SLRC - Earnings call transcript Q1 2018

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Operator

Good day, ladies and gentlemen and welcome to the First Quarter 2018 Solar Capital Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to hand the conference over to Mr. Chief and Chairman Gross, Executive Officer. Michael may you begin. Sir,

Michael Gross

Chief morning. Thank by the quarter Capital Solar Financial much Officer, by ended our statements? Rich, webcast Spohler; good would you and Welcome you our today and earnings here we XX, Richard I'm forward-looking to Officer, Chief covering XXXX. Bruce and very March joined Operating before call begin, Peteka. for the start please

Richard Peteka

being like release. in today's webcast disclosures disclosed website conference Thanks, Please at This release our our press customary I'd Michael. to uncertainties. in call your unauthorized today's any available events press guarantees call call call or the any information. our I'd replays they Audio and webcast made the note recorded. of that are in not Capital financial These earnings this on number are or course. strictly condition. that also attention statements, our form, involve to which in condition constitute made Of risks forward-looking conference Limited forward-looking performance results www.solarcapltd.com. future are Solar to a remind regarding are webcast will as broadcasts, like call of Statements may is today prohibited. be of everyone and being later future performance, that and our statements or future of to property financial relate and and

the of as time-to-time including not from indicative SEC. result those performance is results. with number results our differ Additionally, future factors, filings in a past Actual may of a of materially described

like law. SEC obtain to Chairman turn update visit Executive the back us our and no website filings, do or Chief XXX-XXX-XXXX. time, copies any call of Solar so forward-looking statements, duty latest I'd undertakes this unless At to Michael Capital at call to Officer, our to please Gross. our required To by Limited

Michael Gross

Rich. Thank you,

weighted conditions performance extends strong share, per XXXX, earnings portfolio investment net seeing In as investment per XX% net supported for Solar quality, share QX to our the share a approximately $X.XX of comprehensive XXXX economic performance corporate stable earnings quarter. the long are asset for was income from growth. credit of measured net Solar prior rate and fully and our our per be Fundamental value XX, up first share per quarter generated $X.XX and fourth fundamental we credit quarter, performing capital the the March first $XX.XX interest preservation up our continued per running With was XXX% XXXX and continues the in results securities, by strong, of At from share, benefits income value asset $X.XX power. of $X.XX quarter in XXXX. environment. portfolio distribution rising by

benefited a investment fee, March effective which quarter At in first was comprehensive flow and less Solar's through highly or Financial, cash through strategies, based lending based lending across than asset The equities. significantly NEF. debt carried portfolio first XX senior portfolio XX.X% in of which finance senior equipment point permanent reduction asset was quarter voluntary loans, secured income science became XX, net lending diversified non-traditional and our January risk XXXX. including secured investment of life addition, In basis the junior from our management X, Crystal

finance investment For investment was income from XX% the strategies. to the quarter, over gross first contribution of generated commercial our

earning portfolio. and of power Our Solar's have strategic enhanced the initiatives diversified

term the technicals private remain capital investment long term challenging. we middle remains While believe market near intact, for lending market thesis

be in to highly us cash enable lending initiatives selective lending its based market. flow heated asset Solar's

risky chase are sectors yields. structures have investment find or compromised not forced to flexibility attractive We order to reward the capital allocate risk in the higher and most to to opportunities

state including structures. the relevant team We've or to the and credit compared cash in cash volatility, lower an loans pricing soon even asset dollar of mentality our portfolio. in of Equally portfolio without portfolio asset the transactions countercyclical differentiated believe and more that this had assuming of managing secured credit persist XXXX. mix We yielding today. cycle lower been loose higher by classes enabled one origination with through correlation, a economic years. Bruce of good yielding senior measured of backed diversified platform secured together protection investing senior approach more for and lower average with yield and enterprise us cash structures face significant our flow outcome. differentiated barter values, maintained investment inflated knows lower a based seemingly flow our has Great No late important, low our cost position well characterized pure end portfolio compromising seven spread are I will on and to XX.X%, addition, questionable a this one philosophy risk quality. experience approximately portfolios seems for in This maintain Recession loans we of achieved sponsor loan compression creates always Solar In and has cycles, to in with cycle the either continued flow weighted and

fee in quarterly share concurrent first Board quarter the a reminder, rate, of coverage higher run in to increasing strengths history and actions, have shareholder response to equity management raising of to waivers net as continues as in investment distributions As which our our over voluntary with of the per distribution portfolio leverage. Directors included income an This capital XXXX, the approved net reduction. ensure company's well fee income increase for investment the $X.XX friendly

time, aligning to net the income in our are initial earnings we through financial confident shareholder this this distribution highlights. and investment over ability Solar's with our Chief Peteka grow in I'll to the XXXX. to distribution At Rich Importantly, increased our we Financial is the call in take Officer, step believe turn increase our

Richard Peteka

Michael. you, Thank

XXX XX share at net portfolio investment XX, capital's fair $XX.XX had December per balance Solar $XX.XX asset per of XX, XXXX to commitments XX Solar March times million utilized X.XX XX, Solar the was on value. March Capital X.XX its XXX.X outstanding the market share end, to equity. debt portfolio at company XX million expanded facility XXXX. considering on and in portfolio accordion million. XX.X% XXX quarter was of XXX revolving million portfolio feature Capital non-recourse March available fair a income XXX.X XX, fair At to by companies companies [indiscernible] XX debt At million XXX.X industries X.XX of NEF to had net sheet of X/XX December our compared or XX producing Subsequent and to capital yield under value sheet of facility at leverage from expanded credit credit including When at Crystal, at billion base fund to capital million balance XX.X% at revolver Limited's The billion credit with to XX, growth, December facilities value compared subject company's the from has across capacity industries limits. available and measured average compared in value the XX. portfolio March XXXX, Solar across or borrowing at of combined weighted XX commitments, to a market over million

totaled million first XX, per compared XXXX ended quarter ended XX.X XX.X had three for investment P&L, resulting share XX.X the investment months months million XX, net compared for for line, operations December income totaled the ended three for XX.X net three increase or company December and for This months to XXXX. realized X.X company's XXXX, the an for per average share the XX totaling increase versus March the gross million income to million a Turning realized the totaled ended per for XX, to months had December XX, in XXXX. fourth Ultimately, or ended months losses $X.XX and XX, ended X.X million $X.XX for from million ended ended unrealized the the gains XX.X of the March million XXXX. assets, the Below net of $X.XX the March per XX.X Expenses three average net quarter. versus XX.X average or three average of XXXX. the months unrealized three XX, months $X.XX company compares Accordingly, net the for share million December three XX. to months the or three million share XX.X March for million the

of record distribution of X, XX, the QX $X.XX over call XXXX board June of our XXXX Spohler. I'll Officer, our per on to payable on July to a Operating shareholders Chief Finally, share, recently Bruce declared turn XXXX. directors With that,

Bruce Spohler

average XXX of yield amount senior at our over just and principally and current senior sound, X.X quarter, were end. companies, investment across XX.X% of Thank remained was risk you, first portfolio value of loans. of Also average X exposure our income to X second our quarter resulting comprehensive and on consistent of under from million of totaled and totaled portfolio the XX% industries. fair comprised million, of approximately respectively, rating borrowers Rich. protection. portfolio senior quarter. weighted investment of which carry portfolio fundamentals XX representing over duration the portfolio years March approximately loan Overall, was growth secured fair at activity one of quarter XX, further portfolio. million two, indication quarter. producing borrower at underwriting The over with approximately portfolio of XX% of of end for XX.X% NEF's was the the loans, Solar's financing our per financial equipment the At underlying prior our quarter business was with rate and Fixed portfolio downside health and cost performing market repayments XX portfolio status reflecting X% across XX% million strong At XX% based was portfolio of consisted At billion, encompassing over lien comes our comprehensive and our was on originations Solar's average life four average watchlist our of approximately risk. the weighted weighted an average secured This X.X at portfolio entire value rating end, of secured risk XXX approximately the focus yield the or XXX with basis X.X% our scale loans on least end, X.X floating the on rate. and lien XX.X% our lines, in short net a companies of disciplined just only Including of XXX% X/XX. The measured

market growth intentionally portfolio, flow our conditions, cash through of which during result our investments flow characteristics. we heated currently achieved flow risk our allowed the a favorable cash shrink. particularly We cash our second ABL to more strategies, As lien quarter return offer the portfolio

of let brief four provide verticals. Now, on update investment me our each a

sheet companies upper Included million. as XX well cash mid-market in senior Our cash balance flow back flow secured secured held in business our lien vertical EBITDA in invests this with first loans, senior of SSLPs. as to average predominately both in the sponsor loans an on are

the million approximately cash quarter, flow we secured originated first approximately investments During XX repayments million. of of senior had XX and

roughly at underlying Our portfolio cash flow had positive representing overall approximately the our X/XX, portfolio trailing trends XX reflecting million At quarter was EBITDA month the digits, portfolio. and for XX% of weighted revenue single XXX companies. continued average grown end,

the The weighted fair average X.X cash was For flow and to security the was portfolio prior the slightly exceeded of than quarter our yield investments times, at leverage value in times. interest segment, coverage market lower cash roughly flow X.X%. our X.X

able the portfolio to profile. overall of our exceeding to yield, specialty yielding been reducing finance we've risk due growth overall while maintain consistent our a XX.X%, portfolio's investments, However higher

of against as our the based These me come made prepayment portfolio are let company's fees. upfront a asset assets as meaningful turn Now, value well lending to realizable and liquidation business. with loans

was The This at million, of XX%. of million, X/XX through portfolio pays quarter, Solar resulting Capital on first this had X.X new division of to segment. ABL an representing assets the for XX million just asset ABL Capital senior a totaled Crystal XXX approximately first At growth total XX% average in end, equating $XX and investments approximately funded million, our XX the weighted the portfolio. yield million During dividend cost. repayments for of net of approximately quarter secured over portfolio we quarter based yield XX%

finance equipment business, Now, let me NEF. our turn to

the by company of certain was of tax sheet Holdings, former Solar's Included finance Capital GE acquisition investments. assets entered in senior portfolio Solar's segment as both for this balance that business this NEF, well held XXX% equipment holds as Solar owned NEF NEF's XXXX directly in a of efficiency purposes are founded executives. in through on which

portfolio. totaling repayments portfolio quarter, to At period the of of had first with During X.X risk relatively approximately had finance of XX NEF investments years our new strategy Interest XXX short mitigated a as approximately our efforts on holding NEF rate. approximately had equipment and total March well million. XX portfolio approximately million XX.X%. rate class rate to weighted through is XXX fixed average XX, average million. portfolio roughly million total loans million XXX match average our finance borrowers XXX yield here XXX% first million. XX% is lien X.X as The fixed total and this asset of equipment different equipment an NEF's of The of represents the are our exposure with approximately of liabilities upon on this portfolio rate was cost our at fixed that unsecured finance approximately investments

our And the life first on NEF me equates X.X investment let quarter, on X.X%. as yield comprehensive lastly, you well those give to income the science During an including as in annualized portfolio Holdings an assets balance NEF's cost net sheet million, from on approximately business. totaled the of update which

secured fees come loans warrants. typically As senior a and or first these lien, success reminder, with are

first approximately Repayments XX the million team quarter, originated new the totaled approximately XX During million. investments. of

science XXX an life lien just XX senior approximately total loans portfolio million. borrowers of first over investment average XX million across of Our secured with

Our on the life any including represented or of IRR investments to science date exit The realized when of science overall our which yield portfolio. on life the is weighted north fees average portfolio loans excludes XX.X%, was The warrants. warrants. XX% XX%

Longer that As available across benefit to asset improving believe origination We both flow Michael our market sources frothy. the which dry we from our equity banks environment strength continue the and our lending existing of and of based we disciplined diversified borrowers private refinancing deploying and middle creates middle lending retreat demand flow amounts market supply verticals flow will mentioned, lenders be to lending in cash the an from the and in companies, wave of based capital. attractive remains asset term, will leverage cash powder, market record for approaching cash augment lending. dynamic middle

to Now, Michael? let back me turn the call

Michael Gross

building Capital Bruce. value, have been and shareholder decisions maintaining of From protecting our capital inception focused years long our ago, the Thank shareholders. you, XX on Solar management and nearly investment with alignment term

via quarter of continued shareholder Capital Solar first is $X.XX strong expand initiatives. progress per XXXX, run strategy very clear have commercial Solar Capital differentiated The Limited these rate, investment substantial upper-XXs. times net dry finance our result investment levered to to under We a sustainable equity, a in highlighted of X.XX powder At increase of quarterly to debt each deploy quarterly achieving had verticals. we our to are believe direct distribution share the a share execution our income and net strategic to a capabilities. in path our to has per by the on successful mid

increase further will As shareholders. our to our board a basis, sustainable on directors evaluate distributions our increasing earnings of

term passage equity for the of would two the passage Act shareholders can like I on Since as limitation priorities managed value they as Credit the and debt of be long the the Now, studied the Small associated how we the leverage legislation, increases that mitigated. to Business Availability for strategic statutory creation well have flexibility leverage the BDCs comment to impact one and to could times. risks times how and increased from company's our

had principal discussions stakeholders, the our agencies, we've and our rating our Additionally, lenders importantly shareholders. with

We extremely of our action. deliberate conclusion have yet being analysis reached are regarding course our not in a

equity, to allowed X.XX times you investment has As Solar drive never have our times. levers despite decisions. debt inception, Since averaged of target know, X.XX to we a

on specialty the risk acquiring, solar, leverage. and of balance strategic not analysis considerations focus optimization, our our sheet building platform financing maximizing flexibility for centered somewhat and unique. finance For and on management businesses, is are and growing our Because portfolio on

dividend “make pressure changes strategy investment all in at we our to to work”. the to order feel no math make Importantly,

We portfolio We shareholders best purchase determine are is what fellow interest those what aligned shareholders. and stock. of the We principals in do we will know in our to conservative managers. of our ownership invest significant our with

altered so clarity or frothy analyze applying lack been creates a has the and waiting the path that since this our focused landscape We for underwriting our net best we understand thank uncertainty of patience results return strategic inception of performance acted regulations. for our your credit as an and friendly, issue distribution, shareholders. earnings new covered Solar's Our ensure clock thorough capital, merits. by shareholders on preservation income conservative we've for markets on for equity you is complete analysis, will the quarter optimizing be we always we that of interest constraint we disciplined the forward morning, we which capital and first best the approach shareholder exercising clearly it's the investment reflects opportunity whether SUNS. feed o or hosting Likewise, are investment At XX senior in this of to call as same Solar's and

senior see provide value enhance team's in meet deal please proposition ability and Our this Solar this to market flow. to morning. time open you our in clients' benefits to continues vehicle thank Operator, middle up for you capital for secured origination ability traditional needs your We our finance this lines could Capital's continue the of we questions?

Operator

our line Compass of the Point. question from And of first Alexander Casey comes

Casey Alexander

A couple questions. of

surprised linear regard constructions bit rating to line of the up how that, initially to ratings? to their of different additional the the expect to all, they drew that BDCs manage portfolio to your your in related high the BDC given first really that construction to small take XX% loans, business lien particularly senior your think company or specialty in is that secured of act, you and relates the agency's sand little credit actually First on just follow without finance availability actually it at as were leverage various as quality of you a kind well a do of suited

Bruce Spohler

Yeah.

believe begin risk with will inception, agencies, are on time, were think surprised underlying they both bit a based and our those performance portfolios your their the analyze and each to based to at the constructed. perhaps that in the portfolios but over we do point manager the little on we I how Casey, dialog

So be it's early of in I divergence the still how terms think individual I at look they there will days think the from and agencies managers.

while our so Michael we leverage. have to additional us, think the to an X.XX of it would more perhaps more our think with always portfolios in if how than your I your to we allow, a first current building X.XX regulation average versus just along to comment, the leverage up target, as benefit is type to one for I one point, do been, mentioned, of finance that strategic being provision strategies is utilize were that commercial leverageable

Michael Gross

Given X.XX that sense at have of capital. to access available so of urgency get times, can we're we amount We currently have tremendous that don't feel we immediately, levered it done capital. more we the

Casey Alexander

that to question if assist company is, you there the additional potentially another access leverage the scale might also, Well, was to add led a follow-up acquisition Yeah. to like of portfolio? you type to an a with that

Michael Gross

That's Absolutely. consideration. the big

Casey Alexander

All relates any appreciate loans down. is, actually bringing flow right. balance what carrying the question management cash doing portfolio type it slips guys that you're and to versus cash what and flow within you're it as And the judging Is are my of in verticals your there shift last the we fact risk on sheet? loans, between you carrying dynamic in

Bruce Spohler

at all. There is shift no

over second structures don't have We're That shift engines the continued to we reduction lien We finance yields. lien I double down think that down. come have yield that for is the when on where exposure generating will in see digit the continue need our of the we reach XX%. feel We're in year. specialty to are to cash year second down portfolio. flow you XX% a biggest

Richard Peteka

balance same on slips The assets sheet. and the the we put are assets

Operator

Chris Our York Instructions] comes JMP next of the from question Securities. of [Operator line

Chris York

I to this it commented on earnings sustainability prepared level in the you remarks. little appears your at grow Michael So, outlook appears bit solid. have earnings then XX, XX And now. a mean, second the

see So core to maybe what in do you the to this think increase the needs dividend another year? board support

Michael Gross

earnings. same of quarters more couple A

Chris York

on flow cash did senior And nicely. comprehensive the see then your yield loans we expanded

that quarter. beta quarter I LIBOR any over the how of maybe that via basis increase? there you a and to points explain think it were do XX movement attribute was Curious variables other much

Bruce Spohler

predominantly withdrawing we've spreads the as lien the because No. mentioned, higher in Michael It time, cash second the same LIBOR flow see would is some book. at from of new you investments been where

related. LIBOR all it's So

Chris York

X.X. a Crystal And then Crystal's think mark to investment rate, bit quarterly declined. I the the in was we declined then And from on Solar dividend run little noticed which like the

could a the in that help of new inputs and this whether us time? is So sustained or one dividend be you those some movements both at maybe level to then expect understand of should we

Bruce Spohler

Crystal seen to is back particular of stepping their that just because their of capital always as a somewhat for second, think capital short you Chris, a the duration we've in the fact appreciate, borrower, expensive nature I their and across portfolio. rather

and to flows aside quarter And ramp as you to QX. you was So a continuation as will growth there QX, say we in in will ebbs see see net contraction portfolio. meaningful they quarter. in of see an and I the that QX, there that begun trend in

XX%, So quarter, over we a quarter the will income course that hold period, of to average around consistent understanding that the that shift. but to dividend, it roughly the try will year XX.XX%,

as substantive again there's nothing So there rebuilding we speak. they're more and

The looking an are Having sector acquire commercial opportunities of acquisition some participant comparables other have businesses. I you that down know, in QX. in know, various we the multiples north across you active mark. as companies to meaningfully at to can and around look tell came said of that finance we as comparables we're, meanwhile, the comment valuation, you finance, that, where of

looking companies we've a to at basis trading trading are book. to been times two where closer more comparable in So multiples it acquisition as opposed really

Chris York

XXX, at in last quarters. have duration And see assets couple the given then declined there, of short assets the total Crystal, which are the of

couple to needed were to we of heard too XXX, transactions we some assets, get of years. a that market Crystal, earning we I've to at solid there back XX maybe So I level up if that at dividend higher for think is the get in get to kind a that

Michael Gross

and around honest, to Look, XXX the be between portfolio, XXX. bumped

We that and may think move the look look a term around of it we to does so and move there long lot sustainable around when both dividend years, lot, in you and that's and several are it over when business, on fee you go at basis. a in, the the exit yield quarter. sustainable quarter we basis So last try a at a to

Chris York

Last one, really to the goals low we've reasons What targeted yet X in accretive think is still and then expansion to achievable some income. net expansion been see goal SSLP there the mid-teens. Solar's the to of of ROE the yield your I to investment then have essentially And your to that have low mid-teens precluded from here?

Bruce Spohler

Yeah.

I low-teens is think achievable. the still

I have term, the felt think we so all the compression constraints year low LIBOR think have as as the mid-teens and in across flow not lien cash in past loans. well or relatively the have the stretched cash Remember, SSLP our all the I lending. is flow been near spread first

the in we've So ability spread lending more environment ROE dynamic in. compression think bit pressure doing of the improve the been assets but little and on at we've to asset. has other that leverage And they underlying clearly to those drive a to trying the on felt some things sponsor there the been working have the been leverage I optimize

is that I competitive teens particularly low some the see we with keep again dynamic them our the more LIBOR upside, way, in to think So than coming the in going mid-teens. but

Operator

line of Securities. Fargo Jonathan the from Bock of next Wells [Operator Instructions] question Our is

Unidentified Analyst

[indiscernible] for Jonathan morning. this

will strategies you guys commercial can similar to verticals. they if Solar with the significant private and have or you raising, explain finance are For specialty finance SUNS funds,

Bruce Spohler

platform accomplished offer at Yes. can up alongside Solar well across I expand private scale solutions so can't really established and sheet to that as potential at that the marketplace we've larger ways Capital with capital the some our private to the funds that so Capital and and other we time JVs we this as forth. raise our capital potential Solar discuss have of slips borrower than and SMAs to continue through that balance looked the

and them highly question alongside your Solar's on larger So can co-invest the so goal diversified have continue Capital is Solar be across larger positions to Solar that portfolio. and that take yet

Unidentified Analyst

follow-up to wholly was of the The fincos their have of could course equity an own take the a opposed slip, G&A line. getting the owned - sort question to the, investment which to by what I as of are kind relates BDCs in and of

be to other So, finco distributing kind down outside retained, BDC? cetera origination syndicate if of by would economics were of if you the they agencies, there et to funds, were the

Michael Gross

Well, I'll give you examples.

was up bringing capital a a that take to our able from. buy not able to for example, partner as know, type allowed that did we for to stuff, too extent a let We took to for of Crystal, if the a goal other increase permitted take to funnel to So bankruptcy. and fees through otherwise be large in transaction for platform any platform that exchange our To be we whole the was to a example transaction But to ended so. do the It and that the the alongside retail consolidated possibly were that the went Crystal us sheet. point entire in allow we would not to managing we because us the balance private for transactions appropriate, we not app most pay of would Solar, it sheet in that balance large is to, would have not decrease we you could investment. entity participate the we for the across bringing on allow the we it's to then fee may And down. servicing would Bruce's

Unidentified Analyst

but probably upper wasn't well that's one just performing, been I in sure it dynamic make be. on this opportunity, outlined investment commentary there major a an was styled your venture a point. to obviously then if very exposure BDC just at question, that solar bound Is to in much any wanted some you wanted - - And of how there you the had science on life

Bruce Spohler

Yeah.

with you grow today, realized from XX% years XX% they within to venture but it clearly, returns life defaults of we'd roughly As where you science the our and the four a niche. know, terms no niche and of overall team given to record portfolio just ago, appreciate losses, no XX%, is in extremely disciplined track of the start, XX%, as continue play it's portfolio that's standing like that is in lending

So we actually as some we scale but would to it. how to like large get can boundaries natural are there it,

Operator

Chairman you. this further remarks. time. conference for the questions I'd closing to the Gross, Executive no like over back Chief Mr. are Thank Officer to at There turn Michael and

Michael Gross

Thanks very much.

forward We we and this at look time time. Well, no Bye-bye. your all have to and comments support more talking appreciate soon. you to

Operator

participation program. for today's you This thank conclude does your conference. in gentlemen, and Ladies the

may Everyone, a have now disconnect. day. You great

SLR Investment (SLRC) 8 May 182018 Q1 Earnings call transcript