Q1 2020 Earnings Call
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At this time, but just combined are not listen only mode. After speak a presentation will be a question answer session.
Asked a question during the session you need to press Star one on your telephone please be advised that today's conference is being recorded.
If you acquire any further assistance please press star zero.
And accomplished your speaker today Mr., Michael Girls Chairman.
CEO.
Solar Senior capital Limited. Please go ahead Sir.
Thank you very much and good morning, welcome to solar senior capital Limited's earnings call for the fiscal quarter ended March 31st 2020.
Joining me today by Bruce Spohler like our co CEO enriched the peak, our Chief Financial Officer.
Before we start can you. Please covered the webcast importantly state.
[music] sure. Thank you Michael.
I'd like to remind everyone that today's call and webcast are being recorded.
Please note that they are the property of solar senior capital limited not any unauthorized broadcast in any form.
Directly prohibited.
This conference call is being webcast on our website at www Dot solar senior cap dotcom.
Sure replays of this call will be made available later today as disclosed in our press release.
I would also like to call your attention to the customary disclosures in our press release regarding forward looking information.
Statements made in todays conference call and webcast may constitute forward looking statements, which relate to future events.
Our future performance or financial condition.
These statements are not guarantees about future performance financial condition or results and involve a number of risks and uncertainties.
Including the impact of Kogan 19.
Related changes in base interest rate and significant market volatility our business.
Oil companies and the global economy.
Additionally.
Past performance is not indicative of future results.
Actual results may differ materially as a result of a number of factors, including those described from time to time in our filings with the FCC.
Solar senior capital limited undertakes no duty to update any forward looking statements unless required to do so by law.
To paint copies of our latest SEC filings. Please visit our website for Paul is that to want to 9931 670.
At this time I'd like to turn the call back to our co Chief Executive Officer, Michael gross.
Thank you rich good morning, everyone and thank you for joining us today.
First and foremost we hope you and your family friends and colleagues remains healthy and say during this pandemic.
Our thoughts are with all of our stakeholders, including dedicated employees across solar senior capital the company's investment advisors, So what capital partners.
Due to work from home with full business continuity.
Also we would like to express or heartfelt gratitude to all the healthcare and other front like workers nurses to your condolences those families who have lost loved ones.
The global spread Cobot 19 in Q1 led to nearly unprecedented levels of market volatility and dislocation in March.
The shutdown response plugs the world into recession, and financial markets into a broad based deep sell off.
The resulting fed rate cuts steep drop in inflation expectations. The flight to safety drew the 10 year U.S. treasury yields to below 1% for the first time and they're more than 150 year history.
Near term liquidity issues have been partially mitigated by rapid inexpensive U.S. monetary and fiscal powers policy response.
Certainly your volatility or expect to remain for the foreseeable future given the lack of clarity and timing of GITR getting our called me back to work.
To best serve overstay quadrants evolving crisis, we're providing detail on her first quarter results as well as an update as of April thirtyth.
As we outlined in or April 1st shareholder letter or sort of approach. The management of both are assets and liabilities has resulted in a defensive portfolio stable funding low leverage strong liquidity favorable position to make new investments.
At March 31st solar seniors net asset value per share it was $14.
So.
The 10.6% decline from yearend.
I realize depreciation represented the vast majority of the decline.
It was primarily driven by unrealized mark to market losses late to the impact was spread widening on evaluation of our portfolio.
Well I portfolio, the whole is knocking immune to the severe economic disruption caused by the cobot pandemic, we do expect to recoup a significant portion was unrealized depreciation I, just said great market technicals and economy improves.
Overall, our portfolio companies are approved reach a resilient business models and that's the liquidity, though enable them to successfully withstand this crisis.
We attribute this fall position were portfolio towards long term investment discipline centered in the philosophy that we invest.
We're always late in the credit cycle.
In addition, we took a multi well your took a multiyear initiative to build and acquire.
It's specially finance, an asset based lending businesses, which have historically exhibited lower default and loss rates throughout business cycles compared to traditional castle lending.
Potently, the a b L and life science teams have resilient business models and highly experienced teams each of which have managed through multiple cycles over career spanning to 20 to over 30 years.
The stuff she can't loan portfolios, our diversified and defensive in composition. The teams are skilled at working through problems are well positioned to be secured liquidity providers to borrowers under more favorable terms and the current Barbara.
Our corporate portfolio is comprised of approximately 99% first lien senior secured loans with a small exposure to one second the castle investment.
Importantly, we remain patient intentionally under Levered in order to preserve liquidity for market dislocation when risk adjusted returns are generally more attractive.
And Mark will do for 2020, 99% of our $625 million comprehensive best portfolio at fair value, which comprise a first slane castle loans.
Possibly 55% of those loans were in especially finance the niches.
29 of the contraction in our portfolio fair value quarter over quarter results from that portfolio repayments.
During Q1, we had $88 million repayments, all of which were at or above par and fundings of $68 million.
As of March 31st over borrowers made the interest payments and an April thirtyth as well.
As of March 31st only one loan had to pick components with interest rate cash interest and dividends represented over 99.9% of our Q1 2020 gross investment income.
Solar seniors per share for the quarter totaled 35 in the quarter shops.
Well, we're confident that SUNS entered the current economic slowdown for position of relative strength, the sustainability of our dividend its facing certain headwinds.
At March 31st so, let's use portfolio with under Levered relative to our target range of one quarter to one and a half times.
In addition.
The recent commitment to said base rates a zero for the steep foreseeable future is placing downward pressure and yields in a predominantly floating rate portfolio.
In response to SUNS low leverage in this rotation of low base rates extended period of time, the board approved to reduce Castree distribution 10 cents per share per month for the month of may in the foreseeable future.
In addition.
Nothing advisor the degree to weight management incentive fees that necessary.
That's sneak them to cover this rate of multi distribution throughout 2020.
We believe that a reduction in our distribution is prudent.
Realigning SUNS distribution with our near term expectations for net investment income were stopped Michigan foundation from which to grow.
Certainly as we invest the portion of our available liquidity, we expect funds that best when they come to cover distributions without the support a fee waivers by the manager.
As opposed to target leverage of one of the half times, we expect net investment income to see the current distributions.
With the market now dislocated.
The next 12 to 18 months to present, an abundance of compelling investment opportunities at higher expected returns with battles protections. It's like an ideal time for us to grow our income producing portfolio.
Each of our investment verticals is led by experienced professionals, who have invested through multiple cycles I understand the benefits of public capital to deploy to a recovery.
Our diversified investment platform spending cash flow lending multiple ABL strategies in life science bench lending position successes solutions provider to borrowers.
It also enables us to originate attractive risk does ought to be able to affirms that you're only able to underwrite capsule bones.
We expect portfolio growth in coming quarters to come in the former Paiute higher yielding assets with more lender friendly terms, which only drive our net that's when it comes higher in future quarters.
During the first quarter some significantly improved its funding liquidity profile on March 31st thought took advantage with investment grade rating and issued $85 million.
3.9% senior unsecured notes in the private placement with institutional investors.
There's also the issuance at March 31st approximately 50% of the company's funded debt was comprised of unsecured term notes, which give some significant unencumbered assets.
Provides meaningful overcollateralization of its combined 300 million dollar credit facilities, which are over 70% on drawn.
We have significant capital available to play all fronts.
Mostly for 2020 or net leverage is 0.69 times and that's an April thirtyth or it's made leverage was similarly, low I 0.71 times.
Importantly funds has no near term debt maturities have you termed out both its primary 225 million or credit facility and its secondary suddenly find on our credit facility to 2023 in 2024, respectively. In addition, we have a March 31 2020 of them maturity of our newly issued see senior unsecured.
Right notes.
With a weighted average maturity on the company's funded portfolio loans of July 2022, we're substantially asset liability match funded importantly, we believe that these weighted average maturities over two years from now like solar senior with one way to manage to current economic contraction.
Combined with available capital at solar sister, BDC for capital and the other private funds and solar capital partners manages the platform has over $6.5 billion available capital, including over $3 billion currently available to make new investments supporting existing companies and provide structure liquid.
<unk> capital solutions to U.S. middle market companies with sustainable business models.
As a long term investors know, we have management company in anticipation of an economic downturn.
No. This is dislocations arrived unfortunately, the tragic fashion.
We are fortunate to have a solid foundation and are poised to deploy capital support are valued sponsors and management teams.
Earlier this week, we announced the addition of four hobby strip professionals to the solar capital partners team.
Expansion of our investment and business development team speaks to our confidence in the strength of the platform and conviction in the best an opportunity set.
As a final note our investment of boxes alignment of interest with the company circled stakeholders has been one of our guiding principles.
Two significant SUNS sure purchases since inception, our senior Majestene now owns approximately 6% abrupt any common stock.
Actually all members of the team had a significant percentage their annual compensation invested in some stock.
Peter mentioned, the basket alongside told shareholders demonstrates our confidence and the company, but that's the portfolio stable funding strong liquidity and third position at new investments. This time, a firm to call a bridge our CFO rich for Teekay to take you through the financial highlights.
So the emphasis on liquidity and funding profile.
Thank you Michael.
Solar senior capital limited net asset value at March 31st was 234.1 million for $14 in 59 cents per share.
This compares to a net asset value of 261.8 million was $16.32 per share at December 31st 2019.
Towards seniors balance balance sheet investment portfolio at March 31st 2020.
Fair market value of 395.8 million.
In 45 portfolio companies operating in 21 industries compared to a fair market value 460 point Threemillion.
48 portfolio companies operating 21 industries at December 31st.
Turning to our funding profile and leverage in our opinion tons. Currently has one of the strongest balance sheets and the company's history, which we believe will service well in the current down.
On March 31st.
Senior and now the issuance of 85 million of 3.90%.
Senior unsecured five year notes in a private placement with institutional investors.
The proceeds were initially used to reduce borrowings under the company's revolving credit facilities.
Funding additional investments and for general corporate purposes.
At March 31st 2020.
SUNS had 174.4 million of debt outstanding and net leverage of 0.669 times down from 0.78 times leveraged in the prior quarter.
Solar senior capital has over 220 million to fund portfolio growth subject to borrowing base limitations.
As a reminder, solar seniors target leverage is 1.25 times to 1.5 your times debt to equity under the reduced asset coverage reform.
As of March 31st 2020.
Solar senior capital had unfunded commitments of approximately 17 million.
The unfunded commitments largely consists of contingent delayed draw term loans related mostly to add on acquisition financing cash flow lending business.
As well as incremental financing commitment to life science companies tied to capital or operating thresholds or benchmarks.
At this point less than $5 million or the company's 17 million of unfunded commitments are for revolvers.
That can be fully drawn today by the borrowers representing a current liquidity to noncontingent unfunded commitments coverage ratio of approximately 48 times.
You know our opinion this abundance of liquidity not only enabled phones to be opportunistic you know originations. During this location, but also preserves our ongoing access to the capital markets.
From a piano perspective.
Gross investment income for the three months ended March 31st 2020 totaled 8.8 million.
Versus 9.5 million for the three months ended March.
Ended December 31st 2019.
Net expenses for the three months ended March 31st 2020, with 3.1 million compared to 3.8 million for the three months ended December 31st 2019.
Net investment income for the quarter ended March 31st 2020 was 5.7 million.
35 cents per average here.
As compared to 5.7 million, what 35 cents per average share for the three months ended December 31st 2019.
For the quarter ended March 31st the investment adviser voluntarily waived management fees and 964000, an incentive fees of 56000 compared to 671000 fees waived for the quarter ended December 31st 2019.
Below the line.
So with senior had net realized and unrealized loss for the first fiscal quarter totaling 27.7 million.
Pat to net realized and unrealized gain.
Oh point 1 million for the three months ended December 31st 2019.
Accordingly.
Who is senior had a net decrease in net assets, resulting from operations of 22.1 million <unk>.
Were $1.37 cents per share.
Three months ended March 31st 2020.
This compares to a net increase in net assets, resulting from operation to 5.8 million.
36 cents grabbing share for the three months ended December 31st 2019.
Lastly.
What did direxxis depend a multi distribution from May 2020 of 10 cents per share payable on June 2nd 2020.
Equals a record on may 22nd 2020.
At this time I'd like to turn the call over to our co Chief Executive Officer, Bruce Spohler.
Thank you rich.
So were seniors portfolio has benefited greatly from our initiative to expand the origination platform to the development and acquisition, especially finance businesses.
At quarter end, approximately 55% of our total portfolio was in senior secured passive taste and life science lending strategies.
Appreciate it sounds highest allocation to commercial finance assets since inception.
Remaining 45% of the portfolio was invested in senior secured cash flow loans predominantly first lien assets.
As of March 31st our 625 million comprehensive portfolio.
Highly diversified.
Encompassing 234 issuers crossover up 130 industries.
Our largest industry exposures, our health care providers and services professional services.
And insurance.
The average investment for issuer was 2.7 million or less than 25% portfolio.
At quarter end, approximately 100% of our portfolio at fair value consisted of senior secured loans.
Comprised of close to 99% personally in assets and 1%.
Second lien asset.
We believed that our efforts to position the portfolio to almost entirely first lien.
Construct.
Which carry less risk than second lien and mezzanine loans will result in greater capital preservation during this crisis.
At March 31st our weighted average asset level yield at fair value was 9.8%.
Actual Cushing, our commercial finance the verticals, we've been able to maintain asset level yield approaching 10%.
Despite the sharp drop in LIBOR, resulting from the federal reserves efforts AG economy.
At March 31st the weighted average investment risk rating of SUNS portfolio was 2.0 based on one before risk rating scale with one representing the least amount of risk.
As further indication of the resiliency of our investments today.
100% SUNS portfolio was performing a court rent and continues to be that April thirtyth.
[noise], including activity across our four business lines originations totaled 68 million and repayments were 88 million in the first quarter.
Originations were mixed with new deals and upsizing to existing borrowers.
I mean that provide an update on each of our investment verticals, including details on our valuation approach.
Well did.
Let me start with cash flow, while the disruption to the economy as a result to cope with pandemic has been unprecedented we believe their cash flow portfolio is well positioned to withstand phong recession.
Our cash flow portfolio does not have direct exposure to cyclical industries, such as energy commodities travel retail leisure.
Heavy manufacturing core consumer discretionary sectors.
We've been active dialogue with management teams and sponsors across our portfolio companies regarding their business prospects as a result of kovac.
We incurred we are encouraged by the steps taken by the portfolio's companies to preserve their liquidity.
As well as the continued strong sponsor support that these businesses.
Oh predominantly first lien portfolio can 99%.
Together with a relatively modest average first lien leverage or just under five times together with the significant junior capital cushion and strong sponsor support positions us well to withstand economic headwinds in our cash flow portfolio.
We view the majority of our investment has generally providing essential services in non cyclical sectors that we'll continue to be required because the stay in place restrictions or <unk>.
So what conducted a rigorous covert stress tests across the entire cashflow portfolio as part of her first quarter valuation process.
[noise], our valuation framework incorporated sector specific markets spread movements in the quarter.
Adjusting for the existence of LIBOR floors.
We expected weighted average life of our investments.
Existence of Covenant and other issuers specific factors such as their liquidity profile the sponsor supported the business.
And our position in the company's capital structure.
The majority of the decline in our portfolio marks are reflective of market spread movements that we expect to reverse over time.
To provide further context market spreads for the LCD first lien single B index widened approximately 400 basis points during the first quarter.
Since quarter end, it has reversed somewhat and tightened by approximately 150 basis points or 35% as of April thirtyth.
At quarter end or cash flow portfolio.
Consisted of $282 million or approximately 45% of our comprehensive portfolio.
It's invested across 32 borrowers with an average investment size of just under 9 million.
These companies had a weighted average EBITDA of $107 million, which highlights our longstanding commitment to finance larger business.
Which we believe our better position to withstand an economic downturn.
The weighted average yield for cash flow portfolio is just over 8%.
During the first quarter, we originated $33 million first lien cashel loans and experienced repayments of 70 million.
Our new investments were primarily a combination of new investments and out on investments to existing portfolio companies.
We're very encouraged by our available liquidity it sounds to take advantage of the current market dislocation, which we expect to persist.
Over the last few years, we made a conscious decision to shrink our cash flow portfolio.
Oh into frothy market conditions, which resulted in highly levered deals with very loose documentation.
We have begun to see more opportunities to finance large middle market companies at low leverage levels come with better covenant and call protections and wider spreads.
We will continue to maintain or disciplined we're investing in non cyclical sectors focus on the upper end for the middle market in our cash flow book.
Now, let me give an update on our asset base strategies.
As a reminder, sun zones to commercial finance businesses that specialize in making senior secured you'd be whole loans on a first lien basis.
Secure predominantly by accounts receivable.
These companies led to small and midsized U.S. businesses typically have limited access to traditional bank financing.
Jim Animal health care is focused on providing revolving accounts receivable facilities exclusively to health care service providers.
Collateral here consists of Medicare Medicaid and private insurance receivables.
Our work no business finance Financers companies operating in the distribution business services and manufacturing sectors, North smell is typically the agent and sold lender to its borrowers.
And its financing structures predominantly include revolving accounts receivable says financings as well as factoring agreements.
In addition.
Paul factoring agreements have recourse to the underlying borrowers.
Both Jim and no one north smell are led by teams of seasoned professionals, who have been in asset based lending for 25 to 40 years to management teams are experienced risk underwriters across multiple economic cycles.
Their business models are highly resilient relationship driven and serve as a lifeline of working capital provider to small businesses across the U.S.
In prior economic during downturns TBL loans.
Generally provided hi recovery rates more so than those supported only by cash flows.
Overall, what's your minimum north mills portfolios continue to perform well and in accordance to our expectations at the time of purchase.
In addition, the collaboration across chairman, though and North mill on the business development side together with North most acquisition.
Summit financial resources last year, because broadened and deepened our coverage across regions. It's also enhance the pipeline of our investment opportunities.
Now, let me provide a brief update until geminos in North mill.
Our valuation approach and the current investment environment.
Let me start with North belt.
At quarter end North knows portfolio was just over 180 million representing 29% of some portfolio.
The portfolio consists of over 155 borrowers with an average investment just over a million dollars over.
Over 99% of North most parts part D central businesses.
The P. P. P is expected to be highly beneficial to north and those portfolio companies.
Importantly, the portfolio is defensively positioned with approximately one third of its exposure in the distribution industry concentration of food.
One third is also in staffing with an emphasis on outsourced and remote car T.
And one third is in manufacturing with many borrowers operating in essential industries.
Both at quarter end and April Thirtyth, there were no defaults are delinquencies across north mills borrowers.
During the first quarter, we funded over 16 million.
Of new investments and every team member of just under 5 million at North mill weighted average asset level yield at quarter end whats 12.5%.
At March 30, Onest, the fair value of our equity investment in North mill was marked down by approximately 10% from the prior quarter.
Sounds utilizes the service of an independent third party evaluation for during this process.
We should framework is primarily driven by price to book values public peer comparables as well as private market transactions similar.
Commercial finance businesses.
And to a lesser extent the change in mark to market yields.
No one were comparable businesses have been acquired over the past few years, we believe that north melt is conservatively valued.
During the first quarter North no paid the company cash dividend of just over a million in a quarter down from a million for in the prior quarter.
The reduction matches the dividend earnings and its conservative because we think about the current economic environment and North mills business prospects.
The integration somewhat finance into North mill is proceeding ahead of expectations.
We were encouraged by the disciplined and shared credit culture.
Broader geographic coverage.
And enhance pipeline of attractive investment.
The attractive investments across both TBL in factoring structures.
We view factoring is a highly attractive asset class and this portfolio as well as the addition of summits core underwriting MPD out team.
<unk> increased north knows exposure true and expertise in factory.
Importantly, we're still takes a conservative approach.
By prioritizing factoring agreement with recourse to the underlying borrower.
We anticipate consistent continued steady performance and growth for north belt.
Now, let me turn to Geminos.
Our health care you'd be able business has not been negatively impact by to covert pandemic.
In fact, it is extremely well positioned to benefit from this public health emergency.
Impairment risk remains extremely low given geminos disciplined underwriting and focusing I focus on financing health service providers, who have government and high quality insurance company accounts receivable this collateral.
Cash collected collections typically go directly into Geminos lot boxes.
As well as fees and interest payments, which would dip it automatically.
At quarter end as well as at April Thirtyth, there were no defaults, nor delinquencies across Jim and I was borrowers.
At March 31st the Gimeno portfolio was 138 million consisting.
All right, representing approximately 22% of our total portfolio.
It's comprised of 37 bars with an average loan size up just over three and a half million.
The weighted average asset level yield the chairman I was approximately 9.5%.
During the first quarter, we funded 16 million of new investments and had repayments of approximately 10 million.
During the quarter Geminos delivered a 12% or are we the highest that we have seen from them in years.
Sure mineralized stable funding with no near term maturities, having refinance its credit facility late last year into a new for your credit facility at LIBOR, plus 225 compared to previous facility at life were close to 60.
At quarter end, the fair value of our equity investment in Germany.
Was marked down approximately 3% from the prior quarter.
Sounds also uses the services of an independent third party valuation firm in this process.
Well, our valuation framework for control equity investments is fundamentally grounded in an assessment pure price to book values. There are no great comparable public companies for.
Jim, though so we rely more on private transactions as we value this highly specialized business.
If not for the trading down or public finance company peers, resulting from the covert crisis, we actually wouldn't marciano up from the prior quarter given the growth in its portfolio an achievement of its highest are are we in its history.
Since only geminos price to book valuation has been very conservative relative to commercial finance companies with similar risk profiles.
The first quarter General page SUNS cash dividend at just under a million dollars and consistent with the prior quarter, representing an 11% return.
As we look into the future we feel very confident the portfolio quality a trend, though I believe the company is well positioned to capture additional growth because the market settles down.
Finally, let me touch on her life science lending business.
Overall life science portfolio is largely insulated from short term market any economic dislocation given the long dated equity investment periods and product cycles of our portfolio companies.
Assets.
At the present time, the impact of coping 19 to set a diminimus impact on the portfolio.
100% of our loans in this segment or performing.
We continue to expect no losses in this segment.
As a reminder, we have never realized a loss in her life science portfolio across the platform.
Currently none of our life science portfolio companies kind of less than three months of cash runway.
100% of these.
Companies have more than 12 months of cash runway.
This is largely a result of our investment focus on public venture capital backed complete stage multi product.
Pharma and medical device companies that are either close to or entering commercialization.
It's important to remember that our discipline is to make life science investments had very low loan to values, 15% to 20% on average where value is defined as actual cash invested in the business at not an enterprise value.
Post the most recent round to funding wary of public a market capitalization.
Well, the F.D.A., maybe slowing trials down for new products.
Hey for a fast tracking coker treatments are vaccines.
Patients may also be reluctant to participate and trials given this pandemic <unk>.
Projected threed and nine month potential delays for some companies is small in relation to the 10 to 15 year development process that they've been undergoing as well as the significant capital invested in these companies relative to the size of our loan.
In addition, there are some late stage development companies, we invest in revenues maybe deferred as a result of delays in procedures are surgeries that are considered elective or non essential.
The financial viability of many hospitals doctors in health care providers rely on these non essential services as a key source of revenues and we expect these services to begin to ramp back up in the next couple of months, because we get into the second half 2020.
At quarter end, our life science portfolio totaled just over 22 million.
Consisted of seven borrowers with an average investment size, let's just over 3 billion.
Our life science loans, representing a 3.5% of our total portfolio nine than half a percent of SUNS first quarter gross investment income.
The weighted average yield on this portfolio was just under 10% excluding success fees and warrants.
Our valuation frameworks life science investments, it's based on marketing each investment close to its amortized cost.
During the final fee that we contractually, we see that pay off.
There was no liquid market for private life science venture debt and we don't use any equity benchmarks for determining that fair value.
At April Thirtyth, there's been no material changes to the underlying credit quality of our life science investments.
Health care space in general continues to be extremely attractive and we're not seeing a slowdown in new life science investment opportunities.
Also the increase scale Oh, the solar platform enhances the opportunity sets for investment can even later stage public farm and device companies that may require even larger loan sizes.
However, we will continue to be highly disciplined in new investments.
In conclusion, we believe that SUNS portfolio looks extremely well positioned to whether this crisis.
As we continue to navigate it's challenging environment, we will remain in close contact with our portfolio companies their management and sponsor teams and support them and as well because worked with our extensive network of relationships to also play off fence and look for new investment opportunities.
So a capital partners commercial finance platform.
Significant dry powder enables us to provide structured financing solutions, including both cash flow and has the based loans for capital constrained companies. During this time period.
Solar senior will also be able to participate in these financings, while continuing to meet significant diversification across its issuers.
At this time will turn call back to Michael.
Thank you Bruce in closing, we would like to thank solar senior capital shareholders for the support in patients during this difficult time.
I'm inception, Weve endeavored to make the right decisions to preserve and have long term shareholder value.
Priority as well we've been to create and maintained a portfolio that can generate steady income for shareholders and protect our capital.
Well the course of extended frothy credit markets, we ever made disciplined in the face of significant spread compression higher leverage and loose structures, all which have elevated the risk of principal loss in middle market leverage finance.
As a result, we're positioned SUNS defensively diversifying our portfolio across cash flow and definitely commands first lien senior secured loans tremendous downside risk.
We have operated well under target one leverage when we preserve liquidity.
We believe we have taken the appropriate steps to navigate successfully through what we anticipate to be a prolonged difficult period.
Throughout we have maintained alignment through ownership of sounds alongside her fellow shareholders.
Our decisions prioritize capital preservation.
Rather than leveraging the portfolio and taking on more risk at the wrong time. This cycle have allowed us to enter into this dislocation in a position relative strength.
Importantly, we have confidence that our teams expertise and ability to provide financing across cash flow and they'd be offerings.
Good enabled SUNS to continue to support the existing portfolio companies and make new investments during this period of turmoil.
As a result of recent fund raising U.S.P.P. platform now has over 6.5 billion dollar investable capital, including potential leverage with over 3 billion of that currently available to make new investments.
[noise] Sep spawned private funds maintain a co investment strategy with solar senior capital, which provides the company access to attractive co investment opportunities.
Upper middle market companies that otherwise would not have with capital base along.
Specifically the collecting drypowder enables the platform to speak for large positions and to provide rescue financing solutions as well as I don't acquisition financing when M&A activity resumes now more than ever our scale should serve as a competitive advantage for solar senior capital.
Importantly for solar senior capital discount flexibility when asked Cashcall naphtha based solutions for larger companies is a significant advantage today.
[noise] traditionally the greatest investment opportunities exist during periods of market dislocation in capital is scarce.
Over $220 million of available capital and a strong foundation, given our defense the portfolio and bone leverage we believe the company is positioned to originate attractive new investments, while also supporting our existing portfolio companies as needed.
Our patients and willingness to remain on in best under invested provides us the foundation to be opportunistic.
Given the magnitude the economic disruption, we believe that improved investment opportunities that will persist for several quarters, that's companies seek liquidity and financing solutions.
With a solid portfolio foundation stable funding sources and strong liquidity.
So I'm going to great position to capitalize on opportunistic investments.
We currently have no anticipated needs for different liquidity or capital and accordingly have no plans to issue dilutive equity or expensive unsecured debt.
Each year for the past eight years, our shareholders of grants dot the approval to issue shares low now that's about you.
It's something to the board approval at the time of issues. We've always viewed as trusts you know the great responsibility and have managed the business Accordingly, I've never taken advantage of those.
Given our belief in the company's ability to successfully navigate the current challenges. We are disappointed the current share price we remain confident that the quality of our portfolio resulted in a stable net asset value, which also be reflected in a higher in absolute relative share price.
We hope that all of your and in good health, we would like to thank the unsung heroes in health care professionals.
<unk> Central service workers on the front lines and its crisis.
Support their efforts and our homes to the of New York City currently the center of the epidemic.
So what capital partners.
Our investment adviser donated $1 million to the Melds bought a hospital in Columbia University Irving Medical center collectively to be used with the procurement of PB for coated research.
The mental health of those spotlight healthcare workers and their families.
We thank you very much for your time today, operator could you. Please open the lines for questions.
As a reminder to ask the question you need to press star one on your telephone.
To address your question press the pound key.
Please stand by the way compiled the came in a roster.
Once again that star one for questions.
Our first question comfortable I know Mikey sign from Ladenburg.
Need again.
Good morning, everyone.
Hey.
Let me start by.
Thank you for that charitable contribution as.
The parent of a health care work or I I really appreciate it.
And I think it's it's a great thing.
Moving on to just a couple of business questions.
As you mentioned solar as a platform has been waiting for a dislocation in the cash flow sponsored finance market for a long time and now its arrived.
No one could have predicted that it would be from the pen down there, but obviously.
There are many unknowns regarding its duration and to me the impact on the economy.
Nevertheless, I'm hearing that middle market spreads have widened, perhaps 150 200 basis points and as you've noted.
In terms of improved a lot for lenders like you are the economics attractive enough for you now to go back into the market at this point in time or is there just still too much uncertainty to even try to underwrite.
Standing better terms that are available.
So so great question.
I would say as you know Mickey what has helped us on the sideline what we always like more price has really been <unk> your commentary around risk and that's why we have been so under invested on the cash flow side. What we are seeing now. It's is it's early days that we're all talking about.
Correct over the next couple of quarters once people figure out what they own.
To your point, how is it going to weather this cycle and this incredibly tragic experience that Paul portfolio companies will not be immune from but several will come out. The other side, then we'll be positioned well and so our focus really has been at the moment.
On finding those opportunities there is no conversation with sponsors that are approaching us around covenant light or highly levered structures.
So that's the easy conversation and that's been critical for us because what's been kept keeping us on the sidelines pricing to your point is a good hundred 5200 basis points higher, but importantly, it's higher or lower risk.
I think the immediate opportunity in cash flow is really a couple of things one we had been able to.
Well look at some companies that we do you or lender in common with someone for peers, who may need to sell some good assets to shore up their balance sheets and so that's a good opportunity for us where we already know de risking have bought into the rest, albeit we can buy those at discounts to choose or yield, but we already have signed off on the structure.
Secondarily, we see as the market does unfold.
There are still that same got tremendous tend to private equity capital on the sidelines.
For good healthy businesses. The sponsors are going to look to take advantage of this opportunity deployed equity into platforms, where they want to buy down there are multiple and take advantage of some opportunities to add on acquisitions. Many of those lenders maybe tapped out we will look to lend into those businesses as Dick.
These are getting bigger and de risking alongside do equity come again, so I think that's the first.
Opportunity set on the M&A side as opposed to new platform creation as we get deeper into 2020 and then the interim we're also working with our NPL teams.
Our originators are highly coordinated across the platform to bring our expertise into cash flow companies and what we're doing there is using the ability to take advantage of the Swiss cheese documents that exist in the marketplace today for cash flow lending that allow people to carve out certain pools.
The collateral so we can bring in the north mill, a gentleman no crystal.
The nation's equipment and hive off collateral and charge that 200 basis points premium, albeit on the collateralized basis in the meantime get to know the business. It will not an incumbent lender to see to your point is this the sector that beyond the underlying collateral values that we like the cash flows should we get to the other side of this and things.
Turning to reopen.
So we're starting to pick some seats there so that we can position ourselves to deploy more cash flow capital, we would be we'd like to look back a year from that you're gonna have to and really have not only continue to grow north fill in German, though but really scaled up our cash flow book.
Thank you Bruce that's really helpful and just a couple of questions on sponsors what you mentioned.
Do you see any meaningful differences and the way that would be evening.
In terms of their size I'm, specifically I'm, referring to sponsors that.
Smaller sponsors that are more lower middle market focus than you had larger sponsors which are middle market or upper middle market focused any any differences and the way, they're behaving and your anticipation of how they're going to support.
Their investments.
But as you know we operate at the upper mid markets. So I apologize if I'm going to reserve the commentary tool that part of the marketplace, but why we've always been upper mid market is during periods of downturn. We have seen to your question more support generally speaking from sponsors just because of the businesses themselves are that much more Brazil.
Yet.
To get through difficult times, but I think the key issue is really regardless of whether your upper mid market for her.
Another segment is really the underlying fundamentals of that business just kind of be the determinant sponsors are spending a lot of time right now going to each asset in their portfolio and figuring out where they putting good money after good and where does it not make sense to invest and support the business you know so far we're blessed that.
At SUNS, you know, we really don't see liquidity problems or lack of support from the sponsors I think that's predominantly because we have invested in these defensive businesses that people. Obviously all of these companies lets say said everything's on watchlist first Mickey.
When everybody's working from home.
And your into the low to zero revenue environment Theres no business that is immune the keys to be in sectors that people believe you know will have a reason to exist on the other side and begin to recover as we kept the Britain to this year and so that's where we're seeing is because we've gone into those types of defensive sectors. It's more like.
We that not that either they are very high free cash flow businesses, which is a key tenets of our underwriting.
Indoor they have support from the sponsored but it is very asset by asset.
Okay and my last question and I do appreciate your.
Comments there.
The dry powder that the sponsors who are holding has actually been around for quite a while as well know.
So I'm curious about you know the.
Yes.
Issue of how old are these funds that were talking about and or are they still young enough in their lifecycle to to have an incentive to support the borrowers or.
Given that this money has been sitting around so long.
Are they less interested in supporting borrowers because I'm you know the lifecycle of the fund is ending anyway.
So the answer is isn't really what you're focusing on those funds that are kind of half their investment period, because clearly funds are still with investment period. If they think makes economic sense support the company's they're going to call capital from LT can do so what you are seeing you know, we're aware of conversation well and is that what.
Help me GP, even if the fund it's possible that secured do not want to let Oh, let's go if they think they're still viable and so they are looking at ways, where they can raise liquidity into their funds through either loans are preferred there's there's a there's a lot of.
Shadow banking system, if you will help for private equity firms as well that borrow against the portfolios to injected. So we we don't see you know and issue of kind of you know one being too old to support their companies.
That's really interesting Michael and very hopeful I appreciate it.
All my questions today, everybody stay safe and healthy.
To make it actually make you appreciate your time.
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Thank you so much for your time and efforts, we wish everyone, who continue to stay healthy insight.
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Take care of either.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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