Blackstone (NYSE:BX) Secured Lending Fund (BXSL) has reported robust financial results for the first quarter, showcasing a strong portfolio performance and a strategic focus on high-quality investments. The company announced a net investment income of $0.87 per share, a net income of $0.96 per share, and a 13.1% annualized return on equity.
With a significant increase in deal activity, Blackstone secured nearly $1.2 billion in new investments and commitments, marking the most active quarter since 2021. The company's net asset value (NAV) per share increased to $26.87, reflecting continuous earnings improvement and a solid liquidity position of $1.4 billion.
Blackstone remains optimistic about its ability to generate income for investors, supported by a strong pipeline of deals and a focus on sectors with long-term growth potential.
Key Takeaways
- Blackstone Secured Lending Fund reported a net investment income of $0.87 per share and a 13.1% annualized return on equity.
- The company's portfolio showcased a minimal nonaccrual rate of 0.1% and an 11.8% weighted average yield on debt investments.
- Deal activity surged with $1.2 billion in new investments and commitments, the highest since 2021.
- A strategic focus on first lien debt investments and sectors like IT services and software is evident.
- The company's net income for the quarter stood at $0.96 per share, with NAV per share increasing to $26.87.
- Blackstone's liquidity remains strong at $1.4 billion, with no debt maturities until 2026.
- The company is bullish on the data center sector, with $50 billion invested or under construction globally.
Company Outlook
- Blackstone expects the momentum in deal activity to persist into the second quarter.
- The company's pipeline includes 98 deals, indicating a healthy balance of growth capital, refinancing, and sponsor-to-sponsor M&A activity.
- Blackstone anticipates continued portfolio growth and deal activity in upcoming quarters.
Bearish Highlights
- Less than 4% of the portfolio experienced spread tightening, resulting in an average decrease of 50 to 60 basis points.
Bullish Highlights
- Blackstone is optimistic about the data center sector and highlights the industry's momentum.
- The company's strategic approach to deals, such as the Park Place transaction, demonstrates their ability to offer flexible capital structures.
Misses
- There were no specific misses reported during the earnings call.
Q&A Highlights
- Brad Marshall clarified that the recent capital structure change for a company was not a unit tranche but a strategic move to free up cash flow for growth.
- Blackstone's focus remains on quality and larger companies in the right parts of the market, with deliberate capital direction towards services and software due to lower default rates.
Blackstone Secured Lending Fund's first quarter results reflect a strong performance and a strategic focus on high-quality, growth-oriented investments. With a robust pipeline and a bullish outlook on sectors like data centers, the company is positioning itself to continue delivering value to its investors. The company's disciplined approach to investment, coupled with its strong financials and liquidity, suggests a positive trajectory for the coming quarters.
InvestingPro Insights
Blackstone Secured Lending Fund (BXSL) has demonstrated a commitment to shareholder returns, as evidenced by its consistent dividend growth over the past three years. The company's latest dividend yield stands at an impressive 9.71%, significantly rewarding its investors. This commitment aligns with the company's strong financial performance and strategic investments that have been highlighted in the recent quarterly results.
InvestingPro Data metrics provide further insight into the company's financial health and stock performance. BXSL's market capitalization is currently at $6.08 billion, underscoring its substantial presence in the lending market. The stock's P/E ratio is at 8.84, suggesting that it may be undervalued compared to earnings, which could attract value investors looking for potential growth opportunities at reasonable prices.
Moreover, BXSL's stock stability is reflected in its low price volatility, a trait that might appeal to conservative investors seeking less turbulent market exposure. However, it is worth noting that the stock is trading near its 52-week high, with the price at 97.15% of this peak. This indicates that the stock has had a strong recent performance, aligning with the 37.14% one-year total return, which could signal confidence from the market in BXSL's operations and outlook.
For investors looking to delve deeper into Blackstone Secured Lending Fund's investment potential, there are additional InvestingPro Tips available. These include insights on the company's gross profit margins and free cash flow yield, which can provide a more nuanced understanding of its financial position. To access these insights and more, investors can visit https://www.investing.com/pro/BXSL, where a total of 5 InvestingPro Tips are listed. By using the coupon code PRONEWS24, readers can receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, offering a valuable opportunity for those seeking comprehensive investment analysis.
Full transcript - Blackstone Secured Lending Fund (BXSL) Q1 2024:
Operator: Good day and welcome to the Blackstone Secured Lending First Quarter 2024 Investor Call. Today's conference is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to Stacy Wang, Head of Shareholder (sic) [Stakeholder] Relations. Please go ahead.
Stacy Wang: Thank you, Katie. Good morning and welcome to Blackstone Secured Lending Fund's first quarter conference call. Joining me today are Brad Marshal; and Jonathan Bock, Co-Chief Executive Officers; Carlos Whitaker, President; and Teddy Desloge, Chief Financial Officer. Earlier this morning, we issued a press release and slide presentation of our results and filed our 10-Q, both of which are available on the shareholder section of our website, www.bxsl.com. We will be referring to that presentation throughout today's call. I'd like to remind you that today's call may include forward-looking statements, which are uncertain and outside of the firm's control and may differ materially from actual results. We do not undertake any duty in updating these statements. For some of the risks that could affect results, please see the risk factors section of our most recent annual report on Form 10-K. This audio cast is copyright material of Blackstone and may not be duplicated without consent. With that, I'd like to turn over the call to Brad Marshall.
Brad Marshall: Thank you, Stacy, and good morning, everyone. Thanks for joining our call this morning. So turning to this morning's agenda, I'm going to start with some high-level thoughts before Jon, Carlos and Teddy go into some more details around our portfolio and this quarter's results. BXSL reported another strong quarter of results, including net investment income or NII of $0.87 per share, representing a 13.1% annualized return on equity. Our NII per share was impacted by $0.02 per share from accrued capital gains incentive fees. These results reflect continued strong credit performance with a minimal nonaccrual rate of 0.1% at cost, and a robust 11.8% weighted average yield on debt investments, benefiting from the current elevated rate environment. We also have the second best quarter since our IPO from an earnings standpoint, with net income of $0.96 per share, which resulted in a NAV per share increase to $26.87. Our distribution of $0.77 per share is well covered at a 113% and represents a 11.5% annualized distribution yields, one of the highest among our traded BDC peers with as much of their portfolio invested in first lien senior secured assets with BXSL at 98.5%. Moving to Slide 5. As we discussed last quarter, we’ve been positioning BXSL for an anticipated ramp up in deal activity. We saw the start of that cycle in the fourth quarter, which has continued into the fourth quarter of this year, we had nearly $1.2 billion in new investments, commitments at par, which was the most active quarter since 2021. Further, we had $719 million of fundings, 98% of which were into first lien senior secured debt, and overall had an average LTV of 44.5%. This reflects our continued focus on first lien debt investments and high-quality companies with what we believe are better risk adjusted returns. Additionally, new transactions for the quarter had a weighted average spread of approximately 570 basis points with an average OID of 174 basis points and over 2 years of call protection, representing approximately 11.4% all-in yield to maturity. Our commitment activity during the quarter aligns with the focus on our high conviction investment themes. We leverage BXCI's incumbent relationships to originate opportunities and attractive industries, for example, IT services and software. Benefiting from a wide network of internal source -- sources including a public portfolio of over 2,700 credits, and from our existing portfolio and BXSL of over 250 private companies. And our repayment activity was partially in industries that may experience more cyclicality, including electrical equipment and energy equipment and services, a portfolio rotation that we believe supports ongoing quality. Just looking at the past two quarters collectively, we have seen more commitment activity than the preceding seven quarters combined and see this momentum carrying through into the second quarter as BXCI utilizes our global platform, including BXCI's expanded European credit platform and seeks to create what we believe to be quality deal flow for our investors. And despite a period of slower M&A activity, we see our continued deal flow being driven from four primary factors. First, BXSL benefits from having positions across 210 portfolio companies that in the absence of being sold may look to grow through debt and equity finance acquisitions. Second, with BXCI's incumbency across over 4,500 issuers globally, we believe our scale and existing relationships helps to drive deal flow. In fact, approximately 65% of BXCL's Q1 fundings were to incumbent borrowers of BXCI. Third, we have deepened our focus on specialization across sectors that we believe have long-term tailwinds. For example, in April, we opened a new credit office alongside our life science private equity colleagues in Cambridge, Massachusetts, where our Global Head of Health Care Brad Coleman, along with colleague Jonathan Braman, will expand our presence. This is an area that is highly specialized and in great need of knowledgeable expertise. Finally, we continue to hear from companies that seek services offered by BXCI's value creation program during a period of heightened inflation. While the services we provide are not a silver bullet, it can be quite additive. And as such, we believe a partnership with Blackstone is valued by sponsors in the market. You'll hear more from the team, but I'm particularly excited about the overall quality of our earnings that continue to improve in NAV and our ability to lean into pipeline to drive income for our investors. With that, I'll pass it over to my colleague, Jon.
Jonathan Bock: Thank you, Brad, and let's jump to Slide 6. We ended the quarter with $10.4 billion of investments, an increase from $9.9 billion in Q4. This resulted in a modest increase in ending leverage of 1.03x and an average leverage of approximately 0.98x given the timing of some of our investment fundings. We maintain our strong liquidity position at $1.4 billion comprised of cash and available borrowing capacity across our revolving credit facilities, including ABL to lean into that expanded pipeline that Brad mentioned. The weighted average base rates over the quarter extended approximately 50 bps on our nearly 99% floating rate debt portfolio compared to Q1 last year as rates remained elevated. While spreads have modestly compressed, weighted average all-in yield on debt investments at fair value remains attractive at 11.8% this quarter compared to 12% last quarter. New investments continue to be accretive to our net investment income. The yields on new debt investment fundings and assets sold and repaid during the quarter averaged 11.4% and 11.9%, respectively. Let's take a look at the portfolio. Jump to Slide 7. Approximately 99% of BXSL's investments are in first lien new secured loans and 99% of those loans are to companies owned by financial sponsors who have significant equity value in these capital structures demonstrated by an average loan to value of 47.8%. And as Brad noted, our nonaccruals are still at only 0.1% at cost. Our portfolio also starts from a strong LTM EBITDA base averaging $193 million, a 6% increase from last year. This is more than 2x larger than the private credit market, where we also see continued strength of performance from larger companies, the bedrock of our portfolio relative to their smaller EBITDA counterparts on both growth and defaults. BXSL's portfolio as compared to the broader private credit market measured by the Lincoln International Private Markets database have seen growth rates in line with the broader market and over 15% more profitability on an LTM EBITDA margin basis. Now we continue to stress the importance of interest coverage. The LTM EBITDA coverage based on average LTM EBITDA for BXSL portfolio companies over the last 12 months, that was 1.6x in Q1, which again compares favorably to the Lincoln database for the broader private credit market at 1.4x average coverage in Q1. On an LTM basis, only 2.4% of the portfolio has interest coverage below 1x versus 16% for the broader private credit market, of which 75% of this population represents companies with EBITDA less than $50 million. And further Slide 8, this focus is on our industry exposure. In Q1 the number of portfolio companies in BXSL increased to 210. While we maintain nearly 90% of exposure to historically lower default rate industries, including nearly 40% of funding deals to new portfolio companies and software and IT services, our top conviction areas as we continue to build out expertise as Brad mentioned. Now, I'll conclude with a point on amendment activity. Amendment activity continues to be relatively benign as the performance of the portfolio remain strong. And in the first quarter, there were 45 amendments for BXL private investments, the vast majority of which were associated with add on DDTL extensions or other technical matters. With that, I'd like to turn it over to Carlos.
Carlos Whitaker: Thanks, Jon. To expand on Brad's point regarding deal activity, I'd like to take a few minutes to dive into a new deal for the quarter, a $2 billion debt financing for Park Place, a leading provider of third-party maintenance for data centers, and an incumbent portfolio company that we knew well. This marks one of the largest private financings to take out syndicated debt in the quarter. BXCI not only led, but also committed along with third parties 90% of the total financing package across the capital structure. We believe several key differentiating factors allowed BXCI to win the deal. First, scale. BXCI has the ability to commit quickly and size, taking down the vast majority of a very scaled loan package, something we believe few in the market can match. Second, incumbency. We leveraged BXCI's existing anchor position and the syndicated loan and strong relationship with the sponsor. Third, value creation. As an existing position for BXCI, Park Place has been a telling story for our value creation program. The borrower was introduced to Blackstone portfolio companies through cross-sell as a preferred provider and became active in a number of portfolio companies and had already experienced the benefits of our partnership approach. Fourth, deep diligence and sector knowledge. We utilized our internal Blackstone expertise, technologists and differentiated market insights and data centers along with strong prior institutional knowledge at Park Place. In fact, digital infrastructure, particularly data centers, is one of our highest conviction investment themes across Blackstone with $50 billion data centers owned or under construction globally, which also includes QTS, the largest data center company in North America today. Finally, flexibility. BXCI offered a one stop service with multiple tranches of debt, creating ample flexibility, best suited for Park Place's need. In an increasingly competitive private credit market, we believe we differentiate ourselves as not just a lender, but also a value added partner helping credits grow equity value. BXSL borrowers are offered full access to BXCI's value creation program through cross-sell opportunities, cost savings procurement and capabilities, including cybersecurity and data science, all at no additional cost because we understand the end benefit to the investment portfolio. And with that, I'll turn it to Teddy.
Teddy Desloge: Thanks, Carlos. I'll start with our operating results on Slide 10. In the first quarter, BXSL's net investment income was $166 million, an $0.87 per share. While our total investment income remained consistent with Q4, net investment income on $1 basis decreased primarily as a result of a full quarter impact of the fee waiver, which expired near the end of October, and capital gains based incentive fees accrued in the first quarter. BXSL recorded its highest quarterly GAAP net income and second highest in per share term since IPO at $184 million and $0.96 per share respectively, up 12% from a year ago. Total investment income for the quarter was up $39 million or 15% year-over-year driven by increased interest income primarily due to higher interest rates. It is important to highlight the high-quality of our earnings as interest income, excluding PIC [ph] fees and dividends represented approximately 93% of total investment income in the quarter. Turning to the balance sheet on Slide 11, we ended the quarter with $10.4 billion of total portfolio investments at fair value, 5.3 billion of outstanding debt and approximately $5.2 billion of total net assets. With our strong earnings in excess of the distribution in the quarter, as well as healthy fundamentals and tightening spreads supporting asset values, NAV per share increased to $26.87, up from $26.66 last quarter. This represented the sixth consecutive quarter of NAV per share growth. Moving to Slide 12. In addition, we saw the fourth consecutive quarter of commitment growth as Brad outlined, with BXSL committing to nearly $1.2 billion in the quarter, funding $719 million and an estimated additional $347 million committed by [technical difficulty], we expect to see continued momentum through the second quarter and into the back half of the year. Repayments remained relatively muted at $181 million in the quarter or a 7% annualized repayment rate. Next, Slide 13 outlines what we believe to be our attractive and diverse liability profile, which includes 53% of drawn debt in unsecured bonds. Our unsecured bonds have a weighted average fixed coupon of less than 3%, which we view as a key advantage in this elevated rate environment and contributed to an overall weighted average interest rate on our borrowings of 5.1%. This compares to a weighted average yield at fair value on our debt investments of 11.8%. Additionally, we have no maturities on our liabilities until 2026, and our debt and funding facilities have an overall weighted average maturity of 3.2 years. The strength of BXSL's funding profile has been recognized by rating agencies as well. We previously noted that BXSL earned improved outlook for Moody's (NYSE:MCO) to Baa3 positive, and this quarter we earned notch upgrade from Fitch to BBB flat. We ended the quarter with $1.4 billion of liquidity in cash and undrawn debt available to borrow, providing us with significant capacity for continued portfolio growth. Ending leverage at March 31 was 1.03x, up from 1x at year end. We have positioned our balance sheet to have what we believe is ample capital to deploy into what we expect will be a growing opportunity set through year end. In closing, we are moving forward from what we believe is a position of strength with underlying earnings power, credit performance and investment capabilities and an optimized balance sheet that distinguish us in the market. We will strive to remain laser focused on delivering returns and protecting investors capital. With that, I'll ask the operator to open up for questions. Thank you.
Operator: [Operator Instructions] We'll go first to Melissa Wedel with JPMorgan.
Melissa Wedel: Good morning. Thanks for taking my questions today. Definitely took your point about the higher volume and level of activity in the first quarter and that you're looking for that to continue into the second quarter. The point of clarification on that, is that on a gross basis? Or are you also expecting net origination to remain elevated? Certainly, noting that repayment activity was particularly low, it seems in relation to gross originations in the first quarter.
Brad Marshall: Hi, Melissa, it's Brad. I'll take that question. When we talk about origination, obviously we're talking about both on a gross basis. But really what grows the portfolio is a net -- as you point out on a net basis, and we continue to expect that the portfolio will grow on a net basis on deals that are repaying. They feel somewhat muted, or we're kind of extending our exposure. There's a little bit less turnover in the market right now. And on the gross basis, we're just seeing more and more capital solutions that we're able to provide for issuers right now.
Melissa Wedel: Okay, appreciate that. Following up on the level of activity during the quarter, I'm wondering if there was anything in terms of a timing impact that we should think about whether originations were skewed towards the end of the quarter, or it was more evenly distributed versus timing of repayment. Thanks so much.
Brad Marshall: Yes. No, you hit the nail on the head, it was definitely skewed to the end of the quarter, which is why you saw leverage on a quarter end higher than what the average leverage was and some of the commitments spilled over into the second quarter.
Melissa Wedel: Got it. Is there any -- have you quantified a rough estimate on what the impact NII might have been from that timing during the quarter?
Brad Marshall: No, we haven't quantified it.
Melissa Wedel: Okay, thank you.
Operator: Thank you. We'll go next to Mark Hughes with Truist.
Mark Hughes: Yes, thank you very much. You talked about the spreads being compressed a bit. I wonder if you could quantify that at all of the kind of your typical spread in Q1 versus what you might anticipate on the deals that are in the pipeline now?
Brad Marshall: Yes, so I would say, spread -- you've seen some spread compression in some areas, and you've seen a nose [ph] spread compression in other areas, really depends on the type of deal whether it's plugged up or whether it's a proprietary deal, that's kind of driving the spreads. So if you look at the fourth quarter, we're about 11.7% on new deals. This quarter we were 11.4%. By the way, if you look at that on a more of a yield to 3-year basis, it gets closer to 12%. And if you look at kind of the assets that we did during the quarter, they range from 11%, to 13%, speaking to my point earlier, really depends on the type of deal. The one thing that we don't kind of highlight and we should probably do a better job of this, but the spread for unit risk has actually come down, if you look at it on a comparative basis to, let's say, 2021. So companies just because rates are higher, companies are taking a little bit less leverage. Deals are set up with lower loan to value. So spread per unit of risk is fairly constant. And then in terms of on a go-forward basis, you'll continue to see this range. You'll see deals that will be closer to 11% and you'll see deals that kind of are north of 12%. But overall, I would say the market putting us aside, the market has seen something like 50 to 75 basis points of spread compression since the start of the year.
Mark Hughes: Thank you for that. And then you'd mentioned that more of your existing portfolio companies are doing M&A. Is that part of the strong pipeline that even existing companies are borrowing -- increasing borrowing for M&A purposes? Is that part of it? Or is that just kind of an ongoing dynamic?
Brad Marshall: I think what you're seeing is sponsors are holding that onto their assets for longer. So you've seen less sale processes. So they're looking at their existing assets and trying to find ways to grow them, either operationally or through acquisition. So we've seen more companies look for growth capital in order to grow their businesses. So I expect that to continue for the balance of the year. But the other part of kind of what we're trying to do is you look across our broader portfolio, and see where private capital solutions are a better -- a better solution for the company versus the public debt that they may have trading in the market today. So that was the example Carlos went through with Park Place. We just came up with a better mousetrap and better capital structure for their long-term yield growth objectives. And that's kind of where -- that's what's driving a lot of our deal flow, this ability to use our scale, go into the market, create deals. So while maybe others are seeing more muted deal activity or deal activity is really starting to accelerate.
Mark Hughes: Appreciate that. Thank you.
Operator: Thank you. We'll go next to Paul Johnson with KBW.
Paul Johnson: Yes. Good morning. Thanks for taking my questions. Last quarter, kind of on your last question here, but -- last quarter, you kind of talked about the deals or so that you had identified in the market, there were potential repricing opportunities, you're kind of away from syndicated market, sounds like being capitalized on some of those. How many those deals [indiscernible] you kind of executed on this quarter. And do you still -- you have a number of those opportunities left to that.
Jonathan Bock: Hey, Paul, this is Bock. So I would say if we're thinking about the tighter spread environment, you recall comments from the prior call, this is essentially where we're using incumbency to our advantage, right. And the goal is to retain the assets that are more susceptible to repayments as a result of the tightening spread environment. And those are loans that have either above market spreads, they've outperformed, and it's where we have call protection generally, that's rolled off. Now in those situations, we'll often agree to new terms for an existing portfolio company, and that includes market or above current liquid market spreads and also receive extended call protection among a few other improvements. So to get to the question, this quarter is about less than 4% of the portfolio had some spread tightening as a result of that at around 50 to 60 basis points on average. And we received an additional 1.5 years of call protection. So still well within the range of new unit tranche financings on companies that we know and like, and I would say that was rather muted. And more importantly, as we continue to drive additional flow throughout our broad origination framework. It's a nice complement to ensure that we're retaining attractive assets at the same time to Brad's comment, growing into new portfolio companies as well.
Brad Marshall: And maybe just start with the pipeline, so as we go through this exercise of trying to identify deals like Park Place, maybe it's in our public portfolio, maybe it's somewhere else in our private portfolio, and create those what we call reverse kind of origination. So ideas that we're reversing into the sponsor of the company. At the start of the year, we had 98 of those that we're working through, and we're still chipping our way through that list. Not all of them will resonate, not all of them will work out like our place did, but there's a pretty healthy kind of backlog of those deals that we're doing diligence on and negotiating with private equity sponsors.
Paul Johnson: Thank you. That’s very helpful. And then last one for me is just, I guess kind of general outlook on net leverage, or for the year activities, obviously hard to predict in a lot of capacity for growth, but kind of given the environment, do you guys have any preferences in terms of where you're sort of operating at in terms of your leverage range? Thanks.
Brad Marshall: Yes, so we ended the quarter, right above one turn. So near the low end of the range. I would say we've taken some intentional steps here to build capacity to deploy and what we see is growing opportunity set, both from a volume standpoint and the fact that at 11.4% new investment yield, that's very accretive to our dividend. So we have quite a bit of capacity to deploy. I don't think there's any change in message in terms of leverage target sort of one to one in the quarter is, is what we've said historically, and I'd expect that we're in that range at the back half of the year.
Operator: Thank you. We'll go next to Ken Lee with RBC.
Ken Lee: Hey, good morning, and thanks for taking my question. Just one on the liability side. How do you think about the outlook for the potential funding mix on the liability side, especially given the rates outlook? Just want to see some of the thoughts there. Thanks.
Brad Marshall: Yes, we have a lot of optionality today. Bock mentioned at $1.4 billion of liquidity, no -- no maturities this year. We have 53% of our exposure today that's an unsecured bonds. We have seen quite a bit of tightening in the market, for example, our 5-year bonds is at 160 over treasury today that's in 65 bps versus the BDC index of closer to 215. So that is relative to even secure liabilities is -- historically kind of near all-time tides just from a spread perspective. So, significant optionality will be opportunistic with it. We do have liabilities that were put in place a couple of years ago, at an average cost of capital of sub SOFR plus 200. So we've had to grow into as well.
Ken Lee: Got you. Great. And just one follow-up on in terms of the pipeline and what you’re seeing broadly across the BXCI platform. Wonder if I can just get a little more color around that activity, is it fair to say that most of it is around growth capital or is it just you’re seeing a lot of refi activity. Just wanted to get a little bit more granularity around that. Thanks.
Brad Marshall: Sure, Ken. Yes, it's a mix of public to private, add on activity in existing portfolio companies. Some refinancings out of the public markets, some refinancing out of the private markets, I would say it's a pretty healthy balance between all of those. I would say what's lagging is just regular way sponsor to sponsor M&A activity. But even that we've seen an inflection point probably about 3 weeks ago, in terms of that volume starting to pick up you won't see it, it takes a while for these fields to happen for another quarter or so. But that activity is really starting to pick up as well.
Ken Lee: Got you. Very helpful there. Thanks again.
Operator: We'll go next to Robert Dodd with Raymond James.
Robert Dodd: Hi, guys. Good morning. On -- I've got a question on pick, right. So PIC this quarter step up again, it's about a little more than 6.5% of total investment income roughly slightly less than double where it was a year ago. Can you give us any color on the drivers that mean how much of that is structured as PIC versus modified PIC policy benefits [indiscernible] modified, but that was a while ago. So can you give us any color on the drivers for that direction?
Brad Marshall: Yes, you're right, 6.5% of income, Q1 was picked, up modestly over last quarter. Nearly all of that was driven by one issuer that previously did have PICs flexibility through Q3. And that was part of the original deal. We did agree to extend that beginning in Q1. That company, by the way, has almost tripled EBITDA since we close. If you look at our PIC concentration, five companies represent about 85% of PIC exposure, all of those were originally set up with partial PIC flexibility. And we would characterize as performing [indiscernible] sort of high 90s -- above 97. So I think it's a tool in certain cases that we will use to differentiate versus the syndicated market that can come in a couple of different forms. But overall, our PIC activity was fairly concentrated to performing assets.
Robert Dodd: Got it.
Jonathan Bock: And, Robert, those companies that are picking they're not 100% PIC. So if their coupon is 12%, 80% of that is being paid in cash and more like 20% is picking.
Robert Dodd: Got it. Thank you. Since you brought up Park Place, it says $2 billion facility now [indiscernible] 3 years ago, obviously they've made acquisitions since. But could you walk us through it in terms of like, 3 years ago it was first lien, second lien $1 billion with a blended spread that like 575. Now it's $2 billion with a dividend taken out with a blend [indiscernible] I think 525. So could you give us -- because I don't think the leverage is any higher, but what -- what's the thought process for you in the second lien before? What's the thought process for going to unit tranche for that particular structure. I mean, because they're more for you. I mean, honestly, they choose in terms of that, because it's gone to all UNI with a dividend taken out with a lower spread, and less so ID I presume, as well. So is it just that much [indiscernible] today than it was 3 years ago?
Brad Marshall: Yes, that's not exactly accurate, Robert. So it's actually a first lien and press [ph] capital structure. So what you had was an all cash pay for a second lien capital structure. The company continues to grow, wants growth capital. So we approached the company and said, why don't we do a first lien security and put a big press, that's 100% PIC. Behind that, free up your cash flow in order to continue to grow. We'll give you some additional growth capital to do some acquisitions. So it was highly strategic to them on two fronts, one gave more flexible capital structure; two, freed up a lot of cash flow. And the junior part of that capital structure sits in kind of higher risk oriented funds. And the first lien sits in our lower risk strategy. So I would not characterize that as a unit tranche. It's a first lien plus PIC press.
Robert Dodd: Got it. Thanks.
Brad Marshall: And by the way, the momentum -- I'll just add to the momentum in data centers is an incredible opportunity and Carlos hit on this, but Blackstone across [indiscernible] and digital realty owns something like $100 billion in equity in data centers. So we are highly strategic to assets like Park Place. And we think the long-term tailwinds in the sector are enormous. It's one of Blackstone's key investment theses, if you've kind of listened to Jon Gray kind of highlight this on previous earnings calls, but it is something that we're very bullish on.
Robert Dodd: Thank you.
Operator: Thank you. We'll take our final question from Casey Alexander with Compass Point.
Casey Alexander: Yes, good morning. Thanks for taking my question. This is just more of a curiosity, over the last couple of years there when the deal activity was more prevalent, you guys were expanding in software, there was a lot of software around the market. I'm just curious if the composition industry wise of deals being introduced has changed? And if so, what kind of industries are you guys seeing opportunities in it? And what kind of industries does it look like private equity seems to be centered on if we're kind of starting a new cycle of deal flow here.
Brad Marshall: Yes, I think -- I wouldn't say there is a material change over the last couple of years as where we're focused. What you see is, is more of an intentional focus on quality, right. Larger companies in the right parts of the market. We're in this period where we've seen inflation abate a little bit, but we are seeing a deceleration of growth really across the economy. If you look at default rates, for instance, in direct lending, you see some of the cyclical, more capital intensive businesses at the higher end of the range, north of 4% default rates. Whereas services and software are less than 2%. I think that's where the majority of the capital is going both from a credit perspective and in equity perspective.
Casey Alexander: Yes. Okay. That's my only question. Thank you.
Operator: With no additional questions in queue at this time, I'd like to turn the call back over to Ms. Wang, for any additional or closing remarks.
Stacy Wang: That would be all. Thank you all for joining us this quarter. We look to speak -- we look forward to speaking to you next quarter. Thanks, everyone.
Operator: Goodbye.
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