Q2 2020 Solar Senior Capital Ltd Earnings Call
At this time, all participants Arnie listen only mode. After the speaker presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
Please be advised that todays conference maybe recorded.
If you require any further assistance. Please press star Zero I would now like to end the conference over to your host Chairman and co CEO Michael groups. Sir. Please go ahead.
Thank you very much and good morning, everybody welcome to solar Senior capital Limited earnings call for the first quarter ended June Thirtyth 2020.
I'm joined here today, but Bruce Spohler, our co CEO and Richard <unk>, Our Chief Financial Officer Rich would you. Please turn off a cover the webcast and forward looking statements.
Of course, thanks, Michael.
I'd like to remind everyone that today's call and webcast are being reported.
Please note that they are the property of solar senior capital limited.
That any unauthorized broadcast in any form or is strictly prohibited.
This conference call is being webcast on our website at www Dot solar senior cap Dot com.
What are your replays of this call will meet available later today, that's 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 today's conference call and webcast may constitute forward looking statements, which relate to future events or a future performance all financial condition.
These statements are not guarantees of future performance financial condition or results and involve a number of risks and uncertainties.
Including the impact of cold in 18 and related changes in base interest rates and significant market up volatility in all those business are not portfolio companies and the global economy.
Additionally.
This performance is not indicative that 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.
Required to do so by law.
Good thing copies of our latest FCC filings. Please visit our website <unk>.
More calls it to one too.
And I agree.
One 670.
At this time I'd like turn the call back for co CEO.
Michael gross.
Thank you rich good morning, everybody and thank you for joining us today.
We hope you and your family friends and colleagues are healthy.
Our thoughts continues to remain with Oliver stakeholders, including the dedicated employees across solar senior capital and the company's investment advisor solar capital partners.
I'd also like to express or gratitude to all the health care and other frontline workers and our sincere consult dolan so to those families who have lost loved ones.
Before turning to our second quarter results I'd like to take a moment to reflect back on the initial month of this public health and economic crisis, which have tested out as a nation and global community.
Most of the home is also tested solar senior capital and its borrowers management teams and sponsors.
On the human level, the collaboration and dedication that our employees and Counterparties have shown as they've worked to support our portfolio companies through a crisis. A previously inconceivable proportions has been nothing short of breathtaking.
Well I bet professionals on the sponsors a management team at our portfolio companies have been through multiple economic cycles. The added emotional toil of this health crisis has been a first for everyone.
Yet despite the added stress associated with the contagion itself working from home carry for young ones suddenly homebound, our colleagues, both internal and external across our portfolio are working tirelessly to ensure the financial soundness of our borrowers.
The quick conservative actions that are portfolio companies took at the beginning of this crisis to preserve liquidity and show up their balance sheets are a testament to the high quality of their management teams and owners.
Their efforts coupled with our employee dedication speak to the resilience of the human spirit.
In the year, that's been dominated by negative news, we believe it's important to recognize we've collected we achieved thus far and how the progress it's positioned us to successfully wasn't the remainder of this storm.
Solar senior capital solid performance the crisis, thus far has proven that our longstanding investment thesis that asset based loans and niche markets in first lien cacharel loans to upper middle market companies provide meaningful downside protection during challenging economic periods.
Sons primary objective, it's consistently deliver income while preserving capital.
And I'm pleased to report that our portfolio remains 100% performing.
Additionally, we do not anticipate that any ever in batson's result in less than 100% par repayment.
Our portfolio companies are proving to have resilient business models and access to liquidity.
That will enable them to successfully withstand this crisis.
We interest we attribute our healthy portfolio towards strategic efforts to expand into niche JBL verticals.
It's Walter longstanding investment discipline centered in the philosophy that we always invest as if we are late in a credit cycle.
As a result of improving credit market technicals on the heels, a massive fiscal and monetary policy stimulus.
Well the proactive steps taken by management teams and sponsors our June Thirtyth marks represent a 58% recovery of the unrealized depreciation recorded at March 30, Onest. This improvement translated to a 6.6% increase net asset value quarter over quarter to $15.55 per.
For share.
At June Thirtyth, 99% of our comprehensive and that's portfolio at fair value was invested in first lien loans and 45% or the total fair value consists of loans and especially finance niches.
These businesses have historically exhibit lower default and loss rate throughout business cycles compared to traditional castle lending.
Importantly, the a b L and life science teams have each managed through multiple cycles over career spanning 20 to 30 plus years.
At June Thirtyth, our comprehensive investment portfolio at fair value totaled $532 million.
Representing a decline of $92 million from the prior quarter.
Net portfolio repayment activity, partially offset by en route unrealized depreciation drove the decline.
Tubaro Bank cliche, the temporary shrinking of our portfolio is a high class problem essentially all the repayments occurred in our two abiomed subsidiaries, where many of our loans are structured as a revolving credit facilities.
Bruce provide more detail, but in short the vast majority of our ABL borrowers received government aid in almost all were deemed a central services.
Suddenly flushed with cash many of these borrows pay down but did not terminate our credit lines to them.
All this trend is temporarily reduced earnings of our ABL businesses. We view these borrowers temporary increase liquidity as a credit positive.
Over the next couple of quarters as these companies working capital requirements to exceed the government support funds. They received we expect these borrowers to again draw down their credit lines, which will bring the funding for it'd be a portfolio is back in line with historical norms.
Our sponsor backed castle loan activity essentially stayed flat quarter over quarter for many years Weve espouse the benefit of maintaining adequate dry powder in the event of a market dislocation.
This spring when the U.S. initially went to lock down we expected opportunities to abound. However, the unprecedented level of government support created a sudden overheating other market translating into an over pricing of the increase risk simply put.
Prices did not reflect the risk inherent in poorly structured loans to borrowers suddenly facing stress.
Consistent with our conservative investment Paul philosophy.
Remain patient to avoid catching falling knife.
Additionally, the sponsor community as a whole focus their time and capital on supporting the portfolio companies.
<unk> negotiating amendments to existing credit facilities and contributing additional equity into hopes avoiding the dilution and onerous terms associated with rescue financing.
In general the sponsor communities collective intense focus on existing portfolios produce little refinancing and M&A activity during the quarter.
Our patients coupled with lack of newish activity resulted in little investment during the quarter. However, a lack of repayments were castle loan portfolio offset this dynamic.
As our country a transition from a near universal quarantine to pockets of escalating cobot cases, and accompanying small business activity, we've seen the investment opportunity set across both our cash so an ABL business line increase.
Well, many underwriting processes have been somewhat slow by the constraints of the virtual business landscape, we expect to see our portfolio grow as we head into the second half of 2020 and begin to new year that hopefully see the end this pandemic.
Sounds remains under Levered, <unk> 0.66, 0.68 times relative to our target range of one to quarter times to one and a half times.
As a reminder, last quarter response to SUNS low leverage and expectation of low base rates for an extended period. The board approved reduced cash distribution of 10 cents per share per month for may and for the foreseeable future.
In addition, the investment advisor agreed to waive management incentive fees to the extent necessary for net investment income to cover this rate a multi distribution throughout 2020.
This new run rate distribution target of 30 cents per quarter aligns with our earned second quarter earnings of 32 cents, resulting from a lower average portfolio balance and the dramatic fallen library.
Approximately 82% of our loans of LIBOR floors.
As of June Thirtyth, all of our borrowers major interest payments for the second quarter cash interest and dividends represented over 99.3 of our gross investment income.
Importantly, as the Investor available liquidity, we expect SUNS net investment income to coverage distributions without the support a fee waivers body advisor.
As we approach to target leverage of 1.5 times, we would expect that investment income to exceed the current distributions.
Recently, the economic climate markets have stabilized our investment pipeline has increased.
We expect the next several months to present compelling investment opportunities at higher expected returns with federal struck protections, which will be an ideal time to grow our income producing portfolio.
Our diversified investment platform spanning castle lending multiple able strategies in life science venture lending position SUNS solutions provider to borrowers.
It also enables us to originate attractive risk that is unavailable to firms, which on their only underwrite cashflow loans.
We expect portfolio growth to come in the form of high yielding assets with more lender friendly terms, which hopefully drive our increased net investment income.
We have the available capital support the expansion of our portfolio at June Thirtyth, nearly 50% of our funded debt was comprised of unsecured term notes, which give some significant unencumbered assets and provides a meaningful overcollateralization of its combined $300 million senior secured credit facilities, which at this.
Point or 70% Undrawn.
As our long term investors know we have managed this company in anticipation of an economic downturn.
Now that its arrived unfortunately, the tragic fashion, we're fortunate to have a solid foundation and are poised to deploy capital support our valued sponsors and management teams.
Finally, our investment advisors alignment of interests with the company stakeholders has always been one of our principal guiding principles.
[music] significance on share repurchases purchases since inception, our senior manager team now owns approximately 6% of our outstanding common stock.
Additionally, all members in breast and team have a significant percentage of annual compensation invested in our stock.
Senior managements investment alongside fellow shareholders demonstrates our confidence in the company's defensive portfolio stable funding strong liquidity and favorable position to make new investments.
This time, a turnover call to CFO rich boutique ought to take you through the financial highlights with specific emphasis on liquidity and funding profile.
Thank you Michael.
Solar senior capital limited net asset value at June Thirtyth was 249.5 million.
Well at $15.55 per share.
This compares to a net asset value is totally written 34.1 million.
On $14.59 per share at March 31st 2020.
Solar seniors balance sheet investment portfolio at June Thirtyth 2020.
I had a fair market value of 416.4 million.
In 46 portfolio companies.
Operating in 21 industries.
Catch what fair market value of 395.8 million in 45 portfolio companies operating in 21 industries at March 31st 2020.
[noise] journey for funding profile ends up rich SUNS continues to have a strong balance sheet.
Which we believe is serving us well in the current downturn.
At June Thirtyth 2020.
SUNS had 175.8 million of debt outstanding.
And net leverage was 0.68 times.
Down from 0.69 times net leverage in the prior quarter.
Certain says no near term debt maturities, having termed out both its primary 225 million credit facility.
And it's secondary 75 million credit facility.
2023 in 2024, respectively.
In addition.
Sciences 85 million of unsecured notes with the maturity date of March 31st 2025.
Solar senior capital has nearly 215 million to fund portfolio growth.
Subject to borrowing based limits.
As a reminder.
Solar seniors target leverage is 1.25 times to 1.50 times.
Debt to equity under the reduced asset coverage requirement.
As of June Thirtyth 2020, the company had unfunded revolver commitments of only $5 million that can be fully drawn by the borrowers.
So on the significant liquidity allows us to be opportunistic in our originations during this location.
From a piano perspective.
Gross investment income for the three months ended June Thirtyth 2020 totaled 7.9 million.
First is 8.8 million for the three months ended March 31st 2020.
Net expenses for the three months ended June Thirtyth 2020 were 2.8 million compared to 3.1 million for the three month ended March 31st.
Ultimately net investment income for the quarter June Thirtyth 2020 was 5.1 million well 32 cents per average share.
As compared to 5.7 million, what 35 cents per average share for the three months ended March 31st 2020.
For the quarter ended June Thirtyth key investment adviser voluntarily waived management incentive fees.
Moving to approximately $960000.
Compared to the Approx million dollars if fees waived in the prior quarter.
[noise] below the line.
Solar senior had a net realized and unrealized gains for the second fiscal quarter totaling 15.4 million.
Compared to net realized and unrealized losses of 27.7 million for the three months ended March 30, Onest 2020.
Accordingly.
Solar senior had a net increase in net assets, resulting from operations of 20.5 million or $1.28 cents per average share for the three months ended June Thirtyth 2020.
This compares to a net decrease in net assets, resulting from operations of 22.1 million.
Or $1.37 cents per share.
For the three months ended March 31st.
Lastly, our board of directors to create a monthly distribution for August 2020 of 10 cents per share.
Payable on September 2nd 2020.
The stockholders of record on August 20, its 2020.
At this time I'd like to turn the call over torn co CEO.
Boulder.
Thank you rich.
First and foremost let me say how pleased we are with the portfolio and how well it is whether the crisis so far.
This supports our underwriting pieces of minimizing the risk of loss by investing at the top of the capital structure and cash flow loans to non cyclical industries.
And allocating a significant exposure to asset based loans to our specialty finance lending verticals.
At quarter end, the weighted average investment risk rating. So lets portfolio remained at two based on our one to four risk rating scale.
One representing the least amount of risk.
This further indication of the current resiliency of our portfolio, 100% of our investments we're performing at quarter end.
At June Thirtyth.
Our 532 million.
Comprehensive investment portfolio was highly diversified encompassing 215 borrowers across 115 industries.
Approximately 45% of the portfolio was invested in our senior secured asset base and life science lending strategies and the remaining 55% was invested in senior secured cash flow loans.
Our largest industry exposures, well, we're health care providers.
Sessional services and insurance brokerage.
The average investment per issuer was two and half million.
Or approximately <unk>, 0.5% of the total portfolio.
At June Thirtyth, approximately 100% of our portfolio consisted of senior secured loans comprised of 99% first lien and 1%.
Second lien senior secured loans.
We believe that our efforts to position our portfolio to almost entirely invested in first lien loans, which carried less risk and second lien and subordinated loans will result in greater capital preservation during this crisis.
At quarter end, our weighted average asset level yield.
Was 9.2%.
By focusing on our commercial finance <unk> verticals, we've been able to maintain asset level yield approaching 10%.
Despite the sharp drop in life or resulting from the federal reserve its efforts to each of the economy.
Including activity across our four business lines.
Originations totaled just over 23 million and repayments were just over 128 billion.
Resulting in a net portfolio reduction of 105 million.
Substantial substantially all of our portfolio contraction in the second quarter.
Walton from revolver pay downs and our two DPL businesses like the borrowers who had received government fiscal support.
I'll now provide an update on our investment verticals, including valuation updates.
Let's start with the cash flow segment.
We believe the cash flow portfolio is well positioned to withstand a prolonged recession.
Our cash flow portfolio does not have direct exposure to cyclical industries, such as energy travel retail leisure.
Heavy manufacturing.
<unk> consumer discretionary sectors.
We've been in regular dialogue with the management teams and sponsors and four portfolio companies regarding their business prospects during cove it.
We are encouraged by the steps taken by our four portfolio companies to preserve liquidity.
As well as the continued strong sponsor support.
Our 99%.
First lien portfolio.
Relatively modest Africa first lien leverage five times.
Significant junior capital cushion.
And strong sponsor support positions us well to withstand economic headwinds.
I view, the majority of our portfolio companies as providing central surfaces in non cyclical sectors that we'll continue to be required during periods of regional stay in place mandates.
As a reminder, our valuation framework incorporate sector specific markets spread movements in the quarter.
Adjusting for the existence of LIBOR floors.
Weighted average life of the investments the existence of covenants.
And other borrower specific factors such as their liquidity profile sponsor support.
And our investment position in the capital structure.
The majority of the increase in our portfolio marks this quarter are reflective of market spread movements.
To provide further context market spreads for the LCD first lien single B index tightened approximately 300 basis points or 68% from the into the first quarter to the end of the second quarter.
Given the fundamental strength of our portfolio, we expect to recoup the remaining unrealized depreciation over the coming quarters.
At June Thirtyth, our cash flow portfolio.
It was 295 million or approximately 55% of the total portfolio.
It was invested across 32 borrowers with an average investment of just over 9 million.
These companies had a weighted average EBITDA of 107 million.
Which highlights our longstanding commitment to finance larger businesses, which we believe our better positioned to withstand economic headwinds.
The weighted average yield on our cash flow portfolio was just under 7%.
Well, just 32 cash flow borrowers.
Two portfolio companies.
He temporary covenant waiver to support a decline in revenues because the result of stay at home during coated.
Well, it's early days revenues are recovering strongly by more than 80% in the majority of cases.
Our borrowers are well capitalized with ample liquidity and strong sponsor support.
The majority of the amendments <unk> waivers.
We executed well related to request for audit extensions as a result of the disruption caused by stay at home orders.
And the instances, where we provided covenant release, we've managed to get some combination of increase fees and improved documentation terms.
Overall, we are optimistic concerning our portfolio's performance.
In addition, we had no instances where cash interest payments, we either partially or fully converted to pick interest payments.
During the second quarter.
Appeared in activity for the middle market landscape as sponsors focused their efforts on supporting existing portfolio companies.
We originated roughly 4 million a first lien senior secured cash flow loans and experienced a similar amount of repayments.
Our significant available liquidity at SUNS enables us to be active while maintaining our selectivity as new I issue activity increases.
Over the last few years, we've made a conscious decision to shrink or cash flow portfolio.
Going to frothy market conditions, resulting in highly leveraged deals with boost documentation.
We've begun to see more opportunities to finance larger upper middle market companies at lower leverage levels and with butter better covenants in call protection.
We will continue to maintain or discipline of investing in non cyclical sectors focused on the upper end of the middle market in our cash flow segment.
Now, let me turn to our asset based lending businesses.
As a reminder.
Sun zones to commercial finance companies that specialize in making senior secured asset based loans collateralized on a first lien basis, primarily by accounts receivable.
These portfolio companies, then to small and midsize U.S. businesses, who typically have limited access to traditional bank financing.
Jim I know health care is focused on providing revolving accounts receivable facilities exclusively to healthcare service providers.
Collateral includes Medicare Medicaid and private insurance receivables.
North smell finance. This company is primarily in the distribution business services and manufacturing industries.
North because typically the sole lender to its borrowers and its financing structures primarily include evolving accounts receivable financing as well as factoring agreements.
In addition.
All factoring arrangements have recourse to the underlying borrowers.
Both Geminos North mill or led by teams of seasoned professionals, who have been an asset based lending for 25 to 40 years.
The management teams are experienced risk underwriters across multiple economic cycles.
Their business models are highly resilient relationship driven and served as a lifeline of working capital to small businesses across the U.S.
In addition.
Collaboration across Geminos in North milk business developments efforts together with North Smells acquisition last year of summit finance has broadened and deepened the coverage across any regions and enhance the pipeline of investment opportunities.
In prior economic downturns asset based loans collateralized with accounts receivable generally provide higher recovery rates than those supported only by cash flows with few or no maintenance covenants.
Let me now provide an update on each of these businesses our valuation approach and the current investment environment, they're facing.
I'll start with north though.
At quarter end worth mills portfolio was over 134 million, representing 25% of SUNS total portfolio.
It consisted of 145 borrowers with an average investment of just under a million dollars.
Over 99% of the bars are deemed central businesses and the P.P. Pete.
Has been highly beneficial to north mills portfolio companies.
Certainly.
North most portfolio is defensively position with approximately one third of its exposure in the distribution industry with a concentration in food distribution.
One third in staffing with an emphasis.
Outsourced and remote key staffing.
And one third in manufacturing with many borrowers operating in essential industries.
At June Thirtyth, there were no defaults are delinquencies across north mills portfolio.
The yield on this portfolio was just over 13% compared to 12.5% during the first quarter.
And the second quarter North mill funded just over 14 million of new and existing asset based investments and had pre payments of approximately 62 million.
The heightened repayment activity occurred as more smells borrowers paid down their credit line with North now with the proceeds from their paycheck protection program loans from the government.
87%, but this total pay down during the quarter related to revolving credit facilities that continue to remain in place and for which we expect to be drawn down yet again as these borrowers the.
What did he profiles normalize.
At quarter end, the fair value of our investment North mill was marked up slightly from the first quarter in line with improved valuations of the comparable companies we use in our valuation process.
SUNS uses the services of an independent third party for this valuation.
Our framework is primarily driven by price to book values of tier comparable sales as well as private market transactions for similar businesses.
Knowing we're comfortable businesses have been bought and sold over the past few years, we believe north from mill remains conservatively marked.
During the second quarter worth mill pay the company cash dividend of approximately one in a quarter million consistent with the first quarter and in line with North Mills current earnings power.
This summer marks the one year anniversary of North Mills acquisition of summit.
The integration is complete and has been faster than we had expected.
We're encouraged by the discipline and shared culture credit culture broader geographic coverage and expanded pipeline it investments across both asset based and factoring opportunities.
We view factoring is a highly attractive asset class.
And this portfolio as well as the addition of core underwriting and business development team has increased north mills exposure and expertise in factory.
Importantly, north North takes a conservative approach by prioritizing factoring it factoring agreement with the recourse to the underlying borrowers.
We anticipate continued steady performance for north Mel.
Now, let me turn to Geminos.
Chimeras portfolio was $75 million at quarter end, representing 14% ascents total portfolio.
The portfolio was comprised of loans to 29 borrowers with an average investment just over two and a half million [noise].
The impairment risk remains extremely low given geminos disciplined underwriting and focus on financing health service providers, who have government and high quality insurance company accounts receivable is there collateral.
Cash collections typically go directly into lock boxes and fees and interest payments are debited bike geminos automatically.
At quarter end, there were no defaults across Geminos borrowers.
The yield on Geminos portfolio was 10.8%.
During the first during the second quarter, we funded no new or existing investments and had repayments of approximately 62 million.
The significant repayment activity.
Resulted from pay downs on its borrowers facilities with chairman out with proceeds from the Medicare advance payment program.
Mitch H S grants.
And the PPP.
As with North mill, we expect the amount drawn.
On Geminos borrowers facilities to normalize over time.
During the second quarter, Jim and <unk> sons, a cash dividend of just under a million dollars consistent with the first quarter and in line with Geminos earnings power.
During the quarter Geminos delivered and 11% return on equity.
At quarter end fair value of our equity investment Ingenico was marked up 1% from the prior quarter.
In line with improved valuations of the company companies that we use evaluation process.
SUNS uses the surfaces of an independent third party as part of this process.
Well on valuation framework is fundamentally grounded in assessment of pure.
Price to book values.
There are not.
Great comparable public companies, so we rely more on private transaction values.
For this highly specialized business.
Since oneq geminos or price to book value has been conservative relative to commercial finance companies with similar risk profiles.
As we look forward, we're confident in the portfolio quality of Jay Leno and believe the company is well positioned to capture additional growth.
As the market settles.
Now, let me turn to life science funding.
Overall, our portfolio is largely insulated from short term market and economic dislocations, given the long dated equity investment periods and product development cycles.
The impact of Cove. It has had its a minimis impact on the underlying life science portfolio.
100% of our loans are performing and we continue to expect incur no losses in this segment.
As a reminder, we have never realized loss in our life science investments.
Currently 100% Afar life science.
Portfolio have more than 12 months of cash runway.
This is large were largely result of our investment focus on public and venture capital backed late stage.
Pharmaceutical and medical device companies that are close to or entering commercialization.
It's important to remember that our discipline is to make life science investments at loan to values generally less than 20%.
Here value is defined as actual cash invested in the business and not be enterprise value post. The most recent VC funding rounds or market capitalization, if the company's public.
Well the Sta may be slowing trials in favor of fast tracking koby treatments are vaccines.
Patients may be somewhat reluctant to participate in trials given the pandemic.
The projected short term.
Delay for some companies is very short in relation to the five to 15 year development process as well as the significant capital invested in these companies relative to the investment size if our loan.
In addition, there are some late stage companies, whose revenues may be deferred as a result of delays and procedures or elective surgeries, the financial viability of hospitals doctors and health care providers depends upon the sources of revenues and we expect these services to continue to.
Ramp backup.
During the rest of 2020.
At quarter end or life science portfolio was 27 million.
The portfolio consisted of eat borrowers with an average investment.
Just over 3 million weighted average yield on this portfolio was 9.4% excluding any success fees are warrants.
Our valuation framework for life Sciences is based on marketing each investment.
At approximately at some amortized cost, including the final fee received does a contractual payoff.
There was no liquid market for private life science venture debt, we do not use equity benchmarks for determining our values.
In accordance with this methodology the weighted average mark on our life science loans was approximately par at quarter end.
[music].
Health care space in general continues to be attractive and we're not seeing any slowdown in new life science investment opportunities.
Also the increased scale of the broad solar platform enhances the opportunity set for investments and leader larger stage public pharma medical device companies.
We will continue to be highly disciplined to evaluating these new investment opportunities.
In conclusion, we believe SUNS is well positioned to whether this crisis.
As we continue to navigate this challenging environment, we will remain in close contact with our portfolio companies to management teams and sponsor owners, we support them.
We will also work with our extensive network relationships to continue to source new investment opportunities.
Our commercial finance platform and significant drypowder enable us to provide structured solutions, including both cash flow and asset based loans for capital constrained companies. During these times.
Solar senior we'll be able to participate in these financings on maintaining significant diversification in its portfolio.
Now, let me turn the call back to Michael.
Thank you Bruce.
In closing, we would like to think solar senior capital shareholders for their continued support during this difficult time.
From inception, Weve endeavored to make the right decisions to preserve enhance long term shareholder value.
Our priority is always been to create and maintain a portfolio that can generate steady income for our shareholders and protect capital.
Over the course of the extended frothy credit markets, we remain disciplined and the faces significant spread compression higher leverage and loose structures, all of which had elevated the risk of principal loss in middle market leveraged finance.
As a result, we're positioned SUNS defensively, diversifying our portfolio across cash flow and specialty finance first lien senior secured loans to manage downside risk.
We have operated well under target fun leverage and preserve liquidity.
We believe we have taken the appropriate steps to navigate successfully through what we anticipate the a prolonged and difficult period.
Throughout we have maintained alignment through our ownership of funds alongside our fellow shareholders.
Our decisions to prioritize capital preservation, rather than leveraging the portfolio and taking on more risk at the wrong coming to cycle have allowed us to enter into this dislocation in the position of relative strength.
Importantly, we have confidence that our teams expertise and ability to provide financing across cash flow and nabeel ABL solutions should enable SUNS to continue to support existing portfolio company and make new investments during this period of turmoil.
As a result of recent fund raising yes, STP platform now has over $6.5 billion of investable capital, including potential leverage.
Our private funds maintain a co investment strategy with solar senior capital with provides the company access to attractive co investment opportunities and upper middle market companies that otherwise would not have been able to have with its capital base alone.
Specifically, the collective dry powder and able to platform to speak for large positions and to provide rescue financings as well as add on acquisition financing when M&A activity resumes.
Now more than ever Sep scale should serve as a competitive advantage for solar senior capital.
Importantly for solar senior capital this scale and flexibility to finance cash flow and that the based solutions for larger company that's significant advantage today.
With $250 million of available capital in a strong foundation, given our defensive portfolio and low leverage we believe the company's position originate attract new investments, while also supporting our existing portfolio companies as needed.
Our patients and willingness to remain under invested provides us the foundation to be opportunistic.
Given the magnitude of the economic disruption, we believe that the improved investment opportunities that will persist for several quarters as companies seek liquidity and financing solutions.
With a solid portfolio foundation stable funding sources and strong liquidity funds, the night and ideal position to capitalize on opportunistic investments.
We currently have no anticipated need for additional equity liquidity or capital and accordingly, we have no plans to issue dilutive equity.
Each year for the past eight years, our shareholders have granted us the approval to issue shares below net asset value subject to board approval.
We've always viewed this trust enough of the great responsibility and manage the business accordingly.
Given our belief in the company's ability to successfully navigate the current challenges we are disappointed in our current stock price. We remain confident the quality of our portfolio will result in the stable net asset value, which ultimately will be reflected at a higher absolute and relative share price.
We hope all of your in good health and we'd like to thank you all for your time today and for your continued support of our company.
Operator would you please open the line for questions.
As a reminder to ask a question you will need to press star one in your telephone to withdraw your question press the pound key.
Please standby, we compile the Q and a roster.
Again that star one on your touched on telephone to ask a question.
Our first question time from a line of Mickey Schleien of Ladenburg.
Alignments open.
Good afternoon, everyone football is well on your end thank you make it.
Michael in Bruce I appreciate all your color on the.
Tone of the market just wanted to follow up in many cases spreads are wider versus pre covenant levels.
In the leverage loan market, but.
Another private capital that's been created alongside all the private equity that's a.
Been created how concerned are you that your competitors.
Oh Chase deal flow and drive down those spreads while at the same time you know the forward LIBOR curve is basically flat, which could pressure the portfolios yields in the cash flow segment and limit your opportunity to grow that business.
So that is a great question. It is definitely a concern.
There has been a couple of transactions not many too soon to call. It a market, where you've seen of late spreads coming pretty tight or actually tight pre kobin levels.
But importantly, Mickey for us the opportunity set is more based upon where risk is and specifically what leverage levels and covenant packages look like and that's where we can be active because as you know we are benefiting from the higher yields that we get an R.L. ports.
Folio at SUNS to balance out lower yields in cash flow. So.
You're spot on we have not seen yet.
The widening that we would have anticipated, but again, it's a very small sample set of new cashflow deals that have come to market. So far.
But we are seeing better terms and better risk and so thats really what is going to drive our activity level.
Thanks for that Bruce and in terms of the opportunity set I know historically you've preferred.
Middle market to upper middle market, but I have seen you know some very interesting terms done recently in the lower middle market with.
Leverage even below Threex and so far even though it's you know it's early days I understand and none of US really know what the ultimate impact of the pandemic is gonna be but lower middle market borrowers seemed to be performing relatively well oh apart from the idiosyncratic issues in.
Restaurants, and hotels and things like that so has given what I. Just said do you have any incremental interest in you know, perhaps looking at some smaller borrowers.
So we as you know we go to market and the lower Midmarket through our TPL platforms at SUNS, its north melon Geminos and over at solar It's true Nations equipment and then it's also through our life science vertical where you're dealing with smaller businesses.
That aren't just coming into commercial commercialization for drugs and medical devices. So that's really been our comfort is to have added benefit when we're going to lend into smaller companies to not do it on an exclusively cash flow basis, because you're right leverage multiples may be low, but EBITDA by definition is small.
Paul and its joined the land to small numbers, where a couple of million dollars move on an 8 million EBITDA business. For example can have a material impact on those ratios and more importantly, the sustainability of your loan. So we prefer to attack it with collateral as well as cash flows at the lower in the mid market.
I understand those are all my questions for this morning I. Appreciate your time. Thank you.
Thank you make you stay well.
Thank you again to ask a question. Please press star wandering you've touched on telephone again at Star one on your Touchtone telephones ask your question.
Is there no further questions at this time I like to turn the call back to Michael gross Chairman and co CEO for closing remarks, Sir we have nothing more out of the time of into thank you for your continued support and your participation. This morning hope everyone's well take care Bye bye.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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