Sixth Street Specialty Lending Inc
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Sixth Street Specialty Lending Inc
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Good morning, and welcome to Sixth Street Specialty Lending, Inc.'s third quarter ended September 30, 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is may be recorded on Wednesday, November 6, 2024. I will now turn the call over to Ms. Cami VanHorn, Head of Investor Relations.
Thank you. Before we begin today's call, I would like to remind our listeners that remarks made during the call may contain forward-looking statements. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Sixth Street Specialty Lending, Inc.'s filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements.
Yesterday, after the market closed, we issued our earnings press release for the third quarter ended September 30, 2024, and posted a presentation to the Investor Resources section of our website, www.sixthstreetspecialtylending.com. The presentation should be reviewed in conjunction with our Form 10-Q filed yesterday with the SEC. Sixth Street Specialty Lending, Inc.'s earnings release is also available on our website under the Investor Resources section. Unless noted otherwise, all performance figures mentioned in today's prepared remarks are as of and for the third quarter ended September 30, 2024. As a reminder, this call is being recorded for replay purposes.
I will now turn the call over to Joshua Easterly, Chief Executive Officer of Sixth Street Specialty Lending, Inc.
Thank you, Cami. Good morning, everyone, and thank you for joining us. With us is my partner and our President, Bo Stanley; and our CFO, Ian Simmonds. For our call today, I will provide highlights of this quarter's results and pass it over to Bo to discuss activity in the portfolio. Ian will review our quarterly financial results in detail, and I will conclude with final remarks before opening the call to Q&A.
After the market closed yesterday, we reported third quarter financial results with adjusted net investment income per share of $0.57, corresponding to an annualized return on equity of 13.2% and adjusted net income per share of $0.41, corresponding to an annualized return on equity of 9.6%. As presented in our financial statements, our Q3 net investment income and net income per share, inclusive of the unwind of the noncash accrued capital gains incentive expense, were $0.59 and $0.44, respectively. Our net investment income this quarter continued to reflect the impact from the higher interest rate environment, combined with a small increase in activity-based fees.
Adjusted net investment income of $0.57 per share exceeded our base quarterly dividend by $0.11 per share or 23%. $0.05 per share was statistically related to activity, which is up from the average of $0.04 per share that we've experienced since the start of the tightening cycle.
Since as our last earnings call, the shape of the forward interest rate curve has declined in the near term, following the rate cut in September and now bottoms out at a slightly higher terminal rate in 2026. Based on the latest curve, our base dividend level remains well supported through that terminal rate. As a reminder, our dividend policy is based on the -- on our through-the-cycle earnings power, inclusive of credit losses and asset and the activity-based fee income.
Rounding out the earnings summary. The $0.15 per share difference between this quarter's net investment income and net income was due to net unrealized losses, primarily from the markdown of our investment in Lithium Technologies. Consistent with our valuation policy, we have marked this name taking to account a range of outcomes. We believe the distribution of outcomes has skewed lower since last quarter in our fair market -- and our fair value mark as of 9/30 reflects the updated view. Given the continued underperformance of this name, we've also added to nonaccrual cash at the beginning of Q3.
As for the economic impact, the Lithium Technology position represents less than 1% of our total portfolio fair value. To illustrate the impact on earnings, we assume we were earning approximately 11% return on equity on the $30 million of unrealized losses we recognized to date. This return on equity number is based on the cost of equity from Bloomberg of roughly 9% and our valuation on book value of 1.2x. An 11% assumed return on equity on $30 million implies less than $0.01 per share of lost net income on a quarterly basis or 15 basis points of annual ROE.
Credit losses are incorporated as part of our base case assumption and our unit economic model. To be clear, the capital we put to work will continue to earn in excess of our cost of equity, inclusive of the potential for losses. This requires discipline in our investment decisions despite the tighter spread environment that persists. According to data published by the LCD, portion of BDC portfolios based on count was spread below 550 basis points reached 24% as of Q2 2024. This compares to 7% of our portfolio by count and less than 5% of our portfolio on a weighted average basis as of 9/30, which we view as a more meaningful way to analyze the data. We believe the drastically lower percentage of sub-550 deals in our portfolio underscores our disciplined capital allocation approach.
We are confident that our asset selection will continue to drive best-in-class returns for our investors. At quarter end, net asset value was $17.12, down $0.07 per share compared to $17.19 per share as of June 30. Over the last 12 months, reported NAV per share has grown from $16.7 to $17.1. Ian will walk through net asset origin more in detail.
Yesterday, our Board approved a base quarterly dividend of $0.46 per share to shareholders of record as of December 16, payable on December 31. Our Board also declared a supplemental dividend $0.05 per share related to our Q3 earnings to shareholders of record as of November 29, payable on December 20. Our Q3 2024 net asset value per share adjusted for the impact of the supplemental dividend is $17.07.
With that, I'll pass it over to Bo to discuss this quarter's investment activity.
Thanks, Josh. I'd like to start by sharing some thoughts on the broader economic backdrop followed by observations on the current deal environment.
As rates continue to decline based on the shape of the forward interest rate curve, we generally expect corporate credit and activity levels to benefit from the shift in economic policy. On corporate credit, the lower cost of capital should improve the cash flow profile of borrowers after a prolonged period of slower growth and higher interest rates. We've started to see this play out across our own portfolio as the weighted average interest coverage on our core portfolio of companies improved quarter-over-quarter.
In terms of activity levels, we anticipate that rates unlocking will support a more active M&A environment, which we already started to see in Q3 as BSL volumes to finance LBOs reached the highest level in 2.5 years. While it's encouraging to see this activity, we believe a more significant increase in deal flow will take time as today's valuations generally remain below the purchase prices paid in the low interest rate in the free money era prior to 2022.
Turning now to our investment activity. During the third quarter, we closed on $269 million of commitments across 8 new investments and upsizes to 4 existing portfolio of companies. Consistent with our long-term approach of investing at the top of the capital structure, 100% of our Q3 fundings were in first lien positions contributing to our 93% first lien asset mix across the entire portfolio. As for industry exposures, our 8 new investments were diversified across 7 different end user industries. Our top industry exposure continues to be software and business services. Cyclical exposure, excluding our asset base loan and retail remains limited at 4.4% of our portfolio.
During Q3, we continued to lean in on our capabilities across the Sixth Street platform to differentiate our capital. This includes focusing on sector themes that coincide with our platform's underwriting expertise and leveraging our deep relationships to source unique investment opportunities.
To highlight one of the sector themes where we were active during the quarter, Sixth Street closed and funded a $400 million senior secured credit facility for Arrowhead Pharmaceuticals, which is a clinical-stage biotech company focused on the development of drugs for a wide range of conditions. We worked alongside our health care sector team to provide the company with long-term capital to fund R&D and platform development. The combination of Sixth Street's scale, expertise and flexibility contributed to the sourcing and execution of this attractive investment opportunity for SLX shareholders.
We also added to our retail ABL portfolio during Q3 through our investment in Belk, which is our largest funding for the quarter. Belk is a regional department store retailer with a strong collateral base. The transaction was part of a balance sheet restructuring ultimately allowing the company to delever and improve its financial positioning. Longtime followers of our business know that the track record in this theme spans over a decade and has contributed to the above-market asset level yield profile for SLX.
Our ability to create value for shareholders in this theme has been built over a number of years by investing in resources, team and relationships, which cannot be replicated overnight. We've been increasingly active in the opportunistic and nonsponsored channel to drive shareholder returns. Both of the investments I highlighted, Arrowhead and Belk, represent nonsponsored transactions, which comprised 43% of total new investments funded in Q3. The weighted average yield at fair value on these investments was 13.5% compared to 10.1% for other new investments during the quarter.
On the repayment side, we had 2 full and 5 partial investment realizations totaling $90 million in Q3. Consistent with the increase in refinancing activity in the credit markets, our two largest repayments during the quarter, Bestpass and IntelePeer, were driven by refinancings. I'll spend a moment to highlight the exit the best path as this investment demonstrates the benefit to shareholders of our newer vintage portfolio as well as our willingness to pass on new deals that do not represent -- that do not present an appropriate risk return for our business.
We made our initial investment in Best Pass in May of 2023 and continue to support the company through an upside in November. Over the short period of 1.2 years, we generated 20% unlevered IRR and 1.2x MOM, including $0.02 per share of activity-based fee income from the crystallization of call protection and the acceleration of amortization of upfront fees. Given our ability to deploy capital in the wider spread environment in 2022 in the first half of 2023, we expect to see an increase in activity fee-based income, should our portfolio experience higher velocity in the declining interest rate environment.
From a credit quality standpoint, the overall performance rating of our portfolio remains strong, with a weighted average rating of 1.14 on a scale of 1 to 5, with 1 being the strongest representing no change from prior quarter. Nonaccruals represent 1.9% of the portfolio at fair value with 1 new investment added to nonaccrual status in Q3.
Moving on to portfolio composition. In Q3, our portfolio's weighted average yield on debt and income producing securities at amortized costs decreased from 13.9% in the prior quarter to 13.4%. Across our core borrowers for whom these metrics are relevant, we continue to have conservative weighted average attach and detach points for our loans of 0.6x and 5.0x, respectively, and their weighted average interest cover increased from 2.1 to 2.2x quarter-over-quarter. As of Q3 2024, the weighted average revenue and EBITDA for our core portfolio of companies was $327 million and $111 million, respectively. Beginning this quarter, we will also note going forward the median revenue and EBITDA for those same borrowers, which was $149 million and $52 million, respectively, for Q3.
With that, I'd like to turn it over to Ian to cover our financial performance in more detail.
Thank you, Bo. For Q3, we generated adjusted net investment income per share of $0.57 and adjusted net income per share of $0.41. Total investments were $3.4 billion, up 3.7% from $3.3 billion in the prior quarter, driven by net funding activity. Total principal debt outstanding at quarter end was $1.9 billion and net assets were $1.6 billion, or $17.12 per share prior to the impact of the supplemental dividend that was declared yesterday.
Our debt-to-equity ratio increased from 1.12x as of June 30 to 1.19x as of September 30 and our weighted average debt-to-equity ratio for Q3 was 1.14x. We continue to have significant liquidity for the size of our balance sheet with nearly $1.1 billion of unfunded revolver capacity at quarter end against $226 million of unfunded portfolio company commitments eligible to be drawn. As of September 30, our funding mix was represented by a 68% unsecured debt. Post quarter end, we satisfied the maturity of our $347.5 million November 1, 2024 unsecured notes through utilization of undrawn capacity on our revolving credit facility. The settlement had no impact on leverage and marginally decreases our prospective weighted average cost of debt resulting in a positive economic impact of almost $0.01 per share quarterly in 2025.
Pro forma for the maturity, our funding mix is represented by 50% unsecured debt. After satisfying this maturity, we continue to have approximately $743 million of unutilized revolver capacity, representing more than 3x our unfunded portfolio company commitments eligible to be drawn.
Moving to our presentation materials. Slide 8 contains this quarter's NAV bridge. Walking through the main drivers of NAV movement, we added $0.57 per share from adjusted net investment income against our base dividend of $0.46 per share. As Josh mentioned, there was $0.02 per share unwind of noncash accrued capital gains incentive fee expenses, the reversal of net unrealized gains on the balance sheet related to investment realizations resulted in a $0.03 per share reduction to NAV. The impact of tightening credit spreads on the valuation of our portfolio increased net asset value by $0.03 per share. And finally, there were net unrealized losses on investments amounting to $0.13 per share.
Shifting to our operating results detailed on Slide 9. We generated total investment income for the third quarter of $119.2 million, down slightly compared to $121.8 million in the prior quarter. Walking through the components of income, interest and dividend income was $110.9 million, down from $112.2 million in the prior quarter. Other fees representing prepayment fees and accelerated amortization of upfront fees from unscheduled paydowns were higher at $4.3 million compared to $4 million in Q2, given the slight increase in activity-based income we experienced this quarter.
Other income was $4 million compared to $5.5 million in the prior quarter. Net expenses, excluding the impact of a noncash accrual related to capital gains incentive fees was $65.8 million, down from $66.8 million in the prior quarter. This was primarily due to seasonal expenses incurred last quarter for the annual and special shareholder meetings held in May. Our weighted average interest rate on average debt outstanding remained flat at 7.7%. As a reminder, our liability structure is entirely floating rate, which means we will experience a decrease in our cost of debt as interest rates are expected to decline. We did not see a decrease this quarter due to the roughly 1 quarter lagged impact of falling interest rates on the weighted average interest rate on average debt outstanding.
We estimate undistributed income of approximately $1.19 per share at quarter end. As always, we will continue to review the level of undistributed income as the tax year progresses to ensure we comply with direct distribution requirements, minimize potential return on equity drag from the excise taxes and prioritize returns to our shareholders.
Before turning it back to Josh, I'd like to briefly provide an update on our ROEs. At the beginning of this year, we communicated an annualized ROE target range of 13.4% to 14.2% based on our expectations over the intermediate term for our net asset level yields, cost of funds and financial leverage. Year-to-date, we've generated an annualized ROE on adjusted net investment income of 13.6%, consistent with that target range. Based on our performance this year through Q3, we continue to expect adjusted NII per share for the full year to be within the range previously stated of $2.27 to $2.41.
With that, I'll turn it back to Josh for concluding remarks.
Thank you, Ian. I'd like to add on to your comments regarding ROEs. As many of you heard me say in the past, shareholders can't eat net investment income. For that reason, we focus on earnings after net unrealized and realized gains and losses or net income.
On an LTM basis, we generated net income return on equity of approximately 12%, inclusive of the unrealized losses we recognized this quarter. We earned a return for shareholders that significantly exceed our estimated cost of equity of 9%. As a result of investing in assets that generate a return greater than our cost of equity, inclusive of credit losses that we assume in our base case model.
In closing, I'd like to take a moment to focus on what's most important to us, which is the shareholder experience. We are an investor firm first and have built the architecture of the Sixth Street platform to deliver the best risk-adjusted returns for our shareholders. We have invested in the talent and resources, including with 250 investment professionals across sector and capabilities, including direct lending. For SLX, we have access to the scale, resources and intellectual capital across the entire platform, while operating a constrained balance sheet of roughly $3.5 billion of total assets. This allows us to remain highly selective, given the wide range of investment opportunities that we evaluate relative to the capital we have available to invest. We strongly believe that structuring our business in this way will allow us to continue to deliver top-tier results for our shareholders over the long term.
With that, thank you for your time today. Operator, please open the line for questions.
[Operator Instructions]
Our first question comes from the line of Brian McKenna with Citizens JMP.
So a question on your nonsponsored business to start. It was great to see all the activity here during the quarter. I think it speaks to the broad capabilities of Sixth Street as well as your ability to pivot across different parts of the market to deliver the best returns for shareholders. But it would be great just to get a little bit more detail on this business, how big is the team, how do they collaborate with the rest of the Sixth Street platform? And then how do they cover the market from a sector and size perspective? And then just as we move forward here, the incremental yield you're getting from these types of deals is quite notable. So should we continue to expect you'll lean into these nonsponsored transactions over the next couple of quarters?
Yes. Brian, thanks for the question. I really appreciate it. I'm sure people had an interesting night last night while we parked in front of the TV. So I appreciate you getting up early for earnings call. Just real quick, just a level set, on the sponsored side, historically, our business has been 65% sponsored, 35% nonsponsored. This quarter, it was 50-50 approximately. I think 2 out of our 3 largest transactions this quarter were actually nonsponsored deals. I'll put Belk in that category and Arrowhead, which is a publicly traded spec pharma business. So the platform today -- and by the way, even our sponsored business is not the typical sponsor business. It's more thematic, tilted which is we're not trying to do -- we're not trying to bid every sponsored deal based on our relationship. We focus those sponsors who have the same industry themes where we think we can add value and understand that those business models with those industries.
So even our sponsored business, I would say it's not a traditional kind of go-to-market sponsored business. We have approximately 250 investment professionals in our business and they're grouped in both, for lack of a better word, kind of strategy team, so call it like direct lending, ABS and then they're also grouped in industry teams as well. And so health care, consumer, retail, energy is a big one for us, software infrastructure. And so those -- and then health care, for example, we have a big focus in tech. Those typically go direct to company, given that they're not sponsor-driven. And we like that model. We like the model of being able to toggle between risk return and allocating our capital in the most efficient way. And that's been a historical big driver of our shareholder returns. So hopefully, that gives you a little flavor. But it is -- and I think in a world, quite frankly, where there's probably more volatility, maybe there's higher rates, and there's going to be in a world where you're going to have to navigate complexity and that opportunities that we think the platform is built for that.
Okay. That's great. And then just a follow-up on that a little bit in sponsored M&A. There's clearly been a lot of focus on the election. And I think some sponsors have been waiting for clarity here before moving forward on transacting. So just looking across your network of sponsors as well as your deal pipeline, is there any way to quantify how many sponsors and related companies were sat on the sidelines waiting until they have more clarity on the election? And I'm just trying to get a sense of the magnitude and the acceleration we could see in deal flow post election year.
So I think it's tricky to be honest with you, and I'll turn this over to Bo. What I would say is the traditional peaking is that as rates come down and they have visibility on rates -- by the way, which may not come down as much now, given kind of the change in administration. The conventional wisdom is, I think that the economic policies of the new administration are probably slightly more inflationary, which might keep rates higher, although it's probably better for growth. And you see that in equity markets or early separate market future. So I think it's hard to tell that the traditional thinking was that as rates come down, the M&A pipeline gets unlocked. I would say what we've seen -- and I think you've seen a little bit of that. I think the bigger issue is a lot of assets were purchased in a 0 rate environment at high valuations that need time to work through and generate a return. And so those vintages are 2020 to middle of 2022. It's a large portion of the NAV sitting in private equity and the sponsored transactions, they just need time because that's slower money, given you got to work your way through high valuations. So I think you'll see a little bit of an unlock. I don't know if you'll see all of the unlock, given the change in valuations on the private side, given the rate environment and the amount of leverage you can put on businesses, given the structural change in rates. Bo, do you have anything to add there?
I think that's spot-on. It's really hard to calibrate. There was a cautious tone coming into an election cycle, which is typical of every election cycle. And what you generally see there, Q4 is the busiest time of the year from an M&A perspective. But in election years, that's a little bit more smoothed out in Q4 and Q1. I would expect that this year. Anecdotally, I think there's some folks that were waiting to see the results. But overall, I think it's more -- it's going to be driven more by interest rates and the valuation unlock that Josh alluded to earlier.
Yes. I mean, the simple math is if you bought something for 14 or 15x earnings, that now the market is 10x and there's limited free cash flow, given that's going to creditors, it's going to take you longer to kind of -- you're going to have to hold that asset longer. And I think that's the offsetting dynamic.
Our next question comes from the line of Mark Hughes with Truist Securities.
You mentioned that the interest coverage, I think, had improved sequentially. I don't know if you gave those specific numbers, but any sense of how much improvement and then how much of that might have been this lower base rates or growth in EBITDA?
So it went from 2.1 to 2.2. And I think it's both base rates, which take a little bit longer to reset because if you're on 90 days SOFR election, you don't get that benefit immediately. You obviously saw that in our cost of interest, given the delay. And then there was earnings growth in the portfolio. So I think it's mostly earning growth with a little bit of help from rates.
Yes. And then how about the amendment activity in the quarter, anything noteworthy there? And then just a broader comment on your credit outlook coming up?
Yes. So amendment activity was actually very, very low. Most of the amendments were positive credit amendments. I think there were 8 total amendments, 7 upsizes all positive, repricing slightly, some repricing, spread compression. But like they were all real positive credit amendments. So the leading indicator of credit activity in the book, the credit outlook is really amendment activity. And that was at a kind of an all-time low. I think it was 0.1% in the quarter. So that should be a leading indicator of credit quality.
On credit, generally, what I would say is -- we've been talking about dispersion and tails. It feels like we've kind of worked through that. There's, I think, no credit names in our book below 90%. I think the only thing below 90% that's not on nonaccrual, the only thing below 90% is an equity name in our book or a small second lien at like $400,000 or something like that. So I think we're pretty constructive and positive on credit. And from my vantage point, the fundamentals are intact on the business. Like if you believe we're kind of through the tailings of the dispersion, the core NII x activity-based fees, at least from the spot interest rate curve is probably like $0.50 or $2 annualized. Then you have activity fees this quarter, you kind of 5 plus other stuff that got to $0.57 of NII. And so -- and it feels pretty good on the fundamentals of the business.
Appreciate that detail. One other question, I'm seeing it properly, the new investments in the quarter, about 24% of those were fixed rate. Is that section of the mix, sponsored, nonsponsored? What's driving that?
That was just the 1 and -- which was Arrowhead, which was a fixed rate fixed rate security. 50 out of the 180 million, I think.
[Operator Instructions] Our next question comes from the line of Robert Dodd with Raymond James.
A couple of questions. On the interest coverage, obviously, the 2.1 to 2.2, but as always for you and every other BDC that's a caveat for BD bought companies where it's relevant, i.e., how is underwritten on it straight traditional cash flow basis. So could you give us what percentage of the portfolio does that interest coverage metric actually apply to?
Yes. Rob, we might have to come back to you on that. But it's -- I think -- I think it's most of the portfolio, Robert. So I think, look, on the software names, where there's a lot of growth, to normalize growth. Like we've talked about this before, just -- which is on software, software is one of the only kind of on a GAAP basis is kind of one of the only industries where you don't capitalize your customer acquisition costs, you expense all of it. So the faster you grow, the worse the GAAP earnings. But on a steady-state basis, the earnings are at cash flows, if you were to capitalize your customer acquisition cost. And so that is the adjustment on some of the software names. But outside of that, I think it's -- all of them were based on that.
On the -- so going to the sponsored, nonsponsored mix. On the nonsponsored, I mean, are 35%. I mean even that it's not traditional nonsponsored, right? I mean it's not necessarily just a cash flow loan to -- to a company buyout with a sponsor behind them, things like Belk. So how much of the nonsponsored mix is to what would perhaps the nonsponsored and kind of the rest of the industry, i.e., it's cash flow loan, but there isn't a sponsor versus it's something else?
I think the -- well, this quarter, they were all something else, like deal and Arrowhead is more or less an ABL deal, too, because the value of that is on the collateral of IP and on spec pharma portfolio. And so I mean, what we -- it's all kind of off the run. For this quarter, there was no kind of traditional nonsponsored cash flow, it's all we're kind of, in my mind, asset-based, where there's a collateral we can that we can, a, get to and that we can underwrite.
The one thing I'd note is that ABL is underwritten to coat coverage regardless of whether it's cash flowing or not. So that's how we underwrite it. We think about collateral coverage and liquidation values for asset recoveries and oftentimes are not.
Because there's assets that can be turned into cash on a liquidation basis. One correction I need to make because the I said on the previous call on the fixed rate, I said 50 out of 180, it was actually 30 out of 180, which is Arrowhead was a $32 million funding versus $18 million $180 million total. So I said $50 million, I needed to correct that. Sorry about that. That was not your question, Robert. It was the question here -- that was bank.
Just kind of -- I mean, you talked -- the election results in now, there is a valuation gap still. What's the risk if rates stay high, like some of these noncore in the industry, obviously, for you with Lithium has been kind of surprised, like it's a business that been doing okay. Sponsor had been supportive during a high rate environment and then pulled the plug. And it's not just Lithium, there's multiple others in that situation. What's the risk of more surprises that are hard to identify in advance obviously, if rates stay higher for a longer?
Yes. Look, I think when you look at -- it's a great question. So Lithium -- and you're right about that. The sponsor has been supportive, actually put in, I don't know, $50 million to $70 million a year ago or a month before. But I think Lithium was -- had really tough fundamentals at kind of negative revenue growth and earnings pressure. And that was -- I think we've talked about this on previous calls, if we got one thing wrong, it was in COVID, we thought about names that were negatively impacted as an opportunity set, but there were also means that the fundamentals got improved and Lithium was one of them because it kind of sat in between social media, et cetera. And so -- but Lithium was fundamentally challenged or is fundamentally challenged.
When you look at our book, I think we just went through this, the names that are fundamentally challenged, i.e., have like negative revenue growth or, I think, basically have 100% overlap with the name that are nonaccrual. So it doesn't feel like there are more fundamentally challenged names. Now some are growing slower, some are growing faster. But like I think it feels like we're kind of through that.
Our next question comes from the line of Bryce Rowe with B. Riley.
Appreciate you taking the question here. I wanted to ask, I mean, you've made some comments here about portfolio velocity and what we might see post election. And obviously, there are some puts and takes. But Josh, how do you square that up with maybe your outlook from a net portfolio growth perspective? And I'm trying to think about the prospects for repayments relative to originations was spread where they are today.
Yes. It's -- look, I think there are some really good -- so I would say a couple of things. One is we invested a lot in the book. And like we were one of the few people in the industry that had capital, was able to invest capital post '22 rate hike cycle. And so 61% of that portfolio is invested past 3/31. My guess is some of that will turn just by the nature of those were good investments and the markets got better, et cetera. And we'll have the option to keep them because incumbency usually provides you that option, but we'll decide what to do.
It's hard to gauge. And then there's some idiosyncratic things in the book that I think are -- will come off because they performed very well. They're being sold. But it's really hard to gauge kind of the net portfolio or churn. It feels like we're at the bottom of our activity level fees. You saw a pickup of 20% activity level fees quarter-over-quarter from $0.04 to $0.05 per share. Do I know that for sure? No. But it feels like on the margin, that's true because rates are coming -- the curve is coming down. And as things get longer in the tooth, people have to start moving assets and so on stuff and the velocity of money has to increase.
But it's hard to tell for sure. So if -- do I have exact numbers? No. Every day, we get up trying to think about put good assets on, risk manage, get our underwriting right. I think we've done that through the lack of credit losses in the business. We probably set the bar slightly too high for ourselves on that front. And everything else will take care of itself. I think the one other thing that we hit on that theme is like you've got a price -- we price new loans not to perfection, but they include credit losses. And so we will continue to do that. But that's how we kind of think about the world. We don't -- it's hard to tell -- gauge velocity because that's often by the macro, which we don't control.
Yes. Okay. One more for me. As we think about kind of the forward curve and you noted the terminal rate might end up being a bit higher. That's certainly a good thing, I think, from a dividend coverage perspective, at least for you all, if credit kind of continues to hold. You've had the base dividend set here at $0.46 for 7 quarters, give or take. What gets you to the point where you can increase the base dividend again?
Yes. Look, I think the way we think about the world is where do we -- by the way, we're aligned in that we want to get capital back to shareholders. We think that's valuable for a lot of different reasons, the least obvious is that they have the option to reinvest that back in the business at a discount to the reinvestment plan. So that option is super valuable to people.
But we want to get capital back. We want to make sure we continue to reduce the excise tax. But we want to set the base dividend, we think about the base dividend as a liability, which is post credit losses, post on the curve, low activity fees, where do we feel comfortable that will always be covered. And I think our view is that $0.46, and we have a really good mechanism to get capital back to shareholders through the supplemental, which is quarterly, which was $0.05 this quarter, which was half of the overearning. And through specials, which we use really to reduce the excise tax, which is a real economic drag on the business.
Thank you. And I'm currently showing no further questions at this time. I'd like to hand the call back over to Joshua Easterly for closing remarks.
Great. Well, first of all, thank you for everybody's participation. We really appreciate it. We hope everybody has a great Thanksgiving, a great holiday season with their family. If we don't talk to you, we'll talk to you after our Q4 earnings.
This concludes today's conference call. Thank you for your participation. You may now disconnect.