Cuộc họp báo cáo kết quả kinh doanh quý 3/2026 của Fidus Investment (FDUS): NII điều chỉnh đạt 0,54 USD

Điểm nhấn chính

• Fidus Investment Corporation (NASDAQ: FDUS) đạt thu nhập đầu tư ròng (NII) điều chỉnh quý 3/2026 là 0,54 USD/cổ phiếu, tăng so với mức 0,50 USD trong quý 2, khi số dư nợ cho vay bình quân cao hơn đã thúc đẩy thu nhập lãi tăng 24%.
• Danh mục đầu tư kết thúc quý đạt 1,4 tỷ USD theo giá trị hợp lý, tương đương 102,8% giá gốc. Các khoản đầu tư nợ đạt tổng cộng 1,3 tỷ USD, trong khi các khoản đầu tư cổ phần đạt tổng cộng 159 triệu USD.
• Các chỉ số tín dụng duy trì ổn định. Không có khoản đầu tư nợ nào ngưng tích lũy lãi, các công cụ ưu tiên bậc một chiếm 88% danh mục đầu tư nợ, và tỷ lệ khoản vay trên giá trị tài sản bảo đảm bình quân gia quyền đạt khoảng 41%.
• Tổng giá trị giải ngân mới trong quý 3 đạt 51,8 triệu USD, chủ yếu là các khoản đầu tư ưu tiên bậc một nhằm hỗ trợ hoạt động thâu tóm của các công ty hiện có trong danh mục. Giá trị thu hồi nợ và thoái vốn đạt tổng cộng 52,4 triệu USD.
• Hội đồng quản trị đã công bố mức cổ tức quý 4 là 0,54 USD/cổ phiếu, bao gồm cổ tức cơ sở 0,43 USD và cổ tức bổ sung 0,11 USD, dự kiến chi trả vào ngày 29 tháng 12 năm 2026.
• Ban lãnh đạo dự kiến hoạt động giải ngân mới và thu hồi nợ sẽ tăng trong quý 4 khi hoạt động M&A cải thiện, trong đó giá trị thu hồi nợ nhiều khả năng vẫn thấp hơn giá trị giải ngân mới. Hoạt động thoái vốn cổ phần dự kiến sẽ rất hạn chế trong quý này.

Dữ liệu tài chính chủ chốt

Kết quả kinh doanh và hoạt động

Các khoản đầu tư nợ bình quân cao hơn là động lực thúc đẩy lợi nhuận chính. Mức tăng thu nhập lãi đã bù đắp cho mức giảm 0,9 triệu USD thu nhập cổ tức từ cổ phần. Thu nhập từ phí tăng 0,9 triệu USD, chủ yếu nhờ các khoản phí thanh toán liên quan đến việc tất toán toàn bộ các khoản đầu tư nợ của Fidus vào True Environmental.

Danh mục đầu tư tiếp tục tập trung vào các khoản cho vay có bảo đảm ưu tiên. Các công cụ ưu tiên bậc một chiếm 88% tổng đầu tư nợ, trong khi tỷ lệ khoản vay trên giá trị tài sản bảo đảm bình quân gia quyền đạt khoảng 41%. Ban lãnh đạo cho biết mức đòn bẩy và tỷ lệ khoản vay trên giá trị tài sản bảo đảm đối với các khoản giải ngân mới dự kiến trong quý 4 vẫn duy trì tính kỷ luật, với tỷ lệ nhìn chung dao động từ 30% đến 50%.

Fidus nắm giữ các khoản đầu tư cổ phần tại khoảng 85% số công ty trong danh mục đầu tư, với tỷ lệ sở hữu pha loãng hoàn toàn bình quân là 2,1%. Ban lãnh đạo tiếp tục đặt mục tiêu đầu tư cổ phần ở mức tối đa khoảng 10% vốn đã giải ngân tính theo giá gốc, thay vì tăng phân bổ tỷ trọng cổ phần cho các giao dịch mới.

Công ty đã huy động được 35,5 triệu USD tiền thu ròng thông qua chương trình phát hành cổ phiếu theo giá thị trường (ATM). Công ty cũng nhận được sự chấp thuận của SBA về việc tăng hạn mức trái phiếu cho quỹ FMC 4 SBIC, bổ sung 75 triệu USD hạn mức nợ vay.

Triển vọng từ ban lãnh đạo

Ban lãnh đạo dự kiến cả hoạt động giải ngân mới lẫn thu hồi nợ đều sẽ tăng trong phần còn lại của năm 2026 khi hoạt động M&A ở phân khúc thị trường tầm trung thấp trở nên sôi động hơn. Danh mục dự án tiềm năng hiện tại bao gồm các cơ hội đến từ các mối quan hệ lâu năm với các nhà tài trợ vốn và các công ty trong danh mục đang theo đuổi các thương vụ thâu tóm bổ sung.

Trong quý 4, ban lãnh đạo kỳ vọng giá trị thu hồi nợ sẽ tương đối khả quan và cao hơn quý 3, nhưng nhiều khả năng vẫn thấp hơn giá trị giải ngân mới. Các khoản thu hồi nợ này dự kiến chủ yếu đến từ các khoản đầu tư nợ. Hoạt động thoái vốn cổ phần được dự báo sẽ tiếp tục rất hạn chế dựa trên tình hình thực tế hiện tại.

Hướng tới năm 2027, ban lãnh đạo nhận thấy tiềm năng tiếp tục thoái vốn cổ phần thông qua các hoạt động M&A truyền thống. Tuy nhiên, họ không kỳ vọng hoạt động thoái vốn trong ngắn hạn sẽ đạt mức sôi động trừ khi thị trường giao dịch nói chung khởi sắc hơn.

Công ty dự định duy trì tỷ lệ đòn bẩy ròng nhìn chung trong khoảng từ 0,9 lần đến 1,1 lần, đồng thời bảo đảm xếp hạng tín nhiệm ở mức khuyến nghị đầu tư và duy trì thanh khoản đầy đủ. Ban lãnh đạo cho biết đòn bẩy có thể tăng ở mức độ hạn chế nếu các cơ hội đầu tư hấp dẫn gia tăng.

Rủi ro và các điểm cần theo dõi

• Ban lãnh đạo nhận định môi trường kinh tế và địa chính trị có mức độ bất định bất thường, khiến thời điểm và quy mô phục hồi của hoạt động M&A trở nên khó dự đoán.
• Mặt bằng lãi suất cao có thể tiếp tục kìm hãm hoạt động giao dịch, ngay cả khi điều kiện thị trường duy trì ổn định.
• Sự cạnh tranh đối với các khoản vay chất lượng cao tại phân khúc thị trường tầm trung thấp vẫn rất lớn. Ban lãnh đạo kỳ vọng biên độ lãi suất nhìn chung sẽ duy trì ổn định, dù có thể thu hẹp nhẹ nếu lãi suất tăng.
• Thời điểm thoái vốn cổ phần vẫn phụ thuộc vào điều kiện thị trường M&A, mà theo ban lãnh đạo hiện vẫn chưa thực sự khởi sắc.
• Tác động gián đoạn từ AI đã được thảo luận như một rủi ro đối với các doanh nghiệp phần mềm quy mô nhỏ hơn. Ban lãnh đạo cho biết các công ty trong danh mục đầu tư đang rót vốn vào AI để cải tiến sản phẩm, bổ sung tính năng và tăng cường thu hút khách hàng, trong khi toàn bộ danh mục phần mềm vẫn tiếp tục ghi nhận mức tăng trưởng doanh thu và EBITDA so với cùng kỳ năm trước.

Nội dung nổi bật từ phiên hỏi đáp với chuyên gia phân tích

• Sự phục hồi của hoạt động M&A: Ban lãnh đạo cho rằng hoạt động giao dịch khởi sắc là nhờ tâm lý đã thoải mái hơn trước các điều kiện kinh tế và địa chính trị. Hầu hết các cơ hội hiện tại nằm ở mảng dịch vụ doanh nghiệp, sản xuất ngách và dịch vụ công nghiệp thay vì phần mềm.
• Mức độ tiếp xúc với phần mềm và AI: Fidus cho biết danh mục phần mềm của công ty có doanh thu bình quân khoảng 43 triệu USD, EBITDA bình quân khoảng 7 triệu USD và biên lợi nhuận xấp xỉ 15%. Các công ty trong danh mục đang ứng dụng AI để cải tiến sản phẩm và phát triển các tính năng mới.
• Chiến lược bảng cân đối kế toán: Công ty ưu tiên duy trì thanh khoản và đòn bẩy ở mức vừa phải thay vì hoạt động ở trạng thái đầu tư toàn bộ vốn. Cách tiếp cận này nhằm bảo toàn năng lực đón nhận các cơ hội hấp dẫn, đồng thời bảo vệ xếp hạng tín nhiệm ở mức khuyến nghị đầu tư.
• Thoái vốn cổ phần: Ban lãnh đạo không có kế hoạch chủ động bán các khoản nắm giữ cổ phần trên quy mô lớn. Hoạt động thoái vốn dự kiến trong năm 2027 chủ yếu sẽ đến từ các thương vụ thoái vốn M&A thông thường.
• Cấu trúc khoản vay: Fidus tiếp tục duy trì các điều khoản cam kết tài chính (maintenance covenants) đối với các khoản vay ưu tiên bậc một ở phân khúc thị trường tầm trung thấp. Ban lãnh đạo xem các biện pháp bảo vệ này là yếu tố quan trọng khi bên đi vay theo đuổi các thương vụ thâu tóm hoặc khi hiệu quả hoạt động suy giảm.
• Đồng đầu tư cùng các nhà tài trợ vốn: Hoạt động đồng đầu tư vốn cổ phần cùng các nhà tài trợ vốn cổ phần tư nhân vẫn là một phần cốt lõi trong chiến lược, nhưng ban lãnh đạo không kỳ vọng tỷ trọng phân bổ vốn cổ phần trong các thương vụ tương lai sẽ tăng đáng kể so với mức trước đây.

Toàn văn biên bản cuộc gọi công bố kết quả kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

Operator

Good day, and welcome to the Fidus Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jody Refining. Please go ahead.

Jody Burfening

Thank you, Megan, and good morning, everyone, and thank you for joining us for Fidus Investment Corporation's Third Quarter 2026 Earnings Conference Call. With me this morning are Ed Ross, Fidus Investment Corporation's Chairman and Chief Executive Officer; and Shelby Sherard, Chief Financial Officer. Fidus Investment Corporation issued a press release yesterday afternoon with the details of the company's quarterly financial results. A copy of the press release is available on the Investor Relations page of the company's website at fdus.com.

I'd also like to call your attention to the customary safe harbor disclosure regarding forward-looking information included on today's call. The conference call today will contain forward-looking statements, including statements regarding the goals, strategies, beliefs, future potential, operating results and cash flows of Fidus Investment Corporation.

Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, November 6, 2026. These statements are not guarantees of future performance. time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission. Fidus undertakes no obligation to update or revise any of these forward-looking statements. With that, I would now like to turn the call over to Ed. Good morning, Ed.

Edward Ross

Good morning, Jody, and good morning, everyone. Welcome to our Third Quarter 2026 Earnings Conference Call. Today's call, I'll start with a review of our third quarter performance in our portfolio at quarter end and then share with you our outlook for the remainder of 2026. Shelby will cover the third quarter financial results and our liquidity position. After we have completed our prepared remarks, we'll be happy to take your questions. As expected, given the pent-up demand in the M&A markets, deal flow picked up in the third quarter relative to the first half of the year. .

A number of our portfolio companies continue to be active from an M&A perspective as part of their growth strategies. As our strategy calls for investing in high-quality growth-oriented companies typically, the need for add-on acquisition capital is often part of the equation and an opportunity for Fidus. Overall, our debt portfolio is performing well. generating adjusted NII of $0.54 per share in the third quarter that was driven by a 24% increase in interest income on larger average loan outstanding balances.

We continue to amply cover our base dividend. Net asset value was $774.4 million at quarter end or $19.47 per share. For the fourth quarter of 2026, the Board of Directors declared a total dividend of $0.54 per share, which consists of a base dividend of $0.43 per share and a supplemental dividend of $0.11 per share equal to 100% of the surplus in adjusted NII over the base dividend from the prior quarter, which will be payable on December 29, 2026, to stockholders of record as of December 18, 2026.

Originations in the third quarter totaled $51.8 million and consisted primarily of first lien debt investments in existing portfolio companies in support of acquisitions. Proceeds from repayments and realizations were $52.4 million for the third quarter. With originations nearly equal to repayments, our portfolio at quarter end was stable totaling $1.4 billion on a fair value basis or 102.8% of cost and consisting of $1.3 billion in debt investments and $159 million in equity investment.

At quarter end, first lien instruments accounted for 88% of our debt portfolio and the weighted average loan to value is approximately 41%. In addition, our portfolio remains well diversified and structured to produce both high levels of recurring interest income and capital gains from monetizing equity investments. From a credit quality perspective, our portfolio remains healthy overall, reflecting the generally strong fundamentals of our underlying lower middle market portfolio companies.

At quarter end, we did not have any debt investments on nonaccrual. Looking ahead to the remainder of 2026, we anticipate a higher level of investment activity from an origination and a repayment perspective due to a more active M&A market. Our pipeline consists of a number of quality opportunities sourced from both long-standing relationships, with deal sponsors and our portfolio companies, many of which are active in M&A.

Since inception, we have focused on the lower middle market and employed the same investment strategy and strict underwriting criteria consistently, both of which has served us well. As a result, we continue to have a healthy portfolio, well positioned to generate adjusted NII that covers our base dividend and the potential for capital gains from monetizing equity investments.

By adhering to our investment strategy and underwriting disciplines, we remain committed to our long-term goals of capital preservation and of generating attractive risk-adjusted returns for our shareholders. Now I'll turn the call over to Shelby to provide some details on our financial and operating results. Shelby?

Shelby Sherard

Thank you, Ed, and good morning, everyone. I'll review our third quarter results in more detail and close with comments on our liquidity position. Please note, I will be providing comparative commentary versus the prior quarter, Q2 2026. The total investment income was $45.9 million for the 3 months ended September 30, a $2.4 million increase from Q2, primarily driven by a $2.2 million increase in interest income, driven by increased average debt investments outstanding. a $0.9 million decrease in dividend income from equity investments offset by a $0.9 million increase in fees income and primarily related to payment fees and the repayment in full of our debt investments in true Environmental.

Total expenses, including income tax provision, were $24.8 million for the third quarter, in line with Q2. Q3 expense variations included a $0.7 million increase in interest expense related to higher average debt balances outstanding and a higher average interest rate, a $0.2 million increase in base management fees, given an increase in assets under management, a $0.4 million increase in income incentive fees offset by a $0.4 million decrease in the capital gains fee accrual and a $1 million decrease in G&A expenses primarily related to proxy solicitation costs for the Annual Shareholder Meeting held in Q2.

Net investment income or NII for the 3 months ended September 30 was $0.54 per share versus $0.49 per share in Q1. Adjusted NII, which excludes any capital gains, incentive fee accruals or reversals attributable to realized and unrealized gains and losses on investments, was $0.54 per share in Q3 versus $0.50 in Q2. For the 3 months ended September 30, we recognized approximately $11 million of net realized losses on debt investments in Vertex enterprises, which had previously been written down.

We ended the quarter with $712.2 million of debt outstanding, comprised of $289.5 million of SBA debentures, $320 million of unsecured notes, $92.3 million outstanding on the line of credit and $10.5 million of secured borrowings. Our net debt-to-equity ratio as of September 30 was 0.9x. Our statutory leverage, excluding exempt SBA debentures was 0.5x. The weighted average interest rate on our outstanding debt was 5.8% in line with Q2.

Now turning to portfolio statistics as of September 30. Our total investment portfolio had a fair value of $1.4 billion. Our average company investment on a cost basis was $14.1 million, which excludes investments in 8 portfolio companies that sold their operations that are in the process of winding down. We have equity investments in approximately 85% of our portfolio companies with an average fully diluted equity ownership of 2.1%.

Weighted average effective yield on debt investments was 12.6% as of September 30 versus 12.5% in Q2. The weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original issue discounts and loan origination fees, but excluding investments on nonaccrual, if any. Now I'd like to briefly discuss our available liquidity. In Q3, we issued accretive shares under our ATM program and raised $35.5 million of net proceeds.

In September, we received SBA approval for the new increased SBA debenture fund limit of $250 million, giving our SBIC fund FMC 4 incremental debt capacity of $75 million. As of September 30, our liquidity and capital resources included cash of $32.7 million, $132.8 million of availability on our line of credit and $83 million of available SBA debentures resulting in total liquidity of approximately $248.5 million. Now I will turn the call back to Ed for concluding comments.

Edward Ross

Thanks, Shelby. As always, I'd like to thank our team and the Board of Directors at Fidus for their dedication and hard work and our shareholders for their continued support. I will now turn the call over to Megan for Q&A. Megan?

Operator

[Operator Instructions] The first question comes from Robert Dodd with Raymond James. .

Phần hỏi đáp

Robert Dodd

Congratulations on another really good quarter. A couple of questions. One housekeeping 1 before I go into the more detailed ones. On the combined dividend and fee income, obviously, basically, they offset this quarter, right? I mean dividend was obviously unusual as recognized and the fee was higher because of true environmental. I mean, is it fair to say that like if you just treat this quarter as quasi-normal or even arguably low when you -- on a combined basis. I mean, is that the right way to think about it? It's not like I should take out fee income next quarter and obviously leave the dividend being unusual. I mean just trying to think about what the right combined number for that is kind of on a go-forward basis. The interest expense, obviously, is conceptually easier to model than dividends fees.

Edward Ross

I think what I'd say is fee income was -- yes, actually, at a decent level because of true environmental prepayment fee. So that was -- that's a decent level of fees. But usually, we're -- we have more activity that drives even more fees than that. But I think that's a fair number. And as you know, the dividend income is more episodic in nature. And so it's just tougher to predict. So I think not expecting that every quarter probably makes some sense.

Robert Dodd

Got it. Okay. On the big -- you indicated you expect obviously activity to pick up in the fourth quarter. obviously, in your end of the market, like is there any particular themes in that? I mean, people been waiting on the election, it seems unlikely because that only just happened. Are there -- is it picking up in more halo or asset-heavy industries, some time, some of which pupicationally done? Or is there any particular thing that more in favor right now that fits obviously within your portfolio? Or is it just an overall -- or is, in fact, a lot of software stuff getting done. I mean is there any incremental color on kind of like what's driving that? .

Edward Ross

It's a great question, Robert. I think what happened in the market as things started to pick up mid-year from a deal flow perspective, we didn't have anything close in Q3, really. We had 1 holdover from a commitment from Q2, but activity levels really increased. And so -- and I think it was generally folks getting more comfortable with the war, the geopolitical situation and the economy as we sit here today. And so I think there was a malaise during Q1 and Q2 that started to lift a little bit and people are more interested in doing things.

So that's the primary driver. I think the second driver is most of the activity is traditional economy related, it's going to call it, say, business services, maybe niche manufacturing, industrial services, those types of things. So that's the second theme is what I would say as opposed to software investing.

Robert Dodd

Got it. I appreciate that. And then 1 more -- I'll ask you that, yes, to get your crystal ball out. Is this sort of a build to a year-end rush which sometimes happens. Or is this -- do you think a kind of a lifting swell and we're going to see more activity overall. Now to your point, if people have gotten comfortable with geopolitics, which might change in the economy that like 2027 will just be a more active year, not crazy, but more active in general. Is that fair to say?.

Edward Ross

I think that's our hope, right? There's -- we're in a more uncertain environment today than we have been in quite a while. And so it's kind of hard to predict. But our expectation would be if status quo is what happens that there would be a lift, if you will, in M&A activity. I don't expect it to be overly robust. There's reasons to people don't want to do that, high interest rates and other things. But I think there will be plenty of activity, assuming status quo.

Robert Dodd

Got it. Got it. And then sorry, I thought that was the last 1 that One final one, if I can. On pricing, in spreads, et cetera, right? Obviously, you've got a first lien focused portfolio now. what -- if activity does pick up? Or -- I mean, do you expect it to have a material impact on spreads? Or you just think this is where they're going to stay or could they even go down given the forward curve as base rates are going to go up. I mean, just what do you think on pricing here?.

Edward Ross

Yes. I think stability is probably where I would come out on that question. I mean we're focused on very high-quality opportunities in high-quality businesses, and there's competition. It's real. And so that's how I would think about it as opposed to widening spreads. I don't think so. Could there be a slight narrowing if rates do increase, that could happen adjusting there for the -- again, high-quality situations. You start drifting into riskier situations, that's a different game.

Operator

Next question comes from Mickey Schleien with Clear Street.

Mickey Schleien

Yes. So Robert stole my thunder on a lot of questions, but I have a couple more that I'd like to ask. Ed, your software exposure is pretty similar to the average in the BDC sector. So it's something you're familiar with. And I don't want to beat a dead horse, but AI is investing very quickly. And I'm interested in understanding, I think the market is interested in understanding, particularly in the lower middle market where you focus how are your borrowers using AI to defend their businesses, their software businesses from AI competition itself. And what are they doing to avoid being replaced by AI if you understand what I'm saying.

Edward Ross

I do. And so this maybe comment on just smaller software companies because we definitely have some of those. And I know the concern is 1 of -- is there more risk. And I would say it's true that some -- whether it's traditional or new economy. Smaller companies can carry more risk, not always. But we know that from our perspective, we know the lower middle market well. We've been investing in it for many years.

Part of our historical success comes from finding niche market leaders people that are leading from a market share and a product perspective with strong value propositions and great management teams. I mean, that's our focus. And these are some of the criteria that we use, right, to build out our software and tech-enabled services portfolio. And so we've got what we believe is a very strong and healthy overall software portfolio, the average revenue and EBITDA kind of $43 million and $7 million. Margins are 15%and we continue to see year-over-year growth in both metrics.

So we feel good about the health of the portfolio. And what we're seeing from the portfolio companies on the software side is they're working hard and spend the money on continuing to improve their business. And obviously, that's encouraging. But they're leveraging AI to improve products and create new features at the end of the day. And they're also evaluating acquisitions and channel partnerships to generate more customers.

And so I think what I would say is people are investing in AI, what your hope is your portfolio companies are well positioned today and they can just improve that positioning. And that's what most companies are trying to do.

Mickey Schleien

I understand. A couple of balance sheet questions. You tapped the ATM -- the common share ATM program again during the quarter. despite limited net portfolio growth, how are you thinking about additional equity issuance versus perhaps carrying a little bit more leverage on the balance sheet, which potentially could help increase your ROE?

Edward Ross

Sure. Great question. I think -- what we're trying to do is stick between that 0.9:1 and 1.1:1 really in the middle. We're not -- our goal is not to go too far over 1 to 1. We do care about our investment-grade rating, and I think that's part of the equation as well. So I think we're -- what we are trying to maintain is a strong balance sheet position, a strong liquidity position. so we can take advantage of opportunities as they arise as opposed to being fully levered and fully invested and maybe more limited from a capacity perspective. And so there's a balance that you try to strike. And so that's the goal, and every quarter will be a little different, but I think we feel good about the approach. .

Mickey Schleien

So if I could -- if I'm understanding you correctly, if the market were really going to pick up and in the current environment, I think that's doubtful, but let's say it does. you're holding back some dry powder essentially and would be willing to run with a little bit more leverage if it makes economic sense.

Edward Ross

Yes, to a limited degree, back to investment-grade matters and not going getting too levered as I think is a piece of our equation. But yes, to a limited later -- Absolutely. .

Mickey Schleien

Okay. And lastly, if I have the math correctly, the equity portfolio is marked almost 50% above cost. And if I recall, you did trade a few years ago where you sold several equity positions to capture those gains, which is really interesting. How would you characterize your appetite and the near-term pipeline for exiting some of those equity investments and generating some realized gains.

Edward Ross

It's a great question, Mickey. And I think where we are -- I think we are happy with the positioning of our equity portfolio. But as we -- as you just mentioned, the market is not in a robust date. And so that will impact our realizations and the timing of those realizations. There probably -- some of those are pushed out. from our perspective, it's worth noting just to make sure I get it out there. I think the repayments, we expect to be relatively healthy this quarter, most likely less than originations. but relatively healthy, but it's really on the debt investment side, not on the equity side.

But we do see some potential realizations on the equity side in 2027. We've obviously had 5 or 6 realizations this year. So we would expect a continuation of that kind of -- those kind of activities, if you will, as opposed to robust levels at the moment. It's just -- the M&A market is not at that level at the moment.

Mickey Schleien

Right. So that would be plain vanilla M&A activity next year as opposed to you proactively trying to sell a chunk of that equity portfolio. Am I understanding you correctly?

Edward Ross

You are, you are, and I don't think there was -- just to put a little meat on the bone. The reason we sold the equity was we were probably long in the tooth as a percentage of our portfolio. It was over 20% equity was. And so it just made sense to try to get some liquidity and try to drive more recurring earnings at the end of the day. And so that was what drove that positioning, not the need for the capital gain, it was obviously very good investments overall that we sold, to be honest, but they were -- it was to drive a portfolio that had a higher level of recurring earnings.

Operator

[Operator Instructions] The next question comes from Christopher Nolan with Ladenburg Thalmann.

Christopher Nolan

And -- just to rephrase a question that Mickey asked for, fourth quarter, should we expect some gains from this increased activity?

Edward Ross

No. I don't know, and I tried to hit that at the end of that question and Q&A session with Mickey. I think most -- we're going to have a relatively high level of repayments, especially as compared to Q3. but it's really going to be on the debt investment side. On the equity realization side, we don't -- I think it will be very limited here in Q4 based on what we know today. .

Christopher Nolan

Great. And then also back to the AI for a second. Business Services is 1 of your larger industries. Does that include law firms and consulting firms industries, which basically really could get displaced by AI. What comprises business services, please?

Edward Ross

A very, very -- it's a broad definition. It's a very broad definition. Law firms we don't have -- I mean, we -- Obviously, it's something that's serving kind of providing a service, a court service, and you saw that in the subsequent events. But that's not something, quite frankly, that can be replaced by AI, if you will, that service. So we feel very good about that.

And we don't have any investments in law firms and consulting firms, we really don't have any straight up consulting firms. So it's not that -- those aren't the types of business services companies that we have.

Christopher Nolan

Great. And final question is for private equity sponsors, it seem to be sort of under stress. And given the increase in interest rates and a highly competitive lower middle market lending market. Are you finding that you might be making like sidecar equity investments alongside loans or not?

Edward Ross

So when you say sidecar, just to make sure I answer the question, you mean just a co-investment alongside a private equity group. .

Christopher Nolan

Exactly. .

Edward Ross

Yes. So that -- I mean, what you just hit on is our strategy. So -- and Shelby said that we have equity investments and 85% of our portfolio companies, I mean she's highlighting that we are co-investing with typically the ownership group, which is quite often, almost always a private equity group.

So that's the -- that is the strategy. And what we like about the lower middle market is, yes, it is competitive, but it's very, very fragmented. It's where 90% of -- where we play is probably where 90% of the M&A activity in terms of number of deals take place. And so it gives an opportunity to originate very high-quality situations and businesses, which is the goal as opposed to a fewer number of companies and you got a bunch of people that can provide those solutions.

It's a different equation from an origination perspective. So we like that aspect of it. But yes, from an equity perspective, we co-invest with the sponsors. What we're looking for companies where we like both the debt investment, we also like the equity investment. And that's the -- our general goal, if you will.

Christopher Nolan

I should have clarified it. Should -- are you expecting to invest more equity than in the past for deals going forward? That's what...

Edward Ross

Great question. I -- no, I would say the answer to that is no. Our general strategy has been kind of up to 10% of our capital that we deploy over time in the form of equity investments. On a cost basis, we're at a lower level than that. On a fair value basis, we're at a higher like 11% now. But we -- so I think about it up to 10% on a cost basis is how we think about it. .

Operator

The next question comes from Paul Johnson with KBW.

Paul Johnson

In terms of like the current vintage, it doesn't sound like necessarily you see any kind of meaningful improvement in spreads. But is there any thing else, I guess, that you think that you're extracting more of today within covenants or any sort of documentation terms that you think is better in the current vintage?

Edward Ross

If you think about it from a -- it's a great question, Paul. But if you think about it from a recent history perspective, I think we are covenants or have been there for a while. So when we started investing in first lien debt, having 2 maintenance covenants and that really started in 2018 was part of the equation. And that continues in the lower middle market. So we have what we believe is real maintenance covenants that gives us a seat at the table when there are things like acquisitions going on or things aren't going as planned.

And so we like that aspect of it. I think pricing, I don't see big changes there. Leverage, I do not, I think leverage is very much in check for obvious reasons, if not, maybe a little bit lower, but let's say, it's stable as well. And then loan to values are also very healthy. So we're in the 30% to 50% range on our originations or expected originations in Q4, so 30% to 50%. And that's always been a focus of ours and something that we really try to stick to, if you will.

Paul Johnson

Got it. And last 1 is maybe a higher-level question, but it's not historically been a part of your business that I'm aware of. But if there is some sort of scenario where maybe M&A is taking longer to recover and exit time lines are being extended along with loan maturities. Is there a scenario where the sponsors potentially create some sort of dividends, not necessarily a full recap but start to draw on dividend income to create some sort of DPI for these businesses within those funds.

Edward Ross

I would say to a limited degree. The answer to that is yes. What we have seen primarily though is high-quality businesses sponsors like to hold on to. And so they do try to generate some form of dividend, and maybe they'll do that 2 or 3x, quite frankly. And so we have seen that over the years, and we would expect that to continue at the end of the day. There are times in where you have lower leverage situations where you can generate consistent dividends. But that's, I would say, the minority for sure as opposed to the majority of those situations. .

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Ed Ross for any closing remarks. .

Edward Ross

Thank you, Megan, and thank you, everyone, for joining us this morning. We look forward to speaking with you on our fourth quarter call in late February 2027. Have a great day and a great weekend. .

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.