SLR Investment (SLRC) 3 Nov 222022 Q3 Earnings call transcript

Good day, everyone, and welcome to the Q3 2022 SLR Investment Corp. Earnings Call. [Operator Instructions]. Please note, this call is being recorded. I will be standing by if you should need any assistance. to conference like to now would turn over the Mr. I Chairman and Gross, Co-CEO. Michael Please go ahead.

much, statements? morning. Chief please quarter the and Investment very and would by you Thank good you Co-Chief our Rich, Call XXXX. joined and CEO, the webcast before Bruce XX, begin, Spohler, Corp.'s Peteka, Welcome covering for third Officer. September start fiscal our by ended Rich I'm forward-looking today Financial Earnings SLR to we

remind to they website everyone today's conference from Thanks, our of of being Michael. form webcast replays call made like Sure. in recorded. this the call This any will that would webcast the are and release. later note press is in SLR that being any are that www.slrinvestmentcorp.com. are broadcast and of disclosed at today as I call be Audio property in calendar prohibited. our available unauthorized strictly earnings Investment Please Corp. Events Investor section the

call like statements risks Actual I expected and condition. to specifically conference and the today's ability performance, results SLR the our will timing of our not from today's no press our by to factors, materially call To required in going reflecting our note impacts including financial or turn performance of amount I current us results Corp. time the would Gross. forward-looking Corp.'s include Past differ the the the which not in indicative past customary SLR's may COVID-XX. involve any any may or the the the forward-looking in our website are to from regarding of with with forward. made dividends obtain performance, Board the update SEC. dividends and to financial number distributions call are views time of and payment uncertainties, a so statements, our results. anticipated a Co-CEO, a our future on associated filings at be to to SEC performance with to XXX-XXX-XXXX. With the described that any SLR of forward-looking latest dividends of by duty condition guarantee a of to payment, synergies distributions like and of also Comments future determined undertakes or visit result unless or savings events of and constitute Statements Investment or financial and our relate information. as that, of of would and operating the realize benefits those Please law. or which future and funds, respect merger, do including back thereof, copies the release to amount number forward-looking filings, These Investment of disclosures amount timing webcast call statements future to attention not please Michael your merger, statements guarantees future future of Directors. acquisition Chairman call our results and is

us. of quarter you the for XXXX. Thank Good $X.XX per joining thank you, morning, Last of share reported and Rich. income investment third SLRC net for night,

we stable year portfolio the interest close. quality, rates the following second are growth, and NII to Due of SUNS, the $X.XX in the cover per we'd of originally of In in proposed are we achieve share that outlining we Importantly, that $X.XX expecting our to share projected. expecting sooner now per our portfolio of reach year. projected merger to distribution communications this fourth synergies, target acquisition realization than rising and quarter SLRC the

to our a largely XX, downturn. Though driven combination borrowers build, companies from from quarter quarter, health which solid indicative decline commercial as labor As not to comp and our and by net in market some mark-to-market all expectations of value are lower well due positioned the of costs resulting financial At company are not are These share withstand financial stress of September a have have disruptions, amongst SLRC's finance from was for seen $XX.XX, our to subsidiaries borrowers. are unrealized evidence as our higher that businesses, chain portfolio of technicals we trending the continued specialty third XXXX, had a share losses valuations. second unrealized from slight recession changes well and of are have we a input of asset losses continue impacted positively. to pleased our finance margins per

our is and quality credit well performing portfolio Overall, is stable.

to comprised our reminder, cash loans noncyclical companies are first specialty of SUNS, is coverage. in noncyclical in senior in which At loans, Enhanced rate finance portfolio SLRC's flow acquisition secured and across investment a our highly and loans downturn during cash significant comprehensive of loans industries our have protection by XX, provide secured senior flow diversified lien a asset-based XX.X% loans. our collateral sectors September As greater was recession. floating portfolio of

Our exposure de second remains lien minimis.

Terms of sponsor-financed an market of seeing $XXX million set, turbulent conditions, capital are become have should $XXX well during Against have in specialty volatile originated and which Our increasing in market had investment in us businesses environment. company in backdrop and third flourish focus to on an million. rate perform several attractive opportunity the conditions of market investing available first investments advantage repayments most also more years. the attractive enable new to lien our take quarter, new importantly, the The are seen loans investments the climate. we finance loans attractive the in for current

high-yield further in have syndicated economic and inflation markets the XXXX concerns disruption led in The and loan plagued to third the quarter. that

more, SLR discounts tight platform, increased more banks loose on XXXX. influence lenders in investments $XXX lending. even banks of With such quarter million hold volatility these the the from can syndicated We demand were continue pricing and who the and risk power benefit markets that reflect as underwritten sidelines, prior to over of train broadly are have greater and second or from terms. to the of in retreat leveraged Pricing and credit pricing deep structures from loans

continue of structures. is As a With tight result, continued rates, direct private to credit opportunity. relative and source uniquely rising capitalize a lending deals stability and economic headwinds heavily SLRC to be market higher positioned on negotiated private this middle is with potentially returns.

existing were seeing are recession-resistant specializes on stimulus. recent of COVID-related that continue We sectors during investment deploying well and acquisitions. to The financial into the companies focused via add-on dry their in of than which loans leverage with government perform opportunities yields higher sponsors less the period structured portfolio SLR powder

economic lending which and for with increasingly provide asset-based to borrowers across times, working uncertain turn protection investors During capital economic cycles. our strategies downside liquidity greater management,

challenging outperformed historically to lending market companies' sources conditions when have traditional businesses asset-rich constrained. is access ABL Our during

more We with available ago. have to ample than a investment of dry year terms attractive powder were opportunities take advantage

a in position comprised is rate a rising profile $X.X weighted rate million funding notes of $XXX unsecured Our at funded rate strong of weather a fixed debt environment with our senior average to X.X%. of interest billion of annual

current finance limits, At X.Xx borrowing leverage leverage credit within had capacity take of available our ample our was still SLR target range XX, advantage September to net investment attractive our debt-to-equity, base XX, facility companies to September including environment. available specialty X.XXx. at X.XXx to of comfortably subject the capital and At

in partner knows currently including SLR $XX the business philosophy financing investment other investor announced and formation we we senior the who of have of selecting a the SLRC program million, lending October, their with are investment equity and and through each of made In initiatives. a initial the strategic well, commitments provider. process

some JV cash of lien contribute flow acquired We merger through SLR's the SUNS. expect our lower-yielding that to were loans to first with

our are $XX repurchase patience to utilizing take into it ability Directors. a CFO, under highlights. back now authorized while Peteka, to Rich third our active our program quarter the over to in Lastly, will share our believe I share invest Board And plan capital reduce translate the through attractive have million the cost financial portfolio we we with you yet and this at call committed to of turn of plan, overall discounts. buyback not to by will been through repurchases we that our

XXXX, sheet asset at per across XX companies XX, investment billion September XXX portfolio XX, $XX.XX compared XXX had industries portfolio a industries fair share in market value SLR market June XXXX, a Michael. portfolio Corp.'s of XX, $X.X or value companies XX approximately billion at Investment per fair $X.XX you, SRLC's compared billion $XX.XX to September billion or At in $X.XX Thank June XX. net across $X.X XXXX. to was share value on-balance at of

SLR together growth. Investment At to the with significant outstanding of from has available of fund available When company's billion significant combined company's subsidiaries, the comprehensive $X.XX the available net portfolio credit from the capacity September capital company approximately future with facilities, considering debt-to-equity. leverage XX, X.XXx had capital Corp debt

Moving P&L. to the

$XX.X to the per June the ended X for For September share XXXX versus $XX.X the million $X.XX $X.XX X gross XX, September XXXX, June average months June million or average XXXX. net $XX.X for million X XX, months million months compared $XX.X per months ended This million to months XX, income X X ended for expenses for or ended X $XX.X for income company's September the Accordingly, the share ended totaled investment totaled Net the months XX. XXXX. XX, the compares investment ended totaled million XX. $XX.X

operations XX. $X.X and company share to versus for decrease increase compared losses unrealized from XXXX. or the $X.XX September the the $X.XX and million of or fiscal months in a million net ended unrealized realized XX, of June Below months resulting This the totaling realized Ultimately, XXXX. X $XX.X second of share average average per per assets a the for line, for had had million X $XX.X loss quarter the $XX.X company ended net of quarter the net million for net third

per the I'll November on $X.XXXXX November holders share of Spohler. to XXXX, of of on our monthly Bruce payable record declared XXXX. And December turn Finally, to that, XXXX the with co-CEO, X, average X, distribution XX, Board a over Directors call on

you, Thank Rich.

in an lien the the of fair $X.X senior million. secured lien across providing billion to an in X% XX.X% end, on XXX XXX loans portfolio our senior At lien over loans. approximately average by a second of flow second comprehensive asset-based secured consisted portfolio first in approximately industries distinct loans X.X% basis, combined of exposure with XX.X% portfolio. loans with of quarter overview only and loans $X.X and of end, of quarter consisted cash borrowers begin me Let At value

of specialty mid-market XX% Our the XX% for the cash secured of upper investments value the remaining companies. to loans sponsor-backed approximately with flow portfolio, account senior fair finance in

the end level under was least rating amount X quarter. X second At quarter representing the risk end, weighted to yield scale, our from on up investment risk. The based average was X.X% X risk of average XX.X%, with the of asset at rating weighted X our

to Turning our strategies. investment

As portfolio a reminder, asset the X have into distinct segmented classes. we

The loans is first which flow we as cash mid-market companies, refer to sponsor-financed. to upper

is second loans. The asset-based

science to finance. life device loans, strategy And medical made late-stage is is backed and third capital venture drug the are The equipment development fourth which companies.

Now let me turn to strategies. of these each

Finance. in we healthcare mid-market upper largest originate and loans to financials. our industry being with Sponsor business, exposures first industries our In lien secured sponsor companies noncyclical diversified

Our put increasing sponsor teams' acquisitions. management from partner it from currently a buyouts retrenchment lenders work and and direct financings add-on is banks and benefiting powder record in desire vertical private financial dry a to sponsors with preference time finance have when to to during and sponsors'

loan yields market in of a risk. resulted in sharp have the reduction and banks' to indicators and the recent market syndication by turmoil willingness of assume bank a Fed in caused recession syndicated tightening widening The a

are in a a diminished on seeing we're borrowers yields year our to available the to private the XXX portfolio the to selloff and As capital credit liquid of compared XXX-basis of in increase supply point markets, a ago. result debt cash the over X.Xx, interest flow to that a interest XX% exceeds withstand coverage positioned rates. average first borrowers our of loans any from investments in ratio lien facing well With our are weighted that and liquidity rising pressures portfolio our

of 'XX/'XX of the transaction be equity this $XX deploy period EBITDA end, portfolio of over year. portfolio across was that XX from beginning our this will cash capital. was last healthy, attractive The vintage was million we year's million, record-setting equaling our just to $XXX while extremely levels, XX% combined sponsored and quarter portfolio at volume, cash down our companies. flow increased Private flow an remains from $XXX million, At average and invested believe

million. During At $XXX over quarter. million experienced was the loans weighted the of $XX over cash from repayments the flow cash the flow X.X%, quarter, we end, just portfolio up yield on X% of originated and at quarter just second average

ABL during market are who SLR are forced rising underlying volatility of loans. business provides to segment. our segments, has our Solutions, to asset-rich and class periods capital but ABL cash Borrowers are Credit by our requires X have in The Now and contraction. flows our that expertise monitoring demand this let collateral that assets. the asset me outperformed valuing and companies. first collateral turn supports Historically, backed liquid of economic loans slowing backed to by raise rich rates pressured asset their

Our in by investments in us coming quarters. strict optimistic borrowers. underwriting value average against today team's experience are about deep an are we The over XX-plus attractive, of collateral advantage and business backed pipeline over years the borrowing the collateral the of the underlying gives that is very bases and

previously the to by outperform growth SLR underlying is Business as to me collateralized Credit continued Credit at let valuing division at factoring collateral. of the working acquisition has of acquisitions and receivable third capital Solutions expertise this asset-based in finance SLR Business at Similar needs. quarter. once all-time division's team, of the subsidiary, in order monitoring of Which contributed loans Pay, predominantly in has now our portfolio. well an the has time Business receivable to receivables and the as Fast Finance, This Credit end the called Digital to Now turn high XXXX Credit. borrower's the again provides our and facilities to

its companies. has when The in credit Business our to our caused COVID-XX borrowers but size very last the Healthcare Credit to government's accounts recovered portfolio of we lends that here lows SLR and it ABL, against from infusion massive segment, similar division to down capital pay the only healthcare receivable, lend many ABL The is lines.

our to private approach. With take demand finally, capital. which underlying resulting increased flow loans driving deal from seeing business the disruption, finance our to we our lenders markets, market loans our issuers' collateral. a and lender placement slowdown securitization And conservative asset-based makes continuing other We're commercial in as a this with for is increased the are

As always, value value will portfolio we a of evaluate it of that ensure the investment. the to fully cover runoff our

combined borrowers. of the over yield in average and this secured level portfolio end, senior our $XXX over loan representing quarter was The million, portfolio just portfolio of XX.XX%. At weighted invested asset-based totaled asset XX% total over XXX was

quarter, $XXX new During repayments the just loans of asset-based of million. and third we originated had million $XX under

investment-grade had both and Finance. existing equipment leases to Kingsbridge Equipment set, SLR of originators lengthen positive leases to This Due our team. diverse to add on division the for of continuing Now and provides to their useful let life opportunity its customers. size attractiveness of has their a me consists continuing been existing impact Finance. touch use of to equipment, Customers the the Equipment been Holdings Kingsbridge to extend which have a has portfolio. essential set on Kingsbridge

financings mission secured a SLR by Equipment are senior collateralized across Finance provides of control variety industries. that equipment

it is focus our potential of the result positioned a portfolio, weather to in recession. a the As extremely on reducing risk well

inflation. valuations benefiting is rising portfolio due to asset the Additionally, from

already both end brought positioned next third in resources strong division. the has well in CEO has risk additional which the business feel originations benefits into are The seeing management. very this to new of brings energy had He quarter. are continuing new quarter, enhance they and is fourth year. that We growth We for towards originations of the and the our

our representing was asset the total was average across portfolio end, of equipment At borrowers. yield over invested The XXX weighted quarter XX.X%. portfolio just of $XXX totaled million, finance this XX% portfolio combined and level

quarter, of $XXX had $XXX of equipment repayments approximately loans just under new During we million. the third million finance originated and

an Finally, Life on update provide our segment. let me Science

the bolstered medical capital has new venture economic recent our team. equity uncorrelated disruptions. by economic leverage and cushions venture drugs with reinforces current equity been activity life provided ultimately strong devices, significant for have the need the not class have has traditionally These in Sciences, for Life years and need borrowers which backing. science The capital impacted conditions For to asset

Over provide here. our million equity across $XXX XX significant typically for than totaled set drive of less capital portfolio our Our approximately XX% our end, for quarter. our over investments. Life which At XX% to income protection and portfolio XX% venture gross total months Science of in Science in quarter the our has runway. borrowers approximately Record the is of contributed continued which loans XX represent of of borrowers. are cash portfolio over low to Life have values, XX%, amounts loan investment downside third opportunity loans

$X.X million we During unfunded the billion. At had team the new quarter, of committed science end, repayments loans. had million totaling $XX investments commitments of future for life and quarter $XX

quarters. investment next to the life yield fees robust weighted the the Additionally, team XX.X%, over pipeline At couple quarter a we of was warrants. expect which science opportunities, of portfolio has approximately success and for new end, average fund the currently excluding

conclusion, into expect market set and asset continue each In across sentiment our an better are classes. seeing of investment across opportunity the improved current we to negative asset our classes, translate to terms

and uncertainties capital current highly it market disciplined, we in remain that selective is the and Given opportunistic, deployment. our important volatility,

the turn Now Michael. to back let call me

that time-tested continued resulting portfolio you, noncyclical Thank we market in us industries any loans to constructed both first borrowers and in Bruce. well for collateral closing, disruptions. our of conservative underwriting defensively recession significant lien coverage, cash In and positions believe flow with approach, a comprised and asset-based loans

and mentioned cover are my we last time at our the opening projections this income December. fourth distribution net is revised in investment of expecting our I of beyond. forecast remarks, announcement quarter an As to merger This current acceleration

another XXX to generate on September expect investment points net annualized of per Separately, basis $X.XX we higher, XXXX, would if incremental income an share interest to at were XX, rates move portfolio basis. the

continues principles. incentive alongside of the investment our company's comp having confidence defensive to shareholders portfolio, interest open owns approximately be line We adviser including guiding company's SLRC Our significant team's invested for position. in the funding, investment stock, SLR for time team and Operator, of of thank you today. will stable annual demonstrates shareholders fellow company's The stock. in a please percentage our The one the you X% favorable SLRC alignment with of the your questions?

[Operator Instructions].

Adams We Sean Paul will Raymond take first from with question our James.

We provide the affects specialty But floating that businesses rate you flow dividend underlying interest having portfolios? understand how given can line, how sensitivity should on rate finance debt color your through some book. your

effectively, I well. are points the companies think so with equipment the of our well, for XXX-basis finance specialty company exception businesses what of that in increase. as rate terms finance impacts would rates finance of as Because the from floating we we the highlighted move, leasing, all the dividends as will increase expect

and $X.XX that includes the that Yes, increase finance from companies.

Instructions]. [Operator

We will with Wedel go next J.P. Morgan. to Melissa

the wanted repurchase I touch share program. to on first

You prepared have that during mentioned comments, but yet used it your not authorization.

vintage, of to would inclined before we to see guys you to elaborated that mean guys Given opportunity that shares? you be the just the attractiveness current become this repurchase interpret as less need set on, attractive would you should

think No, the we're I answer both. do going to is

attractive you the see as us as shares think expect investments, today. continue stock I to think investments should attractive invest well so new we very to I the buyback new use in this are Equally think to as quarter. as during

Got to to? kind of expecting look yield that to Thanks can What you What the timeframe elaborate you What of for expecting clarification. are sort take that that that scale over Okay. you're how leverage like? And time? JV, of then profile? on level it. on should

question. Great Yes.

target balance happen do over bit so portfolio to or and will have, SUNS, to environment. at and quarter. and while $XX also can We're is of over sheet lower scale aggregate, put that leverage the some cash do attractive this JV time to put it but time, that same somewhere most each into Just In a underwritten in at this assets. of to the million rotation, assets we comment, call where XXX were through to JV. partner place assets. replacing tighter. those But be the a spreads flow thing of of capacity The the the million quarters. very over a have attractive, market time, starting that a that were at X.Xx The It's a of of in to and rates SUNS nice SLR acquisition commitment equity of efficient contribute were vehicle your a both very It's up the earlier we'll on to be Xx. summarize, deploy, it few will we it very investment $XXX time

Johnson Our KBW. next comes with from question Paul

Over I'm the quarters, at I Equipment curious, business. the the just last looking mark Finance few SLR was on

of with I I cost over explain was quarter you I can here, and think on just would do I how think or rate guess mark had quarters. be lower fixed just that the investment, that just but that's that this the that the I last hoping it any last investment. around I investment's wondering XX% drives so, color just few slightly trended what to was assets was in if marked helpful. anything guess on

the whereas But the down because COVID, market do believe than that that couple have last it's we face whatever that shrinking they're prepared rising recession, values growing, to would that's bit is have party equity been of all that you expect form that regardless we But in companies, finance And of to we're will down the basis. it's remarks, third they lenders and an as an of as rates, the Most are Similar years third-party that on this analysis. provide. the really, in not XXXX each to others a values shrinking FinCos, of being equity Sure. them, we unrealized market And all is I lending a and as with the marked our would as is more the mark-to-market of of FinCos at comparable into we comparable be, the heading of mentioned can the marks. SLR starting they over Equipment in is been just starting investment over looking also so including portfolio. the reflected Their company comparables, now the imagine, grow time. FinCos, do other has technicals. to say which Finance, market regrow capital most portfolio.

terms all I of kind Appreciate It's in you're helpful helpful. hear I of think companies your I guess very I of be in and portfolio it FinCos, just just the it. And optimal guess within at with but individual to your that's finance are Got guess of a guess there? would then leverage, you terms comprehensive that. know of mean level level, progress still I to taken work closer BDC more I you a on comprehensive Are Or on where been to FinCos? in within leverage are getting basis? at guess I way the you be we kind down the your that where point?

Great Yes. question.

that FinCo. I by varies think it

As our with Business has leverage. acquisition facilities their portfolio. in look Fast for receded. stimulus has the Pay which Also, you last Credit, mentioned optimal we utilization been government example, heading comments, increased of regrowing They're their together has at towards as of year

the Kingsbridge some would that some leverage, X. as division, the rebuilding also Healthcare that smallest the looking I say some to additional Equipment as capacity advantage well areas, is think as to FinCos There as of of which on there optimal doing at well Finance, balance sheet. is across at other is Credit we've our at towards The been we're borrowing is I but Solutions, additionally extent take

accretion potential just if you wondering Got that. in it. amount you the in of quarter? discount purchase had I guys do it, you the quarter, if any have Last was estimated Appreciate guys, question,

$X a bucks. Probably around million. Probably million about

move [Operator J.P. back Instructions]. next Wedel to We'll Melissa with Morgan.

teams perhaps activity activity XQ little type what active. environment being maybe touch We've repayment you traditional more financing for an of varying expect? you're some there's XQ to wanted activity. the and on levels what and less of But how creative solutions. different my expect sort specialized heard from looking a they Curious at opportunity for with taking follow-up. about sort Thanks comments I

Yes.

what similar I having but But QX. multiple are we verticals. repayments. QX, others, the to you're hearing from had not of seeing much It's active, seeing strong from a in we very we way and benefit slowdown a think also that we in are

directionally, to think I we've taken our X.XX. that leverage

into assets, acquisitions. the draw this earlier movement for the segment drawn and to the move expecting some But portfolio flow to that recycle JV are sheet. think looking facilities some not have some put are net We of we're delayed cash We on meaningful add-on I getting a balance them more net-net, basis at, questions, quarter. on terms in and do your

then Okay. I follow-up in That's give And if on an my you helpful. last specifically rates it. missed I'm XQ? update the sure question, Did guys not nonaccrual

X% nonaccrual outstanding? market down It and to The on cost Yes. value. X.X% at was rate fair

it. Got

that And or is Okay. X across X companies?

companies, American Doctor. Two Teleconferencing, and Rug

inactive? Fi-Med And was

Yes.

[Operator Instructions]. or conference I'll back turn for any With questions no now further holding, remarks. the to closing additional Michael-Gross

additional to always, questions, you Bye-bye. have Take support thank if for time. and your And No follow-up than other follow-up care, comments you everybody. as any any please with of us.

gentlemen, today's concludes conference. and Ladies that

have day. You may disconnect a at this time, and wonderful