Yahoo Finance

Josh Weinstein

Thanks, Bowen. On slides 11 and 12, we detail the $317.5 million of capital invested in and committed to portfolio companies during the quarter, capital committed during the quarter included $172.3 million in first lien senior secured debt across nine new portfolio companies in which we also invested a total of $3 million in equity. In addition, we close add-on financing for 20 existing portfolio companies consisting of $141.1 million in first lien senior secured debt and $1.1 million in equity.
We are pleased with the strong market position that our team has established as a premier lender to the lower middle market. This is evidenced by the broad array of relationships across the country from which our team is sourcing quality opportunities. As a point of reference, currently, there are 80 unique private equity firms represented across our investment portfolio. Additionally, in the last year, we closed 17 new platforms with financial sponsors with which we had not previously closed the deal demonstrating our continued penetration in the market.
Since the launch of our credit strategy, we have completed transactions with over 110 different private equity firms across the country including over 20% with which we have completed multiple transactions. As Bowen mentioned, the lower middle market continues to be quite competitive as this segment of the market is highly attractive to both bank and non-bank lenders. While this has resulted in tight loan pricing for high quality opportunities, the depth and strength of the relationships our team has cultivated over the years has continued to result in our sourcing and winning opportunities with attractive risk return profiles.
On slide 14, we detail key statistics for our portfolio. As of the end of the quarter, the total portfolio consisted of 125 different companies with fair value. As of the end of the quarter, we did 89.1% to first lien senior secured debt 1.5% to second lien senior secured debt 0.1% to subordinated debt and 9.3% to equity co investments. The credit portfolio had a weighted average yield of 12.1% and a weighted average leverage through our security of 3.6 times EBITDA overall overall, we are pleased with the operating performance across our loan portfolio.
In fact, as shown on slide 15, the number of portfolio upgrades were meaningfully more than the number of downgrades this quarter. As a reminder, all loans upon origination are initially assigned an investment rating of two on a four point scale with one being the highest rating and four being the lowest rating. We had nine loans in five portfolio companies representing $99 million in fair value upgraded during the quarter while having three loans in three portfolio companies representing approximately $17.4 million in fair value downgraded during the quarter overall, the portfolio remains healthy with approximately 95% of the portfolio at fair value rated in one of the top two categories. A one or two and approximately 5% of the portfolio in the three or four category, cash flow coverage of debt service obligations across the portfolio remains at a healthy 3.5 times with our loans across our portfolio averaging approximately 41% of the portfolio company enterprise value quarter over quarter revenue and EBITDA growth on a weighted average basis were each approximately 3%.
As seen on slide 16, our portfolio continues to be broadly diversified across industries with an asset mix which provides strong security for our shareholders' capital. In addition to industry diversification, our average exposure per company is less than 1% of assets which gives us great comfort in the overall risk profile of our portfolio. Our investment committee members utilize our cumulative experiences navigating through various economic cycles to continually assess risk both on a company by company basis, as well as on the overall portfolio in the current environment that includes being in close contact with our sponsors and portfolio companies to proactively assess any anticipated effects of recent and future policies on tariffs and immigration.
I will now I will now hand the call over to Michael to review the specifics of our financial performance for the quarter.

Michael Sarner

Thanks, Josh. Specific to our performance for the quarter. As summarized on slide 17, pretax net investment income was $30.7 million or $0.64 per share as compared to $30 million or $0.64 per share in the prior quarter for the quarter, total investment income increased to $52 million from $48.7 million in the prior quarter. The increase was driven primarily by a $3.2 million increase in fees and other income compared to the prior quarter. As at the end of the quarter, our loans are not accrual, represented 2.7% of our investment portfolio at fair value. And the weighted average yield in the portfolio on all investments was 12.1%.
During the quarter, we paid out a $0.58 per share, regular dividend and a $0.05 per share supplemental dividend. As mentioned earlier, our board has declared a regular dividend of $0.58 per share while also increasing the supplemental dividend to $0.06 per share for the March quarter. Management and the board have spent significant time contemplating the impact of a lower interest rate environment on future earnings. We have consistently maintained that a setting a regular dividend at a level that we believe will never be cut in any foreseeable interest rate environment is key to generating stable attractive shareholder returns over the long term.
We continued our strong track record of regular dividend coverage with 115% coverage for the 12 months ended December 31st, 2024 and 111% cumulative coverage. Since the launch of our credit strategy, we are confident in our ability to continue to distribute quarterly supplemental dividends for the foreseeable future. Based upon our current UT I balance of $0.68 per share and the expectation that we will harvest gains over time from our existing $0.96 per share and unrealized appreciation the equity portfolio.
As Bowen mentioned earlier, we have two equity investments in sale processes. Both expected to close within the next two weeks. These real life gains all else equal should increase our UT I balance by a further 10 to $0.15 per share as of the end of the March quarter.
As seen on slide 18, LTM operating leverage ended the quarter at 1.6%. Our operating leverage of 1.6% continues to compare favorably to the BBC industry average of approximately 2.8%. We believe this metric speaks to the benefits of the internally managed BC model and our absolute alignment with shareholders. The internally managed model has and will continue to produce real fixed cost leverage while also allowing for significant resources to be invested in people and infrastructure as we continue to grow and manage a best in class BDC.
Turning to slide 19, the company's NAV per share at the end of the quarter was flat $16.59 per share. The primary drivers of the NAV per share bridge for the quarter were accretion from the issuance of common stock at a premium to nav per share offset by the net realized and unrealized appreciation our investment portfolio.
Turning to slide 20. We are pleased to report that our balance sheet liquidity is robust with approximately $412 million in cash and unraw leverage commitments on our two credit facilities which all together represented 2.1 times $193 million of unfunded commitments we had across our portfolio as of the end of the quarter, as Bowen mentioned earlier in the December quarter, we issued $230 million in aggregate principal of 5.125% convertible notes to 2029 with an initial conversion price of $25 per share. These net proceeds were used to redeem in full the $140 million January 2026 bonds as well as pay down our revolving credit facility. As at the end of the December quarter, 48% of our capital structure liabilities were unsecured covenant free bonds with our earliest debt maturity in October 2026 delving a bit deeper into the conver bond issuance.
We believe there's been some confusion in the market regarding the issuance which I would like to address. First, we did not incur any make whole premium in the takeout of the January 2026 bonds. Second, we have always stressed the importance of balance sheet flexibility and staying well ahead of our debt maturities using this convertible issuance to redeem our January 2026 bonds as well as to pay down our credit facility, gives a further dry powder to continue to originate attractive investment opportunities in all market environments.
Moreover, based on today's five-year treasury rate, the rate on the me note was approximately 200 basis points cheaper than the current market for a traditional unsecured bond resulting in significant interest expense savings which flow directly to pretext. And I additionally, the convertible notes have a flex settlement mechanism. This means that to the extent our truck stock trades significantly above the conversion price. And certain holders of the notes like to convert capital Southwest would have the option to redeem the notes in cash shares or any combination thereof. This gives us the ability to actively manage balance sheet leverage, the impact of any dilution and the opportunity in this instance to issue equity at share share prices which would be significantly above net asset value and thus be highly accretive to our shareholders.
Turning to our SBIC program. In early 2024, we submitted a (inaudible) application to the SPA which began the process towards a second SBIC license. In December of 2024, we received a green light letter from the SPA allowing us to submit our final application which we completed in January 2025. We expect to receive final approval for, for SBIC two imminently, a regulatory leverage, regulatory leverage.
As seen on slide 21, ended the quarter at a debt-to-equity ratio of 0.9 to 1, up from 0.8 to 1 as of the prior quarter. While our optimal target leverage continues to be in the 0.8 to 0.95 range, we are weighing the impact of future base rate reductions and maintaining adequate cushion levels to allow us the flexibility to potentially increase leverage to support future earnings and dividend growth. We will continue to methodically and opportunistically raise secured and unsecured debt capital as well as equity capital through our ATM program to ensure we maintain significant liquidity and conservative balance sheet leverage with adequate covenant cushions.
I will now hand the call back to Bowen for some final comments.

Bowen Diehl

Thank you, Michael. Thank you, Josh. And again, thank you, everyone, for joining us today. As always, we appreciate the opportunity to provide you with an update on our business, our portfolio, and the market environment. Our company and portfolio continue to perform well and we are pleased with the company's robust asset base deal origination and portfolio management capability as well as flexible capital structure.
The overall health and security of our portfolio is strong. Our credit portfolio is predominantly made up of first lien senior secured loans allocated across a broader array of companies and industries with weighted average exposure per company under 1%. The vast majority of our portfolio is backed by private equity firms, interest coverage of the debt obligations across our portfolio with a solid 3.5 times with strong equity value cushion and support below our debt investments. Additionally, our equity co-investment portfolio gives our shareholders participation in the equity upside of many of these growing lower middle market businesses providing further enhancement to our long term shareholder returns.
Last but not least, we have a very well-capitalized balance sheet with multiple capital sources and significant balance sheet liquidity, all of which provides our company an exciting runway to continue to grow and generate strong shareholder returns.
This concludes our prepared remarks. Operator, we are ready to open the lines up for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Please stand by while we compile the Q&A roster.
Mickey Schleien, Ladenberg.

Mickey Schleien

Yes, good morning everyone. Bowen, you mentioned that follow on investments were an important part of your investment activity this quarter. But could you also give us some insight into the trends you're seeing in terms of new investment M&A activity in your market? You know, considering that the election is behind us now and maybe there's a little bit more certainty in the direction of interest rates.

Bowen Diehl

Yeah, I mean, so obviously the M&A market was in, our market was active in the fourth quarter. We've seen that activity, go, continues in the first quarter. You know, generally speaking, as we referenced, we're seeing some visibility on some exits in our portfolio for the calendar 25 and some immediate ones and then we think some future ones. So the M&A market, as we've all heard in the industry, people talk about, it hoping that it increases in 2025. I think we're seeing some, early signs that that actually might be the case as we look forward. I don't know, Josh, you have anything to add to that.

Chris Rehberger

I mean, I think you covered most of it, but I think, we've obviously worked really hard over the last 10 years or so to, create and cultivate relationships in that normal market and we feel like we're, while it remains competitive, we're continuing to, to just to be well positioned to part to participate in that M&A activity in 2025.

Michael Sarner

And any anecdote we did, $320 million of funded or I should say committed investments in the 1,231 quarter. And that had, I think we had 11 new platform companies and 20 something add ons for this current quarter. We are also seeing a continuation of that, seeing a lot of granularity in the deals we're seeing and the expectation that we're able to put on additional platform companies. So it's, it's definitely something where, you expect our baseline originations in the near term to be higher than the previous.

Mickey Schleien

Even though this tends to be a seasonally slower quarter, Mike.

Michael Sarner

Yeah. Now this quarter for certain, I think, we would tell you our normal quarter probably would be somewhere between maybe $125 million and $150 million. And, but I would also say to Josh's point, we've added on a lot of sponsors. I mean, we've seen a lot of traction in the market. So I would expect our number to be something closer to $150 million to $200 million in originations for this coming quarter.

Chris Rehberger

We had a number of deals that were targeting closing by the end of the fourth quarter that, that, that leaked into the first quarter that I think will help mitigate some of that seasonality this year.

Mickey Schleien

I understand you also had really low repayment activity to what extent did call protection, keep repayments low and, and how much refinancing risk do you see in the portfolio? Given all the pressure there is on spreads.

Michael Sarner

I mean, I looking ahead, I would tell you that we have had, we've had calls. I mean, I think we do expect to see some level of pre payments into the future to your point of call protection. You know, we had one repayment of size in the previous quarter that had call protection where we generated, I think approximately $600,000 in fees. But, some of the deals we're looking at are probably 22 and 23 where you have some of that call protection, either winding down or maybe it's only 1% and they're willing to pay that and get out of the credit. So make, I think rule of thumb for us, I mean, we're expecting probably maybe to see like, 10% to 15% of the portfolio rotate in the 2025 calendar year.

Chris Rehberger

But based on this, we've created over the years, we usually get the call before there's a re a re pricing where we have the opportunity to lower our pricing and stay in the deal. And we obviously assess that, a situation by situation basis to see if we want to want to stay in the deal at the lower pricing. So, we would expect, we would expect some pressure just given, potential competitive factors and but, but we feel like we're pretty well positioned to continue to stay in the deals and that can be priced out.

Bowen Diehl

Also, I would add Mickey that, that is we, as we referenced the UT I increase and the potential exits this year, those are obviously well performing companies, but often times they also have debt in a if we haven't already been recapped out. So I think, I think it's probably fair to expect that a meaningful portion of our pre payments will be driven by M&A activity, which is not really a function of prepayment penalties. I don't, I mean, the private equity firms selling the business because it's.

Chris Rehberger

Time to sell the business, not because of the prepayment.

Mickey Schleien

So, yeah, I understand that's helpful. Last question, then I'll get back in the queue. You have investments in sectors like food and consumer machinery. How do you see tariffs which I know are a moving target but we seem to be moving in the direction of tariffs. How do you see those tariffs impacting, these companies or, or the portfolio in general?

Chris Rehberger

Yeah, I mean you mentioned it but we have 121 125 portfolio companies. So clearly, we're going to have some exposure based on our preliminary analysis, it looks like around 10% of our portfolio could see some impact. Now that being said we are firstly in secured lenders. So we think that positioning in the capital structure will, will mute the impact to our Forli and you know, obviously we're, information is real time and we're continuing to monitor it and, and and analyze it as it comes through. But, but you know, the diverse portfolio with the first lead position feels like, we're, we're in a good position to, to mitigate that risk.

Michael Sarner

The other point I make too is during the 2020 2016, Trump administration, they did increase tariffs as well then, particularly with China. And so we saw that impact with some of our portfolio companies and H1stly, they were still able to, to thrive under the environment. You know, obviously a moving target, as you said, Mickey, so we'll have to see where those go going, on a go forward basis. But I think Josh points a good one. We're also in the board room during investment committee meetings. We're certainly discussing the impacts to make certain deals we're looking at on a prospective basis. You know, we're, we're taking into that into account on a downside scenario.

Bowen Diehl

I mean, it's all happening kind of real time. Obviously, we all know the goal posts are moving around that there's a lot of communication gathering as we reference, Josh referenced from our sponsors and our portfolio companies, but like Josh Records, that was kind of our initial take over the weekend.

Mickey Schleien

Understand, I have some more questions, but I'll get back in the queue and let some of the folks take the microphone. Thanks.

Michael Sarner

Thanks, Mickey.

Operator

Douglas Harter, UBS.

Douglas Harter

Thanks. I was hoping to get a little bit more on the sbasb a license. You know, I guess how do you think about how long it might take to fill that up? And what type of funding cost do you anticipate that? That being.

Michael Sarner

I think. Well, first of all, I mean, I start by saying that we were expecting that license to come in any day now. However, what's going on with the government right now? You know, we understand that there's sort of a freeze for the next week or two or actually, they don't really have a good timing on it. Before they come back to us, let's just assume that we do see that license in the next few weeks. We'd expect to be able to ramp that fairly quickly and the majority of our deals and when we break it down, 80 plus percent of our deals are lower middle market that fit the FDIC perfectly. So, I think our previous license we got in April of 2021 and we took us, what, 2.5, 3 years to fill it up, I assume the same cadence may be quicker just because the amount of sponsors we've won and the deals we're doing, in terms of an expectation pricing. I would expect somewhere, this is a big range, but I would imagine that we'd be borrowing somewhere between four and 5%. Which if you compare that obviously to our credit facility or what the bond market is, that's, that's exceptional. I mean, it's certainly not the 2% or 1% that you saw five years ago, but it's still, net creative to our shareholders.

Douglas Harter

Great. And I appreciate the details you gave around the convert, just wondering how you think about, kind of the option cost of the convert when you're, kind of factoring that into it. And you know, maybe any sort of short term impact it has on kind of the trading of the stock when in into the calculus of you know, the decision to do convert for forms of capital.

Michael Sarner

I mean, I think if you look at the convertible over the long term, what what we've been seeing is, first of all, it's very unlikely most bond traders are going to actually convert from into equity or in our situation actually just put it to us and give us the option for cash or shares. So from a, we're what we're looking at it, if it's $25 on the conversion price, we're trading at $22.50 or $23. The expectation is, first of all, there's a lot of cushion between now and then the convertible holders would have to see significant accretion above the $25 before they would actually call and ask for the conversion. And at that point, they're taking the risk that we are going to just redeem their bonds and they lose any option value. So, from our perspective, it seems to be a low risk.
And when we compared that, 12 months ago and six months ago to what we saw in the market, which is, in a lot of uncertainty with the change of administration, you know, whatever is going on in the macro economy, it's kind of played itself out where if you look at the risk premium and the five year treasury, if we were to go to market today, it would look like something in the 7.5% to 8% range either through a baby bond and maybe it's slightly better for an institutional bond. When you look that you compare it to a five and an eight, knowing all along that so far over the last, nine months has come in over 100 basis points. This felt like this was from an accretion perspective. We're giving our shareholders a reduction in interest expense, therefore an increase in their dividend. And if the risk is in two or three years, we see some additional dilution. It's at a $26 or $27 share price, which is accretive to shareholders. And therefore we think that they're winning along the way and they'll win if and when a conversion takes place.

Douglas Harter

Great. I appreciate it.

Operator

Erik Zwick, Lucid Capital Markets.

Erik Zwick

Thank you. Good morning, everyone. I wanted to start with you mentioned. We've been hearing it from others as well just that the competition in the market is certainly driving some spread compression, wondering if you could quantify that a little bit. If you take a look at the -- what's in pipeline today and what the average spread is? How that compares to maybe six months or six months ago?

Chris Rehberger

I mean, I would say the market move from our perspective, the market moved about nine months ago and it probably probably reflects 50 to 100 basis points.

Bowen Diehl

But generally pretty flat this quarter, the last quarter, I mean, like it was a nine, six months ago event. That's kind of been kind of more of the same.

Erik Zwick

Thanks for the color there. And maybe just -- is the competition spreading into structure at all as you go out and potentially compete with others in the market? Are you seeing some bending there? And if so how are you dealing with that?

Chris Rehberger

We have not seen as much pressure on the structure loan to value still remain pretty consistent from where they've been in the last you know, year or two and, it's mostly been focused on the pricing.

Erik Zwick

That's good to hear. And if I just switch gears a little bit, could you provide an update on the relationships that are currently on? Not accrual? Have there been any, changes over the past three months in terms of anything, maybe getting closer to a resolution or any company improving performance that could potentially, move them off. Not a cool in the next quarter or two.

Bowen Diehl

Yeah, we've we had a non-accrual. One of our non-accruals can restructure in the December quarter. One of the other non-accruals is now restructured in this quarter. That's in non-accrual as of the end of December. So it's now restructured. The non-accrual group is the vast majority of the depreciation this quarter. That depreciation is not okay with us. It's very frustrating at the same time though that the main depreciation is coming from companies that aren't in. So it's more of an NAV effect on us as opposed to the earnings effect. But that's hopefully helpful, general color on what's happening.

Erik Zwick

And for those that did restructure, are they currently they have they moved back to accrual? And then do you have any equity positions or how did those play out?

Bowen Diehl

Yeah. So we will be restructured into, varying levels of debt and the remainder of the debt is equity. So we have the ability as the company recovers to, to retake, recoup our N ad.

Erik Zwick

Great. Thank you for all the answers today. That's all for me.

Operator

Robert Dodd, Raymond James.

Robert Dodd

Morning. Congrats on the record a couple of questions first. I mean, ve very, very busy, right? I mean, somewhere around I think 3,030 deals between follow ons and new platforms. This quarter. How how do you feel about the staffing levels with expanding the number of sponsors you're working with, the number of add ons, I mean, you incredibly active. And it is is the staffing of a sufficient level to keep, keep going on at that kind of pace because it sounds like Q1 is pretty active as well. So, I mean, can you give us any color about that? Needs there need more increases in staffing. Could that in the short term impact the expense ratio?

Bowen Diehl

Yeah, I'll make a comment generally. I mean, we feel like when we say we're, we're, look, that's a good question and we're constantly thinking about that. I mean, staffing is super important. I mean, one of the, one of the reasons we didn't mention that our deal flow has been up, it's a factor, I mean, it's all the things we talked about, but it's also, we in our net across the country has expanded to as Josh has done a great job training up some of his folks with new people in the market over the last couple of years and then gaining traction has resulted in a wider net in the market. But, I would say, and Josh and Michael can comment, I don't know that we're like way off base, but it's something that definitely are constantly looking at. We would probably expand as we grow.

Michael Sarner

Yeah, I mean, let me tell you just on it on a run right basis, we typically add, let's say on the deal side, three professionals minimum a year that usually on the junior side. And then, I would say probably every other year we add a someone at the, senior associate or or VP level on the deals. Now, on the accounting back office side, we probably also add around one to two people based on volume as well. So I don't think that this, there's a, there's a point where we say, oh, volume is caught up to a place where we can't accommodate it.
I think that we're continually assessing, as Bowen said. But we continually add to it. If you look back, I think we started this venture. We had, six or eight employees and now we have, I think 36 employees today. So the answer to your question is, I think the asset base might be growing slightly, quicker than the employee base, which is why our operating leverage is going down. But it's not because we're either a not hiring people or b not paying our people. Because we also make it a point to promote from within, which has worked wonderfully H1stly over the last decade, which has allowed us to be able to add the people at the local levels and be trained up by the people that have been through the system and, and understand our underwriting process.

Bowen Diehl

Yeah, Michael touched on, I mean, it's not all it part of it is activity as you reference, but it's also just us constantly looking at the size of the portfolio and specifically the number of portfolio companies and its Josh's team. And we think about who's, who's monitoring those companies and managing those loans. Do we have enough people? And then Michael on the back office side as he referenced, I mean, do we have the infrastructure to manage that portfolio of 125 companies which is grow, some, some get prepaid, some, some new ones come on, but that's, that's how we're looking at, looking at that.

Robert Dodd

Got it. Thank you. I appreciate that. Another one I think, I mean, you mentioned obviously tariffs and immigration. I mean, what percentage of your portfolio has exposure is kind of federal contractors because it looks like there's efforts there to cut some payments, how sticky those cuts are is a wild card. But do you have any portfolio companies with any material exposure to more federal contracting and government contracting in general?

Bowen Diehl

Yeah. So I'm sitting here on the fly thinking about that looking at my colleagues here, I mean, I just imagine of the 125 companies I can come up in my head. Three of them, two definitely have, do business with federal, with contract with the federal, I guess government, the other one indirectly. So, I mean most of those are subcontractors so they're actually not federal government workers. So I think bonus points a good point. It's probably, it's very small and even within those three, I'm not sure if it's going to have a direct, if I'm at the C level, thinking about the portfolio at risk to the company. I think that is not the first thing we're worried about. But it's a good question definitely.

Robert Dodd

Got it. Thank you. One last one, if I can. I mean, obviously, still back up $0.68. Sounds like that's going to go up again in Q2, well, in the March quarter. In the past, you did run that up and then you distributed it, maybe 2021. I didn't want -- to keep the absolute level of spill over down and reduce your excise tax, et cetera. So have you changed your mind? And now you're going to build it back up? Or is there some level where you'd want to distribute that again to keep the local level down and just the existence to convert now change any dynamics that it's obviously extra dividends?

Michael Sarner

I don't really want to say there was a change. I think if you go back to the first program we put in place, we had an extremely large gain that we couldn't even hold all of it just from rec and BBC restrictions. And so we distributed what we had to up front and then we paid over time. And when we no longer thought we had the pathway to continue the program, we decided to distribute it back to shareholders. So that was sort of the natural, natural evolution I would tell you now, like, we're at 68 we see ourselves climbing into the $0.80 range by next quarter. And we do anticipate distributing probably a little more than our run rate today. Walking, we walk from, we've gone down to five, we went up to six. We can, we anticipate walking that up slowly. And then I think the point that we've all made today that there's, there's a pathway to some sizable gains towards the end of the year. And if that was the case, we'd be back in sort of the same territory where we have a significant ut I bucket, which we would intend to increase the supplemental and continue to pay our shareholders on a quarterly basis. And that would be a larger percentage of the total distribution. So that's sort of the plan going forward.

Robert Dodd

Thank you for that. That's it for me.

Operator

Mickey Schleien, Ladenberg.

Mickey Schleien

Yeah. To follow up, I wanted to get a sense of what drove the increase increase in fee income this quarter.

Michael Sarner

Sure. So there's a number of things on it. First, we had, I know I mentioned earlier we had a prepayment penalty for approximately 600,000.
We also had if you recall the bonds that we raised, we so we brought that you know, $230 million in, most of that was used to pay down and redeem the 2026 bonds, but there was a 30-day redemption period. So we essentially held cash on the balance sheet for a, 30 days, which came out to about $1.2 million in income. So that's $1.8 million between those. And then on top of that, there was some, a few member amended fees, waiver fees and some arranger fees as well on some directly led deals.

Mickey Schleien

Okay. And my other another follow up is what were the main drivers of the reali realized loss this quarter?

Chris Rehberger

The real loss was a restructured deal. A deal that was $12 million, I think it was $12.7 million. So most of that was just to be clear, was in a depreciation was reversed and a portion of that was new depreciation that was taken during the quarter.

Mickey Schleien

I understand. And so you had this diversion in portfolio company performance, which was a nice increase in companies performing above expectations, but you also had some below expectations, are there. So can you help us understand what, what are the trends that drove that movement?

Bowen Diehl

So as I look down the list here, I mean, it's a bit idiosyncratic, honestly, the upgrades and downgrades, there's in the shipping space where spot rates have moved and to the company's detriment. So that was a negative to that. Another company is a little bit weather-related, probably cover some based on the (inaudible) of recent. And then the other downgrade was just one of our non-accruals. This continued struggle.

Mickey Schleien

Okay. And lastly, I think Michael gave us a guidance on regulatory leverage targets. Could you also give us an idea of where you're expecting your economic leverage or total leverage to -- what is your target in the current market environment?

Michael Sarner

Sure. So I think what we've been between 1.0 and 1.1 for economic leverage. And we've been on a regulatory basis between really 0.8, 0.9, or even lower. I would tell you, we're at 0.9 on regulatory. We'll start there. And we tell you, we keep an eye on what's going on, obviously, in the macro economy, geopolitical scene to determine whether there's more or less risk. But we feel comfortable right now that the 0.9 leverage that we have right now in the 1.08 that's about a decent place to be. And we're looking down the road, we would tell you, as we look back, we did the convertible bond offering with seeing all the things that are happening in the world. That was one reason why we took risk off the table, by bringing these bonds on our balance sheet earlier. And then we can make decisions in terms of leverage going forward. So we feel like we're in a really good place, especially we trade significantly above book. And so we are active in the ATM market to manage that metric going forward.

Mickey Schleien

Okay. And just to make sure I understand the income on idle on your cash, some of that's accruing into fee income as opposed to other income.

Michael Sarner

No. I think the line and you're looking like it says fee and other income. And so the other income, because it's not portfolio interest income. It's actually money market income. Interest income, it falls into other. And I would probably tell you, I wouldn't anticipate seeing that happen ever again, right? This is a one-off. So that's why it fits into the other, rather than interest income.

Mickey Schleien

Okay. Those are all my follow-ups. I appreciate your time. Thanks so much.

Bowen Diehl

Thanks, Mickey.

Operator

Thank you. And I show no further questions in the queue at this time. I'd like to turn the call back to Bowen Diehl for closing remarks.

Bowen Diehl

Thank you, operator. Thank you, everybody, for joining us. We appreciate your time. And I look forward to giving you further updates in the future. Have a great rest of the week.

Operator

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