Q2 2022 SLR Investment Corp Earnings Call
To all sides one hold we appreciate your patience please continue to standby.
[music].
Sure.
[music].
Good day, everyone and welcome to today's second quarter 2022.
All our investment Corp earnings call at this time all participants are in listen only mode. Later, you will have an opportunity to ask questions. During the question and answer session. You May Register to ask a question at any time by pressing the star and one on your Touchtone phone. Please note. This call may be recorded I will now will be.
By should you need any assistance. It is now my pleasure to turn the program over to Mr. Michael Gross chairman and co CEO .
Yeah.
Thank you very much and good morning, welcome to <unk> investment Corp, 's earnings call for the second fiscal quarter ended June 32022.
I'm joined here today, Bryan <unk>, 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.
Sure. Thanks, Michael.
I would 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 <unk>.
Any form of 50 prohibited.
This conference call is being webcast on the Investor tab on our website.
At Www Dot SLR investment Corp.
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 in our press release regarding forward looking information.
Statements made in today's conference call and webcast may constitute forward looking statements.
Related to future events, or our future performance or financial condition.
These statements are not guarantees of our people.
<unk>.
And a result 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.
SLR 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 212.
Right.
670.
Comments on today's call include forward looking statements, reflecting our current views with respect to as far as <unk> acquisition of Sun.
Any expected synergies and savings associated with the merger.
The ability to realize the anticipated benefits of the merger.
<unk> operating results and financial performance and the payment of dividends going forward.
Please specifically note that pad.
Cash dividends and distributions are not a guarantee of any future dividend distributions for the amount thereof, the payment timing and amount of which will be determined by Escobar investor Board of directors.
With that I'd like to turn the call back to our chairman and co CEO Michael growth. Thank you rich good morning, and thank you for joining us.
Pleased to share that on today's call, we will be reporting the second quarter 2000, 2022, combined operating and financial results of <unk> and funds.
As a reminder on April one <unk>.
<unk> completed its acquisition of SLR senior investment Corp, or thoughts.
Thank you our investors for the support of the merger.
Integration has been smooth and our efforts to realize synergies and the benefits of a larger more diversified company are well underway.
Last night, we reported net investment income of <unk> 30 per share for the second quarter of 2022 up from $35 seven per share the prior quarter.
Net asset value at June 32022 was $18 53 per share.
Approximately one third of the reduction in net asset value for the quarter as a result of merger accounting.
The purchase price discount.
The remainder of the decline was largely attributed to unrealized losses due to the impact of mark to market changes in the portfolio and write downs relate to three borrowers two of which represent our remaining to second lien cash flow loans originated several years ago prior to our shift to investing solely in first lien senior secured loans.
Outside of these investments our portfolio is performing extremely well.
With the close of the Sun's acquisition in the second quarter, our comprehensive portfolio has grown by $700 million to approximately $2 7 billion.
And now includes five specialty finance company.
<unk> in a more broadly diversified portfolio with a potential for greater synergies and opportunities across our lending strategies.
Additionally, our increased scale enables us to pursue additional commercial finance investments, including platform acquisitions and asset purchases.
Against the volatile market backdrop in the second quarter. The company originated $275 million of new investments and had repayments of $199 million, excluding <unk> acquisition of the SUNS portfolio.
Term does best sponsor finance loans have become more attractive and our specialty finance businesses, which Florida. During turbulent market conditions are also seeing an attractive opportunities that have the available capital to take advantage of the investment climate.
The unfolding geopolitical events continued supply chain issues and labor shortages shortages and a far more aggressive tone from the fed in reaction to accelerating deflation has injected a dose of uncertainty and volatility in the global equity and credit markets.
Economic concerns of dislocated the syndicated loan and high yield markets and lead banks to retreat from leveraged lending.
Rising volatility in deep trade discounts these markets reflect the increased credit risks from tight pricing.
<unk> structures and loose documentation of broadly syndicated loans underwritten prior to the second quarter of 2020 'twenty two.
However, private direct lending deals continues to be heavy heavily negotiated with tight structures and access to deep.
Deep dive private equity style due diligence.
The recession potentially looming and continued rising rates middle market private credit as a source of relative stability and potentially high returns.
<unk> is uniquely positioned to capitalize on this opportunity.
As a result, as a result of our defensive portfolio and conservative underwriting we have successfully navigated the COVID-19 pandemic.
We believe our combined business is well positioned to not only weather the forthcoming economic challenges, but to capitalize on the more attractive investment environment for several reasons.
First enhanced by Src's acquisition funds, our portfolio is highly diversified across cash flow loans and non industry and asset based loans at June 30, 97, 2% of our comprehensive portfolio was invested in first lien senior secured loans, which provide greater downside protection during this.
Session.
Secondly, we have ample dry powder to take advantage of investment opportunities with terms more attractive available a year ago.
At June 30, our leverage was <unk> 96 times net debt to equity due to low end of our target leverage range of <unk> nine to one in a quarter times.
June 30, including available credit facility capacity at our specialty finance company and subject to borrowing base limits have ample available capital to take advantage of the current attractive investment environment.
We are seeing investment opportunities with less leverage and higher yields the loan structure. During the recent period of COVID-19 related government and less risk.
The recession resilient sectors in which we specialize continued to perform well with financial sponsors focus on deployment of dry powder into new platform buyouts.
Yes.
Existing portfolio companies the add on acquisitions.
During uncertain economic times borrowers increasingly turn to asset based lending strategies will provide our investors with greater downside protection across economic cycles.
In particular, our credit solutions business has historically outperformed during challenging market conditions when asset rich company Axa traditional lending sources.
Strange.
Thirdly, our funding profile is in a strong position to weather a rising rate environment with $506 million of our $1 billion of funded debt comprised of senior unsecured fixed rate notes at a weighted average annual interest rate of three 9%.
During the second quarter, we repaid at par the $150 million of maturing senior unsecured notes, which had a weighted average.
Interest rate of four 5%.
We pre financed the approaching maturity of these notes at an average rate of three 2%.
Additionally, we are currently working with a strategic partner to structure, an off balance sheet joint venture to optimize the financing of lower yielding first lien senior secured cash flow loans. Initially those that we acquired coupons.
We expect to be in utilizing financing facility before year end.
Ford.
We plan to further reduce our overall cost of capital through share repurchases under our $50 million share repurchase program authorized for adoption by our board of directors.
Due to the threat of further deteriorating market and economic conditions as the fed works to tame inflation that we have not yet been active with the buyback program. However, we are committed to utilizing the program and believe that our patients will translate.
The ability to invest in our own portfolio.
<unk> of discounts.
Our share price is an attractive entry point significantly more so than we first announced the buyback plan, we intend to put in place a <unk> one program to facilitate the ability to buy our shares at attractive levels.
As outlined in emergent puzzle, our planned expense reductions already underway it should create shareholder value that will benefit the company throughout market cycles.
In conjunction with the merger <unk> capital partners, the investment buys with the Src permanently reduced the annual base management fee by 25 basis points from 175% to one 5% on gross assets to.
The contractual stepped out of the base management fee to 1% on gross profit above one to one leverage still remains in place.
We've also eliminated duplicative administrative expenses.
Bolstered by acquisition, we are well positioned to not only weather. The economic challenges ahead, but also take advantage of the more favorable investing environment that accompanies market disruptions.
This time I'll turn the call back over to our CFO , Richard would take deeper taking with the second quarter financial highlights.
Thank you Michael.
<unk> investment Corp, 's net asset value at June 32022 was 1.02 billion or $18 53 per share.
The $826 4 million.
Or $19 56.
<unk> per share at March 31, 2022.
Here to the closing of the merger with Epsilon Senior investment Corp.
At June 32022.
As far as she is on balance sheet investment portfolio had a fair market value of approximately 2.01 billion in 127 portfolio companies.
<unk> 40 industries.
Impaired to a fair market value of $1 63.
3 billion in 101 portfolio of companies.
33 industries at March 31, 2022.
At June 32022.
And three portfolio companies on nonaccrual.
Presenting 4% of the portfolio at cost.
Zero, 6% at fair market value.
At June 30, the company had approximately $1 billion of debt outstanding with leverage of <unk> 96 times net debt to equity.
When taken into consideration the available capital from the companies combined credit facilities.
Together with available capital from the non recourse credit facilities at <unk>.
Credit solution as for equipment Finance, Cambridge, Epsilon business credit and that's for our health care ABL.
Excellent investment Corp has significant available capital to fund future comprehensive portfolio of growth.
Moving to the P&L for.
For the three months ended June 32022.
Gross investment income totaled $42 8 million.
$33 1 million for the three months ended March 31.
You too.
Net expenses totaled $22 5 million for the three months ended June 32002.
This compares to $19 5 million for the three months ended March 31st.
In 2000.
Okay.
As previously stated the investment managers did not include any incentive fee calculation the purchase discount accretion created by the company's asset acquisition accounting under ASC $805 50.
Accordingly, the Companys net investment income for the three months ended June 32022 totaled $40 3 million or <unk> 37 per average share compared to $13 $5 million was <unk> 32 per average share for the three months ended March 32022.
Below the line the company had net realized and unrealized losses for the second fiscal quarter with AUM at $35 $9 million versus realized and unrealized losses of $12 million for the first quarter of 2022.
Ultimately the company had a net decrease in net assets, resulting from operations of $15 6 million or <unk> 29 per average share for the three months ended June 32020.
Two.
This compares to a net increase of $4 5 million or <unk> <unk> per ads a cure for the three months ended March 31 2022.
Finally on August .
2022.
Word of directors declared monthly distributions.
One three.
Seven per share payable on September one 2022 to holders of record as of August 18 2022.
During the second quarter as far as Phoebe three monthly distributions totaling <unk> 41 per share.
With that I'll turn the call over to our co CEO .
These forward.
Thank you rich.
With this being our first quarterly report following the acquisition of <unk> I'd like to begin by providing an overview of the combined portfolio.
At June 30.
The combined comprehensive portfolio consisted of approximately $2 7 billion of senior secured loans.
Across 780 distinct issuers over and over a 100 industry. The average exposure was $3 5 million or 1% of the total portfolio.
At quarter end.
99, 8% of the portfolio consisted of senior secured loans with 97, 2% being in first lien loans and only 4% in second lien cash flow loans with the remaining two 2% in second lien asset based loans.
Portfolio now includes all five of our specialty finance businesses.
Which account for 76% of the fair value of the comprehensive portfolio with the remaining 24% committed to senior secured cash flow loans.
At quarter end, our weighted average asset level yield was nine 6%.
At quarter end, the weighted average investment risk rating of the portfolio was under two based on our one to four risk rating scale with one representing the least amount of risk.
Now, let me turn to our investment strategies, which we now categorized into four distinct asset classes.
The first is cash flow loans to upper mid market sponsor backed companies.
The second is asset based loans, which includes the underlying portfolios.
Credit solutions.
ABL and business credit.
The third segment is life science loans, which are made to venture capital backed late stage drug and medical device companies in.
And the fourth is our equipment finance strategy, which includes both kingsbridge and equipment finance.
Now let me provide a brief update on each of these verticals.
And our cash flow business, we originate first lien senior secured loans to upper mid market companies and non cyclical industries with our largest industry exposure being healthcare.
Diversified financials <unk>.
Life Sciences and recurring software.
In response to deteriorating market conditions.
Sponsorship begun price discovery conversations with us and other lenders for new financings.
We are seeing a 200 basis points widening of returns from the first quarter level subject to the level of risk of the individual credit.
This increase in yield is through a combination of both spread and original issue discount.
Sponsors also recognize that leverage levels for new financings.
We'll likely be coming down.
By at least a half to a full turn of leverage.
Lenders are requiring borrowers to have an adequate cushion in the downside scenario to meet their fixed charge and debt service requirements.
We expect our second half 'twenty, two cash flow investment to have higher yields and lower levels, even in the defensive sectors that we invest it.
At quarter end, our cash flow portfolio was $646 million or just under 24% of the total portfolio and was invested across 45 companies.
The average EBITDA for this portfolio at quarter end was $108 million.
The weighted average interest coverage was above three times at three one times.
During the quarter we originated.
$72 million of new investments and experienced repayments of $10 million.
The weighted average yield for this cash flow portfolio was just over 8%. However today. It is higher given the increase in rates in the interim period.
Now, let me touch on our ABL segment.
Again this consists of three underlying asset base verticals.
Credit solutions provides collateral back loans to asset Rich company is in transition.
This asset class requires expertise in valuing and monitoring collateral.
Historically, the strategies outperformed during periods when traditional lenders such as banks retreat.
Credit solutions, therefore provide some <unk>.
<unk> to our platform.
The team has seen an increase in their pipeline, which should continue to build if market conditions.
Continue to be volatile we're extremely optimistic about this.
Activity over the coming quarters.
Business credit provides asset based loans collateralized predominantly by receivables as well as factoring facilities.
Similar to the credit solutions team they have.
Long standing experience in valuing and monitoring the underlying collateral that they lend against.
Last year.
Acquired fast pay which is a factoring business dedicated to the digital media industry.
This acquisition has outperformed our expectations and has contributed to the growth in business credit portfolio, which is currently at an all time high.
Healthcare ABL is.
Similar to business credit.
Solely focuses on the healthcare sector.
Portfolio remained healthy during COVID-19.
Covid pandemic.
Pandemic of 2020.
However, the government's massive capital infusion into that sector.
Cause many of.
Health Care's borrowers to pay down their credit lines temporarily.
This dynamic is beginning to reverse itself and we're starting to see continued growth in the portfolio and.
I would expect so during the rest of this year.
And finally, our lender finance business also makes asset based loans, however to other commercial finance companies.
With their collateral.
In underlying commercial finance loans.
We've begun to see improvement in terms in this market as banks continue to be less active.
At quarter end, the total asset based portfolio was $857 million, representing just under 32% of our total portfolio.
It was invested across 176 borrowers.
The weighted average asset level yield in this portfolio was 10, 4%.
For the quarter, we originated just under $100 million of new asset based loans and had repayments of just over $50 million.
Moving to equipment finance.
This segment consists of both our equipment finance business and our Kingsbridge business.
Thanks, Rich provides leases for essential use equipment to averse set diverse set of primarily investment grade borrowers.
Supply chain constraints, but somewhat dampen the size of their investment pipeline.
Has begun to lose.
Lucid.
Recently, Youre seeing increased pipeline and expect to see increased growth in their portfolio over the next couple of quarters.
Equipment finance.
Provide financings for mission critical equipment across a variety of industries.
This business slowed during the height of Covid.
Some of the industries, such as tour buses impacted severely by Lockdowns.
We have focused over the last couple of years in reducing risk in our portfolio and the business is extremely well positioned to weather a potential recession.
Additionally.
The portfolio is benefiting from rising asset values during inflationary periods.
Earlier this year, we announced the appointment of a new CEO for this division.
Brings over 30 years of experience in the equipment finance industry and that includes over 25 years of vendor finance focused expertise.
He is currently positioned the business for growth and we expect to see continued earnings momentum into year end.
At quarter end.
The senior secured equipment finance portfolio totaled just under $900 million, representing 33% of our total portfolio and it was invested across 542 borrowers.
The weighted average asset level yield for this portfolio was just under 10%.
For the quarter, we originated over $100 million of new loans and had repayments of $90 million.
Finally, let me touch on our life Science Finance business.
At June 30, our portfolio totaled just under $300 million.
Consisted of 14 borrowers.
And over 96% of the portfolio is over 12 months of cash runway.
Critical metric.
Metrics for.
Are these.
<unk>.
Life science loans represent 11% of our total portfolio.
Contributes 25% of the gross investment income for the quarter.
For the second quarter, the life science team committed $36 million of new investments and funded $3 5 million of boats.
We also had repayments and amortization totaling $46 million.
At quarter end.
We had undrawn commitments in the life science segment of $138 million.
47 of the million dollars of those have already been funded during the quarter to date.
Additionally, our life Science Finance team currently has a robust pipeline, which we expect to fuel additional life science growth during the rest of 'twenty two.
At quarter end the weighted average yield on this portfolio is just under 10, 5% excluding.
Excluding additional success fees or warrants, which contribute significantly to these returns historically.
In conclusion, we see continuation of the investment themes that have been driving our portfolio over the last few years.
Focusing our new origination activity on first lien cash flow loans to portfolio companies that operate in defensive sectors.
And increasing our investments in specialty finance assets, where we are able to get tighter structures and more attractive risk adjusted returns.
Across all of our asset classes, we see improved investment opportunities and expect current negative market sentiment to continue to translate into better terms across all of our asset classes.
Given the current uncertainties and market volatility. It is important that we remain disciplined opportunistic and highly selective in our investments now I'll turn the call back to Michael.
Thank you Bruce.
In closing, we believe that <unk> bolstered by our acquisition of SUNS is well positioned because illumina recession and continued market disruption.
Our conservative underwriting approach focused on first lien senior secured cash flow loans and non sickle sectors and that's the base loans with significant collateral coverage benefited us during the COVID-19, pandemic and should likewise enable us to weather future economic challenges.
Okay.
With our increased scale advantage and cash flow life science, and our ABL verticals as well as our expertise in underwriting asset based loans during periods of market turmoil. We currently have a sizeable investment pipeline.
And intend to be opportunistic if market conditions declined further.
Additionally, we believe the merger.
And resulting scale potentially makes the better acquire a strategic buyer of specialty finance businesses.
Through a combination of cost synergies optimize their specialty finance companies more attractive terms are new investments that were available a year ago to $50 million share repurchase program and the impact of rising rates in our portfolio. We are expecting to fully cover our distributions within a couple of quarters. This revised forecast is in access.
<unk> of our NII projections at the time of our merger announcement last December .
Separately, if interest rates were to move another 100 basis points or 200 basis points. The portfolio at June 32022 would generate eight per share and <unk> 18 per share of incremental net investment income respectively on an annualized basis.
Our investment of ours, the alignment of interest with the company's shareholders continues to be one of our guiding principles.
<unk> team of approximately 8% of the combined entity.
A significant percentage of our annual incentive compensation invested in Sos feedstock.
The team's investment alongside fellow Src shareholders demonstrates our confidence in the company's defensive portfolio stable funding and favorable position to recap we expected to reap the expected benefits of the merger with <unk>.
Thank you for your time today, operator would you. Please open up the line for questions.
At this time, if you would like to ask a question. Please press star one on your telephone keypad. That's at any point. Your question has been answered.
You may remove yourself from the queue by pressing star can you. Once again that is star one if you would like to ask a question, we'll pause for just a moment to allow questions to queue.
We will take our first question from Robert Dodd with Raymond James Your line is open.
Hi, guys congrats on getting the merger closed.
Et cetera, So two questions quick questions if I can.
First on you.
You mentioned the formation of <unk>.
J P.
To shift.
<unk> shipped with some access in some of the lower yielding assets.
<unk> can you give us.
By year end can you give us any more.
Color that I mean is it intended to be a tempo you measure it.
Those assets.
Or.
Permanent addition, too.
The portfolio allocation.
Going forward.
Permit.
Tight.
Rough scale, but would you be would you be targeting that.
Sure.
So as you may recall, we have had vehicles like this in the past Inc.
SLR at SUNS and its prior incarnation.
So it is something we expect to open before year end.
We will ramp it over time, but we do have.
As you know with the acquisition of Sun's portfolio.
The lower I wouldn't say low, but lower yielding cash flow assets, which are very efficiently financed in these JV vehicles.
And so that is something that we're seeking to set up.
I would say we.
<unk> to be a long term part of the business model.
Given the combined portfolios of SLR and Sun because.
Because as you know, we we do get to that 10% plus type of return on the portfolio by bar Belling. Some of these lower return cash flow assets with a higher return specialty finance.
Today on an AD on a blended basis will be higher but we do expect this to be something that will be legging into starting <unk>.
Second half of this year.
Got it thank you.
Unlike sciences.
I mean, obviously.
You've deployed a significant amount on delayed draws.
After after quarter end.
<unk>.
In Q2, there were limited success fees.
Okay.
<unk>.
Can you give us any any any framework to think about it like when when do you think the success fees could start flowing back into income obviously they have historically been.
Quite meaningful contribution is occasionally.
Yes.
A choppy market where people are borrowing instead of refinance can you give us any thoughts on that.
Yes, I mean, I think thats, a great point the portfolio.
Now up to close to $300 million as we mentioned there are still undrawn commitments to be drawn.
In addition to those that were drawn post quarter end, so but that headwind of repayment, which is to your point what generates.
Those repayment fees has definitely slowed down a little bit given the volatility in the public equity markets, which very often can be very attractive capital for these companies today. They are borrowing a little bit more so it's a double edge sword. The good news is we're going to be growing this portfolio.
We will keep the good assets a little bit longer the way they are structured as it is not like a typical cash flow loan where you are.
Backend fees and warrants.
And to decline in value over time, there is still out there. This is not just call protection these or exit fees upon repayment, regardless of where that is.
So we'll get a little bit more duration those fees are still embedded in the portfolio.
And we will continue to come into NII episodically.
But I would say given the volatility a little.
But good news is we'll get a nice yield out of a growing portfolio.
Got it got it thank you and if I can just one quick I mean, you talked about.
Pipelines.
Building in Boston, a couple of things.
Equipment side, particularly on the leasing or larger equipment.
With the building interest that is the supply chain functioning well enough that you can actually.
Is your supply chain functioning ended up debt.
Pipeline built can actually be on boarded.
That's a great question I would say if you had our team leaders on this call they would say.
Early days, but it's starting to.
They still think it's going to take a good 12 months to work through the system. So that they can actually fund.
The purchases of this equipment, but it is definitely starting to.
Got it I appreciate it thank you.
Thank you.
We will take our next question is from Melissa <unk> with Jpmorgan. Your line is open.
Good morning, Thanks for taking my questions today.
You made a comment in the press release about.
Reaching dividend coverage sooner than anticipated and I think.
There was another comment just now on the call about.
Keeping that within the next couple of quarters.
I'm wondering if you can help us.
The gap from where we are now at 37, a share in Q Q Q.
What are the key drivers is the interest rate is that leveraging our portfolio.
Synergies things like that can you walk us through that a little bit more granularly.
Sure.
Okay.
The answer is it's a collection of items I think clearly there is a little bit more synergies that we expect from the solar SUNS merger.
The immediate one obviously came breakthrough with the reduction in the management fee.
The additional opportunities here is clearly.
Not only increased rates on the existing portfolio and yields but new assets that we've been putting on we did have an active.
Quarter, but a lot of the activity came in late in the quarter. So youre not seeing that even though we ended the quarter at <unk> 96 times leverage you didn't see the full earnings power of those additions. So that's part of the bridge. The other part of the bridges, where obviously sitting at <unk> 96, which is the low end of our leverage range. So we see a little.
Based on our pipeline, we see a little bit of increase in the leverage not material, but they will get some portfolio expansion.
The additional lever that we just touched on is a more efficient vehicle for financing the lower yielding cash flow assets, which you know in the past it's been very accretive.
People, including ourselves that have used debt structure.
Additionally, as Michael mentioned, our commitment to the buyback we will add.
A couple of cents there as well.
So we do have a number of levers in it.
I think we like that it's not just one thing that we're going to hit a button and we're going to get there, but we have multiple levers that we think will in aggregate exceed the.
The dividend in terms of the earnings power of the platform.
Okay I appreciate that.
The share repurchase.
I think you made a reference to chip in.
Interest and putting into place it can be five one plan. When we think about that that can be that can be fairly small bite size from quarter to quarter, which can be.
I think quite well below that optimization that you guys have been place a $50 million even.
Over multiple quarters are.
Are you thinking the pace of share repurchases in that context or are you thinking of combining that with more active repurchases. Thank you. Let me answer the answer is.
When our window period is open we will be actively buying the point of the <unk> plan is one of the window periods about to close which tends to be.
Three to four weeks before the end of the quarter until the next earnings release puts you out of the market for seven or eight weeks, we put a <unk> five plan in place. So that we can continue to be actively buying during that window period being closed we can.
<unk> set the sizing of that so that we can be fairly aggressive during that time period and frankly at these current levels, we intend to do.
Thank you.
We will take our next question from Mickey <unk> with Ladenburg. Your line is open.
Yes, good morning, everyone.
<unk> My question is for rich.
If we look at the SUNS balance sheet.
Last one that we saw which I believe was for December .
Three quarters of the on balance sheet portfolio was in individual credits and about a quarter.
Portfolio company investments at fair value.
Can we expect the purchase was the purchase discount.
Applied more or less.
Those levels and does that imply that a great deal of that purchase discount will unwind as those individual credits pay off.
Misunderstanding something.
No.
You're spot on.
There is a $17 million purchase discount of approximately $5 million was allocated to the portfolio of companies that.
Forming in Maryland.
Maryland, North mill, so that left around $12 million is supposed to be allocating to that portfolio.
Come back into income over over there.
Yes.
So that you booked to cost and that affected fair value and the average.
Life of these investments is what three years or so.
Right I mean, obviously in this environment people are refinancing into 'twenty this anymore, but.
We get a little bit more duration.
Yes, the cost is accreted into.
Discounting income over the remaining lives of those loans.
Okay I appreciate that.
We have not taken any incentive fee on that accretion of that discount.
Let's be clear.
I understand.
That's my only question for this quarter. Thank you.
Thank you. Thank you. Thank you Mike.
And once again that is star one if you would like to ask a question. We will take our next question from Ryan Lynch with <unk>. Your line is open.
Hey, good morning, just following up on Mickey's last question was any discount accretion for the purchase price was any of that accreted in Q2 and what about.
If so.
Great Great question line yet.
It begins on April one effective date.
It has picked up and.
Sure.
I would say it's between two and three.
Okay.
And we're calling two four.
For Q4.
The schedule a little lumpy this quarter with the merger.
Okay.
Okay.
Sure.
And then regarding kind of the JV you talked about.
Performing sometime this year later this year.
You talked about lower yielding loans from from signs potentially going in that JV.
Can you give us a sense of what you all would consider like a lower yielding loan or lower spread loans in your portfolio today and have you guys sort of penciled any sort of as you guys are controlling that exercise have you sort of penciled any sort of targeted size of loans.
The amount that that could potentially go into that JV later this year.
Okay.
Yes, I think.
Lower yielding for us mean, generally our cash flow relative to the specialty finance book.
The cash flow book at June 30 was around 8% eight one and the specialty finance book.
Generally above 10 to.
To get us close to that 96 blended again that as of June 30 today, it would be higher as you know.
So it's really meant to finance the cash flow.
Book that came over from sons.
And whatever those yields are those of our lower yielding assets across the portfolios relative to the specialty finance and life science and ABL.
Okay. So just to be clear you are talking about financing the entire cash flow book from sides, what could potentially be dropped down into this JV.
I think we're going to grow it over time, and we will see depending on the activity level, how large we grow it.
I think it would be all of them and we will do this over time.
Okay.
That's all for me I appreciate the time today.
Thanks, Brian Thanks, Brian .
And once again that is star one if you would like to ask a question, we'll pause for a moment to allow additional questions to queue.
Yes, we have no further questions on the line at this time I will turn the program back over to Mr. <unk> for any additional or closing remarks.
No more remarks that point other than to thank you for your time and support and to reiterate that if anyone has any follow up questions. Please feel free to give us a call take care everybody.
This does conclude today's program. Thank you for your participation you may disconnect at any time.
Okay.
Yes.
Yes.
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Okay.
Okay.
Okay.
Okay.