Barings BDC, Inc. (BBDC) Q1 2021 Earnings Call Transcript

Barings BDC, Inc. (BBDC 0.33%)
Q1 2021 Earnings Call
May 07, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings. At this time, I would like to welcome everyone to the Barings BDC, Inc. conference call for the quarter ended March 31, 2021. [Operator instructions] Today's call is being recorded, and a replay will be available approximately two hours after the conclusion of the call on the company's website at www.baringsbdc.com, under the investor relations section.

Please note that this call may contain forward-looking statements that include statements regarding the company's goals, beliefs, strategies, future operating results and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from those projected in forward-looking statements. These statements are based on various underlying assumptions and are subject to numerous risks and uncertainties, including those disclosed under the sections titled Risk Factors in forward-looking statements in the company's annual report on Form 10-K for the fiscal year ended December 31, 2020, and quarterly report on Form 10-Q for the quarter ended March 31, 2021. Each is filed with the Securities and Exchange Commission.

Barings BDC undertakes no obligation to update or revise any forward-looking statement unless required by law. At this time, I will turn the call over to Eric Lloyd, chief executive officer of Barings BDC. Thank you, sir. Please go ahead.

Eric Lloyd -- Chief Executive Officer

Thank you, Donna and good morning, everyone. We appreciate you joining us for today's call. And I certainly hope you and your families are doing well and staying safe as this country continues to open up. Please note that throughout today's call, we'll be referring to our first-quarter 2021 earnings presentation that is posted on the investor relations section of our website.

On the call today, I'm joined by Barings BDC's president and Barings co-head of global private finance, Ian Fowler; Bryan High, Baring's head of U.S. special situations and co-portfolio manager; and the BDC's chief financial officer, Jonathan Bock. Before Ian and Jon review details of our portfolio and first-quarter results, I'll begin with some high-level comments about the quarter. Given that our fourth-quarter 2020 earnings call was on March 23, and we were able to provide a pretty good preview of the strong deployments we saw in the first quarter.

As expected, the first quarter remained very active, particularly given that the first quarter has historically been the least active quarter across the industry. These deployments, along with continued strong portfolio performance, helped drive the earnings and dividend increases we will walk you through today. Let's begin with the macro backdrop shown on Slide 5 of the presentation. The fourth-quarter trends we outlined on our last call generally continued in the first quarter with rising broadly syndicated loan prices and BDC equity prices through the first three months of the year.

While not back to pre-COVID levels, the active market for direct lending has helped BDC equity prices trend in the right direction. I believe these positive trends we saw across the industry were magnified in Barings BDC's performance with the highlights summarized on Slide 6 of the presentation. Net asset value per share increased 1.4% or $0.15 per share in the quarter to $11.14, with the increase driven in part by our net investment income exceeding our dividend. Our net investment income increased from $0.19 to $0.22 per share on the back of new deployments and a full quarter's impact of the MVC Capital acquisition.

As we'll outline in more detail later, these same drivers have created a more stable earnings stream given our earnings now have exceeded the hurdle rate for our incentive fee and allowed us to increase our second-quarter dividend to $0.20 per share. Regarding new investments, we had new originations of $275 million in the first quarter. While down from the $566 million level in the fourth quarter, keep in mind that our guidance has always been that we will generally expect to see deployments of around $100 million per quarter. Clearly, this can vary based on market conditions, and this quarter, the team was able to capitalize on quality opportunities we saw in the current market.

Our investment portfolio continued to perform well in the first quarter and remains valued at above original cost. And our one non-accrual asset that was acquired through the MVC Capital transaction was restructured and returned to cash -- paying cash interest. So we had no non-accrual assets at the end of the first quarter. Slide 7 outlines additional financial highlights for the quarter.

Here, you can see how the growth of our investment portfolio has translated into increasing total investment income and net investment income, both on an absolute and per share basis. Net leverage of 1.14 times remained well within our target range. And while not shown on this slide, our secured debt as a percentage of total assets decreased to 35.4% at March 31, highlighting the continued evolution of our capital structure with the $375 million of unsecured debt outstanding. While it could have been easy to slow down after such an active end of 2020, the first quarter of 2021 had a number of significant accomplishments, including the new deployments I outlined above, February's unsecured debt issuance and integrating the MVC portfolio into our portfolio management process.

And while I already mentioned it briefly, I think it's important to recognize that our earnings stream should be more predictable going forward as our earnings exceeded the 8% hurdle rate. Recall, a decline in earnings would first result in a lower incentive fee, thereby insulating investors from the negative effects of items such as nonaccruals or refinancing at lower yields. This is a natural evolution of our earnings profile that started with the rotation out of broadly syndicated loans to a more mature, primarily middle-market portfolio, which should in turn result in a stable predictable dividend. I'll now turn the call over to Ian Fowler to provide an update on the market and our investment portfolio.

Ian Fowler -- President and Co-Head of Global Private Finance Group

Thanks, Eric and good morning, everyone. If you turn to Slide 9, you can see additional details on the investment activity that Eric mentioned. Net new middle-market investments totaled $86 million, with gross fundings of $239 million, partially offset by sales and repayments of $153 million. New investments included 16 new platform investments, totaling $165 million and $73 million of follow-on investments and delayed draw term loan fundings.

We also had $5 million of net new cross-platform investments with $36 million of new originations, partially offset by $31 million of sales and repayments. The MVC portfolio saw the full redemption of one equity position totaling $6 million, and now has a cost basis of $181 million. Last quarter, we outlined the market data trends that point to a high likelihood of increased prepayment velocity in 2021 relative to past cycles. With $153 million of sales and repayments in our middle-market loan portfolio this quarter, one might think that expectation has definitely come to pass.

This quarter, however, approximately $103 million of our sales and repayments were selective sales of portions of investments, including sales to our joint venture that enabled us to manage our exposure to non-qualifying assets and create a more diverse portfolio with smaller gold sizes. These sales also allowed us to participate in the current active market for quality investments while maintaining a conservative leverage profile. We continue to believe that repayments will be a significant market factor in 2021, and that the Barings platform and wide investment frame of reference will create a strong competitive position for Barings BDC as the need to redeploy capital in attractive transactions escalates. Slide 10 updates the data we show you each quarter on middle-market spreads across the capital structure.

We saw continued tightening in the first quarter across the board and single-B liquid spreads remain inside middle-market levels. Pricing continues to be extremely competitive for quality transactions and an ability to differentiate across the risk spectrum will be critical for success in this market. A bridge of our investment portfolio from December 31 to March 31 is shown on Slide 11. Both realized and unrealized and appreciation drove an increase in portfolio fair value as did the accrual of PIK interest tied to acquired MVC investments.

A breakdown of the key components of our investment portfolio at March 31 is on Slide 12. As we have discussed in the past, the goal of this slide is to provide details on three key components of our portfolio, which are now our middle-market portfolio, the legacy MVC Capital portfolio and our cross-platform investments. The middle-market portfolio remains our core focus and makes up 75% of our portfolio in terms of total investments and commitments and 68% of our portfolio in terms of revenue contribution. This portfolio is complemented by the 17 investments in the legacy MVC Capital portfolio and 25 cross-platform investments, which have yielded a fair value of 13.9% and 8.1%, respectively.

We had no non-accrual investments at quarter end and one loan agreement amendment that included a feature to allow a minority portion of the interest to convert to PIK, accounting for 0.3% of total revenue for the quarter. Otherwise, we've had no material modifications to the cash payment terms of our debt investments. For our middle-market portfolio, weighted-average first lien leverage was 5.2 times, consistent with what we reported last quarter. Our total investment portfolio, excluding short-term investments, is now made up of 81% first lien assets, generally consistent with the 81.9% at the end of the fourth quarter.

Slide 13 provides a further breakdown of the portfolio from a seniority perspective. The core Barings-originated portfolio which makes up over 88% of our funded investments is 91% first lien. This is down from 93% last quarter, driven by further investments in our joint ventures to continue to enhance portfolio diversification. The MVC portfolio is comprised primarily of equity, second lien and mezzanine debt investments, which brings the first lien component of the total portfolio down to 81%.

As we have outlined, while we believe the MVC portfolio can initially serve as an attractive complement to the Barings-originated portfolio. We will continue to drive toward the exit of noncore, lower-yielding equity investments and increasing core earnings by redeploying this capital into higher-yielding assets. This strategy was exemplified by the $6 million equity sale I referenced earlier. Our top 10 investments are shown on Slide 14.

Our largest investment is 2.7% of the total portfolio. And the top 10 investments represent 19.3% of the total portfolio. The two largest investments were acquired as part of the MVC Capital transaction. Remember that these investments are supported by the credit support agreement in place with Barings LLC, thus reducing potential downside risk.

The overall portfolio remains diverse from an industry perspective, as well with 150 investments spread across 29 industries. Overall, I'll summarize by saying that while both the market and portfolio company performance have remained strong, now is not the time to be complacent. Active portfolio management and staying ahead of issues remain vitally important in a compressing spread environment. Given the depth and breadth of the Barings platform across many private asset classes, we remain confident in our ability to deploy capital at attractive rates of return and strong risk profiles.

I'll now turn the call over to Jon to provide additional color on our financial results.

Jon Bock -- Chief Financial Officer

Thanks, Ian. And jumping to Slide 16. Here's a full bridge of a $0.15 increase in NAV per share to $11.14 as of March 31. Our net investment income outpaced our dividend by $0.03 per share.

Net unrealized gains on our investment portfolio and foreign currency transactions drove an increase of $0.03 per share and net unrealized depreciation on our investment portfolio, foreign currency transactions and credit support agreement drove an increase of roughly $0.10 per share. Additional details on this net unrealized depreciation are shown on Slide 17. The $0.10 per share of net unrealized depreciation, which equates to approximately $6 million is included depreciation of approximately $3 million on our current middle-market investment portfolio? And of this $3 million of appreciation, $5 million was attributable to lower spreads in the broader market for middle-market debt investments and roughly $400,000 was attributable to the net impact of improved credit across the portfolio. Depreciation was offset by roughly $3 million of depreciation attributable to the impact of the strong dollar on our middle-market investments held in foreign currencies.

Our cross-platform investments saw total appreciation of approximately $8 million, while legacy MVC portfolio saw total net depreciation of roughly $5 million. This net depreciation for the legacy MVC portfolio was almost entirely driven by two equity positions that have been impacted by COVID, but we continue to feel good about the long-term prospects for both investments. Near the bottom of Slide 17, you can see that the credit support agreement with Barings had unrealized depreciation of $1.6 million. So a logical question would be, why did we have unrealized depreciation on both the legacy MVC portfolio and the credit support agreement as the CSA is intended to offset the losses in the legacy MVC portfolio? The value the CSA determined based on a long-term view of potential outcomes for the legacy MVC portfolio.

And while at any quarter end, the value of those investments fluctuate, particularly the equity positions, the longer-term view of the portfolio could lead to a different valuation outcome. The valuation of the CSA this quarter not only takes into account the current valuations, including the depreciating -- depreciation on equity investments, but also the impact of portfolio repayments and lower downside risk on -- based on circumstances of certain debt investments. So unrealized depreciation on the CSA is a reflection of an improved longer-term outlook for the legacy MVC portfolio as a whole. Now Slide 18 and 19 will show our income statement and balance sheet for the last five quarters.

As we've discussed, our net investment income per share increased to $0.22 for the quarter, and that was driven by roughly $10.7 million, an increase in total investment income, a full quarter of the investment income from our new investments in the fourth quarter of 2020 and the MVC investment portfolio as well as the impact of our net growth in the first quarter, that drove that increase. The increase in total investment income was partially offset by higher interest and financing fees, which rose as a result of our increased borrowing levels and the higher interest costs associated with our unsecured debt issuance. The first quarter also saw the first payment of an incentive fee to the manager as pre-incentive fee net investment income exceeded our 8% hurdle rate. Now from a balance sheet perspective on Slide 19, total debt-to-equity was 1.35x at March 31, although this level was artificially high given the timing of certain asset sales and was roughly 1.14 times after adjusting for cash or cash equivalents and unsettled transactions.

We also issued unsecured debt for the third consecutive quarter, bringing the total principal amount outstanding to $375 million. Turning to Slide 20, you can see how our funding mix relates to our assets, both in terms of seniority and asset class. And compared to the end of 2020, our reliance on senior debt has decreased as we've continued to diversify our balance sheet to match our diverse portfolio of assets. Details on each of our borrowings is shown on Slide 21, and that shows the evolution of our debt profile over the last three quarters.

The first quarter includes the new $150 million unsecured debt private placement we completed in February, which included $80 million of five year notes with a coupon of 3.41% and $70 million of seven year notes with a coupon of 4.06% or a blended coupon of roughly 3.71%. We continue to have an additional commitment to raise up to $25 million of unsecured debt and available borrowing capacity under our $800 million senior secured credit facility. Jump to Slide 22. You can see the potential impact of using this available liquidity on our net leverage, including the impact of funding our unused capital commitments.

Barings BDC currently has $121 million of delayed draw term loan commitments to our portfolio companies as well as $45.5 million of remaining commitments to our joint venture investments. The table shows here how we have the available capacity to meet the entirety of these commitments if called upon, while maintaining cushion against our regulatory leverage limit. Slide 23 updates our paid and announced dividends since over Barings took over as the investment advisor to the BDC. And as Eric mentioned, we announced yesterday that our second-quarter 2021 dividend will be $0.20 per share, an increase of 5% compared to the last quarter.

Turn with me now to Slide 25. And this shows a graphical depiction of relative value across the BBB, BB and B asset classes. And we continue to study this concept to evaluate relative value opportunities that exist for investors at different levels of credit risk, and how the value of choice across markets provides a meaningful benefit to BDC investors. This translates into the actual results shown on Slide 26, which outlines the premium spread on our new investments in the first quarter relative to liquid credit benchmarks as we sought attractive illiquidity and complexity premium spread.

Barings BDC deployed $275 million at an all-in spread of 739 basis points, which represents a 303 basis point spread premium to comparable liquid market indices at the same risk profile. Diving deeper into our core middle-market segment across Europe and North America, we averaged roughly 296 basis points spread relative to liquid market indices. For cross-platform investments, the spread relative to the liquid market indices was even greater at 572 basis points, and we continue to believe our ability to invest across platforms and generate excess shareholder return via illiquidity and complexity premium is a key differentiator for Barings BDC in this upcoming cycle. And I'll wrap our prepared remarks with Slide 27.

And this summarizes new investment activity so far during the second quarter of 2021 and our investment pipeline. The pace of new investments slowed slightly compared to the last two quarters, but remained strong compared to historical norms with approximately $156 million of new commitments, of which $106 million of closed and funded. Of these new commitments, 78% are in first lien senior secured loans, 2% are in joint ventures and the weighted average origination margin or DM-3 was roughly 8.2%. We've also funded approximately $5 million of previously committed delayed draw term loans.

The current Barings Global Private Finance investment pipeline is approximately $1.7 billion on a probability-weighted basis and is predominantly first lien and senior secured investments. As a reminder, this pipeline is estimated based on our expected closing rates for all deals in our investment pipeline. And with that, let's get to questions. Operator, we can open the line for Q&A.

Questions & Answers:

Operator

[Operator instructions] Our first question is coming from Finian O'Shea of Wells Fargo Securities. Please go ahead.

Finian O'Shea -- Wells Fargo Securities -- Analyst

Hi, everyone. Thank you. Eric, I first wanted to ask about your earnings profile. Here, you're making some incentive fee, an 8% NOI return, which you set out to do initially.

So congrats on that. But the MVC assets will eventually move off, originations will come back to earth as you seem to say and I think there was some good repay fee income. I'm not sure if that is normal going forward or it was especially high this quarter. But with all that, the question is, do you think -- do you feel comfortable that we're at the destination in terms of earnings? Or has it just been hot lately or perhaps, do you think there's more upside to go? Just want to know on how you're thinking about this today now that you're -- you've arrived to a pretty good place in earnings.

Eric Lloyd -- Chief Executive Officer

Yes. You're just trying to get to the sustainability question, I think Fin is that right?

Finian O'Shea -- Wells Fargo Securities -- Analyst

Yeah, yeah.

Eric Lloyd -- Chief Executive Officer

Yeah. So listen, I mean, I think the MVC assets, I think it's a mix, right? So you got the equity that's earning 0 from a current income perspective. And if you look at it, the second largest asset is one of those. Obviously, you have something which we highlighted in there, like Custom Alloy, which is a higher earning asset.

So the combination of those two, I think, as an example, when one rotates off versus the other, could have a marginal impact. But when we look at the portfolio across the board, the single largest asset is basically 2.7%. I mean we got a lot of diversification across the board. We have over 100 basis points of cushion to that 8%.

So if you look at the gross return we had, it was over 100 basis points higher than the 8%. So we feel good about that cushion there. And so we actually think there's more upside. You look at what we've done on the cross-platform investments.

I think it was probably, I don't know, 18 months ago, we introduced those to the shareholders as the other things we can do at Barings. And that's why we have like Bryan High on the phone as an example. So I think there's more upside there, but we feel confident that the 8% return for shareholders is also very sustainable.

Finian O'Shea -- Wells Fargo Securities -- Analyst

OK. Great. That's helpful. And then just a follow-up, I missed the pipeline number at the end with Jon, if you could give us that.

But also perhaps for Ian as well, on the quality of the pipeline, we're hearing both that competition is fiercely back, but also that there's a lot of demand from sponsors for their M&A plans. So just some high level -- it sounds like there's quantity there, but some high level on the quality, how do things -- are things better than are they totally back to pre-pandemic? Or how has that evolved in terms of where we are today? And that will be all for me. Thank you.

Ian Fowler -- President and Co-Head of Global Private Finance Group

Hey, Fin. Maybe I'll start just with the market and then Jon can cover the pipeline for you. And just taking a step back, the fourth quarter was incredible, unlike anything I've ever seen in my career in terms of the volume of high-quality assets. And I think looking at the economy today, the monetary and fiscal support has definitely stabilized the economy and really fueling growth in the economy.

And that, I think, it's allowed some managers that were maybe kicking the can on some of the portfolio issues to deal with those and potentially shore up their balance sheets. A lot of capital has been raised. So yes, first quarter, like we said in our prepared statements, extremely active on a comparative or relative basis to first quarters of other years. It was much busier than one would expect, just given the seasonality of our business.

But I think when you start looking at -- there's sort of two things here. I think when you start looking at new platforms, you're probably going to see -- and I think we've started to see some deterioration in quality of some of the things coming to market. Usually, the better quality assets come through first after a cycle followed by lower quality assets. So I think you're starting to see that.

You're definitely seeing the pricing and structure and terms become much more competitive, just given all the money out there and the managers that have been able to rebound from their portfolio issues. And so we expect that to continue. It doesn't mean you can't find good opportunities in the market, which we are finding. And fortunately, for us, we have a pretty young portfolio.

And so we don't expect other than just sort of normal recycling, we don't expect that we're going to have to ramp significantly going into a more competitive market. Jon?

Jon Bock -- Chief Financial Officer

Yeah, thanks. And Fin, just that number of the investment portfolio was $1.7 billion on a probability-weighted basis. So thanks for that, Fin.

Operator

Thank you. Our next question is coming from Kyle Joseph of Jefferies. Please go ahead.

Kyle Joseph -- Jefferies -- Analyst

Hey, good morning. Congratulations on a really strong start to the year. I wanted to dig into credit performance a bit. Obviously, it's been strong, no nonaccruals.

But I just want to get your sense for kind of underlying trends in your portfolio companies in terms of revenue and EBITDA growth and your expectations for '21 as comps? And I guess the big question here is, are we really through the thick of it and do things get easier from here from a credit perspective?

Ian Fowler -- President and Co-Head of Global Private Finance Group

Yeah. So this is Ian. So I guess I would start by saying that just again with the monetary and fiscal support, the economy, obviously, is doing better. It's headed in the right direction.

Have we fully recovered? No, we haven't. Is there a risk that we could derail somewhat? Yes, that's possible. But we're certainly within our portfolio. And again, we were fortunate going into COVID because we generally avoid and or deemphasize consumer-facing discretionary businesses.

So a lot of the industries that were significantly impaired by COVID, retail, restaurants, gyms, travel and leisure, were all areas that we generally avoid. For us, from a portfolio perspective, and again, most of the portfolio was deemed essential businesses. So even with the shutdowns in place, they rebounded very quickly. And so we've seen all those numbers headed in the right direction.

I would say, going forward, I think you have to, and we're certainly seeing it within the portfolio, input costs are rising. And so we definitely see inflation out there. So the question really is how long does the Fed fight rates and keep pumping liquidity into the market? And at some point, do we start to see some rates rise? And there's no question, there's some companies out there, a lot of the companies that are still reeling from being impacted by COVID have bloated balance sheet. So I think those end markets will have some issues.

Kyle Joseph -- Jefferies -- Analyst

Appreciate that. And then just one follow-up on the MVC portfolio. I just want to make sure I understand the strategy there. Obviously, high-yield component to the fixed income assets and then -- but obviously, an equity, a high equity content there.

Is there really just monetizing the equity and holding onto the fixed income assets as long as possible or is that how you're thinking about it?

Eric Lloyd -- Chief Executive Officer

I mean, definitely -- go ahead, Bock.

Jon Bock -- Chief Financial Officer

Thanks. I would say that the goal is to make sure that we're maximizing kind of profitability you'd find that over -- and that can come both on the appreciation side of things as well as the income side. Eric mentioned the stability of the earnings profile. And the stability of the earnings profile can come even as investments that are higher spread can be repaid just given the breadth and depth of the platform.

So I'd say the strategy is going to focus on ensuring that you don't rush. You always make sure you do what's right for your investors as it relates to net asset value and income. And I'd probably say that, over time, you'll see a level of cycling out at the proper price because the current market environment with liquidity is buoying asset prices. It's just being a bit deliberate and making sure we maximize it, given the income profile now remains very strong.

Kyle Joseph -- Jefferies -- Analyst

Got it. Thanks very much for answering my questions.

Operator

Thank you. Our next question is coming from Robert Dodd of Raymond James. Please go ahead.

Robert Dodd -- Raymond James -- Analyst

Hi, guys. And congratulations on another good quarter and getting into that incentive catch-up. First question, Jon, you actually pre-empted the first part of it. But on the CSA, your comments improved long-term outlook.

Can you give us any color there? Is that a higher expectations long term for equity and may be neutral for debt or is it just across the board that the outlook has improved and drove that CSA down a little bit.

Jon Bock -- Chief Financial Officer

Good question, Robert. I'd argue that if you look at the debt profile, just given the improvement of liquidity there just as general across-the-board improvement. And the equity values, if you think about how the CSA is longer term in nature and it's valued based on a series of outcomes, right? You'd find that equity volatility has less of a near-term impact on the CSA valuation until it's realized because you have a number of options of going higher or lower, right, if you're going to run the model simulation. So it really is a general debt focus in terms of the calculation of that CSA from today's vantage point?

Robert Dodd -- Raymond James -- Analyst

Perfect. On I think Page 12, I like this every quarter. On the middle-market segment, I mean, I see there spreads flat versus last quarter, leverage flat the last quarter. Average interest coverage down about half a turn.

Is there anything, obviously, generally speaking, lower interest coverage is slightly worse than higher. Is there anything going on there? Was that a consequence of repayments of higher interest coverage loans or the transfers to the JVs or what's the dynamic there with spreads and leverage the same but interest coverage then?

Ian Fowler -- President and Co-Head of Global Private Finance Group

Well, I'll start and then I'll kick it over to Eric and Jon, Robert. Just from a market perspective, in terms of the deals that we're doing comparing fourth quarter to first quarter, there's really not any change when you look at the key metrics of leverage and spreads and LTV. You'll know that has materially changed. I think like we've said going forward, we expect what we are seeing deals tighten and spreads compress and leverage going up a bit.

So I think we will see some deterioration there. But there hasn't been much change quarter over quarter. And just from a historical perspective, when you look at interest coverage today compared to, like, say, the great financial crisis, significantly much better than it was back in 2007 and 2008. And I'll let Jon or Eric talk about the JVs.

Jon Bock -- Chief Financial Officer

I'd come to it at times, Robert. What you'll find is there can be a little bit of noise in some of those quarterly numbers. But at the end of the day, the general trend that Ian speaks to is the one that we see and the one that we're continuing to operate under.

Robert Dodd -- Raymond James -- Analyst

But correct me if I'm wrong, Page 12 is the total portfolio, right, not new originations or anything?

Jon Bock -- Chief Financial Officer

Correct.

Eric Lloyd -- Chief Executive Officer

That's correct, Robert. At three and a half times interest coverage, we feel really good about that number. And on the middle market, it's 3.6.

Robert Dodd -- Raymond James -- Analyst

At a point, it's not a bad number at all. Let's just take it was down from the last quarter?

Eric Lloyd -- Chief Executive Officer

Yeah. Yeah.

Robert Dodd -- Raymond James -- Analyst

Got it. Thank you.

Operator

Thank you. Our next question is coming from Casey Alexander of Compass Point. Please go ahead.

Casey Alexander -- Compass Point -- Analyst

Hi. Good morning. I'll give you both of my questions at the same time, and you can address them however you want to. Looking at Slide 14.

Obviously, the two largest positions in the portfolio are both from MVC. So I think it would be helpful if you could give us some color on those two companies, Custom Alloy and Security Holdings. And then secondly, if you could give us some definition as to the differentiation between the two JVs? And why there are two? How they're structurally different? How they're strategically different? I think that would be very helpful also.

Jon Bock -- Chief Financial Officer

Casey, this is Bock. So -- go ahead.

Eric Lloyd -- Chief Executive Officer

Go ahead. Maybe Ian can...

Casey Alexander -- Compass Point -- Analyst

See, when you ask two questions at one time, you get two people trying to answer.

Jon Bock -- Chief Financial Officer

It's exactly right, Casey. So what we'll start with terms of the high-level trends. So we don't comment on individual portfolio company performance. We'll try to make sure that we give it to you a sense in aggregate, Casey, but we try to stay along the lines of at the end of the day, we look at things in context and are finding that the general performance of those loans is effectively reflected in both the marks.

And so while we say we've seen very strong trends across it as a portfolio group, we try to make sure that at the end of the day, we stick to the process that a number of our peers and others go about not commenting on portfolio companies in specific. But the question as it relates to the joint ventures is a structural one, and we can answer kind of the difference. You'll start to see that -- and you're very familiar with the joint venture as it relates to South Carolina that has an ability and a very wide investment mandate across the credit investment spectrum, that's called Jocassee Partners. In addition, there are other JVs with a specific asset or industry focus that allow the BDCs to own a specific type of asset class that can be very attractive from a risk-adjusted return standpoint, which, in that case, would be another joint venture referred to here as Thompson Rivers.

So we can discuss a number of those strategies over time, but what you'll find is our goal is to make sure that we have a broad investment frame of reference that's built by a very large private asset franchise and a number of attractive asset classes. And the goal is to also make sure that many of those attractive asset classes poured over to the BDC and there is a way to do so using the joint venture structure. So it's a good question, but if you think of one large global joint venture that's worked with the state of South Carolina and then two additional ones, also very close with our partners at the state of South Carolina, you can see in both Thompson Rivers and a smaller one referred to as Waccamaw.

Casey Alexander -- Compass Point -- Analyst

OK, thank you.

Operator

Thank you. Our next question is coming from Paul Johnson of KBW. Please go ahead.

Paul Johnson -- KBW -- Analyst

Hey. Good morning, everybody. Thanks for taking my question. My first question was actually similar to Fin.

I'll just ask it a different way. I'm curious, is it your goal to, over time, increase earnings above the 8% hurdle? Or do you sort of consider -- or I guess is the goal to generate sort of earnings around that 8% hurdle and just a very stable fashion?

Eric Lloyd -- Chief Executive Officer

It's the...

Jon Bock -- Chief Financial Officer

I see from a long term...

Eric Lloyd -- Chief Executive Officer

That's the last one. There you go, Bock. I'd say. Think of it this way and I hate to say it's a both and, but we've said all along that our strategy is kind of boring, predictable, highly diversified, making sure we consistently generate that 8-plus percent.

And this first quarter, we've gotten there from -- after we bought the portfolio. That being said, right, you saw the lift we got just in the last quarter or two. And so when we see opportunities that where the risk-adjusted return makes sense to deploy that capital, absolutely, the goal is to increase earnings well above that number. But we're not going to do it while compromising on the risk side.

So the goal isn't to chase a 10 or chase an 11. The goal is to make sure we consistently generate the eight plus percent for shareholders. And then when the opportunities are there, just like we did in the fourth quarter, we're going to step in and we'll step in aggressively to deploy capital and the risk adjusted returns there. And I believe that will help us continue to kind of get those earnings increases where it makes sense.

Jon, I'm sorry, I cut you off. What would you add there?

Jon Bock -- Chief Financial Officer

No, that's the exact way you expect and always want to maximize return, but you don't do so while compromising the risk profile, Paul. So it's a good question. Hopefully, that provides additional context.

Paul Johnson -- KBW -- Analyst

Yeah. Got it. Yup, that's a very good answer. And then lastly, my follow-up.

On the JV for Jocassee Partners, I don't believe, and you can correct me if I'm wrong, that you earned any income from the JV this quarter. I believe it's been retained. And I think that's been the same for the last few. Again, correct me if I'm wrong.

But -- so are the plans there to eventually distribute earnings down to the BDC or do you kind of intend to retain earnings as you have been and maybe what the advantage is of doing that?

Jon Bock -- Chief Financial Officer

It's a good question. We'll kind of start with maybe just a higher-level concept where at times joint ventures in the BDC space became the tail that wags the dog. And there is a point when if you're overly reliant on and effectively over-leveraging credit spread asset to generate a higher return to maintain an improper payout that just a strategy that is not one that makes sense to us. And so what we look at is every quarter, the opportunity set and whether or not investment can be retained, and we work very closely with our partner and determining that.

You're right, there's been no dividend off that. That doesn't mean that it can't change. But our view is pretty simple that, over time, building NAV for BDCs can be a very difficult task and it seems in certain circumstances. And when you have the opportunity to retain cash and grow net asset value properly, you do so whenever possible if it's prudent.

And it has been here given the earnings profile of the rest of the portfolio, and we're very thankful to our partners as we continue to reinvest those proceeds and grow net asset value in that venture.

Paul Johnson -- KBW -- Analyst

Thanks. Appreciate that. And that's all my questions.

Operator

Thank you. At this time, I'd like to turn the floor back over to Mr. Lloyd for closing comments.

Eric Lloyd -- Chief Executive Officer

Well, just want to say -- I know it's a busy time for everybody, so thanks for taking the time to actually invest the time to listen to us and hear about our quarter. We remain grateful for your support out there. I hope everybody stays healthy and positive during these times and look forward to a summer where hopefully, people can open up a little bit more and start together with loved ones and friends. So stay healthy and stay positive out there.

And if we can do anything, let us know. Thanks so much.

Operator

[Operator signoff]

Duration: 45 minutes

Call participants:

Eric Lloyd -- Chief Executive Officer

Ian Fowler -- President and Co-Head of Global Private Finance Group

Jon Bock -- Chief Financial Officer

Finian O'Shea -- Wells Fargo Securities -- Analyst

Kyle Joseph -- Jefferies -- Analyst

Robert Dodd -- Raymond James -- Analyst

Casey Alexander -- Compass Point -- Analyst

Paul Johnson -- KBW -- Analyst

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