summarized as follows: $55 million of recurring dividend income from our joint venture, other dividends from various portfolio companies totaling approximately $25 million during the quarter, and fee income totaling approximately $6 million during the quarter. Our interest expense totaled $118 million, an increase of $4 million quarter-over-quarter due to the impact of rising base rates on our secured debt facilities. Our weighted average cost of debt was 5.2% as of June 30. Management fees totaled $56 million, a decrease of $2 million quarter-over-quarter and incentive fees totaled $47 million during the second quarter. Other expenses totaled $12 million during the quarter. The detailed bridge in our net asset value per share on a quarter-over-quarter basis is as follows: our ending first quarter 2023 net asset value per share of $24.93, which increased by GAAP net investment income of $0.82 per share. And was decreased by $0.31 per share due to a decrease in the overall value of our investment portfolio. Our net asset value per share was reduced by our $0.70 per share quarterly distribution. And the $0.05 per share special distribution. Some of these activities results in our June 30, 2023 net asset value per share of $24.69. Accounting for the $0.05 per share special distribution paid during the quarter, our adjusted net asset value per share was $24.74. From a forward-looking guidance perspective, we expect third quarter 2023 GAAP net investment income to approximate $0.79 per share, and we expect our adjusted net investment income to approximate $0.76 per share. Detailed third quarter guidance is as follows: our recurring interest income on a GAAP basis is expected to approximate $374 million. Interest income is expected to be relatively flat quarter-over-quarter, primarily due to the portfolio sale Dan mentioned earlier as well as certain assets which were repaid during the month of July. We expect recurring dividend income associated with our joint venture to approximate $54 million. We expect other fee and dividend income to approximate $25 million as we expect normal course ABF dividends to be incrementally lower between now and the end of September. From an expense standpoint, we expect our management fees to approximate $56 million, we expect incentive fees to approximate $45 million. We expect our interest expense to approximate $120 million, and we expect other G&A expenses to approximate $10 million. As a reminder, the $0.03 per share difference between our GAAP net investment income and our adjusted net investment income relates to the expected accretion of our investments during the quarter due to merger accounting. This difference affects our recurring interest income. Other categories of revenues and expenses are not affected, primarily due to the sale of approximately $500 million of assets to a third party during the second quarter, our gross and net debt to equity levels were 118% and 113%, respectively, at June 30, 2023, compared to 125% and 118% at March 31, 2023. At June 30, our available liquidity was $3.5 billion, up from $3 billion at the end of the first quarter. Approximately 58% of our drawn balance sheet and 42% of our committed balance sheet was comprised of unsecured debt and our overall effective weighted average cost of debt was 5.2%. And with that, I'll turn the call back to Michael for a few closing remarks before we open the call for questions.

Thanks, Steven. In closing, I am pleased FSK is continuing to deliver strong earnings, which enables us to award shareholders with such an attractive distribution. The team has remained diligent and focused on the long-term success of the company by investing in defensive, high-quality companies, proactively managing our available investment capacity and minimizing losses from challenged assets. We are pleased with our results both during the quarter and on a year-to-date basis. This is -- we also are pleased to see an overall pickup in deal activity, which clearly is advantageous for FSK. On behalf of the team, we thank you for joining the call and for your continued support. And with that, operator, we'd like to open the call for questions.

[Operator Instructions] . Our first question comes from John Hecht with Jefferies.

Congratulations on the good quarter. First one is just very high level, and you guys you guys even touched on some of this during the call here, but just given the recent events in the banking industry and the likely changes to capital requirements and some of the regulatory framework do you guys see a long-term or even permanent kind of structural shift in the business? And what type of asset characteristics would that maybe give an edge to you guys and relative to where we are today going forward?

Thanks, John. I mean I think a fair question there, especially considering what's been going on in the market. I do think we expect this to be probably a longer-term situation in terms of how it plays out. You see new rules as it relates to Basel III. Obviously, there's concerns around liquidity and how banks sort of manage assets. I think we've seen this in many ways, starting with the financial crisis and continuing. I do think it's a tailwind for the overall private credit space. I think we'll benefit from that. I think it's probably a little bit less of a focus on what I'll call the regular direct lending space. It's probably more of a tailwind for our asset-based finance business. But I think it's something as I said, that will play out over several years.

Okay. That's helpful. And then maybe just a quick update on Global Jet. I know that's a big asset you guys have been working on. Is there any update there?

I think 2 things. One, the underlying performance of the assets remain strong, I think both in terms of the folks paying on the leases, but also just asset values, right? There's been a real tailwind in that space on the other side of COVID. I think the company management team also has done quite a good job as it relates to cost at the business and looking to improve sort of ROE. So I think it's been a good story there for the last several years. I think we're still working with the team to figure out next steps as it relates to it, but the asset performance remains strong.

And our next question comes from Casey Alexander with Compass Point Research and Trading.

I have a couple of questions here. I'm looking at the asset mix of ABF at 12% and the JV at 9%. So there's room in this bucket. And given kind of your discussion about ABF, should we expect that ABF percentage to rise as a percentage of the total portfolio? as you put some of the proceeds of these sales to work?

Well, I think we've been consistent with the market and talking about sort of a 10% to 15% range there. For our ABF sort of bucket, I think we're in the middle of that range. I think some quarters, it will sort of trend up there are certain deals in there that are continuing to ramp in terms of adding assets. So I think it's fair to assume that it will sort of make its way towards that sort of 15%, but I think it's -- I would expect the range over the long term to be that 10% to 15%.

Okay. In relation to the portfolio sale, what was the average price of the sale as a percentage of par value?

I mean upper 90s sort of approaching [ 99% ] sort of sense. I mean these were performing assets I think we were honestly excited and sort of proud of to get it done, and we want to create some capacity inside of FSK. The assets themselves slightly lower yielding. We just sold a strip of assets that we owned, right? So these assets are not just remain inside of FSK but other sort of accounts that we manage. So this was not a credit story. This was managing future investment capacity. I think we've always been clear with what our target leverage range was for FSK. I think using this as a moment to bring it down to 1.3x looking at an M&A market that's picking up made a lot of sense to us.

Well, perhaps you can explain to me the rationale of selling what you consider to be good assets at a discount to par in order to reinvest them at par loans. I understand the higher-yielding loans on the new stuff, but you're receiving less principal value for the loans that you sold. So kind of what's the rationale for the mix there?

Okay. I remember 2 things, right? The loans themselves -- you're always originating loans at a slight sort of discount because there's fees and sort of OID that's generated, right? So I would keep that sort of in mind one. Two, I think the market today is, let's call it, 50 basis points plus wide on a spread level, the upfront fees have kind of held at probably 3 points was sort of better [ call pro ]. So it's just a little bit of a portfolio rotation. I think our fee income number has been sort of lower than usual. Steven mentioned that in his prepared remarks. I think that number sort of picks up. I think we've been able to generate the net income numbers you've seen was sort of out that. So I would focus on those points.

Okay. And then my last question is there's a reasonably meaningful bump up in PIK income in the quarter. Can you walk us through the change in that component, please?

Sure. Entirely related to 1 name, Solera. This is a well-performing company, north of $1 billion of EBITDA, a very strong equity sponsor who's got a meaningful sort of dollars in there. I would put this as a one-off case where certain earn-outs and others nonrecurring sort of cash items were happening during the first half of the year. They requested 2 quarters of PIK there was change in sort of rate on the other side that we thought was attractive both during the PIK period but then sort of post the loan going back to sort of cash base. So this is not a challenged credit situation, I would think about it as a 2-quarter move.

Our next question comes from Ryan Lynch with KBW.

First question I had was on the portfolio sale of $500 million. I think that makes a lot of sense, just selling off some older assets to get more exposure to this current vintage. My question on that was, is that something that you guys are looking to explore more of those -- those sort of portfolio sales or strips of portfolio sales going forward? Or was this purely sort of a one-off opportunity? And then I know you said there were lower yielding investments of that portfolio. I don't know if I missed it or not, but could you provide what was sort of the weighted average spread on that $500 million of investments sold?

Sure. In terms of the portfolio sale itself, I think we're always focused on being active in terms of portfolio management. I think we're fortunate to be part of a platform that's got a lot of different market participants. We have relationships, investors or sort of otherwise. I wouldn't think about it as something that we would repeat consistently as a part of normal course. That said, I think we're quite pleased, as I said, to get it done. I do like having the additional capacity in the entity where we can maybe be more active in this current vintage, or there's additional sort of volatility in the market. So I would think about it in sort of that context. In terms of spread, roughly 6%, in terms of the spread on the assets.

Okay. Then the other question was you mentioned and it's been talked and that's about but kind of the increased activity in the asset-based finance sort of vertical, that spreads across a lot of different underlying investments. I would just love to hear, is there any specific sort of like subsector or specific assets that you guys are seeing increased deal opportunity across? Or is it just across the whole spectrum? And then the second part to that was, when I look at your asset-based finance portfolio, there's a lot of different investment yields in that portfolio some are based on SOFR some are fixed rate. I would just love to hear in the current marketplace, if you're seeing more deals of that asset-based finance vertical, what sort of either net yields are you guys looking at in the current pipeline or spreads if they're floating rate investments.

But if you recall, we have taken what I'll call a multisector or multi-asset class approach to the space. I think that's important. We want the team to be focused on the best risk-adjusted returns that are available here. We've done really put it in the following buckets: consumer, mortgage, commercial finance, contractual cash flows and hard assets, and there's, let's call it, 25 kind of subsectors below those. I think we're able to do that, right? We've got a very large team. We've got over 50 people that are directly involved in the business. We've got a capital base that's quite large. At north of $40 billion of AUM. So I think we're quite pleased with where we stand from -- let's call it, how we're competing in the market. I think all of those assets have certain things that are -- what I would call interesting today. That business is a little bit more opportunistic and thematic than what I would say the more traditional direct lending business where you're forced to cover clients sort of daily. I think the one thing that has probably been the most interesting there, this year, specifically over the last 4 or 5 months is some of the tailwinds we've seen from the regional bank space, who are looking to other clean up asset portfolios or dispose of certain assets. So I think there is a good tailwind there. I think you are right. I mean, every deal is a little bit different. Some deals might be floating, some deals might be fixed. I would think about it from a broad stroke. We're really targeting to do deals in that space that are roughly from a base case perspective, kind of 15% sort of IRRs, that's probably the simplest way to think about it.

Okay. And then just one follow-up on that point. You mentioned kind of the pullback from the regional banking space, creating new deal opportunities just because from a less -- there's less competition. But are you guys looking or seeing any sort of inbound opportunities from regional banks looking to sell off entire portfolios? And is that something you would be interested in onboarding?

Yes. I mean the short answer is yes. I think some of that has been quite public with some of the SVB or First Republic or signature sort of assets. But the team is having sort of constant dialogues there. I think we are looking to partner with banks on several of these transactions. Some of that could be buying portfolios in whole. Some of that could be buying sort of parts to different portfolios. But we're very active in that space. Honestly, that is a cornerstone of the business in kind of normal markets, but just more active today. The one thing that I think is probably even more interesting today is a lot of these banks would be acquiring kind of assets on a flow perspective from Fincos that are originating those a lot of those banks are taking a step back from that, specifically on certain fixed rate assets. So I think we're able to come in and fill the void there as well. We've done that on a couple of portfolios I think we're excited by the opportunities that present themselves there. And again, it's across all these different sort of asset types. So I think you need the team to be able to prosecute that. But I'm expecting the folks to be busy for the coming quarters, coming years.

That's interesting to comment on the deal flow from the Fincos and stepping in with that void. That's all for me.

Our next question comes from Ken Lee with RBC Capital Markets.

Sounds like terms and pricing is still favorable for origination activity. I wonder if you could just talk a little bit more about what you're seeing in terms of competitive activity more recently.

Yes. Ken, I think there's been -- in many ways, and you've heard us talk about on the call today or prior quarters. The general M&A volumes have been lower. I think you'd expect that, I think the -- there's been some sort of articles that was lower due to the lack of available financing. I don't think that's correct. I think it's been entirely driven by we'll call it, valuation mismatches or the lack of ability to agree on valuation between a seller or a company and the buyer thereof. I think we're starting to see that fall -- the pipeline has been dramatically more active in the last handful of weeks. I think we're hearing the M&A adviser community kind of ramping up, whether they're a boutique firms or some of the larger sort of bulge bracket. So I think the volume, you're going to see pick up. And I think the market has the capital available to do the deal. So I think the competitive environment has remained, what you imagine is there are sort of active players here who are prepared to kind of step into these deals. But I think you're going to see this pickup in volume, which we're excited about.

Got you. Very helpful there. And then 1 follow-up, if I may. Just stepping back, I wonder if you could just talk about thoughts around the current share price and perhaps what additional actions or options could you consider that could help narrow the discount shares are trading to NAV over time?

I think a couple of points there. One, the share price is obviously a clear sort of focus of ours. I think, we've tried to be quite transparent as you can see in these earnings calls with Steven going through the quarter and sort of going through the guidance. I think we have been quite pleased with what we've put up in terms of operating results. I think we're happy to announce that special dividend. That $2.95 a share, we think, is quite attractive -- even more attractive -- I mean it's quite attractive just thinking about in terms of NAV, but obviously even more attractive. When you think about it in terms of stock price, the team is spending a lot of time on the road, meeting with investors doing as many calls as we can. We need to continue to, I think, to perform, put up these numbers going to meet the guidance numbers that we're sort of putting out there. And I think the market has struggled for a little while on the legacy portfolio. I think we've tried to give guidance consistently with -- that's only now 14% of the portfolio. It's really focused on a handful of names. We've got some more work to do on those, but we hope to continue to push and sort of bring that down. So in some ways, it's kind of all of the above.

Our next question comes from Robert Dodd with Raymond James.

Question on kind of the restructuring environment, if you all. When we look at Wittur and NBG, I mean you have -- you've talked about those on prior calls -- made progress on restructuring one and we just come out of check, et cetera. But the valuations of those obviously came down this quarter. So that would tend to imply that the outcome may have been slightly worse than you're expecting, say, 3 months ago. So can you give us any color on what's driving that? Is the recovery environment worse? Is a lender groups being less cooperative? Or was it just incremental deterioration of those businesses that drove that slightly lower fair value today than 3 months to ago when the restructuring issues were known and ongoing.

And Brian I want to add to this as well. I mean, I think we were quite pleased to get those restructurings done and I think just to be clear in our remarks on -- in our prepared remarks, the Wittur was announced. It's still subject to we'll call it final regulatory approvals, et cetera. But I think we were glad to get that done. I think we're fortunate that we've got a dedicated team focused on this space. I think that really helps in these situations. I don't think the environment is necessarily more difficult or I probably wouldn't probably read too much into this. I think NBG was more of a difficult situation and probably got more difficult as it went along. That was arguably a name that really did not have any level of pricing power or other things and part of that business ended up being liquidated and then part of it end up being sort of reconstituted as a stand-alone business. Wittur itself is a strong company with a good footprint in a bunch of jurisdictions globally. It was a complicated process, and I think that process yielded the numbers that you see as it relates to the marks.

Yes. I mean, look, I think these restructurings tend to take a long and winding road. Things change over the course of negotiations. I think in the case of both companies, we own the majority equity of both businesses. That means we have control of the Board, the company, strategic direction, management, all those sorts of things. Where we can hopefully create some value and hopefully, some real appreciation in the value of that stock. Time will tell on those things. But when you look at other companies where we've done sort of similar things like a PRG or an APX, I think our team has really had some great outcomes in those situations.

And just to be clear on Brian's comments, we will all know is post the restructuring is getting done on the equity, not today.

Thank you -- got the clarity on that. On the kind of the price line, I mean, the indication, I think maybe the big outspread on valuation is now waiting finally. So should we expect more -- more platform activity and new portfolio companies rather than necessarily maybe maturity dividend refinancings. I wouldn't expect a lot of dividend recaps. But can you give us any color on what kind of -- what the type of mix of things you're seeing in that pipeline? Is that...

No, happy to. I think you're correct. You should expect new portfolio names. I think the add-on business or the add-on environment will continue. I think those are some of the better loans that you can do since you know the company so well. But these are, I would think about new situations. They're usually M&A sort of driven. I mean we were looking at the numbers sort of last night and sort of today. I mean, there's north of a couple of billion dollars of transactions that we have committed to. That's across the entire sort of private credit platform for us, but FSK is obviously a big sort of piece of that. There's no guarantees that all those close, but the activity level is definitely sort of picked up. The one thing I did mention in my remarks is those deals won't necessarily all close in Q3 or maybe not even some of them in Q4 or some of these deals have approvals required to get done, but you should expect new line items in the portfolio.

And our next question comes from Mark Hughes with Truist Securities.

When I'm thinking about the banks and their participation in the asset-backed financing, do you think that's just kind of a slowdown in the near term as the banks figure out their capital requirements? Or do you think that will be a permanent shift perhaps away from the bank?

It's probably a little bit of both. And I think there is some sort of near-term sort of points I would expect probably a certain amount of consolidation in the space. And then I think you have to wait until the regulatory environment sort of evolves. I mean, banks are a cornerstone of the U.S., and I think that's going to clearly sort of continue. But I think for certain asset classes, it just might not be as attractive from a capital perspective or even how they're sort of forced to manage liquidity, but it's probably a bit of both.

Yes. And then when you think about your portfolio, you see the deal activity is ramping up. Do you think payoffs will be ramping up in parallel?

We do. I mean there's probably -- maybe a little bit of a mismatch on some of those. There's been a couple of deals that we've just gotten refied out of but that's more of an immediate thing. And as I mentioned to you before, some of the new deal activity while we might commit would take several months or maybe even several quarters to sort of close, but I think we're expecting it on both sides.

I'm just curious you didn't have a pretty informed strong opinion about the interest rates may be higher for longer. Any spicy view on what you think the Fed will do, will they recognize that and not cut? Or how do you think they'll behave in this environment?

Yes. I think it's always tough to predict what the Fed is going to do. I think the comment more about hire for longer is just the economy seems to be doing quite frankly, quite well. I think if you asked me that a year ago, I would have probably had a slightly different view of how it would have played out. But the consumer seems to be in good shape. People seem to be continuing to spend sort of money, airports are crowded restaurants are crowded. So it doesn't feel like you're going to see this kind of quick snapback. There a couple of comments I read this morning from a couple of different Fed governors out sort of last night, giving kind of their views. But it -- I'm not too sure how many more rate hikes there would be, if any, but it feels like they'll just be higher for longer.

And our next question comes from Melissa Wedel with JPMorgan.

I was hoping we could go back to your comments earlier on the dividend. You mentioned sort of a $2.95 at a minimum of a dividend payout for the full year of '23. I was hoping you could just remind us what the spillover income level is as of second quarter?

Yes. Melissa, it's Steven. It's sort of between $450 million and $480 million, we published that once a year in the 10-K, and so it's sort of an estimate during the year. So that puts us still north of 2 quarters between 2 and 3 quarters of dividends. So I feel very good about where we are. I think we, in area, have kind of the highest levels in the industry. So it's a nice level for us.

Let's remember the dividend buildup is the $0.64 sort of base, the $0.06 sort of supplemental and then the $0.15 that we declared that was the special.

Yes. I'm wondering, given the level of spillover income and sort of the 2 quarters of coverage that Steven just mentioned, is that something that you intend -- or you expect the Board to revisit around sort of year-end timing for potential specials? -- or I should say...

Sure. Number one, we have not had a conversation with the Board to this date of extending that, we wanted to get further into this year. It's also the fact that we've not had the conversation yet does not clearly preclude us from having that conversation with the Board. So -- we'll have to wait and see how it comes. I would think the bookends of that conversation were to occur would be -- the earliest would be in our November meeting, the latest would probably be in our February meeting of next year. So a little more to come there.

And our next question comes from Bryce Rowe with B. Wiley.

Wanted to maybe start on -- just on the dynamic of lower net balance sheet leverage, both at the BDC and within the JV. Just curious with the JVs debt-to-equity going down, similar dynamic to what you're seeing within the BDC and then maybe a follow-up to that, just kind of thinking about how that might relever back up over what level of time?

Yes. I wouldn't try to tie the 2 together to find sort of a linkage there. I think it's -- I guess, normal course of business, I think it's at 1.09x. I think for both of these, we're within, as I said before, that sort of target range and there'll be some new deals getting sort of funded. There'll be some sort of pay downs. But I think if we can operate where we're at and continue to generate the net income and the operating sort of ROE there, it's nice to have the dry powder.

That's fair, Dan. And maybe switching gears a little bit. We've seen debt capital markets kind of open back up here recently. You've got quite a bit of time until your '24 maturities, but I'm just curious if you're -- if you're thinking about trying to get active there and how to kind of think about maybe mix of debt capital relative to what it looks like right now, a year to 1.5 years from now?

No, it's been good to see the markets reopen there. Clearly, it's something that we as a team sort of always talked about. I think we've been quite pleased with what we've done with the capital structure over the last handful of years, I mean the revolver north of $4.5 billion that's out to $27 today. You're right, there's no maturities over the next 4 quarters, the '24 maturities, which are $900-odd million or all the second half of the year. So I think it puts us in a pretty strong position. Steven mentioned some of the bilateral sort of financings that we did extend I think we've been active in this market. I think we will continue to be active, and we're going to continue to probably keep the mix as you kind of see today from a sort of unsecured and sort of revolver perspective.

I'm showing no further questions at this time. I would now like to turn the conference back to Dan Pietrzak for closing remarks.

Thank you all for your time today and all the great questions. We hope you enjoy the rest of your summer, and we'll speak with you next quarter. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.