Q1 2021 SLR Senior Investment Corp Earnings Call
[music].
Ladies and gentlemen, and welcome to day quarter, One 2021, SLR Senior investment Corp Earnings Conference call. At this time, all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone.
As a reminder, this conference call is being recorded.
Thank you I'd now like to turn the conference over to your host Chairman and co CEO, Mr. Michael Grass. Sir. Please go ahead.
Thank you operator, and good morning, welcome to SLR Senior investment Corp, 's earnings call for the first quarter ended March 31 2021.
I'm joined today by Bruce <unk>, our co Chief Executive Officer, and Richard <unk>, Our Chief Financial Officer, Rich would you. Please start off by covering the webcast and forward looking statements.
Of course, thank you Michael.
I'd like to remind everyone that today's call and webcast are being recorded.
Please note that day or the property of <unk> Senior investment Corp.
Net broadcast in any form are strictly prohibited.
This conference call is being webcast on our website at Www Dot SLR Senior investment Corp Dotcom.
Audio 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 today's conference call and webcast may constitute forward looking statements, which relate to future events or our future performance or financial condition.
These statements are not guarantees of our future performance financial condition or results and involve a number of risks and uncertainties, including impacts from COVID-19.
Cash 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 SEC.
Solar Senior investment Corp undertakes no duty to update any forward looking information.
Unless required to do so by law.
To obtain copies of our latest SEC filings. Please visit our website or call us at two one to 99 three.
1670.
At this time I'd like to turn the call back to our chairman and co CEO Michael gross.
Thank you very much rich I am pleased to report that <unk> senior investment Corp's or SUNS portfolio continues to be 100% performing for Q1, 2021, which continues to support our investment thesis of a diversified portfolio across asset based loans and niche markets in first lien cash flow loans.
Middle market companies provides meaningful downside protection during challenging economic periods.
So on portfolio companies have proven a resilient business models and access to liquidity that we believe enable them to manage successfully through the pandemic induced depth of the economic contraction.
Well in the current expansionary environment.
We attribute our healthy portfolio foundation to our conservative underwriting the deep experience of our investment team.
SUNS diversified origination platform across cash flow asset based lending and life science verticals.
After the close yesterday, we reported a net asset value of $15 91 per share at March 31, consistent with the reported NAV at December 31 2020.
Credit quality portfolio continues to be strong and our watch list remains at historic lows.
Year to date, the U S middle market has reflected a more favorable economic backdrop punctuated by a resurgence in sponsor led M&A and refinancing transactions.
The government's fiscal and monetary stimulus programs combined with the vaccination program have turbocharged recovery and removed a number of the uncertainties.
Given this favorable backdrop SUNS originated investments of approximately $50 million in the first quarter.
The majority of our portfolio growth came from cash flow investments in large upper middle market companies that highlight the scale of the SLR platform and allows us the opportunity to participate in transactions are available only to managers, who can hold up to $200 million in a given position.
A number of these transactions or a combination of funded loans and delayed draw term loans or <unk>.
It provides certainty of capital to facilitate acquisitions and further growth of the portfolio companies with established credits Bruce will talk about the favorable trend in more detail.
At March 31 over 99, 9% of our comprehensive investment portfolio at fair value was invested in first lien loans and approximately 51% of those consisted of loans in our specialty finance verticals.
These businesses have historically exhibited lower default in loss rate throughout business cycles.
Notably the ABL and life science teams have each managed through multiple cycles over a career spanning 20 to over 30 years.
In the first quarter SUNS produced net investment income of <unk> 20 per share.
The shortfall from the <unk> 30 per share earned in the prior quarter as a direct result of Sun's being underinvested at.
At March 31 significantly under Levered at four times net debt to equity relative to our target range of one and a quarter times to one five times.
Importantly, the economic climate has improved considerably and our pipeline across all four business verticals is very attractive.
We expect portfolio growth in the coming quarters from both first lien cash flow and asset based loan investment opportunities. In addition, we continue to be actively pursue acquisition opportunities or specialty lenders operating in niche markets as well as opportunistic ABL portfolio acquisitions.
Our priority in 2021 to take advantage of the strong economic rebound and attractive opportunity set to deploy our considerable available capital and drive growth or net investment income.
In a unique position to allocate capital across all of our strategies to the most favorable risk adjusted return investments.
It also enables us to originate attractive risks is unavailable to firms that only underwrite cash flow loans.
We are confident in our ability to grow the portfolio while remaining disciplined.
We currently have over $450 million of available capital to support the expansion of our portfolio at March 31st over 76% of our funded debt was comprised of unsecured term notes.
As our long term investors know, we manage the company in anticipation of an economic downturn now.
Now that it has arrived and the recovery has begun we are fortunate to have a solid portfolio foundation and are poised to deploy capital to support our value sponsors and management teams.
Finally, our investment advisors alignment of interest with company stakeholders continues to be one of our guiding principles through.
Two significant share purchases since inception, the SLR team now owns approximately 6% of our outstanding common stock.
All members of the investment team has a significant percentage of their annual compensation invested in Sun's stock.
Management management investment alongside fellow Sun shareholders demonstrates our confidence in the company's defensive portfolio stable funding strong liquidity, a favorable position to make new investments.
This time I'll turn the call back over to our CFO rich <unk> to take you through the Q1 financial highlights.
Thank you Michael.
Yes.
That's a lot of senior investment Corp's net asset value at March 31 was $255 3 million or $15 91 per share.
This compares to a net asset value was $255 4 million or $15 91 per share at December 31, 2020.
As far as Senior's balance sheet investment portfolio at March 31, 2021.
A fair market value of $367 5 million in 47 portfolio companies operating in 18 industries compared to a fair market value of $340 8 million and 44 portfolio companies operating in 19 industries at December 31 2020.
In addition, as of March 31, 2021, the company had unfunded commitments of approximately $28 7 million.
Turning to our funding profile and leverage SUNS continues to have a strong balance sheet, which served us well through the downturn and will in the current recovery.
Our March 31, SUNS had only $111 $2 million of debt outstanding with a net debt to equity ratio of 0.4 times up slightly from 034 times at December 31 2020.
That leaves funds with over $415 million available to fund portfolio growth.
As of March 31.
Yeah.
As a reminder, <unk> seniors target leverage ratio is 125 times to one five times net debt to equity under the reduced asset coverage requirement.
Importantly, SUNS has no near term debt maturities have been termed out voltage primary $225 million credit facility.
The secondary 75 million credit facility to 2023, and 2024, respectively and.
In addition.
SUNS had $85 million of unsecured notes with a maturity date of March 31 2025.
From a P&L perspective gross investment income for the three months ended March 31, 2021 totaled $6 6 million.
<unk> to $7 3 million for the three months ended December 31 2020.
Net expenses for the three months ended March 31, 2021, with $3 5 million compared to $2 5 million for the three months ended December 31 2020.
Net investment income for the quarter ended March 31, 2021 to $3 2 million or <unk> <unk> per average share compared to $4 8 million or <unk> 30 per average share for the three months ended December 31.
Below the line.
Senior had a net realized and unrealized gains for the first fiscal quarter of 2021 totaling $1 6 million.
Compared to net realized and unrealized gains of 2.0 million for the three months ended December 31 and in 'twenty.
Accordingly.
As far as senior had a net increase in net assets, resulting from operations of $4 8 million or <unk> 30 per average share for the three months ended March 31 2021.
This compares to a net increase in net assets, resulting from operations of $6 9 million or <unk> 43 per average share for the three months ended December 31 2020.
Lastly.
Our board of directors declared a.
Distributions from May 2021 of <unk> 10 per share payable.
Payable on June <unk> 2021 to stockholders of record on May 22021.
At this time I'd like to turn the call over to our co CEO.
Bruce bowler.
Thank you rich.
First and foremost SUNS portfolio has remained 100% performing throughout the current economic slowdown in early stages of recovery.
The performance as a tremendous complement to the financial sponsors and portfolio companies that we have invested alongside.
In addition, SUNS defensive portfolio and performance supports our underwriting thesis of mineral minimizing the risk of loss by investing senior in the capital structure and first lien cash flow loans to non cyclical companies and allocating a significant portion of our exposure to collateralize.
Loans to our specialty finance verticals.
At quarter end, the weighted average investment risk rating of Sun's portfolio remained below two based on our one to four risk rating scale with one representing the least amount of risk.
SUNS comprehensive portfolio totaled just under 500 million at quarter end and was highly diversified encompassing over 200 borrowers across 115 industries.
Approximately 50% of our portfolio was invested in our specialty lending strategies with the remaining 50% invested in first lien cash flow loans.
Our largest industry exposures are insurance.
With care providers and services and software the.
The average investment per borrower was $2 4 million or less than one half of 1% of the total portfolio.
At quarter end, approximately a 100% of our portfolio consisted of senior secured first lien loans.
At $3 31, our weighted average asset level yield on the comprehensive portfolio was nine 5%.
By having 50% of the total portfolio allocated towards specialty finance strategies, we've been able to maintain yields near 10%. Despite the low LIBOR rate as well as spread compression.
Including activity across our four business lines originations for the first quarter total just under $50 million and repayments were just over $15 million, resulting in net portfolio growth of just over $30 million.
Now, let me provide an update on each of these verticals.
Start with cash flow.
We believe our cash flow portfolio is well positioned to perform during this economic recovery.
Substantially all of our cash flow portfolio companies are outperforming their.
They are post COVID-19 revised budgets is the rebound in revenues as well as cost cuts have had a positive impact on their financial performance. We view the majority of our portfolio companies is providing essential services and operating and non cyclical industries.
In particular, our healthcare cash flow loans are performing extremely well we attribute this both to the recession resilient and essential services nature of the industry as well as our underwriting edge.
We have an experienced healthcare cash flow team.
As well as access to proprietary insights to our life science team and our health care ABL investment team.
These together inform our investment decisions in the health care sector.
At quarter end, our cash flow portfolio was just under $240 million or approximately 50% of the total portfolio.
Cash flow portfolio had a weighted average EBITDA of over 100 million, reflecting our preference to finance larger companies in the upper mid market.
The weighted average yield was six 7%.
During the first quarter, we originated $32 million of first lien cash flow loans and had repayments of approximately $13 million.
As Michael mentioned, we've been able to take advantage of the broader scale of the SLR platform to underwrite larger hold positions in first lien cash flow loans to upper mid market sponsor owned companies.
Sponsors seek incremental capital from scaled scaled lenders, who offer speed and certainty of capital and the ability to commit to a combination of both funded and delayed draw term loan commitments to finance portfolio companies growth.
We believe these transactions offer prudent opportunity for SUNS to grow its investment and established credits with existing financial covenants.
By stepping into an existing loan facility with shorter duration and upfront fees the yield to maturity is enhanced.
We are encouraged sponsor activities picked up in 2021 with higher volumes of M&A and refinancings compared to last year.
We expect the sponsor led momentum to continue throughout the remainder of this year, which we believe will provide opportunities to invest in attractive non cyclical upper mid market companies.
Now, let me turn to our asset based businesses.
As a reminder, we owned two commercial finance portfolio companies that specialize in making asset based loans secured by accounts receivable.
These companies lend to small and midsize U S businesses, who typically have limited access to more traditional bank financing.
SLR healthcare ABL is focused on providing accounts receivable facilities to healthcare providers, including hospitals skilled nursing facilities home.
Home Medicine, and medical laboratories collateral here includes Medicare Medicaid and private insurance receivables.
SLR business credit finances companies operating in the distribution business services and manufacturing industries.
<unk> business credit is typically the sole lender towards borrowers.
And as financing predominantly accounts receivable and factoring arrangements.
In addition, all factoring agreements have recourse to the underlying borrower.
Both of these businesses are led by teams of seasoned professionals, who have been in ABL lending for over 25 years. The management teams are experienced risk underwriters across multiple investment cycles.
The business models are highly resilient relationship driven and serve as a lifeline of working capital to small companies across the U S.
In addition, the collaboration across SLR healthcare and SLR business credit.
Business development efforts together with business credits acquisition of summit financial resources last year in the factoring sector has broadened and deepened our coverage across the states.
During prior economic downturns ABL loans.
Generally provided higher recovery rates than those supported only by cash flows.
Let me now provide an update on each of these.
At quarter end business credits portfolio was approximately $155 million, representing just over 30% of our total portfolio consisted of 120 borrowers with an average investment of $1 3 million.
Nearly all borrowers are deemed essential businesses and there has been limited impact on our accounts receivable during COVID-19. The portfolio is defensively positioned with its largest exposures in food distribution.
Tapping and manufacturing industries.
During the pandemic.
<unk> loans have significantly improved our borrowers liquidity position and economic conditions continue to normalize.
We expect.
Throughout 2021, they will continue to redraw under our existing credit lines.
Business credit has not had a payment default during the pandemic and continues to be 100% performing at quarter end.
During the first quarter, we funded just over $7 million of new ABL loans and had repayments of just $1 million.
Business credit continues to evaluate potential strategic add on acquisitions.
For the quarter.
The company paid a cash dividend.
A $1 6 million consistent with the prior quarter.
Now, let me turn to health care ABL.
At quarter end their portfolio was $65 million, representing 13% of our total portfolio.
We believe the funded portfolio is now in a position to rebuild after experiencing significant repayment activity last year, resulting from borrowers.
Moving to pay down our lines of credit with proceeds from the Medicare advanced payment program Hff's HHS grants and the payroll protection program.
The total number of our borrowers has remained remarkably consistent.
And is comprised of loans to 37 borrowers with an average funded loan of $1 8 million.
Portfolio remains 100% performing in its not having defaults since the beginning of COVID-19.
Impairment risk remains very low given health care ABL disciplined underwriting and focus on financing healthcare service providers, who have government and high quality insurance company accounts receivable collateral supporting our lines of credit.
Cash collections typically go directly into our lock boxes and fees and interest payments are debited automatically.
The weighted average asset level yield of their portfolio is just under 15%.
This was elevated by large termination fee during the first quarter.
During the quarter.
Health care ABL funded $2 8 million.
Of new investments and had repayments of approximately $2 7 million.
We expect this portfolio to grow during 2021 as borrowers stimulus dollars are depleted and our working capital lines of credit are.
<unk> utilized by our borrowers.
For the quarter.
Healthcare ABL paid a cash dividend of just under $1 million consistent with the prior quarter.
Now, let me turn to life science lending.
Overall life science 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 COVID-19 has been de Minimis on this portfolio, 100% of our loans are performing and we continue to incur no losses in the life Sciences segment.
Currently 100% of this portfolio has more than 12 months of cash runway.
At quarter end the portfolio totaled just under $34 million across nine borrowers with an average investment of $3 7 million.
For the first quarter, we funded $5 million of new investments and had no repayments to.
The weighted average yield on this portfolio was approximately nine 7% at cost, which exclude success fees and warrants.
Overall, we believe that <unk> is extremely well positioned to take advantage of an improving economy and a more robust opportunity set across each of our investment verticals.
SLR capital Partners' commercial finance platform and significant dry powder enables us to provide structured solutions, including both cash flow and asset based loans per capital constrained companies.
We are working closely with our extensive network of relationships to source new investment opportunities.
In addition, we continue to actively pursue acquisition opportunities in asset based lending companies that can further diversify our specialized lending capabilities and provide an expanded solution set for middle market companies now, let me turn the call back to Michael.
Thank you Bruce.
From inception, we've endeavored to make the right decisions to preserve and enhance long term shareholder value.
Our priority has always been to create and maintain a portfolio that can generate steady income per shareholders and protect our capital.
While the recovery is underway, we remain disciplined in the face of a tighter price environment higher leverage and loose structures, all of which have elevated the risk of principal loss in middle market leverage finance over an extended period.
As a result, we are positioned Sun's defensively we've.
We have diversified our portfolio across cash flow and specialty finance first lien senior secured loans to manage downside risk we have operated well under target fund leverage and preserve liquidity.
We'll leverages in middle market direct lending remains near all time highs the economic rebound appears to be on solid footing and we are seeing a broader set of attractive investment opportunities.
With over $450 million of available capital and a strong foundation, given our defensive portfolio and low leverage.
We believe the company is positioned to originate attractive new investments.
Our patience and willingness to remain underinvested during the height of the pandemic provides us the foundation to be more aggressive today.
We believe that the improved investment opportunity set will persist for a number of quarters as companies require financing solutions for working capital and growth initiatives.
Sponsor activity definitely on the upswing in the <unk> industry is armed with significant dry powder sons, and the rest of the SLR platform is in a great position to capitalize on this opportunity we.
We hope that all of you are in good health and we would like to thank you all for your time today and your support of our company operator at this time would you. Please open the line for questions.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one key our net.
<unk> telecom.
Question has been answered or you wish to remove yourself from the queue. Please press the pound key one moment. Please for price question.
Once again, if you would like to ask a question. Thank you. Thank you Star then the number one key on your Touchtone telephone.
Okay.
If we have no more questions, we're going to we'll conclude we recognize that today and this whole week, it's credibly busy earnings week for those of you who.
Who listen let's call a replay.
Please feel free to reach out to any of US. If you have any follow up questions. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect.
Okay.
Michael.
[music].
[music].
Ladies and gentlemen, and welcome to the quarter, One 2021, SLR Senior investment Corp Earnings Conference call. At this time, all participants are in a listen only mode.
We will conduct a question and answer session and instructions will follow at that time, if anyone should require cash expense. During the conference. Please press Star then zero on your Touchtone telephone.
Reminder, this conference call is being recorded.
I'd now like to turn the conference over to your host Chairman and co CEO, Mr. Michael Gosh, Sir. Please go ahead.
Thank you operator, and good morning, welcome to SLR Senior investment Corp earnings call for the first quarter ended March 31 2021.
Joined today by Bruce <unk>, our co Chief Executive Officer, and Richard <unk>, Our Chief Financial Officer, Rich would you. Please start off by covering the webcast and forward looking statements.
Of course, thank you Michael.
I'd like to remind everyone that today's call and webcast are being recorded.
Please note that there are other property of <unk> Senior investment Corp.
Net.
Broadcast in any form are strictly prohibited.
This conference call is being webcast on our website at Www Dot SLR Senior investment Corp Dot com.
Audio 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 today's conference call and webcast may constitute forward looking statements, which relate to future events or our future performance or financial condition.
These statements are not guarantees of our future performance financial condition or results and involve a number of risks and uncertainties, including impacts from COVID-19.
Cash performance is not indicative of future results.
Results may differ materially.
As a result of a number of factors, including those described from time to time in our filings with the SEC.
As far as senior investment Corp undertakes no duty to update any forward looking information.
Unless required to do so by law.
To obtain copies of our latest SEC filings. Please visit our website or call us at Q1 to 99 three.
1670.
At this time I would like to turn the call back to our chairman and co CEO.
Low growth.
Thank you very much rich I am pleased to report that <unk> Senior investment Corp, or SUNS portfolio continues to be 100% performing for Q1, 2021, which continues to support our investment thesis of a diversified portfolio across asset based loans and niche markets in first lien cash flow loans.
Upper middle market companies provides meaningful downside protection during challenging economic periods.
So on portfolio companies have proven resilient business models and access to liquidity that we believe enable them to manage successfully through the pandemic induced depth of the economic contraction.
Well in the current expansionary environment.
We attribute our healthy portfolio foundation to our conservative underwriting the deep experience of our investment team and SUNS diversified origination platform across cash flow asset based lending and life science verticals.
After the close yesterday, we reported a net asset value of $15 91 per share at March 31, consistent with the reported NAV at December 31 2020.
Credit quality portfolio continues to be strong and our watch list remains at historic lows.
Year to date, the U S middle market has reflected a more favorable economic backdrop punctuated by a resurgence in sponsor led M&A and refinancing transactions.
The government fiscal and monetary stimulus programs combined with a vaccination program have turbocharge recovery and removed a number of the uncertainties.
Given this favorable backdrop SUNS originated investments of approximately $50 million from the first quarter.
The majority of our portfolio growth came from cash flow investments in large upper middle market companies that highlight the scale of the SLR platform and allows us the opportunity to participate in transactions are available only to managers, who can hold up to $200 million in a given position.
A number of other transactions or a combination of funded loans and delayed draw term loans or <unk> that provide certainty of capital to facilitate acquisitions and further growth of portfolio companies with established credits Bruce will talk about the favorable trend in more detail.
At March 31 over 99, 9% of our comprehensive invest portfolio at fair value was invested in first lien loans and approximately 51% of those consisted of loans in our specialty finance verticals.
Businesses have historically exhibited lower defaults and loss rates throughout business cycles.
Notably the ABL and life science teams have each managed through multiple cycles over a career spanning 20 to over 30 years.
In the first quarter SUNS produced net investment income of <unk> 20 per share.
The shortfall from the <unk> 30 per share earned in the prior quarter as a direct result of Sun's being underinvested at.
At March 31 significantly under Levered at four times net debt to equity relative to our target range of $1 per quarter times to one five times.
Importantly, the economic climate has improved considerably and our pipeline across all four business verticals is very attractive.
We expect portfolio growth in the coming quarters from both first lien cash flow and asset based loan investment opportunities. In addition, we continue to be actively pursue acquisition opportunities of specialty lenders operating in niche markets as well as opportunistic ABL portfolio acquisitions.
Our priority in 2021 to take advantage of the strong economic rebound and attractive opportunity set to deploy our considerable available capital and drive growth our net investment income.
In a unique position to allocate capital across all of our strategies to the most favorable risk adjusted return investments. It also enables us to originate attractive risk that is unavailable to firms that only underwrite cash flow loans, we are confident in our ability to grow the portfolio while remaining disciplined.
We currently have over $450 million of available capital support the expansion of our portfolio at March 31st over 76% of our funded debt was comprised of unsecured term notes.
And our long term investors know, we manage the company in anticipation of an economic downturn.
Now that it has arrived and the recovery has begun we are fortunate to have a solid portfolio foundation and are poised to deploy capital to support our value sponsors and management teams.
Finally, our investment advisors alignment of interest with company stakeholders continues to be one of our guiding principles through.
Through significant share repurchases since inception, the SLR team now owns approximately 6% of our outstanding common stock.
All members of the investment team has a significant percentage of their annual compensation invested in southern stock.
Management management investment alongside fellow SUNS shareholders demonstrates our confidence in the company's defensive portfolio stable funding strong liquidity, a favorable position to make new investments.
This time I'll turn the call back over to our CFO rich <unk> to take you through the Q1 financial highlights.
Thank you Michael.
Yes.
That's a low senior investment Corp's net asset value at March 31 was $255 3 million or $15 91 per share.
This compares to a net asset value was $255 4 million or $15 91 per share at December 31, 2020.
As far as senior as balance sheet investment portfolio at March 31, 2021.
At a fair market value of $367 5 million in 47 portfolio companies operating in 18 industries compared to a fair market value of $348 million in 44 portfolio companies operating in 19 industries at December 31 2020.
In addition, as of March 31, 2021, the company had unfunded commitments of approximately $28 7 million.
Turning to our funding profile and leverage SUNS continues to have a strong balance sheet, which served us well through the downturn and will in the current recovery.
Our March 31, SUNS had only $111 $2 million of debt outstanding with a net debt to equity ratio of 0.4 times up slightly from 034 times at December 31 2020.
That leaves funds with over $415 million available to fund portfolio growth.
As of March 31.
Sure.
As a reminder, <unk> seniors target leverage ratio is 125 times to one five times net debt equity under the reduced asset coverage requirement.
Importantly, SUNS has no near term debt maturities, having turned out voltage primary $225 million credit facility and the secondary 75 million credit facility to 2023, and 2024, respectively and.
In addition.
<unk> had $85 million of unsecured notes with a maturity date of March 31 2025.
From a P&L perspective gross investment income for the three months ended March 31, 2021 totaled $6 6 million.
<unk> to $7 3 million for the three months ended December 31 2020.
Net expenses for the three months ended March 31, 2021, with $3 5 million compared to $2 5 million for the three months ended December 31 2020.
Net investment income for the quarter ended March 31, 2021 is $3 2 million or <unk> <unk> per average share compared to $4 8 million or <unk> 30 per average share for the three months ended December 31.
Below the line as well.
<unk> senior had a net realized and unrealized gain for the first fiscal quarter of 2021 closing $1 6 million.
Compared to net realized and unrealized gains of two point here of $1 million for the three months ended December 31 and in 'twenty.
Accordingly.
As far as senior had a net increase in net assets, resulting from operations of $4 8 million or <unk> 30 per average share for the three months ended March 31 2021.
This compares to a net increase in net assets, resulting from operations of $6 9 million or <unk> 43 per average share for the three months ended December 31 2020.
Lastly.
Our board of directors declared.
Distributions from May 2021 of <unk> 10 per share.
Payable on June <unk> 2021 to stockholders of record on May 22021.
At this time I'd like to turn the call over to our co CEO.
Bruce bowler.
Thank you rich.
First and foremost SUNS portfolio has remained 100% performing throughout the current economic slowdown in early stages of recovery.
The performance as a tremendous complement to the financial sponsors and portfolio companies that we have invested alongside.
In addition, SUNS defensive portfolio and performance supports our underwriting thesis of mineral minimizing the risk of loss by investing senior in the capital structure and first lien cash flow loans to non cyclical companies and allocating a significant portion of our exposure to collateralize.
Loans or specialty finance verticals.
At quarter end, the weighted average investment risk rating of Sun's portfolio remained below two based on our one to four risk rating scale with one representing the least amount of risk.
SUNS comprehensive portfolio totaled just under 500 million at quarter end and was highly diversified encompassing over 200 borrowers across 115 industries.
Approximately 50% of our portfolio was invested in our specialty lending strategies with the remaining 50% invested in first lien cash flow loans.
Our largest industry exposures are insurance.
With care providers and services and software the.
The average investment per borrower was $2 4 million or less than one half of 1% of the total portfolio.
At quarter end, approximately 100% of our portfolio consisted of senior secured first lien loans.
At $3 31, our weighted average asset level yield on the comprehensive portfolio was nine 5%.
By having 50% of the total portfolio allocated to our specialty finance strategies, we've been able to maintain yields near 10%. Despite the low LIBOR rate as well as spread compression.
Including activity across our four business lines originations for the first quarter totaled just under $50 million and repayments were just over $15 million, resulting in net portfolio growth of just over $30 million.
Now, let me provide an update on each of these verticals.
Start with cash flow.
We believe our cash flow portfolio is well positioned to perform during this economic recovery.
Substantially all of our cash flow portfolio companies are outperforming.
They are post COVID-19 revised budgets is the rebound in revenues as well as cost cuts have had a positive impact on their financial performance we view the.
Majority of our portfolio companies as providing essential services and operating and non cyclical industries.
In particular, our healthcare cash flow loans are performing extremely well we attribute this both to the recession resilient and essential services nature of the industry as well as our underwriting edge, we have an experienced healthcare cash flow team as well as access to proprietary insights to our life science team.
<unk> and our health care ABL investment team.
These together inform our investment decisions in the health care sector.
At quarter end, our cash flow portfolio was just under $240 million or approximately 50% of the total portfolio.
Our cash flow portfolio had a weighted average EBITDA of over $100 million, reflecting our preference to finance larger companies from the upper mid market.
The weighted average yield was six 7%.
During the first quarter, we originated $32 million of first lien cash flow loans and had repayments of approximately $13 million.
As Michael mentioned, we've been able to take advantage of the broader scale of the SLR platform to underwrite larger hold positions in first lien cash flow loans to upper mid market sponsor owned companies.
Sponsors seek incremental capital from scale scaled lenders, who offer speed and certainty of capital and the ability to commit to a combination of both funded and delayed draw term loan commitments to finance portfolio companies growth.
We believe these transactions offer a prudent opportunity for SUNS to grow its investment and established credits with existing financial covenants.
By stepping into an existing loan facility with shorter duration and upfront fees the yield to maturity is enhanced.
We are encouraged sponsor activities picked up in 2021 with higher volumes of M&A and refinancings compared to last year.
We expect the sponsor led momentum to continue throughout the remainder of this year, which we believe will provide opportunities to invest in attractive non cyclical upper mid market companies.
Now, let me turn to our asset based businesses.
As a reminder, we owned two commercial finance portfolio companies that specialize in making asset based loans secured by accounts receivable.
These companies lend to small and midsize U S businesses, who typically have limited access to more traditional bank financing.
SLR healthcare ABL is focus on providing accounts receivable facilities to health care providers, including hospitals skilled nursing facilities home.
Home Medicine, and medical laboratories collateral here includes Medicare Medicaid and private insurance receivables.
SLR business credit finances companies operating in the distribution business services and manufacturing industries.
Solar business credit is typically the sole lender towards borrowers.
And as financing predominantly accounts receivable and factoring arrangements.
In addition, all factoring agreements have recourse to the underlying borrower.
Both of these businesses are led by teams of seasoned professionals, who have been in ABL lending for over 25 years. The management teams are experienced risk underwriters across multiple investment cycles.
The business models are highly resilient relationship driven and serve as a lifeline of working capital to small companies across the U S.
In addition, the collaboration across SLR healthcare and SLR business credit.
Business development efforts together with business credits acquisition of summit financial resources last year in the factoring sector has broadened and deepened our coverage across the states.
During prior economic downturns ABL loans.
Have generally provided higher recovery rates than those supported only by cash flows.
Let me now provide an update on each of these.
At quarter end business credits portfolio was approximately $155 million, representing just over 30% of our total portfolio consisted of 120 borrowers with an average investment of $1 3 million.
Nearly all borrowers are deemed essential businesses and there has been limited impact on our accounts receivable during COVID-19. The portfolio is defensively positioned with its largest exposures in food distribution.
Tapping and manufacturing industries.
During the pandemic.
<unk> loans have significantly improved our borrowers liquidity position and economic conditions continue to normalize.
We expect.
Throughout 2021, they will continue to redraw under our existing credit lines.
Business credit has not had a payment default during the pandemic and continues to be 100% performing at quarter end.
During the first quarter, we funded just over $7 million of new ABL loans and had repayments of just $1 million.
Business credit continues to evaluate potential strategic add on acquisitions.
For the quarter.
The company paid a cash dividend.
A $1 $2 6 million consistent with the prior quarter.
Now, let me turn to health care ABL.
At quarter end their portfolio was $65 million, representing 13% of our total portfolio.
We believe the funded portfolio is now in a position to rebuild after experiencing significant repayment activity last year, resulting from borrowers.
Moving to pay down our lines of credit with proceeds from the Medicare advanced payment program Hff's HHS grants and the payroll protection program.
The total number of our borrowers has remained remarkably consistent.
And is comprised of loans to 37 borrowers with an average funded loan of $1 8 million per.
Portfolio remains 100% performing and has not had a default since the beginning of COVID-19.
Impairment risk remains very low given health care ABL disciplined underwriting and focus on financing healthcare service providers, who have government and high quality insurance company accounts receivable collateral supporting our lines of credit.
Cash collections typically go directly into our lock boxes and fees and interest payments are debited automatically.
The weighted average asset level yield of their portfolio is just under 15%.
This was elevated by a large termination fee during the first quarter.
During the quarter.
Health care ABL funded $2 8 million.
Of new investments and had repayments of approximately $2 7 million.
We expect this portfolio to grow during 2021 as borrowers stimulus dollars are depleted and our working capital lines of credit.
Our utilized by our borrowers for.
For the quarter.
Health care ABL paid us a cash dividend of just under $1 million consistent.
Consistent with the prior quarter.
Now, let me turn to life science lending.
Overall life science 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 COVID-19 has been de Minimis on this portfolio, 100% of our loans are performing and we continue to incur no losses in the life Sciences segment.
Currently 100% of this portfolio has more than 12 months of cash runway.
At quarter end the portfolio totaled just under $34 million across nine borrowers with an average investment of $3 7 million.
For the first quarter, we funded $5 million of new investments and had no repayments.
The weighted average yield on this portfolio was approximately nine 7% at cost, which exclude success fees and warrants.
Overall, we believe that SUNS is extremely well positioned to take advantage of an improving economy and a more robust opportunity set across each of our investment verticals.
SLR capital Partners' commercial finance platform and significant dry powder enables us to provide structured solutions, including both cash flow and asset based loans per capital constrained companies.
We're working closely with our extensive network of relationships to source new investment opportunities.
In addition, we continue to actively pursue acquisition opportunities in asset based lending companies that can further diversify our specialized lending capabilities and provide an expanded solution set for middle market companies now, let me turn the call back to Michael.
Thank you Bruce.
From inception, we've endeavored to make the right decisions to preserve and enhance long term shareholder value.
Our priority has always been to create and maintain a portfolio that can generate steady income per shareholders and protect our capital.
While the recovery is underway, we remain disciplined in the face of a tighter price environment higher leverage and loose structures, all of which have elevated the risk of principal loss and middle market leverage finance over an extended period.
As a result, we are positioned Sun's defensively.
We have diversified our portfolio across cash flow and specialty finance first lien senior secured loans to manage downside risk we have operated well under target fund leverage and preserve liquidity.
While leverages in middle market direct lending remain near all time high the economic rebound appears to be on solid footing and we are seeing a broader set of attractive investment opportunities.
With over $450 million of available capital and a strong foundation, given our defensive portfolio and low leverage.
Believe the company is positioned to originate attractive new investments.
Our patience and willingness to remain underinvested during the height of the pandemic provides us the foundation to be more aggressive today.
We believe that the improved investment opportunity set will persist for a number of quarters as companies require financing solutions for working capital and growth initiatives.
Sponsor activity is definitely on the upswing in the PE industry, its armed with significant dry powder tons and the rest of the SLR platform is in a great position to capitalize on this opportunity.
We hope that all of you are in good health and we would like to thank you all for your time today and your support of our company operator at this time would you. Please open the line answer questions.
Ladies and gentlemen, if you have a question at this time from the press Star then the number one key on your Touchtone telephone. If your question has been answered or you wish Karen will be our yourself from the queue. Please press the pound key one moment please for off price.
Question.
Once again, if you would like to ask a question. Thank you Press Star then the number one key on your Touchtone telephone.
Okay.
If we have no more questions, we're going to we'll conclude we recognize it today and this whole week of an ex credibly busy earnings week for those of you.
Who listen let's call a replay and a cash.
<unk>, please feel free to reach out to any of US. If you have any follow up questions. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect.