Blackstone Secured Lending Fund

NYSE:BXSL

Earnings Call Analysis

BXSL Reports Strong Q2 Earnings with Record Net Income and Active Portfolio Management

In the second quarter of 2024, Blackstone Secured Lending Fund (BXSL) achieved its highest quarterly earnings and net asset value (NAV) per share since their IPO. Net investment income rose to $0.89 per share, with a net income of $1.01 per share. BXSL's impressive 11.3% annualized dividend yield and strong portfolio performance were highlighted by a 98.6% investment in first lien senior secured assets. The quarter saw $1.3 billion in new commitments and $891 million in fundings, signaling robust origination activity. Their balance sheet remains solid with $11.3 billion in portfolio investments and ample liquidity of $1.2 billion.

Record Earnings and Promising Growth

Blackstone Secured Lending Fund (BXSL) reported its highest ever earnings for the quarter, demonstrating the robustness of its platform. The net investment income per share increased to $0.89, reflecting a 13.2% annualized return on equity. Additionally, the net income per share rose to $1.01, and the net asset value (NAV) per share climbed 1.2% to $27.19. These gains underscore the strength of Blackstone's $1.1 trillion ecosystem, which is effectively leveraged for investor benefit.

Strong Dividend Yield

BXSL’s dividend remained impressive at $0.70 per share, representing an 11.3% annualized dividend yield. Importantly, the dividend is well-covered at 116%, bolstering investor confidence. The firm's focus on first lien senior secured assets (98.6% of the portfolio) supports this substantial yield and ensures solid return drivers with a weighted average yield of 11.6% on debt investments.

High Activity in Originations and Investments

The second quarter was particularly active for BXSL, marking the most significant quarter for originations since 2021. The fund committed $1.3 billion to new investments and funded $891 million. This high level of activity, sustained for three consecutive quarters of over $1 billion in commitments, points to BXSL's broad coverage and Blackstone's global reach. Notably, these new investments largely consisted of first lien senior secured debt with favorable terms such as an average loan-to-value of 37.9%.

Operational Enhancements and Value Creation

BXSL continues to prioritize operational improvements and revenue-generating opportunities for its portfolio companies through its value creation program. A notable example is Park Place, which benefited from the BX Preferred Program to increase its annual recurring revenue by $1.1 million. This strategic focus on value addition enhances the performance and resilience of portfolio companies, aligning their success with investor returns.

Optimized Balance Sheet and Liquidity

BXSL concluded the quarter with $11.3 billion of total portfolio investments at fair value, $6.1 billion of outstanding debt, and $5.4 billion in total net assets. The 1.2% increase in NAV per share for the seventh consecutive quarter reflects solid portfolio fundamentals and prudent capital management. Importantly, the firm has recently reduced the cost of its $2.1 billion revolving credit facility, achieving the lowest spread among its peers, and diversified its lender base while maintaining robust liquidity of $1.2 billion.

Risk Management and Defensive Strategy

Emphasizing a defensive investment approach, BXSL focuses on first lien senior secured debt in lower default rate industries. The nonaccrual rate remains minimal at 0.3%, significantly lower than the peer average of nearly 3%. The portfolio's interest coverage ratio averages 1.7x, indicating strong financial health of the portfolio companies. This approach safeguards investor capital and enhances long-term returns.

Proactive Portfolio Management

BXSL’s hands-on management style ensures timely interventions to support underperforming assets. The firm's CIO team actively engages with sponsors to bring in equity where needed, continuously improving the value of investments. This proactive strategy, coupled with the firm's scale and operational resources, positions BXSL to navigate and mitigate potential stresses within the portfolio effectively.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and welcome to the Blackstone Secured Lending Second Quarter 2024 Investor Call. Today's conference is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to Stacy Wang, Head of Stakeholder Relations. Please go ahead.

[Stacy Wang, executive]

Thank you, Jennifer. Good morning, and welcome to Blackstone Secure Lending Fund's second quarter conference call. Joining me today are Brad Marshall; Jonathan Bock, Co-Chief Executive Officer; Carlos Whitaker, President; and Teddy Desloge, Chief Financial Officer.

Earlier this morning, we issued a press release and slide presentation of our results and filed our 10-Q, both of which are available on the shareholders section of our website, www.bxsl.com. We will be referring to that presentation throughout today's call.

I'd like to remind you that today's call may include forward-looking statements, which are uncertain and outside of the firm's control and may differ materially from actual results. We do not undertake any duty to update these statements. For some of the risks that could affect results, please see the Risk Factors section of our most recent annual report on Form 10-K. This audio cast is copyright material of Blackstone and may not be duplicated without consent. With that, I'd like to turn the call over to Brad Marshall.

[Brad Marshall, executive]

Thank you, Stacy, and good morning, everyone. Thanks for joining our call this morning. Turning to the agenda. I'll start with some high-level thoughts before turning over to John, Carlos and Teddy to go into details of our portfolio and second quarter results. Turning to Slide 4 of the presentation.

In my view, these results reflect the strength of our platform, leveraging the advantages of Blackstone's scale across our $1.1 trillion ecosystem and putting it to work for our investors. We're pleased that BXSL reported the best quarter of earnings on a dollar basis and the highest net asset value per share since our IPO, as well as increases in net investment income per share and net income per share compared to last quarter. Our NII of $0.89 per share, representing a 13.2% annualized return on equity is up from $0.87 per share in the prior quarter and net income of $1.01 and per share is up from $0.96 per share in the prior quarter. Further, net asset value per share increased by $0.32 or 1.2% to $27.19 and from $26.87 per share last quarter.

Our dividend of $0.70 per share is well covered at 116% and represents an 11.3% annualized dividend yield, one of the highest among our traded BDC peers with as much of their portfolio invested in first lien senior secured assets with BXSL at 98.6%. Return drivers remain strong. As of quarter end, BXSL had an 11.6% weighted average yield on debt investments with less than 0.3% investments on nonaccrual at cost. And we were able to amend our corporate revolver post quarter end, leveraging the tighter market environment, as you will hear later from Teddy. Moving to Slide 5.

The second quarter was our most active quarter for originations for both committed and funded investments since 2021, with $1.3 billion in new commitments and $891 million in fundings, this also marks the third consecutive quarter of over $1 billion in commitments. As a result of our broad coverage model and Blackstone's global reach, we get to see a broad range of deals that come to market, large, medium, small, and we seek to offer investors exposure to, what we believe, our compelling risk-adjusted opportunities at any given point in time. This quarter, we funded more middle market companies compared to recent quarters, in what we believe were high-quality transactions at lower LTVs and attractive spreads.

Overall, our new fundings into new portfolio companies for the quarter were nearly 100% first lien senior secured debt with a weighted average spread of approximately 524 basis points, an average OID of 1.3% in nearly 1.5 years of call protection, and an average LTM EBITDA of $119 million. Importantly, these assets had an average LTV of 37.9%, well below that of the portfolio in prior years. So while we have seen some spread compression in the private markets, these new deals funded in the quarter had a greater spread to LTV ratio or what we would call a spread per unit of risk. And while we have a large team focused on our assets, we also strive to minimize the company's expenses. We start with a lower headline for fee structure compared to the average of our traded BDC peer set, which we believe investors recognize. We then further aim to minimize other expenses and the cost of our liabilities. Teddy will talk about our liabilities a bit later, but since quarter end, we negotiated lowering the spread of our nearly $2.1 billion revolving credit facility to the lowest among our traded BDC peers.

At the same time, we further diversified our lender base by adding additional banks to our revolver group with now over 15 participants. Finally, with recent market volatility, we believe private capital solutions will remain attractive to scale borrowers given certainty of execution by private lenders. I'm very pleased with this quarter's progress in every regard. We had robust origination at what we view overall as attractive spread per unit of risk. We continue to see strong earnings as measured by income and NAV, and we have repriced our cost of our capital after quarter end to position BXSL to operate in an environment where rates are likely to come in. For us, it's about seeking to maximize results in every area of BXSL for the benefit of our shareholders. With that, I will pass over to my colleague, Jonathan.

[Jonathan Bock, executive]

Thank you, Brad. And let's jump to Slide 6. We ended the quarter with $11.3 billion of investments, over an 8% increase from the $10.4 billion in Q1 across 231 portfolio companies. But this resulted in an increase in ending leverage to 1.13x and average leverage of 1.09x given the timing of some of our investment fundings, moving up to the middle of our target range of 1x to 1.25x debt to equity. We maintained our strong liquidity position at $1.2 billion, and that's comprised of cash, available borrowing capacity across our revolving credit facilities and that's including ABLs to lean into that expanded pipeline.

Now our weighted average yield on debt investments at fair value held steady at 11.6% this quarter compared to 11.8% last quarter. The yields on new debt investment fundings and assets sold and repaid during the quarter averaged 10.9% and 11.7%, respectively. Let's take a look at the portfolio and turn to Slide 7.

Approximately 99% of BXSL investments are in first lien senior secured loans and 99% of those loans are to companies owned by financial sponsors, who generally have significant equity value in these capital structures demonstrated by an average loan-to-value of 47.4%. Now it's worth noting, the average single sponsor concentration in our portfolio is approximately 1% of fair value.

Now our portfolio also has what we believe is a strong LTM EBITDA base that's averaging $206 million, and it's a 13% increase from last year. This is more than 2x larger than the private credit market, where we also see continued strength and performance from larger companies, the bedrock of our portfolio relative to their smaller EBITDA counterparts on both growth and default.

But however, Brad mentioned this, we continue to see a broad range of deals as we invested more this past quarter across the EBITDA spectrum, with that $119 million weighted average LTM EBITDA. Now BXSL's portfolio companies have seen growth rates in line with the broader private credit market as measured by the Lincoln International Private Markets database, and over 15% more profitability on an LTM EBITDA margin basis. Now since BXSL's inception, we believe we've been disciplined in building our portfolio to focus on first lien senior secured debt and do so in lower default rate industries as we believe that's a defensive place for investors, especially in an elevated or uncertain interest rate environment. Despite a slight uptick this quarter, nonaccruals were at 0.3% at cost, and they remain minimal compared to our traded BDC peer average of nearly 3%, and that's compared to last quarter. And we continue to emphasize the importance of interest coverage. The LTM EBITDA coverage based on average LTM EBITDA for BXSL portfolio companies over the last 12 months was 1.7x in the second quarter, which again compares favorably to the Lincoln database for the broader private credit market at 1.4x average coverage in the second quarter.

Now looking at the share of those private credit portfolio -- of our private credit portfolio below 1x interest coverage excluding recurring revenue loans, BXSL is at 5% of fair value versus the Lincoln Private Credit Market Index being over 3x larger at nearly 18%. And we've seen some increase in this figure for BXSL quarter-over-quarter, and that's because growth has slowed for some portfolio companies and additional company's interest coverage has come in just below 1x. However, interest coverage is only one screen that we use to identify credits with which to be proactive. Our interest coverage analysis helps us to identify companies that we believe could benefit from, for instance, in early discussion with the sponsor or an introduction to the operations-focused professionals on our BXCI value creation team.

And so when we think about stress in our portfolio, [indiscernible] instead, in our view, better represented by those assets that are marked below 80, which constitute less than 1% of the book at cost. Looking now at how we're growing the portfolio and designing it top down, Slide 8 focuses on our industry exposure. And as I mentioned earlier, in the second quarter, the number of portfolio companies in BXSL increased to 231, while we maintain nearly 90% of our exposure to historically lower default rate industries. And this is similarly reflected in our investment activity this quarter, as Brad mentioned, with 70% of our new funded portfolio companies being in historically lower default rate industries, such as software, healthcare providers and services, et cetera. Now I'll conclude with a point on amendment activity. Amendment activity continues to be relatively benign as performance of the portfolio remains strong.

In the second quarter, amendments affected roughly 65 private borrowers. Over 95% of which were associated with add-ons, M&A, DDTL extension and immaterial technical matters on changes to terms. Now 3 issuers that saw amendments related to the portfolio, we had it occur with 3 portfolio companies, all of which were marked below 80, and in total represent less than 80 basis points of the portfolio at cost. And with that, I'd like to turn it over to my colleague, Carlos.

[Carlos Whitaker, executive]

Thanks, Jon. Turning to Slide 9. BXSL maintained its dividend distribution of $0.77 per share. As you can see, we have continued to focus on delivering yield to shareholders, building a level of confidence through steady regular dividends while also growing NAV per share. We expect this approach to continue as we believe we are heading into a heightened period for deal activity. For instance, helping to meet this quarter's portfolio growth, we issued $190 million of additional equity under our ATM or at-the-market program this quarter at a premium to NAV, and we raised a $400 million bond that was swapped to SOFR plus 138, which we observed was well inside the price of new secured debt capacity.

As we often discuss, after we make investments, we aim to add value by driving operational improvements and revenue-generating opportunities for our portfolio companies. We have outlined our BXCI value creation program on prior calls. And we believe a partnership with BXCI is valued by private equity sponsors. And with increased competition in the private credit market, we seek to distinguish ourselves by providing more than just capital to our portfolio companies. For instance, Park Place, a name we have discussed in the past, won 2 new clients through our BX Preferred Program in the second quarter, resulting in the borrower increasing its annual recurring revenue by $1.1 million. We also continue to work with Park Place's business development team on additional opportunities with Blackstone invested companies that have meaningful spend on data centers. As a reminder, BXSL borrowers are offered full access to BXCI's value creation program, which provides borrowers with revenue generating opportunities, cost savings procurement and capabilities, including cybersecurity and data science, all at no additional cost because we understand the potential benefit to both BXSL's investment portfolio and shareholder returns. And with that, I'll turn it over to Teddy.

[Teddy Desloge, executive]

Thanks, Carlos. I'll start with our operating results on Slide 10. In the second quarter, BXSL's net investment income was $173 million or $0.89 per share. BXSL recorded its highly quarterly GAAP net income on a dollar basis and tied its highly quarterly earnings per share since IPO at $196 million and $1.01 per share, respectively, up 12% from a year ago. Total investment income for the quarter was up $37 million or 11% year-over-year, driven by increased interest income, primarily due to higher interest rates. As a reminder, we amortized 100% of OID earned over the life of each loan versus taking fees upfront, which we believe leads to greater stability over the long term. Interest income excluding PIK fees and dividends represented nearly 93% of our total investment income in the quarter.

Turning to our balance sheet on Slide 11. We ended the quarter with $11.3 billion of total portfolio investments at fair value, $6.1 billion of outstanding debt and $5.4 billion of total net assets. NAV per share increased to $27.19, up 1.2%, up from $26.87 last quarter, driven by excess earnings, stable portfolio fundamentals and share issuance above NAV. This represents the seventh consecutive quarter of NAV per share growth. Moving to Slide 12. In addition, we saw the fifth consecutive quarter of commitment growth, as Brad outlined, with BXSL committing to approximately $1.3 billion in the quarter, funding nearly $900 million and an estimated additional $261 million committed by BXCI and earmarked for BXSL as of June 30.

Net funded investment activity in the quarter was $800 million, up over 50% sequentially over the first quarter. Further, despite the spread tightening cycle across fixed income markets so far this year, and an increase in broadly syndicated activity, we continue to experience muted repayment activity as Brad outlined. In the second quarter, we saw $89 million of repayments or a 3% annualized repayment rate bringing our year-to-date repayment rate to 4%, which compares to 10% for all of 2023. In fact, we did not have any exposure refinanced out by the syndicated market in the second quarter. It is also worth noting that in a declining rate environment, one may naturally expect an increase in portfolio turnover, but our portfolio had few realizations in the quarter.

Next, Slide 13 outlines what we believe to be an attractive and diverse liability profile, which includes 46% of drawn debt and unsecured fixed bonds that are not swapped. Our unsecured fixed rate bonds have a weighted average fixed coupon of just under 3%, which we view as a key advantage in this elevated rate environment and contributed to an overall weighted average interest rate on our borrowings of 5.26%.

This compares to a weighted average yield at fair value on our debt investments of 11.6%. As a reminder, we have a 16-person team within our CIO office that focuses on our liabilities and has access to diverse financing sources. As spreads have tightened across secured and unsecured markets, our team has been focused on driving down financing costs and further improving our balance sheet.

To that end, on the heels of a full notch upgrade by Fitch to BBB flat in the first quarter, we issued a new $400 million 3.5-year bond in the second quarter which priced at 140 basis points over treasuries and swapped to 138 basis points over SOFR. In addition, post Q2, we upsized our corporate revolver by $300 million and simultaneously dropped the drawn spread by 22.5 basis points to 152.5 basis points while bringing in our unused fee rate as well. We have no maturities on our funded liabilities until 2026, and our debt and funded facilities have an overall weighted average maturity of 2.9 years. We continue to explore means of further optimizing our cost of capital.

Total liquidity at quarter end was $1.2 billion in cash and undrawn debt available to borrow and ending leverage as of June 30 was 1.13x, up sequentially from 1.03x in the first quarter, near the midpoint of our target range of 1x to 1.25x.

We have positioned our balance sheet with significant excess capacity to support continued pipeline momentum we see through year-end as rates may begin to fall. In closing, we are moving forward from what we believe is a position of strength with underlying earnings power, credit performance and liabilities that distinguish us in the market. We will strive to remain laser-focused on delivering returns and protecting investors' capital. With that, I'll ask the operator to open it up for questions.

[Operator]

[Operator Instructions] We'll go first to Finian O'Shea with Wells Fargo Securities.

[Finian O'Shea, analyst]

First question in the wake of the Pluralsight restructuring for a lot of BDCs. I know you're not in there, but we're trying to get a picture of issuers or portfolio companies that would be below interest coverage, but where you have the sponsor putting in money. So would that be included in your below 1 interest coverage provided metric or otherwise, how prevalent is that set up in the portfolio?

[Brad Marshall, executive]

Fin, it's Brad. So I'll just give a high-level comment, Teddy can give the statistics on the portfolio. So Pluralsight, you're right, we're not in it. So we're not super close to that asset. I will make the comment though, on the positive, which is the handover of Pluralsight to its lenders was actually quite orderly, which is, and one of the advantages of private credit. This was in the -- public markets, I think it would have languished, would have been stuck in bankruptcy. So it was nice to see kind of the private markets working fairly well. In terms of kind of overall credit and coverage, maybe, Teddy, you can hit on what is captured in our statistics.

[Teddy Desloge, executive]

Yes. I think your question Fin, directly is a percentage of exposure below 1x coverage and then specifically what we're seeing in terms of equity investments. Buck went through it, but we had 65 amendments, 95% benign or positive. We had 3 issuers that had material amendments. Those 3 represented less than 1% of the overall portfolio. Generally speaking, in situations that are underperforming, our first response is to work consensually with the company to see equity come into the structure. I can't speak specifically to those 3 companies, but it is something that we do ask in those types of situations.

[Finian O'Shea, analyst]

Okay. That's helpful. And as a follow-up with WHCG, it looks like you're joining the partial accrual movement. Can you talk about your policy there and if this will be commonplace going forward?

[Teddy Desloge, executive]

Yes. I'm happy to start. Again, can't speak to that situation specifically. Generally speaking, Fin, I think as you've probably noticed, historically, we haven't put assets on partial nonaccrual unless there's a very clear potential restructuring that reflects that, in fact, more to come on that situation in the next quarter.

[Jonathan Bock, executive]

And also see if you're going to make kind of the reference of how we think about both non-accruals, et cetera, Fin, if you start to see assets that have traded clearly below 80 or in some discounted mark territory, you can see that as an indicator of stress and we outline it. Maybe perhaps what you don't see here is an asset that has marked close to par that goes on nonaccrual the next quarter. So I'd say that you'll see the page turn, but also in terms of that movement, you kind of have to reflect that if we have operating knowledge to have that mark and see where that mark is post restructuring, that could give you some indication of how we think about non-accruals.

[Brad Marshall, executive]

So just to put those 2 comments together, Fin, so equity, we'll always try and negotiate equity come into the businesses, I think, in most of our restructuring that has happened. Secondly, marks, you'll see a steady decline, and that's probably what analysts and investors should focus on is kind of what marks are, as John said, below 80 because that indicates that there's real headwinds in the business. And those will improve or get worse between quarters. But what's most important is if an asset is in that ZIP code, we are absolutely in front of the sponsor asking for equity. We have a CIO team of 80 people, which I think is bigger than most investment platforms, and all they do is spend time on making sure that we can improve the value of our investment, whether it's through the value-added program, which Carlos went through, or by being early and proactive in any sort of restructuring.

[Operator]

We'll go next to Robert Dodd with Raymond James.

[Robert Dodd, analyst]

Hopefully, you can hear. First, on the size that you mentioned you did more middle market companies or smaller companies -- $100 million in EBITDA didn't use to be low market or anything. But can you give us any color on when you're looking at a smaller 'company' like that, what industries are you more focused on doing that? Because you've talked about bigger is better on size but also neighborhoods matter, which industries, et cetera. So you can give us a color on like what industry would you do for, say, a $250 million EBITDA company but you wouldn't do for a $100 million EBITDA company. Any color on like how that shifts by size and industry appeal?

[Brad Marshall, executive]

Yes. Thanks, Robert. It's Brad. I'll take that one. And again, it's not just sector, but obviously, it's capital structure. When we're looking at any deal, it is looking at the senior part of the capital structure, as you're aware. We're looking at the quality of the business. We've historically highlighted that larger companies tend to be better businesses. And then, of course, we're looking at -- you're pointing out which sectors, which neighborhoods, and we're going maybe a layer deeper than that. We're trying to be in the best blocks, in the best neighborhoods.

And so I would say when looking at these $100 million type EBITDA businesses, they are going to be in 3 primary sectors where we have our sector teams built out, technology and software, healthcare and life science and business services. And in those areas, we characterize those neighborhoods as being historically low default sectors. They're good cash flow generators. They tend to outgrow the economy, which in this environment is quite important. So that's what I would say about kind of where we're investing. And I wouldn't say they're small, I would say, the upper end of the middle market. And then on my last point around capital structure, as we said in our prepared remarks, the investments we made in the quarter were at 37.9% loan-to-value. So the risk profile that where we're setting these companies up is quite low relative to where we've invested in some of these larger businesses, which has been more in the mid-40s.

[Robert Dodd, analyst]

Got it. Follow-up. Pluralsight already came up, Fin brought it up. You're not involved. It was originated in the second quarter of '21, and you guys were $7 billion at AUM back then and '21 was really active year. So I'm going to assume, and we know what assuming means, that you had the opportunity to participate in Pluralsight. So can you correct me if I'm wrong, did you not seal the deal or did you see the deal and decline to participate? And if you did decline, any recollection of what the reason was back then? It wasn't that long ago?

[Brad Marshall, executive]

Yes. Well, we've seen it twice actually, and we passed both times based on -- just our own view of the credit was maybe different than others. One of the nice things about our platform is we have 900 technologists across kind of the Blackstone platform that we can kind of tap into and get very good insights into these technology businesses, and we do that in every single deal that we're invested in as well as we use the 50 data scientists that are part of the platform as well.

And this will happen in many instances where we just take a different view than the market. I'd rather not get into the specific reasons why we passed on it. But nonetheless, we did see it twice in passed both times.

[Operator]

And at this time, we will go next to Paul Johnson, KBW.

[Paul Johnson, analyst]

Just wanted to squeeze in, just wanted to know about a specific credit in the portfolio and just kind of get your thoughts on performance, but maybe a little bit of an explanation of what the company is Snoopy Bidco, large loan in the portfolio. I believe it's on full pick at this point, but it seems to be marked fairly well. Just wondering to get some ideas on how that company is performing? And that's all.

[Brad Marshall, executive]

Yes. So unfortunately, the private company, so we can't say much about the business. The business is a vet care business. We can talk about the mark, which is around 97.25 across the securities, which would reflect that it's performing in line with expectations. I think when we did the deal, we were through the senior debt, which were -- that's our investment. We're through 32% loan to value. So a lot of equity kind of beneath us and the sponsors continue to kind of support that business and it's generally performing well.

[Paul Johnson, analyst]

Got it. And would you say is that the majority of the PIK income in the portfolio? Or are there other [indiscernible].

[Teddy Desloge, executive]

Yes, I'm happy to take that. No real change quarter-over-quarter in terms of PIK income. It represents 7% of income. 80% of our PIK is from the top 5 assets, similar to last quarter. Those, as Brad said, are all performing, all marked above 97, and there were no new PIK amendments in the quarter.

[Operator]

We'll go next to Mark Hughes with Truist.

[Mark Hughes, analyst]

Sorry if I missed this, I jointed late, but the repayments were pretty low this quarter. Is that just idiosyncratic quarter? Or is there some broader theme, something about your portfolio, and kind of give any expectations you can share regarding how you expect that to play out?

[Teddy Desloge, executive]

Yes, I'm happy to take that. You're right, annualized repayment rate was 3%, I think, lower than we would expect in sort of a normalized M&A environment. I think a couple of things driving that. Number one, M&A volumes overall, while have increased, are still relatively muted. So we've been driving deployment really through incumbency, around half of what we're deploying are into assets where we do have incumbency. I think it is possible that we see repayments pick up over time as M&A picks up and as rates come down. But for now, you're right, they've remained relatively low.

[Jonathan Bock, executive]

Mark, I'd just add, that's also a function of an item we mentioned last quarter, which is a proactive view on effective defense. So here in the quarter, we had repricing activity where what we have is a company that's effectively coming close to moving off call protection. And you have the ability to work with a company that you know and do so at a market price that's well above your current cost of capital and end up earning or extending the life of that loan and its current benefit to ROE. So if you look across the board, give or take, our focus there, in those active defense, is also what will keep assets on the books for longer, allowing us to grow accretively as we also issue equity and low-cost debt.

[Mark Hughes, analyst]

Is that process becoming a little more competitive, the repricing? Is there more negotiation around spreads as the companies maybe checking the current market dynamic?

[Jonathan Bock, executive]

It's all the market dynamic, right? And it's clearly in an environment where you have a good amount of capital looking at a finite amount of deals, that's simply a market phenomenon. Overall, it's around if you look at some of the reprices this quarter, it's about 70-ish basis points of, we'll call it, tightening, if you will, which is in line with where we've started to see kind of market trends move overall. But I'd say, clear to my colleagues here, but it does find itself kind of just natural as it relates to where the broadly syndicated loan market is today, and that perhaps can change with current volatility.

[Brad Marshall, executive]

So Mark, we have call protection in these deals, so it gives us a lot of leverage. And certainly, as repayments -- as the market gets more active, you'll probably see more repayments and that will either give us the opportunity to stay with the credit or take our call protection and accelerated fee income to help drive earnings. So for us, it's a little bit of a win-win. Investors either, in a more active environment, will get more fee income or we get to kind of hold on to our better assets at market spreads.

[Operator]

We'll go next to Kenneth Lee with RBC Capital Markets.

[Kenneth Lee, analyst]

And I'd just been jumping around from call to call, so apologies if this was covered already, but could you go over some of the key drivers for the unrealized gains that were reported in the quarter?

[Teddy Desloge, executive]

Yes, I'm happy to take that. We did have unrealized gains of $23 million in the quarter. A few markups and a couple of markdowns. I wouldn't necessarily say there's anything notable. We did see spreads come in a little bit in the quarter which helped drive marks overall given what we're seeing in markup in the market, but nothing really to call out here.

[Kenneth Lee, analyst]

Got you. And then one follow-up, if I may. In terms of recent deal activity, you talked about some of the spreads that you're seeing, but just wondering, in terms of terms and documentation, what are you seeing in terms of some of the more recent activity, any timing or changes there?

[Brad Marshall, executive]

Yes. I would say no specific trends. I would say, on the back of Pluralsight, the provision in the document that allowed the sponsor to move around kind of assets, that's actually been tightened up. So lenders have pointed to that as a weakness in documents and for new deals have tightened up that. [indiscernible], I would say, in the middle market, documents tend to be a little bit tighter than the large end of the market, which competes with the syndicated market. And so for us, during the quarter, documents are actually pretty good.

But any time you see a very active liquid market, you tend to see some provisions get tested in the market, and you saw some of that earlier on in the quarter. Now the liquid markets are showing a little bit of volatility right now. So that's changing a little bit right now, but we'll see how it develops over the course of the year.

[Operator]

And at this time, I'll turn the call back to Stacy Wang for closing comments.

[Stacy Wang, executive]

Thank you, everyone, for joining our call today. We look forward to speak to you next quarter. Thanks, everyone. Goodbye.