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Date
Thursday, August 14, 2025 at 12 p.m. ET
Call participants
Chief Executive Officer — Jason Breaux
President and Chief Financial Officer — Gerhard Lombard
Chief Investment Officer — Henry Chung
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Takeaways
Net Investment Income— $0.46 per share, or $0.48 per share excluding a $0.02 one-time accelerated amortization of deferred financing costs, for Q2 2025, compared to $0.45 in the prior quarter.
Dividend Coverage— Net investment income covered the regular dividend by 110% in Q2 2025.
Net Asset Value (NAV)— Ended Q2 2025 at $19.55 per share, down $0.07 from $19.62 sequentially, primarily due to the $0.05 per share special dividend.
Investment Portfolio— Total fair value of $1.6 billion across 187 companies as of Q2 2025. Average position size was approximately 0.6% of the portfolio in Q2 2025.
Portfolio Composition— 91% of the portfolio was in first lien loans by fair value as of Q2 2025. The top 10 borrowers constituted 18% of the portfolio as of Q2 2025.
Sponsor-Backed Exposure— 99% of the debt portfolio was in sponsor-backed companies as of Q2 2025.
Weighted Average Loan-to-Value— Approximately 39% at time of underwriting for the portfolio.
Gross Deployment— $58 million in Q2 2025, with 99% in first lien investments. Includes $22 million in three new platform investments and $36 million of add-ons in Q2 2025 (totals do not sum due to rounding or additional activity).
Portfolio Company Performance— Portfolio companies experienced year-over-year weighted average revenue and EBITDA growth.
Interest Coverage— Weighted average interest coverage for portfolio companies improved to 2.1x in Q2 2025.
Portfolio Risk Ratings— Weighted average risk rating held at 2.1, with 86% of the portfolio (at fair value) rated 1 or 2 (performing at or above underwriting expectations) as of Q2 2025. Additionally, 14% of total investments at fair value were classified as “watch list” (rated 3, 4, or 5) as of Q2 2025.
Nonaccruals— 2.4% of the portfolio at fair value was on nonaccrual status as of Q2 2025.
Debt-to-Equity Ratio— Decreased to 1.23x from 1.25x, within the stated target range of 1.1x to 1.3x in Q2 2025.
Borrowing Cost— Weighted average interest rate on total borrowing was 6.09% as of quarter end, compared to 6.36% as of March 31. Additionally, 74% of committed debt matures in 2028 or later as of June 30, 2025.
Special Dividends— Paid the second of three previously announced $0.05 per share special dividends in Q2 2025. The final $0.05 per share special dividend related to undistributed taxable income will be paid on September 15, 2025, to holders of record as of August 29, 2025.
Regular Dividend— Declared a $0.42 per share regular dividend for Q3 2025, marking 38 consecutive quarters of coverage.
Stock Repurchase Program— The board authorized a $20 million repurchase program as announced during the Q2 2025 earnings call, and management described share buybacks as “an attractive use of excess capital.”
SPV Asset Facility— Rightsized from $500 million to $400 million, and the spread was reduced by 50 basis points to 195 basis points in April 2025; expected to lower future interest expense.
Supplemental Dividend Policy— No Q3 2025 supplemental dividend, as the payout measurement test cap exceeded 50% of this quarter’s excess available earnings.
Portfolio Sector and Structure— Portfolio primarily comprises service-oriented domestic businesses, with less than 2% in unitranche last-out investments and small, declining exposure to second lien loans.
Summary
Crescent Capital BDC(CCAP 2.37%) reported stable net investment income and maintained consistent dividend coverage while net asset value per share decreased in Q2 2025, largely due to a special dividend payout. Portfolio credit quality remained steady, with 86% of assets rated at or above expectations as of Q2 2025 and nonaccruals were 2.4% of fair value as of Q2 2025. Portfolio risk ratings and industry composition remained stable, and management emphasized preemptive watch listing based on forward-looking fundamentals.
Gerhard Lombard said, “Net income per share was $0.41 in Q2 2025, compared to $0.11 in Q1 2025,” attributing the increase to reduced realized and unrealized losses.
Jason Breaux explained that the average public BDC saw a 10.5% NAV per share decline from 2019 through Q1 2025, while CCAP’s NAV per share rose 0.6% over the same period, based on reported figures, and 0.3% through Q2 2025, resulting in a total economic return of 49%.
Management highlighted that only a “low single digits” percentage of the portfolio faced direct tariff impact and confirmed during the Q2 2025 earnings call that this assessment remained unchanged as of Q2 2025, and that observed impacts have not expanded or contracted since the prior review.
Leadership “have also really sought to maintain a diversified book,” with industry and position-size preferences unchanged and portfolio rotation targeting legacy acquired assets.
The reduction of the SPV asset facility is expected to reduce future borrowing costs, and leverage remains within the stated management target range.
Chung described interest coverage for borrowers as having improved to 2.1 times in Q2 2025 and stated, “fuel input costs are really not a large component” of most portfolio companies’ COGS, reaffirming the portfolio’s emphasis on human capital-driven cost structures.
Unitranche and second lien exposures continue to represent minor components, in line with the firm’s core first lien orientation.
Industry glossary
First Lien Loan: A senior-secured loan holding the highest priority claim on collateral in the event of default.
Unitranche Last-Out: The most junior position in a unitranche loan facility, typically bearing higher risk and yield, but with potential control features in distressed scenarios.
Nonaccrual: Loan status where contractual interest is no longer being recognized as income due to significant payment delinquency or doubt about collectibility.
SPV Asset Facility: A special purpose vehicle credit facility used by BDCs to finance portfolio investments, often offering structural flexibility and regulatory leverage efficiency.
Full Conference Call Transcript
Jason Breaux: Thank you, Dan. Hello, everyone. Thank you all for joining us. I will start today’s call by summarizing our second quarter results, follow that with some thoughts on the market, and touch on our portfolio. In terms of second quarter earnings, we reported net investment income of $0.46 per share, compared to $0.45 per share in the first quarter. Excluding $0.02 per share of one-time accelerated amortization related to deferred financing costs, NII was $0.48 per share. Importantly, earnings remain in excess of our dividend with 110% base dividend coverage for the quarter.
NAV per share was down approximately 0.4% for the quarter, driven primarily by the second of three previously announced $0.05 per share special dividends related to spillover income that was paid during the quarter. Now let’s discuss what we are seeing in our markets and our positioning. Fuel activity remained relatively constrained in Q2, given ongoing tariff discussions and regulatory uncertainty. This policy-driven volatility has augmented an already robust pipeline of potential PE exits. Hold times for many private equity-owned assets continue to extend, furthering the pressure from LPs to both deploy dry powder and return capital.
During periods of heightened volatility that typically include reductions in overall M&A volume, our deployment benefits from a large and diversified existing portfolio across the Crescent private credit platform. Across the platform, add-ons to existing portfolio companies accounted for approximately half of total investments by count during the second quarter. Additionally, incumbency is an important aspect of our origination efforts, whereby Crescent has demonstrated the ability to remain as lead lender in strong-performing credits even after a change of sponsor ownership, without committing to portable capital structures. From an underwriting perspective, we benefit directly from seeing how these companies fared through the pandemic, wage inflation, and supply chain disruptions over our hold period.
From an execution perspective, this knowledge and familiarity with management teams allow us to move quickly and with conviction, and that is something that the sponsors with whom we partner value greatly. New opportunities in our private credit platform have maintained lead roles in the majority of our transactions, and we continue to drive stringent documentation. Given our focus on the core and lower middle market, we believe we are able to drive better structural protections than deals in the more competitive upper middle market segment or BSL replacement segment. Now let’s shift gears and discuss the investment portfolio. Please turn to Slide 13 and 14.
We ended the quarter with just over $1.6 billion of investments at fair value, across a highly diversified portfolio of 187 companies, with an average investment size of approximately 0.6% of the total portfolio. Our top 10 largest borrowers represented 18% of the portfolio. As we are believers in modulating credit risk through position size, we have consistently maintained an investment portfolio that consists primarily of first lien loans since inception, collectively representing 91% of the portfolio at fair value at quarter end. Additionally, we take comfort in the fact that our portfolio is focused on domestic, service-oriented businesses that, in our view, carry lower direct policy risk from tariffs and other recently proposed and implemented government policies.
Finally, our investments are almost entirely supported by well-capitalized private equity sponsors, with 99% of our debt portfolio in sponsor-backed companies as of quarter end. We have partnered with our sponsors to invest in well-capitalized borrowers, with significant equity capital beneath us. We know that the weighted average loan to value in the portfolio at the time of underwriting is approximately 39%. Moving on to our dividend, we declared a third quarter 2025 regular dividend of $0.42 per share. This dividend is payable on October 15, 2025, to stockholders of record as of September 30.
Additionally, the third and final previously announced $0.05 per share special dividends related to undistributed taxable income will be paid on September 15 to stockholders of record as of August 29. This marks our 38th consecutive quarter of earning our regular dividend at CCAP, which we have accomplished while maintaining NAV per share within a tight band. Our positioning has and always will be for the long term. Overall, we are pleased with the strength of our portfolio and stable results this quarter. We believe they are representative of CCAP’s longer-term track record of delivering a stable NAV profile and an attractive total economic return.
To frame the point a bit further, let’s look at performance since CCAP’s public listing in February 2020, a period that captures the totality of the COVID pandemic, the rise in interest rates beginning in mid-2022, and at least part of the recent tariff volatility. Based on publicly available data, the average public BDC saw its net asset value per share decline by 10.5% from 2019 to the first quarter of this year. CCAP’s NAV per share increased by 0.6% over the same timeframe and 0.3% through Q2. Over this period, we generated a total economic return calculated as change in net asset value plus dividends, of 49%, well in excess of the public BDC average.
I highlight this longer-term track record as it often feels as if we operate in 90-day earnings vacuums. Sentiment can swing wildly, sometimes warranted, sometimes not. If you do not believe CCAP’s current discount to NAV is warranted, which is why our board has approved a $20 million stock repurchase program. We believe that opportunistically repurchasing shares at certain levels is an attractive use of excess capital. As we seek to maintain a disciplined capital allocation approach at CCAP, we will balance our repurchase program with other factors such as our existing investment pipeline and leverage levels. With that, I will now turn the call over to Henry.
Henry Chung: Thanks, Jason. Please turn to Slide 15, where we highlight our recent activity. Gross deployment in the second quarter totaled $58 million, as you can see on the hand side of the page, of which 99% was in first lien investments. During the quarter, we closed three new platform investments totaling $22 million. Even as spreads have tightened, our focus remains on high-quality companies with strong credit profiles. These new investments were loans to private equity-backed companies with a weighted average spread of approximately 480 basis points. Each of these new investments are first lien loans consistent with our strategy of investing at the top of the capital structure to provide greater downside protection.
The remaining $36 million came from incremental investments in our existing portfolio company dollars. $58 million in gross deployment compares to approximately 90. Customer portfolio continues to perform well, with year-over-year weighted average revenue and EBITDA growth. The weighted average interest coverage of the companies in our investment portfolio at quarter end improved to 2.1 times. As a reminder, this calculation is based on the latest annualized base rate each quarter. Please flip to slide 17, which shows the trends in internal performance ratings. Overall, we have seen stability in the fundamental performance of a portfolio, resulting in consistency in our risk rating a weighted average portfolio risk rating of 2.1.
The right-hand side of the slide, you’ll see that one and two rated investments representing names that are performing at or above our underwriting expectations. Continue to represent the lion’s share or 86% of our portfolio at fair value. It is worth noting that as of quarter end, as a percentage of total investments at fair value, CCAP’s watch list which we define as three, four, five rated investments, 14%. Whereas our nonaccruals at fair value were 2.4%. A nearly 12% gap. This is in contrast to analysis with public peers, where this gap was approximately percent, We believe this reflects our philosophy and our culture of being forward-looking and terms of maintaining our watch list.
We do not, for example, wait until there is a default for moving something down the risk rating scale. Strive to be transparent about the health core portfolio with the market and one of the ways we do so is by taking a pre-ethical approach towards how we classify watch list investments. With that, I will now turn it over to Gerhard.
Gerhard Lombard: Thanks, Henry, and hello, everyone. Yesterday evening, we reported net investment income of $0.46 per share, $0.48 excluding the one-time accelerated amortization that Jason noted, compared to $0.45 per share in the prior quarter. The increase in net investment income was driven by an increase in the distribution from the Logan joint venture and a stable quarter-over-quarter portfolio yield of 10.4%. Net income per share of $0.41 in the second quarter compared to $0.11 in the prior quarter driven by a reduction in changes in net realized and unrealized losses on a quarter-over-quarter basis. Turning to the balance sheet. As of June 30, 2025, our investment portfolio at fair value totaled $1.6 billion.
Total net assets were $725 million as of June 30, 2025. Net per share was $19.55, a decrease of $0.07 per share from $19.62 at the end of the first quarter. Jason noted, this quarter’s change in NAV is largely attributable to the $0.05 special dividend paid in June as NII outpaced a regular dividend offset by modest net unrealized and realized losses. Per share. Let’s shift our capitalization and liquidity. I am on slide 19. At the April, we rightsized our SPV asset facility from $500 million to $400 million and reduced the spread by 50 basis points from 245 to 195.
This facility resizing provides us with sufficient capital to address any potential draws on our unfunded commitments while minimizing interest expense related to excess unfunded capacity. Following the one-time impact of the acceleration of the deferred financing cost, we expect to see the full benefit of the repricing in our future quarterly operating results. Our capital structure reflects our target size and leverage with our current equity base today. We have ensured that our borrowing capacity is consistent with our investment mandate. The quarter’s activity brought our debt to equity ratio down modestly from 1.25 times in the prior quarter to 1.23 times which is within our stated target leverage range of 1.1 times to 1.3 times.
As you can see on the right side of the slide, approximately 74% of total committed debt now matures in 2028 or later. The weighted average stated interest rates on a total borrowing of 6.09% as of quarter end compared to 6.36% as of March 31. As Jason noted, for 2025, our board has declared our regular dividend of $0.42 per share. Additionally, the third and final previously announced $0.05 per share special tax dividend is payable in September. Our existing variable supplemental dividend framework remains in effect as well. CCAP will not pay a Q3 supplemental dividend as the measurement test cap exceeded 50% of this quarter’s excess available earnings.
And with that, I would like to turn it back to Jason for closing remarks.
Jason Breaux: Thanks, Gerhard. So to sum up, CCAP posted stable results in a quarter that from a macro perspective was anything but stable. Historically, in periods of market volatility, Crescent’s focus on disciplined credit underwriting, capital preservation, strong free cash flow generation, and robust debt service coverage has enabled us to stay on the right side of performance and returns across managers. Earlier, I highlighted CCAP’s performance since listing in 2020. We believe Crescent and CCAP will continue to be on the right side of this performance dispersion spectrum over the long term, and we look forward to delivering on that in the quarters to come. As always, we thank you for joining our call today.
We look forward to connecting with many of you soon. And with that, operator, we can open the line for questions.
Operator: At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad. Your first question comes from the line of Robert Dodd with Raymond James. Your line is open.
Robert Dodd: Hi, guys, and congratulations on essentially the NAV stability this quarter, but I just want to focus on credit quality a little bit again. As Henry said, right, so the watch list is at 14%, but I believe it was, like, 12 or 13 last quarter. So it does seem like it’s ticked up just a tiny bit. And also on the internally rated fours and fives, which are the lowest categories, that ticked up this quarter as well. So in that, with the fours and fives, 3% of the portfolio.
With respect to the watch list, more generally, what I would say is that our view, and we alluded to this in prepared remarks, is that we want to be preemptive with how we designate investments on the watch list. So we have always relied on the fundamental operating performance and the near-term outlook to guide us to whether or not we are placing an investment on the watch list. And it’s not going to be purely driven by if there’s a credit event pending. So from that perspective, we just want to make sure that we are both being forward-looking and also being transparent around what the nearest turnout looks like for our portfolio companies.
With respect to the fours and fives, what I would say there is that those are all investments that are certainly most challenged with respect to potential near-term outlook in terms of recovery. However, what I will also say there is that what we have our expect what we do want to make sure that we factor in, and this is both in terms of the rating as well in terms of the mark, is first, where we think the recovery is going to look like on a near-term basis just given that existing outlook of the company today?
And secondly, even if there is a longer path to recovery, we want to make sure that not being too shortsighted around near-term challenges that companies are facing. So what I would say is if you are in that category, it’s certainly kind of the largest variance in terms of potential outcomes with respect to ultimate recovery here, but what I will say is that when I look back at our track record, at our loss rate, and our ability to create recovery even in situations that are kind of, you know, higher risk, I would say that we certainly have the capabilities and the track records to back that.
And what I would also say there is that it’s really kind of more of an earlier forward look as opposed to demonstrating a leg down and, like, further portfolio weakness.
Robert Dodd: Got it. Got it.
Jason Breaux: Let me sorry, Robert. It’s Jason. I just want to add two points. On the first point on the watch list, I think it’s also important to point out that as a lower and core middle market investor, three out of four companies in the portfolio have financial covenants. And so, that might be high relative to some of our peers who focus on the upper end of the market. And the nice thing about having covenants is it really enables frequency of dialogue and interaction with the management teams and sponsorship.
And so I think from an insight standpoint, and a dialogue standpoint, we may be in closer contact with folks given the covenants that we have in place, which might give us more real-time visibility and outlook. The other point that I just wanted to make is that while our nonaccrual rate, I think, is let’s say, generally in line with the broader industry, it is certainly not something we are pleased with. It’s not representative of how we think of our portfolio or our underwriting process. Or, frankly, consistent with our historical metrics, and that’s something that we are looking forward to seeing some progress on in terms of bringing that down.
Robert Dodd: I appreciate all that color. Kinda sorta related. As you said, right, the cover with all the tabs, etcetera, and those the outlook on tariffs, seems to change day by day. Have you seen anything and to your point, you’ve been in contact with a lot of these portfolio companies more frequently than the upper market might be. Have you seen any change in thoughts from portfolio companies about how manageable the tariff exposure is? Obviously, you know, it keeps changing, so they might have to keep changing plans. But any thoughts on how the portfolio companies think they’ll be able to manage this volatile period?
Jason Breaux: Yeah. I’d say I’d start off by commenting on, you know, when we were sharing with the market, our initial review of the direct impact on our portfolio to tariffs, it was a relative minority in our book. It was kind of low single digits where we viewed our as having direct impact. And this was the kind of the highest level of kind of tariffs post-liberation day that we were doing our assessment around. But what we’ve seen since is, you know, we’ve done a refresh of that and reviewed and really first to check how close we were in terms of the impact and our assessment around potential tariff impact.
And secondly, to determine how the companies, to your question, how the companies are able to respond. I’d say on the first conclusion from that refreshment analysis, I’d say our analysis still holds. We haven’t seen that direct tariff impact population expand in any meaningful way, and nor contract, you know, the companies that we thought were going to be impacted directly by tariffs are certainly ones that are still navigating that environment. On the latter point, there’s a I’d say there’s a few ways that we’ve seen companies address the upcoming changes in tariffs.
The first is, you know, we’ve always looked to invest in companies that have high pricing power, and the ability to demonstrate the ability to pass through prices. You know, we had a good lens into that in the 2023, 2024 time frame when we saw a pretty marked increase in wage inflation. And given that we invest primarily in services, does businesses, that’s going to typically be the largest component of the cost structure for the vast majority of our borrowers. And being able to see that dynamic play out on the price side with respect to input costs as well in the context of tariffs.
That’s certainly the primary lever that we’ve seen management teams employ in this current environment. On the second side, which is for those that are sourcing directly from, I’d say, of higher up the list, tariff impacted, geographies. What we’ve seen management teams do is take a proactive approach to looking at alternative sourcing mechanisms. And there’s a lot of work that companies that we invest in that do have some sort of supply chain procurement abroad coming into the US. We saw that’s that’s that’s an approach and diligence that was done after the first wave of tariffs during the first Trump residency, and we’re seeing that kind of repositioning happen real-time now as well.
I think, in terms of seeing it play out of the numbers, it’s probably going to be back half of this year when we really start to see the benefits of those actions as well as the impact of the tariff actually show up in the borrower financials. But, I’d say, you know, kind of summarize here. First, the direct tariff impact in our portfolio is just a small percentage to begin with. And secondly, given the dialogue, the access that we have to management, we’ve been able to see them kind of address this upfront both on the price side as well as on the supply chain side.
Robert Dodd: Got it. Thank you for that color. One more question if I can, unrelated to all those issues. So you are not putting it right basically right back in the middle of your target leverage range. So I think you said that you do not expect a lot of net portfolio growth going forward. But would you like you know, if market activity does pick up and, obviously, the platform as a whole, is still, you know, very active, which obviously, in principle, if you get some new payments at the BDC, you know, it gives you relatively quick opportunities to redeploy the capital.
But is there anything you’d like to modify in the mix, you know, within that, you know, while maintaining kind of, you know, midpoint of the leverage range maybe. Would you like to rotate out of any sectors and into different ones? Or shrink average position sizes or things like that, all of which can go on while the portfolio net growing. So any thoughts on any repositioning relatively speaking, that you’d like to do while you’re at kind of target leverage?
Henry Chung: Yeah. I mean, it’s a great question. Go ahead, Henry. I’ll follow-up. Yeah. That’s a great question. I’d say, on a couple of points, the first is, in terms of rotation from an industry perspective, I’d say we feel good about where we are in terms of our industry focus. You know, we’re very focused on investing in high free cash flow generating, nontypical industry with defensible revenue streams. And, you know, we’ve started that positioning from the very beginning of CCAP and to maintain that. So I wouldn’t say that they’re specifically any industry concentrations that we’re looking to reduce in the near term or on the other side of that augment as well.
You know, our focus is always going to be on those industries. I’d say the same for the average position size as well. We have 187 obligors in our portfolio. The average position size is 60 basis points. So we really from the beginning, have also really sought to maintain a diversified book. And given we have the added luxury, if you’ll call it that, of being attached to a platform that, you know, even though the CCAP on a net basis during the quarter, the portfolio shrink, you know, we’ve seen $1.3 billion of new deployment come through the platform in the quarter alone.
So we’re able to pick our spots in terms of what is accretive to us, just from a pure yield perspective as well as we want to be in terms of industry, without having to sacrifice diversification at all. I’d say on that piece, we’re in a good position. You know, we are focused on rotating is, and we’ve mentioned this in prior commentary is the acquired assets. We are a little over halfway through the rotation of the acquired First Eagle assets, and we’re almost entirely through the rotation of the Alcentra assets.
But that’s really, I’d say, where the heaviest focus is in terms of our rotation efforts, because we have the ability to reallocate and re those investments into Crescent directly originated opportunities. It’s just a matter of rotating the acquired assets at levels that we find attractive.
Robert Dodd: Got it. Thank you.
Operator: Before going to the next question, again, if you would like to ask a question, please press 1 on your telephone keypad. Your next question comes from the line of Mickey Schleien with Clear Street. Your line is open.
Mickey Schleien: Yes. Hello, everyone. Jason, just one question from me today. I think investors and analysts really appreciate your transparency about the breakdown of your portfolio by the type of security. And I see that less than 2% is in unitranche last out investments. As you know, that structure can help boost portfolio yield without giving up much control over an investment. So how are you evaluating the opportunity to increase that to help offset potential declines and so forth?
Jason Breaux: Hey, Mickey. Thank you for the question. It’s Jason. That segment of the portfolio has always been relatively small for us. And I’d call out a couple of things. First off, I think we’ve always been in the unitranche segment of the market. In fact, Crescent’s heritage is really also as a junior debt lender. So we’ve historically been quite comfortable lending deeper into a capital stack of middle market companies. The last out opportunity is not so voluminous, I would say, these days. You know, as direct lending managers have more capital to put to work. That’s certainly the case for Crescent too. I would say we are opportunistic in those pursuits.
Generally, only getting comfortable if it’s a very small amount of first out leverage ahead of us where we feel quite comfortable that we could take control of that first out if needed. But it’s often driven by the portfolio company having a banking relationship and wanting to bring a relationship into a first out piece of a capital structure. But otherwise, I would just say it’s not all that frequent of an opportunity for us today.
Mickey Schleien: I understand. Thank you for taking my question.
Operator: Your next question comes from the line of Nolan with Ladenburg Thalmann. Your line is open.
Nolan: Hi. Just following up on Robert’s question from a different angle. Are you given the decline in energy prices, and your company’s do you see your companies having increased operating leverage where if energy inputs go down, your profit margins go up and so forth?
Henry Chung: Yeah. Thanks for the question, Chris. This is Henry. I’d say that fuel input costs are really not a large component of the cost of goods sold for the vast majority of our borrowers. You know, it’s something that we really seek to avoid in underwriting where there’s a lot of exposure to potential material cost inputs, both as a reduction in margins as well as a way to potentially augment margins. So I wouldn’t say that would be necessarily a material driver of operating leverage within our portfolio as a whole.
Generally, I would say what you’ll see given our service orientation, our portfolio is that the largest component of cost of goods sold, and the vast majority of our portfolio companies’ cost structures is going to be human capital as opposed to pure kind of fuel input cost. However, I would certainly expect to see some benefit. I just don’t expect it to be a material driver of portfolio performance, if that makes sense.
Nolan: Yep. And then the follow-up question, I see that the balance of second lien loans has gone down year to date. I know it’s a small part of the portfolio, but is this something which you sort of opt hop into more cyclically when the economy starts going up and the price on second liens are attractive? Then we should start seeing those increase perspective to have conviction around coming in behind five, six, sometimes seven turns of first lien leverage. Without getting appropriate risk premia. If that changes, then it’s certainly something that we’ll look at, but we’ll always be selectively deploying to second lien.
I don’t I would never expect it to be a large component of the portfolio given our focus here is to continue to our portfolio towards first lien.
Nolan: Okay. Thank you.
Operator: I will turn the call back over to Jason Breaux for closing remarks.
Jason Breaux: Thank you very much, Kate. Thank you all for your time and attention here today. We appreciate having this conversation with you and look forward to speaking with you again soon.
Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.
