Q3 2021 SLR Senior Investment Corp Earnings Call

November 4, 2021

Good day and thank you for standing by welcome to the Q3 2021 SLR investment Corp earnings call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need for as far one on your telephone please.

Please be advised that today's conference is being recorded.

No further assistance. Please press star Zero I would now like to hand, the conference over to your first speaker today, Michael gross Chairman and co CEO you may begin Sir.

Good morning, and thank you welcome to SLR Senior investment Corp, 's earnings call for the third quarter ended September 32021.

Here today by Bruce bowler, 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.

Thanks, Michael.

Yes.

I'd like to remind everyone that today's call and webcast are being recorded.

Please note that they are the property of Soi Senior investment Corp.

Any unauthorized broadcast in any form are strictly prohibited.

This conference call is being webcast from the investors tab on our web site 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.

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

As far as senior 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 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 micro growth. Thank you rich.

SLR Senior restaurant Corp, third quarter results benefited from both portfolio expansion and strong fundamentals.

Net asset value per share for the quarter ended September 30 was $10 72.

Net investment income was 23 per share.

Throughout the third quarter U S economy grew at a steady rate and presented a favorable backdrop for private equity deal activity, which continues to occur at a record pace.

Elevated sponsor driven M&A activity and the gradual taper of government stimulus measures is increasingly opportunity separate sun to deploy capital across its cash flow ABL investment verticals.

During the third quarter, SUNS, and our subsidiaries funded $93 million of investments and committed an additional $40 million, which we expect to fund in future quarters.

Many of Sun's New castle investments were in large upper middle market companies, which was made possible by the scale of <unk> platform.

As large scale, which allows funds to participate in the larger transactions, which we believe are best positioned to protect capital.

At September 30th over 99, 9% of our comprehensive investment portfolio at fair value was invested in first lien loans and approximately 59% of those loans consisted of loans and our specialty finance verticals.

September 30th SUNS debt to equity on a net basis was <unk> 55 times and approximately 54% of vessel. Our senior funded debt was comprised of unsecured term notes.

We expect portfolio growth continue in the coming quarters from first lien cash flow as well as asset based investment opportunities.

That is in a unique position to allocate capital across our diversified lending strategy to the most favorable risk adjusted return investments we are confident in our ability to grow the portfolio, while remaining disciplined in our underwriting at this time I'll turn the call over to our CFO Richard <unk>.

Looking to the third quarter financial highlights.

Thank you Michael.

As 14 year investment Corp's net asset value at September 30 was $252 4 million or $15 73 per share.

This compares to a net asset value of $254 8 million.

$15 87 per share at June 32021.

Solar Senior's balance sheet investment portfolio at September 32021 had a fair market value of $389 million in 51 portfolio companies operating in 21 industries compared to a fair market value of $382 9 million and 47 ports.

Cleo companies operating in 18 industries at June 32021.

In addition, as of September 32021, the company had unfunded loan commitments, excluding revolvers of approximately $51 million.

Turning to some funding profile and leverage at September 32021, SUNS had $157 $7 million of debt outstanding with a net debt to equity ratio of 0.55 times.

Up from 0.51 times at June 32021.

At September 30, approximately 54% of Sun's total debt and 62% of its net debt was in the form of unsecured three 9% fixed rate notes.

Including the non recourse credit facilities, Soi healthcare ABL and <unk>.

<unk> business credit.

As far as senior had approximately 266 million to fund portfolio growth.

At September 32021.

Subject to borrowing base limits.

As a reminder, as far as key esol or seniors current target leverage ratio is 125 times to 150 times net debt to equity.

From a P&L perspective.

Gross investment income for the three months ended September 32021 totaled $7 4 million compared to $7 5 million for the three months ended June 32021.

Expenses for the three months ended September 32021 were $3 7 million.

At the $3 6 million for the three months ended June 32021.

Net investment income for the quarter ended September 32021 with.

$3 7 million or 23 per average share as compared to $4 zero million or <unk> 25 per average share for the three months ended June 30.

Below the line.

Senior had net realized and unrealized losses for the third fiscal quarter of 2021 of $1 3 million compared to net realized and unrealized gains of zero point $3 million for the three months ended June 30.

Accordingly, as far as senior had a net increase in net assets, resulting from operations of $2 5 million or <unk> 15 per average share for the three months ended September 32021.

This compares to a net increase in net assets, resulting from operations of $4 2 million or <unk> 26 per average share for the three months ended June 30.

Lastly, our board of directors declared a monthly distribution for November 2021 of <unk> 10 per share payable on December 2nd 2021 to stockholders of record on November 18 2021.

And with that I will turn the call over to our co CEO Bruce polar Thank you rich.

We continue to focus on expanding our asset base and cash flow lending businesses. The combination of these two strategies enabled SUNS to act as a solutions provider to middle market companies and offers us multiple avenues for portfolio growth.

SUNS comprehensive portfolio totals totaled $612 million at quarter end and was highly diversified encompassing.

Over 220 borrowers across 100 industries Approx.

Approximately 60% of our portfolio was invested in senior secured asset based and life science lending strategies and the remaining 40% was in senior secured cash flow loans.

Across <unk> entire portfolio, our largest industry exposures with digital media health care providers and insurance services.

The average investment per borrower was $2 7 million or less than 5% of the portfolio at.

At quarter end, approximately 100% of the portfolio consisted of senior secured first lien loans with no second lien loan exposure and a de minimis amount of equity.

At quarter end, our weighted average asset level yield on the total portfolio was nine 6%.

By having approximately 59% of the portfolio allocated to our commercial finance verticals, we've been able to maintain attractive asset level yields above nine 5%, despite low LIBOR reference rate.

Spread compression in the marketplace.

September 30, the weighted average investment risk rating of Sun's portfolio remained at one nine based on our one to four risk rating scale with one representing the least amount of risk.

One loan was on nonaccrual at quarter end, which amounted to just over one 5% of our total portfolio.

Including activity across our four business lines originations for the third quarter totaled $93 million in repayments were $50 million.

Now, let me provide an update on our investment verticals.

Cash flow.

At quarter end, our cash flow portfolio was $250 million of approximately 40% of the total portfolio was.

It was invested across 38 borrowers with an average investment of just over $6 5 million.

100% of the portfolio is first lien exposure.

SUNS portfolio companies had a weighted average EBITDA in excess of $100 million.

<unk>, our preference to finance larger companies in the upper mid market.

The weighted average yield of this portfolio was six 6%.

During the third quarter, we originated $46 million of first lien senior secured cash flow loans and had repayments of approximately $40 million.

At quarter end, we had unfunded commitments of $44 million, which we expect to be drawn in future quarters to fund portfolio growth.

We believe these delayed draw acquisition lines offers a prudent opportunity for SUNS to grow its investment and established credits with existing financial covenant packages.

By stepping into an existing facility with shorter duration, we believe the yield to maturity is enhanced.

We are encouraged that sponsor activity has picked up this year with significantly higher volumes of M&A.

We expect momentum to continue through the remainder of this year, which we believe will provide opportunities to invest in attractive resilient upper mid market borrowers.

Now, let me turn to our asset based lending businesses.

As a reminder, some.

<unk> zones to commercial finance portfolio companies that specialize in making senior secured asset backed loans collateralized on a first lien basis by accounts receivable.

These businesses led to small and mid sized U S companies, who typically have limited access to traditional bank financing.

Now, let me provide an update on each of them.

Business credit.

At quarter end business credit portfolio had grown to $253 million or 41% of Sun's total portfolio consisted of 138 borrowers with an average investment of just under $2 million.

Utilization rates on business credits facilities had been lowered during COVID-19 due to many of their borrowers benefiting from government stimulus programs and using these proceeds to pay down their facilities with business credit.

As government stimulus measures have begun to taper borrowers have started to redraw on these lines of credit.

Last quarter SLR business credit acquired fast pay a digital media factoring platform the.

The integration is proceeding smoothly and it has expanded business credits origination capabilities.

The pipeline remains strong driven both by improved utilization rates of existing facilities as well as new investment opportunities.

For the quarter business credit credit PE.

<unk> a dividend of $1 5 million, which is a 19% increase over the prior quarter.

Now, let me turn to health care ABL.

Their portfolio was $87 million, which represents 14% of Sun's total portfolio.

It was comprised of 38 borrowers with an average funded investment of just under $2 5 million.

Portfolio remains 100% performing with no payment defaults since the start of Covid and many of their credits are cash collateralized.

The weighted average asset level yield of this portfolio was 11% a quarter percent.

During the third quarter healthcare ABL funded $16 million of new investments and had repayments of just $3 million.

Similar to business credit stimulus programs enacted last year enabled their borrowers to significantly reduce the funded balances under their lines of credit.

These stimulus programs have begun to roll off which should result in their customers drawing down more in the facilities at a <unk>.

<unk> ABL provides.

For the quarter health care ABL paid cash dividend to SUNS of <unk> 9 million consistent with the prior quarter.

Alright, thats $9 million.

Life Science Finance now, let me turn there.

At quarter end, our portfolio was approximately $23 million across seven borrowers.

For the quarter, we experienced repayments of about $4 million, which generated over a 13% unlevered asset level IRR.

At quarter end, the weighted average yield on our life science portfolio was approximately 10% which excludes any.

Excess fees and warrants.

By life Science loans represented 4% of Sun's portfolio. These assets generated nine 5% of our gross investment income for the quarter.

Overall, we believe SUNS is well positioned to take advantage of an improving economy and a robust opportunity set across all verticals.

SLR capital partners diversified platform and significant dry powder enables us to provide structured solutions, including both cash flow and asset based loans.

Given the strength of our fourth quarter pipeline, we expect to experience similar portfolio growth. This quarter now let me turn the call back to Michael.

Thank you Bruce.

Inception, our priority has always been to construct a portfolio that seeks to generate steady income for our stockholders while protecting capital.

With the economic rebound in full swing, we remain disciplined in the face of a tight pricing environment elevated leverage and loose structures all of which have increased the risk in middle market cash flow lending over an extended period of time.

As a result, we are positioned Sun's defensively diversified portfolio across cash flow and specialty finance first lien senior secured loans to manage downside risk to preserve liquidity.

Multiple to leverage in the middle market direct lending remain near all time highs the economies in the midst of a strong recovery and we are seeing a broader set of attractive investment opportunities.

With over $256 million of available capital and a strong foundation give our defensive portfolio and low fund level leverage we believe SUNS is well positioned to capitalize on the significant increase of attractive opportunities across all of our business verticals.

Elevated levels of deal activity should continue as financial sponsors capitalize on a supportive economic backdrop to continue deploying record levels of dry powder and smaller businesses seek out alternative lenders to finance, our working capital and growth initiatives.

Sun's commercial finance portfolio companies continue to element to evaluate tuck in opportunities to grow the businesses and we continue to actively look for equity investment opportunities in niche specialty finance companies.

Finally, our investment advisors alignment of interest with the company stakeholders continues to be one of our guiding principles.

Through significant funds share purchases since inception, the SLR team owns approximately 7% of our outstanding common stock. Additionally, the investment team has a significant percentage of their annual compensation invested in Sun's stock.

Management investment alongside fellow Sunset holders demonstrates our confidence in the company's defensive portfolio stable funding strong liquidity and favorable position to make new investments. We hope that all of you are in good health that wed like to thank you for your time and support today.

Operator, please open the line for questions.

Thank you, ladies and gentlemen answer and lenders.

We wish to ask a question you may do so by pricing star followed by the number one on your telephone keypad again that is star one to ask a question.

Again that is star one to ask a question.

Yeah.

And there are no questions at this time. Please continue presenters. Thank you operator and we thank all of your participation today as always if you have any follow up questions. Please feel free to contact any of us or Rick Colorado take care everybody.

Yes.

This concludes today's conference call. Thank you all for participating you may now disconnect.

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Good day, and thank you for standing by and welcome to the key three cleaning 10, one SLR investment Corp earnings call.

Please be advised that today's conference is being recorded.

Sorry, No further assistance. Please press star Zero I would now like to hand, the conference over to your first speaker today, Michael gross Chairman and co CEO you may begin Sir.

Good morning, and thank you welcome to SLR Senior investment Corp, 's earnings call for the third quarter ended September 32021.

John here 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.

Thanks, Michael.

Yes.

I'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.

Any unauthorized broadcast in any form are strictly prohibited.

This conference call is being webcast from the investors tab on our web site 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.

1670.

At this time I'd like to turn the call back to our chairman and co CEO micro growth. Thank you rich.

SLR senior investment Corp's third quarter results benefited from both portfolio expansion and strong fundamentals.

Net asset value per share for the quarter ended September 30 was $15 72 in net investment income of 23 per share.

Throughout the third quarter U S economy grew at a steady rate and presented a favorable backdrop for private equity deal activity, which continues to occur at a record pace.

Elevated sponsor driven M&A activity and the gradual taper of government stimulus measures is increasing the opportunity separate sun to deploy capital across its cash flow ABL investment verticals.

During the third quarter SUNS and its subsidiaries funded $93 million of investments and committed an additional $40 million, which we expect to fund in future quarters.

Many of Sun's New castle investments were in large upper middle market companies, which was made possible by the scale of <unk> platform.

As large scale, which allows funds to participate in the larger transactions, which we believe are best positioned to protect capital.

At September 30th over 99, 9% of our comprehensive investment portfolio at fair value was invested in first lien loans and approximately 59% of those loans consisted of loans in our specialty finance verticals.

September 30th SUNS debt to equity on a net basis was <unk> 55 times and approximately 54% of vessel. Our senior funded debt was comprised of unsecured term notes.

We have over $265 million of available capital to support future earnings growth importantly, the economic climate has improved considerably and our pipeline across our business vertical is very attractive we expect portfolio growth continue in the coming quarters from first lien cash flow as well as asset based investment opportunities.

SUNS is in a unique position to allocate capital across our diversified lending strategies to the most favorable risk adjusted return investments.

We are confident in our ability to grow the portfolio, while remaining disciplined in our underwriting at this time I'll turn the call over to our CFO rich <unk> to take you through the third quarter financial highlights.

Thank you Michael.

As far as senior investment Corp's net asset value at September 30 was $252 4 million.

Or $15 73 per share.

This compares to a net asset value of $254 8 million or $15 87 per share at June 32021.

As far as Senior's balance sheet investment portfolio at September 32021 had a fair market value of $389 million in 51 portfolio companies operating in 21 industries.

<unk> to a fair market value of $382 9 million in 47 portfolio companies operating in 18 industries at June 32021.

In addition, as of September 32021, the company had unfunded loan commitments, excluding revolvers of approximately $51 million.

Yes.

Turning to some funding profile and leverage at September 32021, SUNS had $157 $7 million of debt outstanding with a.

Net debt to equity ratio of 0.55 times.

Up from Euro five one times at June 32021.

At September 30th approximately 54% of Sun's total debt and 62% of its net debt was in the form of unsecured at three 9% fixed rate notes.

When including the non recourse credit facilities, Soi healthcare, ABL and <unk> business credit.

As far as senior had approximately $266 million to fund portfolio growth.

At September 32021.

Subject to borrowing base limits.

As a reminder, as far as he has so our seniors current target leverage ratio is 125 times to 150 times net debt to equity.

From a P&L perspective.

Investment income for the three months ended September 32021 totaled $7 4 million compared to $7 5 million for the three months ended June 32021.

Expenses for the three months ended September 32021 were $3 7 million.

Compared to $3 6 million for the three months ended June 32021.

Net investment income for the quarter ended September 32021 to three.

$3 7 million or 23 per average share as compared to $4 1 million or <unk> 25 per average share for the three months ended June 30.

Below the line.

Accordingly, as far as senior had a net increase in net assets, resulting from operations of $2 5 million or <unk> 15 per average share for the three months ended September 32021.

This compares to a net increase in net assets, resulting from operations of $4 2 million.

<unk> 26 per average share for the three months ended June 30th.

Lastly, our board of directors declared a monthly distribution for November 2021 of <unk> 10 per share payable on December 2nd 2021 to stockholders of record on November 18th 2021.

And with that I'll turn the call over to our co CEO Bruce polar Thank you rich.

We continue to focus on expanding our asset base and cash flow lending businesses. The.

The combination of these two strategies enabled SUNS to act as a solutions provider to middle market companies and offers us multiple avenues for portfolio growth.

SUNS comprehensive portfolio totaled totaled $612 million at quarter end and was highly diversified encompassing.

Over 220 borrowers across 100 industries Approx.

Approximately 60% of our portfolio was invested in senior secured asset based and life science lending strategies and the remaining 40% was in senior secured cash flow loans.

Across <unk> entire portfolio, our largest industry exposures with digital media healthcare providers and insurance services.

The average investment per borrower was $2 7 million or less than 5% of the portfolio at.

At quarter end, approximately a 100% of the portfolio consisted of senior secured first lien loans with no second lien loan exposure and a de minimis amount of equity.

At quarter end, our weighted average asset level yield on the total portfolio was nine 6%.

By having approximately 59% of the portfolio allocated to our commercial finance verticals, we've been able to maintain attractive asset level yields above nine 5%, despite low LIBOR reference rate.

Spread compression in the marketplace.

September 30, the weighted average investment risk rating of Sun's portfolio remained at one nine based on our one to four risk rating scale with one representing the least amount of risk.

One loan was on nonaccrual at quarter end, which amounted to just over one 5% of our total portfolio.

Including activity across our four business lines originations for the third quarter totaled $93 million in repayments were $50 million.

Now, let me provide an update on our investment verticals.

Cash flow.

At quarter end, our cash flow portfolio was $250 million of approximately 40% of the total portfolio was.

It was invested across 38 borrowers with an average investment of just over $6 5 million.

100% of the portfolio is first lien exposure.

SUNS portfolio companies had a weighted average EBITDA in excess of $100 million.

<unk>, our preference to finance larger companies in the upper mid market.

The weighted average yield of this portfolio was six 6%.

During the third quarter, we originated $46 million of first lien senior secured cash flow loans and had repayments of approximately $40 million.

At quarter end, we had unfunded commitments of $44 million, which we expect to be drawn in future quarters to fund portfolio growth.

We believe these delayed draw acquisition lines offers a prudent opportunity for SUNS to grow its investment and established credits with existing financial covenant packages.

By stepping into an existing facility with shorter duration, we believe the yield to maturity is enhanced.

We are encouraged that sponsor activities picked up this year with significantly higher volumes of M&A.

We expect momentum to continue through the remainder of this year, which we believe will provide opportunities to invest in attractive resilient upper mid market borrowers.

Now, let me turn to our asset based lending businesses.

As a reminder, some.

<unk> zones to commercial finance portfolio companies that specialize in making senior secured asset backed loans collateralized on a first lien basis by accounts receivable.

These businesses led to small and mid sized U S companies, who typically have limited access to traditional bank financing.

Now, let me provide an update on each of them.

Business credit.

At quarter end business credit portfolio had grown to $253 million or 41% of Sun's total portfolio consisted of 138 borrowers with an average investment of just under $2 million.

As government stimulus measures have begun to taper borrowers have started to redraw on these lines of credit.

Last quarter SLR business credit acquired fast pay a digital media factoring platform the.

The integration is proceeding smoothly and it has expanded business credits origination capabilities.

The pipeline remains strong driven both by improved utilization rates of existing facilities as well as new investment opportunities.

For the quarter business credit credit paid.

<unk> a dividend of $1 5 million, which is a 19% increase over the prior quarter.

Now, let me turn to health care ABL.

Their portfolio was $87 million, which represents 14% of Sun's total portfolio.

It was comprised of 38 borrowers with an average funded investment of just under $2 5 million.

Portfolio remains 100% performing with no payment defaults since the start of Covid and many of their credits are cash collateralized.

The weighted average asset level to support portfolio was.

<unk>, 11.25%.

During the third quarter healthcare ABL funded $16 million of new investments and had repayments of just $3 million.

Similar to business credit stimulus programs enacted last year enabled their borrowers to significantly reduce the funded balances under their lines of credit.

These stimulus programs have begun to roll off which should result in their customers drawing down more of the facilities at a health care ABL provides.

For the quarter healthcare ABL paid cash dividend to <unk>, <unk> 9 million consistent with the prior quarter I am sorry, that's $9 million.

Life Science Finance now, let me turn there.

At quarter end, our portfolio was approximately $23 million across seven borrowers.

For the quarter, we experienced repayments of about $4 million, which generated over a 13% unlevered asset level IRR.

At quarter end, the weighted average yield on our life science portfolio was approximately 10% which excludes any.

<unk> fees and warrants.

By life Science loans represented 4% of Sun's portfolio. These assets generated nine 5% of our gross investment income for the quarter.

Yes.

Overall, we believe SUNS is well positioned to take advantage of an improving economy and a robust opportunity set across all verticals.

SLR capital partners diversified platform and significant dry powder enables us to provide structured solutions, including both cash flow and asset based loans.

Given the strength of our fourth quarter pipeline, we expect to clear.

<unk> similar portfolio growth this quarter now, let me turn the call back to Michael.

Thank you Bruce.

Since inception, our priority has always been to construct a portfolio that seek to generate steady income for our stockholders while protecting capital.

With the economic rebound in full swing, we remain disciplined in the face of a tight pricing environment elevated leverage and loose structures all of which have increased the risks in middle market cash flow lending over an extended period of time.

As a result, we are positioned defensively diversified portfolio across cash flow and specialty finance first lien senior secured loans to manage downside risk and to preserve liquidity.

Multiple the leverage in the middle market direct lending remain near all time highs the economies in the midst of a strong recovery and we are seeing a broader set of attractive investment opportunities.

With over $256 million of available capital and a strong foundation, given our defensive portfolio and low fund level leverage we believe SUNS is well positioned to capitalize on the significant increase of attractive opportunities across all of our business verticals.

Sun's commercial finance portfolio companies continue to elevate to evaluate tuck in opportunities to grow their businesses and we continue to actively look for equity investment opportunities in niche specialty finance companies.

Finally, our investment advisors alignment of interest with the company's stakeholders continues to be one of our guiding principles.

Two significant sunset purchases since inception, the SLR team owns approximately 7% of our outstanding common stock. Additionally, the investment team has a significant percentage of their annual compensation invested in <unk> stock.

Total investment alongside fellow <unk> holders demonstrates our confidence of the company's defensive portfolio stable funding strong liquidity, a favorable position to make new investments.

Hope that all of you are in good health and we'd like to thank you for your time and support today.

Yes.

Operator, please open the line for questions.

Thank you, ladies and gentlemen, as a reminder, if you wish to ask a question you may do so by pressing star followed by the number one on your telephone keypad again that is star one to ask a question.

Again that is star one to ask a question.

And there are no question at this time. Please continue presenters. Thank you operator and we thank all of your participation today as always if you have any follow up questions. Please feel free to contact any of us or Rick Colorado take care everybody.

Yes.

This concludes today's conference call. Thank you all for participating you may now disconnect.

Q3 2021 SLR Senior Investment Corp Earnings Call

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