Sixth Street Specialty Lending, Inc. (TSLX) Earnings Call Transcript & Summary

Good morning, and welcome to TPG Specialty Lending, Inc.'s Fourth Quarter and Full Year ended December 31, 2019 Earnings Conference Call. Before we begin today's call, I would like to our listeners that remarks made during the call may contain forward-looking statements. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in TPG Specialty Lending, Inc.'s filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. Yesterday, after the market closed, the company issued its earnings press release for the fourth quarter and full year ended December 31, 2019, and posted a presentation to the Investor Resources section of its website, www.tpgspecialtylending.com. The presentation should be reviewed in conjunction with the company's Form 10-K filed yesterday with the SEC. TPG Specialty Lending, Inc.'s earnings release is also available on the company's website under the Investor Resources section. Unless noted otherwise, all performance figures mentioned in today's prepared remarks are as of and for the fourth quarter and full year December 31, 2019. As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Joshua Easterly, Chief Executive Officer of TPG Specialty Lending, Inc.

Thank you. Good morning, everyone, and thank you for joining us today. Let me start off by reviewing our full year and fourth quarter 2019 highlights, and then I'll hand it off to my partner and our president, Bo Stanley to discuss our portfolio activity and metrics. Our CFO, Ian Simmonds, will review our financial results in more detail. And I will conclude with final thoughts before opening the call to Q&A. After the market closed yesterday, we reported fourth quarter net investment income per share of $0.51 and net income per share of $0.57. This resulted in full year net investment income per share of $1.94, which corresponds to a return of equity of 12% and the full year net income per share of $2.34, which corresponds to a return on equity of 14.5%. Supported by the earnings power of our portfolio, we generated earnings in excess of our base dividend, more on this in a moment. The difference between this quarter's net investment income and net income per share was primarily driven by unrealized gains from both the impact of net tightening credit spreads on the valuation of our portfolio and portfolio company-specific events. At year-end, our reported net asset value per share reached another high record of $16.83 compared to $16.72 in the prior quarter and $16.25 at year-end 2018. Yesterday, our Board approved a 5% increase from our quarterly base dividend from $0.39 to $0.41 per share to shareholders of record as of March 13, payable on April 15. Our Board also declared a Q4 supplemental dividend of $0.06 per share to shareholders of record as of February 28, payable on March 31. Finally, our Board declared aggregate special cash dividends of $0.50 per share that will be paid to shareholders during Q2. Specifically, $0.25 per share will be payable on April 30 to shareholders of record as of April 15 and $0.25 per share will be payable on June 30 to shareholders of record as of June 15. There's been a couple of changes to our dividend policy this quarter. So let me take a few moments to discuss these in detail, starting with the increase in our base dividend. As we've said many times in the past, we view our base dividend as an ongoing cash liability, and therefore, we set it at a level that we believe with a high degree of confidence will be supported by the earnings power of our portfolio. This is evidenced by our track record of strong base dividend coverage to net investment income, which through the end of 2019 has averaged 127% since our March 2014 IPO. And nearly 3 years ago, in May 2017, we introduced a variable supplemental dividend framework as a way to enhance cash distributions to our shareholders and slow the growth of our excise tax, while preserving the stability of our net asset value. Since that time, and given the change of the regulatory framework in the form of lower asset coverage requirement, we believe the fundamental earnings power of our business has increased, slightly offset by the decrease in LIBOR over the course of 2019. Taking into account our go-forward expectations for balance sheet leverage, asset-level yields and potential for credit losses, we believe, again, with a high degree of confidence that our portfolio will be able to support a higher base dividend. As for the $0.50 per share of special dividend that our Board had just declared, those who know us know we've historically stayed away from paying specials, given our focus on building net asset value and our desire to foster a long-term shareholder base. While our philosophy hasn't changed, our consistent overearning of our dividends, combined with our expectation of near-term capital gains from portfolio realizations will likely result in RIC distribution requirement issues that we wanted to proactively address. While these special dividends were a tax-driven decision, holding all else equal, we expect that our return on equity will experience a slight uplift as a result of capital efficiency gains from the reduction in excise tax on our undistributed income and the slight increase in financial leverage. Since we've recalibrated our base dividend to correspond with our view of earnings power of the portfolio in the intermediate term, we don't expect any RIC distribution, requirement issues for the foreseeable future. For avoidance of doubt, there will be no changes to the calculation of our quarterly variable supplemental dividends, except to note that the impact of the special dividend will be excluded from the purposes of the NAV constraint which ensures that our NAV declines by no more than $0.15 per share over the current and preceding quarter pro forma for the impact of the supplemental dividends. Before passing it over to Bo to talk about our portfolio activity, I'd like to quickly highlight the broader market backdrop and its impact on how we think about our business. This past year was characterized by periods of volatility and divergence in sector performance and their corresponding credit spreads. Investor preference for high-quality paper was driven by a mixed macro backdrop, deteriorating underwriting standards and growing concerns around loan downgrades. A flight to quality was observable in rising LCD spreads delta between first lien and second lien loans between BB and B credits -- rated credits in between cyclical and noncyclical industries. This trend was particularly notable in the second half of the year, hitting its peak in November before moderating at year-end. As shared on our last call, given the low cyclical exposure in our portfolio, the volatility in credit spread movements throughout the year had a relatively muted impact on the valuation of our portfolio, when we took in account -- we took into industry-specific comps for each of our investments. Looking ahead, although we may see spots of volatility related to the U.S. presidential election and the unfolding economic impact of the coronavirus, fundamentally, we think the near-term U.S. economy remains in good shape, supported by deescalating trade tensions, accommodative monetary policy and low inflation. However, we believe economic cycles do exist, as such, we will continue to focus on staying at the top of the capital structure, limiting our exposure of cyclicals and finding strong risk-adjusted returns for secondary source of repayment. As it relates to our financial policy, given the competitive late cycle environment, we expect that we will continue to operate below the top end of our target leverage range of 0.9 to 1.25. This allows us to preserve our reinvestment option to create higher risk-adjusted returns in the next market dislocation. As a result of our recent efforts on the liability management side, which Ian will discuss in detail, we have ample and diverse funding sources with long-dated maturities to support our capital needs across market cycles. With that, I'd like to turn the call over to Bo, who will walk you through our portfolio activity and metrics in more detail.

Thanks, Josh. The competitive environment for direct lending in 2019 continued to be challenging, though we're starting to see signs of stabilization. Compared to record 2018 levels, capital raised for middle-market direct lending in 2019 was down over 35% and private debt dry powder at year-end, albeit still elevated at nearly $260 billion, was down over 10% from the prior year. Given this ample dry powder and the credit bifurcation in the broadly syndicated market that Josh mentioned, one of the main themes over the past few quarters has been the growing market share of direct lenders and large syndicated sponsor financings. Our decision on whether to pursue a particular opportunistic investment strategy is informed by the risk/reward dynamics in that market. For us, we found that in the current environment, the best risk-adjusted returns continue to transpire from our sector themes. By partnering with sponsors and companies only in situations where we have a differentiated view of the business or the sector or the ability to provide creative solutions for complex situations, we've been able to command better pricing and terms compared to the broadly syndicated markets. To give you a flavor of our investment activity, over 25% of total commitments this year on a dollar basis were in retail asset-based loans that we underwrite based on liquid collateral values instead of enterprise values, which tend to fluctuate with market cycles. Our robust deal activity in retail ABL in 2019 is reflective of the particularly challenging year for brick-and-mortar retailers, which saw a record high 9,300 store closings. We believe there will be -- there will continue to be disruptions in the traditional retail model, and therefore, the ongoing need for capital solutions in the space. Given our platform's relationships and core expertise in retail ABL, as illustrated by an average gross unlevered IRR of 23% on fully realized retail ABL investments, we expect this to continue to be one of our investment themes for the period ahead. Outside of retail, just under 50% of total commitments in 2019 were sponsored transaction within our specialized sector subthemes, such as business services and fintech, where we believe we have a competitive advantage and where the underlying businesses have attractive revenue characteristics, high-quality customer bases and strong returns on invested capital. Overall, we had a productive Q4 with total commitments of $329 million and total fundings of $289 million across 9 new investments and upsizes to 4 existing investments. This quarter, we were aging on 8 of 9 of our new investments, which we believe is valuable in our ability to control the loan structuring and monitoring process. Compared to the record repayment activity of $383 million in Q4 of last year, this quarter was relatively quiet with $104 million of repayments from 1 full and 6 partial investment realizations, resulting in net portfolio growth of $185 million for Q4. For full year 2019, we generated $1.2 billion of commitments and $1.1 billion of fundings. We had total repayments of $575 million for the year resulted in net portfolio growth of $512 million. To get a more accurate snapshot of our portfolio's growth trend, it's best to look at it over a longer 18-month period, given the strong repayment levels we experienced in late 2018. Over the last 18 months, our portfolio grew by $291 million or a modest 10% on an annualized basis. Looking at the year-over-year portfolio trends, as the portfolio grew in 2019, we kept our average investment size steady, resulting in an improvement in the diversification of our portfolio. Our top 10 borrower exposure decreased to 33% of portfolio at fair value, down from 39% in the prior year. Similarly, our portfolio of cyclical exposure, which excludes our asset-based loans in retail, and our reserve and asset-based loans in energy decreased from 4.1% to 2.9% of the portfolio year-over-year on a fair value basis. At December 31, our top 2 industry exposures on a fair value basis were business services at 16.8%, and retail and consumer products, consisting predominantly of retail asset-based loans at 14.9%. From a credit statistic standpoint, we continued to improve the interest coverage and net leverage profile of our portfolio. At year-end, across our core portfolio companies our average net attachment point was 0.2x, and our average last dollar leverage was 4.2x compared to 0.4x and 4.4x a year ago. And the average interest coverage ratio for our core portfolio companies improved from 2.8x to 3.2x year-over-year. We had no investments on nonaccrual status at year-end and the overall performance of our portfolio remained steady at 1.15 on our assessment scale of 1 to 5 with 1 being the highest compared to 1.14 in Q4 of last year. We continue to have limited junior capital exposure, with 96% of first lien exposure at year-end. On the underwriting side, we source 99% of our portfolio through nonintermediated channels. This has supported our ability to structure effective group voting control on 80% of our debt investments and an average 2 financial covenants per credit agreement. It has also supported our ability to structure call protection across our debt portfolio, which provides fee income in periods of high portfolio turnover to support our ROEs. As for portfolio year -- yields at year-end, the weighted average total yield on our debt and income-producing securities at amortized cost was 10.7% compared to 10.8% in the prior quarter. Breaking down the drivers of this yield movement, there was 30 basis points of downward impact from the decrease in the effective LIBOR across our debt investments, which was partially offset by 20 basis points of uplift from the yield impact of new versus exited investments. The yield at amortized cost on new investments this quarter was 12.3% compared to 12% on exited debt investments. With that, I'd like to turn it over to Ian.

Thanks, Bo. As Josh and Bo mentioned, this quarter was strong from both an earnings and originations perspective, in Q4, we generated net investment income per share of $0.51, which put our 2019 full year net investment income per share at $1.94. At year-end, we had total investments of $2.2 billion, total debt outstanding of $1.1 billion and net assets of $1.1 billion or $16.83 per share, which is prior to the impact of the $0.06 per share supplemental dividend that will be paid during Q1. Given our increased net funding activity this quarter, our average debt-to-equity ratio moved into our revised target leverage range for the first time, increasing it from 0.86x in the prior quarter to 0.97x. Our average debt-to-equity ratio for the full year was 0.84x consistent with our prior year, and our leverage at December 31 was 1x. Following our inaugural index eligible unsecured notes offering in Q4 that we discussed on our November earnings call, last month we made further enhancements to our capital structure and liquidity profile by increasing the commitments under our revolving credit facility from $1.245 billion to $1.315 billion and extending the final maturity by approximately a year to January 2025. In addition, in January, we opportunistically reopened our 2024 notes increasing the total principal amount outstanding from $300 million to $350 million. We were able to execute the reopening at a price above par, which implied a spread to 5-year treasuries of 195 basis points, 50 basis points tighter than the implied spread on our original transaction. This reopening allowed us to increase our unsecured funding mix with negligible impact on our weighted average cost of debt and, therefore, our ROE. Given our risk management principle of mitigating interest rate risk across our floating rate portfolio, we entered into a fixed to floating interest rate swap on the $50 million of new notes, consistent with the rest of our fixed-rate debt. Pro forma for the revolver amendment and the use of net proceeds from the notes reopening, we had $870 million of undrawn revolver capacity at year-end. We feel very good about our capital position and the significant amount of liquidity we have to support our reinvestment option in environments where we can generate outsized ROEs for our shareholders. Turning to our presentation materials. Slide 9 is the NAV bridge for the quarter. Walking through the main drivers of this quarter's NAV growth, we added $0.51 per share from net investment income against the base dividend of $0.39 per share. There was a positive $0.04 per share impact from credit spread movement on the valuation of our portfolio and a negative $0.03 per share impact from net unrealized mark-to-market losses on the interest rate swaps on our fixed rate securities given movements in the forward LIBOR curve. Other changes in net realized and unrealized gains, primarily driven by portfolio specific events contributed a positive $0.07 per share impact to this quarter's NAV. Moving onto our operating results detailed on Slide 11. Total investment income for the fourth quarter was $66.5 million compared to $70.1 million from the previous quarter. Breaking down the components of income, interest and dividend income was $57.6 million, up $1.5 million from the previous quarter as a result of the increase in the average size of our debt portfolio. Other fees, which consists of prepayment fees and accelerated amortization of upfront fees from unscheduled pay downs were lower at $1.8 million compared to $11.2 million in Q3, given quieter prepayment activity this quarter. Other income was $7.1 million compared to $2.7 million in the prior quarter. Net expenses, excluding management and incentive fees for the quarter were $16.5 million, up from $16.1 million in the prior quarter due to higher interest expense from an increase in the average quarterly debt outstanding. Our weighted average interest rate on average debt outstanding decreased 24 basis points quarter-over-quarter, primarily from the decrease in the effective LIBOR across our debt instruments. Given the one quarter timing lag on the LIBOR reset date on our interest rate swaps and the downward movement in LIBOR during Q4, we expect a continued tailwind to our weighted average cost of debt in next quarter's results. Let me take a moment to wrap up on the ROEs of our business. After record repayments at the end of 2018, we steadily rebuilt the portfolio, increasing our financial leverage from 0.59x to 1x, while maintaining a strong return on assets of 12.5%. With an average debt-to-equity ratio that was consistent with the prior year at 0.84x, we generated ROE on net investment income of 12% and an ROE on net income of 14.5%. Looking at year-over-year trends, our ROE on net investment income decreased from 14% in 2018, mostly resulting from record 2018 repayment levels, which corresponded with elevated activity-related fees. The increase in our ROE on net income from 11.6% in the prior year to 14.5% was partially driven by an increase in portfolio valuations, resulting from a reversal of the Q4 2018 credit spread widening. It was also driven by net unrealized gains related to certain portfolio investments and net unrealized gains on our interest rate swaps, resulting from changes in the shape of the forward LIBOR curve. I'd like to quickly flag that per our adoption of recent hedge accounting guidance, we've applied hedge accounting treatment to our 2024 unsecured notes and the related interest rate swaps. As a result, changes in the fair value of this particular interest rate swap will be offset by changes in the carrying value of the 2024 notes. There will be no unrealized gains or losses recognized in our income statement related to this hedging relationship and, therefore, changes in the fair value of the swap will not impact our ROE on net income going forward. As we look ahead to full year 2020, based on our expectations over the intermediate term for our net asset level yields, cost of funds and financial leverage, we expect to target a return on equity of 11% to 12%. Based on our pro forma year-end book value per share of $16.77, which includes the impact of the Q4 supplemental dividend, this corresponds to a range of $1.84 to $2.01 for full year 2020 net investment income per share. With that, I'd like to turn it back to Josh for concluding remarks.

Thank you, Ian. Our fourth quarter results supported another year of strong ROEs for our shareholders. For the year ahead, our objective continues to be generating attractive risk-adjusted returns for our shareholders for our direct origination strategy, the differentiated human capital expertise across our platform and capital allocation decisions that serve in the best long-term interest of our stakeholders. Before moving to Q&A, I'd like to address the pending topic regarding our broader TPG Sixth Street Partners investment platforms relationship with TPG Holdings. Our Sixth Street business was started in 2009 as a strategic partnership with TPG. Sixth Street currently manages $33 billion across the platform with over 250 people and 9 global offices. In the past 10 years, our Sixth Street business and TPG have each grown and evolved, thoughtfully and in productive ways. Likewise, so has a relationship with TPG. My partners and I at Sixth Street have been having a series of discussions with TPG about the next step in the evolution of our relationship, including the option of operating as independent organizations with TPG continuing to maintain a minority stake in the Sixth Street business. Given Sixth Street's scale, sector expertise, market presence, and the fact that we have already been operating autonomously, a potential next phase as an independent organization is going to be business as usual. For TSLX, there would be no changes to the dedicated management personnel of our business and our shareholders will continue to benefit from the same sourcing, underwriting and operational capabilities of the platform they have experienced with TSLX since inception. As of today, no formal agreement has been finalized, and there's no guarantee that one will be reached. In either case, it will be business as usual for us. Those who know us, know that our north star is always to make decisions in the best interest of our shareholders. With that, I'd like to thank you, and your continued interest and for your time today. Operator, please open up the line for questions.

[Operator Instructions] Our first question comes from Rick Shane with JPMorgan.

Josh, you partially addressed my first question in your final comments related to the separation of Sixth Street from TPG. But I am curious, do you think -- one of the things that has worked well at TSLX over the years is good response to incentives. Do you think your incentives are going to change as you separate from TS -- from TPG?

Rick, thanks for that question. I think we're both on the same time schedule, which is pretty early in the morning. So excuse if I'm -- and I have a little bit of the cold. Look, the decisions remains exactly the same. All the team's economic grew based in the Sixth Street business. And the focus of the team has always been able to create long-term value for both our private LPs and our public shareholders. And we effectively had very limited economics coming from the activities across the firm. So I think the incentives remain exactly the same and actually probably a little bit stronger on a go-forward basis. If we come to a conclusion that we're going to operate as independent entities. But it's basically business as usual and the focus was again, has always been, if you take care of your shareholder, you take care of your private LP, everything else kind of falls in place, focus on your client, focus on your customer.

Got it. And then sort of on a more portfolio-related question. When we look at the portfolio on a year-over-year basis, of the top 10 investments today for our new investments, 2 of those being ABLs, which typically are shorter -- have a shorter time on the balance sheet. Is that the type of rotation that we should continue to expect on an ongoing basis? And the reason I asked that is that as you -- as the company continues to scale, do you expect to do slightly larger transactions and drive a higher rotation of that top 10?

Yes. Those are very good questions. So I -- let me break it down. I think there's been a -- part of our late cycle focus has always been -- you can manage to be in the late cycle, in our mind, kind of 4 different ways. One is move up the capital structure. The second is be in defensive industries where you have sources of repayment that are not related to the economic cycle. The third is to create more diversity in your portfolio. And the fourth is to have run lower balance sheet leverage. So I think the -- we've created year-over-year a lot more diversity in our top 10 investments. And you'll also see things that have less correlation to the economic cycle. And that could be things that have strong secondary sources of repayment from asset values that are not related to the economic cycle or shorter-duration investments. So I think that will be a continued theme for us on managing how we think about being in the late cycle. So I don't know if I answered your question, I hope I did.

No, you did. I mean I think I would have, in some ways, expected greater concentration of new investments in the top 10, typically, that sort of ratchets up over time. But I was, in part, curious if it was not increasing is a function of that sort of late cycle depends more defensive approach?

That is correct.

Correct.

Our next question comes from Fin O'Shea with Wells Fargo.

Just a couple on portfolio names. I'll start with a small investment, AvidXchange, which was recapitalized this quarter, you're in the debt and equity now. But can you give context on how this fits into your platform structure? There was a post quarter announcement that you were in a funding round. I don't know if that news was in January. I don't know if that was the same deal. But I'm mainly asking in the purpose of, is this a name that sort of migrates to your -- from the debt platform to the capital solutions strategy?

Yes. Fin, let me start off first with the industry, and then I'll put -- I'll turn it over to Bo to talk about the investment. So AvidXchange, we've been around, I guess, probably from 4 or 5 years. It fits squarely in our theme of B2B payment and payment ecosystems. So it provides -- it's a company that has an ecosystem that provides payments across that ecosystem, mostly in property management -- in the property management sector. So it fits squarely in our theme. The business has continued to grow significantly. It has -- it continues to reinvest and grow at a significant rate. The latest investment we did, quite frankly, was -- had a larger -- we had a larger structured equity investment. And so we derisked because it was less appropriate to fit inside the TSLX platform. In that series of transactions where they raised junior equity to our structured equity, they also redeemed us out of our original equity investment. I'll turn it over to Bo, if I missed anything.

No. I think you touched on everything. This has been a long-term relationship and part of the theme that we've been pursuing over the last 5 years is in the emergence of B2B payments. You picked up the announcement of the -- there was the junior capital raise, a series F raise of $125 million in late December in addition to our debt and our prep solution. So that's what was picked up in the press.

Okay. Thanks for the context on that. And some -- a question on Forever 21 being an ABL. That's a very rich spread you attained. And I think as we speak, it might have been paid off, given the acquisition of the brand by strategics. But can you give us context on was that -- given we don't see an ABL spread that deep these days, how much of that was for just the short amount of time you would hold it? Or the risk of going probably a deep stretch second lien ABL, for example?

Yes. So great question. And Forever 21, I would say is, at this point, 97%, 98% resolved. But I'll walk through it. So first of all, you can't eat IRR. And people don't understand when I say that. But look, if you hold -- if you have a 30% IRR and you it hold for a day, you really have no MOM to compensate you for a risk to the downside. So the spread was to compensate for a minimum return, given that we were actually allocating real capital to the situation. It was a DIP financing, and where our thesis was, you had asset value in the brand, you had 2 core real estate warehouses in the center of LA that we thought were very, very valuable and that we had a real view on and then you had the inventory. What I would say is, Forever 21, if you -- it's pretty well noted in the press, had a very, very rocky December. We -- as of December 31, we actually had kept our mark basically consistent with our -- with the cost basis versus what you would have expected, you would have expected it to migrate up to the -- effectively the call price or call plus the access fee. That would obviously -- we will get our active fee, and we would get all of our economics. And in retrospect, that mark was very conservative, but it was a very difficult December for the company. But look, our thesis was, it was a little bit too big to fail. It was one of the biggest rent payers in the mall ecosystem. I think [ Calvin Centers ] it was 2.5% or 2%, 2.5% of the rents. And so it was a little bit too big to fail, that it had a real brand name and then it had real underlying asset value in the form of inventory and real estate. As of yesterday, with the proceeds, we have about $9 million outstanding against a real estate property that's basically under contract for, I think, $19.5 million. So again, it's basically revolved. But in December, it was -- we had a very conservative mark. And again, it goes to the expertise of our platform of understanding component parts of underlying asset values of these companies.

Our next question comes from Mickey Schleien with Ladenburg.

And Josh, thanks for getting up early and battling through your cold. I wanted to ask a high-level question. To what extent do you believe the volatility in the more liquid loan markets may benefit your direct lending platform going forward, given that we're hearing more and more borrowers are migrating away from BSL toward direct lending?

Yes. So it's a great question, Mickey. Look, I think that the -- I would start off by saying that the -- there's been some volatility in the broadly syndicated market, that the broadly syndicated markets have been really differentiated by the have and have-nots that that kind of reverse course, so the correlations will no longer won across credit spreads. That's reversed course a little bit. And there's -- the correlations are getting tighter. My deep overall concern is that for the industry, is that, given where the industry sits on the cost curve, i.e., when you look they're -- our base management fees and our incentive fees, that we better be a little careful or better be a lot careful of being a pure substitute to the broadly syndicated market, where people can access the broadly syndicated market at 50 basis -- 25 to 50 basis points through a closed-end fund or a CLO structure and us effectively creating the same risk/return and -- because we sit so much higher on the cost curve. This has actually been a theme for me, Mickey, that you and I have discussed probably now over 5 or 6 years, which was my problem with TICC, which was they basically brought broadly syndicated loans and brought other people's CLO equity and didn't manufacture their own and so where they sell in the cost curve, they were basically taking $1 and destroying the $1 -- providing something less than $1 value to their shareholders given where they found the cost of. So my hope is that if the industry will see volatility as a way to create solutions and certainty and get paid for that, providing that certainty to issuers. If the industry is effectively substituting and providing the same risk/reward at higher on the cost curve, the industry is going to be in deep trouble.

I understand. And I thank you for that color. That's really helpful. Josh, your firm is well-known for doing deep dives on a sector basis and obviously, with some particular specialties. I'm curious to understand what you're thinking in terms of the alternative energy sector. We get -- everybody talks about oil and gas and how out of favor it is, but there's a flip side, obviously, as to what's going to replace that. So are there borrowers in that space that are of the right size, with the right balance sheets and cash flow profiles that are starting to look interesting to you?

Yes. So good question. So as you -- I think you're exactly right. I think there's going to be quite frankly, given the disruption in energy and how much capital has been destroyed and upstream E&P and quite frankly, the demand probably for traditional carbon products going down. There's going to be opportunity for people who have deep knowledge of where asset's in the cost curve, what their decline is, what their unit economics are. There's going to be opportunity, given the lack of capital of the industry, the energy industry will attract over time for people who earn that debt return. As it relates to the alternative energy space, the answer -- we actually have a very -- we have a great team sitting in New York, focused on all energy and infrastructure projects running. On energy, they typically fit better in a private fund format because they typically -- we're typically buying assets or cash flow from assets versus lending to corporate borrowers. And so we've done a lot of stuff in renewables in Spain and Italy, where there's take-or-pay contracts. And so they typically have not fit the typical corporate loan that is required under the '40 Act as a good asset. And they've typically taken another form, which is buying -- [three of] the cash flows are buying asset with little or no merchant risk. That being said, we have the expertise. And so if a corporate loan does pop up, that will be a great opportunity for us. But your entities, again, are, I think, are right. I think, generally, the energy space is a little bit of a mess. Started back in 2015, I guess, but it's continued. Most borrowers in it restructure enough, people got the decline growth wrong. Demand for carbon products are going down, the equity markets and high-yield markets have felt burned. And then you have the emerging disruptive technologies in alt energy. And so I think over a period of time, that it can be a unique spot for us to take the expertise of our platform and create value. That being said, we have -- you have some commodity price risk. And so we're going to be very careful when we do that.

And if I could just finish with a couple of sort of housekeeping questions. Just to gauge risk in the portfolio, can you give us a sense of what the portfolio's average debt-to-EBITDA ratio is?

Yes. I think Bo covered in the prepared remarks, I think it's gone down year-over-year. So our last -- on average, our last dollar attachment point is 4.2x. That compares to that on average last year of 4.5x. On an interest coverage basis, it's, I think, also got better, that's effectively -- and I'm giving exact numbers. I think it was 3.2 this year compared to 2.8 last year. I mean and some of that, quite frankly, is earnings -- a mix between earnings growth and that continues to be having an accommodative set.

Okay. And lastly, maybe for Ian. Just at a high level, Ian, on a portfolio company basis, what were the main drivers of the realized loss and the unrealized gains this quarter?

On the unrealized, there was, let me see, there's no major driver. It's -- I don't want to describe it as cats and dogs, but there's probably about 12 names that contribute to that overall. So nothing specific stands out. It was small realized gain on a liquid name that we had, but it's less than $0.005. There's really nothing major to highlight.

Yes. I mean look, I think Curriculum, which I think has publicly announced that it got refinanced in Q1, so that the mark will basically up to the call price, that was $0.02. But there was nothing that would have contributed more than $0.02 on a single basis.

Right.

And that's also the case with the realized loss?

Yes.

Our next question comes from Chris York with JMP Securities.

This one may be for Ian. So other income was a record this quarter. Can you break down some of the drivers there? Whether that was led by higher structuring or syndication fees?

Yes. So we actually didn't have any syndication fees in the quarter, Chris. And I'll just give you a little bit of context. If you look at our, call it, activity-based fee, so accelerated OID from prepayments, which there wasn't that much of this quarter. And obviously, we didn't have that many prepayments in general. If you look at that plus syndication fees, which was 0 and then our other income. Collectively, those items were $0.14 per share for the quarter. If I look at what those items collectively have been over the last 4 years, the average has also been $0.14 per share. So in aggregate, we're basically the same as what we've experienced historically. In the other income items this particular quarter, it was really driven by an amendment that I think was known to the market with Ferrellgas, and then we had a couple of other items that were -- we were calling them work fees because they involve some service and input on our part, that drove that other income line.

Very helpful. I noticed that you did put in the K that it was an amendment fee. So how much was that amendment fee, specifically in the fourth quarter?