Q4 2021 SLR Senior Investment Corp Earnings Call

March 2, 2022

[music].

Good day, and thank you for standing by and welcome to the Q4 2021 S. L. Our senior 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 that session you will need to press star one on your telephone.

Today's conference is being recorded if you require any assistance during the call. Please press star zero.

I would now like to hand, the conference over to your Speaker today, Mr. Michael gross chairman and co CEO , Sir the floor is yours.

Thank you very much and good morning, welcome to SLR Senior investment Corp's earnings call for the fiscal year ended December 31 2021.

I'm joined here today by grew smaller our co Chief Executive Officer, and Richard <unk>, Our chief.

Chief Financial Officer, Rich would you please start off by covering the webcast and forward looking statements.

Of course, thanks, Michael.

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.

Unauthorized broadcast in any form are 50 prohibited.

This conference call is being webcast from the investors tab on our web site at Www Dot export senior investment Corp Dot com.

Audio replays of this call and 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.

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 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.

Two one to 90.

<unk> hundred 93.

167 Euro.

Comments on today's call include forward looking statements, reflecting our current views with respect to among other things the timing and likelihood of the merger closing.

Thank you and synergies and savings associated with the merger the ability to realize the anticipated benefits of the merger our future operating results and financial performance and the payment of dividends going forward.

Please specifically note that the amount and timing of cash dividends and distributions are not a guarantee of any future dividend distributions or the amount thereof, if payment timing and amount of which will be determined by export senior investment books board of directors.

Also as a reminder, nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase any interest in any <unk>.

Investors and others should note that SLR Senior investment Corp uses the investors section of their respective corporate website to announce material information.

The company encourages investors the media and others to review the information they share on their website.

At this time I'd like to turn the call back to our chairman and co CEO .

Michael growth. Thank you very much rich.

<unk> investment Corp, 's fourth quarter results benefited from both portfolio expansion and strong fundamentals for the year SUNS originated $357 million of new investments a record for the company.

Net asset value per share for the quarter ended December 31, 2021 was $15 43.

And net investment income per share was <unk> 22.

It was 22.

One time merger expenses reduce NII by approximately <unk> <unk> per share.

Throughout the fourth quarter the U S economy, continuing to grow at a steady rate and presented a payroll backdrop for private equity deal activity, which continues to occur at a record pace.

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

During the fourth quarter SUNS and its subsidiaries originated $82 million of investments and committed an additional $80 million, which we expect to fund in future quarters.

Many of some new cash flow investments, where large upper middle market companies, which was made possible by the scale of <unk> platform.

The large scale allows us to participate in the larger transit transactions, which we believe are best positioned to protect capital.

At December 31 over 99, 9% of our comprehensive portfolio, which takes into account the loan portfolio was funded subsidiaries at fair value was invested in first lien loans and approximately 60%.

<unk> loans, and our specialty finance verticals.

At year end, our net debt to equity was six three times compared to three four times net debt to equity at the end of 2020 the.

The increase represents significant progress in rebuilding our portfolio from its pandemic law.

Overall portfolio credit quality remains strong with only one investment on non accrual due.

Due to our focus on upper middle market companies in defensive sectors, the effects of rising inflation and supply chain disruptions on our portfolio have been muted.

Thus far we've seen no impact on our portfolio companies of the economic consequences, resulting from the Russian invasion of Ukraine as a company's operations are primarily tied to the U S economy.

We are however closely monitoring the economic impacts of this evolving crisis.

<unk>.

<unk> has over $255 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 to continue in the coming quarters from first lien cash flow as well as asset based investment opportunities.

As we announced in December SUNS and its sister BDC Src have entered an agreement to merge with SLR CF the surviving company stock.

Stockholder approval and customary closing conditions the.

The board of directors of both Bdcs on the recommendation of the special committee's consisting only of the independent directors have unanimously approved the transaction.

We believe the transaction with FRC makes strategic sense for the company and will create long term value and growth opportunities for SUNS shareholders for a number of reasons, a few of which I'll highlight now.

In the merger of the fund shareholders received in an immediate increase in dividend distributions amount paid to SUNS shareholders stockholders are currently receiving $1 20 per share in cash distributions per annum.

Each share of stock that is exchange into shares of SORC based on the estimate exchange ratio, providing the merger announcement Src's current cash distributions would equate to $1 27 per share in cash distributions per annum for exchanging stockholder.

The greatest scale, the combined company should provide several benefits.

Based on December 31, 2021, the combined company will have approximately $2 1 billion of total investments and $1 1 billion of net assets.

Which gives it a larger market capitalization that is expected to provide greater trading liquidity garner additional institutional investor interest in research coverage and enhance the company's access to equity and debt markets.

Additionally, the greater scale will increase profit portfolio diversification as well as expand the opportunity set for additional commercial finance opportunities to include larger investments in asset purchases.

Okay.

Closing FBR capital partners, the investment advisor to both SUNS and <unk> C has voluntarily agreed to a permanent 25 basis point reduction in the annual base management fee for SLR see from Src from 175% to one 5% on gross assets.

The contractual step down to the base management fee to 1% of gross assets that exceed 200% of epilepsies total net assets will remain in place.

While Sun stockholders will pay a higher base management fee and could pay higher incentive fees. They won't exposure to combined company, a significantly larger opportunity to invest in higher yielding assets.

Overtime, we expect that our combination of expected cost savings.

Reduced base management fees and interest savings, resulting from more efficient debt financing should drive net investment income growth.

Importantly, it is anticipated at a larger scale and capital base should allow the combined company to grow net investment income faster than either <unk> or <unk> would be able to on a standalone basis and to potentially generate higher net investment income per share.

This time I'll turn the call back over to our CFO rich Petechiae to take you through the fourth quarter financial highlights.

Thank you Michael.

As far as senior investment Corp, 's net asset value at December 31 was $247 7 million.

Or $15 43 per share.

This compares to a net asset value was $252 4 million or.

Or $15 73 per share at September 32021.

As far as Senior's balance sheet investment portfolio at December 31, 2021 had a fair market value of $403 1 million in 50 portfolio companies operating in 22 industries compared to a fair market value of $389 million in 51 portfolio companies.

Operating in 21 industries at September 30.

In addition, as of December 32021, the company had unfunded loan commitments, excluding revolver of approximately $43 million.

Turning to SUNS funding profile and leverage at December 31, 2021.

<unk> had 161 $5 million of debt outstanding with a net debt to equity ratio of Euro six three times up from 055 times at September 32021.

At December 31.

Approximately 53% of Sun's total debt.

55% of its net debt was in the form of unsecured three 9% fixed rate notes.

When including the non recourse credit facilities at <unk> health care ABL.

And soi.

<unk> business credit.

As far as senior has approximately $266 million to fund portfolio growth as of December 31, 2021.

Subject to borrowing based clients.

As a reminder, <unk> is current target leverage ratio is 125 times to one five times net debt to equity.

From a P&L perspective gross.

Investment income for the three months ended December 31, 2021 totaled $7 8 million.

Compared to $7 4 million for the three months ended September 30.

Expenses for the three months ended December 31, 2021, $4 3 million.

<unk>, a $3 7 million for the three months ended September 32021.

Expenses for the fourth quarter included 703, 723000, excuse me of merger related expenses.

Net investment income for the quarter ended December 31, 2021 was $3 5 million or <unk> 22 per average share as compared to $3 7 million was <unk> 23 per average share for the three months ended September 30.

I would also note that for the quarter ended December 31, the onetime merger related expenses reduced net investment income by approximately five.

For sure.

Below the line <unk> senior had net realized and unrealized losses for the fourth fiscal quarter of 2021 was $3 4 million.

<unk> to net realized and unrealized losses of $1 3 million for the three months ended September 32021.

Accordingly.

Excellent senior had a net increase in net assets, resulting from operations of <unk> 1 million.

Zero one.

<unk> per share per average share for the three months ended December 31 2021.

This compares to 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.

Lastly, our board of directors declared a monthly distribution for March 2022 of <unk> 10 per share payable on April one 2022 to stockholders of record on March 18 2022.

Upon closing of the proposed merger the combined company's board of directors will be declaring monthly distributions rather than quarterly.

Then the historic practice at <unk> investment Corp.

At this time I would like to turn the call over to our co CEO Bruce polar.

Thank you rich.

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

Nation of these 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 $625 million at year end was highly diversified encompassing 210 borrowers across 100 industries.

Approximately 60% of the portfolio.

Portfolio was invested in asset based and life science lending strategies and the remaining 40% was invested in first lien cash flow loans.

Cross SUNS portfolio, our largest industry exposures continue to be diversified financial services.

<unk> care providers and insurance.

The average investment per issuer was $3 million or less than half of 1% of the portfolio.

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

At year end, the weighted average asset level yield was nine 7%.

By having 60% of the portfolio allocated to our commercial finance verticals, we've been able to maintain attractive asset level yields close to 10% of the portfolio.

At year end, the weighted average investment risk rating remained at one eight based on our one to four risk rating scale with one representing the least amount of risk.

Including activity across our four business lines originations totaled $82 million in the fourth quarter and repayments were $64 million.

Originations for the full year 'twenty, one with $357 million.

Additionally, SUNS had $43 million of unfunded delayed draw commitments at year end, which should support further growth into 2022.

We believe that these delayed draw term loan transactions offer a prudent opportunity for <unk> to continue to grow its investment and established credits with existing financial covenants.

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

I'll start with cash flow.

Our portfolio cash flow segment was just over $250 million or approximately 40% of the comprehensive portfolio.

It was invested across 35 borrowers with an average investment of just over $7 million.

As I mentioned, a 100% of this portfolio is first lien cash flow investments.

We had an EBIT average EBITDA for our borrowers was over $100 million.

Reflecting our strong preference to finance larger companies in the upper mid market.

The weighted average yield for this portfolio was just over six 5%.

During the fourth quarter, we originated just over $38 million of cash flow loans.

And had repayments just over $30 million.

For the full year, we originated $153 million of cash flow investments.

We are encouraged that sponsor activity picked up in 2021 with significantly higher volumes of M&A.

We expect that momentum to continue this year, which we believe will provide additional opportunities to invest in attractive resilient upper mid market cash flow companies now.

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

As a reminder.

SUNS owns two commercial finance.

Companies that specialize in making first lien asset backed loans collateralized by.

By accounts receivable.

These portfolio of companies small and midsized U S companies, who typically have limited access to more traditional bank financing.

The first of these is business credit.

Business credits portfolio was just over $250 million.

Or 40% of our comprehensive portfolio at year end.

<unk> of over 125 borrowers with an average investment of $2 million.

Utilization rates business credits.

Capital facilities have continued to increase.

Back towards pre Covid levels.

Last summer.

Business credit acquired fast pad.

Little media factoring platform.

Integration has gone extremely well with taxpayer proving to have strengthened business credits origination capabilities.

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

The weighted average asset yield business credits portfolio was just over 12% for the fourth quarter.

For the fourth quarter business credit paid a cash dividend up to <unk> of 165 million, which represented a 10% increase from the.

<unk> third quarter.

Now, let me touch on healthcare ABL.

Portfolio was just under $90 million at year end, representing 14% of our total portfolio at sites.

It was comprised of loans to 36 borrowers with an average funded investment of $2 5 million.

Portfolio remains 100% performance.

And has had no payment defaults since the commencement of Covid.

The weighted average asset level yield was approximately 11% during the fourth quarter.

During this fourth quarter, they funded just over $12 million of new loans.

And for the year funded just under $50 million of.

Of investments.

Similar to business credit health care ABL.

Impacted by the stimulus programs, which enabled borrowers to significantly reduce our funded balances on our facilities.

As these programs have tapered off.

Ours have begun to draw down under our facilities.

Healthcare ABL and has increased our outstandings to pre COVID-19 levels.

For the fourth quarter the company paid a cash dividend of 900000 consistent with the prior quarter.

Finally, let me provide an update on our life science vertical at.

At year end, the portfolio totaled $33 million across nine different borrowers.

Weighted average yield on this portfolio was approximately 10% at cost.

<unk>, which excludes success fees and warrants.

Our life science loans represented 5% of southern portfolio.

They generated 11% of our gross investment income for the year.

The opportunity set to invest in larger more established life science businesses continues to increase which we expect will benefit tons through additional origination active activity this year.

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

So our capital partners diversified commercial finance platform and significant dry powder enables funds to provide structured solutions, both cash flow and asset based loans.

Given our current pipeline, we expect to continue to grow this portfolio in 2022.

Now, let me turn the call back to Michael.

Thank you Bruce.

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

With the economic rebuild and 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 and middle market cash flow lending over an extended period.

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

While multiple the leverage in the middle market direct lending remain near all time highs the economies in the midst of a strong recovery, we're seeing a broader set of attractive investment opportunities.

With over $250 million of available capital and a strong foundation, given our defensive portfolio and our low fund level leverage we believe the SUNS portfolio is positioned to capitalize on the significant increase of attractive investment opportunities across 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 capital initiatives.

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

As I mentioned in the opening comments, Bruce and I as co Ceos and our independent directors believe that the proposed merger of SUNS and Src will increase our ability to deliver shareholder value through capital preservation and increased net investment income per share.

We believe that now is the opportune time to merge two companies given the benefits of greater scale expected synergies and ease of integration, resulting from the overlap in their business focus and the investment advisors knowledge of both portfolios.

Both companies have healthy balance sheets today and the portfolio is in excellent shape with strong credit quality, which we believe bodes well for this merger.

Additional detail about the merger can be found by going to www proxy vote dot com and typing in the control number that was provided in the proxy materials mailed to our shareholders. Once on the site you can also submit your vote.

We encourage you support the merger by voting for the issuance for the merger. We appreciate your support offer at this time, we'd like to open up the line for questions.

Thank you Sir.

As a reminder to ask a question you will need to press star one on your telephone.

To withdraw your question. Please press the pound key.

Standby as we compile the Q&A roster.

And again to ask a question. Please press star one on your telephone.

Yes.

Okay.

Yes.

But for all of you participating this morning, we appreciate your time.

And have a great day bye bye.

Yes.

This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.

Okay.

Yes.

Okay.

Sure.

Yes.

Thank you.

[music].

Okay.

Sure.

Hello.

Yes.

Sure.

No.

<unk>.

Sure.

Okay.

Thank you.

Yes.

Okay.

[music].

Okay.

Good morning.

Yes.

Sure.

[music].

Okay.

[music].

Good day and thank you for attending by welcome to the Q4 2021 S. L. Our senior investment Corp earnings call. At this time, all participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question during that session you will need to press star one on your telephone.

Today's conference is being recorded.

Quiet any assistance during the call. Please press star zero.

I would now like to hand, the conference over to your Speaker today, Mr. Michael gross chairman and co CEO , Sir the floor is yours.

Thank you very much and good morning, welcome to SLR Senior investment Corp's earnings call for the fiscal year ended December 31 2021.

I'm joined 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.

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, and that.

Any unauthorized broadcast in any form are strictly prohibited.

This conference call is being webcast from the investors tab on our website at Www Dot export senior investment Corp Dot com.

Audio replays of this call and 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.

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 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. It one to 90 93.

167 Europe .

Comments on today's call include forward looking statements, reflecting our current views with respect to among other things the timing and likelihood of the merger closing the expected synergies and savings associated with the merger the ability to realize the anticipated benefits of the merger our future operating results and.

Financial performance in the payment of dividends going forward.

Please specifically note that the amount and timing of dividends and distributions are not a guarantee of any future dividends or distributions or the amount thereof, the payment timing and amount of which will be determined by export senior investment books.

To directly.

Also as a reminder, nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase any interest in any <unk> fund.

Investors and others should note that as far as senior investment Corp uses the investors section of their respective corporate website to announce material information.

The company encourages investors the media and others to review the information they share on their website.

At this time I would like to turn the call back to our chairman and co CEO Michael growth. Thank you very much rich.

<unk> senior investment Corp's fourth quarter results benefited from both portfolio expansion and strong fundamentals for the year SUNS originated $357 million of new investments a record for the company.

Net asset value per share for the quarter ended December 31, 2021 was $15 43.

And net investment income per share was <unk> 22.

It was 22.

One time merger related expenses reduce NII by approximately <unk> <unk> per share.

Throughout the fourth quarter the U S economy, continuing to grow 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 in the taper of government stimulus measures is increasing the opportunity set for SUNS to deploy capital across its cash flow and ABL investment verticals.

During the fourth quarter SUNS and its subsidiaries originated $82 million of investments and committed an additional $18 million, which we expect to fund in future quarters.

Many of some new cash flow investments, where large upper mid market companies, which was made possible by the scale of <unk> platform.

The large scale allows us to participate in the larger transit transactions, which we believe are best positioned to protect capital.

At December 31 over 99, 9% of our comprehensive portfolio, which takes into account the loan portfolio was funded subsidiaries at fair value was invested in first lien loans and approximately 60% consisted of loans and our specialty finance verticals.

At year end, our net debt to equity was six three times compared to three four times net debt to equity at the end of 2020.

The increase represents significant progress in rebuilding our portfolio from its pandemic low.

Overall portfolio credit quality remains strong with only one investment on non accrual.

Due to our focus on upper middle market companies in defensive sectors, the effects of rising inflation and supply chain disruptions on our portfolio have been muted.

Thus far we've seen no impact on our portfolio companies of the economic consequences, resulting from the Russian invasion of Ukraine as a company's operations are primarily tied to the U S economy.

We are however closely monitoring the economic impacts of this evolving crisis.

SUNS is over $255 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 to continue in the coming quarters from first lien cash flow as well as asset based investment opportunities.

As we announced in December .

<unk> and our sister BDC Src have entered an agreement to merge with <unk> of the surviving company stock.

Stockholder approval and customary closing conditions the.

The board of directors of both Bdcs on the recommendation of the Special Committee, consisting only of the independent directors have unanimously approved the transaction.

We believe the transaction with FRC make strategic sense for the company and will create long term value and growth opportunities for SUNS shareholders for a number of reasons, a few of which I'll highlight now.

In the merger of the Sun shareholders received in an immediate increase in dividend distributions amount paid to SUNS shareholders. Some stockholders are currently receiving $1 20 per share in cash distributions per annum.

For each share of stock that is exchange into shares of <unk> based on the estimate exchange ratio provided in the merger announcement Src's current cash distributions would equate to $1 27 per share in cash distributions per annum for exchanging sons stockholder.

The greatest scale, the combined company should provide several benefits.

Based on December 31, 2021, the combined company will have approximately $2 1 billion of total investments and $1 1 billion of net assets.

Upon closing <unk> capital partners the investment advisor to both sons MSR C has voluntarily agreed to a permanent 25 basis point reduction in the annual base management fee for SLR see from Src from 175% to one 5% on gross assets.

The contractual step down to the base management fee to 1% of gross assets that exceed 200% of epilepsies total net assets will remain in place.

While Sun stockholders will pay a higher base management fee and could pay higher incentive fees. They will have exposure to a combined company.

Definitely larger opportunity to invest in higher yielding assets.

Over time, we expect that our combination of expected cost savings reduced base management fees.

Your savings, resulting from more efficient debt financing should drive net investment income growth.

Importantly, it is anticipated at a larger scale and capital base should allow the combined company to grow net investment income faster than either SUNS or src would be able to understand alone basis and to potentially generate higher net investment income per share.

This time I'll turn the call back over to our CFO rich Petechiae to take you through the fourth quarter financial highlights.

Thank you Michael.

As far as senior investment Corp, 's net asset value at December 31 was $247 7 million or $15 43 per share.

This compares to a net asset value was $252 4 million or.

Or $15 73 per share at September 32021.

Operating in 21 industries at September 30.

In addition, as of December 32021, the company had unfunded loan commitments, excluding revolver of approximately $43 million.

Turning to his son's funding profile and leverage at December 31, 2021.

<unk> had 161 $5 million of debt outstanding with a net debt to equity ratio of Euro six three times up from 055 times at September 32021.

At December 31.

Approximately 53% of Sun's total debt.

55% of its net debt was in the form of unsecured three 9% fixed rate notes.

When including the non recourse credit facilities at <unk> health care ABL.

And <unk>.

<unk> business credit.

As far as <unk> has approximately $266 million to fund portfolio growth as of December 31, 2021.

Subject to borrowing base limits.

As a reminder, <unk> current target leverage ratio is 125 times to one five times net debt to equity.

From a P&L perspective.

Investment income for the three months ended December 31, 2021 totaled $7 8 million.

Compared to $7 4 million for the three months ended September 30.

Expenses for the three months ended December 31, 2021 were $4 3 million compared to $3 7 million for the three months ended September 32021.

Expenses for the fourth quarter included 703, 723000, excuse me of merger related expenses.

Net investment income for the quarter ended December 31, 2021 was $3 5 million or <unk> 22 per average share as compared to $3 $7 million with 23 per average share for the three months ended September 30.

I would also note that for the quarter ended December 31, the one time merger related expenses reduced net investment income by approximately five <unk>.

For sure.

Below the line at solar senior had net realized and unrealized losses for the fourth fiscal quarter of 2021 of $3 4 million.

Compared to net realized and unrealized losses of $1 3 million for the three months ended September 32021.

Accordingly.

Epsilon senior had a net increase in net assets, resulting from operations of <unk> 1 million.

Zero one.

<unk> per share per average share for the three months ended December 31 2021.

This compares to 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.

Lastly.

Our board of directors declared a monthly distribution for March 2022.

<unk> 10 per share payable on April one 2022 to stockholders of record on March 18 2022.

Upon closing of the proposed merger the combined company's board of directors will be declaring monthly distributions rather than quarterly.

Ben the historic practice at <unk> investment Corp.

At this time I would like to turn the call over to our co CEO Bruce <unk>. Thank.

Thank you rich.

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

The combination of these 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 $625 million at year end was highly diversified encompassing 210 borrowers across 100 industries.

Approximately 60% of the portfolio.

Folio was invested in asset based and life science lending strategies and the remaining 40% was invested in first lien cash flow loans.

Cross SUNS portfolio, our largest industry exposures continue to be diversified financial services.

Health care providers and insurance.

The average investment per issuer was $3 million or less than half of 1% of the portfolio.

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

At year end, the weighted average asset level yield was nine 7%.

By having 60% of the portfolio allocated to our commercial finance verticals, we've been able to maintain attractive asset level yields close to 10% of the portfolio.

At year end, the weighted average investment risk rating remained at $1 eight based on our one to four risk rating scale with one representing the least amount of risk.

Including activity across our four business lines originations totaled $82 million in the fourth quarter and repayments were $64 million.

Originations for the full year 'twenty, one with $357 million.

Additionally, SUNS had $43 million of unfunded delayed draw commitments at year end, which should support further growth into 2022.

We believe that these delayed draw term loan transactions offer a prudent opportunity for <unk> to continue to grow its investment and established credits with existing financial covenants.

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

I'll start with cash flow.

Our portfolio cash flow segment was just over $250 million or approximately 40% of the comprehensive portfolio.

It was invested across 35 borrowers with an average investment of just over $7 million.

As I mentioned, a 100% of this portfolio is first lien cash flow investments.

The weighted average EBITDA for our borrowers was over $100 million.

Reflecting our strong preference to finance larger companies in the upper mid market.

The weighted average yield for this portfolio was just over six 5%.

During the fourth quarter, we originated just over $38 million of cash flow loans.

And had repayments just over $30 million.

For the full year, we originated $153 million of cash flow investments.

We are encouraged that sponsor activity picked up in 2021 with significantly higher volumes of M&A.

We expect that momentum to continue this year, which we believe will provide additional opportunities to invest in attractive resilient upper mid market cash flow companies now.

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

As a reminder.

SUNS owns two commercial finance.

Companies that specialize in making first lien asset backed loans collateralized by.

By accounts receivable.

These portfolio companies lend to small and midsize U S companies, who typically have limited access to more traditional bank financing.

The first of these is business credit.

Business credits portfolio was just over $250 million.

Or 40% of our comprehensive portfolio at year end <unk>.

Consisted of over 125 borrowers with an average investment of $2 million.

Utilization rates business credits working capital facilities have continued to increase.

Back towards pre Covid levels.

Last summer.

Business credit acquired Fox Pitt.

Digital media factoring platform.

The integration has gone extremely well with the tax paid proving to have strengthened business credits origination capabilities.

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

The weighted average asset yield business credits portfolio was just over 12% for the fourth quarter.

For the fourth quarter business credit paid a cash dividend up to <unk> of $165 million, which.

Presented a 10% increase.

The third quarter.

Now, let me touch on healthcare ABL.

Portfolio was just under $90 million at year end, representing 14% of our total portfolio at sites.

It was comprised of loans to 36 borrowers with an average funded investment of $2 5 million.

Portfolio remains 100% performing.

And has had no payment defaults since the commencement of Covid.

The weighted average asset level yield was approximately 11% during the fourth quarter.

During this fourth quarter, they funded just over $12 million of new loans.

And for the year funded just under $50 million of.

Of investments.

Similar to business credit healthcare ABL.

Impacted by the stimulus programs, which enabled borrowers to significantly reduce our funded balances on our facilities.

As these programs have tapered off.

Ours have begun to draw down under our facilities.

Healthcare ABL and has increased our outstandings to pre COVID-19 levels.

For the fourth quarter the company paid a cash dividend of 900000 consistent with the prior quarter.

Finally, let me provide an update on our life science vertical at.

At year end, the portfolio totaled $33 million across nine different borrowers.

Weighted average yield on this portfolio was approximately 10% at cost.

<unk>, which excludes success fees and warrants.

Our life science loans represented 5% of sub portfolio.

They generated 11% of our gross investment income for the year.

The opportunity set to invest in larger more established life science businesses continues to increase which we expect will benefit SUNS through additional origination active activity this year.

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

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

Given our current pipeline, we expect <unk> to continue to grow this portfolio in 2022.

Now, let me turn the call back to Michael.

Thank you Bruce.

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

With the economic rebuild and 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.

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

While multiple deleveraged in the middle market direct lending remain near all time highs the economies in the midst of a strong recovery and we're seeing a broader set of attractive investment opportunities.

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 alternative lenders to finance, the working capital and growth capital initiatives.

We believe that now is the opportune time to merge the two companies given the benefits of greater scale.

The synergies and ease of integration, resulting from the overlap in their business focus and the investment advisors knowledge of both portfolios.

Both companies have healthy balance sheets today and the portfolio is in excellent shape with strong credit quality, which we believe bodes well for this merger.

Additional details about the merger can be found by going to www proxy vote dot com and typing in the control number that was provided in the proxy materials mailed to our shareholders. Once on the site you can also submit your vote.

We encourage you support the merger by voting for the issuance for the merger. We appreciate your support.

At this time, we'd like to open up the line for questions.

Thank you Sir.

As a reminder to ask a question you will need to press star one on your telephone.

Your question. Please press the pound key.

Hi, Anthony compile the Q&A roster.

And again to ask a question. Please press star one on your telephone.

Okay.

Yes.

But for all of your participate this morning, we appreciate your time.

And have a great day bye bye.

Sure.

This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.

Q4 2021 SLR Senior Investment Corp Earnings Call

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