Participants

Elizabeth Besson; Investor Relation Manager; Midcap Financial Investment Corportation

Tanner Powell; Chief Executive Officer; Midcap Financial Investment Corporation

Ted McNulty; President & Cheif Investment Officer; Midcap Financial Investment Corporation

Greg Hunt; Chief Financial Officer.; Midcap Financial Investment Corporation

Finian O'Shea; Analyst; Wells Fargo

Mark Hughes; Analyst; Truist Securities

Sean-Paul Adams; Analyst; RAYMOND JAMES & ASSOCIATES, INC.

Matthew Hewitt; Analyst; Jeffrey

Paul Johnson; Analyst; KBW

Melissa Wedel; Analyst; J.P. Morgan

Casey Alexander; Analyst; Compass Point

Presentation

Operator

Please stand by. Your program is about to begin.
Good morning and welcome to the earnings conference call for the period ended December 31, 2024, for Midcap Financial Investment Corporation. (Operator Instructions).
I'll now turn the call over to Elizabeth Besson, investor relations manager for Midcap Financial Investment Corporation.

Elizabeth Besson

Thank you, operator, and thank you everyone for joining us today. We appreciate your interest in Midcap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President, and Greg Hunt, Chief Financial Officer. Howard Widra, executive Chairman, is on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded.
Please note that they are the property of Midcap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information.
Today's conference call webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and then may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law.
To obtain copies of our SEC filings, please visit either the SEC's website at www.SEC.gov or our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website which contains information about the portfolio as well as the company's financial performance.
Throughout today's call, we will refer to Midcap Financial Investment Corporation as either MFIC or the BDC, and we will use Midcap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer.

Tanner Powell

Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MFIC's 4th quarter earnings conference call. I'll begin today's call by providing an overview of MFIC's 4th quarter results and share our perspective on the current market environment.
I will then turn the call over to Ted, who will discuss our investment activity and provide an update on the investment portfolio. Greg will then review our financial results in capital position in more detail.
Beginning with the results yesterday after the market closed, we reported net investment income, or NII per share of $0.40 Cents for the December quarter and $1.71 For the full year, these results correspond to annualized return on equity or ROE of 10.5% for the quarter and 11.2% for the year. GAAP net income per share was $0.26 Cents for the December quarter and $1.27 cents for the full year.
The vast majority of our portfolio is performing well, and we are observing stability in certain credit metrics. Net Per share was $14.98 Cents at the end of December, down $0.12 Cents, or approximately 0.8%. During the December quarter, we made $255 million of new commitments, and for the full year, we made a billion of new commitments.
While our market remains competitive, we observed a modest increase in spreads on our new commitments compared to the previous quarter, driven by commitments to existing borrowers at what we believe to be attractive leverage entry points. Spreading compression in the core middle market has been less intense than what we see in the upper middle market.
We have a clear and straightforward plan to gradually grow the portfolio over the coming quarters, and we believe MFIC's future results are well positioned to benefit as were lever back to our target level. We expect to be able to reach our target leverage of approximately 1.4 times in the next couple of taking a step back as a reminder in July, MFIC completed its mergers with Apollo Senior floating rate Fund and Apollo Tactical Income Fund, or the CES.
We took advantage of strength in the liquid credit markets during the quarter and continued to sell certain assets acquired through the mergers that do not align with our strategy and prudently deployed the proceeds along with the investment capacity generated from the mergers into first lane floating rate middle market loans originated by Midcap Financial.
Our affiliation with Midcap, a leading lender in the middle market, provides a significant deal sourcing advantage. We are fortunate to have access to the necessary origination to deploy this capital, given the significant volume of commitments originated by Midcap Financial. In 2024, Midcap closed over $21.3 billion of commitments, including $6.6 billion in the fourth quarter. Midcap's origination volumes for the quarter and the full year are particularly notable given the overall muted sponsor M&A activity in the market.
Midcap has what we believe to be one of the largest direct lending teams in the US with close to 200 investment professionals. Midcap Financial was founded in 2009, has a long track record, which includes closing on approximately $130 billion of lending commitments since 2013.
This origination track record provides us with a vast data data set of middle market company financial information across all industries and we believe makes MidCap Financial one of the most informed and experienced middle market lenders in the market.
We believe the core middle market offers attractive investment opportunities across cycles and does not compete directly with either the broadly syndicated loan or high yield.
As Greg will discuss in more detail, we continue to optimize MFIC's capital structure, including the closing of our second CLO post quarter end, which we believe strengthens our balance sheet in aligns with our investment strategy.
Moving to Merck, as discussed previously, we are focused on reducing our investment in our aircraft leasing and servicing business.
I'd like to provide an update on Merck's Russia fleet insurance claims. As a reminder, at the time of Russia's invasion of Ukraine in February 2022. And the imposition of sanctions. Merck's own portfolio included 4 aircraft on lease to 2 Russian airlines.
Those aircraft are held in aircraft securitization known as MAP 19. In compliance with the EU sanctions imposed on Russia due to the invasion, Merck terminated the leases of those aircraft, but 3 were not returned and have made in Russia since then.
Merck has brought legal action in the English courts seeking payment for those aircraft under both the lessee reinsurance policies and its own contingent policy, and we are pleased to announce that during the 1st quarter, we settled a portion of our contingent insurance claims with certain insurers.
As mentioned on last quarter's call, we believe the current environment for selling aircraft is very attractive. Merck has made substantial progress on multiple sales campaigns covering a majority of the remaining aircraft on its balance sheet.
We look forward to providing further updates on the process as purchase agreements are finalized in the coming.
At the end of December, MFIC's investment in Mercks totalled approximately $183 million, representing 6.1% of the total portfolio of fair value. The blended yield across our total investment in Merck was approximately 3.2% at fair value.
And the continued rotation of capital from Merck into directly originated corporate loans should have a beneficial impact on MFIC's. Assuming we are successful in our sales campaign, we expect MFIC's exposure to merge to decline in the coming quarters.
Moving to the economic environment, we entered 2025 with a solid economic backdrop underpinned by strong consumer spending, strong capital goods spending on infrastructure and AI, and a significant run up in stock prices. However, investors are increasingly focused on the near-term impact of tariffs and federal government layoffs. The Fed's decision to increase their long-term dot implies that they are coming around to the view that interest rates will be permanently higher.
Credit spreads have remained tight despite economic policy uncertainty rising. The probability of a recession has declined significantly over the past month and remains low for 2025. Specific to the direct lending market, we are seeing encouraging signs for an increase in sponsor-related M&A activity, including a strong economy, mounting pressure on financial sponsors to return capital, a potentially more favourable regulatory environment, and the stabilization of interest rates.
As private debt has become an increasingly important source of financing for sponsored transactions, especially in the middle market where we are focused. We are currently observing a notable increase in the number of deal screenings and indicating a pickup in activity. Repricing activity has continued at record levels with refinances and extensions continuing to increase as sponsors seek to address vintage investments in upcoming maturity.
To our dividend on February 21, 2025, our board declared a quarterly dividend of $0.38 per share for shareholders of record as of March 11, 2025, payable March 27, 2025. With that, I will now turn the call over to Ted.

Ted McNulty

Thank you, Tanner. Good morning, everyone. I'm going to spend a few minutes reviewing our fourth quarter investment activity and then provide some details in our investment portfolio. In the December quarter, we continue to prudently deploy the capital acquired from the mergers. MFIC's new commitments in the December quarter totalled $255 million.
As we've emphasized before, we intend to deploy this capital in a steady and measured manner, maintaining discipline in terms of obligor and vintage exposure. We are fortunate to have access to the necessary origination to deploy this capital, given the significant volume of commitments originated by Midcap Financial. As Tanner mentioned, Midcap Financial closed approximately $6.6 billion of new commitments during the December quarter.
We believe it is prudent to gradually grow the portfolio in order to maintain our desired level of diversification. Despite significant competition for new deals, we observed a modest increase in spreads on new commitments compared to the previous quarter, driven by commitments to existing borrowers at what we believe to be attractive leverage entry points.
The weighted average spread on new commitments in the December quarter. 546 basis points, up 13 basis points compared to commitments made in the December quarter, while the net leverage on new commitments decreased to 4.3 times in the December quarter, down from 4.7 times in the September quarter. We believe this attractive risk return profile reflects midcap Financial's strong presence as a lender in the middle market and the power of incumbency.
For the quarter, gross funding totalled $248 million excluding revolvers. Sales and repayments excluding revolvers totalled $254 million including $96 million of assets acquired from the mergers. Net revolver repayments were less than $1 million. In total, net repayments for the quarter were $6 million. In the current quarter, we have continued to make progress selling assets acquired from the mergers.
Turning to our investment portfolio at the end of December, our portfolio had a fair value of $3.01 billion and it was invested in 233 companies across 25 different industries. Direct origination and other, including the directly originated loans acquired from the CEFs, represented 90% of the total portfolio, up from 88% last quarter.
The non-directly originated loans acquired from the CEFs, which includes high yield bonds, broadly syndicated loans, and structured credit positions, represented 4%, down from 6%.
As you can see on page 6 of the earnings supplement, we break out the non-directly originated assets that we acquired from the mergers. Lastly, Merck accounted for approximately 6% of the total portfolio. All of these figures are on a fair value basis.
Specific to the direct origination portfolio, at the end of December, 98% was first lien and 91% was backed by financial sponsors, both on a fair value basis. Approximately 99% had one or more financial covenants on a cost basis.
Covenant quality is another key point of differentiation from the upper middle market, as substantially all of our deals have at least one covenant compared to larger deals which are generally without covenants. The average funded position was $13.1 million. The median EBITDA was approximately $48 million.
The weighted average yield at cost of our direct origination portfolio was 11% on average for the December quarter, down from 11.6% for the September quarter. The decline in the yield was primarily due to the decline in base rates. At the end of December, the weighted average spread on the directly originated corporate lending portfolio was 578 basis points, up 1 basis point compared to the end of September.
Regarding credit quality, we believe the overall credit quality of MFIC's direct origination portfolio remains stable. We are not observing any signs of general credit weakness. Our portfolio companies continue to show good financial performance, as evidenced by continued positive revenue and growth.
The financial sponsors and management teams of our borrowers have been effectively managing growth and liquidity. In a handful of more challenged situations, we're seeing good financial sponsor support. We have seen a slight decrease in amendment requests related to covenants or liquidity.
We saw an improvement in the weighted average interest coverage ratio, which is primarily attributable to the decline in base rates and the origination of new investments with higher interest coverage ratios. At the end of December, the weighted average interest coverage ratio is 2.1 times, up from 1.9 times last quarter.
At the end of December, the weighted average net leverage for the direct origination portfolio increased slightly to 5.0 times, up from 5.43 times last quarter.
We believe the stable level of revolver utilization we are seeing from our portfolio companies is an additional sign of the health of our portfolio. At the end of December, the percentage of our leveraged lending revolver commitments that were drawn was essentially unchanged quarter over quarter. We believe a steady revolver utilization rate is an indicator of financial stability.
Our underwriting on midcap source loans has proven to be sound. Based on data since mid-2016, which is the approximate date upon which we began utilizing our co-investment order. Our annualized net realized and unrealized loss rate is around 5 basis points on loans sourced by MidCap Financial. We think this performance data shows how well the strategy is performed.
The amount of investments on non-accrual status decreased on both a cost and fair value basis compared to the prior quarter. At the end of December, investments on non-accrual were 1.3% of the portfolio at fair value, down from 1.8% last quarter. During the December quarter, we exited one position that was on non-accrual status, which we acquired from the CES, and we placed one legacy second leading position non-accrual status.
MFIC's income remains relatively low, representing approximately 5.7% of total investment income for the quarter and 4% for the full year.
In addition, we are closely reviewing our portfolio for any potential impacts from tariffs or other changes to government policies. We're generally underweight businesses that rely on imports and exports to and from the targeted countries and thus believe the impact will be limited should tariffs be put in place.
We supplement our underwriting process in response to the past and potential tariffs, as well as other new risks that may emerge. With that, I will now turn the caller to Greg to discuss our financial results in detail.

Greg Hunt

Thank you, Ted, and good morning everyone. Starting with our operating results, total investment income for December was approximately $82.2 million flat compared to the prior quarter, as a sequential increase in interest income was offset by a decline in fee income. The sequential increase in interest income was driven by a full quarter impact from the mergers, an increase in pre-payment income.
Higher average leverage partially offset by the impact of declining rates. The weighted average yields at cost on our directly originated portfolio was 11%.
For December down from 11.6% last quarter due primarily to lower base rates, dividend income was flat quarter over quarter.
Net expenses for the quarter were $45.1 million, an increase of $1.1 million compared to the prior quarter, driven by higher management and incentive fees, partially offset by a decline in interest expense and other DNA.
The management fee for the quarter was approximately $6.2 million compared to $4.4 million in the December quarter. As a reminder, our base fee is 1.75% on net assets calculated as of the beginning of the quarter. The increase in net assets from the merger did not impact the management fee in the September quarter or resulted in the higher management fee in the December quarter.
FIC's incentive fee is 17.5%. It is subject to the total return hurdle with a rolling 12 quarter look back. Given the total return feature and the net loss incurred during the lookback period, MFIC's incentive fee for the December quarter was $5.3 million or 12.6% of pre-incentive fee.
Interest expense declined due to lower base rates, partially off that offset by higher leverage.
The December quarter, net investment income was $0.40 Cents per share, resulting in a full year net investment income per share of $1.71 Cents.
For the December quarter, GAAP EPS or net income per share was $0.26 Cents, resulting in a full year GAAP EPS per share of $1.27 Cents.
For the December quarter and the full year, annualized return on equity based on net investment income was 10.5% in 12 and 11.2% respectively. The December quarter, the full and full year annualized return on equity based net income was 6.8% and 8.3% respectfully.
Results for the quarter include a net loss of approximately $13 million or $0.14 Cents per share. Approximately 60% of that net loss was from positions that were on non-accrual at the beginning.
We ended the year with net leverage of 1.16 times. We are operating below our target of around 1.4 times given the deleveraging impact of the equity issued in July in connection with MFIC's mergers with the closed-end funds. As Tanner and Ted mentioned, we intend to prudently increase leverage over the coming quarters, and we see no impediment to do so. At the end of December, our portfolio had a fair value of $3 billion.
We had approximately $1.75 billion in debt and total assets were $1.4 billion or $14.98 Cents per share.
Shifting to our capitalization, given the attractive nature of term-based financing in the CLO market, the composition of our portfolio and leveraging midcap financials, CLO success and expertise, we expect CLOs to be an important source of debt financing for MFIC going forward.
In late December, MFIC priced a $529 million CLO, our second unbalance sheet CLO, which closed earlier this week. We sold the single A tranche, adding approximately $400 million of low cost secured debt at a blended cost of 161 basis point spread. The spreads on middle market CLOs.
A tranches have tightened considerably over the past year due to strong investor interest. The spread on the senior AAA in the second CLO was 148 basis points compared to 248 basis points in our inaugural CLO, which we closed in November of 2023. A tightening of 92 basis points.
We believe this is this was amongst one of the tightest levels achieved in the middle market CLO, reflecting the high quality of the underlying loans.
The CLO has a reinvestment period through April 2029 and is not mature until January 2037. The proceeds from the CLO are effectively being used to repay $359 million of unsecured notes which come due next week, with the remaining balance used to pay down our revolving credit facility. This concludes our remarks, operator, please open the all the questions.

Question and Answer Session

Operator

Finian O'Shea, Wells Fargo Securities.

Finian O'Shea

Hey everyone, good morning.
Tanner, I appreciate the comments. The post quarter insurance recovery for Mercks. Can you talk about any impact there, if that was a full recovery of, what you have valued or if there's any earnings headwind if that came in short. Thanks.

Greg Hunt

Yes Finn, thanks. The recoveries are, approximately in our mark, so we're very happy with the results.

Finian O'Shea

And does that imply like a more expedited wind down or return of capital there as well?

Greg Hunt

Well, yes, I mean if you think we do have 3 planes that we have insurance recoveries on, as Tanner mentioned, the court proceedings were done in London and so we do expect resolution of those claims this year.

Finian O'Shea

Okay, it's helpful, then I guess like Merck's, franchisee like what are you feeling nowadays for the eventual exit.
Maybe this year or more likely a next year thing.

Greg Hunt

Yes, we, I mean, I think as Tanner mentioned we have some good line of sight for the sale of a significant amount of the portfolio that Merck has, and we'll be reporting on, when we are able to do so with signed contracts.

Finian O'Shea

Okay, it's all for me. Thanks so much.

Operator

Mark Hughes, Truist

Mark Hughes

Yes, thanks. Good morning. If things calm down in Russia and Ukraine, would that be an opportunity for better recoveries, or is that already locked in?

Greg Hunt

Now the recoveries are locked in and they're somewhat, this is insurance based, so it's essentially what the insurers are willing to, resolve the claims for. It's been very positive because the claims that we settled were pre the finalization of the court hearing, so it was more the momentum trying some of the insurers to get out front of. The ultimate conclusion by the courts, which we think will be positive on an insurance basis.

Tanner Powell

Yes, to emphasize that the resolution of the claims are now inextricably linked to the insurance process unrelated to what's happening on the ground.

Mark Hughes

Yes, okay, talked about the increase in spreads in the quarter and then leverage was a little bit lower. How much of that was mixed or was there some market movement that contributed to that?

Tanner Powell

Yes, sure, thanks, Mark, and we tried to capture the nuance in the prepared remarks.
We are still seeing spread compression, as we noted, not as significant or pronounced as maybe in other parts of the syndicated market or upper middle market, but notwithstanding still some spread compression and new deployments are at lower spreads than what our average book is run rating right now.
The relative increase quarter over quarter had more to do as we tried to call out in our prepared remarks with the overweighting to existing portfolio companies and so we don't, we did not intend for this to imply that.
Are widening, but rather just, the power of incumbency and what we're able to drive with our existing borrowers where the friction costs are such that we typically do better when we're redeploying into existing portfolio companies versus new kind of credit creation opportunities which continue to be at tight spreads relative to the rest of our book.

Mark Hughes

Thanks for that detail. How much more in your book is there to refi, do you think the kind of investment in existing borrowers, current spreads, how much more do you anticipate might just be a natural consequence of this recent spread compression?

Tanner Powell

Yes, I think it's tough to estimate. You can look at what our average spread is at 578, and you can see where the market is deploying at 500 or so or 525.
On average, obviously in our particular quarter, as I already alluded to, we were a little bit higher than that on account of reinvesting into current portfolio companies. But notwithstanding, I would answer your question with that will have a lot to do with, part of spreads going there is that. M&A has been relatively muted. The bid has spread for financial sponsors on account of a higher cost of capital has made it harder to get deals done.
And as a result, the level of repricing and the level of repayment is a function of that as well. So tough to estimate. And would caveat that you know to the extent that we saw significant new credit creation opportunities, i.e. a pick up in M&A, you could see some stabilization in yields and even widening in certain cases because the market.
On average, is still grappling with a little bit of a technical overhang where there's more capital than there are new credit creation opportunities, and that's one of the reasons you've seen spreads go as tight as they have, and that's true across all markets.

Mark Hughes

Yes, and then pick up a little bit compared to earlier in the year. I assume maybe that's part of the merger. Where should that trend as we progress through 2025?

Ted McNulty

Yes, so thanks, Mark. The, in terms of pick income, I think when you look at our overall portfolio, we continue to be comfortable with where the performance is by and large, we've seen interest rates come down over the last few quarters. That should help.
I don't think. Anyone's forecasting kind of lower interest, even lower interest rates going forward, but that'll be one component to it. And then, obviously the performance of the underlying borrowers, which, as with everyone else on the street, we have a handful of names that you know we watch very closely, but as we said in the prepared remarks, overall the credit the credit quality does remain stable.

Mark Hughes

Thank you.

Operator

Sean-Paul Adams with Raymond James.

Sean-Paul Adams

Yes, good morning. I did see non-accruals did take a dip for the quarter. Is it correct? There's only 4 non-accruals remaining from the legacy CEF portfolio on the books. And what's the status of the existing non-accrual perspective resolutions? Thank you.

Ted McNulty

Yes, sure, I'll kind of hit that in reverse. So, the positions on non-accrual, without going into too much detail, there were a number of restructuring transactions that occurred in the 4th quarter or, into the current quarter which have put those in a more stable place and so we'll be. Watching those going forward, obviously we have from a portfolio standpoint, a monitoring process around what's on a cool, what's on a watch list, etc.
And in terms of the kind of details of non accrual, page 11 in the earning supplement, lays out, all of the names that and where they came from and so yes, there are 4 names on that accrual from the mergers.

Sean-Paul Adams

Got it. Thank you. I appreciate it.

Operator

Matthew Hewitt with Jeffrey.

Matthew Hewitt

Morning everyone. Hope you're well. Just following on the non accrual conversation, can you give an update on Naviga and Renovo, just what might be happening for those companies recently and then what led to Securus being added to the list this quarter? Thanks.

Ted McNulty

Yes, so I mean both of the, I guess all three of those names you know are going through processes where lenders are collaborating and working together, to try to maximize the recoveries or you know where those ultimate recoveries do come out and what the right amount of debt is to be carried by the company going forward and I think you know.
In terms of where we keep those on non accrual and the addition of secures as well as the, ultimate outcome there is going to be driven by these restructuring processes and you know kind of underlying performance of the company going forward.

Tanner Powell

Yes, I would just say also, we talk a lot about, all of these are from the vintage kind of prior to COVID and we talk a lot about, what has the increase in interest rates in each of these companies.
Had had issues that have been exacerbated by the increase in interest rates and less cash flow to reinvest in the business and it would be those types of names that have been impacted in the current environment made worse by underlying Idiosyncratic issues within the.

Matthew Hewitt

Okay, thanks. That's helpful. And then just on your current dividend, it's obviously well supported by earnings, but given interest rate headwinds and spread compression, how confident are you in the sustainability of the dividend going forward?

Greg Hunt

Yes we're very comfortable with it, considering where our leverage profile is and you know expected, origination pa.

Matthew Hewitt

Okay, thanks very much.

Operator

Paul Johnson, KBW.

Paul Johnson

Yes thanks. Good morning, thanks for taking my questions in terms of just the stability in the credit metrics that you know the certain credit metrics that you're seeing, I was just wondering if you could expand on that a little bit in in terms of what you're observing.

Ted McNulty

Yes, sure. So, you know one of the things that we've been pointing out for the last several quarters is revolver utilization, and you know that has been pretty stable, quarter over quarter, which shows that you know from the companies are able to grow, without pulling on their, important capital facilities.
And also just kind of manage overall working capital and produce positive cash flow. So and then in terms of interest coverage ratio, we noted that that has improved. I think part of that is a combination of interest rates, the reduction in interest rates, but then also a part of it is what we're seeing in terms of new opportunities and the leverage that's there out of the box.
Our overall portfolio leverage did take up a little bit, but that's, primarily that's a weighted average number that's based on, a few positions, but if you look at it on an obligor basis, overall it's steady to down.

Tanner Powell

Yes, just to emphasize that last part of what Ted said is we report that on a, and to be consistent with how he reported it historically, it's a composite and it's a weighted average and so that dynamics there are, it can be influenced by some underperformers and so our commentary and the nuance in our commentary had to do with the fact that yes, we have seen some improvement on interest coverage and then also.
We look overall to borrowers or we look in quartiles, we consistent with the comments that we made in the prepared remarks, see a stability and underlying performance across the portfolio outside of some of the idiosyncratic names we've called out and mentioned in the supplement.

Paul Johnson

Thanks for that. That's helpful, and then just in terms of kind of the write downs this quarter, I understand there were some restructurings, so there's a few things going on, but, was there anything in particular that was kind of driving the net depreciation this quarter? Was it in legacy assets or, were there any, particular investments that were kind of driving it?

Greg Hunt

I think as we said in our remarks, if you looked at it, over 60% of the decline were in positions that were already in non-accrual. Those are, companies that, both Ted and Tanner have addressed and that we're working through with the sponsors, restructurings of those and or sales of those businesses, so they're more, the valuation is going to be more based upon. Enterprise value, so therefore you have more fluctuation, quarter to quarter.

Paul Johnson

Got it. Okay, I missed that. I missed that comment. And then, last one for me, in terms of the CLO financing, that's, pretty attractive pricing. So do you expect, that to change the unsecured funding mix at all going forward with, more attractive, potentially more attractive spread pricing in the securitization market.

Greg Hunt

Yes, we do. We, I think it's credit to the portfolio that we've been building over time and leveraging off of our relationship with midcap Financial.
They have they have 12 CLOs out there now we have 2. And if you, I think when you look at the BDC space, there's a convergence of not only unsecured kind of spreads and secured spreads and so therefore the secured spreads are inside the unsecured and we believe very favourable use of or source of capital for us going forward, but it's a credit if you look at the portfolio, it's a function of what we have, the type of borrowers we have, and the strength of that portfolio.

Paul Johnson

Thank you, that's all for me.

Operator

Melissa Wedel with JP Morgan

Melissa Wedel

Thank you. Good morning. Most of my questions have already been asked and answered, but I wanted to follow up a little bit on just the volume of repayment activity or exit activity in 4 Q.
Just by virtue of your talking about getting to Target leverage in the next few quarters, it sounds like you're anticipating net deployments over the upcoming quarters, but I'm just curious, were you surprised at all by some of the repayment activity that you saw in in 4Q?
Would it seem like it might have been a little bit elevated. Even though you are doing a lot of sort of recycling of capital from the sort of post-merger period, I just like to understand how you think about that.

Ted McNulty

Yes, sure, thanks, Melissa. So I mean, first of all, on the deployment side, if we kind of target, 10% plus or minus of the portfolio, new commitments every quarter, we'll be back to target leverage in the next few quarters.
The last 3rd and 4th quarter of last year, as you point out, we're dragged down by the sales of the CEF. I think, there were.
That was on target, so I'd say none of that was a surprise.
We're almost done with the recycling of the capital from the CEF and so going forward, it will be really re-levering will really be a function of deployment, which we feel very comfortable with given midcap's recent track record, well long term track record, recent deployment, and what our pipeline looks like and then it'll be you know kind of back to what I would say normal course of repayments and that should allow us to achieve our goals in terms of re-levering.

Melissa Wedel

Okay, appreciate that. And then just one follow up question I want to make sure we're understanding the realized losses correctly just by going through some of the tables in the [Ky], it looks like most of those realized losses were exited pretty close to where you had those investments marked. I'm referring more to the larger positions that drove that in for you.

Ted McNulty

Yes, and it was also, yes, it was we did exit those. They were also you were you were moving from unrealized to realized, right? We were cleaning up the SOI, cleaning up. You kind of come into the end of the year and that's kind of what we typically do, so you're correct.

Melissa Wedel

Okay, great, thank you.

Operator

Casey Alexander with Compass Point.

Casey Alexander

Yes, good morning. I'm just curious because the originations in the quarter were actually lower than your quarterly average for the year.
As well as repayments, and you've often talked about how midcap has substantial origination capacity and in the past, the reason that you didn't see more of it in in the BDC was because the BDC was up against its leverage limits.
So, it seems to me that that given those previous statements that the decision not to take up the total value of the portfolio was a conscious decision. Can you speak to that? Was there, is there, I mean, you talked about higher spreads. What was it that kept you from increasing the size of the portfolio and moving up the leverage ratio this quarter?

Tanner Powell

Yes, sure, thanks, Casey, and I think there are a number of factors, but I think the most kind of tangible in our estimation and how we very deliberately try to run the book is when you look at that that swath of origination, we quoted the all in numbers from midcap, the emphasis for us as a management team.
It's been to, stay true to that requisite level of granularity within the portfolio and so you can see the number of names that we were deploying into was substantial, but the average deployment in a given name, kind of lagged and or we chose not to run it up. And as we've said in the past, we don't, yes, it was lower in this quarter versus last quarter. That does not reflect a decision not to.
There are some things that that are won and lost and everything flows and what happens and what doesn't happen. And we're very comfortable with the level of deployment as Ted alluded to we feel very comfortable about the ability to get back up to 14 and are cognizant of wanting to build in the granularity.
The number of Obligors actually went down quarter over quarter as a result of the names that we're selling out of the CES are on average lower position sizes, but we aspire as, a lot of the larger BDCs and a function of the fact that We have 500 obligors across its business over time we would like to get to that, ideally we're at 233 right now, ideally get to get to a 300 number and show a really diverse level. And then finally the decision or whatever part of this that was a deliberate decision.
It goes to not wanting to over index to any one quarter. So take your comment, [Ky]. Objectively this was a lower commit than last quarter has a little bit to do with granularity, but overall very comfortable about the access to the origination and this not representing a deliberate decision on the part of management not to deploy.

Casey Alexander

Also.

Greg Hunt

Yes, just to jump in because I think you, the general theme is, we are obviously targeting as interest rates have gone down or and maybe stabilized now, having continuing to not only cover the dividend but have cushion to cover the dividend, as we have a few tailwinds to that which is levering up.
And the redeployment of Mercks and then we have, and we added another tailwind this quarter which is we got cheaper financing I think than we projected. Obviously, we have some headwinds, which is, the repricing, most notably, and so when we sort of like target to make sure that we continue to have comfort level to cover the dividend and actually expand that, that's sort of, that's, sort of. Timeline.
So, when Tanner's talking about the choices that we're making like levering up is, an important part of our strategy, meaning like at the at the end point we want to be at the right leverage level, but we also are, have, I don't know if luxury is the right word, but we have some flexibility in terms of sort of choosing granularity which loans we take, how we carry things forward, when we exit and not, and so we're taking advantage of that.
So I think Tan is right. I don't think you should read into sort of exactly one quarter, but you, hopefully will read into, hopefully the consistency with which we can lay out a story that continues to have room to cover the dividend and have some cushion and different levers.

Casey Alexander

That's my only question.

Greg Hunt

Thank you.

Operator

And there are no further questions on the line at this time, I'll turn the program back to management for any closing comments.

Tanner Powell

Thank you, operator. Thank you everyone for listening to today's call on behalf of the entire team. We thank you for your time today. Please feel free to reach out to us if you have any other questions. Have a good day.

Operator

This does conclude today's program. Thank you for your participation, and you may now disconnect.