Fidus (FDUS) Q3 2026 Earnings Call Transcript

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DATE

Nov. 6, 2026

CALL PARTICIPANTS

• Investor Relations - Jody Burfening
• Chairman and Chief Executive Officer - Edward H. Ross
• Chief Financial Officer - Shelby Elizabeth Sherard

TAKEAWAYS

• Total Investment Income -- $45.9 million, representing a 23.2% increase driven by higher interest income on larger average loan balances.
• Net Investment Income (NII) -- $21.1 million, or $0.54 per share, up from $17.4 million in the third quarter of 2025.
• Adjusted NII -- $0.54 per share, an 18% increase over the same period last year, which excludes the impact of capital gains incentive fee accruals.
• Net Asset Value (NAV) -- $19.47 per share, as of Sept. 30, 2026, compared to $19.55 per share at the end of 2025.
• Fourth Quarter Dividends -- $0.54 per share, consisting of a $0.43 base dividend and a $0.11 supplemental dividend payable on Dec. 29, 2026.
• Portfolio Fair Value -- $1.4 billion, which is 102.8% of the cost basis and comprises 99 active portfolio companies.
• First-Lien Debt Exposure -- 88.0% of the debt portfolio, reflecting a strategic focus on high-quality, senior secured instruments.
• Weighted Average Effective Yield -- 12.6% on debt investments, compared to 12.5% in the second quarter of 2026.
• Nonaccruals -- Zero, as the company reported no debt investments on nonaccrual status at the end of the third quarter.
• Total Originations -- $51.8 million, primarily driven by first-lien debt investments in existing portfolio companies to support acquisition activities.
• Repayments and Realizations -- $52.4 million, which kept the overall portfolio size stable relative to the prior quarter.
• Net Debt to Equity Ratio -- 0.9x, maintaining leverage at the lower end of the company's long-term target range.
• Total Liquidity -- $248.5 million, comprising cash, line of credit availability, and available SBA debentures.
• Interest Expense -- $11.6 million, an increase of $4.0 million over the prior year due to higher average borrowings and interest rates.
• Average Portfolio Investment -- $14.1 million on a cost basis, supporting a well-diversified lower middle market portfolio.
• SBA Debenture Capacity -- $83 million available as of Sept. 30, 2026, following a recent $75 million increase in the SBIC fund limit.
• CasePoint Solutions Investment -- $26 million total, including $25 million in first-lien debt and $1 million in common equity deployed on Oct. 30, 2026.
• Green Cubes Technology Exit -- $22.5 million, representing a full repayment of the first-lien debt investment on Nov. 2, 2026.
• SnugZ/USA Investment -- $17.6 million in first-lien debt, which the company invested on Nov. 4, 2026.
• Weighted Average Loan to Value (LTV) -- 41.0% for the debt portfolio, which management cited as a measure of significant equity cushion.
• Fee Income -- $3.0 million, rising from $1.3 million last year due to higher prepayment and management services fees.
• At-The-Market (ATM) Program -- $35.5 million in net proceeds raised through share issuances to manage leverage and provide liquidity for future originations.

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RISKS

• Sherard reported that the company "recognized approximately $11 million of net realized losses on debt investments in Virtex Enterprises" during the third quarter, noting that the position had previously been written down.
• Ross stated that while M&A activity is rising, he does not expect it to be "overly robust" because of "high interest rates and other things" that could restrain broader deal flow.

SUMMARY

Fidus Investment Corporation (NASDAQ:FDUS) reported a period of stable portfolio value as originations of $51.8 million nearly offset repayments of $52.4 million in the third quarter. Management indicated that deal flow began to accelerate midyear following lower activity in the first half of 2026, primarily driven by a resurgence in the mergers and acquisitions market. The company maintained its focus on the lower middle market, specifically targeting niche market leaders in business services and industrial sectors while maintaining a conservative debt structure with 88% first-lien exposure. Management stated it intended to use its at-the-market program to keep leverage within a target range of 0.9x to 1.1x to protect its investment-grade rating and provide flexibility for new originations.

• Management reported that its software portfolio remains healthy, with average portfolio company revenue of $43 million and EBITDA margins of 15%.
• Ross noted that the company's borrowers are leveraging AI to improve products and create new features rather than being displaced by the technology.
• The company received SBA approval for an increased debenture fund limit of $250 million, providing $75 million in incremental capacity for the FMC 4 SBIC fund.
• Management reported that 71.3% of the debt portfolio consists of variable-rate instruments, totaling $909.8 million on a fair value basis at quarter-end.
• The company continues to use maintenance covenants in its first-lien debt to ensure a "seat at the table" during portfolio company acquisitions or operational shifts.
• Ross indicated that the equity sale in prior years was intended to drive higher recurring earnings rather than to satisfy a need for capital gains.
• The company has equity investments in 85% of its portfolio companies, with an average fully diluted equity ownership of 2.1%.

INDUSTRY GLOSSARY

• ATM (At-The-Market) Program: A program that allows a company to offer and sell its shares to the public through a broker-dealer at the current market price.
• BDC (Business Development Company): A type of closed-end fund that invests in small and medium-sized companies and provides them with capital for growth.
• LTV (Loan-to-Value): A ratio representing the loan amount divided by the value of the underlying asset or the company's enterprise value.
• NAV (Net Asset Value): The value of a company's total assets minus its total liabilities, often calculated on a per-share basis.
• NII (Net Investment Income): The difference between total investment income and total expenses, reflecting a BDC's core operating profitability.
• SBA (Small Business Administration): A federal agency that provides support to entrepreneurs and small businesses, including licensing SBICs.
• SBIC (Small Business Investment Company): A privately owned and managed investment fund that is licensed and regulated by the SBA.

Full Conference Call Transcript

Operator: Good Day, and welcome to the Fidus Third Quarter 26 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press *1 on your telephone keypad. Withdraw your question, please press *2. Please note, this event is being recorded. I would now like to turn the conference over to Jody Burfening. Please go ahead.

Jody Burfening: Thank you, Megan and good morning, everyone. And thank you for joining us for Fidus Investment Corporation's Third Quarter 26 Earnings Conference Call. With me this morning are Edward H. Ross, Fidus Investment Corporation's chairman and chief executive officer and Shelby Elizabeth Sherard, chief financial officer. Fidus Investment Corporation issued a press release yesterday afternoon with the details of the company's quarterly financial results. A copy of the press release is available on the Investor Relations page of the company's website at fdus.com. I would also like to call your attention to the customary safe harbor disclosure regarding forward looking information included on today's call.

The conference call today will contain forward looking statements including statements regarding the goals, strategies, beliefs, future potential, operating results, cash flows of Fidus Investment Corporation. Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, November 6, 2026, These statements are not guarantees of future performance. Time sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties, and other factors including, but not limited to, the factors set forth the company's filings with the Securities and Exchange Commission. Fidus undertakes no obligation to update or revise any of these forward looking statements.

With that, I would now like to turn the call over to Edward. Good morning, Edward.

Edward H. Ross: Good morning, Jody and good morning, everyone. Welcome to our third quarter 26 earnings conference call. Today's call start with a review of our third quarter performance, and our portfolio at quarter-end and then share with you our outlook for the remainder of 2026. Shelby will cover the third quarter financial results, and our liquidity position. After we have completed our prepared remarks, we will be happy to take your questions. As expected, given the pent up demand in the M&A markets, deal flow picked up in the third quarter relative to the first half of the year. Number of our portfolio companies continue to be active from an M&A perspective as part of their growth strategy.

As our strategy calls for investing in high-quality growth oriented companies, typically the need for add on acquisition capital is often part of the equation and an opportunity for Fidus. Overall, our debt portfolio is performing well generating adjusted NII of $0.54 per share in the third quarter that was driven by a 24% increase in interest income on larger average loan outstanding balances. We continue to amply cover our base dividend. Net asset value was $774.4 million at quarter-end, or $19.47 Per share.

For the fourth quarter of 26, the board of directors declared a total dividend of $0.54 per share, which consists of a base dividend of $0.43 per share and a supplemental dividend of $0.11 per share equal to a 100% of the surplus in adjusted NII over the base dividend from the prior quarter which will be payable on December 29, 2026 to stockholders of record as of December 18, 2026. Originations in the third quarter totaled $51.8 million and consisted primarily of first lien debt investments in existing portfolio companies in support of acquisitions. Proceeds from repayments and realizations were $52.4 million for the third quarter.

With originations nearly equal to repayments, our portfolio at quarter-end was stable totaling $1.4 billion on a fair value basis or 102.8% of cost and consisting of $1.3 billion in debt investments and $159 million in equity investments. At quarter-end, first-lien instruments accounted for 88% of our debt portfolio, and the weighted average loan to value was approximately 41%. In addition, our portfolio remains well diversified and structured to produce both high levels of recurring interest income and capital gains from monetizing equity investment. From a credit quality perspective, our portfolio remains healthy overall. Reflecting the generally strong fundamentals of our underlying lower middle market portfolio companies. At quarter-end, we did not have any debt investments on non accrual.

Looking ahead to the remainder of 2026, we anticipate a higher level of investment activity from an origination and a repayment perspective due to a more active M&A market. Our pipeline consists of a number of quality opportunities sourced from both long standing relationships with deal sponsors and our portfolio companies. Many of which are active in M&A. Since inception, we have focused on the lower middle market and employed the same investment strategy and strict underwriting criteria. Both of which has served us well. As a result, we continue to have a healthy portfolio well positioned to generate adjusted NII that covers our base dividend and the potential for capital gains from monetizing equity investments.

By adhering to our investment strategy, and underwriting disciplines. We remain committed to our long term goals of capital preservation and of generating attractive risk adjusted returns for our shareholders. Now I will turn the call over to Shelby to provide some details on our financial and operating results.

Shelby Elizabeth Sherard: Thank you, Edward, and good morning, everyone. I will review our third quarter results in more detail and close with comments on our liquidity position. Please note, I will be providing comparative commentary versus the prior quarter, Q2 26. Total investment income was $45.9 million for the 3 months ended September 30. A $2.4 million increase from Q2, primarily driven by a $2.2 million increase in interest income driven by increase average debt investments outstanding, a $900 thousand decrease in dividend income from equity investments, offset by a $900 thousand increase in fee income, primarily related to prepayment fees on the repayment in full of our debt investments in True Environmental.

Total expenses, including income tax provision, were $24.8 million for the third quarter, in line with Q2. Expense variations included a $700 thousand increase in interest expense related to higher average debt balances outstanding and the higher average interest rate, a $200 thousand increase in base management fees given an increase in assets under management, a $400 thousand increase in income incentive fees offset by a $0 decrease in the capital gains fee accrual, and a $1 million decrease in G&A expenses primarily related to proxy solicitation costs for the Annual Shareholder Meeting held in Q2. Net investment income or NII for the 3 months ended September 30 was $0.54 per share versus $0.49 per share in Q1.

Adjusted NII, which excludes any capital gains incentive fee accruals or reversals, attributable to realized and unrealized gains and losses on investments, was $0.54 per share in Q3 versus $0.50 in Q2. For the 3 months ended September 30, we recognized approximately $11 million of net realized losses on debt investments in Virtex Enterprises, which had previously been written down. We ended the quarter with $712.2 million of debt outstanding comprised of $289.5 million of SBA debentures, $320 million of unsecured notes, $92.3 million outstanding on the line of credit, and $10.5 million of secured borrowings. Our net debt to equity ratio as of September 30 was 0.9x. Our statutory leverage, excluding exempt SBA debentures, was 0.5x.

The weighted average interest rate on our outstanding debt was 5.8% in line with Q2. Now turning to portfolio statistics as of September 30. Our total investment portfolio had a fair value of 1.4 billion Our average portfolio company investment on a cost basis was 14.1 million which excludes investments in 8 portfolio companies that sold their operations that are in the process of winding down. We have equity investments in approximately 85% of our portfolio companies, with an average fully diluted equity ownership of 2.1%. Weighted average effective yield on debt investments was 12.6% as of September 30 versus 12.5% in Q2.

The weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original issue discounts loan origination fees, but excluding investments on non accrual, if any. Now I would like to briefly discuss our available liquidity. In Q3, we issued accretive shares under our ATM program and raised $35.5 million of net proceeds. In September, we received SBA approval for the new increased debenture fund limit of $250 million giving our SBIC fund FMC 4 incremental debt capacity of $75 million. As of September 30, our liquidity and capital resources included cash of $32.7 million, $132.8 million of availability on our line of credit, and $83 million of available SBA debentures.

Resulting in total liquidity of approximately $248.5 million. Now I will turn the call back to Edward for concluding comments.

Edward H. Ross: Thanks, Shelby. As always, I would like to thank our team and the board of directors at Fidus for their dedication and hard work. And our shareholders for their continued support. I will now turn the call over to Megan for Q&A.

Operator: Megan? We will now begin the question and answer session. If you were using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press *2. At this time, we will pause momentarily to assemble our roster. The first question comes from Robert Dodd Raymond James. Please go ahead.

Robert Dodd: Good morning, and congratulations. Congratulations on another very good quarter. A couple of questions. 1 has 1 before I go into the more detailed ones. On the combined dividend and fee income, obviously, basically, they are offset this quarter. Right? I mean, dividend was obviously unusual. As recognized, and the fee was higher because of true environmental. I mean, is it fair to say that, like, you are you if you just, you know, treat this quarter as quasi normal or even arguably low, when you compare. When you come on a combined basis.

Is that the right way to think about it? it is not like, you know, I should take out you know, fee income next quarter and obviously leave the dividend being unusual. I mean, I am just trying to think about what the right combined number for that is kind of on a go forward basis. The interest expense, obviously, is conceptually easier to model than dividends and fees.

Edward H. Ross: I think what I would say is fee income was actually at a decent level because of true environmental prepayment. Fee. So that was. that is a decent level of fees. But usually, we have more, you know, activity that drives even more fees than that. But I think that is a fair number. And as you know, the dividend income is more episodic in nature. Yep. And so it is just tougher to predict. So I think, you know, not expecting that every quarter probably makes sense.

Robert Dodd: Got it. Okay.

Edward H. Ross: On the big. You know, you indicate you expect, obviously, activity to pick up in the fourth quarter. In, obviously, your end of the market, right? Is there any particular themes in that? I. You know, I mean, have people been waiting on the election? It seems unlikely because that only just happened. Or are there. Is it picking up in you know, more halo or asset heavy industries sometimes. Some of which duplication is done? Or is there any particular thing that is more in favor right now that fits, obviously, within your portfolio? Or is it just, you know, an overall Or is it, in fact, a lot of software stuff getting done?

I mean, you just give us. Is there any incremental color on kind of, like, what is driving that?

Robert Dodd: Sure.

Edward H. Ross: it is a great question, Robert. You know, I think you know, what happened in the market is, things started to pick up midyear. From a deal flow perspective, we did not have anything closed in Q3, really. Had 1 holdover from a commitment from Q2. But activity levels really increased and so. And I think it was generally folks getting more comfortable with what. with the war, the geopolitical situation. And the economy as we sit here today. So I think there was a malaise during Q1 and Q2 that, you know, started to lift a little bit and people are more interested in doing things. So that. that is the primary driver.

I think the second driver is most of the activity is traditional economy related. So call it, say, business services. Maybe niche manufacturing. Industrial services, those types of things. So that is the second theme is what I would say as opposed to software investing. Got it.

Robert Dodd: Thank you. I appreciate that. And then 1 more I will ask you to, yeah, to get your crystal ball out. Is this sort of a build to a year end rush which sometimes happens? Or is this. Do you think a kind of a lifting swell and we are gonna see more activity overall. Now to your point, if people have gotten comfortable with geopolitics, which might change in the economy, that, like, 2027 will just be a more active year. Not crazy, but more active in general. Is that fair to say?

Edward H. Ross: I think that is our hope. Right? there is-- we are in a more uncertain environment today than we have been in quite a while. So it is kind of hard to predict. But our expectation would be if you know, status quo is what happens, that there would be a lift, if you will, in M&A activity. I do not expect it to be, you know, overly robust. there is reasons that people do not wanna do that. Right? High interest rates and other things. But there. I think there will be plenty of activity assuming status quo. Got it. Got it.

Robert Dodd: And then. Sorry. I thought that was the last 1 that is not 1 final 1 if I can. On pricing and spreads, etcetera. Right? Obviously, you go first lien focused portfolio now. What. You know, if activity does pick up or it stays. I mean, do you expect it to have you know, material impact on spreads or you just think this is this is where they are gonna stay, or could they even go down given the forward curve says base rates are gonna go up? I mean, just you know, what do you think on pricing here?

Edward H. Ross: Yeah. I think stability is probably where I would come out on that question. I mean, we are focused on very high quality opportunities. And high quality businesses, and, you know, there is competition. it is real. And so that is how I would think about it as opposed to widening spreads. I do not think so. Could there be a slight narrowing if rates do increase? That could happen adjusting there for the again, you know, high quality situations. You start drifting into riskier situations. that is a different game. Yeah. Got it. Got it.

Robert Dodd: Thank you.

Edward H. Ross: Appreciate it. Thank you, Robert. Good talking to you.

Operator: The next question comes from Mickey Schleien with Clear Street. Please go ahead.

Mickey Schleien: Yes, good morning. So Robert stole my thunder on a lot of questions, but I have a couple more that I would like to ask.

Edward H. Ross: Alright.

Mickey Schleien: Edward, your software exposure is pretty similar to the average in the BDC sector, so it is something you are familiar with. And, you know, I do not wanna beat a dead horse, but you know, AI is advancing very quickly. And I am interested in understanding. I think the market's interested in understanding, particularly in the lower middle market where you focus how are your borrowers using AI to defend their businesses, their software businesses? From AI competition itself. And you know, what are they doing to avoid being replaced by AI, if you if you understand what I am what I am saying.

Edward H. Ross: I do. And so I will just maybe comment on just smaller software companies because we definitely have some of those. You know? And I know the concern is 1 of, is there more risk? And I would say it is true that some you know, whether it is traditional or, you know, new economy, smaller companies can carry more risk, not always. But we know the. You know, from our perspective, we know the lower middle market well. We have been investing in it for many years. Part of our historical success comes from finding niche markets leaders.

So people that are leading from a market share and a product perspective with, you know, strong value propositions and great management. teams. I mean, that is our focus. And these are, you know, some of the criteria that we use to build out our software and tech enabled services portfolio. And so we have got what we believe is a very strong and healthy overall software portfolio. The average revenue and EBITDA kind of $43 million and $7 million. Margins are 15%, And we continue to see year over year growth in both metrics. So we feel good about the health of the portfolio.

And what we are seeing from the portfolio companies on the software side is you know, they are working hard and spending money on continuing to improve their business. And, you know, obviously, that is encouraging. But they are leveraging AI to improve products and create new features at the end of the day. And they are also evaluating acquisitions and channel partnerships you know, to generate more customers. And so I think, you know, what I would say is people are investing in AI You know, what your hope is your portfolio companies are well positioned today, and they can just improve that positioning. And that is, you know, that is what most companies are trying to do.

Mickey Schleien: I understand. Couple of balance sheet questions. You tapped the ATM, the common share ATM program again during the quarter. Despite, you know, limited net portfolio growth. How are you thinking about additional equity issuance versus perhaps carrying a little bit more leverage on the balance sheet, which, you know, potentially could help increase your ROE. Sure.

Edward H. Ross: Great question. I think you know, what we are trying to do is stick between that 0.9:1 and 1.1:1 really in the middle. We are not you know, our goal is not to go too far over 1:1. We do care about our investment grade rating. And I think that is part of the equation as well. So, you know, I think we are. What we are trying to maintain is a, you know, a strong balance sheet position, a strong liquidity position. So we can take advantage of opportunities as they arise as opposed to being fully levered and fully invested and, you know, maybe more limited from a capacity perspective.

So there is a balance that you try to strike, and so that is the goal, and, you know, we will every quarter will be a little different, but I think we feel good about the approach.

Mickey Schleien: Is. So if I could. If I am understanding you correctly, if the market were really going to pick up in, you know, the current environment, I think that is doubtful. But let's say it does, You are holding back some dry powder essentially, and would be willing to run with a little bit more leverage if it makes economic sense.

Edward H. Ross: Yes. To a limited degree back to, you know, investment grade matters and not going. Getting too levered. As I think is a piece of our equation. But, yes, to a limited degree. Sure. Absolutely. Okay.

Mickey Schleien: And lastly, if I have the math correctly, the equity portfolio is marked almost 50% above cost, and if I recall, you did a trade a few years ago where you sold you sold several equity positions to capture those gains, which was really, you know, interesting. How would you characterize your appetite and the near term pipeline for exiting some of those equity investments and generating some realized gains.

Edward H. Ross: Sure. it is a great question, Mickey. And I think you know, where we are. I think we are happy with the positioning of our equity portfolio. But as we. As you just mentioned, the market is not in a robust state. And so that will you know, impact our realizations in the timing of those realizations. Some of those are probably pushed out. are pushed out from our perspective. And it is worth noting just to make sure I get it out there. I think the repayments, we expect to be relatively healthy this quarter. Most likely less than originations. But relatively healthy. But it is really on the debt investment side, not on the equity side.

But we do we do see some potential realizations on the equity side in 2027. We have obviously had 5 or 6 realizations this year, so we would expect continuation of those kind of you know, activities, if you will. As opposed to robust levels at the moment. it is just you know, the M&A market is not at that level.

Mickey Schleien: Right. So that would be plain vanilla M&A activity next year as opposed to you know, proactively trying to sell a chunk of that equity portfolio. Am I understanding you correctly?

Edward H. Ross: You are. You are. And I do not think there was, you know, just a little meat on the bone. The reason we sold the equity was we were, you know, we were probably long in the tooth as a percentage of our portfolio. It was over 20%. equity was. And so it just made sense to you know, try to, you know, get some liquidity and know, try to drive more recurring you know, earnings at the end of the day. And so that was what drove that positioning. Not the need for the capital gain. It was in the, you know, obviously very good investments overall. That we sold, to be honest, but they were.

You know, it was it was to drive a portfolio that had a higher level of recurring earnings. Sure.

Mickey Schleien: I understand. Those are all my questions. this morning. I thank you for your time.

Edward H. Ross: Thank you. Good talking to you, Mickey.

Mickey Schleien: Likewise.

Operator: Again, if you have a question, please press *1. The next question comes from Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Christopher Nolan: And just to rephrase a question that Mickey asked. For fourth quarter, should we expect some gains from this increased activity?

Edward H. Ross: No. And I tried to hit that at the end of you know, that question in Q&A session with Mickey. I think most of. We are gonna have a relatively high level of repayments especially as compared to Q3. But it is really gonna be on the debt investment side. On the equity realization side, we do not. I think it will be very limited here in Q4, Based on what we know today.

Christopher Nolan: Great. And then, also, back to the AI a second. Business services is 1 of your larger industries. Does that include law firms and consulting firms? Industries which, you know, basically really could get displaced by AI? What comprises business services, please?

Edward H. Ross: it is a very broad definition. it is a very broad definition. Law firms, do not have. I mean, we obviously did something that is serving, you know, kind of, you know, providing a service, a court service, and you saw that in the subsequent events. But that is not something, quite frankly, that can be replaced by AI, if you will, that service. So we feel very good about that and you know, I. We do not have any know, investments in law firms and consulting firms. We really do not have any straight up consulting firms. So it is not that. Those are not the types of business services companies that we have.

Christopher Nolan: Great. And final question is for private equity sponsors, they seem to be sort of under stress. And given the increase in interest rates, and a highly competitive lower middle market lending market. Are you finding that you might be making like, sidecar equity investments alongside loans or not?

Edward H. Ross: So when you say sidecar, just to make sure? Answer the question, you mean just a coinvestment alongside a private equity group?

Christopher Nolan: Exactly. Yeah.

Edward H. Ross: So that means what you just hit on is our strategy. So when Shelby said that we have equity investments in 85% of our portfolio companies. I mean, she's highlighting that we are coinvesting with typically the ownership group, which is, you know, you know, quite often, almost always a private equity group. So that is the strategy. And, you know, what we like about the lower middle is, yes, it is competitive, but it is very, very fragmented. it is where 90% of. Where we play is probably where 90% of the M&A activity in terms of number of deals take place.

And so it gives an opportunity to you know, originate very high quality you know, situations and businesses. Which is the goal as opposed to, you know, a fewer number of companies and you got, you know, bunch of people that can provide those solutions, it is, you know, it is a it is a different equation. You know, from an origination perspective. So we like that aspect of it. But, yes, from an equity perspective, we co invest with the sponsors. What we are looking for companies where we like we like both the debt investment We also like the equity investment. And that is the. Our general goal, if you will.

Christopher Nolan: I should have clarified it. Should are you expecting to invest more equity than in the past for deals going forward? that is what I am trying to do.

Edward H. Ross: Okay. Great question. No. I would say the answer to that is no. Our general strategy has been kind of up to 10% of our capital that we deploy over time is in the form of equity investments. On a cost basis, we are at a lower level than that. On a fair value basis, we are at a higher. We are at, like, 11% now. But we. So I think about it up to 10% on a cost basis is how we think about it. Thank you.

Christopher Nolan: Thank you.

Edward H. Ross: Good talking to you, Christopher.

Operator: The next question comes from Paul Johnson with KBW. Please go ahead.

Paul Johnson: Yeah. Good morning. Thanks for taking my questions. In terms of, like, the current vintage it does not sound like necessarily you see any meaningful improvement in spreads. But is there anything else, I guess, that you think that you are extracting more of today within covenants or, you know, by any sort of documentation terms that you think is better in the current vintage?

Edward H. Ross: If you think about it from a it is a great question, Paul. But if you think about it from a recent history perspective, I think we are you know, covenants have been there for a while. So when we started investing in first lien debt, you know, having 2 maintenance covenants, And that really started in 2018, was part of the equation. And that continues in the lower middle market. So we have what we believe is real maintenance covenants that gives us a seat at the table when there are things like acquisitions going on or things are not going as planned. And so we like that aspect of it.

I think pricing, I do not see big changes there. Leverage, I do not. I think leverage is you know, very much in check for obvious reasons. If not, maybe a little bit lower. But let's say it is stable as well. And then loan to values, are also very healthy. So we are, you know, in the 30% to 50% range on our originations, you know, or expected originations. And in Q4, So 30% to 50% in that is always been a focus of ours and something that we really try to stick to, if you will.

Paul Johnson: Got it. Thanks for that. And last 1 is maybe a higher level question, but it is not historically been a part of your business that I. That I am aware of, but if there is some sort of scenario where maybe M&A is taking longer to recover and, you know, exit timelines are being extended along with loan maturities. Is there a scenario where the sponsors potentially create some sort of dividends, not necessarily, like, an you know, full recap, but, you know, start to draw on dividend income to create some sort of DPI for these businesses within those funds?

Edward H. Ross: I would say to a limited degree. The answer to that is yes. You know, what we have seen primarily, though, is, you know, high quality businesses, sponsors like to hold on to. And so they do try to generate, you know, some form of dividend maybe they will do that 2 or 3 times. Quite frankly. And so we have seen that over the years, and we would expect you know, that to continue at the end of the day. There are times in where you have lower leverage situations where you can you know, generate consistent and dividends. But that is, I would say, the minority for sure as opposed to the majority of those situations.

Paul Johnson: Okay. Appreciate it. that is all for me. Thanks.

Edward H. Ross: Good talking to you, Paul.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Edward H. Ross for any closing remarks.

Edward H. Ross: Thank you, Megan. And thank you, everyone, for joining us this morning. We look forward to speaking with you on our fourth quarter call in late February 2027. Have a great day and a great weekend.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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