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SoundPoint Meridian Capital (SMC) faced a challenging Q3 2025, with NII of $0.44 per share falling short of its $0.75 distribution. This led to a dividend cut for Q2 2026, lowering monthly payouts from $0.25 to $0.20. NAV per share plummeted from $16.91 to $14.02, driven by mark-to-market pressure and a 'technical vacuum' of buyers in the CLO equity market. Management cited extreme loan spread compression—the lowest since 2012—as the primary culprit for the squeezed equity arbitrage. To combat this, SMC refinanced ten CLO positions to lower liability costs. CEO Ujjaval Desai noted that captive funds have dominated new issuances, accepting lower returns and distorting market dynamics. While the portfolio yield showed a slight recovery to 11.4% in January 2026, the company remains reliant on a projected rebound in LBO and M&A activity to drive new loan supply and wider spreads. Analysts expressed concern over dividend coverage and AI-related credit risks, though management remains hopeful that refinancing optionality in 2026 will offset the margin pressure. Liquidity was tight at the end of the period, totaling approximately $525,000.

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SOUND POINT MERIDIAN CAPITAL: High-Yield Capital Stack Creates Structural Leverage Pressure

Full Earnings Call Transcript — Q3 • 2026-02-11

Operator: Good day, ladies and gentlemen, and welcome to the SoundPoint Meridian Capital Inc. Third Fiscal Quarter ended on December 31, 2025. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Wednesday, February 11, 2026. I would now like to turn the conference over to Julie Smith, Head of Investor Relations. Please go ahead.
Julie Smith: Ladies and gentlemen, thank you for standing by. SoundPoint Meridian Capital refers participants on this call to the investor webpage at www.soundpointmeridiancap.com for the press release, investor information, and filings with the Securities and Exchange Commission, and for a discussion of the risks that can affect the business. SoundPoint Meridian Capital specifically refers participants to the presentation furnished today on the Form 8-Ks with the SEC and to remind listeners that some of the comments today may contain forward-looking statements. And as such, will be subject to risks and uncertainties, which if they materialize, could materially affect results. Reference is made to the section titled Forward-Looking Statements in the company's earnings press release for the period ended December 31, 2025, which is incorporated herein by reference. We note forward-looking statements, whether written or oral, include, but are not limited to, SoundPoint Meridian Capital's expectation or prediction of financial and business performance and conditions, as well as its competitive and industry outlook. Forward-looking statements are subject to risks, uncertainties, and assumptions, if they materialize, could materially affect results. And such forward-looking statements do not guarantee performance. And SoundPoint Meridian Capital gives no such assurances. SoundPoint Meridian Capital is under no obligation and disclaims any obligation to update, alter, or otherwise revise any forward-looking statements. Whether as a result of new information, future events, or otherwise, except as required by law. In addition, historical data pertaining to the operating results and other performance indicators applicable to SoundPoint Meridian Capital are not necessarily indicative of results to be achieved in succeeding periods. I will now turn the call over to Ujjaval Desai, Chief Executive Officer of SoundPoint Meridian Capital.
Ujjaval Desai: Thank you to everyone joining us today, and welcome to the SoundPoint Meridian Capital earnings call for the third fiscal quarter ended December 31, 2025. We'd like to invite you to download our investor presentation from our website, which provides additional information about the company and our portfolio. With me today is our Chief Financial Officer, Dan Fabian, and after our prepared remarks, we will open up the call to your questions. For the third fiscal quarter ended December 31, 2025, we generated net investment income (NII) of $9 million or 44¢ per share and recorded a net realized loss of 5¢ per share on exited investments. We paid distributions of 75¢ per share during the quarter. The shortfall in NII relative to common distributions reflects the impact of persistent loan spread compression, elevated CLO liability costs, and reduced excess credit available to equity investors during the quarter. Net asset value (NAV) per share ended the quarter at $14.02, down from $16.91 as of September 30, 2025. NAV declined primarily due to mark-to-market pressure in CLO equity valuations, as buyers stepped back late in the year despite generally stable underlying credit performance. During the quarter, we deployed approximately $6.8 million in two warehouse investments, purchased three new issue equity positions with an amortized cost of $11.29 million and a weighted average cap yield of 9.31%, and purchased one new equity investment in the secondary market with an amortized cost of $5.23 million and a yield of 15.6%. We also sold two equity investments with an amortized cost of $8.1 million and an average yield of 15.6% and refinanced the liabilities of 10 equity investments. We deployed an additional $4.48 million related to these refinancing activities. As of quarter-end, our CLO equity portfolio's weighted average gap yield was 11% versus 12% in the prior quarter, driven in large part by seven basis points of weighted average spread loss in our underlying portfolios. The decline in portfolio yield underscores the unprecedented scale of repricing activity across the leveraged loan market over the past two years, which has meaningfully reduced asset spreads available to CLO equity. Subsequent to quarter-end, we announced monthly distributions for calendar Q2 2026 of 20¢ per share, down from our previously announced Q1 2026 monthly distribution of 25¢ per share. In setting the revised distribution level, the board considered a range of factors, including current and expected portfolio yield, the importance of maintaining balance sheet flexibility, and our objective of supporting net asset value over time. While we believe our CLO equity investments have significant refinancing optionality in 2026, which may offset the effect of loan yield compression, the sheer pace of loan repricing activity throughout the quarter and, frankly, over the past two years ultimately led to the decrease in our monthly distributions. We remain committed to our obligations as a regulated investment company and will continue to distribute at least the required portion of taxable income while evaluating distribution levels as earnings, market conditions, and portfolio positioning evolve. Our portfolio continues to be highly diversified with 97 CLOs across 30 managers, providing exposure to over 1,500 loan issuers spanning over 30 industries on a look-through basis. In an environment characterized by increasing dispersion across sectors, credits, and managers, this diversification remains an important risk management tool. I'll now turn the call over to Dan for a more detailed review of our financial highlights for the quarter.
Dan Fabian: Thanks, Ujjaval, and hello, everyone. As Ujjaval mentioned, for the quarter ended December 31, 2025, we delivered net investment income of $9 million or 44¢ per share. For the quarter ended December 31, 2025, we recorded a net realized loss of $1.1 million and an unrealized loss on investments of $51.8 million. Total expenses during the quarter were $9 million. The GAAP net loss for the quarter was $43.9 million or a loss of $2.14 per share. Moving to our balance sheet, as of December 31, 2025, total assets were $474.7 million. Net assets were $287.9 million and our net asset value stood at $14.02 per share. The fair value of our investment portfolio stood at $473.5 million while available liquidity consisting of cash was approximately $525,000 at the end of the quarter. As of December 31, 2025, the company had outstanding debt that totaled 39% of total assets. During the quarter, we declared monthly cash distributions of $0.25 per share payable in January and March. Based on our share price as of December 31, 2025, this represents an annualized dividend yield of 21.8%. Subsequent to quarter-end, and as Ujjaval previously mentioned, we announced our calendar Q2 2026 distributions this morning. As of January 31, 2026, our estimated net asset value per common share was $13.40. I will now turn it back to Ujjaval, our CEO, to provide an update on the CLO market.
Ujjaval Desai: Thanks, Dan. Before we move on to the Q&A, I would like to provide a brief update on the market environment for corporate loans and CLO equity. The US leveraged loan market remained highly active in 2025, with primary broadly syndicated loan activity exceeding $1 trillion, resulting in one of the strongest years of growth by volume in the last decade. Notably, roughly half of that volume came from repricing amendments, which do not represent new supply for investors. Supply levels were further constrained by below-average LBO and M&A activity, which failed to rebound over the year amid policy volatility and heightened macro uncertainty. The result of limited loan supply coupled with robust investor demand resulted in relentless loan spread compression in 2025. The de-weighted average spread of the Morningstar leveraged loan index dropped 21 basis points over the year to SOFR plus 3.2%, the lowest level since 2012. For the single B subset, the compression was even more pronounced, falling 29 basis points in 2025 and 52 basis points over the past two years. Simultaneously, volatility failed to provide relief as loans rebounded quickly from the post-liberation day tariff shock. CLO liabilities remained range-bound. This resulted in the CLO weighted average cost of capital remaining nearly unchanged from the start of 2025 despite loan spread compression weakening the overall CLO equity arbitrage. Despite tight spreads and limited supply, US managers priced $55 billion in new issue CLOs in the fourth quarter, setting a new annual issuance record for the second consecutive year. This new issuance was predominantly driven by manager-controlled captive funds. While broader credit fundamentals remain generally stable, 2025 was marked by increasing dispersion across the loan market. Sector-specific headwinds, issuer-level challenges, and elevated liability management activity contributed to a more bifurcated environment with stronger credits continuing to refinance while weaker credits faced mounting pressure. A small number of highly visible idiosyncratic credit events added to investor caution and reinforced sensitivity to downside risk even as headline default rates remained near historical averages. Taken together, these dynamics increase differentiation across CLO portfolios and underscore the importance of manager selection, structural protections, and active portfolio oversight as we enter 2026. Looking ahead, in 2026, the loan market is expected to transition away from the repricing-dominated environment of 2024 and 2025 towards modest growth in true new money issuance. Importantly, the composition of supply is expected to improve with LBO and M&A volume projected to increase, supported by lower borrowing costs, improved policy visibility, deregulation tailwinds, and an improving sponsor exit backdrop. On the other side of the coin, CLO liabilities do not need to materially tighten from here for equity use to improve. Rather, a period of relative stability in liability spreads would allow refinancing and reset activity to proceed on an accretive basis, lowering overall funding costs and partially offsetting the impact of loan spread compression. In this environment, execution, market access, and timing will be critical. And we believe a reduction in debt cost may significantly offset loan spread tightening seen throughout 2025 and increase the equity arbitrage throughout 2026, which we view as a welcome development after a technically challenged year. With that, we thank you for your time, and would like to open up the call for any questions. Operator?
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Mickey Schiff Schleien from Clear Street. Please go ahead.
Mickey Schiff Schleien: Yes. Good morning, everyone. Ujjaval, I think you mentioned CLO captive funds. And there's been increasing discussion about them accepting, you know, lower equity returns because they can obviously capture management fees and incentive fees. Could you help us understand how meaningful that group has been in 2025 and, you know, how do you think that group is going to behave going forward?
Ujjaval Desai: Sure. Hi, Mickey. How are you doing? So that's a very interesting question. I think captive funds as a whole, right, have certainly been driving the new loan market, new issue CLO market, rather, for 2025. I think, currently, you know, I would say 95% of CLO equity CLOs being issued are driven by captive funds. For the reasons you mentioned, I think they, you know, there is a need to have the money that has been raised by these funds, and there's a need to invest that capital. And so they can be more long-term focused rather than just looking at the returns that exist today. And, unfortunately, given that the loan market, you know, didn't grow as much last year, but new issue CLO supply continued to grow, that resulted in this supply-demand imbalance. Which meant loan spreads continued to tighten because there was, you know, demand for loans from CLOs. While CLO liability papers stayed wide because a lot of CLOs were being issued. And so, you know, that sort of imbalance was not healthy. Now, looking ahead, you know, we're seeing, as I said in my remarks, we're seeing a lot more new issue loan activity. So hopefully, that will offset the somewhat offset the demand from captive funds, and hopefully bring the arbitrage sort of back towards where, you know, it would make sense for other investors to also start investing in new issue equity.
Mickey Schiff Schleien: If I could just follow-up then, sort of back of the envelope, I understand what you're saying in terms of their ability to capture fees, which third-party investors like yourselves may not be able to do, but there's got to be a point where even taking those fees into account, you know, we sort of reach a trough. Do you think we're anywhere near that trough from their perspective?
Ujjaval Desai: Well, again, I don't want to sort of talk or dispatch any particular group of participants in the market. But the reality is that, you know, if you have a fund raised already, you know, you have to put that money to work. And so there isn't any, I mean, the manager decides, you know, which investment they want to do and when they want to do a CLO. So the return that they get on that deal, you know, depends on how you model it. And so, you know, you can use a lot of different assumptions to make the numbers look good, unfortunately. So I don't know if there is a particular threshold beyond which they will stop investing in their own CLOs. Because, you know, you can assume that, you know, defaults will be lower in the future, you know, spreads will be wider, and you can kind of justify whatever returns you like. So I don't know. It depends on how each person behaves. I think, ultimately, you know, these captive funds, the returns that the investors get is sort of, you know, long-term returns. They're not mark-to-market. So, ultimately, when those funds, you know, reach the end of their life, that's when investors will see what the returns really have been. So until then, you know, it's all up to the managers themselves to be disciplined. And I think we have seen some managers are very disciplined and some are not. So that's, unfortunately, it's very hard to predict exactly how they're going to react given the challenging spread environment they have now.
Mickey Schiff Schleien: I understand. I think in your prepared remarks, you discussed loan spreads, which are, you know, the tightest they've been since the financial crisis. And that's obviously weighed on, you know, spread availability or the arbitrage for CLO equity. With that in mind, you know, how much more refinancing risk or repricing risk do you see embedded in your portfolio?
Ujjaval Desai: Yeah. So that's a great question. I think it sort of depends on sort of day by day where loans are trading. You know, I think right now, you know, the percentage of loans trading above par, which is basically a metric that we can use to estimate or project, you know, what percent of loans would get repriced. That percentage is, you know, fairly low. It's around, you know, 15-20% of the market. It used to be about 60% a couple of weeks ago, so there has been some volatility in the market as we've all seen through, you know, due to AI and software names. And so that has reduced the percentage of loans trading above par. So as of now, I think the repricing activity is going to be fairly subdued. And if the new issue pipeline of loans materializes, which we are hearing, there's a big pipeline and certain deals are coming to the market now, some large ones. So that, I think, will certainly put, you know, should put more pressure on secondary prices in the loan market to stay, you know, at or below par, and that certainly would restrict repricing activity further. So we're, I mean, based on, again, all indications as of now, it feels that the repricing activity has probably reached, you know, a low point, and hopefully spreads in these loan portfolios, you know, will increase going forward if the new issue pipeline materializes.
Mickey Schiff Schleien: And lastly, at least from my perspective, you just mentioned AI. When you talk to your managers, you know, how are they approaching management of that risk? And, you know, what's their thesis of their potential impact on AI on their portfolios?
Ujjaval Desai: Yeah. So I think it's that's obviously a very topical issue right now. It's, I feel it's name by name. You have to look at each credit and analyze the risk of, you know, being impacted negatively by AI. I think where we are today is that the market, the loan market, as well as, you know, equity and other markets, kind of had a knee-jerk reaction and, you know, every name in that subsector got, you know, got sold off. Despite so regardless of the credit quality of that particular company. So I think what we are seeing now is, you know, you know, the better managers are doing a lot of detailed analysis of the portfolio. They've been doing it for a while, obviously, but I think we are hopeful that, you know, this sort of sell-off of the entire sector creates some interesting investment opportunities where certain loans may have sold off too much, and managers can finally trade their portfolio and build par by buying cheaper sort of low-priced assets that have sold off in sympathy with sort of the sector news. So I think it's going to come down to name by name analysis. And I don't think we can just say the entire sector is bad. There will be some names for sure that will get materially impacted. And the work we're doing, the work our managers are doing is sort of looking at those names and identifying which ones are going to be the winners here. And I think that is a welcome despite for CLO equity. Because last year, what we saw was, you know, the names that were struggling, those loans, the prices went down. Everything else kind of stayed at par or above par. That environment, it was extremely difficult for people to build par or trade their portfolio. Because you couldn't if you sold something, you couldn't buy something else to replace that lost par. Now with more kind of broad-based selling in certain sectors, I think that gives you this opportunity to risk manage the book better. And I think that's certainly, I feel it's much better for CLO equity than the other way around. So that's all I would say. I think, again, the whole AI story is still in sort of early stages today. And the impact is going to be more long-term than short-term. So we'll have to see how that plays out.
Mickey Schiff Schleien: I understand. That's really interesting. I appreciate you taking my questions, and I look forward to talking to you soon. Thank you.
Ujjaval Desai: Of course. Thanks, Mickey.
Operator: Your next question comes from Eric Zwick from Lucid Capital Markets. Please go ahead.
Eric Zwick: Wanted to start with a question looking at slide 10 of your deck. You quantify the potential estimated savings from your investments that are either already out of their non-call period or coming to their out of their non-call period in the next five quarters is 28 basis points. And if I compare that to last quarter's slide, the amount was 41 basis points. Curious, one, is that change from 41 to 28 purely a reflection of the, you know, resets or refinances that you completed during the last period, or is there something else that has impacted that number as well?
Ujjaval Desai: Yes. Good question. Yes. That is exactly correct that we completed 10 refinancings last year. Sorry, last quarter, rather. And so those were the highest, you know, cost of liability deals. So if you think about the portfolio, the deals that are callable, you know, that were callable last quarter, were the ones that were done two years prior. And at that time, liability levels were even higher than the subsequent quarter. So there has been a roll down in liabilities costs over time. So we tackled, obviously, the ones that were last quarter ones, the ones that had the highest cost of capital. And so those savings have been achieved. And then now we're going down to the next lot, which as you can see from here, you know, it reaches about 200 basis points and then drops down from there. So it's just a sort of roll down of that kind of the breakdown of the liability cost. So it's solely because of that. There's nothing else really that's contributing to that change in number.
Eric Zwick: I appreciate the confirmation there. And then just thinking about, you know, kind of the action you took with the dividend and, you know, it's clear to see that, you know, the yield effective yield has come down in the portfolio, that the gap NII has come down. However, when I look at the cash flows on a quarterly basis, they've continued to trend higher over the last few quarters. So is there something that has not been reflected in the actual cash flows yet that they're lagging kind of some of the larger portfolio dynamics as well, or how should I interpret that?
Ujjaval Desai: Yeah. So I think the first part of the question, let's take a look at both of them separately. The first one is, yes, so the portfolio yields have come down, and we have talked about why. That's just because of the spread compression in the loan market. And so our portfolio yield, which stands at 11% now, down from 12%. So certainly, there is less income because of that GAAP income, and so we have adjusted our dividend to reflect that. In terms of your question on higher cash flow, that's just because when we refinance those deals, there is extra, you know, additional sort of cash generated through the refinancing activity. And so that's really the reason why the cash flow is higher. We can certainly provide additional details to you separately, but that's not because of the yield. The yield has compressed, there's cash flow because we've been refinancing these transactions.
Eric Zwick: Gotcha. Okay. So I'm trying to, you know, reach the end of your repricings and or, you know, spreads widen that opportunity, lessened potentially, you know, that portion of the cash flows would go down and then, you know, so I guess maybe what wasn't clear there to me was the amount of those cash flows coming from the refinancing has made that figure look even more robust than maybe the, kind of longer-term or maybe the regular run rate of the cash flows?
Ujjaval Desai: Yeah. I think that's the right interpretation. But it depends on the deal. I mean, if we do a refinancing of a deal, sometimes there is, you know, excess cash flow that gets flushed out to the equity. So that's but that's all part of, you know, it's included in the price of the equity, but there is additional cash flow that gets released when a deal gets refinanced. And sometimes, obviously, when you refinance a deal, the go-forward cash flows increase from the refinancing. So that's kind of what we've been saying, that the go-forward yields will increase slowly. But on those deals that get refinanced, that cash flow goes up because you're paying less of a liability. So there's a combination of those factors.
Eric Zwick: Okay. Thank you. And then just thinking a little bit about the NAV from here, maybe trying to look at it from a couple of different perspectives. One, you seem, you know, hopeful, if not optimistic, that the pace of, you know, asset repricing has been reduced at this point, which should alleviate some pressure there. You know, still have the opportunity that we've discussed to, you know, restore some of the arbitrage opportunity by refinancing some of the liabilities and then also, I think, you know, last quarter, you discussed, you know, if in periods of market volatility, you're able to become more active in the secondary market and make some attractive purchases. You know, kind of putting that together, do you feel like, you know, the near-term pressure on the NAV has been lessened at this point, and there's potentially opportunities to see that stabilize, if not even, you know, improve at some point, or is that still, you know, hard to tell at this juncture?
Ujjaval Desai: Yeah. I think the so the two components here. Right? There is the cash flow component, which is dependent on the spread compression and what happens there, and we talked about that. The second component is the NAV itself. The NAV is the, you know, is, you know, is the price of the underlying equity positions we have in our portfolio. And that is dependent on, you know, not just fundamentals, but there are also technical factors there. In particular, kind of how much demand there is for CLO equity in the market. What we saw kind of towards the end of last quarter was that liquidity dried up. So if you as you headed towards year-end, there were fewer buyers of CLO equity. You know, if you look at sort of dealer desks, they were also not buying, so there's just less, you know, less of a buyer base for CLO equity towards the end of last year, and that's continued in January as well. And so that sort of, you know, technical vacuum, if you will, resulted in NAVs continuing to decrease. I think for that to change, obviously, the cash flow increased through, you know, spread increase in loans certainly will help, but you also need just more buyers and people to be just more comfortable stepping back into the CLO equity space. And that is, you know, we'll have to wait and see how that sort of changes. We're hopeful that that would be the case at some point. I think people will think that CLO equity is quite cheap. We believe it's cheap, but if everyone agrees with that, then more buyers step in, and that certainly would help improve the NAV. So but that's much more of a technical analysis, and hard to obviously control that. But I think what we're focused here is just making sure that the portfolio continues to do well. We continue to sort of refinance the deals that we can, you know, risk manage the portfolio, and over time, try to improve the cash flows inside these deals. And then the NAV and then the technical for that will be dependent on the market. But we think CLO equity is fairly attractively priced in the secondary market today.
Eric Zwick: Thank you for taking my questions today. That was very helpful.
Ujjaval Desai: Of course. Thanks.
Operator: Thank you. Your next question comes from Tim D'Agostino from B. Riley Securities. Please go ahead.
Tim D'Agostino: Yeah. Hi. Thank you, good morning. Some great commentary before. I guess the one question on my end and don't know if you've provided in the past or if you can provide it. But you just tell us a little bit, and provide some color on how the portfolio yield and spread has trended quarter to date or year to date? Obviously, compressing in '25, but it would be great to maybe just get a directional idea of what you're seeing so far in 2026. Thank you.
Ujjaval Desai: So, I mean, we can talk about the, I mean, we talked about the loan spreads, how they've compressed. In terms of the portfolio yield, the gap yield of our portfolio, that reached, of course, almost 12% the previous quarter, up to 11%. And if you look at our January numbers, it's 11.4% right now. So it ticked up a little bit in January. 11.4 A lot of that is to do with sort of the refinancing activity that we are undertaking in the portfolio. So I don't know if that was your question, but that's in the slide deck we released this morning.
Tim D'Agostino: Okay. Great. Yeah. No. Thank you so much. I must have missed that. I appreciate taking the question today.
Ujjaval Desai: Of course. Thanks.
Operator: Okay. There are no further questions at this time. As a reminder, if you wish to ask a question, please press star followed by number one. The next question comes from Gaurav Mehta from Alliance Global Partners. Please go ahead.
Gaurav Mehta: Yeah. Thank you. Good morning. I wanted to ask you on the three CLO investments that you made in the primary new issue market. Specifically on the 9.3% yield, which seems like it's lower than the last few quarters. Can you provide some details on that yield and what kind of yields you're seeing in the primary market?
Ujjaval Desai: Yes, Gaurav. Great question there. So the three investments we made last quarter, you know, there were two components to the yield. There is the warehouse income, and then there is the actual yield on the equity portion itself. So, you know, for us, at the end of the day, we look at the overall combined yield that we can earn on those investments. And so it's a combination of the warehouse income as well as the running yield. So when you combine those two things together, the yields that we're buying those equity positions at were pretty strong, sort of mid-teens type of yield. So that's why there's a, you know, there's a bifurcation. There's warehouse income under the 9.8% yield on the investments themselves. So we look at it as a package. And so those look pretty attractive. In terms of the overall new issue kind of activity, you know, it's an interesting dynamic there. I think we've been saying it that new issue equity hasn't looked that interesting all of last year and continues to look, you know, less attractive compared to secondary today. And you can see that in our stats. You can look at our stats in terms of how many new issued deals we're buying. In 2024, you know, our investments were split more 80% new issue, 20% secondary. Last year, that split went to around fifty-fifty, and a lot of that was driven in the first half of last year. And then sort of as we reached the second half of last year and now this year, the new issue activity has been very, very subdued. So to the extent we find the new issue deal that looks attractive on an overall package basis, we will certainly evaluate it, and we are doing a lot of that right now. But I think right now, we still find secondary equity to be, you know, very, very attractive relative to new issue.
Gaurav Mehta: Alright. Thanks for that color. Also wanted to follow-up on the 11.4% yield that you reported in January. I think you mentioned part of that is driven by the refinancing in your portfolio. And does that reflect the 52 basis points that you reported in the slide deck, like complete 52 basis points or is there more refinancing to come that could help the yields?
Ujjaval Desai: Sorry. Let me just see. 52 basis points. Which 52 basis points are you referring to?
Gaurav Mehta: I think on the slide deck, number 10, it says 52 basis point savings expected in Q1 2026. I think in your remarks, you said that 11.4% was partly due to refinancing. So I guess my question is that 11.4%, does that reflect the complete 52 basis points or that partial and there could be more improvement in the yield because of refinancing in this quarter?
Ujjaval Desai: Yeah. So that's right. So I think the way the yield works is that, you know, you will get some credit for deals that are, you know, callable immediately. And to the extent, you know, as you roll forward, you start to get credit for the next few months of deals. And then you, you know, but you don't get credit for the deals in the subsequent quarters. So some of that is reflected in the 11.4%. There will be some more increase from that. But then the second quarter deals are going to get closer to the non-call period, and then you start to get benefit from those deals as well as long as we can complete those refinancings. As long as the liability market stays where it is right now, then those will also get, you know, pulled up into our yield, and that should help the yield as well. So since we can't refinance all these at the time, we are doing obviously quarter by quarter. So the most immediate quarter some of that gets reflected in the yield. As we start doing them. But then the rest of them, you know, will get reflected over time.
Gaurav Mehta: Okay. Thanks. My next question is on the dividend, $0.20 monthly rate. I was wondering if you could maybe provide some more color on how you got to that number and do you expect that dividend to be covered by NII at some point?
Ujjaval Desai: Yes. So the as we said earlier, the Board decided to set the dividend level at 20¢ per month based on kind of our current yield of the portfolio, but the expectation for where the yields are going to go. Right? That depends on sort of how much refinancing activity we can do, what's happening in the loan market, the loan spreads going forward. It also depends on sort of what sort of, you know, repositioning we can do in the portfolio to improve our yield. So we feel that based on that, 20¢ is a prudent number to have. And yes, you know, the goal here is to be able to cover that over time. And, obviously, right now, you know, with the yield at 11.4%, you know, we're not covered today, but that's the goal based on the expectation based on portfolio rotation, the market changes, you know, the expectation is for us to be able to cover that.
Gaurav Mehta: Alright. My last question on the leverage, your debt to assets, at 39%. Is that close to where you want the leverage to be or how should we expect about your leverage in '26?
Ujjaval Desai: Yeah. So I think the leverage ratio of 39% is, you know, it's fine right now. We're going to evaluate that and see, again, depending on our view on where, you know, where our NAV is going to go, our view on what's happening into the cash flows. We're constantly monitoring that leverage ratio. We feel comfortable with it right now.
Gaurav Mehta: Alright. Thank you. That's all I have.
Ujjaval Desai: Excellent. Thanks.
Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect. Thank you, everyone.