CSWC Q2 2027 earnings call transcript, November 3, 2026

Thank you for joining today's Capital Southwest second quarter fiscal year 2027 earnings call. Participating on the call today are Michael Sauner, Chief Executive Officer, Chris Reberger, Chief Financial Officer, Josh Weinstein, Chief Investment Officer, Amy Baker, Executive Vice President of Accounting, and Morgan Stewart, Director of Communications. I will now turn the call over to Morgan.

I would like to remind everyone that in this call, we will be making certain forward-looking statements. These statements are based on current conditions, currently available information, and management expectations, assumptions, and beliefs. They are not guarantees of future results and are subject to numerous risks, uncertainties, and assumptions that could cause actual results to differ materially from such statements. For instance, information concerning these risks and uncertainties see Capital Southwest publicly available filings with the SEC. The company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances, or any other reason after the date of this press release, except as required by law. I will now hand the call over to our president and Chief Executive Officer Michael Sarner. Thanks, Morgan. And thank you, everyone, for joining us for our second quarter fiscal year 2027 earnings call. We're pleased to be with you today and look forward to discussing our results for the quarter. Our portfolio continued to deliver consistent results during the second fiscal quarter. We generated pre-tax net investment income of $0.58 per share, which was supported by strong recurring earnings. We generated pre-tax net investment income of $0.58 per share, which was provided by strong recurring earnings.

Our undistributed taxable income balance remains robust at $0.92 per share, reflecting consistent realization activity. Remain confident in our ability to continue covering both our regular and supplemental dividends through the earnings power of the portfolio. Our board of directors has declared a $0.58 per share regular dividend for the December quarter, paid out monthly over October, November, and December 2026. They have also declared... ...a quarterly supplemental dividend of $0.06 per share, payable in December, bringing total dividends declared for the third fiscal quarter to $0.64 per share. Deal flow in the lower middle market has been robust. The quarter was exceptionally active on the origination front, driven by both the strength of our sponsor relationships and the continued growth of our investment team. We closed a record $391 million in total new commitments across... 14 new portfolio companies and 16 existing portfolio companies. Our new portfolio companies this quarter span 11 industries, reflecting our ability to source deals across the lower-middle market. For the new deals that closed during the September quarter, weighted average senior leverage was 3.4 times debt to EBITDA and weighted average loan-to-value was 33%, providing a substantial equity cushion beneath our debt. A recent... Origination success has been supported by the sizable growth of our organization. Over the past 18 months, we have expanded our team from 27 to 46 employees, significantly increasing our sourcing and underwriting capacity. CapTrin, our strategic joint venture with Trinity Capital, has also broadened the range of opportunities we can competitively pursue. Together, these efforts have helped us build a substantially larger...

pipeline. In fact, over the last 12 months, we have screened approximately 1,600 opportunities, up from 1,200 in fiscal year 2026 and 1,000 in fiscal year 2025. And while our pipeline has grown, we remain highly selective with a close rate below 2%. We believe this reflects both our disciplined underwriting process and the depth of our relationships and sourcing capabilities in the lower middle market. Looking at the current macro-lendering environment, it seems more likely than not that we're heading back toward a higher-for-longer rate environment. In a recent article, I discussed how a renewed rise in base rates could affect BDCs. The short answer is that higher rates aren't simply good or bad for BDC earnings. Higher rates will certainly increase portfolio yields, but they could also put pressure on borrower cash flows and raise the BDC's own cost of capital. I think if... If rates move higher, you could see greater separation across the industry, with credit quality, portfolio company leverage, funding costs, and balance sheet liquidity becoming increasingly important differentiators. For Capital Southwest, we believe we are well positioned if rates move higher. Our assets are predominantly floating rate, much of our debt is fixed rate, and our portfolio companies have conservative leverage of approximately 3.7 times. We've also gained... ...experience and insight from navigating the previous rate cycle, when SOFR rose above 5.5% and saw firsthand how our lower middle market portfolio performed. While every rate cycle is different, we believe the combination of our asset sensitivity, liability structure, and conservative portfolio leverage positions us well if base rates move higher. Beyond our core balance sheet activity, we continue to broaden the ways we access attractive...

...investment opportunities. This quarter, we partnered with Trinity Capital to form Desert Star, our second joint venture together, with a $25 million equity commitment. Desert Star gives us access to the technology lending market, allowing us to gain exposure through a granular portfolio of investments in an area where we have not historically focused. We expect to deploy our equity commitment over several years as we take a measured approach to investing in this area. the market. Turning to our capital structure, we significantly strengthened our balance sheet during the quarter. We issued $350 million of five-year unsecured notes and amended, extended, and upsized our corporate credit facility. This amendment meaningfully reduced our cost to capital while providing additional capacity and flexibility to support future growth. Following these transactions, we have no debt maturities until 2029. In connection with the unsecured note issuance, we also entered into our first interest rate swap. Chris will provide more detail on these activities in his remarks. Rounding out a solid quarter, we raised $67 million in gross equity proceeds through our ATM program. Our ability to access this program continues to be a meaningful, competitive advantage for Capital Southwest. In a market where fewer publicly traded BDCs are trading above book value. Our improved price-to-book valuation gives us a differentiated ability to raise growth capital that is secretive to NAD and supportive of long-term shareholder value.

I will now hand the call over to Josh to review more specifics of our investment activity.

Thanks, Michael. As previously mentioned, this quarter we deployed a total of $391 million across new and existing portfolio companies. This consisted of $314 million. of first lien senior secured debt and $13 million of equity across 14 new portfolio companies. Across 16 existing portfolio companies, we invested $63 million in first lien senior secured debt and $1 million in equity this quarter. Additionally, during the quarter we generated $74 million of proceeds from portfolio company exits at a weighted average IRR of 14.5%. Our credit portfolio ended the quarter at $2.2 billion representing 28% year-over-year growth from $1.7 billion as of September 2025. Importantly, 100% of new portfolio company debt originations were first lien senior secured and as of quarter end, 99% of the credit portfolio remained first lien senior secured with a weighted average exposure per company of only 0.8%. This level of portfolio granularity reflects our disciplined approach to risk management as we continue to scale the balance sheet. The vast majority of our deal activity continues to be first lien senior secured loans to private equity backed companies. Approximately 92% of our credit portfolio is sponsor backed, which provides strong governance, operational support, and when needed, the potential for junior capital. In the lower middle market, we frequently have the opportunity to invest in our portfolio company's equity. When the thesis is compelling, we take a minority position, Perry Pursu, alongside the private equity sponsor.

As of quarter end, our equity co-investment portfolio consisted of 102 investments with a total fair value of 192 million, representing 8% of our total portfolio. This equity portfolio was marked at a hundred percent. 120% of our costs representing 31.6 million of embedded unrealized appreciation or 48 cents per share. These positions continue to give our shareholders meaningful upside participation in growing lower middle market businesses driven by both operational improvements and strategic add-on acquisitions. Our market remains competitive with both bank and non-bank lenders continuing to pursue high-quality opportunities. While that competition has resulted in tighter pricing over the past several years, we have begun to see spreads widen over the past few quarters. New originations this quarter had a weighted average spread of 6.5%. Despite the competitive environment, the depth of our sponsor relationships and the continued growth of our investment team are expanding the opportunities we are able to originate. Since launching our credit we are able to use an investment. We have a great idea of understanding how to obtain coverage in the future. We are able to provide good opportunities for this individual success. Our investment team will continue to support that metric has been routinely followed by 1.2 million million dollars. We are able to add coverage of the cash as a leader. We will also azure the cash R&D funding to support the consumer for the business to support the local market. This resource is a way for all of the business. This province, there will be a lot of time between the country and the country with the national environment and the country, which is the state of the country. This place will receive a lot of money. This has been a few Natalie and the country with the country. This is a very large, but this is a pretty good conversation. It has the activity that is a very important one that can lead to the country's senior.

In 2015, we have completed transactions with more than 145 private equity firms nationwide. Over the last 12 months alone, we have closed new platform investments with 22 sponsors with whom we had not previously partnered. We believe the breadth and continued expansion of those relationships position us well to source attractive opportunities while remaining highly selective. Our portfolio... The portfolio now consists of 153 companies comprised of 89.4% to first lien senior secure debt, 1% to second lien senior secure debt, 8% to equity co-investments, and 1.5% to joint ventures. The credit portfolio generated a weighted average yield of 10.9% with a weighted average leverage through our security of 3.7 times EBITDA. At origination, all loans are initially... ...designed an investment rating of 2 on a 5-point scale, with 1 being the highest rating and 5 being the lowest. At quarter end, 89% of the portfolio at fair value was rated a 1 or a 2. Cash flow coverage has also continued to improve, increasing to 3.5 times from a low of 2.9 times during the peak of base rates. We remain pleased with the overall performance of the portfolio and believe it remains well positioned. as we continue to grow. I will now hand the call over to Chris to review the specifics of our financial performance for the quarter. Thanks, Josh. Specific to our performance for the quarter, pre-tax net investment income was $37.2 million, or 58 cents per shift. For the quarter, total investment income increased to $67.2 million from $61 million in the prior quarter. The increase was primarily driven by a $4.6 million

increase in cash interest income, coupled with an increase of $1 million in fees and other income. The increase in fee income was driven by increased arranger fees due to larger origination volumes than in the prior quarter. Importantly, PIC, as a percentage of total investment income, decreased to 7.4% from 8% in the prior quarter. On the expense side, G&A increased by approximately $400,000 from the prior quarter. This increase was driven entirely by proxy solicitation expenses related to our shareholder vote on increasing our authorized shifts, which is a non-recurring item. As of the end of the quarter, our loans on non-accrual represented 1.4% of our investment portfolio at fair value compared to 1.1% at the end of the prior quarter. We continue to demonstrate strong dividend coverage with 109% cumulative coverage since launching our credit strategy. Are you doing it? UTI balance increased to $0.92 per share this quarter from $0.87 per share in the June quarter. In addition, we continue to hold significant unrealized depreciation across our equity portfolio. As a result, we remain confident in our ability to grow our UTI balance and continue paying quarterly supplemental dividends over time. LTM operating leverage ended the quarter at 1.4%, a meaningful improvement from the 1.6% observed a year ago in September. 2025. Notably, this improvement occurred despite adding 14 employees over the last 12 months. Going forward, we expect to continue to add resources to our team while maintaining operating leverage in the 1.4% to 1.5% range. Our operating leverage remains significantly better than the BDC industry median of approximately 2.5%, underscoring the inherent efficiency of the internally managed BDC model. NAV per share increased to $16.

64 cents per share, up from $16.61 per share in a private portfolio. The primary driver of the increase in NAV per share was accretion from our equity ATM program, partially offset by net realized and unrealized depreciation on the investment portfolio. As Michael mentioned earlier, during the quarter, we amended our corporate credit facility, which increased total commitments to $595 million from $510 million, reduced our borrowing applicable margin to 2% 2.15%, removed the incremental SOFR adjustment of 10 to 15 basis points, and extended the maturity to September 2031 from August 2028. As a result, our earliest debt maturity is now in 2029, providing us with greater long-term funding certainty. Additionally, we raised $350 million in new unsecured bonds, bearing 6.75% fixed interest and maturing in September 2031. In conjunction with the unsecured bond offering, we entered to an interest rate hedge, which effectively swaps the September 2031 notes to SOPR plus a 2.16% spread. Finally, we raised approximately $67 million in gross equity proceeds during the quarter through our Equity ATM program at a weighted average share price of $24.50 per share, or 148% of the prevailing NAV per share, reinforcing our ability to raise capital. efficiently and accretably. Our liquidity position remains robust, with approximately $647 million in cash and undrawn commitments across our two credit facilities. In total, this represents more than 1.6 times coverage of the $394 million in unfunded commitments across the portfolio. During the quarter, we also received approval to increase our applicable, or excuse me, our available leverage in the SBIC2 fund to $250 million, providing additional

flexibility beyond our current $175 million commitment. The SBIA program continues to be an attractive source of capital for us, offering both a competitive cost of funds and reliable long-term liquidity to support portfolio growth. Regulatory leverage ended the quarter at one-to-one debt-to-equity. We will continue to raise secured and unsecured debt capital, as well as equity through our ATM program, in a methodical and opportunistic manner to ensure we maintain significant liquidity and a conservatively constructed balance sheet with adequate covenant cushions. Finally, we continue to make meaningful progress with CapTrain Partners, one of our joint ventures with Trinity Capital. The JV currently holds approximately $127 million in first lien securities in 14 portfolio companies, with a weighted average leverage of 1.3 times debt-to-even. We expect to continue originating low-leverage, high-quality investments within this structure. We'll now hand the call back to Michael for some final comments.

Thank you, Chris, Josh, Amy, and Morgan, and all the employees who help us tell this story on a quarterly basis. And thank you, everyone, for joining us today. This concludes our prepared remarks. Operator, we are ready to open the lines up for Q&A. Thank you. To ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced.

To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Mickey Schleen of ClearStreet. Your line is open.

It turns out to be correct. And, you know, the Fed tightened several more times. I mean, I think I've answered the question just kind of going back to where we were when rates were five and a half percent. Our interest coverage across the portfolio, I understand we're talking about sort of on a detailed perspective, you know, got down to 2.9 times, where it is three and a half times today. But I also think the strength of the portfolio today were what was then. We have lower non-accruals than we did going into that cycle. I think our portfolio, the loan to values are lower. You look at the deals we just did this quarter, which is almost 400 million that we're at, you know, 3.4 times and 33% loan to value. I would just tell you, I think that our portfolio, on top of that, the granularity that resides in the portfolio at about 76 basis points, I think we're better prepared for a higher rate cycle now than we were going into the last cycle. And we came out of that pretty clean, I would say. Okay. Thank you for that. A couple more, if I can. You had record originations and balance sheet leverage is now 1.25 on a debt-to-equity basis. So given your current pipeline and available liquidity, how should we think? Think about investment activity going forward. And where do you, you know, what's your target at the equity ratio on the balance sheet? So I think from on the origination activity, I think we're, you know, historically, before the growth in our investment team, which I think we cited on the call, has grown 40% over the last 24 months. A lot of those are senior individuals.

So. I think our total originations quarter was going to grow from where it was, $150 million-ish a quarter to something closer to $250 a quarter. The other question was how much on the equity rate. So, yeah. So, Mickey, I'll take the second question. So, leverage we typically look at on a regulatory basis. And so, we've said in the past our target is 0.9 to 1 times regulatory. So, we're certainly at the top end of that range. I wouldn't expect it to go above that. Part of the reason for that this quarter. is obviously we were seeking shareholder approval for our authorized shares. We didn't get that until September. So, actually, I think we did a really good job raising 67 million of equity in about a month. The other thing I would say is we are expecting a repayment cycle in this December quarter, which we haven't seen in a few quarters. And so, you know, you should think about leverage kind of moderating in the 0.9 to 1 times range. regulatory leverage going forward. Yeah. I mean, over the last three quarters, I think we saw maybe 100 million of repayments, and we would expect that number to be maybe twice as much just in the 1231 quarter alone. Okay. And lastly, and I appreciate your patience. So with CapTrend continuing to grow and now the launch of Desert Star, how meaningful could these JVs be? to earnings over the next, you know, maybe year? And what returns are you targeting on your invested equity in those ventures? And how should we think about the timing of dividend income from them?

Sure. You know, let me just start by maybe framing. These two different JVs probably for two different purposes. Obviously, CapTrend is really a strategic venture, which allows us to be more competitive in deals that are, you know, sub 6%. That fund, we think since it's originating our core assets, is going to grow over time. I think that we expect probably a mid-teams return as the manager in that fund. I think the fund itself is about 13%, but we are getting scrape and some fees associated with it. Desert Star, on the other hand, so whereas we're sourcing, originating and managing the assets for CapTrend, the inverse is true for Desert Star, where Trinity is, you know, they're in that seat of originating the assets. We've committed $25 million, which will be funded over the next three years, and we expect a return of somewhere in the same 14% to 16% return once that facility is fully ramped. Yeah, for the earnings power, Mickey, what I would say is it's going to take, you know, we've got $50 million in equity committed to the- fund alongside Trinity's 50, so 100 total. It's probably going to take us 12 to 15 months to get that fully funded. So we'll ramp from what we have funded today, which is around $25 million up to $50 million over the next 12 months, generating, as Michael said, sort of a 13%, 14% return. That's really helpful. The other thing I wanted to add, too, so Desert Star, you know, it's mostly going to be software deals. And the question is, like, why are we doing that today?

If you look at what those deals look like in the market over the last two years, these are deals that were negative cash flow, negative EBITDA. They were being funded off of two to four times ARR. So not cash flow loans and not assets that we would frequent in. That market has changed, I think, since all the headline noise coming out of the last fall. There's less lenders in the market. Deals today are all cash flow. I would say all, but the deals that we've seen are. You know, positive cash flow, positive EBITDA, their one-times ARR, you know, full set of covenants. And when we're thinking about the partnership, you know, we believe we're pretty good at what we do is in the sponsored finance law or in the market, but we don't frequent with scale in software technology. And, you know, as underwriters, the more deals you look at, the better decisions you'll make. And so our viewpoint is partnering with an expert in the field, which we consider. An expert in the venture side, getting involved with them and having a small investment of granular size is a measured approach to investing in that industry without taking excess risk. If I could just follow up, you said those deals are going to be primarily cash flow positive. You know, there's been a lot of talk about, you know, the impact of AI on these companies and the. Argument that, you know, small software companies are particularly at risk because it's just so hard for them to build a moat.

Can you give us a sense, at least as to the scale of these businesses in terms of the EBITDA you're targeting?

Well, it's really across the board in the lower middle market to the middle market. So Trinity typically in those deals are. Doing businesses that are in the $5 to $25 million of EBITDA. So these software technology deals would still fall into that range? Yeah, most of the deals will be directly originated by Trinity and not bigger club deals and syndicated deals. Okay. I appreciate your time. Thanks for taking my questions. Thanks, Becky.

Our next question is from Melissa Weidel from UBS. Your line is open.

Okay. Thanks for clarifying that. I also had a follow-up on the comment that you made about expecting more of a repayment cycle. in the fourth quarter. I was hoping you could elaborate on that in terms of, you know, what's driving sort of elevated repayments that you expect in 4Q? And is that something that might be matched on the origination side? Well, I'll say this. We've seen two large originations come back. And large to us is, you know, $30 to $40 million. And we're expecting a third of the same size towards the end of the quarter. Originations are going to be close. Or I would imagine, too, what I stated earlier, like a normal quarter for the amount of professionals we have scouring the nation, which is probably $250 million. I probably asked Josh if you wanted to chime in on that. Yeah, I think the lower middle market M&A activity is actually pretty good right now. I know that the middle market, upper middle market, has been a lot less activity. And so some of that's just timing of some of the sale processes of portfolio companies of ours.

Thank you. Thank you. The next question is from Chris Mueller with Citizens. Your line is open.

Both of whom had lower middle market direct lending experience. So the ramp up here, again, it's very, very, very short. When we hire a junior underwriter from, you know, straight out of undergrad or investing banking, it's a little bit longer, but it's still within a few months, they can get up to speed and significantly add value. Got it. That's helpful. And then, I guess, given the focus on tech. and the Desert Star JV, will we see some equity positions in there, or is it going to all just be debt investments? So, Desert Star is all debt inside the fund, but I also want to kind of react to that. Again, this is a $25 million check over three years. I do not want to overemphasize this is a change in strategy or over allocation to technology and software. Where the- This is, you know, an opportunity to invest alongside someone that we respect in the industry and make a nice 15% return. Got it. That's fair. Appreciate you guys taking the questions today. Thanks.

Thank you. Our next question is from Robert Dodd with Raymond James. Your line is open.

Yeah, I think, look, I mean, I think it takes years to cultivate a relationship where you sort of touched on this, where you create that trust level and you know each other very well. What I would say is, you know, the way that this generally plays is that you meet a new relationship or you get a new relationship and you may not see a deal from them for a few months or you see a deal and then, you know, you get to see how each other think, what kinds of deals they're looking at, how we think about the deal. You likely don't win a deal from a relationship that you create for a year, two, maybe even three years. And that's one of the reasons why our pipeline is growing because we had a couple of – we have one new originator who's driving a lot of growth, but we also have a couple of originators who have been doing it for three or four years. And some of those relationships that they created three, four years ago are – coming to the forefront now. And so you start to see, okay, maybe they saw zero or one deal the first year they sort of created that relationship, but then taking multiple trips to that specific city or seeing them at conferences and getting to know people better, you know, year three and four is when you start to see all of their deal flow, that kind of thing. And so that's one of the real reasons why we're driving a lot more pipeline and a lot more deal flow right now from relationships that we started in, you know, three or four years ago and have cultivated over that time.

Got it. Thank you. One anecdotal too, Robert, is that we hired a business development professional MD in January. So I guess, you know, we're here in November now and he's brought in sizable amount of traffic on deals and we've closed two deals with him over this, you know, 10 months. So obviously, you know, that deal flow is there, but, you know, his win rate will increase once again, when we get more comfortable with his deal. Flow and vice versa as well. All right. Thank you. On one, I got to go back to Desert Star. Yeah, I mean, it's small. You're only allocating $25 million. But what's your edge on reviewing those software deals? Obviously, Trinity has one, long-established lender in that segment of the market. But what do you bring to the table other than capital, right? Because obviously, it's your... Your capital that's been put... or shareholders' capital has been put at risk in principle. I mean, what's the value add that you bring on rejecting a deal, if it's inappropriate, when it's tech-specific? I mean, you could have just bought $25 million of Trinity stock, so to speak. I'm not recommending that. But why this approach, if it's not your area of expertise? So I would probably agree with that phrasing. I think, first of all... Yes, we bring cash to the deal. But in both joint ventures, we have 50-50 voting rights. At the end of the day, these businesses are still lower middle market, small businesses that our guys are experts in the field and underwriting.

The reason why we don't focus on doing software deals ourselves is kind of what I said earlier. If we see 100 deals and close two, you'd like to think that you force-ranked the best two deals. And those are going to be the best deals that you could have invested in. In our pipeline, we may only see 10 deals on software in a given year. And if we're investing two out of 10, now that's 20%. You have to assume those deals may not have been the best deal. So I think in this circumstance, we still bring the underwriting to the table. We certainly bring the cash. And we have all of the input, similar to that they have with us, on any particular deal to veto the deal if we don't get comfortable. Yeah, I mean, like the way that we think about it is just a very, it's a good way for us to deploy a small amount of capital into a strategy that we have not focused on in a very granular way. And so we get to approve the amounts and the deals. And we, you know, we can see a deal and say, we don't really like that one and don't want to put it in. So we get to kind of handpick the deals. You're right. They have a lot more expertise in tech investing than we do. And we want to leverage that. And we want to leverage their relationship. to the sponsors without taking, you know, a big bet in sort of software and tech lending. Got it. Got it. Thank you. If I count one more, you spill over, it's back approaching a dollar again. I mean, it's a good problem to have to support the dividend.

Is there any conceptual, you know, rule of thumb, right? I mean, how much you would be willing to accept? The fact that. Keeps building. Eventually something has to be done about it, which obviously the, the, the, uh, uh, special dividends or supplemental dividends is the way to deal with that. I mean, is this just, is there a way we should think about that in terms of like how much you would, you would like to keep as a, as a max or a minimum on that, that side of the, uh, the, the, uh, uh, you know, the, the, you know, cause obviously it's embedded in any of these as well. So I mean, how, what, what, what should we, we be thinking about on how much UTI is, is acceptable in your view? Sure. So I would tell you that rule of thumb, we, we think a dollar of UTI is, is a strong balance. Um, on the inverse side, we would tell you that anything 50 cents and below, you know, at a six cents per quarter would, would be too small. Um, the other thing I would add kind of where you're going with the question is, you know, we've been talking over the last probably 18 months about some sizable exits that were going to occur. And we saw, you know, the UTI was going to jump considerably. Those actually, those companies are performing, but they push their sale processes. So we've grown our UTI organically through under distributing the dividend. We've grown it through small granular equity exits. And we still do expect probably one of the

those in 2027 and maybe the other one, either 20, you know, 27 at the end or 2028. So we can see that balance grow sizably. What does that mean? I would tell you that, you know, we would look to increase the six cents over time once we get comfort where that UTI balance is. And, you know, you didn't ask, but I'd say on the regular dividend, I'd say, look, we've done what we believe is a pretty strong job of managing NII down through a rate cycle. That came down to, you know, three and a half percent and maintain our dividend at a hundred percent with the strength of our deal team, with the strength of the originations this quarter, and with the likelihood rates increasing, we're fairly bullish that it's possible that either or both the supplemental and the regular dividends will be growing probably in, you know, in 2027. Got it. Thank you.

Our next question is from Sean Paul Adams with B. Riley Securities. Your line is open.

You know, a lot of the roofing, for example, one of our businesses, it's specifically an insurance-driven business. So that's not going to really, there may be a little bit of consumer spending in there, but it won't be a lot. Got it. I appreciate the color. Thank you.

Our next call is from Eric Zwick with Lucid Capital Markets. Your line is open.

Thanks. Good morning, everyone. I appreciate all the commentary on the new originations of the quarter in terms of average spreads and leverage. I guess one thing I hadn't heard you mention unless I missed it was just any commentary you have on structure and covenants, whether there's been any changes there in the most recent quarter relative to maybe the past year or so. Yeah, I mean, honestly, it's one thing. you have to understand on every origination we do, they're going to have full set of covenants. I mean, if you're going to be in the lower middle market, our big advantage is the fact that we can get full covenants, that we can have low leverage and LTV. And so we are, we take advantage of that in each and every case. I guess, Josh, would you have any, anything to add on that? Yeah, the structure has stayed really, really firm. I mean, that's the bottom line. And part of that's driven by our discipline. And part of that is driven by the market discipline in the lower middle market. So the combination of both, I think, is, you know, driven, you know, us to have really strong credit agreements really for a long time. And so the more fluid dynamic in the lower middle market is pricing. And structures have not, have not wavered all that much. That's good to hear. Thanks. And curious, just in terms of the increased SBA capacity. What percentage of the pipeline today would be SBA eligible? Yeah. So we've been pretty consistent on this point. You know, I think roughly 75 percent of the deals that we see or that come in for serious consideration are SBA eligible. And so SBA C2 continues to ramp. You know, I think we're not quite at the point to take the additional 75 million of leverage just yet, but that will probably happen in the next quarter or so.

And then last one for me, you mentioned, you know, potential repayment cycle in calendar 4Q. Curious on the equity realization side. I know it's sometimes a little bit harder to have, you know, an outlook out past more than a quarter or so there, but just any potential equity realizations towards the end of the year? So the capital that's coming back this quarter was primarily debt only. I can't think of any gains. We have one small equity gain that we expect. to come back later in the quarter. Obviously, that's subject to the sale process. But looking forward to early, it could be as soon as the March quarter, we do have one of the, again, one of the assets that we kind of discussed over time might have an exit that could be, you know, fairly sizable, sizable between $10 and $15 million. Thank you for taking my questions today. Thank you. I am showing no further questions at this time. I would now like to turn it back to Michael Sarner, CEO, for closing remarks.

We appreciate everybody taking the time today to listen in and appreciate all the questions. I thought that was a pretty spirited conversation and I appreciate it. We look forward to telling the story again next quarter and hope everybody has a good rest of the week.