Fidus Investment Corporation (NASDAQ:FDUS) has announced a robust fourth-quarter performance for 2023, with notable increases in origination and net investment income.
The company reported net origination of $20.2 million, with adjusted net investment income rising 49% to $18.8 million year-over-year. Fidus paid dividends of $0.80 per share for the quarter and $2.88 per share for the full year. The net asset value per share stood at $19.37, with the total net asset value reaching $589.5 million. The company's investment portfolio was valued at $957.9 million and total liquidity at approximately $219.1 million.
Key Takeaways
- Fidus Investment Corporation's net origination for Q4 reached $20.2 million.
- Adjusted net investment income increased significantly by 49% to $18.8 million compared to the previous year.
- Dividends distributed amounted to $0.80 per share for the quarter, totaling $2.88 per share for the year.
- The net asset value per share was reported at $19.37, with total net asset value at $589.5 million.
- The company's investment portfolio fair value stood at $957.9 million as of December 31st.
- Total liquidity was approximately $219.1 million, including $119.1 million in cash and $100 million in available credit.
Company Outlook
- Fidus is focused on long-term goals including growing net asset value, capital preservation, and generating attractive risk-adjusted returns for shareholders.
- The company repaid $35 million in SBA debentures and applied for a fourth SBIC license, which could provide access to an additional $175 million of SBA debentures.
Bearish Highlights
- The company faces increased prepayment risk and competition, with yields slightly decreasing over the past year.
- A decrease in interest rates could lead to significant reductions in net investment income, with a 25 basis point cut estimated to reduce NII by $1 million for the quarter.
Bullish Highlights
- Fidus recognized $19.8 million in net realized gains from the sale of equity investments.
- The company has a robust equity investment presence in its portfolio companies, with an average of 3% fully diluted equity ownership.
- The weighted average yield on debt investments remained strong at 14.2% as of December.
Misses
- There was a decrease in Payment-in-Kind (PIC) income in Q4 due to the successful exit of a credit that had moved to PIC in the previous quarter.
Q&A Highlights
- The spokesperson mentioned that the primary driver for the decrease in PIC income was the successful exit of a credit.
- The company maintains a conservative debt-to-equity target ratio of 1:1, preferring less than market leverage.
- Increased competition and a 50 basis point increase in spreads compared to the previous year were noted.
- A sensitivity table regarding interest rate cuts is detailed in the company's 10-K report.
Fidus Investment Corporation's fourth-quarter earnings call underscored its strong financial performance and strategic moves to position itself for future growth. Despite facing increased market competition and potential interest rate challenges, the company remains confident in its long-term strategy and financial health. Investors can expect further updates in the first-quarter call scheduled for early May.
InvestingPro Insights
Fidus Investment Corporation (FDUS) has demonstrated resilience and a commitment to shareholder returns, as evidenced by its recent financial performance and strategic decisions. To further understand the company's position and investment potential, let's delve into some key metrics and insights provided by InvestingPro.
InvestingPro Data:
- The company's market capitalization stands at a solid $603.74 million.
- An attractive P/E Ratio of 6.71 suggests that the stock may be undervalued compared to earnings.
- With a substantial revenue growth of 38.21% in the last twelve months as of Q4 2023, FDUS shows a strong capacity to expand its financial base.
InvestingPro Tips:
- FDUS has a track record of rewarding its investors, having raised its dividend for 3 consecutive years and maintaining dividend payments for 14 consecutive years.
- The stock is known for its low price volatility, which may appeal to investors seeking stability in their portfolio.
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Full transcript - Fidus Investment Corp (FDUS) Q4 2024:
Operator: Good morning and welcome to the Fidus Fourth Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] 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, Drew, and good morning, everyone, and thank you for joining us for Fidus Investment Corporation's Fourth Quarter 2023 Earnings Conference Call. With me this morning are Ed Ross, Fidus Investment Corporation's Chairman and Chief Executive Officer; and Shelby 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'd 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 and cash flows of Fidus Investment Corporation. Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, March 1st, 2024, 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 in 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 Ed. Good morning, Ed.
Edward Ross: Good morning, Jody, and good morning, everyone. Welcome to our fourth quarter 2023 earnings conference call. On today's call, I'll start with a review of our fourth quarter performance in our portfolio at quarter end and then share with you our outlook for 2024. Shelby will cover the fourth quarter financial results and our liquidity position. After we have completed our prepared remarks, we'll be happy to take your questions. Our strong fourth quarter performance reflects the benefits to Fidus of our strategy of both serving the lower middle market, which has remained reasonably active in a less robust environment and selectively investing in companies that possess resilient and strong cash flow generating business models and positive long-term outlooks. Our patience during the year has paid off with the typical year end push in deal activity, originations totaled $132.7 million and proceeds from repayments and realizations totaled $112.5 million for a net origination of $20.2 million and we grew the total portfolio to $957.9 million on a fair value basis. Adjusted net investment income increased 49% to $18.8 million in Q4 compared to $12.6 million last year. As was the case for each quarter in 2023, interest income growth drove this year over year increase, reflecting both higher average debt balances and higher weighted average yields. Taking into account the higher average share count resulting from the equity raises we completed during the year, adjusted net investment income on a per share basis increased 27.5% to $0.65 from $0.51. We paid dividends totaling $0.80 per share, including a base dividend of $0.43 per share. For the year, we distributed a total of $2.88 per share to shareholders consisting of regular dividends of $1.66 per share, supplemental dividends of $0.82 per share and special dividends of $0.40 per share. Adjusted NII of $2.56 per share comfortably covered base dividends. As a reminder, we distributed a special cash dividend of $0.10 per share each quarter of 2023 to satisfy RIC requirements and to bring our spillover income in line with our target level, which is roughly the equivalent of the base dividend for three quarters. For the first quarter of 2024, the Board of Directors declared dividends totaling $0.65 per share consisting of a base dividend of $0.43 per share and a supplemental dividend of $0.22 per share equal to 100% of the surplus in adjusted NII over the base dividend from the prior quarter, which will be payable on March 27, 2024, to stockholders of record as of March 20th, 2024. Net asset value quarter end was $589.5 million or $19.37 per share, a meaningful increase as compared to $548.6 million or $19.28 per share as of September 30th, 2023. During the quarter, we grew our portfolio, investing as always in high quality companies that generate excess levels of cash flow to service debt and structuring our investments with a high level of equity cushion to give us an added margin of safety. Originations totaled $132.7 million consisting of $123.5 million in debt and $9.2 million in equity. First lien investments accounted for $110.5 million or approximately 90% of the additions to the debt portfolio. We invested $94.6 million or about three quarters of total originations in six new portfolio companies, which were added to the portfolio through financing of M&A transactions. The remaining $38.1 million was invested in add-ons in support of existing portfolio companies, almost all of which was M&A driven. Proceeds from repayments and realizations totaled $112.5 million for the fourth quarter, reflecting exits and some strategic pruning of the portfolio on our part. We received $87.2 million in debt repayments, primarily due to M&A activity and received proceeds of $25.3 million from the sale of equity investments, resulting in net realized gains of $19.8 million. Our portfolio of debt investments on a fair value basis was $832.8 million or 87% of the total portfolio at quarter end. First lien investments continue to account for the largest portion of the debt portfolio, now at 69%. Including the fair value of our equity portfolio of $125.1 million, the fair value of the total portfolio at quarter end stood at $957.9 million, equal to 102.3% of cost. We ended the fourth quarter with 81 active portfolio companies. Subsequent to quarter end, we invested $17 million in first lien debt and equity in two new portfolio companies and we had a debt repayment and equity realization in one company, generating net proceeds of approximately $24.3 million and a realized gain of $1.5 million. Overall, our portfolio from a credit quality perspective remains solid. As of December 31st, we had two operating companies on nonaccrual, unchanged from the third quarter. Nonaccruals represented approximately 1% of the total portfolio on a fair value basis. The vast majority of our portfolio companies continue to capture growth opportunities and sustain profitability supported by resilient business models. We do, of course, have a few companies that are experiencing difficulties for a variety of reasons, but there is no one market condition that is weighing on their operations. Looking ahead, we are well positioned to build on our successes in 2023. During 2023, we expanded our portfolio of debt and equity investments on a fair value basis by nearly $100 million to $957.9 million, despite subdued levels of M&A activity in the lower middle market. This performance speaks to our experience, our relationships with financial sponsors and industry knowledge that together enable us to remain highly selective investing in high quality companies that meet our investment criteria. By building our portfolio of income producing assets and with an assist from widened spreads, we enhanced the earnings power of our healthy and high performing portfolio, generating a 46.4% increase year over year in adjusted NII to $67.5 million. Our strategy of coinvesting in equity investments continued to work well for us, producing approximately $22.4 million in net realizable gains for the year. Finally, we continue to deliver value for -- to our shareholders, distributing 100% of our earnings and demonstrating our ability to generate gains in excess of losses while maintaining an overall healthy portfolio, thanks to our rigorous underwriting standards. While we are positioned to build on our successes of 2023, we remain committed to managing the business for the long term to our underwriting disciplines in selecting investments and to our long-term goals of growing net asset value over time, preserving capital and generating attractive risk adjusted returns for our shareholders. Now I'll turn the call over to Shelby to provide some details on our financial and operating results. Shelby?
Shelby Sherard: Thank you, Ed, and good morning, everyone. I'll review our fourth 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 Q3 2023. Total investment income was $36.3 million for the three months ended December 31st, a $2.1 million increase from Q3, primarily due to a $0.4 million increase in interest income including PIC, a $1.3 million increase in fee income due to higher levels of investment activity and a $0.5 million increase in interest income on excess cash. The increase in interest income was driven by an increase in average debt investment balances outstanding, partially offset by a decrease in yield on new debt investments and the repayment of two higher yielding debt investments. Total expenses, including income tax provision, were $19.4 million for the fourth quarter, $1.8 million higher than Q3, driven primarily by a $1 million increase in income taxes related to the annual excise tax accrual, a $0.3 million increase in professional fees and a $0.4 million increase in the capital gains fee accrual. We ended the quarter with $475.9 million of debt outstanding, comprised of $210 million of SBA debentures, $250 million of unsecured notes, and $15.9 million of secured borrowings. Our debt-to-equity ratio as of December 31st was 0.8 times or 0.5 times statutory leverage excluding exempt SBA debentures. The weighted average interest rate on our outstanding debt was 4.3% as of December 31st, 2023. Net investment income or NII for the three months ended December 31st was $0.58 per share versus $0.63 per share in Q3. Adjusted NII, which excludes any capital gains incentive fee accruals or reversals attributable to realized and unrealized gains and losses on investments, was $0.65 per share in Q4 which includes a $0.03 per share excise tax accrual versus $0.68 in Q3. For the three months ended December 31st, we recognized approximately $19.8 million of net realized gains related to the sale of our equity investments in Power Grid Components, Avionics, Road Safety Services and Comply365, offset by realized losses on the exit of our debt investment in K2 and equity investment in Techniks Industries. As Ed mentioned, in 2023, we paid total cash dividends of $2.88 per share versus $2 in cash dividends in 2022. Turning now to portfolio statistics. As of December 31st, our total investment portfolio had fair value of $957.9 million. Our average portfolio company investment on a cost basis was $11.6 million, which excludes investments in one portfolio company that sold its operations and in this process of winding down. We have equity investments in approximately 79.3% of our portfolio companies, with an average fully diluted equity ownership of 3%. Weighted average yield on debt investments was 14.2% as of December versus 14.6% at September 30th. The weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original issue discount and loan origination fees, but excluding investments on nonaccruals, if any. Now I'd like to briefly discuss our available liquidity. In Q4, we issued approximately 2 million shares under our ATM program at an average share price of $19.79, raising net proceeds of approximately $38.7 million. As of December 31st, our liquidity and capital resources included cash of $119.1 million and $100 million of availablity on our line of credit, resulting in total liquidity of approximately $219.1 million. Subsequent to year end, we repaid the remaining $35 million of outstanding SBA debentures in our second SBIC fund. We have submitted a new license application to the SBA for a fourth SBIC license, which, subject to SBA approval, will provide us with access to $175 million of additional SBA debentures. Now I will turn the call back to Ed for concluding comments.
Edward Ross: Thanks, Shelby. As always, I'd 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 Drew for Q&A. Drew?
Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Robert Dodd with Raymond James. Please go ahead.
Robert Dodd: Good morning and congratulations on another really good quarter. Couple questions. On the -- Ed, you mentioned strategic pruning of the portfolio during the opening rights. Could you give us any more color on that? I mean, a decent chunk of that sounds like it was equity. Was it people requesting dividend recaps you weren't comfortable with that drove you to prune it or can you give us any color on the reasons that you decided to do that?
Edward Ross: Sure. There was one equity investment. There was -- you could argue was strategic pruning in nature, Robert. And that was -- I mean, it was an equity investment that we did very well on. I think we made eight times our money or something like that. So, we had an opportunity to stay in and we chose to go ahead and exit and saw risk greater than the opportunity, quite frankly. But really, what that was kind of meaning to talk about was a couple of debt investments. They weren't huge, but they were ones that risk levels were higher than we were comfortable with. And so we made kind of the strategic decision to work to exit those investments. And in both cases, we were able to accomplish it in Q4. So it was more debt oriented than equity, but there was one equity investment. We did make that decision.
Robert Dodd: Got it. Thank you. On the credit situation, it seems -- I mean, obviously, there's clearly no broad based problems or you wouldn't be lighting up any RIC. And you said the vast majority of portfolio companies performing fine. No single reason for that -- maybe handful that aren't. Are those idiosyncratic issues for the company or is it the labor market or anything? Could you give us more color? And how comfortable you are that those problems are being managed and aren't showing rapid signs of deterioration, maybe or something like that?
Edward Ross: Sure. And the ones I was really kind of generally referencing are the nonaccruals...
Robert Dodd: Okay.
Edward Ross: Which have been there for a few quarters. And those are companies that are both supported by private equity groups. They are going through idiosyncratic type situations and in both cases improving, but we got ways to go. So that's really what we were referencing primarily. In terms of other companies that are underperforming, again, kind of one-off type reasons for it. And we feel very good about our portfolio. There's always a chance for another non-accrual, but that's not our expectation and we clearly hope that we can keep managing the rest of the businesses in the way that we have in the past.
Robert Dodd: Okay, I appreciate it. Again, congrats on the quarter. Thank you.
Edward Ross: Thanks, Robert. Appreciate it. Good talking to you.
Operator: The next question comes from Bryce Rowe with B. Riley. Please go ahead.
Bryce Rowe: Thanks. Good morning, Ed and Shelby.
Edward Ross: Good morning, Bryce.
Bryce Rowe: I'm good, thank you. Maybe I'll start on the capital structure. Shelby, appreciate the commentary around SBA license number two and kind of trying to re-up with a fourth license. How do you think about kind of timing of that fourth license and maybe access to that additional capital kind of relative to where the balance sheet? How the balance sheet looks today? You're sitting on a lot of cash. And so just trying to think about how you work through that cash with the pipeline that you see in front of you?
Edward Ross: Sure. Great question, Bryce. As we think about the SBIC fund that we applied for, as you know that takes some time. And I think about it in terms of kind of a six-month window or so. So, that's what RX expectation is. Our hope is that in 2024, we'll be able to start utilizing that license, but obviously we're still in the application mode. With regard to the cash, obviously, we did prepay debentures and fund too. But the other piece of the puzzle is we -- this quarter is actually shaping up from our perspective. Assume things go as we expect to be a very active investment quarter, but it is going to primarily be in March. And so we're currently in the execution phase, diligence and final execution phase of numerous investment opportunities. And I would also say our portfolio continues to exhibit acquisition type activity as well. So, it's shaping up to be a pretty active new investment quarter. And then from a repayment perspective, we actually think it's probably going to shape up to be a lighter quarter. We've obviously had one sizable realization, meaning almost $25 million, but though it doesn't appear that the calendar is very robust the rest of the quarter. We do have a few companies that are evaluating strategic alternatives. At the moment, we view those investments as probably more Q2 realizations and they also aren't -- the ones that we're aware of they aren't very large investments at the same time. So we think a fair bit of the cash that we have on the balance sheet today will actually go to new investments here as we move forward here over the next four to eight weeks.
Bryce Rowe: Okay, that's helpful. And as beyond -- I guess, we've heard M&A activity picking up from many of your peers in the lower middle market, does that M&A trend that you're seeing and experiencing, does that continue beyond this March period? Are we going to continue to see it into second, third quarter just based on kind of what you're hearing at this point?
Edward Ross: It's a really good question, Bryce. I think it's a little unclear. I mean, look, in the lower middle market, one of the reasons we like it, there's more activity than the broader market. In terms of number of deals, it's fragmented, which we like gives us a chance to kind of choose what we really are interested in. But activity levels are still well below 2021 and I'd say below normal activity levels. But there has been a little bit of an uptick here in Q4. In Q1 as well, in January, we obviously had some pretty robust deal flow in some high-quality situations. I think it's unclear on how long, how sustainable that is, but the expectation, it's more of a market expectation is for continued M&A activity at reasonable levels and above last year. And so that's our hope. And so that's what we're planning for, but there's no guarantee of that obviously.
Bryce Rowe: Got it. Alright, last one for me, Ed. It looks like the new activity in the fourth quarter from, I guess, pricing perspective, it looked like most of those debt investments were straight up first lien, no last out structure to them. I might be wrong there, but that's the way I read the schedule of investments. Anything to kind of read into that or is that more just kind of flow of what happened in the quarter relative to kind of what we've seen over the last couple of years in terms of structuring those debt investments?
Edward Ross: Sure. No, nothing strategic. It's more -- we start with, I think, as you know, just what's the quality of the underlying business and then try to figure out what the opportunity is. In this case, it was more just a mix towards dollar type investments. The only thing I would say, we are very focused on quality and so we're willing to sacrifice a little yield if we find the right quality investment, if you will. And so I'd say there's a little bit of both of those that go into the decision making, but it starts with trying to find very high-quality businesses to invest in and then we figure out how we can do it. So, hopefully, that's helpful.
Bryce Rowe: Thanks. Thanks for the time.
Edward Ross: Thank you. Appreciate it. Good talking to you, Bryce.
Bryce Rowe: You, too. Thanks.
Operator: The next question comes from Mickey Schleien with Ladenburg. Please go ahead.
Mickey Schleien: Yes, good morning, everyone. Ed, it sounds like some of the repayment activity in the fourth quarter was due to refinancings, which certainly is in line with what we're seeing broadly. So I'd like to get your take on how much more prepayment risk you see in the portfolio?
Edward Ross: Sure. It's a great question, Mickey. I think in terms of repayments, we haven't seen a lot of repayments that are just trying to get a lower price. In fact, I look at the three companies that were repayments for us. Two of them were strategic in nature by us and then one of them was a very large acquisition and we just chose to exit that situation from a debt and equity perspective. So I -- we haven't seen a lot of just getting taken out, if you will, of our debt investments. Having said that, I think we're in an environment where competition has increased over the last 12 months, yields have come down a little bit. And are -- so I would expect that piece of the puzzle to show its face a little bit here in 2024, more so than the last couple of years. That's how I -- that's how we currently think about it.
Mickey Schleien: I understand. Thanks for that. I just wanted to follow up on the fourth SBIC license. I'm not on -- I'm not clear on exactly what's going on because Fund III already has regulatory capital of $175 million. So what debt commitments has the SBA made to Fund III? And why does that necessitate a Fund IV?
Edward Ross: Sure. Shelby, do you want to take that one?
Shelby Sherard: Sure. So let me just start, let's talk about Fund II and so I made the comment that we repaid $35 million of SBA debentures and that was really just to avoid a situation where we would end up with trapped cash. And so given some of the repayments that we had in 2023 and, quite frankly, a subsequent event in 2024, our second SBIC license had a fair amount of excess cash. And so the best way to utilize that cash was just to repay $35 million. That completes the wind down of Fund II. Any further repayments in that fund, we can fully redeploy cash on a go forward basis, whether it be making investments out of the BDC or using some equity capital to contribute to a new fourth SBIC license once it's approved by the SBA. So that really -- with that repayment, that leaves us with one SBIC license, Fund III that has been fully deployed, meaning we fully borrowed and invested the $175 million cap per SBIC license for Fund III. So that necessitated the need to go ahead and get another SBIC license. So we submitted that application at the end of December. And as Ed mentioned, we'd kind of like to think that that hopefully that'll definitely be in 2024. My hope would be first half, if not shortly thereafter, of 2024. So we can start deploying new capital into that fourth SBIC license because of the attractive rates on SBA debentures given other alternatives in this market environment. It's really just [Multiple Speakers]
Mickey Schleien: Yes. No, I agree that the rates are attractive. So Fund III is limited to debt to equity of only one times rather than two times.
Shelby Sherard: No, it’s two times. So we have the two times fully deployed, the $175 million is the two times.
Mickey Schleien: Okay, thanks for that Shelby. And how has the increased allocation to first lien and unitranche over time impacted your target debt to equity number?
Edward Ross: Great question, Mickey. At the moment, we’re kind of sticking with our one-to-one target leverage from a GAAP perspective. We are okay if from time to time we go above that. But generally, the target would be one to one. And so it really hasn’t changed our focus. Clearly, we have the ability, and as you know, the SBIC funds are, right, has drop downs or levered more two to one. We feel very comfortable with higher leverage. But from just strategy perspective and how we think about it, I think being kind of more conservative and just thinking about one to one makes more sense to us at this juncture.
Mickey Schleien: And, Ed, does that reflect some concern you have about the economy? And you still have a meaningful allocation to second lien and subordinated debt or is it something else that’s on your mind?
Edward Ross: No, I think we prefer to operate in a kind of less than market leverage. We don’t think we need to use leverage to perform well. And so it’s - we kind of like a little bit less than market leverage just overall. But it’s not a reflection of concerns in the portfolio or recession or what have you. It’s more just kind of how we’ve operated in the past and we don’t see a need to change that at this point.
Mickey Schleien: Okay, I appreciate that. Those are all my questions. Thanks for your time.
Edward Ross: Thank you, Mickey. Good talking to you.
Operator: [Operator Instructions] The next question comes from Erik Zwick with Hovde Group. Please go ahead.
Erik Zwick: Good morning. Wanted to start first with just a question on the PIC income. It looks like it was down quarter over quarter in Q4. So wondering if it's just maybe some positive development with a company or two that had been paying PIC income before and returned to cash pay or kind of maybe what moved that quarter over quarter?
Edward Ross: Sure. Great question. I think the primary driver there was exactly what you just said. One of our strategic pruning situations was a company that had moved to PIC during the third quarter. And we obviously work to try to exit that credit and we're successful in doing so. So, that's the biggest driver. I don't -- I'm not sure there are other big drivers in there. I think that's the main one.
Erik Zwick: Got it. That makes sense. Thanks, Ed. And then just turning to kind of the pipeline and the opportunities you're seeing today, we've heard from other BDCs that operate further up market, the upper middle market and middle market that competition has become a little bit more intense. Curious what you're seeing kind of in your lower middle market focus in terms of spread leverage covenants relative to maybe 6 or 12 months ago. Have you noticed a market change there?
Edward Ross: I do think relative to 12 months ago, I mean, it's a different environment. There was -- 12 months ago, there were a lot of folks that were think about banks, quite frankly a fair number of private lenders that were not far from just being on the sidelines. That situation has changed. And I think most people, other than certain banks that have retracted are in the market. And so there is an increased level of competition from 12 months ago. And I think you are seeing that in spreads. In spreads if I were to pick a number, it's probably 50 basis points. And it depends on what structure right for us, whether it's a $1 first lien investment or if it's a first out, last out structure. But generally speaking, there is an increase in the level of competition because I think people a year ago were very worried about what's next. And now, just given the resiliency of the economy, I think folks are more, both from an acquisition and M&A perspective on the equity side as well as the lending side, I think folks are more interested in transacting and kind of see the resilience of the economy and are comfortable with that.
Erik Zwick: Got it. And then last one, just thinking about interest rate sensitivity, I know you've got a portion of the debt investments that are fixed. So I think the market is still trying to figure out exactly, when the shape of the kind of curve or the kind of short rate interest rates go down, but it seems to be that that's more likely been going up. So I'm wondering if you could just kind of remind me, the sensitivity to earnings for maybe like each 25 basis point potential cut, how that would impact earnings?
Edward Ross: Shelby, do you want to take this one or you want me to do it either?
Shelby Sherard: Why don't you take a crack at it?
Edward Ross: Sure.
Shelby Sherard: And then the other thing, Erik, I would point, we do have -- for more details, we do have a sensitivity chart disclosed in our 10-K where you can kind of see some calibrations based of a various increases or decreases in underlying interest rates.
Edward Ross: So, Erik, just taking a shot at. So 25 basis points would probably create a reduction of, call it, $1 million in a quarter. These are estimates. Reduction in our NII, assuming no movements in the incentive fees. So if you double that to 50 basis points, it'd be 2.5 and 100 basis points would be $5 million. So that's how I --hopefully that's helpful. And I do think there's a sensitivity table and the 10-K that hopefully will be helpful as well.
Erik Zwick: That's great. And I'll definitely [Multiple Speakers]
Shelby Sherard: And the only thing I would add, Erik, is that it's not entirely linear just because we do have some floors on a variety of our debt investments.
Erik Zwick: No, that's great color too. I'll check out the table. And I always like to ask too just because as we know those sensitivity analysis, you've got to make some assumptions in terms of if it's a shock or more gradual and then if there's twists and occur, things of that nature. So I appreciate the commentary. Thanks, Ed Ross. That's all for me today.
Edward Ross: Yes. Thank you, Erik. Good talking to you.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Edward Ross for any closing comments.
Edward Ross: Thank you, Drew. And thank you, everyone, for joining us this morning. We look forward to speaking with you on our first quarter call in early May. 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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