Jack Snyder
Hi, my name is Jack Snyder. I'm the Head of U.S. Wealth at Antares Capital. We're here at the IPA Vision Due Diligence Symposium meeting with gatekeepers from across the country. The fed recently announced they're going to be cutting rates 25 basis points and many of the gatekeepers, as well as financial advisors, in attendance are wondering what impact that will have on portfolios. Steve, can you share some insights, please?
Steve Rubinstein
Thanks, Jack. The fed has restarted its rate cutting cycle after an eight-month pause. For advisors and clients, that may mean a mixed picture. First, a lower distribution yield on your floating rate investments – but second, the lower yield may be offset by the potential for a healthier backdrop for our borrowers and a likely increase in new M&A activity. Lower base rates reduce the cost of capital for our borrowers. This may encourage incremental borrower investments and new LBOs, both of which create opportunities for deployment. Reduced base rates may improve liquidity and free cash flow for borrowers, which then may translate into fewer loan losses. Also, most private credit funds use floating rate debt for leverage. Lower fund level borrowing costs can help offset some of the rate cut impact. Not all managers are positioned equally. Those with high paid-in-kind interest income or high non-accruals could see dividend pressure that exceeds the base rate cut. We believe Antares portfolio currently stands out with low PIK income and low non-accruals, both of which support more stable income through the cycle. At Antares, we benefit from a scaled and proprietary private credit originations team. This allows us to minimize lower yielding, broadly syndicated loan investments within our BDCs.
Jack Snyder
Steve, thank you for those insights. We look forward to bringing you more timely updates on our next monthly video.