Q2 2024 SLR Investment Corp Earnings Call

Music: [music]

Operator: Please stand by, the program is about to begin. If you need operator assistance during the conference today, please press star zero. Good day, everyone, and welcome to today's Q2 2024 SLR Investment Corp. Earnings Call.

I was about to begin if you need operator assistance during the conference today, Please press Star zero.

Operator: If you need operator assistance during the conference today, please press star zero.

Operator: Good day everyone and welcome to today's Q2 2024 SLR Investment Corp and earnings call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session, and you may register to ask a question at any time by pressing star one on your telephone keypad.

Good day, everyone and welcome to today's Q2 2020 for SLR investment Corp earnings call.

Operator: At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session, and you may register to ask a question at any time by pressing star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Please note that this call is being recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Michael Gross, Chairman and Co-CEO.

At this time all participants are in a listen only mode.

Operator: Later, you will have an opportunity to ask questions during the question and answer session, and you may register to ask a question at any time by pressing star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2.

Later, you'll have an opportunity to ask questions. During the question and answer session and you may registered to ask a question at any time by pressing star one on your telephone keypad, you may withdraw yourself from the queue by pressing star two.

Operator: You may withdraw yourself from the Q2 by pressing star two. Please note that this call is being recorded, and I will be standing by should you need any assistance.

Michael Gross: Please note that this call is being recorded and I'll be standing by should you need any assistance. It is now my pleasure to turn the conference over to Michael gross Chairman and co CEO.

Michael Gross: It is now my pleasure to turn the conference over to Michael Gross, Chairman, and Co-CEO. Thank you very much, and good morning. Welcome to SLR Investment Corp's earnings call for the fiscal quarter ended June 30, 2024.

Bruce forward: Thank you very much and good morning, welcome to SLR investment Corp's earnings call for the first school for quarter ended June 30th 2024, I'm joined today with my long term partner of 18 years, Bruce forward Co Chief Executive Officer.

Michael Gross: Thank you very much and good morning. Welcome to SLR Investment Corp's earnings call for the fiscal quarter ended June 30, 2024. I'm joined today by my long-term partner of 18 years, Bruce Spohler, Co-Chief Executive Officer and our Chief Financial Officer, Shiraz Kajee, and the SLR Investor Relations Team. Shiraz, before we begin, would you please start by discussing the webcast and forward-looking statements?

Michael Gross: I am joined today by my long-term partner, 18 years, Bruce Fowler, co-chief executive officer, and our potential other officer, Shiraz KG, and this SLR investor's relation team.

Speaker Change: That's what the officers Shiraz kg and this SLR investors relation team Shiraz before we begin would you. Please start by covering the webcast and forward looking statements.

Shiraz Kajee: Shiraz, before we begin, would you please start by covering the webcast and forward-looking statements.

Shiraz Kajee: Thank you, Michael. Good morning, everyone.

Shiraz Kajee: Thank you, Michael.

Michael: Thank you Michael.

Shiraz Kajee: Good morning, everyone. I would like to remind everyone that today's call and webcasts are being recorded. Please note that they are the property of SLR Investment Corp, and that any unauthorized broadcast in any form is strictly prohibited. This conference call is also being the webcast for the events calendar in the investor section on our website at www.SLRinvestmentcord.com. What you'll replace of this call will be made available later today, as disclosed in our August 7 earnings press release.

Speaker Change: Good morning, everyone.

Operator: I'd like to remind everyone that today's call and webcast are being recorded. Please note that they had a property that's cool.

Shiraz Kajee: I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of SLR Investment Corp. and that any unauthorized broadcast in any form is strictly prohibited. This conference call has also been webcast for the events calendar in the investor section on our website at www.slrinvestmentcall.com. Audio replays of this call will be made available later today, as disclosed in our August 7th earnings press release.

Operator: And that any unauthorized broadcast in any form is strictly prohibited.

Operator: Conference call is also being webcast live events in the investors section on our website at Www Dot thats not an investment called Dot com.

Speaker Change: What are your replays of this call will be made available later today as disclosed in our August seven earnings press release.

Shiraz Kajee: I would also like to call your attention to the customary disclosures in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections. These statements are not guarantees of our feature performance or financial results, and involve a number of risks and uncertainties. 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 findings with the SEC. We did not undertake to update any forward-looking statements unless required to do so by law.

Shiraz Kajee: I would also like to call your attention to the customary disclosures in our press releases regarding forward-looking statements. Today's conference call or webcast may include forward-looking statements and projections. These statements are not guaranteed to predict future performance or financial results and involve a number of risks and uncertainties. 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 findings with the SEC.

Speaker Change: I would also like to call your attention to the customary disclosures in our press release.

Speaker Change: Regarding forward looking statements today's conference call and webcast may include forward looking statements and projections. These statements are not guarantees of cell feature performance financial results and involve a number of risks and uncertainties.

Speaker: These statements are not guaranteed to achieve future performance or financial results and involve a number of risks and uncertainties. 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 findings with the SEC. We do not undertake to update any forward-looking statements unless required to do so by law.

Speaker: Past performance is not indicative of future results.

Speaker: 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.

Shiraz Kajee: We do not undertake to update any forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filing, please visit our website or call us at 212-993-1670. At this time, I would like to turn the call back over to our Chairman and Co-CEO, Michael Gross. Thank you, Shiraz.

Speaker: We do not undertake to update any forward looking statements unless required to do so by law.

Shiraz Kajee: To gain copies of our latest SEC file, please visit our website. We'll call us at 212-993-1670.

Speaker: Copies of our latest SEC filings please visit our web site.

Speaker Change: Two went to 99160 at.

Michael Gross: At this time, I would like to turn the call back over to our Chairman and Co-CEO, Michael Gross.

Speaker: At this time I would like to turn the call back over to our chairman and co CEO Michael gross.

Michael Gross: Thank you, Shiraz, and thank you to everyone for joining our earnings call today. After the market closed yesterday, SLRC reported net investment income of $0.45 per share in the second quarter of 2024, representing a 1% increase over the prior quarter and distribution coverage of approximately 110%. Our net investment income per share in the second quarter reached the highest level in five years, reflecting our deliberate approach to rebuilding the investment portfolio after a period of conservatism during the onset of COVID. Our NAV per share increased a penny sequentially to $18.20 as of June 30, 2024.

Michael Gross: Thank you, Shiraz, and thank you to everyone for joining our earnings call today. After the market closed yesterday, SLRC reported net investment income of 45 cents per share in the second quarter of 2024, representing a 1 percent increase over the prior quarter, and distribution coverage of approximately 110 percent. Our net investment income per share in the second quarter reached the highest level in five years, reflecting our deliberate approach in rebuilding the investment portfolio after period conservatism following during the onset of COVID. Our NAV per share increased to penny sequentially to $18.20 as of June 30, 2024.

Speaker: Thank you Suraj and thank you to everyone for joining our earnings call today.

Speaker: After the market closed yesterday, SLRC reported net investment income of $0.45 per share in the second quarter of 2024, representing a 1% increase over the prior quarter and distribution coverage of approximately 110%. Our NAV per share increased a penny sequentially to $18.20 as of June 30, 2024.

Speaker Change: After the market closed yesterday SLR see reported net investment income of 45 per share in the second quarter 2024, representing a 1% increase over the prior quarter and distribution coverage of approximately 110%.

Speaker: Our net investment income per share in the second quarter reached the highest level in five years, reflecting our deliberate approach to rebuilding the investment portfolio. After a period of conservatism falling during the onset of Covid.

Speaker: Our NAV per share increased a penny sequentially to $18 20 as of June 32024.

Michael Gross: We believe the recent stability of our NAV reflects our multi-strategy senior secured portfolio, which is substantially constructed in 2023 and 2024 and underwritten to withstand higher interest rates and a softening of the economy. While private credit conditions in the second quarter continue to be impacted by a revival of a syndicated loan market, we were able to source attractive investment opportunities across our platform. The combination of increased competition from the BSL and SEALA markets, together with muted M&A activity, has caused pricing and terms for deals and the sponsor finance markets to become more borrower friendly. In many instances, this has reduced the liquidity premium for some BDC portfolios.

Michael Gross: We believe the recent stability of our NAV reflects our multi-strategy, senior-secured portfolio, which was substantially constructed in 2023 and 2024 and underwritten to withstand higher interest rates and a softening of the economy. While private credit conditions in the second quarter continued to be impacted by the revival of the syndicated low market, we were able to source attractive investment opportunities across our platform. The combination of increased competition from the BSL and CLM markets, together with muted M&A activity, has caused pricing and terms for deals in the sponsor finance market to become more borrower-friendly. In many instances, this has reduced the illiquidity premium for some BDC portfolios.

Speaker: We believe the recent stability of our NAV reflects our multi strategy senior secured portfolio, which substantially constructed in 2023, and 2024 and underwritten to withstand higher interest rates and a softening of the economy.

Speaker: While private credit conditions in the second quarter continue to be impacted by the revival of the syndicated low market, we were able to source attractive investment opportunities across our platform. The combination of increased competition from the BSL and CLL markets, together with muted M&A activity, has caused pricing and terms for deals in the sponsor finance markets to become more borrower-friendly. In many instances, this has reduced the illiquidity premium for some BDC portfolios.

Speaker: While private credit conditions in the second quarter continued to be impacted by a revival of the syndicated loan market, we were able to source attractive investment opportunities across our platform.

Speaker: The combination of increased competition from the P. S L and CLO markets together with muted M&A activity has caused pricing and terms for deals in the sponsor finance market to become more borrower friendly.

Speaker: In many instances this has reduced the illiquidity premium for some BDC portfolios.

Michael Gross: Through the more favorable conditions in our specialty finance markets, our investments in the second quarter were once again more heavily weighted to those asset classes which we believe currently provide a more attractive risk-adjusted return relative to sponsor finance loans. Our ability to pivot to the best risk-growing opportunities within various private credit strategies is a hallmark of SLR Strategy allocation approach. We believe private credit investors are increasingly looking for diverse and proprietary investment strategies within BDCs. SLR C's conference at portfolio had originations of $356 million and repayments of $292 million in the second quarter, resulting in net portfolio growth of $62 million.

Michael Gross: Due to the more favorable conditions in our specialty finance markets, our investments in the second quarter were once again more heavily weighted to those asset classes which we believe currently provide a more attractive risk-adjusted return relative to sponsor finance loans. Our ability to pivot to the best risk-reward opportunities within various private credit strategies is a hallmark of SLR's multi-strategy allocation approach. We believe private credit investors are increasingly looking for diverse and proprietary investment strategies within BDCs.

Speaker: Due to the more favorable conditions in our specialty finance markets our investments in the second quarter were once again more heavily weighted to those asset classes, which we believe currently provide a more attractive risk adjusted return relative to sponsor finance loans.

Speaker: Our ability to pivot to the best risk-reward opportunities within various private credit strategies is a hallmark of SLR's multi-strategy allocation approach. We believe private credit investors are increasingly looking for diverse and proprietary investment strategies within BDCs. Managing teams and sponsors are exploring ways to raise new capital to support owning assets over a longer time frame in order to execute their business plan. We are pleased with the construction quality and performance of our portfolio.

Speaker: Our ability to pivot to the best risk reward opportunities within various private credit strategies is a hallmark of best Florida strategy allocation approach, we believe private credit investors are increasingly looking for diverse and proprietary investment strategies within bdcs.

Michael Gross: SLRC's comprehensive portfolio had originations of $356 million and repayments of $292 million in the second quarter, resulting in net portfolio growth of $62 million. 87% of originations were from SLRs, asset-based lending, life sciences lending, and equipment finance verticals. Said another way, only 13% of our second quarter originations were in sponsored finance, a continued reversal from last year when most of our originations were concentrated in sponsor finance. Managing teams and sponsors are exploring ways to raise new capital to support owning assets over a longer time frame in order to execute their business plan.

Speaker Change: <unk> comprehensive portfolio had originations of $356 million in repayments of $292 million in the second quarter, resulting in net portfolio growth of $62 million.

Michael Gross: 87 percent of originations were from SLR's asset-based lending, life sciences lending, and equipment finance verticals. Set another way, only 13 percent of our second quarter originations were in sponsor finance. A continued reversal from SLR's year when most of our originations were concentrated in sponsor finance. Management teams and sponsors are exploring ways to raise new capital support, owning assets over a longer time frame in order to execute their business plan. Additionally, more sponsors have been increasing their focus on asset-rich industries in which portfolio companies can more effectively leverage current assets and ABL structures to finance their working and growth capital requirements.

Speaker Change: 87% originations were from SLR S. Slr's asset based lending life Sciences lending and equipment finance verticals said, another way only 13% of our second quarter originations when sponsor finance continue.

Speaker Change: Continue to reverse it.

Speaker: Sure.

Speaker: When most of our originations were concentrated in sponsor finance.

Speaker: Management teams and sponsors are exploring ways to raise new capital support owning assets over a longer time frame it in order to execute their business plan.

Michael Gross: Additionally, more sponsors have been increasing their focus on asset-rich industries in which portfolio companies can more effectively leverage current assets and ABL structures to finance their working and growth capital requirements. This has created an opportunity for asset-based lending and resulted in $130 million of ABL originations in the second quarter. Post-quarter end, we've identified several attractive ABLMS opportunities and expect the counter-cyclical attribute of this financing instrument to benefit from potential economic headwinds

Speaker: Additionally, more sponsors have been increasing their focus on assay, which industries, which portfolio companies can more effectively leverage current assets in ABL structures to finance, our working in growth capital requirements.

Michael Gross: This has created an opportunity for asset-based lending and resulted in $130 million of ABL originations in the second quarter. Post-quarter end, we've identified several attractive ABL mass opportunities and expect the counter-secular attribute of this financing interest to benefit from potential economic headwinds.

Speaker: This has created an opportunity for asset based lending and resulted in a $130 million of ABL originations in the second quarter.

Speaker: Post quarter end, we've identified several attractive a b M S opportunities and expect the counter cyclic attribute.

Speaker Change: This financing answer it to benefit from potential economic headwinds.

Michael Gross: We are pleased with the construction quality and performance of our portfolio. At quarter end, approximately 98 percent of a comprehensive investment portfolio was comprised of first-leaning senior secured loans. SLR's long-standing focus on first-leaning loans has resulted in a portfolio which we believe is more conservatively positioned and better equipped to withstand persistent inflationary pressures and high interest rates than portfolios of second-leaning and broader secular exposure. As of June 30th, our investments in non-accrual represented just 0.6 percent and 0.4 percent of the investment portfolio on a cost and fair value basis, respectively. We believe our low-lit rate of non-accruals is a result of a multi-strategy approach in which our specialty-based strategies enable us to be more selective in our sponsor finance. In response finance, the average EBITDA and revenue growth continue to be positive for portfolio companies.

Michael Gross: We are pleased with the construction quality and performance of our portfolio. At quarter end, approximately 98% of our comprehensive investment portfolio was comprised of first lien senior secured loans. SLR's long-standing focus on first lien loans has resulted in a portfolio which we believe is more conservatively positioned and better equipped to withstand persistent inflationary pressures and high interest rates than portfolios of second lien and broader circular exposure. As of June 30th, our investments on non-accrual represented just 0.6% and 0.4% of the investment portfolio on a cost and fair value basis, respectively.

Speaker: We are pleased with the construction quality and performance of our portfolio at quarter end approximately 98% of a comprehensive investment portfolio was comprised of first lien senior secured loans.

Speaker: At quarter end, approximately 98% of our comprehensive investment portfolio was comprised of first lien senior secured loans. In sponsor finance, the average EBITDA and revenue growth continues to be positive for our portfolio companies. Overall, they have successfully managed the transition to an environment with higher costs of capital as well as inflationary premiums. The credit quality of our special advance investments continues to be solid, with attractive LTVs that have meaningful collateral support and a borrowing-based structure.

Speaker: <unk> long standing focus on first lien loans has resulted in a portfolio, which we believe is more conservatively positioned and better equipped to withstand persistent inflationary pressures and high interest rates than portfolios of second lien and broader cyclical exposure.

Speaker: As of June 30, our investments on nonaccrual represented just <unk>, 6% and <unk>, 4% of the investment portfolio on a cost and fair value basis, respectively. We believe our low rate of non accruals as a result of a multi strategy approach and which are specialty pet strategies enable us to be more selective in our sponsor financings.

Michael Gross: We believe our low rate of non-accruals is a result of our multi-strategy approach, in which our specialty finance strategies enable us to be more selective in our sponsor finance investments. In sponsor finance, the average EBITDA and revenue growth continues to be positive for our portfolio companies. Overall, they have successfully managed the transition to an environment with higher costs of capital as well as inflationary premiums. The weighted average interest in our sponsor-financed loans has held steady at approximately 1.7 times. Additionally, only 0.8%... The second quarter gross income is in the form of capitalized PIC from cash flow borrowers resulting from amendments.

Speaker: Estimates.

Speaker: And sponsor financed the average EBITDA and revenue growth continue to see positive for our portfolio companies overall, if successfully manage the transition to environment with higher cost of capital as well as inflationary premiums.

Michael Gross: Overall, they have successfully managed the transition to an environment with higher cost of capital as well as inflationary premiums. The weighted average interest rate in our sponsored loan has steadily held steady at approximately 1.7 times. Additionally, only 0.8 percent of second quarter gross income is in the form of capitalized pick from cash laborers resulting from amendments. We believe these healthy metrics are the result of the diversity of our investment portfolio across private credit strategies and our focus in sponsored finance and recession-resilient industries with high recurring free cash flow. The credit quality of our specific finance investments continues to be solid with a tract of LTVs which have meaningful collateral support and borrowing based structures.

Speaker: The weighted average interest and response fast loans has steadily has held steady at approximately one seven times. Additionally, only 1.8%.

Speaker: Second quarter gross income is in the form of capitalized pick from castle of borrowers, resulting from amendments. We believe these healthy metrics are the result of the diversity of our investment portfolio across private credit strategies and our focus in sponsor finance on recession resilient industries with high recurring free cash flow.

Michael Gross: We believe these healthy metrics are the result of the diversity of our investment portfolio across private credit strategies and our focus in sponsor finance on recession-resistant industries with high recurring free cash flow. The credit quality of our special advance investments continues to be solid, with attractive LTVs that have meaningful collateral support and borrowing-based structure. This cloud of support should lead to higher recovery values relative to sponsor finance cash flow loans.

Speaker: The credit quality of our specialty fast investments continues to be solid with attractive ltvs, which are meaningful which are meaningful collateral support and borrowing based structures.

Michael Gross: This collateral support should lead to high recovery values relative to sponsored finance, cash flow, back loans. While we are optimistic that M&A will increase the back capital, current sponsored finance activity remains centered on DDTL draws and amend-and-extend transactions, which we have addressed cautiously. At June 30th, including available credit facility capacity at SSLP and our specially financed portfolio companies, SLRC had over 750 million dollars of available capital to deploy.

Speaker: This cloud of support should lead to high recovery values relative to sponsored finance cash flow back loans. While we are optimistic that M&A will increase in the back half of the year, current sponsor activity remains centered on DDTL draws and amend and extend transactions, which we are addressing cautiously.

Speaker: This collateral support should lead to high recovery values relative sponsored finance cash flow back loans.

Michael Gross: While we are optimistic that M&A will increase the back cap in the future, current sponsor activity remains centered on DDTL draws and amend and extend transactions, which we are addressing cautiously. At June 30th, including available credit facility capacity at SSLP and our specially financed portfolio companies, SLRC had over $750 million of available capital to deploy. From our receipts, we think SLRC is in a favorable position to take advantage of either durable economic conditions or a softening of the economy. Now, I'll turn the call back over to Shiraz, our CFO, to take you through the Q2 financial highlights.

Speaker: While we are optimistic that M&A will increase in the back half for sure.

Shiraz Kajee: SLR Investment Corp's net asset value at June 30, 2024 was $993 million, or $18.20 per share, paid to $992,018.19 per share on March 31st. Quota in SLRC's unbalanced sheet investment portfolio had a fair market value of approximately $2.1 billion and 138 portfolio companies across 37 industries, compared to a fair market value of $2.1 billion in 145 portfolios, and companies across 41 industries in my study first.

Speaker: Current spot as far as activity remains centered on D. D T L draws and amend and extend transactions, which we have addressed which we are addressing cautiously.

Src: At June 30th including available credit facility capacity at S. S. L P and our specialty finance portfolio companies Src had over $750 million of available capital to deploy from our seats. We think Src is in a favorable position to take advantage that'd be the durable economic conditions or softening of the economy.

Michael Gross: From our seats, we think SLRC is in a favorable position to take advantage of the durable economic conditions or softening the economy.

Shiraz Kajee: I know it turned the call back over Shiraz, our CFO, to take you through the Q2 financial highlights.

Speaker: Now I'll turn the call back over to Shiraz, our CFO take you through the Q2 financial highlights.

Shiraz Kajee: Thank you, Michael. SLR investment cost net asset value at June 30th, 2024 was $993 million, or $18.20 per share. It's a $992 million or $18.19 per share at March 31st. According to SLRC's, our balance sheet investment portfolio had a fair market value to approximately $2.1 billion. In 138 portfolio companies across 37 industries compared to a fair market value of $2.1 billion in 145 portfolio companies across 41 industries at March 31st. At June 30th, the company had approximately $1.2 billion of debt outstanding, with a net debt to equity ratio of 1.16 times. We expect our net debt to equity ratio to remain in the middle of our target range of 0.9 to 1.25 times.

Michael: Thank you Michael.

Speaker: That's a lot of investment Corp's net asset value at June 32024 was $993 million or $18 20 per share compared.

Speaker: Compared to $992,018.19 per share at March 31, and 138 portfolio companies across 37 industries, compared to a fair market value of $2.1 billion in 145 portfolios, we expect our net debt to equity ratio to remain in the middle of our target range of 0.9 to 1.25 times. SLRC's funding profile is in a strong position to continue to weather the current interest rate environment. We remain in dialogue with the fixed income community and expect to opportunistically access the investment grade market.

Speaker: Compared to $992 million or $18 19 per share at March 31st.

Speaker Change: I caught in SLR, she's on balance sheet investment portfolio had a fair market value of approximately $2 $1 billion.

Speaker: 138 portfolio companies across 37 industries compared to a fair market value of $2 $1 billion and 145 portfolio.

Speaker: Companies across 21 industries at March 31st.

Shiraz Kajee: At June 30, the company had approximately $1.2 billion of debt outstanding, with a net debt-to-equity ratio of 1.16 times. We expect our net debt to equity ratio to remain in the middle of our target range of 0.9 to 1.25 times. SLRC's funding profile is in a strong position to continue to weather the current interest rates. Our existing $470 million of senior unsecured fixed rate notes have a weighted average annual interest rate of only 3.8%. We remain in dialogue with the fixed income community and expect to opportunistically access the investment grade market.

Speaker: At June 30 at the company had approximately $1 $2 billion of debt outstanding with a net debt to equity ratio of 116 times.

Speaker: We expect our net debt to equity ratio to remain in the middle of our target range of <unk> nine to $1 two five times.

Shiraz Kajee: SLRC's funding profile is in a strong position to continue to weather the current interest rate movement. I think our existing $470 million of senior unsecured fixed rate notes have a weighted average annual interest rate of only 3.8%. We remain in dialogue with the fixed income community and expect to opportunistically access the investment-grade market. The recent decline of risk-free rates, subsequent quarter-end, has been constructive to reduce the all-in-cost of any future debt issuance. Moving to the P&L for the three-month end of June 30th, gross investment income totaled $59 million. This is $58.1 million for the three-month end of March 31st.

Speaker: As long as he's funding profile is in a strong position to continue to weather the current interest rate.

Speaker: I think our existing $470 million of senior unsecured fixed rate notes have a weighted average annual interest rate of only three 8%.

Speaker: We remain in dialogue with the fixed income community and expect to Opportunistically access the investment grade market.

Shiraz Kajee: The recent decline in risk-free rates, subsequent to quarter-end, has been constructive to reduce the all-in cost of any future debt issuance. Moving to the P&L, for the three months ended June 30th, Gross Investment Income totaled $59 million, versus $58.1 million for the three months ended March 31st. Net expenses totaled $34.7 million for the three months ended June 30th. This compares to $34.2 million for the prior quarter. Accordingly, the company's net investment income for the 3 months ended June 30, 2024 totaled $23 million, or $0.45 per average share, $0.01 higher than the prior quarter, and more than covered our $0.41 per share distribution during the period.

Speaker: The recent decline in risk free rates subsequent to quarter end has been constructive to reduce the all in cost of any future debt issuances.

Speaker: Moving to the P&L for the three months ended June 30th gross investment income totaled $59 million versus $58 $1 million for the three months ended March 31st.

Shiraz Kajee: Net expenses totaled $34.7 million for the three-month end of June 30th. This compares to a $34.2 million for the Pride quarter. Accordingly, the company's net investment income for the three months end of June 30th, 2024, totaled $23 million for $0.45 per average share. One cent higher than the pride quarter and more than cover our 41 cent percent distribution during the period.

Speaker: Net expenses totaled $34 7 million.

Speaker: For the three months ended June 30 <unk>.

Speaker Change: This compares to a $34 2 million for the high court.

Speaker: Accordingly, the Companys net investment income for the three months ended June 32020, full totaled $23 million or <unk> 45 per average share once and Hyatt in the prior quarter.

Speaker: More than cover all 41 cents per share distribution during the period.

Shiraz Kajee: The other line, the company had a net-realized and unrealized last for the second quarter totaling $1.1 million. First, as a net-realized and unrealized gain of $4.4 million for the first quarter of 2024. As a result, the company had a net increase in net assets resulting from operations of $23.2 million for the three months at the June 30th, compared to a net increase of $27.9 million for the three months end of March 31st. On August 7th, the Board of SLRC declared a Q3 2024 quarterly distribution of 41 cents per share, payable on September 27th, 2024, to holders as of September 15th, 2024.

Shiraz Kajee: The company had a net realized and unrealized loss for the second quarter totaling $1.1 million, versus a net realized and unrealized gain of $4 million for the first quarter of 2024. As a result, the company had a net increase in net assets resulting from operations of $23.2 million for the three months ended June 30th compared to a net increase of $27.9 million for the three months ended March 31st. On August 7, the Board of SLRC declared a Q3 2024 quarterly distribution of $0.41 per share payable on September 27, 2024 to holders of record as of September 18, 2024. With that, I'll turn the call over to our co-CEO, Bruce Spohler.

Speaker Change: No. The line the company had a net realized and unrealized loss for the second quarter totaling $1 $1 million plus.

Speaker Change: This is a net realized and unrealized gain of $4 4 million ounce for the first quarter of 2024.

Speaker: As a result, the company had a net increase in net assets resulting from operations of $23.2 million for the three months ended June 30th compared to a net increase of $27.9 million for the three months ended March 31st. On August 7, the Board of SLRC declared a Q3 2024 quarterly distribution of $0.41 per share payable on September 27, 2024 to holders of record as of September 15, 2024.

Speaker: As a result, the company had a net increase in net assets, resulting from operations of $23 $2 million for the three months ended June 30, compared to a net increase of $27 9 million for the three months ended March 31.

Speaker: On August seven.

Speaker Change: Okay. So at Oxy declared a Q3 2024 quarterly distribution.

Speaker: <unk> 41 per share payable on September 27, 2024.

Speaker: The holders of record as of September <unk>.

Speaker: 2024.

Bruce Spohler: With that, I'll turn the call over to our co-CEO, Bruce Spohler.

Bruce <unk>: With that I'll turn the call over to our co CEO Bruce <unk>.

Bruce Spohler: Thank you, Shiraz. In the current competitive sponsor finance cash flow market, the flexibility offered by our commercial finance strategy enables us to source attractive investment opportunities away from this competitive market. We take a fundamental bottoms-up approach to portfolio construction based upon the relative risk-adjusted return profile across our investment verticals. At quarter-end on a fair-value basis, the comprehensive portfolio consisted of 3.1 billion of senior secured loans to 800 different borrowers. Measured of fair-value, 99.2% of our portfolio consisted of senior secured loans with 97.7% and first-lane loans, including investments in our SSLP attributable to the parent company.

Speaker Change: Thank you Suraj.

Speaker: In the current competitive sponsor finance cash flow market, the flexibility offered by our commercial finance strategy enables us to source attractive investment opportunities away from this competitive market. We take a fundamental, bottom-up approach to portfolio construction based upon the relative risk-adjusted return profile across our investment verticals.

Bruce Spohler: In the current competitive sponsor finance cash flow market, the flexibility offered by our commercial finance strategy enables us to source attractive investment opportunities away from this competitive market. We take a fundamental, bottom-up approach to portfolio construction based upon the relative risk-adjusted return profile across our investment verticals.

Speaker Change: And the current competitive sponsor financed cash flow market the flexibility offered by our commercial finance strategy enables us to source attractive investment opportunities away from this competitive market.

Speaker: We take a fundamental bottoms up approach to portfolio construction based upon the relative risk adjusted return profile across our investment verticals.

Speaker: At quarter end, on a fair value basis, the comprehensive portfolio consisted of 3.1 billion of senior secured loans to 800 different borrowers. At quarter end, our weighted average asset level yield was 11.7% compared to 11.8% the previous quarter. I'll begin with sponsor finance.

Bruce Spohler: At quarter end, on a fair value basis, the comprehensive portfolio consisted of 3.1 billion of senior secured loans to 800 different borrowers. Measured at fair value, 99.2% of our portfolio consisted of senior secured loans, 97.7% of which were first lien loans, including investments in our SSLP attributable to the parent company, and only 0.3% was invested in second lien cash flow loans with the remaining 1.2% invested in second lien asset-based loans. Our specialty finance investments account for approximately 75% of the portfolio, with just over 24% of the portfolio invested in senior secured cash flow loans to upper mid-market sponsor-backed companies.

Speaker: At quarter end on a fair value basis. The comprehensive portfolio consisted of $3 1 billion of senior secured loans to 800 different borrowers.

Speaker: Measured at fair value 99, 2% of our portfolio consisted of senior secured loans with 97, 7% in first lien loans, including investments in our S. S. L. P attributable to the parent company.

Bruce Spohler: And only 0.3% was invested in second-lane cash flow loans, with remaining 1.2% invested in second-lane asset-based loans. Our specialty finance investments account for approximately 75% of the portfolio, with just over 24% of the portfolio invested in senior secured cash flow loans to upper-mid market sponsor back companies. We believe this defensive portfolio construction positions us well for potential economic weakness and provides a differentiated risk-return profile relative to a sponsor finance-only portfolio. At quarter-end, our weighted average asset level yield was 11.7% compared to 11.8% prior quarter. Our credit quality remains strong. At quarter-end, the weighted average investment risk rating of the portfolio was just under 2 based on our 1 to 4 risk rating scale, with 1 representing the least amount of risk.

Speaker Change: And only <unk>, 3% was invested in second lien cash flow loans with the remaining one 2% invested in second lien asset based loans.

Speaker: Our specialty finance investments account for approximately 75% of the portfolio with just over 24% of the portfolio invested in senior secured cash flow loans to upper mid market sponsor backed companies.

Bruce Spohler: We believe this defensive portfolio construction positions us well for potential economic weakness and provides a differentiated risk-return profile relative to a sponsor finance only portfolio. At quarter end, our weighted average asset level yield was 11.7% compared to 11.8% the prior quarter. Our credit quality remains strong.

Speaker: We believe this defensive portfolio construction positions us well for potential economic weakness and provides a differentiated risk return profile relative to our sponsor finance only portfolio.

Speaker: At quarter end, our weighted average asset level yield was 11, 7% compared to 11, 8% prior quarter.

Operator: If you need operator assistance during the conference today, please press star zero.

Speaker: Our credit quality remained strong at quarter end, the weighted average investment risk rating of the portfolio was just under two based on our one to four risk rating scale with one representing the least amount of risk.

Bruce Spohler: At quarter end, the weighted average investment risk rating of the portfolio was just under two based on our one to four risk rating scale, with one representing the least amount of risk. Furthermore, over 99% of the portfolio was rated 2 or higher at quarter end. Moreover, 99.4% of the portfolio on a cost basis and 99.6% on a fair value basis were performing, with only one investment on non-accrual. Now, let me touch on each of our four investment verticals. I'll begin with Sponsor Finance.

Operator: Good day everyone and welcome to today's Q2 2024 SLR Investment Corp and Earnings call. At this time, all participants are in a listen only mode. Later, you will have an opportunity to ask questions during the question and answer session, and you may register to ask a question at any time by pressing star one on your telephone keypad.

Bruce Spohler: Over 99% of the portfolio is rated 2 or higher at quarter-end. Moreover, 99.4% of the portfolio on a cost basis and 99.6% on a fair value basis was performing, with only 1 investment on non-accrual.

Speaker: Over 99% of the portfolio is rated two or higher at quarter end.

Speaker: Moreover, 99, 4% of the portfolio on a cost basis, and 99, 6% on a fair value basis was performing with only one investment on non accrual.

Operator: You may withdraw yourself from the Q2 by pressing star two. Please note that this call is being recorded, and I will be standing by should you need any assistance.

Michael Gross: It is now my pleasure to turn the conference over to Michael Gross, Chairman, and co-CEO. Thank you very much and good morning. Welcome to SLR Investment Corp's Earnings call for the fiscal quarter ended June 30, 2024.

Bruce Spohler: Now let me touch on each of our 4 investment variables. I'll begin with sponsor finance. In this business, we originate first-lane senior secured loans to upper-mid market companies in non-cyclical industries such as healthcare, business services, and financial services. This has helped to mitigate the impact on our portfolio from cyclical economic factors. At June 30th, our sponsor finance portfolio was approximately 160 million, including loans in the SSLP, 24% of the comprehensive portfolio. It was invested across 47 different borrowers. With approximately 99% of this cashflow portfolio invested in first lean loans, we believe that we are well positioned to withstand any pressures that our borrowers may face.

Speaker: Now, let me touch on each of our four investment verticals.

Speaker: I'll begin with sponsor finance in this business. We had originated first lien secured senior secured loans to upper mid market companies and non cyclical industries, such as healthcare business services and financial services. This has helped to mitigate the impact on our portfolio from cyclical economic factors.

Speaker: In this business, we originate first lien senior secured loans to upper mid-market companies in non-cyclical industries such as healthcare, business services, and financial services. 24% of the Comprehensive Portfolio carry low loan-to-values of just over 37% and interest coverage of 1.7 times, consistent with the prior quarter. During the quarter, we made investments of approximately $45 million and experienced repayments of $33 million. At quarter end, the weighted average cash flow yield was 11.7%, down slightly from the prior quarter.

Bruce Spohler: In this business, we originate first lien senior secured loans to upper mid-market companies in non-cyclical industries such as healthcare, business services, and financial services. This has helped to mitigate the impact on our portfolio from cyclical economic factors. At June 30th, our sponsor finance portfolio was approximately $760 million, including loans in the SSLP, 24% of the Comprehensive Portfolio. It was invested across 47 different borrowers. With approximately 99% of this cash flow portfolio invested in first lien loans, we believe that we are well positioned to withstand any pressures that our borrowers may face.

Michael Gross: I am joined today by my long-term partner, 18 years Bruce Fowler, co-chief executive officer, and our potential other officer, Shiraz KG, and this SLR investor's relation team.

Shiraz Kajee: Shiraz, before we begin, would you please start by covering the webcast and forward-looking statements. Thank you Michael. Good morning everyone. I would like to remind everyone that today's call and webcasts are being recorded. Please note that they are the property of SLR Investment Corp, and that any unauthorized both cast in any form strictly prohibited. This conference call is also being the webcast for the events calendar in the investor section on our website at www.

Speaker: At June 30th our sponsor finance portfolio was approximately $160 million, including loans and the S. S. L. P 20.

Speaker: 4% of the comprehensive portfolio.

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Speaker: Was invested across 47 different borrowers.

Speaker: With approximately 99% of this cash flow portfolio invested in first lien loans, we believe that we are well positioned to.

Speaker: Withstand any pressures that our borrowers may face.

Shiraz Kajee: SLRinvestmentcord.com. What you'll replace of this call will be made available later today as disclosed in our August 7 earnings press release. I would also like to call your attention to the customary disclosures in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections. These statements are not guarantees of our feature performance or financial results, and involve a number of risks and uncertainties. Past performance is not indicative of feature results.

Bruce Spohler: Importantly, we have a defensively positioned portfolio. Our borrowers have a weighted average EBITDA, approximately 130 million, carried low loan to values of just over 37%, and interest coverage of 1.7 times, consistent with the prior quarter. Overall, the sponsor finance portfolio has continued to exhibit solid credit metrics. During the quarter, we made investments of approximately 45 million, and experienced repayments of 33 million. As Michael mentioned, sponsor finance deal flow continues to be muted due to lower M&A volume. However, there are pockets in our defensive industries to invest in attractive risk-adjusted yields. At quarter end, the weighted average cashflow yield was 11.7%, down slightly from the prior quarter.

Bruce Spohler: Importantly, we have a defensively positioned portfolio. Our borrowers have a weighted average EBITDA of approximately $130 million, carry low loan-to-values of just over 37%, and interest coverage of 1.7 times, consistent with the prior quarter. Overall, the sponsor finance portfolio has continued to exhibit solid credit metrics. During the quarter, we made investments of approximately $45 million, and we experienced repayments of $33 million. As Michael mentioned, sponsor finance deal flow continues to be muted due to lower M&A volume. However, there are pockets in our defensive industries to invest at attractive risk-adjusted yields. At quarter end, the weighted average cash flow yield was 11.7%, down slightly from the prior quarter. Now, let me turn to asset-based linebackers.

Speaker: Importantly, we have a defensively positioned portfolio, our borrowers have a weighted average EBITDA of approximately $130 million.

Speaker: I read low loan to values of just over 37% and.

Speaker: And interest coverage of one seven times consistent with the prior quarter.

Speaker: Overall, the sponsor finance portfolio has.

Speaker: Continued to exhibit solid credit metrics.

Speaker: During the quarter, we made investments of approximately $45 million in.

Shiraz Kajee: Actual results may differ materially as a result of a number of factors, including those described from time to time in our findings with the SEC. We did not undertake to update any forward-looking statements unless required to do so by law. To gain copies of our latest SEC file, please visit our website. We'll call us at 212-99316-70.

Speaker: And experienced repayments of $33 million.

Speaker: As Michael mentioned sponsor finance deal flow continues to be muted due to lower M&A volume.

Speaker Change: However, there are pockets in our defensive industries to invest at attractive risk adjusted yields.

Michael Gross: At this time, I would like to turn the call back over to our chairman and co-CEO, Michael Gross. Thank you, Shiraz, and thank you to everyone for joining our earnings call today. After the market closed yesterday, SLRC reported net investment income of 45 cents per share in the second quarter of 2024, representing a 1 percent increase over the prior quarter, and distribution coverage of approximately 110 percent. Our net investment income per share in the second quarter reached the highest level in five years, reflecting our deliberate approach in rebuilding the investment portfolio after period conservatism following during the onset of COVID.

Speaker Change: At quarter end, the weighted average cash flow yield was 11, 7%.

Speaker Change: Down slightly from the prior quarter.

Speaker: Now let me turn to Asset Baseline. Additionally, it's important to note that recent headlines around increased interest in asset-based financing or asset-based securitization do not impact the competitive landscape for our asset-based loans. In our ABL businesses, we focus on individual corporate borrowers and conduct extensive due diligence on their underlying collateral. Thus, an increase in ABS competition does not have a material impact on our asset-based lending business.

Bruce Spohler: Now, let me turn to asset-based lineback. We continue to see an increase in the opportunity set for ABL asset classes as a result of ongoing credit tightening and rationalization of business lines at US regional banks. We were able to originate several investments during the second quarter. However, we remain committed to our disciplined underwriting standards, which we focus on the quality and liquidity of the online collateral base when determining our acceptable loan-to-value ratios. Additionally, it's important to note that recent headlines around increased interest in asset-based financing or asset-based securitization does not impact the competitive landscape for our asset-based loans.

Speaker: Now, let me turn to asset based lending.

Bruce Spohler: We continue to see an increase in the opportunity set for ABL asset classes as a result of ongoing credit tightening and rationalization of business lines at U.S. regional banks. We were able to originate several investments during the second quarter, but we remain committed to our disciplined underwriting standards, in which we focus on the quality and liquidity of the online collateral base when determining our acceptable loan-to-value ratios. Additionally, it's important to note that recent headlines around increased interest in asset-based financing or asset-based securitization do not impact the competitive landscape for our asset-based loans.

Speaker: We continue to see an increase in the opportunity set for CBL asset classes as a result of ongoing credit tightening and rationalization of business lines that use U S regional banks.

Speaker: We were able to originate several investments during the second quarter. However, we remain committed to our disciplined underwriting standards, which we focus on the quality and liquidity of the <unk>.

Michael Gross: Our NAV per share increased to penny sequentially to $18.20 as of June 30, 2024. We believe the recent stability of our NAV reflects our multi-strategy senior secured portfolio which is substantially constructed in 2023 and 2024 and underwritten to withstand higher interest rates and a softening of the economy. While private credit conditions in the second quarter continue to be impacted by a revival of a syndicated loan market, we were able to source attractive investment opportunities across our platform.

Speaker Change: I think collateral base when determining our acceptable loan to value ratios.

Speaker: Additionally, it is important to note that recent headlines around increased interest in asset based financing or asset based securitization does not impact the competitive landscape for our asset based loans.

Bruce Spohler: Within the more ABS-like strategies, originators underwrite pools of assets such as student loans, credit card loans, or residential mortgages, and securitize them. In our ABL businesses, we focus on individual corporate borrowers and conduct extensive due diligence on their underlying collateral. We then actively monitor their borrowing base throughout the life of our loan. These asset classes require unique skill sets and target very different issuers. Thus, an increase in ABS competition does not have a material impact on our asset-based lending businesses. At quarter end, our ABL portfolio totaled 960 million, representing approximately 31 percent of the total portfolio.

Bruce Spohler: Within the more ABS-like strategies, originators underwrite pools of assets, such as student loans, credit card loans, or residential mortgages, and securitize them. In our ABL businesses, we focus on individual corporate borrowers and conduct extensive due diligence on their underlying collateral. We then actively monitored their borrowing base throughout the life of our loan. These asset classes require unique skill sets and target very different issuers. Thus, an increase in ABS competition does not have a material impact on our asset-based lending business.

Speaker Change: Within the more ABS like strategies originators underwrite pools of assets, such as student loans credit card loans residential mortgages and securitize them.

Speaker: And our ABL businesses, we focus on individual corporate borrowers and conduct extensive due diligence on their underlying collateral.

Michael Gross: The combination of increased competition from the BSL and SEALA markets together with muted M&A activity has caused pricing and terms for deals and the sponsor finance markets to become more borrower friendly. In many instances, this has reduced the liquidity premium for some BDC portfolios. Through the more favorable conditions in our specialty finance markets, our investments in the second quarter were once again more heavily weighted to those asset classes which we believe currently provide a more attractive risk adjusted return relative to sponsor finance loans.

Speaker: We then actively monitor their borrowing base throughout the life of our loan.

Speaker: These asset classes require unique skill sets and target very different issuers.

Speaker: An increase in ABS competition does not have a material impact on our asset based lending businesses.

Bruce Spohler: At quarter end, our ABL portfolio totaled $960 million, representing approximately 31% of the total portfolio. It was invested across 163 borrowers. The weighted average asset level yield was 15.2% compared to 15.7% in the prior quarter.

Speaker: At quarter end, our ABL portfolio totaled $960 million, representing approximately 31% of the total portfolio.

Bruce Spohler: It was invested across 163 borrowers. The weighted average asset level killed was 15.2 percent compared to 15.7 percent in the prior quarter, and our average loan to value was 67 percent. For the second quarter, we had 130 million of new asset-based lending investments and repayments of 100 million.

Speaker: It was invested across 163 borrowers.

Michael Gross: Our ability to pivot to the best risk-growing opportunities within various private credit strategies is a hallmark of SLR strategy allocation approach. We believe private credit investors are increasingly looking for diverse and proprietary investment strategies within BDCs. SLR C's conference at portfolio had originations of $356 million and repayments of $292 million in the second quarter result in net portfolio growth of $62 million. 87 percent of originations were from SLR's asset-based lending, life sciences lending, and equipment finance verticals set another way, only 13 percent of our second quarter originations were in sponsor finance.

Speaker: The weighted average asset level yield was 15, 2% compared to $15 seven.

Speaker: In the prior quarter, and our average loan to value of 67%.

Bruce Spohler: And our average loan-to-value was 67%. For the second quarter, we had $130 million of new asset-based lending investments and repayments of $100 million. Now, let me touch on Equipment Finance. For rental, the portfolio totaled approximately $1 billion, representing a third of our total portfolio, highly diversified across over 580 borrowers. The credit profile of the portfolio continues to be stable.

Speaker: For the second quarter, we had $130 million of new asset-based lending investments and repayments of $100 million, highly diversified across over 580 borrowers. At quarter end, our life science portfolio totaled $345 million. Approximately 86% of the portfolio at par is invested in loans to borrowers that have over 12 months of cash runway. During the second quarter, we earned $1.9 million from the SSLP, representing a 15.7% annualized yield, compared to earnings of $1.6 million in the first quarter and a yield of 13.6%, including unfunded commitments.

Speaker: For the second quarter, we had $130 million of new asset based lending investments and repayments of $100 million.

Bruce Spohler: Now, let me touch on equipment for now. Porto Rant, the portfolio total approximately $1 billion representing a third of our total portfolio, is highly diversified across over 580 borrowers. The credit profile of the portfolio continues to be stable. The weighted average asset level yield is 8.1%. During Q2, we originated approximately $178 million of new assets, for the majority coming from our business that provides leases to investment-grade borrowers for their mission-critical equipment. We have repayments of approximately $160 million. Our investment pipeline has expanded in conjunction with the disruption caused by last year's regional bank failures, as well as the continued expansion of our vendor finance program.

Speaker: Now, let me touch on equipment finance.

Speaker: Quarter end the portfolio totaled approximately $1 billion, representing a third of our total portfolio.

Speaker: Really diversified across over 580 borrowers.

Speaker: The credit profile of the portfolio continues to be stable.

Bruce Spohler: The Weighted Average Asset Level Yield was 8.1%. During Q2, we originated approximately $178 million of new assets, with the majority coming from our business that provides leases to investment grade borrowers for their mission critical equipment. We had repayments of approximately $160 million. Our investment pipeline has expanded in conjunction with the disruption caused by last year's regional bank failures, as well as the continued expansion of our vendor finance program. Now, finally, let me turn to Life Sciences.

Speaker Change: The weighted average asset level yield eight 1%.

Michael Gross: A continued reversal from SLR's year when most of our originations were concentrated in sponsor finance. Management teams and sponsors are exploring ways to raise new capital support owning assets over longer time frame in order to execute their business plan. Additionally, more sponsors have been increasing their focus on asset rich industries in which portfolio companies can more effectively leverage current assets and ABL structures to finance their working and growth capital requirements. This has created an opportunity for asset-based lending and resulted in $130 million of ABL originations in the second quarter.

Speaker: During Q2, we originated approximately $178 million of new assets with the majority coming from our business that provides leases to investment grade borrowers for their mission critical equipment.

Speaker: We had repayments of approximately $160 million.

Speaker: Our investment pipeline has expanded in conjunction with the disruption caused by last year's regional bank failures as well as the continued expansion of our vendor finance program.

Bruce Spohler: Now finally, let me turn to the life sciences. At Q2, our life science portfolio totaled $345 million. Approximately 86% of the portfolio at par is invested in loans to borrowers that have over 12 months of cash runway. Additionally, all of our portfolio companies have revenues with at least one product in the commercialization stage, which significantly de-risks our investment. Life science loans represented just over 11% of the portfolio and contributed 21% of our gross investment income for the quarter. During Q2, the team funded $3 million of follow-on investments and had no repayments. At quarter end, the weighted average yield on this portfolio was 13%, excluding potential success fees and warrants.

Speaker: Now finally, let me turn to the lender of life Sciences.

Michael Gross: Post-quarter end we've identified several attractive ABL mass opportunities and expect the counter-secular attribute of this financing interest to benefit from potential economic headwinds. We are pleased with construction quality and performance of our portfolio. At quarter end, approximately 98 percent of a comprehensive investment portfolio was comprised of first-leaning senior secured loans. SLR's long-standing focus on first-leaning loans has resulted in a portfolio which we believe is more conservatively positioned and better equipped to withstand persistent inflationary pressures and high interest rates than portfolios of second-leaning and broader secular exposure.

Bruce Spohler: At quarter end, our life science portfolio totaled $345 million. Approximately 86% of the portfolio at par is invested in loans to borrowers that have over 12 months of cash runway. Additionally, all of our portfolio companies have revenues with at least one product in the commercialization stage, which significantly de-risks our investors. Life Science Loans represented just over 11% of the portfolio and contributed 21% of our gross investment income for the quarter. During Q2, the team funded $3 million in follow-on investments and had no repayment.

Speaker: At quarter end, our life science portfolio totaled $345 million.

Speaker: 86% of the portfolio at par has invested in loans to borrowers that over have over 12 months of cash runway. Additionally.

Speaker: Additionally, all of our portfolio companies have revenues with at least one product in the commercialization stage.

Speaker: Which significantly de risks our investment.

Speaker: Life Science loans represented just over 11% of the portfolio and contributed 21% of our gross investment income for the quarter.

Michael Gross: As of June 30th, our investments in non-accrual represented just 0.6 percent and 0.4 percent of the investment portfolio on a cost and fair value basis respectively. We believe our low-lit rate of non-accruals is a result of a multi-strategy approach in which our specialty-based strategies enable us to be more selective in our sponsor finance In response finance, the average EBITDA and revenue growth continue to be positive for portfolio companies. Overall, they have successfully managed the transition to an environment with higher cost of capital as well as inflationary premiums.

Speaker: During Q2, the team funded $3 million of follow on investments and had no repayments.

Bruce Spohler: At quarter end, the weighted average yield on this portfolio was 13%, excluding potential success fees and warrants. With early signs of an improvement in life sciences, we have seen a modest uptick in our valuations and pipelines. While valuations remain challenging... We believe a decline in interest rates will inspire greater investment activity. Given our ability to allocate capital to the best risk-adjusted reward sectors, we have the luxury of being highly selective in our capital deployment in life sciences while still generating positive total originations across the entire company.

Speaker: At quarter end, the weighted average yield on this portfolio was 13% excluding potential success fees and warrants.

Bruce Spohler: With early science of an improvement in life sciences, we have seen a modest up to our valuations in pipeline. While valuations remain challenging, we believe a decline in interest rates will inspire greater investment activity. Given our ability to allocate capital to the best risk-adjusted reward sectors, we have the luxury of being highly selective in our capital deployment in life sciences. While still generating positive total originations across the entire company.

Speaker: With early signs of an improvement in life Sciences, we have seen a modest uptick evaluations and pipeline.

Speaker: While valuations remain challenging.

Michael Gross: The weighted average interest rate in our sponsored loan has steadily has held steady at approximately 1.7 times. Additionally, only 0.8 percent of second quarter gross income is in the form of capitalized pick from cash laborers resulting from amendments. We believe these healthy metrics are the result of the diversity of our investment portfolio across private credit strategies and our focus in sponsored finance and recession resilient industries with high recurring free cash flow.

Speaker: We believe a decline in interest rates will inspire greater investment activity.

Speaker: Given our ability to allocate capital to the best risk adjusted reward sectors, we have the luxury of being highly selective in our capital deployment and life Sciences, while still generating positive total originations across the entire company.

Bruce Spohler: Lastly, let me touch on the SSLP. During the second quarter, we earned 1.9 million from the SSLP, representing a 15.7% annualized yield, compared to earnings of 1.6 million in the quarter and a yield of 13.6%. At quarter end, we had a portfolio of just over 200 million, including unfunded commitments. We now have close to 240 million of investments.

Bruce Spohler: Lastly, let me touch on the SSLP. During the second quarter, we earned $1.9 million from the SSLP, representing a 15.7% annualized yield, compared to earnings of $1.6 million in the previous quarter and a yield of 13.6%. At quarter end, we had a portfolio of just over $200 million, including unfunded commitments. We now have close to $240 million of investment. Now, let me turn the call back to Mike.

Speaker: Lastly, let me touch on PSS L P.

Speaker: During the second quarter, we earned $1 9 million from the SSL P. Representing a 15, 7% annualized yield compared to earnings of one 6 million in the quarter.

Michael Gross: The credit quality of our specific finance investments continues to be solid with a tract of LTVs which have meaningful which have meaningful collateral support and borrowing based structures. This collateral support should lead to high recovery values relative to sponsored finance, cash flow, back loans. While we are optimistic that M&A will increase the back capital, current sponsored finance activity remains centered on DDTL draws and amend and extend transactions which we have addressed which we are addressing cautiously. At June 30th, including available credit facility capacity at SSLP and our specially financed portfolio companies, SLRC had over 750 million dollars of available capital to deploy.

Speaker: <unk> and a yield of 13, 6%.

Speaker: At quarter end, we had a portfolio of just over $200 million.

Speaker: Including unfunded commitments.

Speaker Change: We now have close to $240 million of investments.

Michael Gross: Now let me turn the call back to Michael.

Speaker: Now, let me turn the call back to Michael.

Michael Gross: Thank you, Bruce. In conclusion, we are pleased with our second quarter results, as well as a credit quality by portfolio. The growth of our plan from the last few years has enhanced our diversified commercial finance investment capabilities. We believe SLRC's recent performance, portfolio credit quality, and diversified proprietary sourcing engines create a differentiated and attractive risk-return profile for our shareholders. We've started to see significant dispersion in credit quality metrics within the private credit marketplace and believe our deliberate and tactical approach to rebuild the portfolio. It's predominantly first investments with significant diversification is beginning to differentiate our performance.

Speaker Change: Thank you Bruce.

Michael Gross: In conclusion, we are pleased with our second quarter results as well as the credit quality of our portfolio. The growth of our platform in the last few years has enhanced our diversified commercial finance investment capability. We believe SLRC's recent performance portfolio credit quality and diverse types of proprietary sourcing engines created a differentiated and attractive risk return profile for our shareholders. We've started to see significant dispersion in credit quality metrics within the private credit marketplace and believe our deliberate and tactical approach to rebuild the portfolio into predominantly first-line investments with significant diversification has begun to differentiate our performance.

Speaker: In conclusion, we are pleased with our second quarter results as well as the credit quality of our portfolio.

Speaker: The growth of our platform in the last few years has enhanced our diversified commercial finance investment capabilities.

Speaker: We believe SLRC's recent performance, portfolio credit quality, and diversified proprietary sourcing engines create a differentiated and attractive risk return profile for our shareholders. We've started to see significant dispersion in credit quality metrics within the private credit marketplace and believe our deliberate and tactical approach to rebuild the portfolio into predominantly first-line investments with significant diversification has begun to differentiate our performance. Furthermore, only 0.8% of our gross income is in the form of capitalized PIC on restructured cash flow assets, which we believe is also significantly below the peer group. Recent economic data has increased the perceived risks of a hard landing for the U.S. economy and heightened fears of a recession.

Speaker: We believe <unk> recent performance portfolio credit quality and diversify proprietary sourcing engines create a differentiated and attractive risk return profile for our shareholders. We.

Michael Gross: From our seats, we think SLRC is in a favorable position to take advantage of the durable economic conditions or softening the economy.

Speaker: We are starting to see significant dispersion in credit quality metrics within the private credit market place and believe our deliberate and tactical approach to rebuild the portfolio. It is predominantly first lien investments with significant diversification has begun to differentiate our performance.

Shiraz Kajee: I know it turned the call back over Shiraz, our CFO, to take you through the Q2 financial highlights.

Shiraz Kajee: Thank you Michael. SLR investment cost net asset value at June 30th, 2024 was $993 million or $18.20 per share. It's a $992 million or $18.19 per share at March 31st. According to SLRC's our balance sheet investment portfolio had a fair market value to approximately $2.1 billion. In 138 portfolio companies across 37 industries compared to a fair market value of $2.1 billion in $145 portfolio companies across 41 industries at March 31st. At June 30th, the company had approximately $1.2 billion of debt outstanding with a net debt to equity ratio of 1.16 times.

Michael Gross: This is seen in our credit quality metrics from a low rate of nano-cruels and our multi-strategy portfolio construction approach in which our special defense strategies enable us to be more selective in our sponsored finance business and remotely pass on deals that don't meet our risk of just return profile. Furthermore, only 0.8% of our gross income is in the form of capitalized pick on restructure castle asset, which we believe is also significantly below the peer group. Recent economic data has increased the perceived risks of a hard landing for the U.S. economy and heightened fears of recession.

Michael Gross: This is seen in our credit quality metrics from a low rate of non-accruals and our multi-strategy portfolio construction approach, where our specially-planned strategies enable us to be more selective in our sponsored finance business and, most importantly, pass on deals that don't meet our risk-adjusted return profile. Furthermore, only 0.8% of our gross income is in the form of capitalized PIC on restructured cash flow assets, which we believe is also significantly below the peer group.

Speaker: This is seen in our credit quality metrics from a low rate of non accruals and our multi strategy portfolio concentrated construction approach, which are specialty past strategies.

Speaker: It enabled us to be more selective in our sponsored finance business and most fully pass on deals that don't meet our risk adjusted return profile.

Speaker: Furthermore, only 0.8% of our gross income is in the palm of capitalized pick on restructured castle asset, which we believe is also significantly below the peer group.

Michael Gross: Recent economic data has increased the perceived risks of a hard landing for the U.S. economy and heightened fears of a recession. With the November election and ongoing negative geopolitical developments, markets are experiencing elevated volatility and greater uncertainty. These factors, along with comments made by members of the FOMC in the third quarter of 2024, have started to change the forward curve's expectations.

Speaker: Recent economic data has increased the perceived risks of a hard landing for the U S economy, and heightened fears of a recession.

Shiraz Kajee: We expect our net debt to equity ratio to remain in the middle of our target range of 0.9 to 1.25 times. SLRC's funding profile is in a strong position to continue to weather the current interest rate movement. I think our existing $470 million of senior unsecured fixed rate notes have a weighted average annual interest rate of only 3.8%. We remain in dialogue with the fixed income community and expect to opportunistically access to investment-grade market.

Michael Gross: With November election and ongoing negative geopolitical developments, markets are experiencing elevated volatility and greater uncertainty. These factors, along with comments made by members of the FOMC in the 3rd quarter of 2024, have started to change the forward curves' expectation. While that condition may present a challenge for some private credit portfolio yields that are constructed with floating rate assets, we do not expect yield contraction for special finance assets to the same extent as sponsored finance when base rates move lower.

Speaker: With the November election, and ongoing negative geopolitical developments markets are experiencing elevated volatility and greater uncertainty.

Speaker Change: These factors along with comments made by members of the F. F O M. C. In the third quarter 2024 has started to change the forward curves expectation.

Michael Gross: While that condition may present a challenge for some private credit portfolio yields that are constructed with floating rate assets, we do not expect yield contraction for specialty finance assets to the same extent as for sponsor finance when base rates move lower. In closing, SLRC trades at 11.1% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income investors and others. Our Investment Advisors' Alignment of Interest with SLRC shareholders continues to be one of our significant hallmark principles.

Speaker Change: While that condition may present, a challenge for some private credit portfolio yields that are constructed with floating rate assets. We do not expect yield contraction for specialty finance assets to the same extent as sponsor finance when base rates move lower.

Shiraz Kajee: The recent decline of risk-free rates, subsequent quarter-end, has been constructive to reduce the all-in-cost of any future debt issuance. Moving to the P&L for the three-month end of June 30th gross investment income totaled $59 million. This is $58.1 million for the three-month end of March 31st. Net expenses totaled $34.7 million for the three-month end of June 30th. This compares to a $34.2 million for the pride quarter. Accordingly, the company's net investment income for the three months end of June 30th, 2024, totaled $23 million for $0.45 per average share. One cent higher than the pride quarter and more than cover our 41 cent percent distribution during the period.

Michael Gross: In closing, SRC trades at 11.1% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income system and value investors and offers shareholders portfolio diversification benefits compared to sponsored finance-only strategies. Our investment advisor's alignment adventures with SRC shareholder's community one of our significant hallmark principles. The SRC team owns over 8% of the company stock and includes having a significant percentage of their annual incentive compensation invested in an SRC stock. The team's investment alongside fellow institutional and private wealth investors demonstrates our confidence in the company's portfolio, stable funding, and earnings outlook.

Speaker Change: In closing Src trades at 11, 1% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income.

Speaker: And value investors and offer shareholders portfolio diversification benefits compared to sponsor finance only strategies.

Speaker: Our investment advisors alignment of interest with Src shareholders continue to be one of our significant hallmark principles.

Michael Gross: The SLR team owns over 8% of the company's stock and includes having a significant percentage of their annual incentive compensation invested in SLRC stock. The team's investment, alongside fellow institutional and private wealth investors, demonstrates our confidence in the company's portfolio, stable funding, and earnings outlook. Thank you all again for your time today. As we know, it's an especially busy day for those that follow the listed marketplace closely. Operator, will you please open up the line for questions? Of course, I am at this time. If you would like to ask a question, please signal by crossing star one.

Speaker Change: That's our team.

Speaker: Over 8% of the company's stock and includes having a significant percentage of their annual incentive compensation invest in Src stock.

Speaker: The team's investment alongside fellow institutional and private wealth investors demonstrates our confidence in the company's portfolio stable funding and earnings outlook.

Shiraz Kajee: The other line, the company had a net-realized and unrealized last for the second quarter totaling $1.1 million First as a net-realized and unrealized gain of $4.4 million for the first quarter of 2024 As a result, the company had an net increase in net assets resulting from operations of $23.2 million for the three months at the June 30th, compared to a net increase of $27.9 million for the three months end of March 31st On August 7th, Board of SLRC declared a Q3 2024 quarterly distribution of 41 cents per share, payable on September 27th, 2024 to hold as a bracket as of September 15th, 2024.

Michael Gross: Thank you all again for your time today. As you know, it's an especially busy day for those that follow the listed marketplace closely.

Speaker Change: Thank you all again for your time today as we know, it's an especially busy day for those that follow the listed marketplace closely operator will you. Please open up the line for questions.

Operator: Operate it when you please. Open up the line for questions. As course, and at this time, if you would like to ask a question, please signal by pressing Star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing Star 2. Once again, that is star 1 to ask a question, and we will pause for a moment until our questions to queue. And again, that is star 1 if you would like to ask a question.

Operator: Of course, and at this time, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is Star 1 to ask a question, and we will pause for a moment to allow questions to queue. And again, that is Star 1 if you would like to ask a question. Our first question will come from Melissa Wedel, with J.P. Morgan. Please go ahead.

Speaker Change: Of course and at this time, if you would like to ask a question. Please signal by pressing star one on your telephone keypad.

Speaker Change: Remove yourself from the queue at any time by pressing star one.

Speaker Change: Again that is star one to ask a question and we will pause for a moment until our questions to queue.

Bruce Spohler: With that, I'll turn the call over to our co-CEO, Bruce Spohler. Thank you, Shiraz. In the current competitive sponsor finance cash flow market, the flexibility offered by our commercial finance strategy enables us to source attractive investment opportunities away from this competitive market. We take a fundamental bottoms-up approach to portfolio construction based upon the relative risk-adjusted return profile across our investment verticals. At quarter-end on a fair-value basis, the comprehensive portfolio consisted of 3.1 billion of senior secured loans to 800 different borrowers.

Speaker Change: And again that is star one if you would like to ask a question.

Speaker: Okay.

Speaker: Yes.

Speaker: Yeah.

Speaker: Yes.

Melissa Wedel: Our first question will come from Melissa Woodell with JP Morgan. Please go ahead.

Operator: Our first question will come from Melissa Wedel, with J.P. Morgan. Please go ahead.

Speaker Change: Our first question will come from Melissa Wedel with JP Morgan. Please go ahead.

Melissa Wedel: Good morning. Thanks for taking my question today. You touched on parts of it really, and it's about the earning power of the portfolio. We definitely take note that in the face of potentially lower interest rates, a good assignable portion of the SRC portfolio is fixed rate. So there would be a little bit less pressure there relative to some peers, but two thirds of the portfolio is fixed rate. And you know, when we look at the cushion of sort of out earning the dividend level, it's about four cents right now for share just based on two key levels.

Melissa Wedel: Good morning. Thanks for taking my question today. You touched on parts of it, really, and it's about the earnings power of the portfolio. We definitely take note that in the face of, you know, potentially lower interest rates, a good, a sizable portion of the SLRC portfolio is fixed rate. So, there would be a little bit less pressure there relative to some peers, but two-thirds of the portfolio is fixed rate. And, you know, when we look at the cushion of sort of out-earning the dividend level, it's about four cents right now per share, just based on two Q levels.

Melissa Wedel: Good morning. Thanks for taking my question today. You touched on parts of it really, and it's about the earnings power of the portfolio. We definitely take note that in the face of, you know, potentially lower interest rates, a good, a sizable portion of the SLRC portfolio is fixed rate. So, there would be a little bit less pressure there relative to some peers, but two-thirds of the portfolio is fixed rate. And, you know, when we look at the cushion of sort of out-earning the dividend level, it's about four cents right now per share, just based on two Q levels.

Melissa Wedel: Hi, good morning, Thanks for taking my question today.

Bruce Spohler: Measured of fair-value, 99.2% of our portfolio consisted of senior secured loans with 97.7% and first-lane loans, including investments in our SSLP attributable to the parent company. And only 0.3% was invested in second-lane cash flow loans with remaining 1.2% invested in second-lane asset-based loans. Our specialty finance investments account for approximately 75% of the portfolio with just over 24% of the portfolio invested in senior secured cash flow loans to upper-mid market sponsor back companies.

Speaker Change: Parts of it really and it's about the earnings power of the portfolio and we definitely take note that.

Melissa Wedel: In the face of.

Speaker Change: Potentially lower interest rate.

Melissa Wedel: Good sizable portion of the SLR seed portfolio is fixed rate. So there would be a little bit less pressure there relative to some peers, but two thirds of the portfolio is fixed rate and when we look at the cushion of sort of out earning the dividend level.

Speaker Change: It's about <unk> right now for sure just based on <unk> levels as you look at the forward curves moving forward.

Michael Gross: As you look at the forward curve moving forward, where do you see incremental upside to sort of NII or protecting that sort of dividend coverage level, especially if you get into sort of 25 and beyond. Thank you.

Melissa Wedel: As you look at the forward curve moving forward, how, where do you see incremental upside to sort of NII or protecting that sort of dividend coverage level, especially as you get into sort of 25 and beyond?

Melissa Wedel: As you look at the forward curve moving forward, how, where do you see incremental upside to sort of NII or protecting that sort of dividend coverage level, especially as you get into sort of 25 and beyond? Thank you.

Bruce Spohler: We believe this defensive portfolio construction positions us well for potential economic weakness and provides a differentiated risk-return profile relative to a sponsor finance only portfolio. At quarter-end our weighted average asset level yield was 11.7% compared to 11.8% prior quarter. Our credit quality remains strong. At quarter-end the weighted average investment risk rating of the portfolio was just under 2 based on our 1 to 4 risk rating scale with 1 representing the least amount of risk. Over 99% of the portfolio is rated 2 or higher at quarter-end. Moreover 99.4% of the portfolio on a cost basis and 99.6% on a fair value basis was performing with only 1 investment on non accrual.

Melissa Wedel: Where do you see incremental.

Melissa Wedel: Upside came sort of NII or protecting that sort of defer dividend coverage level, especially as you get into sort of 25 and beyond thank you.

Speaker: Sure. A great question, Melissa.

Michael Gross: Sure. A great question, Melissa.

Michael Gross: Sure, great question, Melissa. A couple of thoughts. First of all, as you know, only 24% of the portfolio is currently invested in cash flow assets, and some of those are held in the slip. So, as those have been repaid, we've been putting higher yielding assets. So, even as spreads come down, we don't expect much compression in that part of our cash flow portfolio. But again, only 24% of the comprehensive portfolio is exposed to cash flow assets, and the other 76% is exposed to, or especially finance verticals, which are much more important. More absolute return assets.

Michael Gross: Thank you. Sure. Great question, Melissa. A couple.

Melissa Wedel: Sure Great question Melissa.

Speaker Change: A couple of thoughts first of all as you know only 24% of the portfolio is currently invested in cash flow assets and some of those are held in the slip.

Speaker Change: First off on the cash flow portfolio, while you know that portfolio is sensitive to changes in base rates.

Speaker: A couple of thoughts. First of all, as you know, only 24% of the portfolio is currently invested in cash flow assets, and some of those are held in the slip. First off, on the cash flow portfolio, while you know that portfolio is sensitive to changes in base rates, the SSLP portion of that portfolio was constructed back in 2022 with a merger of SUNS and SLRC and had lower yielding assets at the time.

Michael Gross: A couple of thoughts. First of all, as you know, only 24% of the portfolio is currently invested in cash flow assets, and some of those are held in the slip. First off, on the cash flow portfolio, while you know that portfolio is sensitive to changes in base rates, the SSLP portion of that portfolio was constructed back in 2022 with a merger of SUNS and SLRC and had lower yielding assets at the time.

Speaker Change: The U S. S. L. P portion of that portfolio was constructed back in 2022 with the merger of SUNS and SLR C and have lower yielding assets at the time. So as those have been repaying <unk> been putting a higher yielding asset so even as spreads come down we don't expect much compression in that.

Bruce Spohler: Now let me touch on each of our 4 investment variables.

Bruce Spohler: I'll begin with sponsor finance. In this business we originate first-lane senior secured loans to upper-mid market companies in non-cyclical industries such as healthcare, business services and financial services. This has helped to mitigate the impact on our portfolio from cyclical economic factors, at June 30th, our sponsor finance portfolio was approximately 160 million including loans in the SSLP, 24% of the comprehensive portfolio. It was invested across 47 different borrowers. With approximately 99% of this cashflow portfolio invested in first lean loans, we believe that we are well positioned to withstand any pressures that our borrowers may face.

Speaker: Of our cash flow portfolio, but again only 24% of the comprehensive portfolio.

Speaker: So as those have been repaying, we've been putting higher yielding assets in place. So even as spreads come down, we don't expect much compression in that part of our cash flow portfolio. But again, only 24% of the comprehensive portfolio is exposed to cash flow assets, and the other 76% is exposed to our specialty finance verticals, which are much more absolute return assets. It didn't widen out nearly as much as the cash flow market did over the last two years because at that point, at some point, those interest rates for those corporate borrowers would just become too expensive for them to carry.

Michael Gross: So as those have been repaying, we've been putting higher yielding assets in place. So even as spreads come down, we don't expect much compression in that part of our cash flow portfolio. But again, only 24% of the comprehensive portfolio is exposed to cash flow assets, and the other 76% is exposed to our specialty finance verticals, which are much more absolute return assets. It didn't widen out nearly as much as the cash flow market did over the last two years because at that point, at some point, those interest rates for those corporate borrowers would just become too expensive for them to carry.

Speaker Change: Bose the cash flow assets and the other 76% is exposed to our specialty finance verticals, which are much more absolute return assets. It didnt widen out nearly as much as the cash flow market did over the last two years because at that point at some point those interest rates for.

Michael Gross: It didn't widen out nearly as much as the cash flow market did over the last two years, because at that point, at some point those interest rates for those corporate borrowers would just become too expensive for them to carry. But they also don't compress nearly to the extent of the cash flow market. They tend to vacillate within two to three hundred basis points. You see life sciences where yielding 13% that's before warrants and success fees. The track record is close to 15%, 16% when you include those. So, that may compress a little bit, but it also didn't expand much over the last couple of years.

Speaker: Those corporate borrowers would just become too expensive for them to carry but they also don't compress nearly to the extent of the cash flow markets. They tend to vacillate within two to 300 basis points you see life Sciences, we're yielding 13% that's before.

Speaker: But they also don't compress nearly to the extent of the cash flow market. Instead, they tend to vacillate within 200 to 300 basis points. You know, life sciences were yielding 13%. That's before warrants and success fees. The track record is closer to 15, 16% when you include those. So that may compress a little bit, but it also didn't expand much over the last couple years. So we feel that we will be insulated on the downside because of our exposure to commercial finance businesses that are less interest rate sensitive, as well as the fact that we are not fully invested across all of the FinCos.

Michael Gross: But they also don't compress nearly to the extent of the cash flow market. Instead, they tend to vacillate within 200 to 300 basis points. You know, life sciences were yielding 13%. That's before warrants and success fees. The track record is closer to 15, 16% when you include those. So that may compress a little bit, but it also didn't expand much over the last couple of years. So we feel that we will be insulated on the downside because of our exposure to the commercial finance businesses that are less interest rate sensitive, as well as the fact that we are not fully invested across all of the FinCos.

Speaker Change: Warrants and success fees. The track record is closer to 15%, 16%. When you include those so that may compress a little bit.

Bruce Spohler: Importantly, we have a defensively positioned portfolio. Our borrowers have a weighted average EBITDA, approximately 130 million, carried low loan to values of just over 37%, and interest coverage of 1.7 times consistent with the prior quarter. Overall, the sponsor finance portfolio has continued to exhibit solid credit metrics. During the quarter, we made investments of approximately 45 million, and experienced repayments of 33 million.

Speaker: But it also didn't expand much over the last couple of years. So we feel that we.

Michael Gross: So, we feel that we will be insulated on the downside because of our exposure to the commercial finance businesses that are less interest rate sensitive, as well as the fact that we are not fully invested across all of the Fincos. We have rebuilt these portfolios as well as rebuilding on balance sheet with the leverage currently at about 1.16, but there is room to grow across the portfolios. So, we feel very good about the stability of our earnings.

Michael Gross: We have rebuilt these portfolios as well as rebuilt on the balance sheet with the leverage currently at about 1.16. But there is room to grow across the portfolio. So we feel very good about the stability of our earnings.

Speaker: We will be insulated on the downside because of our exposure to the commercial finance businesses that are less interest rate sensitive as well as the fact that we are not fully invested across all of the fin codes. We have rebuilt these portfolios as well as rebuilding on balance sheet with the leverage.

Speaker: We have rebuilt these portfolios, as well as rebuilt on the balance sheet with the leverage currently at about 1.16. But there is room to grow across the portfolio. So we feel very good about the stability of our earnings.

Speaker: Our leverage currently at about 116, but there is room to grow across the portfolio. So we feel very good about the stability of our earnings.

Bruce Spohler: As Michael mentioned, sponsor finance deal flow continues to be muted due to lower M&A volume. However, there are pockets in our defensive industries to invest in attractive risk-adjusted yields. At quarter end, the weighted average cashflow yield was 11.7% down slightly from the prior quarter.

Operator: And again, that is star one. If you would like to ask a question.

Operator: And again, that is star number one if you would like to ask a question. Our next question will come from John Paul Adams with Raymond James.

Operator: And again, that is star number one if you would like to ask a question. Our next question will come from John Paul Adams with Raymond James. Please go ahead. Hey guys.

Speaker: And again that is star one if you would like to ask a question.

John Paul Adams: Our next question will come from John Paul Adams with Raymond James. Please go ahead.

Bruce Spohler: Now, let me turn to asset-based lineback. We continue to see an increase in the opportunity set for ABL asset classes as a result of ongoing credit tightening and rationalization of business lines at US regional banks. We were able to originate several investments during the second quarter.

Operator: Our.

Speaker Change: Next question will come from John Paul Adkins with Raymond James Please.

Speaker Change: Please go ahead.

John Paul Adams: Hey guys, good morning.

Speaker Change: Hey, guys. Good morning, I hopped on the call a bit late so I apologize if this question's already been asked but.

Bruce Spohler: I hopped on the call a little bit late, so I apologize if this question's already been asked, but is the competitive environment in the life sciences division? Do you guys think that that's going to change materially if activity picks up? So, that is a terrific question. We have found, as you may recall, our team has been doing this for over 25 years, going back to starting the business at GE Capital before they joined our platform of 10 years or so ago. And they have seen competitors come and go. It's obviously a very attractive return business, the team having, as I said, mid-teens returns with no defaults, no losses in their entire history.

Speaker Change: Competitive environment and the life Sciences Division.

Speaker Change: You guys think that that's going to change materially.

Bruce Spohler: However, we remain committed to our disciplined underwriting standards, which we focus on the quality and liquidity of the online collateral base when determining our acceptable loan to value ratios. Additionally, it's important to note that recent headlines around increased interest in asset-based financing or asset-based securitization does not impact the competitive landscape for our asset-based loans. Within the more ABS-like strategies, originators underwrite pools of assets such as student loans, credit card loans, or residential mortgages, and securitize them.

Speaker Change: Picks up.

John Paul Adams: That is a terrific question. We have found, as you may recall, our team has been doing this for over 25 years, going back to starting the business at GE Capital before they joined our platform 10 years or so ago, and they have seen competitors come and go. It's obviously a very attractive return business, the team having, as I said, mid-teens returns with no defaults and no losses in their entire history. But, you know, beauty is in the eye of the beholder.

Speaker Change: So that is a terrific question we have found.

Speaker Change: Recall, our team has been doing this for over 25 years.

Speaker Change: Going back to starting the business at GE capital before they joined our platform of 10 years or so ago.

Speaker Change: And they have seen competitors come and go it's obviously a very attractive return.

Speaker Change: Business the team, having said mid teens returns with no defaults no losses in their entire history.

Bruce Spohler: But, you know, it's beauty is in the eye of the beholder. You really need to get in there and peel the onion and understand that it is a hybrid entry business in terms of the expertise needed in the sector. Understanding the FDA approval process, understanding CMS reimbursement process, having relationships with number of the venture capital firms, as well as the management teams. And so, people come in and, unfortunately, tend to experience losses rather quickly. This is not a business that, you know, it takes a few years to figure out whether you're good or not. And so, we've seen a number of people come in, and fortunately they exit rather quickly.

Operator: <unk>.

Speaker Change: Beauty is in the either the holder you really need to get in there and Peel the onion and understand that it is a.

Bruce Spohler: You really need to get in there and peel the onion and understand that it is a high barrier to entry business in terms of the expertise needed in the sector, understanding the FDA approval process, understanding the CMS reimbursement process, having relationships with a number of venture capital firms as well as the management teams. And so people come in and, unfortunately, tend to experience losses rather quickly. This is not a business where, you know, it takes a few years to figure out whether you're good or not.

Bruce Spohler: In our ABL businesses, we focus on individual corporate borrowers and conduct extensive due diligence on their underlying collateral. We then actively monitor their borrowing base throughout the life of our loan. These asset classes require unique skill sets and target very different issuers. Thus, an increase in ABS competition does not have a material impact on our asset-based lending businesses.

Speaker Change: Our high barrier to entry business in terms of the expertise needed in this sector understanding the FDA approval process understanding CMS reimbursement process, having relationships with number of the venture capital firms as well as the management teams.

Speaker Change: And so people come in and unfortunately tend to experience losses, rather quickly.

Bruce Spohler: At quarter end, our ABL portfolio totaled 960 million representing approximately 31 percent of the total portfolio. It was invested across 163 borrowers. The weighted average asset level killed was 15.2 percent compared to 15.7 percent in the prior quarter, and our average loan to value was 67 percent. For the second quarter, we had 130 million of new asset-based lending investments and repayments of 100 million.

Speaker Change: This is not a business that.

Speaker Change: It takes a few years to figure out whether you are good or not.

Bruce Spohler: And so we've seen a number of people come in, and fortunately, they exit rather quickly. So we're not expecting any significant change in competition. I think what we're really looking for is that natural cycle to reverse itself with the amount of VC capital that's been raised being deployed, going through the FDA approval process, getting to this late stage where we deploy our debt capital and support them in their equity investment, and also having the confidence to invest means seeing the valuation stabilize in the sector, and that begins to attract more capital.

Speaker Change: And so we've seen a number of people come in.

Speaker Change: Fortunately they exit rather quickly so we're not expecting any significant change in competition I think we're really looking for is that natural cycle.

Bruce Spohler: So, we're not expecting any significant change in competition. I think what we're really looking for is that natural cycle to reverse itself with the amount of VC capital that's been raised, being deployed, coming through the FDA approval process, getting to the late stage, where we deploy our debt capital and support them in their equity investment. And also having the confidence to invest, me in seeing the valuation stabilized in the sector. And that begins to attract more capital. A lot of the investing was paused as the FDA slowed down and turned all of their attention to approvals for therapies and treatments for COVID.

Speaker Change: To reverse itself with the amount of VC capital, that's been raised being deployed coming through.

Speaker Change: The FDA approval process getting to this late stage, where we deploy our debt capital and support them in their equity investment and also having the confidence to invest means seeing the valuation stabilize in the sector and thats begins to attract more capital a lot of the investing was paused as the FDA slowed down.

Bruce Spohler: Now, let me touch on equipment for now. Porto Rant, the portfolio total approximately $1 billion representing a third of our total portfolio is highly diversified across over 580 borrowers. The credit profile of the portfolio continues to be stable.

Bruce Spohler: A lot of the investing was paused as the FDA slowed down and turned all of their attention to approvals for therapies and treatments for COVID. And so those wheels are turning again, and we think this is just a part of the cycle and look to actively be more deploying capital as we get into later this year. That's a phenomenal color. I really like it.

Music: ...... [music]

Speaker Change: And turned all of their attention to approvals for therapies and treatments for Covid that has change and so that those wheels are turning again and we think this is just a part of the cycle and look to actively be more.

Bruce Spohler: The weighted average asset level yield is 8.1%. During Q2, we originated approximately $178 million of new assets for the majority coming from our business that provides leases to investment grade borrowers for their mission critical equipment. We have repayments of approximately $160 million. Our investment pipeline has expanded in conjunction with the disruption caused by last year's regional bank failures, as well as the continued expansion of our vendor finance program.

Bruce Spohler: That is change. And so, those wheels are turning again. And we think this is just a part of the cycle and look to actively be more deploying capital as we get into later this year.

Speaker Change: Deploying capital as we get into later this year.

Bruce Spohler: And so, we've seen a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in and we're looking for a number of people come in That's phenomenal color.

Speaker: That's a phenomenal color. I really appreciate it. Thank you. And again, that is a star...

Speaker Change: That's phenomenal color I really appreciate it thank you.

Bruce Spohler: I really appreciate it.

Bruce Spohler: Thank you.

Operator: And again that is star one if you would like to ask a question.

Operator: And again, that is Star One, if you would like to ask a question. And, with no further questions, I'd like to turn the conference back to Michael Gross for closing comments.

Speaker: And again that is star one if you would like to ask a question.

Speaker: Okay.

Bruce Spohler: Now finally, let me turn to the life sciences. At Q2, our life science portfolio totaled $345 million. Approximately 86% of the portfolio at par is invested in loans to borrowers that have over 12 months of cash runway. Additionally, all of our portfolio companies have revenues with at least one product in the commercialization stage, which significantly de-risk our investment. Life science loans represented just over 11% of the portfolio and contributed 21% of our gross investment income for the quarter.

Michael Gross: And with no further questions, I'd like to turn the conference back to Michael Gross for closing comments. No further comments other than to thank all of you for your participation. Today, recognizing it is an extremely busy day.

Speaker: And with no further questions I'd like to turn the conference back to Michael gross for closing comments.

Michael Gross: No further comments other than to thank all of you for your participation today, recognizing it is an extremely busy day on a re-recording, please feel free to follow up with any questions that you may have.

Speaker Change: No further comments other than to thank all of you for your participation today recognizing it is an extremely busy day for those of you who listened to this recording please feel free to follow up with any questions that you may have thank you.

Michael Gross: For those of you who listened to this on a recording, please feel free to follow up on any questions that you may have. Thank you.

Operator: And that will conclude today's teleconference. Ladies and gentlemen, you may now disconnect.

Operator: And that will conclude today's teleconference. Ladies and gentlemen, you may now disconnect.

Speaker Change: And that will conclude today's teleconference, ladies and gentlemen, you may now disconnect.

Operator: Tom, thank you.

Speaker: Tom.

Speaker: [music].

Bruce Spohler: During Q2, the team funded $3 million of follow-on investments and had no repayments. At quarter end, the weighted average yield on this portfolio was 13%, excluding potential success fees and warrants. With early science of an improvement in life sciences, we have seen a modest up to our valuations in pipeline. While valuations remain challenging, we believe a decline in interest rates will inspire greater investment activity. Given our ability to allocate capital to the best risk-adjusted reward sectors, we have the luxury of being highly selective in our capital deployment in life sciences. While still generating positive total originations across the entire company.

Speaker: Yes.

Speaker: [music].

Speaker: Okay.

Speaker: [music].

Bruce Spohler: Lastly, let me touch on the SSLP. During the second quarter, we earned 1.9 million from the SSLP, representing a 15.7% annualized yield, compared to earnings of 1.6 million in the quarter and a yield of 13.6%. At quarter end, we had a portfolio of just over 200 million, including unfunded commitments. We now have close to 240 million of investments.

Michael Gross: Now let me turn the call back to Michael. Thank you, Bruce.

Speaker: Hum.

Michael Gross: In conclusion, we are pleased with our second quarter results, as well as a credit quality by portfolio. The growth of our plan from the last few years has enhanced our diversified commercial finance investment capabilities. We believe SLRC's recent performance portfolio credit quality and diversified proprietary sourcing engines create a differentiated and attractive risk return profile for our shareholders. We've started to see significant dispersion in credit quality metrics within the private credit marketplace and believe our deliberate and tactical approach to rebuild the portfolio.

Michael Gross: It's predominantly first investments with significant diversification is beginning to differentiate our performance. This is seen in our credit quality metrics from a low rate of nano-cruels and our multi-strategy portfolio construction approach in which our special defense strategies and enable us to be more selective in our sponsored finance business and remotely pass on deals that don't meet our risk of just return profile. Furthermore, only 0.8% of our gross income is in the form of capitalized pick on restructure castle asset, which we believe is also significantly below the peer group.

Michael Gross: Recent economic data has increased the perceived risks of a hard landing for the U.S, economy and heightened fears of recession. With November election and ongoing negative geopolitical developments, markets are experiencing elevated volatility and greater uncertainty. These factors, along with comments made by members of the FOMC in the 3rd quarter of 2024, has started to change the forward curves expectation. While that condition may present a challenge for some private credit portfolio yields that are constructed with floating rate assets, we do not expect yield contraction for special finance assets to the same extent as sponsored finance when base rates move lower.

Michael Gross: In closing, SRC trades at 11.1% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income system and value investors and offers shareholders portfolio diversification benefits compared to sponsored finance only strategies. Our investment advisor's alignment adventures with SRC shareholder's community one of our significant hallmark principles. The SRC team owns over 8% of the company stock and includes having a significant percentage of their annual incentive compensation invested in an SRC stock. The team's investment alongside fellow institutional and private wealth investors demonstrates our confidence in the company's portfolio stable funding and earnings outlook.

Operator: Thank you all again for your time today. As you know, it's an especially busy day for those that follow the listed marketplace closely. Operate it when you please open up the line for questions. As course, and at this time, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question and we will pause for a moment until our questions to queue. And again, that is star 1 if you would like to ask a question.

Melissa Wedel: Our first question will come from Melissa Woodell with JP Morgan. Please go ahead. Good morning. Thanks for taking my question today. You touched on parts of it really and it's about the earning power of the portfolio. We definitely take note that in the face of potentially lower interest rates, a good assignable portion of the SRC portfolio is fixed rate. So there would be a little bit less pressure there relative to some peers, but two thirds of the portfolio is fixed rate.

Melissa Wedel: And you know, when we look at the cushion of sort of out earning the dividend level, it's about four cents right now for share just based on two key levels. As you look at the forward curve moving forward, where do you see incremental upside to sort of NII or protecting that sort of dividend coverage level, especially if you get into sort of 25 and beyond. Thank you.

Michael Gross: Sure, great question, Melissa. A couple of thoughts. First of all, as you know, only 24% of the portfolio is currently invested in cash flow assets, and some of those are held in the slip. So, as those have been repaid, we've been putting higher yielding assets. So, even as spreads come down, we don't expect much compression in that part of our cash flow portfolio. But again, only 24% of the comprehensive portfolio is exposed to cash flow assets, and the other 76% is exposed to or especially finance verticals, which are much more important.

Michael Gross: More absolute return assets. It didn't widen out nearly as much as the cash flow market did over the last two years, because at that point, at some point those interest rates for those corporate borrowers would just become too expensive for them to carry. But they also don't compress nearly to the extent of the cash flow market. They tend to vacillate within two to three hundred basis points. You see life sciences where yielding 13% that's before warrants and success fees.

Michael Gross: The track record is close to 15%, 16% when you include those. So, that may compress a little bit, but it also didn't expand much over the last couple of years. So, we feel that we will be insulated on the downside because of our exposure to the commercial finance businesses that are less interest rate sensitive, as well as the fact that we are not fully invested across all of the Fincos. We have rebuilt these portfolios as well as rebuilding on balance sheet with the leverage currently at about 1.16, but there is room to grow across the portfolios. So, we feel very good about the stability of our earnings.

Operator: And again, that is star one, if you would like to ask a question.

John Paul Adams: Our next question will come from John Paul Adams with Raymond James. Please go ahead. Hey guys, good morning.

Michael Gross: I hopped on the call a little bit late, so I apologize if this question's already been asked, but is the competitive environment in the life sciences division? Do you guys think that that's going to change materially if activity picks up? So, that is a terrific question. We have found, as you may recall, our team has been doing this for over 25 years, going back to starting the business at GE Capital before they joined our platform of 10 years or so ago.

Michael Gross: And they have seen competitors come and go. It's obviously a very attractive return business, the team having, as I said, mid teens returns with no defaults, no losses in their entire history. But, you know, it's beauties in the eye of the beholder. You really need to get in there and peel the onion and understand that it is a hybrid entry business in terms of the expertise needed in the sector. Understanding the FDA approval process, understanding CMS reimbursement process, having relationships with number of the venture capital firms, as well as the management teams.

Michael Gross: And so, people come in and unfortunately tend to experience losses rather quickly. This is not a business that, you know, it takes a few years to figure out whether you're good or not. And so, we've seen a number of people come in and fortunately they exit rather quickly. So, we're not expecting any significant change in competition. I think what we're really looking for is that natural cycle to reverse itself with the amount of VC capital that's been raised, being deployed, coming through the FDA approval process, getting to the late stage, where we deploy our debt capital and support them in their equity investment.

Michael Gross: And also having the confidence to invest, me in seeing the valuation stabilized in the sector. And that begins to attract more capital. A lot of the investing was paused as the FDA slowed down and turned all of their attention to approvals for therapies and treatments for COVID. That is change. And so, those wheels are turning again. And we think this is just a part of the cycle and look to actively be more deploying capital as we get into later this year. [inaudible] That's phenomenal color. I really appreciate it. Thank you. And again that is star one if you would like to ask a question.

Michael Gross: And with no further questions, I'd like to turn the conference back to Michael Gross for closing comments. No further comments other than to thank all of you for your participation. Today recognizing it is an extremely busy day. For those of you who listened to this on a recording, please feel free to follow up on any questions that you may have. Thank you.

Operator: And that will conclude today's teleconference.

Operator: Ladies and gentlemen, you may now disconnect.