FS KKR Capital Corp(FSK)Q1 2026 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to FS KKR Capital Corp.'s First Quarter 2026 Earnings Conference Call. Please note that this conference is being recorded. At this time, Caitlin Welch from FS KKR Capital Corp, Investor Relations, will proceed with the introduction. Ms. Welch, you may begin.

Thank you. Good morning, and welcome to FS KKR Capital Corp's First Quarter 2026 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 this morning. 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 March 31, 2026. The webcast and the presentation are available on the Investors 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's future performance or financial condition or the economy generally. These forward-looking statements are not guarantees of performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict. 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 first quarter earnings release that was filed with the SEC on May 11, 2026. 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 President; and Steven Lilly, Chief Financial Officer. Also joining us on the call today are Co-Chief Operating Officers, Drew O'Toole and Ryan Wilson. I will now turn the call over to Michael.

Thank you, Caitlin, and good morning, everyone. Thank you all for joining FSK's First Quarter 2026 Earnings Conference Call. As we start this morning's call, I would like to highlight two main points. First, it was a challenging quarter as our net asset value declined 9.9% per share and our net investment income was $0.42 per share. Our NAV decline is attributed to portfolio company names we've discussed on these calls in the past, new nonaccrual investments and mark-to-market moves across certain segments of our portfolio. Second, as announced this morning, meaningful strategic actions are being taken to help improve the financial and trading profile of FSK. Dan is going to walk through the details of the four components here in a minute, but the goal of these actions is to provide the necessary support for FSK to navigate what will be a period of transition to achieve stability, which we expect will include a smaller size and a better positioned balance sheet over time. From a dividend perspective, our Board has declared a second quarter distribution of $0.42 per share which is consistent with our dividend policy of paying 100% of our GAAP net investment income on a per share basis. As we have indicated on prior earnings calls, we expect our quarterly distribution level will fluctuate as our net investment income fluctuates on a quarter-to-quarter basis. And with that, I'll turn the call over to Dan.

Thank you, Michael, and thank you, everyone, for joining our call. It is an important call for FSK and we have a lot to walk through. So I'm going to take a different approach with my comments this morning. I'm going to begin by walking through the strategic actions we are announcing today. Following that, I'm going to address a handful of key questions and concerns that we think are on the minds of investors, including some additional information on the portfolio. Hopefully, at the conclusion of my remarks, everyone will gain a better appreciation for why after a great deal of thought and consideration, we are announcing these various strategic actions. Before getting into specifics, I would like to say that we are disappointed by our recent performance. We will get into more in the portfolio section of my remarks, but during our ongoing monitoring of the portfolio and our regular quarterly review process, we invested time stress testing the portfolio against a number of potential downside scenarios, including certain macroeconomic pressures and idiosyncratic name-specific events. As a result, we and KKR are announcing strategic actions that we think will benefit shareholders. This ongoing analysis helps support our view of a disconnect in the trading price of FSK versus its intrinsic value. First, KKR announced that it intends to commence a $150 million fixed-price tender for FSK stock at a price per share of $11. The tender price represents a premium to Friday's closing price as KKR believes the stock is undervalued at that level. The purpose of the tender is to express that view through direct action by providing liquidity to shareholders. Second, KKR is making a $150 million investment into FSK through a cumulative convertible preferred security with an initial conversion price of $18.83, the March 31, 2026 NAV per share. The convertible preferred stock has a starting dividend of 5% in cash or 7% PIK at FSK's option and is redeemable at FSK's option in cash or, in certain circumstances, in shares. It's redeemable at KKR's option after six years, which is outside the maturity date of all FSK's existing indebtedness. After six months at the option of the holder, it is convertible into FSK common stock at the conversion price then in effect. Additional details surrounding the convertible preferred stock can be found in our earnings release and also in our earnings supplement on our website. The third component is a share repurchase program. FSK is announcing a $300 million share repurchase authorization, which reflects our conviction that buybacks are an efficient use of capital with strong ROE characteristics. The program will be implemented following the tender offer period, and we expect the program will repurchase shares on a timeline commensurate with investment repayments the fund receives while simultaneously being mindful of the fund's total leverage level. During the period when the fund is repurchasing shares, we will reduce the fund's new investment originations while focusing primarily on portfolio construction, supporting existing portfolio companies, reducing leverage and repurchasing stock. And finally, beginning with the second quarter of this year, to help support net investment income and, in turn, our quarterly distribution, the adviser will begin waiving its portion of the subordinated income incentive fee earned as joint owner of the adviser. To be clear, this waiver applies to 50% of the subordinated income incentive fee that otherwise would be paid. The incentive fee waiver will continue for four quarters, after which time the Board and the adviser will review the fund's overall fee agreement consistent with their obligations under the Investment Company Act. The adviser and KKR are focused on taking immediate and impactful actions with regards to supporting FSK during this period of transition toward more diversified investments focused on first lien securities, asset-based finance and other accretive investments, all sourced using the broad KKR origination footprint. During this period, FSK intends to utilize proceeds from the convertible preferred issuance for additional liquidity and to fund a portion of the $300 million stock buyback plan. FSK intends to continue to offer shareholders a competitive quarterly distribution, aided by the income incentive fee waiver, and FSK will focus on operating within its target leverage ratio. These actions demonstrate our conviction in the long-term value of the platform, and we believe they create strong alignment with shareholders as we execute on improving performance. Today's announcement should be viewed as part of a large effort to drive value for shareholders. We will continue to be focused on our stock price, especially if it continues to trade at a wide discount to net asset value. Turning to our results and the portfolio, I'm going to focus my comments on three areas: first, details related to the quarterly NAV decline at FSK; second, an update on our software exposure; and third, the current state of the portfolio beyond just the quarterly results. Beginning with the quarterly NAV decline: overall, the NAV decline during the quarter was driven by company-specific credit events, which we consider to be more permanent in nature, and credit spreads and other mark-to-market moves that we believe would not be considered permanent impairment. These include moves on software and services names. The name-specific credit events include several 2021 and 2022 vintage loans being impacted by the combination of the lingering effects of the higher inflationary and higher interest rate environment, which reduced free cash flow levels for many companies and created issues specific to certain portfolio companies, including labor rates and changing customer behavior. These factors have continued to impact specific legacy investments, including ATX and Production Resource Group, which together represent approximately 15% of the total NAV decline, as well as current adviser investments including Medallia, Cuba Corp and Affordable Care, which together represent approximately 33% of the total NAV decline. We are taking proactive actions together with other lenders where applicable to support these businesses through capital infusions or providing operational resources and oversight, including bringing in new management teams to drive stability and growth. Each company faces challenges and additional risk factors which will take time to work through. Individual names could deteriorate further. Separate from the names mentioned above, we believe a meaningful amount of the remaining portfolio markdowns relate to credit spreads and other mark-to-market moves that are not considered permanent impairment. Looking back at our collective body of work, since April 2018, we have invested approximately $34.5 billion in new transactions at an unlevered IRR of approximately 8.7%, and we have put together a well-balanced liability structure. But with the benefit of hindsight, let me review the path we have taken. While we have maintained healthy portfolio diversification, we are focused on further diversifying our portfolio and our top 20 investments. In 2021, we invested in what we believe to be high-quality second lien and junior debt deals. Unfortunately, some of these investments have underperformed. We avoided ARR loans generally as we do not like that risk profile, but we did invest in Medallia considering the strength of the business at the time and the outsized equity check. This name has underperformed, and it was placed on nonaccrual during the quarter. For reference, Medallia was marked down to $0.54 in the quarter. For the second topic, I'd like to provide additional color on our assessment of AI risk in our total portfolio and more detail on our software and services exposure. Our AI risk assessment was completed across our entire portfolio and used the 19-metric framework developed in partnership with KKR's private equity team. Based on our latest review, we believe that approximately 86% of our portfolio reflects low AI risk, 11% medium risk and 3% high risk. Our software and services portfolio currently represents 16% of our investment portfolio and is diversified across 52 issuers. Based on our current assessment, we believe our software and services portfolio remains defensively positioned, typically falling within three categories which we believe carry low near-term risk of AI disruption. The first is businesses where the data utilized is proprietary, sensitive or the industry is highly regulated. The second is businesses where the software solution is deeply embedded or mission-critical with low to zero tolerance for error. And third, businesses which have a substantial competitive moat, including high customer retention rates and advantage in deploying AI themselves. Our exposure also is focused on larger businesses with meaningful cash equity value support with average and median EBITDA levels of approximately $165 million and $118 million, respectively, and a median LTV of approximately 38%. Finally, our overall software and services portfolio continues to experience both average and median EBITDA growth on a quarter-over-quarter basis. While we remain comfortable with these credit metrics, we are mindful of slowing growth and lower-than-expected valuation multiples in the coming years for the space. While we recognize these issues will likely impact equity holders more than credit providers, they generally will extend hold periods and potentially require additional capital to delever lenders in advance of any maturity extension or refinancing. Finally, we are continuing to update our AI risk framework across all sectors, recognizing that this technology is evolving rapidly and has the potential to affect businesses across multiple industries, even businesses we might consider to be low risk today. Let's move to the third point, the current state of the portfolio more generally. We segmented our portfolio to understand where incremental risk may reside. When we analyze our first lien investments currently marked at 90 and above alongside our asset-based finance portfolio and our joint venture, these assets collectively total approximately 81% of the portfolio. We believe these investments are better positioned and that much of the forward potential downside risk is more likely to be concentrated elsewhere in the portfolio, although to be fair, forward events could create downside in this part of the portfolio as well versus current fair market value. The remaining approximately 19% of the portfolio are first lien loans marked below 90, second or nonfirst lien loans and restructured names. This bucket would include names like athenahealth, which is performing and is 3.2% of the portfolio. Third, all legacy names, regardless of current performance, including names such as JWA and Global Jet, where current performance has been strong. These total 3.3% of the portfolio. We believe this helps support our view of a disconnect in FSK's current stock price. Over the next 12 to 18 months, the adviser with the assistance of the KKR Credit team will be focusing on the following: reducing new portfolio company investments, reducing leverage levels and maintaining sufficient liquidity for the existing portfolio companies; supporting the share repurchase program while continuing to appropriately manage the liability side of the balance sheet; rotating certain assets, including portions of larger-sized positions, certain lower-yielding assets and certain asset-based finance exposures; and continuing to pursue the strategic sale of certain individual portfolio companies where we maintain meaningful influence. These are generally minority private equity positions where the goals are simple: maximize value, but at the same time be focused on rotating the names into income-producing investments. We look forward to keeping you updated on future calls as it relates to the progress on all these fronts. Turning briefly to the investing environment: during the first quarter of 2026, we originated approximately $499 million of new investments. Almost all of these new investments related to deals committed during 2025 or our add-on financings to existing portfolio company names, usually through delayed draw term loans. Our new investments, combined with $710 million of net sales and repayments, equated to a net portfolio decrease of $211 million during the quarter. As of March 31, nonaccruals represented 8.1% of our portfolio on a cost basis and 4.2% of our portfolio on a fair value basis. This compares to 5.5% of our portfolio on a cost basis and 3.4% of our portfolio on a fair value basis as of December 31. And with that, I'll turn the call over to Steven to go through our financial results.

Thanks, Dan. As of March 31, 2026, FSK's investment portfolio had a fair value of $12.3 billion consisting of 236 portfolio companies. At the end of the first quarter, our ten largest portfolio companies represented approximately 20% of the fair value of our portfolio compared to 19% as of the end of the fourth quarter. We remain focused on senior secured investments as our portfolio consisted of approximately 60% first lien loans and 64% senior secured debt as of March 31. In addition, our joint venture represented approximately 14% of the fair value of our portfolio as of the end of the first quarter. As a result, when investors consider our entire portfolio, looking through to the investments in our joint venture, then first lien loans total approximately 69% of our total portfolio and senior secured investments totaled approximately 73% of our portfolio as of March 31. The weighted average yield on accruing debt investments was 9.7% as of March 31, a decrease of 30 basis points compared to 10% as of December 31. As a reminder, the calculation of weighted average yield is adjusted to exclude the accretion associated with the merger with FSKR. Turning to our quarterly results: our total investment income was $304 million for the first quarter, a decrease of $44 million compared to the fourth quarter. The primary components of our total quarterly investment income were as follows: total interest income was $224 million, representing a decrease of $32 million quarter-over-quarter. The decline in interest income was driven by lower base rates and investments placed on nonaccrual during the quarter. Fee income totaled $80 million, a decrease of $12 million quarter-over-quarter. Our total dividend and fee income is summarized as follows: $60 million of dividend income from our joint venture, other dividends from various portfolio companies totaling approximately $18 million during the quarter, and fee income totaling approximately $2 million during the quarter. As a reminder, on February 23, 2026, our partner, South Carolina Retirement Systems Group Trust, increased its equity ownership percentage in our joint venture from 12.5% to approximately 21% and our ownership percentage changed from 87.5% to approximately 79%. This purchase was executed at the then-current net asset value of the joint venture. This change in ownership, therefore, is reflected partially in the dividend income from the joint venture in the first quarter and will be fully reflected beginning in the second quarter. Our total expenses were $187 million during the first quarter, which is a decrease of $26 million compared to the fourth quarter. The primary components of our total expenses were as follows: our interest expense totaled $105 million, a decrease of $5 million quarter-over-quarter. Our weighted average cost of debt was 5.3% as of March 31. Management fees totaled $48 million, a decrease of $2 million quarter-over-quarter. Income incentive fees totaled $25 million, a decrease of $3 million from the fourth quarter. Other expenses totaled $9 million, an increase of $2 million quarter-over-quarter. A detailed bridge in our net asset value per share on a quarter-over-quarter basis is as follows: our ending 4Q 2025 net asset value per share of $20.89 was increased by GAAP net investment income of $0.42 per share and was decreased by $2.00 per share due to a decrease in the overall value of our investment portfolio. We experienced a $0.48 per share reduction as a result of the total quarterly distribution paid during the quarter. With some of these activities, our March 31, 2026 net asset value per share was $18.83. From a forward-looking perspective, with respect to net investment income, we want to be cognizant, as we have discussed today, that we expect to have activity with regard to portfolio rotation, which we expect will result in a smaller sized balance sheet. Coupling that activity with the expected share buyback, we currently expect net investment income to be in the range of 8% to 9% of net asset value on an annualized basis over the coming quarters. We would add that this level of net investment income will depend on numerous factors, including geopolitical risks, the overall U.S. economy and the overall health of our investment portfolio. As of March 31, our gross and net debt to equity levels were 138% and 131%, respectively, as compared to 130% and 122% at December 31. At the end of the first quarter, approximately 51% of our drawn balance sheet and 38% of our committed balance sheet was comprised of unsecured debt. In terms of anticipated second quarter activity, with lower new net deployment and a line of sight of certain portfolio repayment moves that are ongoing, we are expecting net repayments in excess of $500 million. I would note that there could be some timing differences to when these events actually occur and certain portfolio rotation activities could occur after June 30. On May 8, we completed an amendment to our senior secured revolving credit facility whereby, among other things, we reduced the size of the facility to $4.1 billion. We reset certain covenants and the applicable borrowing spread was increased by 12.5 basis points. After giving effect to this amendment, our pro forma March 31, 2026 liquidity was $2.3 billion, which included pro forma undrawn debt capacity, cash and net receivables for open trades. And with that, I'll turn the call back to Michael for a few closing remarks before we open the call for questions.

Thank you, Steven. While we believe that FSK is not alone in dealing with specific issues affecting individual portfolio companies, we recognize that our recent NAV volatility has been meaningful. With that in mind, the actions being announced today are focused on achieving long-term stability for the fund. And we believe the course of action we are pursuing represents a beneficial path for shareholders. As always, we appreciate you joining us today. With that, operator, we'd like to open the line for questions.

The first question is from Kenneth Lee of RBC Capital Markets.

Just one on the tender offer process there. Maybe just talk about how you went about setting the $11 a share offer price despite intrinsic value that's potentially higher there?

Ken, thanks for the question. I think on the tender, we tried to be pretty detailed in the prepared remarks and in the press release due to securities law points related to the way tenders work. We can't comment much beyond that. But I think you can note the price versus either closing levels or recent activity over a 30- or 60-day period. I would just refer back to the press release and the prepared remarks because of that.

And just one follow-up, if I may. In terms of the portfolio rotation, wondering how active you could be in terms of rotation. Is it going to be dependent on prepayments? Or are there other factors or other ways that you could be a little bit more active in terms of rotation there?

No, I'd say that. I think it's a little bit of both. Obviously, there's a consistent amount of repayments in a portfolio like this, while they could be a little bit slower with what's going on market-wise, I think we still expect to see that. Steven did mention the $500 million-plus number of what we're expecting in Q2. And then we have been active, and there's been some pretty, I call, good demand for us kind of trimming some of the larger names of the portfolio or certain lower-yielding assets or certainly the ABF assets that we think we can optimize in a better sort of format. So it's probably a little bit of everything, but I think you should expect we'll be active on the portfolio side.

Our next question comes from the line of Arren Cyganovich of Cu Securities.

Dan, with now limited to supporting existing investments for new investment activity, how is this going to impact your overall platform in terms of direct lending and how much assets do you have in other vehicles that will keep you relevant from an investing standpoint?

Yes, Arren, thanks for the question. I would just make two points. I think I would think about it more in the context of reduced new investing activity. I think we want to be mindful about the buyback and be mindful about leverage. But I think it will be reduced and it could be meaningfully reduced in size as we look to continue to build further diversification. If you do think about it in the confines of the overall credit business and the private credit business, on one hand, this was a very material part of total AUM. If you went back a handful of years ago, all the way back to April of 2018, you think of our total just put on the direct lending side, that's roughly $40 billion. You look at the private credit side in totality, that's $140 billion of AUM. You look at the credit business overall, it's $330 billion of AUM. So this is an important and meaningful pool of capital, but the business has grown around it. I think that's a good thing because it gives us more firepower, and I think we're able to build over time more diversification here with it being a smaller size of the overall footprint.

Okay. And then the second question I have is it's good to see the waiver on the subordinated incentive fee. Why is the adviser not fully participating in that waiver as well?

Yes. I mean I'd start by talking about just thinking about the total package here. We're active on the convertible preferred, we're active on the tender, we're mindful about the waiver and what that can mean for net investment income and dividends. So I wouldn't think about it in isolation but rather in terms of the total package.

Yes, and thank you for the question. I'd say first, we fully appreciate and support the strategic initiatives. We think they're a really important step forward. While we've all not been happy with the performance, we believe the dynamic will change. We believe that this is in the best interest of the fund and the shareholders. Dan and I and our firm have spent a lot of time with the Board mapping out what we thought we could do going forward. I think it has to be looked at in that lens. I conclude by saying the nature of this partnership has been a very strong collaboration, and I think that ultimately will yield positive results for our investors and for the fund.

Our next question comes from the line of Robert Dodd of Raymond James.

A special dividend is not part of this discussion. So I just wanted to ask about how the spillover, etc., is going to be managed? I mean, obviously, if there's a buyback, still your per share goes up; if you were to distribute still, the leverage goes up, right. There's lots of moving parts in what's the approach going to be on managing that? Because obviously, if the dividend does come down in the dividend, if it comes down, then you run up against the limits on how much you can roll over as well. So what's the approach going to be on managing that component?

Robert, it's Steven. Thank you for the question. It will not surprise you at all that we wanted to have certainty with the discussions that have been going on internally and also with the Board, as Michael says, over the last decently long time period and have certainty on those actions and have certainty with our financing agreements. So I think during the course of the year, as we mentioned on our last call, we received the K-1s from partnerships and things that do affect our spillover balance on an annual basis. We'll learn more about that in the August–September time frame. So I think it's very reasonable for you and the market to conclude that later in the year we'll certainly be talking about that. It was important to put the items that Dan mentioned in his prepared remarks in place first.

Got it. Then a second question is more, Dan, I think you said after talking about the specific names, ATX, PRG, Medallia, Affordable Care, you said individual names could deteriorate further. How much—I mean, obviously, the valuations right now are our best effort valuations, right? But what's your confidence level that there's going to be stability going forward? Or is it more likely that there would be additional deterioration in fair value if various macro uncertainties persist? Obviously, it's your best assessment of fair value right now, but how much variability could there be in the downside on that?

Thanks for the question. I think you're right—these are clearly our best judgments of value today. We are cognizant of what's going on macro-wise, geopolitical developments, sector-specific commentary around software and some healthcare subsectors. Our entire goal and focus here is maximizing value in each of these situations, but I think we are being realistic and mindful about current market conditions. We are doing a lot of active work on these names. Obviously, something like Medallia for the quarter was painful, but I think that company with a lower capital structure will be in a better spot to be able to grow; they probably have not been able to invest in things like AI enough. We made some significant management changes to a handful of portfolio companies. There's been some really good progress on names like JWA and Global Jet. So activity is ongoing across the board; it's just a matter of how these situations play out over time.

Our next question comes from the line of Finian O'Shea of Wells Fargo Securities.

Dan, so on the KKR parent call, the team sort of went out of their way to outline that performance issues aren't there, at least to this extent, across the direct lending suite. Can you sort of outline why that is? What are the inputs that led to greater losses here? And are those fixes you're going to make where performance will converge over time?

Fin, thanks for the question. You were a little low volume, but I think I got it. On FSK itself, and we've talked about this over an extended period, clearly some of the NAV volatility has been caused by legacy names. By definition, they wouldn't be in the pools of capital you're referring to. That's sort of point one. Point two, we historically have not had a dedicated junior debt fund on the institutional side until more recently. The funds you would be referring to were direct lending only or ABF only—various dedicated strategies. Where we have felt some NAV volatility, especially in recent quarters, some of these 2021 and 2022 vintage names that we and others felt were very high quality when they were done have shown volatility. Those names are pretty broadly held across the market. The nature of this vehicle is a little different—these funds are IRR-focused, not a consistent dividend payer. But looking at the body of work, $34.5 billion of new investments at an 8.7% unlevered IRR, we are disappointed by the recent volatility in a handful of names, but we think many of these issues are idiosyncratic and manageable with active engagement and time.

Yes. Just for the follow-up, you outlined the company will likely shrink pursuant to buybacks and delevering. Does that go beyond the buyback program you just put in place?

You mean beyond the $300 million buyback you announced? No, that's the current program. The other side of this being completed is how we see the balance sheet evolving. I think the buyback is important and we intend to get that done. It will be subject, as we mentioned in our prepared remarks, to repayments coming in and timing. We do want to get leverage down to more inside our target range. The combination of those two things would move us closer to the desired size and leverage profile. We will continue to monitor the stock–NAV disconnect and act if there's still a wide gap.

And our next question comes from the line of Rick Shane of JPMorgan.

Look, my first question is going to be a little ironic given all my questions previously about repurchasing shares. But as you sort of pursue this path, one of the headwinds to your multiple is the relatively low return on capital. I'm curious how you, as you sort of move through this, manage capital profitability to the extent that the business may be descaling?

Yes. I appreciate the question. I think there's a couple of pieces. We have had and currently have a low amount of fee income. In the environment we're heading into, even with lower new deals, we can see that fee income increase. We've talked about focusing on reducing non-income producing assets as well as nonaccrual assets. We saw some nonaccrual moves this quarter with Medallia and Affordable Care. That will take a couple of forms—some will be regular asset sales. You would have heard us on prior calls talking about some of the historic names in the portfolio like JWA or Global Jet that have paid out recent dividends, most of which has been return of capital. That is another way to restore capital profitability. So we need to be laser-focused on that side because it is one of the more accretive things that drops to the bottom line.

Got it. And then there's a little bit of a fine line between tactics and corporate governance, which obviously we have to think about. Can you help us understand a little bit more about the decision and how you balance incentives between the two managers here? And if this dynamic creates any divergence in terms of what each side's incentives might be?

Thanks for the question. I would go back to a couple of points. As I went through in the prepared remarks, we spent a lot of time going through all the various details and options on these proposals as a group. As Michael said, the partnership has been strong. We spent a lot of time discussing these with the Board as well. This has been an open and transparent conversation throughout. A lot of work went into announcing the components of this action plan, and we believe they are aligned in the best interest of shareholders.

Our next question comes from the line of Paul Johnson of KBW.

I appreciate the supportive actions from the adviser as well as the high conversion rate on the preferred. But just curious as to why that was, I guess, the more optimal decision on the preferred capital infusion as opposed to something like an infusion of common equity at NAV or even committing some to the tender offer?

Paul, thanks for the question. I would go back to thinking about the totality of the package. We were trying to address a number of different pieces between the convertible preferred, the tender, the share repurchase program and the incentive waiver. The convertible preferred provides liquidity, supports potential share repurchases, and balances the impact on net investment income and dividends. The tender provides immediate liquidity and support to the share price. The combination of these elements was designed to address multiple objectives simultaneously.

I'm showing no further questions at this time. I will now turn it back to Dan Pietrzak for closing remarks.

We wanted to thank you for your time today. We know there's a lot of information here, and we're available at any time for follow-up questions as needed. Thank you.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Goodbye.