Q4 2023 Barings BDC Inc Earnings Call

Participants

Joe Mazzoli; Head of IR; Barings BDC, Inc.

Eric Lloyd; CEO; Barings BDC, Inc.

Ian Fowler; President; Barings BDC, Inc.

Elizabeth Murray; CFO & COO; Barings BDC, Inc.

Matthew Freund; Co-Portfolio Manager; Barings BDC, Inc.

Bryan High; Co-Portfolio Manager; Barings BDC, Inc.

Finian O'Shea; Analyst; Wells Fargo Securities, LLC

Kyle Joseph; Analyst; Jefferies LLC

Robert Dodd; Analyst; Raymond James & Associates, Inc.

Casey Alexander; Analyst; Compass Point Research & Trading, LLC

Presentation

Operator

At this time, I would like to welcome everyone to the Barings BDC, Inc. Conference Call for the Quarter Ended and year ended December 31st, 2023. All participants are in a listen only mode. A question and answer session will follow the Company's formal remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Today's call is being recorded and a replay will be available approximately two hours after the conclusion of the call on the company's website at w. w. w. from Barings BDC.com under the Investor Relations section at this time, I will turn the call over to Joe Mazzoli, Head of Investor Relations for Barings BDC.

Joe Mazzoli

Please note that this call may contain forward looking statements that include statements regarding the company's goals, beliefs, strategies, future operating results and cash flows. Although the Company believes these statements are reasonable, actual results could differ materially from these projected in forward-looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled Risk Factors and Forward-Looking Statements in the Company's annual report on Form 10 K for the fiscal year ended December 31st, 2023, as filed with the Securities and Exchange Commission. Barings BDC undertakes no obligation to update or revise any forward looking statements unless required by law.
And I'll now turn the call over to Eric Lloyd, Chief Executive Officer of Barings BDC.

Eric Lloyd

Thanks, Joe, and good morning, everyone. We appreciate you joining us for today's call. Please note that throughout today's call, we'll be referring to our fourth quarter 2023 earnings presentation that was posted on the Investor Relations section of our website.
On the call today, I'm joined by Barings Co-Head of Global Private Finance and President of Barings BDC, Ian Fowler; the BDC's Chief Financial Officer, Elizabeth Murray and BDCs co portfolio managers, Bryan High. And Matthew Freund. We will dive into some quarterly results momentarily. But first, I'd like to comment on some of the successes we experienced during the entirety of 2023. Investing in illiquid assets is often poorly suited for short-term investors. Measuring performance in a single quarter really gives investors the appropriate lens to measure managers' performance net investment income. Total dividends paid to shareholders and NAB for BBDC. all increased during 2023. While these items are important, we are equally focused on those on some developments not immediately captured in these metrics.
During 2023, we continued executing on our commitment to rotate out of non-core assets, including three legacy MVC Capital positions and more than $25 million of investments to legacy Sierra Income positions. We again demonstrated our best-in-class alignment with shareholders repurchasing more than 1.8 million shares for nearly $15 million the number of issuers on nonaccrual declined from seven at December 2022 to 4 as of December 2023. We manage our portfolio based on operational metrics to drive stability of returns, and we expect that in the coming quarters, the commitment to our core strategies will continue to deliver for shareholders successful financial results, such as those measured by NAB and distributions over time are the outputs not inputs to a successful asset manager. BBDC. exhibited stability and strong operating results.
During the quarter ended December 31st, our focus on the top of the capital structure investments in sponsor-backed issuers serving investors well in these uncertain times, our portfolio is predominantly sponsor-backed, complemented by selection of nonsponsored and platform investments. Our portfolio strategy outlined in greater detail on slide 5. This strategy serves as our guiding light as we continued to successfully adapt throughout the market and deliver compelling returns to our shareholders.
Net asset value per share was $11.28 compared to the prior quarter of $11.25 and $11.5 at December 2022. reflecting a year-over-year increase of 2.1%. Net investment income for the quarter was $0.31, unchanged from prior quarter. Our performance is the result of our focus on the top of the capital structure and within more defensive industries. We believe BBDC. remains well positioned for any further volatility and uncertainty in the market going forward.
Investment activity during the quarter reflected a modest degree of net repayments driven by Light transaction activity during the quarter and balancing the use of our share repurchase program and other opportunities as our shareholders know, we are actively working to maximize the value in the legacy holdings acquired from MVC Capital and Sierra Income and rotate them into compelling Barings originated positions non Barings originated assets now only amount to 11% of the portfolio at fair value. That's down from 24% at the beginning of 2022 and potential losses from these assets are protected by the credit support agreements limiting downside risk for BBDC. investors.
Our investment portfolio continued to perform well in the third quarter, including the acquired here in MVC assets, our total non-accruals are 2.5% of the portfolio on a cost basis and 1.5% on a fair value basis with three assets being removed from non-accrual during the quarter with the exception of two investments, all of our nonaccrual assets were from acquired portfolios and therefore are covered by our credit support agreements. Subsequent to year end, we removed our investment in core scientific game from nonaccrual status in connection with its January 2024 exit from Chapter 11 bankruptcy and our receipt of shares of its common stock in exchange for the debt investments that we previously held and part of the bankruptcy proceedings on a pro forma basis, removing core scientifics that takes nonaccrual down to 0.6% on a fair value basis and 1.3% on a cost basis.
Turning to the earnings power of the portfolio, the increase in base rates has largely been reflected within the portfolio with weighted average yields on floating rate investments stabilizing at 11.2%, substantially comparable to the prior quarter's figures. We remain conservative on our base dividend policy and our Board declared a fourth quarter dividend of $0.26 per share, consistent with the prior quarter. On an annualized basis, the dividend level level equates to a 9.2% yield on our net asset value of $11.28. Now I'll turn the call over to Ian.

Ian Fowler

Thanks, Eric, and good morning. Recall, that the BDC is managed by Barings LLC, a credit-focused asset manager with more than $300 billion of assets under management. The bulk of the portfolio is sourced from the global private finance team and organization with more than 100 investment professionals located around the globe, providing financing solutions to preeminent middle market companies sponsored by private equity firms, BBDC.'s portfolio decreased by $51 million on a net basis in the quarter with gross fundings of $192 million, offset by $244 million of repayments and sales, which included approximately $50 million of sales to Arjo. Cassie joint venture activity during the fourth quarter continued to be tempered as private equity buyers take a pause in the rising rate environment, which we believe has a meaningful impact on enterprise valuations. Based on recent conversations, investment bankers who serve as the tip of the spear, I've reiterated their expectation that LBO activity is expected to meaningfully increase in the quarters to come. With that said, the messaging has been consistent for the past 12 months as more and more opportunities are being added to the backlog, but the DAM has not yet broken consistent with the prior two quarters, we have seen an increase in the number of early-stage opportunities within the platform. But unfortunately, conversion rates to close deals are trending towards historic lows. Sponsors continue to execute on add-ons for companies already within their portfolios, which makes sense as add-on multiples are below original platform purchase price in effect, enabling sponsors to reduce their cost bases and hedge against any compression in exit multiples. Investors in Barings BDC benefit by having a seasoned portfolio that provides opportunities to deploy capital into assures. We already know well, refinancing activity has started to increase as per for performing issuers have plentiful access to capital without the need to sell. There is a logical reason to believe transaction volumes improve in the months to come, namely a record backlog of sell-side mandates among the investment banking community and a need for private equity managers show distributions to their LPs. Counter to those facts is a high level of uncertainty created by two arm conflicts, persistently high inflation, rapid increase in interest rates in the forthcoming political cycle and opportunities ultimately do convert into an increase in closed transactions. We will continue to use our disciplined underwriting strategy to invest capital in the most compelling opportunities.
Turning to our current portfolio, 74% consists of secured investments with approximately 67% of investments constituting first-lien securities. Interest coverage within the portfolio stood at 2.2 times, modest decline from 2.3 times a quarter earlier. We are forecasting that steady-state weighted average interest coverage for the portfolio portfolio will ultimately fall between 2 and [2 1/4] times as the full impact of higher rates is reflected in issuers, financials and performance, our avoidance of various industries prone to economic volatility, oil and gas restaurants, retail metals among them has proven to be a sound strategy against a backdrop of less economic predictability. One of the benefits to a predominantly sponsor-backed strategy has proven out over the past several quarters, combined with what we believe were reasonable going in leverage multiples, the median gross margin in the North American global private finance portfolio, a portfolio similar to BBDBBDC. stood at 49%, up from 45% one year earlier and gives us confidence that our issuers are successfully pushing through price increases to combat inflationary pressures in their businesses. Adjusted EBITDA margins for the same sample set were 22%, up from 21% in prior year's period, believed to be a reflection of the fact that weight gains have consumed some degree of gross margin expansion previously noted, while not perfectly comparable metric period to period as the volume of transaction activity in the past five quarters will skew these metrics somewhat. We believe we have reason to feel comfortable with the performance of the portfolio. Portfolio composition remains highly diversified with the top 10 issuers accounting for 20.1% of fair market value. Recall that the top2 positions within the portfolio, Eclipse business capital and Brocade holdings, our platform investments originating middle market loans. These positions have a number of underlying issuers. Assets included in the other classification include structure positions in on a new basis going forward. As Eric highlighted, we anticipate rotating out of these positions as market conditions allow in the quarters to come. Risk ratings exhibited minimal movement during the quarter as issuers exhibiting the most stress classified as risk ratings four and five were 7% on a combined basis quarter over quarter, but we anticipate this figure to decline when rolling to the first quarter in light of public developments with one of our issuers core scientific, as Eric mentioned, encouragingly, we also experienced some positive movement as certain issuers performing consistent with expectations and underwriting have outperformed during fourth quarter. We remain confident in the credit quality of the underlying portfolio, the uncoordinated uncorrelated nature and associated value of investments in Eclipsys', Brocade should bolster the portfolio. In the event the economy enters into a line expected recession BBDC. is committed to delivering an attractive risk-adjusted return to shareholders over a long time horizon. We are investors of credit and middle market companies, our global reach and significant scale across asset classes gives BBDC., a unique ability to select risk and return compared to other managers.
But our core middle market credit is what we do I'll now turn the call call over to Elizabeth.

Elizabeth Murray

Thanks, Ian. On slide 15, you can see the full bridge of the NAP. per share movement in the fourth quarter NAP per share was $11.28 as of December 31st, which is an increase of 0.3% over the prior quarter and more than a 2% increase versus December 31st, 2022. Our net investment income exceeded the $0.26 per share dividend by 19%, and share repurchases added another penny per share this was partially offset by net unrealized depreciation and realized gains of $0.03 per share. The valuation of the credit support agreements increased by approximately $3.6 million, which is driven by unrealized appreciation in the underlying Sierra portfolio and a reduction in the applicable discount rate. During the quarter, our net investment income was $0.31 per share for the quarter or $0.33 per share on a pretax basis compared to $0.31 per share in the prior quarter. This is driven by continued benefits from higher base rate and dividend income from our platform investments and joint ventures. Our net leverage ratio, which is defined as regulatory leverage, net of cash and net unsettled transactions, was 1.15 times at quarter end, down modestly from 1.18 times in the quarter ended September 30th and currently sits within our long-term target of 0.9 to 1.25 times. Our funding mix remains highly defensible, both in terms of seniority and asset class, including the significant level of support provided by the unsecured debt in our capital structure. At December 31st, our unsecured debt accounted for $725 million of our fundings and equated to 50% of our outstanding balances during the first quarter first quarter of 2024 Barings BDC issued a new $300 million senior unsecured note to enhance the flexibility of our capital structure. The net issuance was significantly oversubscribed and we are pleased to position the BDC with significant operating flexibility in the quarters to come.
Pro forma for the note issuance BBDC. now has more than $1 billion of unsecured debt liabilities accounting for more than 70% of our debt outstanding. We continue to maintain significant flexibility in our capital structure with the next bond maturity in the second half of 2025 and pro forma for the $300 million issued, we have expanded our laddered maturities out to 2029. Barings BDC currently has $241 million of unfunded commitments to our portfolio companies as well as $65 million of outstanding commitments to our joint ventures. We have available cushion against our leverage limit to meet the entirety of these commitments, if called upon, as noted earlier, that we have actively been utilizing our share repurchase plan during 2023. The fourth quarter was no exception as we repurchased nearly 450,000 shares during the period and over $1.8 million shares in total for 2023. In addition, the Board authorized a new $30 million share repurchase plan for 2024. Our focus on share repurchases is one example of BBDC.'s thoughtful approach to aligning our interests with shareholders. As mentioned earlier, the Board declared a first quarter dividend of $0.26 per share and 9.2% distribution on net asset value. We consistently evaluate our dividend policy. In the same manner, we manage our broader business driven by stability and bearings became the advisor in 2018. We have a track record of increasing or maintaining a stable dividend. We believe we can maintain a stable dividend even in a normalized rate environment. And we expect that our platform investments, Eclipse and repaid as well as our Jakafi joint venture will continue to generate significant dividend income. These investments help highlight the importance of less correlated assets and the benefit of a diverse portfolio.
I'll wrap up our prepared remarks with a note on our investment pipelines thus far in Q1, we have made $42 million of new commitments, of which $35 million have closed and funded with that, operator, we'll open the line for questions.

Question and Answer Session

Operator

Thank you. The floor is now open for questions. If you would like to register a question, please press star one on your telephone keypad. At this time. A confirmation tone will indicate your line is in the question queue, you may press star two, if you would like to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. We do ask that you please limit yourself to one question and one follow-up again, star one, if you would like to register a question today. The first question is coming from Finian O'Shea of Wells Fargo Securities. Please go ahead.

Finian O'Shea

Hey, everyone. Good morning, Tom.
Question for you. And I appreciated your color on transaction volumes being slow to transpire. And the question is, if effect continues to stall, do you think we're looking at sort of a triage, a great triage from private equity. And if so, if you then have to take keys for companies, can you talk about how well you are positioned for that? Maybe how many how many sets of keys you could practically take on at the platform?
Thank you.

Ian Fowler

Good morning, Finn, yes. So yes, like I said, and we had hoped that things were going to pick up. That's now investment bankers are pretty good about talking their book, and that really hasn't happened thus far this year from now, what I will say is there's a lot of pressure for this market to open up. So I would unless there's some kind of black swan event, I would be really surprised if on we have a low anemic year again of M&A activity. I mean, we're looking at base rates have plateaued. The Fed has telegraphed that they're likely coming down. That's that's obviously a positive given the valuation gaps that exists in the market between buyers and sellers. We have the election, so we need to get through that political uncertainty.
I think most importantly though, you raised private equity and obviously, we're focused on private equity. I think one of the biggest triggers is the pressure on private equity and the fact that a lot of LPs now are tying LP commitments to realizations. And so quite frankly, I think based on what we've seen in the data, we've seen that the valuation gap isn't huge, but it's not what private equity firms were expecting. And I think ultimately they're going to be forced two to realize some companies maybe lose a turn or two on the exit multiple, but still generate historically decent returns so I think volume's going to pick up in 24 as we get later in the year and 25, if rates come down materially, it could be a watershed environment of course, if that doesn't happen, we're still in this period of. And for those platforms that have mature portfolios, there's still that incentive to do add-on acquisitions and create value and that allows us to put more money to work. 70% of our origination last year came from our portfolio and also also means low runoff. And so that creates a UM. stability. So that's positive. And this really gets stretched out, I think, is where you're going with your question.
Yes, then then we're going to have to figure out how to deal with some of these companies if they're not performing?
Yes.
We're of course, prepared something we don't want to do to take the keys. I can tell you that it's not in the BDC, but we had one company during COVID that we had to take the keys in North America and the companies up for sale. So we've got experience doing that we also have a very large team under over 100 people globally. So I think we're pretty well prepared if we have to go down that road. But that's kind of the.
Yes, but that's something you don't really want to go to unless you have to go.

Eric Lloyd

And then I'll just build on that. The 100 that Ian referenced, that's just on the that's on the investment side into direct lending area.
In addition to that, we have a deep legal team internally that has strong experience working through situations like this, we have special situations now called Capital Solutions team has a lot of experience working through things like this. So if you look at our firm level, we kind of bring all resources to bear and all expertise to bear to make sure we have the best outcome for our investors and those type of challenging situations.

Finian O'Shea

Very helpful. Thank you, Tom. This is a follow-up on the recent bond issuance this quarter, January or February, and I'm understanding the benefit of unsecured. It's also a more expensive market, and it looks like you already had some adequate unsecured debt for your ratings and so forth. So seeing if you could provide color on the thinking there and the timing and why more unsecured. Thank you.

Elizabeth Murray

Yes.
I think Sam, you know, when we originally went to market in 2021, we had messaged at that point that we would be a serial issuer. And so of course, the markets have been closed for the past couple of years, and they recently opened up with several other BDCs in the market and looking at our maturity ladder and also our mix between secured and unsecured. We felt like it was an appropriate time. And this again extends our maturity ladder as soon as the $300 million came in, we used that to repay and some of our our credit facility. So I think long term, this really sets us up for success. And I'll also say, Ben, that we did swap the interest rate on this, then we have a swap in place.

Finian O'Shea

Thanks so much.

Operator

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

Kyle Joseph

I think there's more in the exchange of my questions. I think first one for you just kind of want to get your take on how the competitive environment has evolved over the last few years with kind of the slower deal flow, as you mentioned, but also recognizing VCs at least publicly have been resilient to higher rates and inflation, but give us a sense for what spreads have been doing? And what is the you know, the steel environment were to come to fruition your expectations for spreads in that environment?

Ian Fowler

Yes, great.
Great question, Kyle.
Good morning.
So yes, like I said, obviously, the economy is slow M&A activity down in our space in the last few years. There's more platforms that have been created. A lot of capital has been raised, but not deployed just given the conditions in the M&A market. So there's a lot of pressure coming from investors for managers to deploy capital. Again, I think if you've got a portfolio, you're in a sweet spot because at least you're putting capital to work in companies, you know, well and helping those companies become bigger, better, stronger, more diversified credits and so that's sort of a safer bet than if you've got to play the new M&A market, which is often not only being low in volume, the quality of deals has been very inconsistent. And so that's a tough place to be to have that pressure to put money to work. I think there's so much capital being raised because we're in this Nirvana situation where Yes, for this asset class, it's the first time historically in years where you've you've had both the increase in base rates and spreads. And as we've talked about in the past, you're generating all in yields in the low double digits. I will say that just given the competitive nature and the number of platforms, it is getting competitive, especially for good quality deals. You can't really compete on leverage just given where rates are. So we're really seeing deals being moderately levered around, call it, 4.5 times senior docs are still in our favor as lenders. But as you kind of raise, we are seeing some compression in spreads on the last quarter of last year, I'd say spread or last half of last year, I'd say spreads compressed about 50 to 75 basis points, upfronts about 50 basis points. But all in all, you're still generating upper single digit yields. I think as the market opens up and more attractive opportunities are out there. I think that competitive nature will we'll continue. I mean, it's again, historically, this asset class generates senior debt, 6% to 8%. We're over that right now. So I think you have to expect over time as the market becomes more and more normalize, you're going to have some reversion of all-in yields back to sort of the historical returns that we've had in the asset class.

Kyle Joseph

Got it. Helpful.
And then one one follow-up. Just on repayments from OC., they were elevated in the fourth quarter, but it sounds like some of that was self-induced for lack of a better term and you guys are rotating out of here at an MBC, but if we do get this pickup in deal flow, you expect a corresponding increase in repayments as well. Or are you have you know how it has a higher rate environment influence influencer?

Matthew Freund

Yes, Kyle, this is Matt. I would certainly agree with the sentiment that if we see kind of an increase in deployment opportunity, that's necessarily going to be a corollary to increased opportunity, increased exit opportunities on the other side?
Yes, I think that if we look at the portfolio average hold Horizon has kind of stretched up to call it four ish years plus or minus. And while we feel really good about the quality of the credit in the portfolio, eventually, we're going to see some turnover. And so it's not something that concerns us in any capacity, but I think it will start to return to kind of a historical mean that does that answer your question?

Kyle Joseph

Yes.
Yes, Thanks guys, appreciate it.

Matthew Freund

Of course

Operator

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

Robert Dodd

Hi, guys.
Up all else with our own on the app core scientific. Bob, you mentioned a pipeline that you have become a little over 6 million shares now on that after the exchange, I mean, is it is that like is it the same class of stock? That's publicly traded? And what's the intent? I mean, are you intending to hold that you locked up or you're looking to liquidate the shares you've got and that position and maybe rotate them into something more complex?

Bryan High

Yes, Robert, this is Brian. So in terms of the stock itself, it is the same stuff that you would see in the public markets from our intent there is to maximize recoveries. But also I think we've been pretty clear that that's not part of our ongoing strategy. So marrying those two things together over the course of coming quarters is sort of on us to make decisions around and what to do with that. Obviously, having a public stock gives us some liquidity, and that was the intent in making that election within the bankruptcy bankruptcy proceeding.

Robert Dodd

Got it. Thank you, Ernie, because it ties in I mean you the 15% on equity. Some of that obviously is in competition with the tenant, et cetera. But obviously this this as of today, pro forma for this equity, you're more than the 16% plus. I think my message, why can you give us a recap of what's what's a reasonable time line to get at least the non income producing increasing by equity down into the year. And so that may be the mid single digits.

Matthew Freund

So it's a great question. And so as we've tried to articulate in past quarters, we have some described our investment philosophy and kind of buckets around strategy. And as it sits as of 1231. We kind of had 8% of the portfolio that sits in other of the big kind of noteworthy items in that other bucket today, would include two large European equity positions that position in core scientific that was previously a debt security and will now be an equity position, as you know. And then a handful of other, candidly, non-core, non future style strategies as we think about where that 8% goes over. And so I think organizationally, we're really focused on the 8%, not necessarily just on the equity piece of it, but on the 8% of the other. And the important distinction is that Brocade and Eclipse, both of these both constitute equity, but we expect those will be part of our go-forward strategy kind of into perpetuity. And so as we kind of roll forward four quarters in the future, our hope would be that we could cut that number, that 8% non-core to something closer to 4% to 5% by the time we get to the end of the year, the biggest movers in that are going to be one of the two large European equity positions we're hoping to monetize. And then core scientific public equity, which we are hoping to monetize, of course, only at levels that we find to be reasonable returns of capital. And so I would guide you to that benchmark as we look forward to the next handful of quarters.

Eric Lloyd

And as a reminder, those two large European equity positions that don't have yield were acquired.
Those aren't things that were not underwritten investment online, get understood and said, unlike rotate your clubs, which are attractive yields that come off them.

Robert Dodd

Got it.
Got it.
Yes, I'll have one more if I can. It relates to this have only paid. I mean you made was $15 million of incremental investment arm. I'm sure this platform may not be a in that business. I mean is that it was that opportunistic. There was big, okay. So whatever that, however, I should turn that or is it all so again, should is that kind of a temporary increase or should we expect it to continue to to potentially grow at that pace?
I mean, it grew about [$30 million] bucks during June 2023. Is that the kind of move that platform, um, could add and it's income-producing and a good return as well. So I'm not criticizing just trying to scale that as a growth opportunity.

Elizabeth Murray

Yes, Robert, good question. And Andre Cade, when we initially made the investment on the platform as a whole had a $250 million on preferred equity target. And so they're able to draw on that and say that the $15 million that you're referencing was just a preferred draw. And I believe we have about $17 million left on that draw. We don't anticipate much should be drawn in 2024 that it was just they were ramping in 2023 and getting a credit facility in place on the cheek and just know that once that unfunded amount on hasn't been drawn, we are not going to make any additional commitments at the BDC level.

Robert Dodd

Thank you.

Operator

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

Casey Alexander

Good morning and thank you for taking my questions on first off, you know, there's been some our RPM criticism of the BDC surrounding the degree of complexity that the BDC has and it good, for instance, here in this quarter is the puts and takes from forward currency contracts, you know, the cost about $9.5 million or, you know, about a $0.09 per share swing that had not happened at all. This would have been a fabulous quarter. So I think investors would benefit if you could explain why these puts or takes are there what the foreign currency contracts are covering, are they doing what they're expected to do relative to the investments that they're covering? And what should we expect from from that in the future?
Because that's a pretty big swing to earnings that could have made this a good quarter, a really fabulous quarter.

Matthew Freund

Yes, thank you for the question, Katy, and I certainly agree that there are layers. You can pardon me too to our strategy into our structure based on kind of a historical makeup that had just clouded some of the picture we're working to simplify it, and we will continue to do so specific to your question.
So let me just at a high level, describe why these are in place and then give you some perspective in terms of how to interpret it this quarter as well as where we expect it to go in the future. And so as I think our investors know, we have a global focus that Barings. And historically speaking, whenever the whenever the public vehicle was acquired in 2018 and then subsequently ramped, we use a fair percentage of European assets to do that. And so as we think about the non USD-denominated portions of our portfolio, we are not in the business of taking FX risk on those par principal positions. And so what we do is we are rolling FX. We maintain rolling FX hedges on a quarterly basis that actually insulate kind of the portfolio performance from the FX movement. Admittedly, as you have appropriately noted that will that can have the capacity to create volatility if the FX movements are happening intra-quarter within the quarter and then the whenever the FX hedges are themselves rolled. And so that did happen this quarter. That also coincidentally happened last quarter. If you look at the movement between the USDEUR. FX rate from October first to December 31st, you'll see that the euro strengthened meaningfully as part of that. Whenever those contracts were rolled, there was a meaningful FX gain that was kind of recognized with respect to that position. And in terms of the go forward strategy, I'm confident in telling you that foreign transactions, non-US denominated transactions will be a lower percentage of the portfolio as we continue moving forward. And we are also actively working to kind of figure out ways to mitigate the severity of the movement that we see on the OpEx line because we agree with you that it creates a little bit more of a cloud that that had actually intended to be a net neutral impact to the underlying shareholders.

Casey Alexander

All right.
Thank you that, um, secondly, in the originations and repayment schedule, there was a significant amount of it repayments that were actual sales, not to the JV but outside the platform. And I'm looking at the net debt to equity ratio that you're reporting on the last page of your release of 1.15 times. But should we think I mean, it clearly looks like you're trying to manage to a particular level. Should we be thinking about that as kind of the sweet spot of where you'd like to stay or or do you think that you calm things down in the portfolio a little bit. As you get rid of some of the non-income producing equity, you can take that number up a little bit and generate a little higher higher ROA. How are you thinking about about managing to that level?

Matthew Freund

Yes, I'll start and then want to I want to make sure that a little bit of a comment has an ability to comment on the leverage targets generally. So our stated target is 0.9 to 1 and a quarter. We will and intend to operate within that range. As a theme for us this quarter, I think that we wanted to demonstrate flexibility. So we were focused on kind of the senior unsecured issuance, which gives flexibility to our capital structure. We appreciate that. Historically, we run a little bit higher in terms of our leverage ratio than perhaps we really wanted to. And so I think that there was certainly an active. There was a very active momentum around freeing up some capacity for possible investment opportunities here moving into 2024. And so as we think about where we want to be where we will operate. We have no change in our guidance of 0.9 to 1 and a quarter. But I do think that to your point is there capacity when we see opportunity to invest to perhaps increase that leverage ratio?
The answer to that, I think is absolutely I want to make sure that was that had the chance to maybe augment any of those costs?

Elizabeth Murray

Yes.
What I would add, Stacy, when we look long term on it, our leverage were trending between 1.1 and 1.2 times and and I think you're going to continue to see that trend. But we are we also want to have that flexibility if we do see investment opportunities to be able to take them. And then we also balance that with share repurchases, we don't ever want to be in a position where leverage is so high that we are able to repurchase shares. So we balance all three of them.

Casey Alexander

Well, fair enough.
Thank you for that a little bit because I do think that where the stock closed last night at 0.81 times shareholders would like to see you continue with the share repurchases.
My last question, a E&O, and you may want to pass on this, but I'm going to throw it out there anyway, the core position equipment leasing position was actually significantly larger than just what you held on balance sheet at bearings. It was it was probably close to double that size. So I'm just wondering, are you guys managing the equity position in coordination with the rest of the platform? Are you guys meaning managing your position independent of that position that's held at the rest of the Barings platform.
And that would be my last question.
Thank you.

Bryan High

Yes, Casey, appreciate the question. It's Brian again. I don't think we're going to comment on the broader Barings platform strategy. So I will take you up on passing on that question,

Casey Alexander

but I hope that we are not surprised, but I thought it was worth a shot. It cost me enough had ask the question.

Bryan High

No worry.

Casey Alexander

It's all right. Thanks, Brian.

Operator

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

Eric Lloyd

that we're a little low for dialing in and your interest in us, and we look forward to following up with you. And I think the other another great quarter for you. Thanks very much.

Operator

Ladies and gentlemen, thank you for your participation. This concludes today's event.
You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.