Q1 2021 SLR Investment Corp Earnings Call
[music].
Thanks for the secure.
Good day and thank you.
The first time by welcome to the Q1 2021 as the large investment Corporation earnings conference call at the.
This time, all participants are in a listen only mode.
Just curious the presentation there will be a question and answer session to ask a question. During the session. You will meet the press star one on your telephone keypad leased the advice that today's conference is being reported if you require and afraid of assistance. Please press star zero and I would now like to hand the call.
Our friends over at some of your Speaker today, Chairman and co CEO Michael Gough. Please go ahead Sir.
Thank you very much and good morning, welcome to the SLR investment Corp's earnings call for the first quarter ended March 31, 2021, and I'm joined today by Bruce for our co Chief Executive Officer, and Richard <unk>, Our Chief Financial Officer Rich before we begin would you. Please start by covering the webcast and forward looking statements.
And of course.
Thank you Michael.
And we'd like to remind everyone that today's call and webcast are being recorded.
Please note that they are the property of <unk> investment Corp, and that any unauthorized.
Unauthorized broadcast any form of strictly prohibited.
This conference call is being webcast from the investors tab on our website at Www Dot Epsilon investment Corp Dotcom.
Audio replays of this call will be made available later today as disclosed in our earnings press release.
I would also like to call your attention to the customary disclosures and 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 of financial condition.
These statements are not guarantees of our future performance financial condition or results and involve a number of risks and uncertainties.
Putting impacts from COVID-19.
Past performance is not indicative of future results.
Actual results may differ materially as the result of a number of factors, including those described from time to time and our filings with the SEC.
And solar investment Corp undertakes no duty to update any forward looking statements unless required to do so by law.
Okay and copies of our latest SEC filings. Please visit our website or call us at two one to 90 931.
1670.
At this time I would like to turn the call back to our chairman and co CEO.
Michael gross.
Thank you rich good morning, and thank you for joining us the SLR team hopes to find you your family friends and colleagues happy and healthy and safe I wanted to start out by discussing our Q1 and 2021 results before turning the call back over to our CFO rich <unk> to discuss the financial highlights and then our coast.
Bruce bowler Who'll walk you through the investment landscape.
Yesterday after the close we reported net investment income of 37 per share for the first quarter. This represents a solid increase over the 35, we reported and Q4 of 2020 and importantly, we are now through the incentive fee catch up which means that each incremental dollar of income that is highly accretive to.
<unk> <unk>.
Alongside the increase and NII SLR seeds portfolio remains 100% performing as it has throughout the entire pandemic net.
Net asset value increased <unk> per share compared to the prior quarter.
We attribute the resiliency of our portfolio to our conservative underwriting our focus on first lien senior secured loans to larger upper middle market companies and our cash flow segment and.
And our specialty finance and vessels verticals, which offer greater structural protections and yield than what is currently available and the cash flow lending market and.
At March 31 over 99% of our comprehensive investment portfolio was invested in senior secured loans and 83 per cent of the portfolio of fair value with allocated of specialty finance investments.
During the first quarter the U S middle market reflected a more favorable economic backdrop punctuated by a resurgence and sponsor led M&A and refinancing transactions.
The government fiscal and monetary stimulus programs combined with the vaccination program have turbocharged recovery and removed a number of uncertainties.
As a result, we are seeing increased deal flow across all of our investment verticals.
And the cash flow transactions, we're seeing across the SLR platform or a combination of funded loans and delayed draw commitments, which fund acquisitions and further growth of these companies Bruce.
Bruce will talk about the favorable trend in more detail.
Earnings growth was driven by a combination of having held and investments made in the fourth quarter 2020, including our equity investment and Kingsbridge Holdings.
For a full quarter and generate fees generated for the repayment of a life science investment.
We are now six months into our ownership of Kingsbridge and the integration has been seamless.
Looking forward, we would deploy our approximately $700 million of low cost available capital towards new investments across all of our strategies.
We remain modestly leverage at eight two times as of March 31.
And have significant capacity.
To capitalize on the robust opportunity set before us.
And our cash flow lending business, we're seeing an increase and the size of the company seeking direct financings, which we attribute the borrower's desire for speed and certainty of execution.
The scale of SLR of investment adviser and its ability to hold up to $200 million of of given the investment enables <unk> to invest in the upper middle market financings, which we continue to believe are better position to protect capital and the event of further economic disruption.
And our specialty finance teams are also seeing increased deal flow as more companies look to pledge collateral and intellectual property to obtain liquidity.
The breadth of our investment strategies means that we only need to see modest growth from each vertical to drive meaningful portfolio of and earnings growth across the entire business.
At this time I'll turn the call back over to our CFO rich for Teco can take you through the Q1 financial highlights.
Thank you Michael.
That's the law of investment Corp's net asset value at March 31, 2021 was $856 2 million for $20.26 per share.
And Pat.
0.0 million or.
For $20 and 16 per share at December 31, 2020.
At March 31, two and 21 and.
And as far as fees on balance sheet investment portfolio had a fair market value of $1 $5 7 billion in 105 portfolio companies across 20 industries.
Compared to the fair market value of $1 five 3 billion.
Third five portfolio companies across 25 industries at December 31, 2020.
At March 31 of the company had $711.0 million of debt outstanding and leverage of 082 times net debt to equity.
And considering available capacity from the company's credit facilities combined with the available capital from the non recourse credit facilities at Essilor of credit solutions equipment financing Kingsbridge.
All of our investment Corp had approximately $683 million to fund future portfolio growth.
Subject to borrowing base limits.
Moving to the P&L for the.
The three months ended March 31 2021.
Gross investment income totaled $35 9 million versus $31 4 million for the three months ended December 31.
Expenses totaled $20 4 million for the three months ended March 31 2021.
And this compares to $16 5 million for the three months ended December 31 2020.
Accordingly, the company's net investment income for the three months ended March 31, 2021 totaled $15 5 million for.
The <unk> 37 per average share compared.
Compared to $14 9 million or <unk> 35 per average share for the three months ended December 31 2020.
Below the line.
The company and net realized and unrealized gains for the first fiscal quarter totaling 6.0 million.
Versus net realized and unrealized gains of $3 4 million for the fourth quarter of 2020.
Ultimately the company had a net increase and net assets.
<unk> from operations of $21 5 million or <unk> 51 per average share for the three months ended March 31 2021.
This compares to a net increase of $18 3 million of 43 per average share for the three months ended December 31 2020.
Finally, and.
Our board of Directors recently declared a Q2 2021 distribution of <unk> 41 per share.
Payable on July <unk> 2021 day.
The shareholders of record on and 'twenty three.
And in 'twenty one.
With that I'll turn the call over to our co CEO.
<unk> polar.
Thank you rich.
First and foremost sorc's portfolio is 100% performing at quarter end.
Our performance supports the underwriting thesis of investing at the top of the capital structure and first lien cash flow loans to upper mid market borrowers that operate and non cyclical industries.
As well as allocating a significant portion of our exposure to collateralized loans through our specialty finance.
The verticals.
At quarter, and the weighted average investment risk rating of our portfolio was under two based on our one to four risk rating scale with one representing the least amount of risk the.
The percentage of our portfolio.
Weighted threes and fours is down two 8% after peaking at seven 5% and the second quarter of last year.
At March 31.
<unk> comprehensive portfolio was just over $2 billion and was highly diversified encompassing over 600 distinct issuers across the industries.
Our largest industry exposures are health care providers and services diversified financials, and life Sciences and retail asset based loans.
The average investment per issuer was just over $3 million or 2% of the portfolio.
At quarter and over 99% of our portfolio consisted of senior secured loans of.
These loans 94.
4% were first lien loans and.
And only four 9% were second lien.
Of the second lien loans to 1% were cash flow and two 8% were asset based loans.
At quarter, and our weighted average asset level yield was nine 8% compared to 10% the prior quarter.
By focusing on our commercial finance verticals, we've been able to maintain asset level yields close to 10%. Despite a decrease in LIBOR as well as spread compression.
Notably we've been able to maintain these year yields while actively reducing our exposure to second lien investments.
Total portfolio originations for the first quarter were 215 million and repayments were $230 million.
<unk> and of net total portfolio of 2 billion and.
In addition, we had approximately $75 million of unfunded investment commitments outstanding, which we expect to fund and future quarters.
Now, let me provide and update on each of our verticals.
And so our sponsor finance our cash flow of business.
At quarter, and our cash flow of loan portfolio was $325 million or approximately 16% of the comprehensive portfolio.
The average EBITDA of new cash flow loans made during the first quarter was over $100 million.
<unk> with our focus on larger upper mid market borrowers during the first quarter, we had cash flow commitments of approximately $60 million of which $45 million were funded.
We experienced repayments of approximately $5 million, resulting in net cash flow portfolio of growth of $40 million.
Our cash flow of investments during the quarter came from a mixture of delayed draws and existing credits and new investments primarily in the healthcare and insurance sectors.
And as Michael mentioned, we've been able to take advantage of the broader scale of the SLR platform to underwrite larger investment positions and first lien cash flow loans to upper mid market sponsor owned companies.
Given the sponsor community is preference for partnering with a few lenders and.
Each of their investments with large hold sizes and <unk>.
Our C would not be able to participate and these financings without the support of the broader SLR platform.
Sure.
We are increasingly committing to delayed draw term loan facilities that are raised by companies to fund future acquisitions. These transactions offer of prudent opportunity for <unk> to grow its investment and established credits with existing financial covenants and in many instances incremental sponsor.
Equity contributions.
By stepping into an existing loan facility with shorter duration and OID and the yield to maturity is enhanced.
At eight 6% the weighted average yield of the cash flow portfolio was roughly flat with the prior quarter.
Now, let me turn to our asset based strategy SLR credit solutions.
As a reminder.
Our ABL vertical is the combination of the senior secured loans of the SLR credit solutions as well as loans held directly on our balance sheet.
At quarter, and senior secured asset based portfolio totaled just over $440 million per.
Representing 22% of our comprehensive portfolio the.
The weighted average yield of the portfolio was 10, 5% compared to 10, 7% the prior quarter.
During the first quarter, we funded approximately $32 million of new ABL loans and had repayments of approximately $100 million.
Portfolio contraction during the first quarter was driven by repayments of two sizable investments, which generated an unlevered asset level of IRR of nine 5%.
Looking forward the pipeline and this strategy is robust.
For example retailers of core competency of our ABL team are continuing to explore alternative financing solutions and an increased pace following a challenging last year.
During the quarter SLR credit solutions paid a cash dividend of $6 million.
Now, let me turn to our corporate leasing business Kingsbridge.
We are now six months into our ownership of Kingsbridge and the integration is proceeding smoothly the credit quality of the portfolio remains strong and originations during the quarter were steady.
At quarter, and Kingsbridge highly diversified portfolio of leases.
Approximated $590 million with an average funded the exposure of approximately $1 3 million per obligor.
The lease portfolio was 100% performing and over 70% of the portfolio is invested and assets leased by investment grade borrowers.
For the first quarter Kingsbridge paid a dividend of $2 8 million to Src.
When we include the interest on our $80 million senior secured loan into Kingsbridge gross income from our investments and Kingsbridge was $4 4 million for the quarter.
We expect that our combined debt and equity investment and Kingsbridge will generate approximately $20 million of gross income this year and produce a blended cash yield of approximately 10% consistent with other specialty finance assets across the SLR platform.
Now, let me turn to SLR equipment finance and.
As a reminder included in the equipment finance business, our equipment loans held directly on our balance sheet as well as those held and SLR equipment finance, our wholly owned portfolio company that for tax efficiency purposes holds certain of these investments.
And the first quarter equipment finance invested $30 million and had portfolio repayments of approximately $30 million.
At quarter, and the portfolio totaled 320 million.
The portfolio is invested across 100 for borrowers with an average <unk>.
Exposure of approximately $3 million.
This asset class represents approximately 16% of our comprehensive portfolio.
100% of equipment finance investments and our first lien loans and at quarter and the weighted average asset level yield was just over 10%.
Comprehensive investment income from the full portfolio, including assets on the balance sheet and those held and the subsidiary total just over $4 million.
The rebound in economic.
The economic activity that started last quarter and continued into this first quarter has been supportive of the performance of our equipment finance investments, we are seeing equipment valuations return to their pre COVID-19 levels and credit quality improving.
The team has now turn their attention towards re growing the portfolio.
And finally, let me touch on our life science lending business.
At quarter, and our portfolio totaled just over $330 million consisted.
Consisted of 16 borrowers with an average investment of just over $20 million.
Life Science loans represented 16% of our total portfolio and nearly 32% of our gross investment income for the quarter.
During the quarter the team committed $35 million of which $30 million was funded during the quarter.
Payments totaled $30 million, leaving the portfolio of flat from the prior quarter.
Our life Science team was repaid on one investment during the quarter, which generated an 18% gross asset level IRR as part of the repayment SORC recognized.
A $3 $4 million fee.
The additional income during the pandemic, our life science portfolio experienced very little churn as repayments start occurring at a more normal cadence and the realization fees and other income associated with these investments becomes recurring and more consistently benefits earnings.
At quarter end.
And <unk> had $25 million of delayed draw commitments to existing borrowers that are available upon reaching certain milestones.
We expect some of these to be drawn in future quarters.
The weighted average yield of the life science portfolio was just over 10% at cost and this excludes success fees and warrants.
In conclusion <unk> portfolio activity during the first quarter represents the continuation of the investment themes that have been driving our portfolio over the last few years.
Focusing new origination activity on first lien cash flow loans.
And defensive sectors, increasing investments and specialty finance assets, where we get tight structures and attractive risk adjusted returns.
And growing alongside portfolio of companies by committing to delayed draw facilities, which fund over the following quarters.
Across all of our investment verticals, including cash flow, we are seeing a larger volume of quality investment opportunities than we have seen and a number of quarters. The uptick is reflective of the economic rebound and increased middle market sponsor activity. In addition, we're seeing of larger pipeline of opportunities from the business does.
<unk> efforts across the SLR platform.
The current market environment is attractive and provides a great opportunity for <unk> to grow its portfolio of this year.
Now, let me turn the call back to Michael.
Thank you Bruce and closing we believe that the first quarter of 2021 was a great start to the year in terms of our portfolio's credit quality earnings growth and the opportunity set across all of our investment verticals.
With the economic recovery and full swing and Thats the <unk> portfolio on solid footing, we fully focused on deploying capital and attractive investment opportunities across all of our investment verticals the.
Breadth of investment strategies, which spanned cash flow ABL life science venture and addition of equipment financing and leasing means of modest activity and each vertical aggregates to meaningful overall portfolio growth.
As I mentioned earlier now that we're through the incentive fee catch up every incremental dollar of income is highly accretive to shareholder returns.
At a two times net debt to equity.
Some of our C remains under Levered relative to our target of <unk> nine to one of the quarter times, we have access to ample low cost capital with which to fund portfolio growth.
As we continue to grow the portfolio, we believe NII will return to fully covering the dividend.
We also believe we're still in the early innings with substantial runway.
And as financial sponsors deploy record amounts of of dry powder and more of the larger businesses, we prefer to lend to choose choose direct financings over the syndicated debt markets.
These industry tailwind combined with the scale of SLR seed investment adviser should benefit Src investors with greater access to upper middle market investment opportunities, which is last year's proven are better positioned to protect capital and smaller companies are.
In conclusion, our team is confident and SLE sees defensively position portfolio strong liquidity position and the investment opportunity set.
Later on this morning of 11 will be hosting and earnings call for Q1 results of SLR Senior investment Corps of course funds.
Our ability to provide traditional middle market senior secured financing through this vehicle continues to enhance our origination team's ability to meet our clients capital needs and we continue to see benefits of this value proposition and SLR sees deal flow.
We thank you for your time this morning, operator could you. Please open the line for questions.
As a reminder to ask a question you will need some cash.
And then the number one on your cash flow and keep ex <unk>.
Your question please ask the cow.
Please standby and wanted to compile the Q&A roster.
Your first question comes for Ahmad.
Yes.
Jason <unk> from Raymond James.
Hey, all good morning, and I appreciate you taking the time.
The first kind of two technical questions to start off first on so and so a good bump up and dividend income quarter over quarter any color you can give surrounding that asset and kind of how we should expect dividend income to settle over the coming quarters.
Yeah, Great question. So that's the gift that keeps on giving we've been invested there for several years.
Just to refresh your memory portfolio of.
Long lease aircraft.
It is winding down we don't expect much more from that or from that.
We have as I mentioned been and for number of years and it's been an incredibly attractive investment return and the upper teens on an IRR basis, so a little bit more coming but we don't expect the same runway that we have and the past because.
And we haven't been investing in that vertical for a couple of years now so it's a bit of of runoff.
Okay. That's helpful. I guess as a follow up to that on the the other income line. So obviously a little elevated I think you said related to a success fee on our life science loan.
That line item kind of normalizes out any any commentary you can give on where we would expect that to settle out.
So unfortunately.
No.
I guess the best way to look at that line is on average over a year's time period.
And it's generated because of life science to your point, that's the nature of those assets.
And that was really the.
Depressed last year.
That line just because it was not much churn. So the good news is we have a longer duration than is typical and life science assets, which tend to churn within two years that is accelerating so we expect it.
It's it's episodically recurring it's not consistent with the recurring.
But we do expect to see more of that.
But it's hard to pick the number.
On a quarterly basis is really more over the course of the year as you look at it and the context of that portfolio and the life science portfolio has been growing.
Over the last couple of years.
Fair enough and then just last one for me kind of more high level based on kind of what I calculate there's about 40 and and.
Embedded NAV per share upside based on your current book fair value to cost.
And then kind of on a high level basis is it.
As the COVID-19 recovery over and fair value of the cost Mark or is there still some potential for for now per share upside.
Yes, we do think there is some I think a fair bit of it came back rather quickly for us just because of the resilient.
Sectors that we've been invested in together with the specialty finance verticals that have also demonstrated a fair bit of COVID-19 resilience. So yes, there is a little bit more to go but we snapped back rather quickly.
Got it that's it for me appreciate the time.
Thanks for your questions Matt.
As a reminder to ask the question you will meet the press star one on your telephone keypad.
Again, that's part of one to ask the question.
There are no further questions at this time presenters. Please continue.
Thank you very much for your time this morning and for those of you are involved with.
SLR Senior investment Corp of will talk to a half an hour.
Sure.
This concludes today's conference call. Thank you everyone for participating you may now disconnect.
Okay.
[music].
And.
[music].
[music].
[music].
Good day and thank for standing by welcome to the Q1 2021 as the large investment Corporation earnings Conference call.
At this time, all right because the banks are in a listen only mode.
Just curious presentation the.
A question and answer session to ask a question during the Slashdot and you will meet the press star one on your telephone keypad. The advice that today's conference is being recorded if you require and afraid of suspects. Please press star zero and I would not like to hand, the conference over at the our speakers today.
And then and co CEO Michael Gough. Please go ahead Sir.
Thank you very much and good morning, welcome to the SLR and vascular Corp's earnings call for the first quarter ended March 31, 2021, and I'm joined today by Bruce for our co Chief Executive Officer, and Richard particularly of our Chief Financial Officer Rich before we begin would you. Please start the covering the webcast and forward looking statements.
Of course thank.
Thank you Michael.
Like the remind everyone that today's call and webcast for being recorded.
Please note that there of the property of SLR investment Corp, and net.
Any unauthorized broadcast any form of strictly prohibited.
This conference call is being webcast from the investors tab on our website at Www Dot S. A lot of investment Corp dotcom.
Audio replays of this call will be made available later today as disclosed in our earnings press release.
I would also like the call your attention to the customary disclosures and 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 of our financial condition.
These statements are not guarantees of our future performance financial condition or results and involve a number of risks and uncertainties.
Putting impacts from COVID-19.
Past performance is not indicative of future results.
Actual results may differ materially as the result of a number of factors, including those described from time to time and our filings with the SEC.
And solar investment Corp undertakes no duty to update any forward looking statements unless required to do so by law.
To obtain copies of our latest SEC filings, please visit our website or.
Paul is that true one to 99 three.
1670.
As Tom and I would like to turn the call back to our chairman and co CEO.
Michael gross.
Thank you rich good morning, and thank you for joining us the SLR team hopes to find you your family friends and colleagues happy and healthy and safe I want to start out by discussing our Q1 and 2021 results before turning the call back over to our CFO rich fatigue.
Discuss the financial highlights and then our co CEO Bruce bowler, who will walk you through the investment landscape.
Yesterday after the close we reported net investment income of 37 per share for the first quarter. This represents a solid increase of the 35 as we reported and Q4 of 2020 and importantly, we are now through the incentive fee catch up which means that each incremental dollar of income and is highly accretive to.
<unk>.
Alongside the increase in NII and <unk>.
All of our seed portfolio remains 100% performing as it has throughout the entire pandemic net.
Net asset value increased <unk> per share compared to the prior quarter.
We attribute the resiliency of our portfolio to our conservative underwriting our focus on first lien senior secured loans to larger upper and middle market companies and our cash flow segment and.
And especially finance and vessels verticals, which offer greater structural protections and yield than what is currently available and the cash flow lending market and.
At March 31 over 99% of our comprehensive investment portfolio was invested in senior secured loans and 83 per cent of the portfolio of fair value with allocated of specialty finance investments.
During the first quarter the U S middle market reflected a more favorable economic backdrop punctuated by a resurgence and sponsor led M&A and refinancing transactions.
The government fiscal and monetary stimulus programs combined with the vaccination program have turbocharge, the recovery and removed a number of uncertainties.
As a result, we are seeing increased deal flow across all of our investment verticals.
The cash flow transactions, we're seeing across the SLR platform or a combination of funded loans and delayed draw commitments, which fund acquisitions and further growth of these companies Bruce.
Bruce of talk about the favorable trend in more detail.
Earnings growth was driven by a combination of having held investments made in the fourth quarter of 2020, including our equity investment and Kingsbridge Holdings.
For a full quarter and generate fees generated for the repayment of a life science investment. We are now six months into our ownership of Kingsbridge and the integration has been seamless.
Looking forward, we would deploy our approximately $700 million of low cost available capital towards new investments across all of our strategies.
We remain modestly leverage at eight two times as of March 31.
And have significant capacity and Inc.
Capitalize on the robust opportunity set before us.
And our cash flow lending business, we're seeing an increase and the size of companies seeking direct financings, which we attribute the borrower's desire for speed and certainty of execution.
The scale of ex the large investment adviser and its ability to hold up to $200 million of of given investment enabled <unk> to invest and the upper middle market financings, which we continue to believe are better positioned to protect capital and the event of further economic disruption.
And our specialty finance teams are also seeing increased deal flow as more companies look to pledge of collateral and intellectual property to obtain liquidity.
The breadth of our investment strategy means that we only need to see modest growth from each vertical to drive meaningful portfolio of earnings growth across the entire business.
At this time I'll turn the call back over to our CFO rich for takeout to take you through the Q1 financial highlights.
Great. Thank you Michael.
And so all of our investment Corp's net asset value at March 31, 2021 was $856 2 million.
And for $20.26 per share.
Okay.
The 0.0 million.
For $20.16 per share at December 31, 2020.
At March 31 to the end 'twenty one.
As far as fees on balance sheet investment portfolio had a fair market value of $1 $5 7 billion in 105 portfolio companies across 20 industries.
Compared to the fair market value of $1, $5 3 billion and <unk>.
And five portfolio companies across 25 industries at December 31, 2020.
At March 31 of the company had 711.01 billion of debt outstanding and.
And the leverage of 082 times net debt to equity.
And considering of available capacity from the company's credit facilities combined with the available capital from the non recourse credit facilities at SLR credit solutions equipment financing Kingsbridge.
Solar investment Corp had approximately 683 million to fund future portfolio growth.
Subject to borrowing base limits.
Moving to the P&L.
For the three months ended March 31 2021.
Gross investment income totaled $35 9 million versus $31 4 million for the three months ended December 31.
Expenses totaled $20 4 million for the three months ended March 31 2021.
And this compares to $16 5 million for the three months ended December 31 2020.
Accordingly, the company's net investment income for the three months ended March 31, 2021 totaled $15 5 million for.
The <unk> 37 per average share <unk>.
Compared to $14 9 million or <unk> 35 per average share for the three months ended December 31 2020.
Below the line.
The company and net realized and unrealized gains for the first fiscal quarter totaling 6.0 million.
First of the net realized and unrealized gains of $3 4 million for the fourth quarter of 2020.
Ultimately the company had a net increase and net assets.
<unk> from operations of 21 5 million for 51 per average share for the three months ended March 31 2021.
This compares to a net increase of $18 3 million of 43 per average share for the three months ended December 31 2020.
Okay.
Finally.
Our board of Directors recently declared a Q2 2021 distribution of <unk> 41 per share payable.
Payable on July <unk> 2021 day.
Shareholders of record on and 2003rd.
The 21.
With that I'll turn the call over to our co CEO Bruce bowler.
Thank you rich.
First and foremost sorc's portfolio is 100% performing at quarter end.
Our performance supports the underwriting thesis of investing at the top of the capital structure and first lien cash flow loans to upper mid market borrowers that operate and non cyclical industries.
And as well as allocating a significant portion of our exposure to collateralized loans through our specialty finance for.
Verticals.
At quarter, and the weighted average investment risk rating of our portfolio was under two based on our one to four risk rating scale with one representing the least amount of risk the.
And the percentage of our portfolio rated threes and fours is down two 8% after peaking at seven 5% and the second quarter of last year.
At March 31.
<unk> comprehensive portfolio was just over $2 billion and was highly diversified encompassing over 600 distinct issuers across the industries.
Our largest industry exposures and our health care providers and services the diversified financials.
<unk> Sciences, and retail asset based loans.
The average investment per issuer with just over $3 million or 2% of the portfolio.
At quarter and over 99% of our portfolio consisted of senior secured loans.
Of these loans 90 for <unk>.
4% were first lien loans.
And only four 9% were second lien.
And of the second lien loans to 1% were cash flow and two 8% were asset based loans.
At quarter, and our weighted average asset level yield was nine 8% compared to 10% the prior quarter.
By focusing on our commercial finance verticals, we've been able to maintain asset level yields close to 10%. Despite a decrease in LIBOR as well as spread compression.
Notably we've been able to maintain these year yields while actively reducing our exposure to second lien investments.
Total portfolio originations for the first quarter were 215 million and repayments were $230 million.
Resulting in a net total portfolio of $2 billion.
In addition.
We had approximately $75 million of unfunded investment commitments outstanding, which we expect to fund and future quarters.
Now, let me provide and update on each of our verticals.
SLR sponsor finance, our cash flow of business.
At quarter, and our cash flow of loan portfolio was $325 million or approximately 16% of the comprehensive portfolio.
The average EBITDA of new cash flow loans made during the first quarter was over $100 million.
Consistent with our focus on larger upper mid market borrowers during the first quarter, we had cash flow commitments of approximately $60 million of which $45 million were funded.
We experienced repayments of approximately $5 million, resulting in net cash flow portfolio of growth of $40 million.
Our cash flow investments during the quarter came from a mixture of delayed draws and existing credits and new investments primarily in the healthcare and insurance sectors.
As Michael mentioned, we've been able to take advantage of the broader scale of the SLR platform to underwrite larger investment positions and first lien cash flow loans to upper mid market sponsor owned companies.
And given the sponsor community is preference for partnering with a few lenders and.
Each of their investments with large hold sizes.
All of our C would not be able to participate and these financings without the support of the broader SLR platform.
We are increasingly committing to delay draw term loan facilities that are raised by companies to fund future acquisitions. These transactions offer of prudent opportunity for <unk> to grow its investment and established credits with existing financial covenants and in many instances incremental.
Sponsor equity contributions.
By stepping into an existing loan facility with shorter duration and OID and the yield to maturity is enhanced.
At eight 6% the weighted average yield of the cash flow portfolio was roughly flat with the prior quarter.
Now, let me turn to our asset based strategy SLR credit solutions.
As a reminder.
Our ABL vertical is the combination of the senior secured loans of the SLR credit solutions as well as loans held directly on our balance sheet.
At quarter end, the senior secured asset based portfolio totaled just over $440 million per.
Representing 22% of our comprehensive portfolio the.
The weighted average yield of the portfolio was 10, 5% compared to 10, 7% the prior quarter.
During the first quarter, we funded approximately $32 million of new ABL loans and had repayments of approximately $100 million.
Portfolio contraction during the first quarter was driven by repayments of two sizable investments, which generated an unlevered asset level of IRR of nine 5%.
Looking forward the pipeline and this strategy is robust.
For example retailers of core competency of our ABL team are continuing to explore alternative financing solutions and an increased pace following a challenging last year.
During the quarter SLR credit solutions paid a cash dividend of $6 million.
Now, let me turn to our corporate leasing business Kingsbridge.
We are now six months into our ownership of Kingsbridge and the integration is proceeding smoothly the credit quality of the portfolio remains strong and originations during the quarter were steady.
At quarter, and Kingsbridge highly diversified portfolio of leases.
Approximated $590 million with an average funded and exposure of approximately $1 3 million per obligor.
The lease portfolio was 100% performing and over 70% of the portfolio is invested and assets leased by investment grade borrowers.
For the first quarter Kingsbridge paid a dividend of $2 8 million to Src.
When we include the interest on our $80 million senior secured loan into Kingsbridge gross income from our investments and Kingsbridge was for 4 million for the quarter.
We expect debt, our combined debt and equity investment and Kingsbridge will generate approximately $20 million of gross income this year and produce a blended cash yield of approximately 10% and consistent with other specialty finance assets across the SLR platform.
Now, let me turn to SLR equipment finance.
As a reminder included and the equipment finance business, our equipment loans held directly on our balance sheet as well as those held and SLR equipment finance, our wholly owned portfolio company that for tax efficiency purposes holds certain of these investments.
And the first quarter equipment finance invested $30 million and had portfolio repayments of approximately $30 million.
At quarter, and the portfolio totaled $320 million.
The portfolio is invested across 100 for borrowers with an average <unk>.
Exposure of approximately $3 million.
This asset class represents approximately 16% of our comprehensive portfolio.
100% of equipment finance investments and our first lien loans and at quarter and the weighted average asset level yield was just over 10%.
Comprehensive investment income from the full portfolio, including assets on the balance sheet and those held and the subsidiary total just over $4 million.
The rebound enact economic activity that started last quarter and continued into this first quarter has been supportive of the performance of our equipment finance investments, we are seeing equipment valuations return to their pre COVID-19 levels and credit quality improving.
The team has now turn their attention towards re growing the portfolio.
And finally, let me touch on our life science lending business.
At quarter, and our portfolio totaled just over $330 million consisted.
The consisted of 16 borrowers with an average investment of just over $20 million.
Life Science loans represented 16% of our total portfolio and nearly 32% of our gross investment income for the quarter.
During the quarter the team committed $35 million of which $30 million was funded during the quarter.
Payments totaled $30 million, leaving the portfolio of flat from the prior quarter.
Our life Science team was repaid on one investment during the quarter, which generated an 18% gross asset level IRR as part of the repayment SORC recognized.
A $3 4 million fee.
The additional income during the pandemic, our life science portfolio experienced very little churn as repayments start occurring at a more normal cadence and the realization fees and other income associated with these investments becomes recurring and more consistently benefits earnings.
At quarter end.
<unk> had $25 million of delayed draw commitments to existing borrowers that are available upon reaching certain milestones.
We expect some of these to be drawn in future quarters.
The weighted average yield of the life science portfolio was just over 10% at cost and this excludes success fees and warrants.
In conclusion <unk> portfolio activity during the first quarter represents the continuation of the investment themes that have been driving our portfolio over the last few years.
Focusing new origination activity on first lien cash flow loans.
And defensive sectors, increasing investments and specialty finance assets, where we get tight structures and attractive risk adjusted returns.
And growing alongside portfolio of companies by committing to delayed draw facilities, which fund over the following quarters.
Across all of our investment verticals, including cash flow, we are seeing a larger volume of quality investment opportunities than we have seen and a number of quarters. The uptick is reflective of the economic rebound and increased middle market sponsor activity. In addition, we're seeing of larger pipeline of opportunities from the business does.
<unk> efforts across the SLR platform.
The current market environment is attractive and provides a great opportunity for <unk> to grow its portfolio of this year now.
Now, let me turn the call back to Michael.
Thank you Bruce and closing we believe that the first quarter of 2021 was a great start to the year in terms of our portfolio's credit quality earnings growth and the opportunity set across all of our investment verticals.
And with the economic recovery and full swing and Thats. The <unk> portfolio on solid footing, we fully focused on deploying capital and attractive investment opportunities across all of our investment verticals.
The breadth of our investment strategies, which spanned cash flow ABL or life science venture and addition of equipment financing and leasing means that modest activity and each vertical aggregates to meaningful overall portfolio of growth.
As I mentioned earlier now that we're through the incentive fee catch up every incremental dollar of income is highly accretive to shareholder returns at.
At a two times net debt to equity.
Some of our C remains under Levered relative to our target of <unk> nine to one of the quarter times, we have access to ample low cost capital with which to fund portfolio growth.
As we continue to grow the portfolio, we believe NII will return to fully covering the dividend.
We also believe we're still in the early innings with substantial runway.
And as financial sponsors deploy record amounts of dry powder and more of the larger businesses, we prefer to lend to choose choose direct financing over syndicated debt markets.
These industry tailwind combined the scale of SLR seed investment adviser should benefit SLR, the investors with greater access to upper middle market investment opportunities, which is last year's proven are better positioned to protect capital and smaller companies are.
In conclusion, our team is confident unnecessarily sees defensively position portfolio strong liquidity position and the investment opportunity set.
Later on this morning, and 11 will be hosting and earnings call for Q1 results of SLR Senior investment Corps of course, SUNS and our ability to provide traditional middle market senior secured financing through this vehicle continues to enhance our origination team's ability to meet our clients capital needs and we continue to see benefits of this value prop.
Physician and SLR sees deal flow.
We thank you for your time this morning, operator could you. Please open the line for questions.
Okay.
As a reminder to ask a question you will need.
And then the number one on your telephone keypad to withdraw.
Your question. Please go ahead of Macau.
Please standby, while we compile the Q&A roster.
Your first question comes from.
Sure.
And Jason from Raymond James.
Hey, all good morning, and I appreciate you taking the time.
First of kind of two technical questions and start off first on <unk>. So a good bump up and dividend income quarter over quarter any color you can give the surrounding that asset and kind of how we should expect given the income to settle over the coming quarters.
Yeah, Great question, so thats the gift that keeps on giving we've been invested there for several years.
And just to refresh your memory portfolio of.
Long lease aircraft.
It is winding down we don't expect much more from that or from that we have as I mentioned been and it for number of years and it's been an incredibly attractive investment return and the upper teens on an IRR basis, so a little bit more coming but we don't expect the same runway that we have and the past because.
We haven't been investing in that vertical for a couple of years now so it's a bit of of runoff.
Okay. That's helpful. I guess as a follow up to that on the the other income line. So obviously a little elevated I think you said related to a success fee on our life science loan will not.
Net line item kind of normalizes out any any commentary you can give on where we would expect that to settle out.
So unfortunately.
No.
And I guess, the best way to look at that line is on average over a year's time period.
It is generated because of life science to your point, that's the nature of those assets.
That was really depressed last year.
Lyne just because there was not much churn. So the good news is we have a longer duration than is typical and life science assets, which tend to churn within two years that is accelerating so we expect it.
It's it's episodically recurring it's not consistent with the recurring but.
But we do expect to see more of that.
But it's hard to pick the number.
On a quarterly basis, it's really more over the course of the year as you look at it and the context of that portfolio and the life science portfolio has been growing.
Over the last couple of years.
Fair enough and then just last one for me kind of more high level based on kind of what I calculate there's about 40 and and.
Embedded NAV per share upside based on your current book fair value to cost.
And then kind of on a high level basis is it.
As the COVID-19 recovery over and fair value of the cost Mark or is there still some potential for for NAV per share upside.
Yes, we do think there is some I think a fair bit of it came back rather quickly for us just because of the resilience.
Sectors that we've been invested in together with the specialty finance verticals that have also demonstrated a fair bit of COVID-19 resilience.
Yes, there is a little bit more to go but we snapped back rather quickly.
Got it that's it for me appreciate the time.
Thanks for your questions Matt.
I'll remind day to ask a question for Chris.
Sorry, one on your telephone keypad.
Again, Thats star one to ask a question.
Okay.
Okay.
There are no further questions at this time presenters. Please continue.
Thank you very much for your time this morning and for those of you are involved with.
SLR Senior investment Corp of will talk to you a half an hour.
This concludes today's conference call. Thank you everyone for participating you may now.
Now disconnect.