SLRC - Earnings call transcript Q4 2019

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Operator

Good morning, ladies and gentlemen, and welcome to the Fourth Quarter 2019 Solar Capital Limited Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host speaker, Michael Gross, Chairman and Co-CEO. Please go ahead, sir.

Michael Gross

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

Rich Peteka

webcast I recorded. any course. being Solar remind This be everyone webcast in website earnings note on Capital today any being strictly of unauthorized call of the that they our Limited will like that Of prohibited. www.solarcapltd.com. would to that call call conference as broadcast form made replays today’s Audio our Michael. press release. at and property is and Thanks, Please are are later are disclosed the this in available

relate the I Statements performance, would and to constitute customary statements uncertainties. our forward-looking guarantees release These in our for risks of not made of performance forward-looking condition condition. financial also and information. regarding and press statements, like financial in future to webcast or future to conference a attention number disclosures events call our today’s may or which call future your are involve results

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

our so visit limited undertakes please To law. by obtain XXX-XXXX. do or statements forward-looking SEC copies at to filings, (XXX) Capital Solar our required no duty any call to unless of latest us update website

this to Executive call Michael our back I’d Chairman turn Co-Chief to Officer, the At and Gross. time, like

Michael Gross

net income This today. After distribution of and thank reported of everyone, $X.XX annual share. full for per per our market fourth net resulted exceeding Good income year in us we share. Rich. investment of share, joining you, morning, $X.XX Thank per closed yesterday, investment $X.XX quarter you

In spite Capital’s origination and risk platform to that invest of Our competitive and more power return Capital businesses. cash continues flow the Solar based credit to frothy flow, us sponsor specialty commercial combines gives lending, markets less commercial asset-based that cash Solar from diversified extended a finance where reflect niche profile is of the platform markets benefits a compelling. multi-strategy flexibility has finance benefited to in migration earnings the finance the

to During gross XXXX, over XX% asset businesses, value income portfolio. of assets from finance our by income XX% X.X% XX, generated of down year-end of share, one primarily XXXX. our unrealized loss our shareholders. at The XX, commercial total At is our commercial billion investment investment, the share on nonaccrual was partially due $XX.XX to December distributions roughly $X.X paid our net represented from and per an per December offset over investment year-over-year finance comprehensive decline was net earnings excess

the a solar and conditions its to economic I portfolio, weighted risk we is NAV there belief profile foundation corporate five by extremely and supported net believe performance weighting Bruce, to fundamental the the in current disappointed solid continues the our are last growth While supports value. highest U.S. years. Solar Across earnings in The solid, by sustained average portfolio of ongoing credit Capital’s reflects fundamental the be team and the credit stable entire decline, asset

focus industries. was exposure and avoid on Within Notably, sponsors operating first flow continue lien investments flow lending, cash financial down issuers strong cyclical X.X%. to second are prioritize backed our we at cash that middle year-end, to lien, by upper companies market in

nonaccrual one roll December of second further derisk to off. with investment We status. investments basis our allow a cost is XX.X% to XXXX, continuing lien our will portfolio XX, by At performing portfolio only the on remaining on

market, weighted the investments. our XX, At asset see in year assets, were cash XX.X%. the and continued originations compromised in new million discipline. where tightness Almost originated in flow we XXXX, commercial meet reflecting December not XX% was elevated finance structures do average middle that portfolio full In of senior $XXX yield comprehensive underwriting we risk secured of market upper our

combining higher-yielding has first enabled lower-yielding first to a lien our flow portfolio Our finance barbell flow yield to cash investments with declining environment, specialty loans while cash lien approach our superior off. lien maintain rate second roll often to allowing composition, in portfolio investments

initiatives progress on for we shareholders. XXXX, In Solar long-term we believe made strategic significant that two value important creates

week, Last final funds that the on a we institutional Solar. closing companies private incremental have enhanced Solar capital Capital investment platform to will approximately First, adviser, scale we alongside of co-invest billion of partners. credit held $X.X

final approximately to a first competitive on portfolio our particularly this withstand we and of advantage appropriate from investable is This funds. development cycles who make smaller better specialty-finance expect scale important enhanced up benefit first given investment our the economic manages capital, believe closing, us in the allowing significantly efforts, across preference are adviser Solar has sizes the impacted million investment peers. in now middle opportunities. lien scale diversification cash this positively and Hold flow while focused billion for creates already to future. resourced of origination various The platform our investments increased to $X.X the larger to lien companies, we of market With $XXX across platform Capital Solar’s solely in investment

funding X.X%. cost $XX a an $XXX sources. initiative year approximately issued notes now optimizing notes. and we unsecured million our is have seven fourth of comprised unsecured We of five-year of placement In million structure private notes $XXX diversifying million million under of quarter, notes the second $XXX average our of at The and capital in fixed-rate

At million under has its borrowing with Financial Holdings, NEF under base When facilities. $XXX and of leverage credit December approximately approximately the subject X.XXx including to limits. capacity our borrowing of million facilities, company Crystal its was unused XX, credit borrowing unused $XXX net XXXX, capacity

is relatively is average leverage and current Solar low deliberate.

credit and below reflection is what our positioning, current stages approach of portfolio We cycle. the conservative most believe significantly we is defensive peers a latter BDC our are and of the of and

to target X.X to the range opportunity our but leverage presents as to closer market of itself. only We move intend X.XXx,

control continue portfolio our In investments to commercial debt specialty companies, of addition of equity in pursue purchases add-on bottoms-up investing, finance and actively portfolios loans. acquisitions to we

be leverage, our will disciplined We with remain underwriting. in prudent use of

I’ll Officer, Peteka, this over At turn Financial highlights. to you the time, Rich the take financial through Chief our call to

Rich Peteka

Thanks, Michael.

industries investment market $X.X Solar companies sheet or million portfolios companies portfolio a September XX. in billion XX, $X.X XX. Capital XXX on compared market of Limited December XX XX to at fair XXX value industries per net asset value September million December billion per of value fair across at $XX.XX to XXXX share in $XXX.X share Capital’s a At or Solar balance portfolio had was XX, at $XXX.X compared $XX.XX across

debt has million At had credit facilities at base million portfolio to fund Capital Crystal Solar leverage XX/XX Solar $XXX.X to from facilities equity. Capital to debt When capacity company’s of available considering NEF, combined with from credit X.XXx limits. and outstanding net approximately the future borrowing and available nonrecourse of Subject capital $XXX growth.

to Moving P&L. the

the XX, the million ended $XX.X December For Accordingly, share September totaled versus gross million XX. XXXX. for months XX ended investment average ended three three for XX, three million three $X.XX December $XX.X million September XXXX investment totaled for million months three months million XXXX XX, or the $XX.X totaled Expenses XX. for compared months or income to months $XX.X $XX.X company’s ended the to December per months per three the share income XXXX the for average the ended $XX.X September $X.XX net compared ended

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

to the its facility, of received credit million Subsequent commitments accordion under to additional its total company million. an $XXX bringing feature year-end, $XX commitment

and financing Ltd.’s enhanced provide We we’ve to further strong the are SLRC’s Capital Solar balance with steps pleased optimize which invaluable recent facilities, flexibility taken sheet.

which management strong conservative In balance Capital both from year-end, the post corporate Fitch company’s rating Fitch important Capital and Solar The and Solar investment-grade underwriting further track growing ratings record. in sheet. to partner’s Moody’s was flexibility and in Ratings, is by provide investment-grade addition, financing investment philosophies affirmed Ltd.’s testimony efficiency

Finally, our on for payable Board QX distribution a X, April of Directors record recently of shareholders per $X.XX XX, declared XXXX XXXX. share to on March XXXX, of

Bruce over call And our with Officer, turn to the Executive Spohler. I’ll Co-Chief that,

Bruce Spohler

flow and migration portfolio, both you, Thank cash continued runoff including: finance on finance execute verticals our strategies. continued lien further we our to and continued our growth of key XXXX, in in our cash specialty second lien including: first themes, upmarket flow runoff Rich. commercial In

to we’re weather cycle the the focused on lengthen, positioning defensively any As downturn. potential increasingly continues to portfolio

staying accomplishing targeting this borrowers. We’re senior by larger and the structure in capital

echo Michael’s primarily Solar To NAV investment decline and our to in of I due the IHS. the recent team are write-down in extremely Michael, disappointed comments, entire our by

health average X Aside based risk remain sound. the portfolio year-end, X scale, risk. X X the risk our the amount financial on with investment less portfolio rating overall Solar’s of of the companies markdown, from to for this weighted At rating was representing least than

five is rated scale, year-end on over this quality Based the years. highest in at portfolio the

was of our XX.X% performing fundamentals portfolio, market of further XX.X% strong As fair the underlying indication of cost. our value at at at portfolio

X% highly is XXX and senior only secured cash diversified, secured portfolio. average loans flow borrowers portfolio industries. and the were value were based of X.X% investment million was the XX.X% of across of portfolio encompassing The asset fair the X.X% lien senior or just $X.X of over Our per consisted lien year-end, second approximately $X.X first over loans billion loans. second loans. XX X.X% XX% issuer at lien Of comprised loans, X% At

commercial level compression flow yields we’ve to as environment. risk which XX% we we’ve by average under prudent double-digit on a these on our is lien flow able investments. despite be yields investments to our decrease our current been flow been yield to while cash on At asset-level above highlights our weighted lending. Notably, visibility, below cash second carry to lien our was as actively year-end, able focusing asset spread to expect our XX.X%. believe cash well our second portfolio more niche Based exposure in maintain X% verticals, midyear. reducing exposure By reducing in maintain lien today’s continued cash LIBOR finance Bringing in we second to flow exposure X% focus and

totaled our $XX segment, $XXX four approximately for strategies. lines, selectivity activity $XXX net in XX% of originations about cash this flow our all the year repayments specialty were Due in ongoing of growth were million. continued business of and our to in XXXX portfolio face our in million and Including resulting lending, in the across frothiness million, originations finance

had flow. Cash of is verticals. year-end, of better investment million. to our a businesses, cash our of believe portfolio, commitment EBITDA again, $XX an will portfolio each which, withstand to companies a downturn. comprehensive At update borrowers our $XX million highlights now investment or with million which $XXX XX across XX% potential flow approximately me average Let was These be average we finance weighted it larger invested positioned

we and originated first experienced XXXX, million. secured amortization repayments and lien loans of million flow $XX During $XX cash senior approximately of

in that largely the with like. we fundings to of increasing continuation of companies XXXX Our credits, of form and investments existing came in and our our delayed in preference a know investment draw grow

sponsor The we quarter, of quarter. we company EBITDA had reflected and well year-end, currently cash At provider XX-month the is second performance. our as grew with evaluating co-lenders. alternatives portfolio, as flow the our to are on solutions rest the average nonaccrual in down Across healthy X% of strategic in IHS, investment which wellness see the fourth our of a trailing is the During placed continuing this growth. support continued weighted in third lien further over financial the marked we

through cash X.Xx. leverage was where our coverage X.Xx downtick For Xx just under it security is was from our portfolio is in companies third and approximately quarter, about which the of a flow interest segment, our

flow weighted was portfolio of cash the addition, average this X.X%. In yield

Now Equipment Finance. to turning

just just of strategy Our of for invested repayments with million. XXX funded $XXX year-end, million and million The Nations $X At under $XXX loans. $XXX approximately across of XXXX the million. was borrowers over invested was portfolio exposure portfolio Finance just had an under equipment average

our total of the loans weighted investment holds are asset on class investments business a included million. XX% first approximately represents XX%. NEF’s segment in yield XXX% lien well average in the reminder, tax for sheet portfolio directly Financings XXX%-owned The our as that of NEF’s and equipment balance XXXX As subsidiary as $XX.X efficiency portfolio. was both held income in totaled this Equipment comprehensive for purposes. investments our Solar’s certain financing segment,

borrowers XX% our was approximately was of $XXX average year-end, representing invested Now asset-based of totaled to yield $XX let totaled weighted an At portfolio in million, me XX The million. turn asset-based our segment. average size portfolio, our loan with XX.X%.

we funded under of loans repayments $XXX approximately new During and XXXX, million. asset-based had million of $XXX just

We’ve currently the platform of bankruptcy year During recovery investment. Crystal, quarter, experienced XX.X%. working companies to asset-based this XXXX, for fully dividend for process this and been fourth have our a one to exiting and Capital are fraud. investment this of last ABL through reserved the maximize paid equating a Solar our

At with Now XX to The an investment average under year-end, turn finally, segment. portfolio me the just portfolio borrowers Life $XXX $XX let of totaled million. million. of our Science consisted approximately

income. represented the portfolio portfolio total XX% of XX% Our investment Solar’s over and Life of gross XXXX Science

amortization of The during this Science just approximately weighted under yield excluding success under is originated XXXX, past was on The fees $XXX XX%. on totaled and quarter average the During realized team weighted just our IRR repayments and new Life investments, XX.X%, million. while portfolio warrants. $XXX current investments the average million any

we In second lien in our more lien driving first been portfolio both defensive on our represents a over flow years. exposure, attractive new investments assets, in companies activity that our the investment finance existing activity sectors conclusion, are risk-adjusted couple themes origination increasing last tighter loans where cash portfolio continuation portfolio of focusing to have and specialty structures Reducing get XXXX of to the returns. our able in Solar’s and

from and environment, to we opportunities on deploy remain arise market flexibility compelling current selectively, capital our preserving patient intend may capitalize market dislocation. to a the that Given

Michael. Now back to call I’ll turn the

Michael Gross

Thank Capital last you, inception. thank have Bruce. the In our shareholders to XX many of closing, we with would over like us Solar whom their for years, been support since

value of able shareholders a our rate we’ve IPO. Over the return since internal while nearly deliver to increasing last those to XX% asset decade, been net

migration success multi-strategy underwriting, to diversified combined We driven with believe that to our is by our platform. disciplined our largely approach conservative and a

Our to risk priority to and manage is chase not returns.

many peers. on conservative philosophy of our path us led has for Our a differentiated BDC

have We cycles. with have class direct-lending professionals across expertise built experience senior a and deep that and investing multi-strategy platform through asset

Together us enhanced importantly, the across scale, to allocate middle our the enables attractive, comprehensive the capital capital ability provider requirements financing a opportunities. flexibility address companies. be our it Most to market to risk-adjusted most to borrower’s us to with solutions structure gives investment

differentiated mix lower cash compared correlation, Capital, this For having of flow portfolio. lower risk portfolio volatility, asset a Solar and has classes resulted countercyclical a lower with in built-in protection pure to a

As diversified our we move the credit cycle, much deeper into more portfolio has much become and current more defensive.

Today, is and asset-based cash is – exposure the secured to lowest history, Life XX% of our and portfolio senior strategies. our in loans, only a XX% Science our exposure to lending flow

cycles. are credit flow structural and many correlated Our bases protection, specialty market downside through be have borrowing greater less finance through loans than historically the covenants, to liquid protections are cash volatile lending proven provide markets, less to

believe more towards opportunities loans platforms verticals the an finance investment in asset-based we an those conditions finance Meanwhile, attractive we sponsored lending downturn. addition, economic add should counter cash of cyclicality have element improve. the our when become as in market In to flexibility lender pivot in flow and

shareholders our in remain We well. benefit believe our vision, team all will for a adviser’s Bruce, that investment believe approach to conservative competitive $XXX I Solar across Solar philosophy Solar long-term decisions. platform the served hold up its our enhancing provides and value We SLRC. to increasingly advantage and Capital shareholders committed Capital have million of to that portfolio ability

closing through in enhanced of an positively this of across increased impact to Solar provided results origination diversification The highly an our incremental Capital and both scale greater the the should be opportunities fund Solar form classes. Partners selective even final the investment effort. month, With should private institutional increased be ability asset

this basis. to XXXX for positioned uniquely environment, outperform market the an on market are hosting and and a we At take SUNS. believe dislocations Senior call Solar absolute can Capital the advantage of quarter relative XX:XX We be results an or navigate fourth across earnings current we’ll cycles and morning, of

this secured clients’ of continue value continues proposition see through and senior to to flow. this ability meet our in deal needs, our vehicle enhance origination to provide we financing benefits team’s our ability capital traditional to Our middle-market the

time. would line your the appreciate open questions. please you Operator, We for

Operator

of first of from [Operator Shane question Instructions] Your comes Rick JPMorgan. line the

open. line Your is

Rick Shane

rotation Hey year, sort given XX sort of guys, I If thanks of continuing that that you the for how a not in taking the in am plant your envelope, maturity you’re opportunity of XX, over my more morning. the become rotation curious until last the like portfolio, bit of question terms back think little I you I’d a strategies. to of about just this realize look steady an name investing seen of sort portfolio to investments. But size. dividend enter talk expect seeds top I And of different you’re more had that. investments we in we aggressive? top one about would new think, in and sustainability if to the you’ve

Bruce Spohler

Yes.

I comments, of think in it’s Rick. couple a

As cash aggregate the but particularly been and to flow we take of our segment, in segments a positions pools increased capital of and really, to solutions our platform the and focus to our so continue platform take the advantage public prospective mentioned, larger we take provider scale throughout that between can to across our be of larger borrowers. private various holds more our of has

believe is lower Sciences we most whether of that cash know Life or larger ABL, segments, flow. in risk, You it’s our

across the pool base of capital larger allows the importantly, capital. But increase to each us diversification

investment given our down across be might positions platform SLRC, entire the and a yet in been hold coming average for position have So our hold growing.

and adding down any concentration but most them of fully take more we to have balance continue we’ve been to as platform been have raising actually we’re on across so positions, may been across the so that have we trying capital, sheet. diversified Solar’s to And

Rick Shane

it. Got

Okay.

So the go in the Solar consistent, bites? substantially that – so is expect actually smaller idea is until hold gets seeing and you’ll see up, empirically what sizes we’re granularity more and larger

Bruce Spohler

grow million – our example, increase participate a and $XXX million we take positions than $XX we’re never number for with million to of the And more yet, where its may because $XX have that relevance platform $XXX where but rather because own positioned take opportunities investment. would hold, been the you’ll Solar take able million be will might what in Yes, to the past. see be on pursuing not Solar

And that’s our new is in of and up investments that platform. has Solar most more on so small the positions topping where capital investments seasoned growing been at to in new are

Rick Shane

Okay, great. you Thank very much.

Operator

from line Kotowski next comes Oppenheimer. of the Your question of Chris

is open. line Your

Chris Kotowski

morning. questions. taking good Yes, Thanks my for

is The first wondering, I particular? in income of there nearly And thing basis, a down a $X it – is is million. from is linked-quarter reversal what IHS? meaningful decline, I a Or on that drove of was kind from was had kind gross investment reversal –

Bruce Spohler

was not to was to reversal related we pass. onetime an come thought There investment reversal had gain Sure. we a a where actually didn’t related that IHS, to warrant a there

in And backed that QX. so we out

but it not related was – So to IHS.

Chris Kotowski

Okay. gain? don’t for size And the warrant can I you that suppose us,

Rich Peteka

about It was $X.XXX. probably

Chris Kotowski

$X.XXX.

then loss mentioned Crystal? you And at Okay. a fraud

Rich Peteka

Yes.

Chris Kotowski

NAV. guess, but is, income well, at that reduction of level does not then, on Or to you parent Why whatever show as company in does that? flow I’m really can the give Crystal NAV? through I does to curious, us the through particular, color flow my just that question And

Rich Peteka

Sure.

it’s fully we reflected. been mentioned So it, as

the Although it’s pursuing There’s can in the have with we a NAV. lot it not reflected remedies. fully say we I Department. are But Justice because

had some it’s also assets this last mitigated reflected But also warrants their in gains and pursuing we’re somewhat NAV our that some realized year their and and some one-time remedies. were of been in fully Fortunately, Crystal fraud.

Chris Kotowski

Thank Okay. for All right. me. That’s it you.

Operator

comes question of the Alexander of from next Compass Casey Your Point. line

line is Your open.

Casey Alexander

where cash sort $XX were And extent year Hi, same relation difficult. of described on a billion credit the geared and total to to cash million. what very capably loans good of a attitude towards $X deals. terms point flow morning. very covenants of fund, market, competing those add-ons, in are which lot with seems structures like originations your structures closed to in And for the particularly the you flow I’m at and most of a market and you certain trying in foot had time, clearly you’ve in the private conservative institutional contradiction is that the the to

of so in clear contradiction can sort footing maybe terms. having I’m trouble that me? that And you up And for

Rich Peteka

Sure.

our strategies. So just institutional a fund clarify across to moment. The for is investing

it So is whose flexible SLRC investment go to is that where goes. is mandate capital

looking And some have compete been wouldn’t put to go my our so you million, lower compete investment as example. $XX that holds, SLRC larger therefore, companies, as is best million opportunities Life and, which Life earlier to in that are opportunity, for team effectively, to $XXX comments, able for wouldn’t to Science Science the we public in the risk of

And allows it as allows strategies, as so to now – scale find should co-invest is each of our we strategies. flow, have looking better these it that commercial we been cash should nimble in focused to alongside finance, up vehicle a you or where opportunities mostly be this of be think SLRC of SLRC

point, it is not fund a focused frothy market. So on, your and the to mirror flow cash is exactly

Casey Alexander

an own and But doesn’t originator, own an that ABL company. it fund doesn’t finance equipment

portion replicate that it how can of the portfolio? So

Bruce Spohler

an SLRC. It co-invests alongside

Michael Gross

compete transaction, million that. bridge max Their the with size than hold for in point, a a $XX really we is for have when a example, deal So Crystal. chance is big there’s historically, to that, too bigger didn’t to at

larger. ability we in as that funnel even alongside million funds Now the have and the as institutional the have. $XXX we capital much bring to do across Origination

Casey Alexander

Crystal. All comments appreciate the on right. I

issue happened the the down quarter-over-quarter So I the reflection was that within because and portfolio? million – Crystal to just clarify, Crystal that’s marked $X of

Bruce Spohler

Yes.

Michael Gross

Yes.

Casey Alexander

you each somewhat million any $XX down lastly, $XX.X million, have you with position position inconsistent to but Holdings, the Okay. Management Do then the is on one? which PPT to marked color added other. And that from

Rich Peteka

Yes.

ago. element, of restructured the but restructuring pick a it’s of has It year PPT an temporarily part part about the loan was a loan. to a agreement was progressing, pick small is So that

Casey, that’s I’m seeing Micky. So there, you’re that sorry. addition the

Casey Alexander

$X A addition million quarter-over-quarter?

Rich Peteka

look. I show $X No. I’ll a increase. don’t take a million

Casey Alexander

double Okay. you. Thank I’ll go check it. back and

Operator

Next question Raymond Dodd comes of from the James. line of Robert

open. line Your is

Robert Dodd

guys. Hi,

back to when But financials and looks we On not up provision, year-over-year. underlying, the of mean, talking everything provision NEF, going Is portfolio? an obviously, we with Crystal if losses, for at But Crystal, look ex issue? the consistent about fraud tied was Crystal, anything specifically issue. Just for the can. I that substantially. on the to pretty credit within that is indicator going Or fraud that that’s the

Michael Gross

Unfortunate that – fortunately or unfortunately, issue, it. it’s tied and to the that’s fraud

Robert Dodd

And just it. generating pretty the issue, also on income, obviously, comfort return little you Because, at Got give can with decline lost from the do provision sustainability to tied point, that, a it have fairly come NEF that dividend to this NEF, down dividend ways, fair NEF? obviously, us for – color of size, cetera, kind you coming kind after Okay. lot et dividend earnings has the business not right, but… any it’s and provision contributes substantially. Can in value cost other of of of XXXX at Like a year-over-year – level provision? economic and directly? million you And obviously, money. same then from Is $XXX overall where the that’s XXXX just on up ex stable a bit were provision, it

Rich Peteka

Yes.

clarify, I because but it to make is the back I try think it’s statement to every it that to – confusing. goes apologize quarter we

purposes. subsidiary, tax some recall, with for may assets is in along of the the NEF you As business the

owned Again, number on the their subsidiary assets on balance of SLRC. the XXX% disproportionate or it’s in are whether by it’s sheet. balance sheet, our However,

since quarter do between so. million So we to the look And at on income $X a vacillated NEF million continues and a owned business it $X has consolidated we’ve and basis.

that's So the The last to a balance on think you forward. very $X million between looking over We sheet a as a that, assets run consolidated it the it look on basis million. assets in the it $X at we're a million. $X.X million on that quarter, segment and was was $X just subsidiary, quarter, when basis, good before, quarter around rate

Robert Dodd

of expenses kind on contribution borne and it. get of Casey's equity the in costs cost just the the at and up well. essentially part Got as of one, And Thank The Crystal since you. way. they another the a expenses question they're all BDC of they is NEF own NEF that the by following paying and after Crystal,

institutional like – what fund like seems benefit And the there capital, co-investing be structure bearing the expenses from not now costs? going the to some that is get of the of but any at they the So with BDC, to it's it going you exist the Can correct? of sounds shared is without at the BDC to manager. compensation because kind for

Rich Peteka

Sure. really than rather to NEF. Crystal goes Sure. And this

is million As $X you to know, about NEF's typical million. loan size $X

fund the don't to see allowing and we to So as up NEF benefit scale facilitating any SLRC.

SLRC stand-alone larger basis will however, on we the that to in volume transactions primary be a So would not have we been there. SLRC increased do don't expect co-invest benefit Crystal, believe occur to competitive. where

size you to $XXX closer we number we be to million. set There will, to opportunity need are hold have where out, of transactions to have a and increasingly, syndicated our expand that

SLRC benefit opportunities. for and greater one shareholders think, is larger, in we that lower risk growth, So is

back However, fee those have subsidiary to of pay institutional funds the Crystal, to assets. a BDC to SLRC the also the servicing compensate ongoing agreed into for management

Robert Dodd

appreciate a Thanks lot. I it. Got that.

Rich Peteka

Thank you.

Operator

question Your Ryan the from KBW. Lynch comes line of of next

open. is line Your

Ryan Lynch

guys. morning Good

couple a on kind the income today. of linked movements of to had questions quarter. back follow I up Just in interest wanted

was portfolio reversal, is around quarter. XX.X%. similar or yield But a question, comping you fell was of the Chris's size billion interest So about The going about back portfolio so. was quarter-over-quarter, to $XXX,XXX mean, onetime I $X.XXX linked the mentioned know there by I income and at which about about $X

just onetime a drop meaningful pretty reversal? even I'm caused trying what So to excluding understand the

Rich Peteka

Sure.

large both the So combination are given Nations we structure you in LIBOR and fees major tend repayment as loans our quarter-over-quarter. Life the coming you additionally, in than income. other repayments fees had roughly components Science, Science with quarter. fewer so us the other XX And nature bps Repayments of the investments rate floating know, the generate off of Life success or to for then are business as down And saw, overhead outsized and Equipment. those

as depending that It We longer. quarter-to-quarter, didn't is have keep we was quarter-to-quarter, repayments. assets and news Science will repayments. repayment and variable But many Life is The them the upon down in income vacillate QX. good like like to these

Ryan Lynch

sense to makes Sciences the That then of Life wanted kind portion. question longer-term And on I a here. Okay. go

do in to of X.X% opportunities to about, your target is if presents first the you portfolio billion. you through And that of at your quarter, prepared constant if market really the like do so. the to really good since would to $X.X the your held up look think of range at I comments, to X.XX%. only leverage fourth I end going you're talked the kind get really of quarter But growth

least the being And of capital to lot as It private, at so for question competitive very environment is we my a raised. continues direct be that term, look a in near lending. there's

I course, overall, can for And verticals. years pretty just Of remains know it lend that your you a the multiple competitive persist in environment. have But specialty future.

target market what deals, you a it your running the even is leverage competitive makes sort is plan until just years market downturn doing to range comfortable getting is more below leverage current and just up frothier that close guys of it and and are it favorable? the on if environment? the So your happens market increasingly some Or meaningfully do you multiple target ever for

Michael Gross

that, that think of time. from we standpoint something this all entire start the question, we you X% talks the great a know, own our company ourselves. I as team And about That’s

now to And to. a loan they iPhone of actually most so used – time their loan, our makes out exposed that much they calculate personally be they calculator, take is case how are and every team in their –

put I'm a And into shareholder the if loans going say, where creates structure, not I'm into put my scenario is own it. that what that partners money people of willing to to loan my rest not

this if opportunity of invested, it's to current putting are of don't grow environment low larger scale So and a the that comfortable finance fact have, under specialty the the leverage see our into. running That we today. totally we comfortable own we that things in set the way way long answering with benefit are see we're the said, money our the portfolio we do opportunity

expect some So there. we would growth

looking are transaction there one NEF to in point come in the things up acquisitions cash like leverage target as we've could Crystal market, new our there be And past. where grow. take will be our that dislocation that and could a We done actively will will the at and episodic, in flow

are running take we at comfortable willing just leverage we're returns because this your books. the environment low risk assets with not putting in to again, associated and that's totally accept on X.XX times on But

Ryan Lynch

color. the for thanks Okay,

Okay.

is complicated a I correct it's answer one not for the appreciate color. that. issue, So there

Michael Gross

the party the and state fully suffers is that not to Look, personally. obvious, ourselves the most from running levered

on here As And assets BDCs sure make our you this the investors. model, to invested. get to fee stream business compromise opportunity front being we sitting in put paid we're know, set from today, of willing right our

Bruce Spohler

we short-term the and to significant prepared take are a we're team point, perspective. Michael's shareholders, But across not to

Ryan Lynch

appreciate I were sense. Those all today. the time makes Got question. it. my Understand, it

Bruce Spohler

Thank you.

Operator

line of Mickey Your next the from Ladenburg. Schleien question of comes

is open. Your line

Mickey Schleien

Good timing can to But the IHS can any acquisition on I a are realize restructuring more a or delve a you an was what issues IHS. lot you company? there's And morning, color of everyone. say. is little the that I not for facing? perhaps either expand hoping into on bit

Bruce Spohler

lot say. your Yes, there's can Mickey, opening unfortunately, we to comment, not a

think sector. is of wellness their company real the has some terms that in a value positioning. in It strategic this I

under-invested. require bit have some where I investment think in been that the they little it business does a

the that out it answer. alternatives the best and to strategic really maximize are is to how and to short co-lenders value we suffice so figure sponsor this And pursuing say our

But – through processes. we're so running

half sure they to company will in to again, strength their to year. and additional to And the some this term. about it's think enhance business of trying position in the make that longer make first order come I investments to fruition the have they capital

Mickey Schleien

fourth to helpful, portfolio was quarter? looking there That's terms in of about you idiosyncratic the that is Bruce. And Is And turnover portfolio of quarter? fourth in just Okay. this quarter. more it is something back Crystal an how turnover rate, Or the event? mentioned low seasonal it going the

Bruce Spohler

Sure.

was elevated repays. very Life in more – it not quarter But systematic. turnover, the fourth no, the and level have same So it's Science Science Life of did

come companies to market. see You'll

go. let we'll Sometimes, them

do to and those Because we our the increased them, and had companies opportunity in class stay be a is an in where decided our there'll into few had tap fact extremely that platform duration. Life extend this a well, know, this across scale to additional investments into Sometimes, as life you businesses fourth two-year Sciences. average with asset and extend. refinance we of to We quarter the performed have

just a we some It short-term portfolio. to able all investments our good long bit term. income it's keep repayment because didn't were longer in generate little So

Mickey Schleien

looking? how And this is quarter, it

Bruce Spohler

visibility we're be some that quarter. of we we the We know comfortable the in quarter, realizations It's feel hard how will half. within six that months think don't second Because, again, for good first the quarter-to-quarter. year. to much these I have things. nice be of we'll have first first think But predict I just not much control how

Mickey Schleien

Okay. Appreciate that.

I'm of Just they whether dividend I questions. payment curious SOAGG of more the made due to a that to just couple else? something simply value saw declined. was to the you the or that

Rich Peteka

The our doing the reflecting were be your the you released is a are to It's and the well. This know, to airline and great. math, or ago, so year fundamentals point just as dividend portfolio, about these fundamentals about out. continue

Mickey Schleien

accrued and now to it to income. understand. So, it was I booked NAV you

Rich Peteka

Exactly.

Mickey Schleien

was mentioned – some it just repeat, I NEF. lastly, caused NEF And define not Robert to equipment that at But of the think, there can in of some impairment impairment in sort valuation. you sort I'm

Bruce Spohler

distributions and – very reflect the mentioning subsidiary it slight, was Valuation that's you the income balance how move assets wholly-owned reflecting it was declined and have He come the as our no, would the at look from ones when look was basis materially. on the It a around but the commentary No. well didn't to need collapsing at comparables. in sheet on as the consolidated subsidiary.

so rather combined to five on a $X the the that been quarters eight million basis. owned in consistent $X that's – we've in million NEF between or And

Mickey Schleien

just the do that, that but due understand Bruce, No. I say to valuation did was you come comps? down. Did

Bruce Spohler

Yes.

Mickey Schleien

Okay.

your my are question understand. Those time. I I Now today. all for appreciate

Bruce Spohler

you. Thank

Operator

Securities. Your Wells comes of next from of Finian the question O'Shea line Fargo

Your line is open.

Finian O'Shea

my guys. question. morning. taking Thanks for Hi, Good

et this a earlier the Does capabilities to cetera, Crystal fees usually servicing of arrangement are fees. the Understanding follow-on questions private club platform, one Crystal fees the Dodd's pretty nominal, that Robert the origination out had suggests with fund to is syndicate valuable. Just itself? up very and or on the engine or build can't

Bruce Spohler

mean, to I third selling parties?

Finian O'Shea

Yes.

sell So Yes. to third? couldn't Crystal down the

Bruce Spohler

entire they marketplace in for And long to the term, is if much such want are transaction. lender. you can have competitive you that borrowers more same speak the So the the

classes, of So Science. sold to up our they don't and And Life in that's asset off in want cash all wake to loan Crystal. not we It's find just in in our It's flow. that other people.

lender So of day. to want the the the at sole they end holder the be

Finian O'Shea

terms question you area one-off the out not grown. the lot there's a an out Life understanding Okay, been not Just size, there that kind type that there? thank book? context of for on quarters? amortization there. flow Science couple over thing past your in repays have lines on fairly there's of that some is is color. specialty this Or any or good other anything the there Is Life Sciences, on It's And another stable of just –

Bruce Spohler

Sure.

late a is few under million. As start is $XXX actually we standing are to because after taken Life our public tend Science the being to their book sold that these in Science And to a though, they mentioned, short ago challenge, class just very typically has for a loan. from grown the buyers soon to lend Life asset years it strategic development, duration they or businesses

average months. end just we recently from so having hold about many benefited up XX having not as we an period And repayments. And of

accelerate half year. the more we expect repayments this first moment Michael's to Although to of comment do a ago in in that portfolio

of use a over been underlying asset co-invest growth fund can the $XXX lot there opportunity. from $XXX so next to it that We assets. to two, So the able to the million. it year just more $XXX increased is the million the team to a class, million now to scale grow investment duration velocity that short benefiting has thrilled has Solar We're under think or compete institutional in particularly this is

the redemptions, portfolio And you growth see that's here. expect not a tremendous they're facing when coming. we thing, good So but

Finian O'Shea

it's we'll helpful. the such. Understanding in there nearing doing? mark you've Okay. million commercial bracket a here nature the in of that area, does the different No, $XXX that see in material and short-term I think exit. that does been stage difference that what $XXX that's to generally book? any million texture Is And you're

Bruce Spohler

million a as being closer cash to million definition, they Great that because value they're loan question. capitalized here. know little because borrowing you No, are its over if invested to equity exit lend $XXX if probably to we as be the anything, defined business means life. they'll low by $XXX in Equity well very

invested bigger, time. larger that – have more And in been so period that for means they're longer of better and a companies capitalized

little anything, if opportunity even This them. expanding they duration, been are bit has the team a sector. already. that set is for So instead those doing just directionally, shorter what it's will of be But probably not the lower but for investments risk

Finian O'Shea

Thank for all much. that’s me. so you Okay,

Bruce Spohler

Finian. Thanks,

Operator

turn and back and ahead, Gross, like call Michael to to sir. the would Chairman Ladies Go over Co-CEO. you. Thank gentlemen, I speaker

Michael Gross

who look talking you And attention to We your all and of to are thank in you. minute. next today your insightful those the you SUNS Thank all forward for we questions. following

Operator

gentlemen, a this and today's have concludes Ladies Thank day. wonderful you your conference. for participation, and

may all disconnect. You

SLR Investment (SLRC) 21 Feb 202019 Q4 Earnings call transcript