Q3 2024 SLR Investment Corp Earnings Call
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The Second Part
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Speaker Change: Please stand by, your program is about to begin. If you need assistance during your conference today, please press star zero.
Speaker Change: Good day everyone and welcome to today's third quarter 2024 SLR Investment Corp. Earnings Call.
At this time, all participants are in a listen-only mode.
Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star and 2. Please note, this call is being recorded and I will be standing by if you should need any assistance.
Speaker Change: It is now my pleasure to turn the conference over to Michael Gross, Chairman and Co-CEO.
Michael Gross: Thank you very much and good morning. Welcome to SLR Investment Corp's earnings call. The quarter ended September 30, 2024.
Speaker Change: I'm joined here today by my long-term partner of 18 years, Bruce Spohler, Co-Chief Executive Officer, our Chief Finance Officer, Shiraz Kajee, and the SLR Investor Relations Team. Shiraz, before we begin, would you please start by covering the webcast and forward-looking statements?
Shiraz Kajee: Thank you, Michael. Good morning, everyone. I would like to remind everyone that today's call and webcast are being recorded.
Shiraz Kajee: Please note that they are the property of SLR Investment Group and that any unauthorized broadcast in any form is strictly prohibited.
Speaker Change: This conference call is also being webcast on the Events Calendar in the Investors section on our website at www.slrinvestmentcall.com.
Speaker Change: Audio replays of this call will be made available later today as disclosed now in November 6th at an express release.
Speaker Change: I would also like to call your attention to the customary disclosures in our press release regarding forward-looking standards.
Speaker Change: Today's conference call and webcast may include forward-looking statements and projections. These statements are not guarantees of our future performance or financial results, and involve a number of risks and uncertainties.
Past performance is not indicative of future results.
Speaker Change: 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.
Speaker Change: We do not undertake to update any forward-looking statements unless required to do so by law.
Speaker Change: To obtain copies of our latest SEC filings, please visit our website or call us at 212-993-1670.
Speaker Change: At this time I'd like to turn the call back over to our chairman and co-CEO Michael Gross
Michael Gross: Thank you, Shiraz, and again, thank you everyone for joining our earnings call this morning.
Speaker Change: After the market closed yesterday, SLRC reported net investment income of $0.45 per share for the third quarter of 2024, consistent with the prior quarter and representing distribution coverage of approximately 110 percent.
Michael Gross: Given that base rates declined for the first time in four years and conditions of the sponsor finance market remained fiercely competitive in the third quarter, we are pleased with the stability of our quarterly net investment income.
Michael Gross: Additionally, as a testament to the overall credit quality of our portfolio, our net asset value remained at $18.20 per share.
Michael Gross: We believe our stability is a direct result of our conservative underwriting philosophy and multi-strategy approach to private credit investing with approximately 78% of our loan portfolio derived from specialty finance investments supported by collateral.
Michael Gross: and the remainder in cash flow loans to borrowers in recession-resilient industries as of September 30th.
Michael Gross: Due to the more favorable conditions in especially finance markets, our investments in the third quarter were once again more heavily weighted in those asset classes, which we believe currently provide a more attractive risk-adjusted return relative to sponsored finance loans.
Michael Gross: 96% of our third quarter originations were in specialty finance, much higher than our historical mix.
Michael Gross: We believe our ability to pivot to the best risk-adjusted return across our private credit strategies is a hallmark of SLR's multi-strategy allocation approach.
Michael Gross: Increasingly, private credit investors are looking for proprietary investment strategies and less correlated portfolios across their BDC investments, which we believe is clearly visible in our results, our portfolio composition, and momentum we have achieved year to date.
Michael Gross: Within our specialty finance businesses, we are seeing a combination of an increase in organic and strategic opportunities to expand our portfolio and product offering.
Michael Gross: Across our ABL strategies, ongoing bank consolidation and risk reduction are driving commercial banks to exit non-core business lines and consider strategic partnerships, resulting in increase in investment pipelines for our ABL teams.
Michael Gross: At the end of the third quarter, SLHC's portfolio company, SLR Business Credit, capitalizes on this dynamic by acquiring an asset-based factoring portfolio and operations from Westerbank's Commercial Services Division in an asset purchase that included a seasoned portfolio and a small team of professionals.
Michael Gross: The $124 million factoring portfolio is diversified with loans to long-standing customers.
Michael Gross: The team of 14 professionals, which is based in New York, specializes in providing financing solutions to middle market companies with a focus on apparel, textile jewelry, and transportation businesses.
Michael Gross: The low to mid-teens returns and cumulative low-loss rate experience for this factoring business makes the asset class an attractive addition to our AVL portfolio.
Michael Gross: Additionally, the acquisition of the team enhances our suite of ABL financing capabilities, expands our expertise in lending to new industry verticals, and deepens our extensive geographic coverage.
Michael Gross: This transaction represents SLR Business Credit's fourth token acquisition under our ownership. Importantly, it is indicative of the opportunities that we are seeing from regional banks' retreat in certain direct lending asset classes.
Michael Gross: We have a strong pipeline of potential disrequisitions that our team is currently evaluating.
Michael Gross: Given that our ABL businesses have not experienced a degree of increased competition in sponsor finance, we are able to remain highly selective in cash flow lending.
Michael Gross: We achieved this by focusing on recession-resilient industries and not feeling beholden to recommitting to loans and refinancing that no longer meet our underwriting thresholds.
Michael Gross: All that said, with the election uncertainty behind us, we believe that the supply-demand dynamic in the sponsor finance market has the potential to improve from accelerating merger and acquisition activity and new capital formation.
Michael Gross: Our flexible approach enables us to allocate capital to new sponsor finance investments when market conditions improve. As an example, in 2023, our origination MIC was heavily weighted towards cash flow loans.
Michael Gross: SLRC's comprehensive portfolio had originations of $397 million and repayments of $328 million in the third quarter, resulting in net portfolio growth of $68 million.
Michael Gross: 96% of originations were from SLRC's specialty finance verticals. Said another way, only 4% of our third quarter originations were in sponsored finance, a continued reversal from last year when our originations were concentrated in sponsored finance.
Michael Gross: We remain pleased with the composition, quality, and performance of our portfolio. At quarter end, approximately 97% of our Comprehensive Investment Portfolio is comprised of first lien senior secured loans.
Michael Gross: Our 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 with second lien and broader cyclical exposure.
Michael Gross: We believe our low rate of non-accruals is a result of our multi-strategy approach and is well below the peer BDC average.
Michael Gross: At September 30th, including available credit facility capacity at SSLP and our specialty finance portfolio companies, SLRC had over $750 million of available capital to deploy.
Michael Gross: From our seats, we believe SLRC is in a favorable position to take advantage of either durable economic conditions or a softening of the economy.
Speaker Change: I'll now turn the call back over to Shiraz, our CFO, to take you through the Q3 financial highlights.
Shiraz Kajee: Thank you, Michael. SLR Investment Corp.'s net asset value of September 30, 2024 was $993 million, or $18.20 per share, consistent with the quarter ended June 30, 2024.
Shiraz Kajee: At quarter end, SLRC's on-balance sheet investment portfolio had a fair market value of approximately $2.1 billion in 131 portfolio companies across 34 industries, compared to a fair market value of $2.1 million in 138 portfolio companies across 37 industries at June 30.
Shiraz Kajee: At September 30th, the company had approximately $1.1 billion of debt outstanding, but a net debt to equity ratio of 1.1 times.
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.
Shiraz Kajee: SLRC's funded debt consisted of 58% in revolving credit facilities and 42% of fixed-rate unsecured notes and quid.
Shiraz Kajee: During the quarter, the company amended both its Senior Secured Credit Facility and SUNS SPV Credit Facility Agreements, extending our maturities and increasing commitments.
Shiraz Kajee: We remain in dialogue with the fixed income community and expect to opportunistically access the investment grade market to address near-term maturities.
Shiraz Kajee: Moving to the P&L, for the three months ended September 30th, Gross Investment Income totaled $59.8 million versus $59 million for the three months ended June 30th.
Shiraz Kajee: And expenses totaled $35.4 million for the three months ended September 30th. This compares to $34.7 million for the prior quarter.
Shiraz Kajee: Accordingly, the company's net investment income for the three months ended September 30, 2024 totaled $24.3 million, or $0.45 per average share, consistent with the prior quarter and more than covered our $0.41 per share distribution during the period.
Shiraz Kajee: Below the line, the company had a net realized and unrealized loss for the third quarter of $2.3 million versus a net realized and unrealized loss of $1.1 million for the second quarter of 2024.
Shiraz Kajee: As a result, the company had net increase in net assets resulting from operations of $22 million for the three months ended September 30th, compared to a net increase of $23.2 million for the three months ended June 30th.
Shiraz Kajee: On November 6th, the Board of SLRC declared a Q4 2024 quarterly distribution of 41 cents per share payable on December 27th, 2024 to holders of record as of December 13th, 2024.
Speaker Change: With that, I'll turn the call over to our co-CEO, Bruce Spohler.
Thank you, Shiraz.
Speaker Change: Given the current competitive sponsor finance cash flow market, the flexibility offered by our commercial finance strategies enables us to source attractive investment opportunities away from this competitive cash flow market.
Speaker Change: We take a fundamental, bottom-up approach to our portfolio construction based on the relative risk-adjusted return profile across our investment verticals.
Speaker Change: At quarter end, on a fair value basis, the comprehensive investment portfolio consisted of approximately $3.2 billion of senior secured loans to over 850 borrowers.
The average exposure per borrower is 3.7 million.
Speaker Change: Measured at fair value, over 98% of our portfolio consisted of senior secured loans.
with just under 97% invested in first lien bonds.
including investments in the SSLP attributable to the company.
Speaker Change: Our specialty finance investments account for approximately 78% of the comprehensive portfolio, with just over 22% invested in first lien cash flow loans to upper mid-market sponsor backed companies.
Speaker Change: We believe this defensive portfolio construction positions us well and provides a differentiated risk-return profile relative to sponsor finance only portfolios.
Speaker Change: At quarter end, our weighted average yield on the comprehensive portfolio was 11.8%.
Our portfolio credit quality remains strong.
Speaker Change: At quarter end, the weighted average investment risk rating was just under 2, based on our 1 to 4 risk rating scale, with 1 representing the least amount of risk.
Speaker Change: Over 98% of the portfolio is rated 2 or higher at quarter end.
Speaker Change: Additionally, 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.
Speaker Change: Now let me touch on each of our four investment verticals.
Sponsor finance or cash flow lending.
Speaker Change: 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.
Speaker Change: This has helped to mitigate the impact on the portfolio from cyclical economic factors.
Speaker Change: By quarter end, our sponsor finance cash flow portfolio was $714 million, including senior loans in our SSLP, representing 22.4% of the comprehensive portfolio.
Speaker Change: It was invested across 45 borrowers with approximately 99% of the portfolio invested in first lien loans.
Speaker Change: Our borrowers have a weighted average EBITDA of approximately $132 million.
Speaker Change: have a median EBITDA of $65 million and carry low LTBs of just over 42%.
Speaker Change: Sponsor finance, the average EBITDA, and revenue growth continues to be positive across our portfolio companies.
Speaker Change: Overall, our borrowers have successfully managed the transition to an environment with higher costs of capital as well as inflationary premiums.
Speaker Change: The weighted average interest coverage for our sponsor cash flow loans has been stable at approximately 1.8 times
Speaker Change: We believe these healthy credit 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.
Speaker Change: While M&A has picked up in the second half of this year, activity levels are still well below the historic norm.
Speaker Change: This has caused much of the private debt activity to remain centered on repricings and dividend recaps.
Speaker Change: With the resulting spread compression and weaker structural protections, we are remaining highly selective in our cash flow investments.
Speaker Change: However, we are optimistic that sponsor finance conditions will improve next year if sponsors seek to return capital to their LPs through exits.
Speaker Change: During the quarter, we made investments of $14.5 million in Sponsor First Lien Loans and experienced repayments of just under $39 million.
Speaker Change: Michael mentioned sponsor finance deal flow continues to be muted due to the lower M&A volume. However, there are pockets of opportunities in our defensive sectors to invest at attractive risk-adjusted returns.
Speaker Change: At quarter end, the weighted average yield on our cash flow portfolio was 11.1%.
Now let me turn to our specialty finance segments.
Speaker Change: Across the board, the credit quality of these loans continues to be solid, with attractive LTVs supported by meaningful collateral.
I'll first discuss our EBL portfolio.
Speaker Change: At quarter end, this portfolio totaled $1,000,000,001 representing 35% of our total portfolio.
that was invested in 262 different borrowers.
Speaker Change: weighted average asset level yield was 14.4 percent. We continue to see an increase in the opportunity set for ABL, resulting in a strong pipeline heading into year-end.
Speaker Change: Money Center and Regional Domestic Banks have been pulling back from the ABL market, creating an attractive opportunity for our team.
Speaker Change: Additionally, banks' ability to pledge asset-based loans or factoring loans as collateral for borrowing with the Fed has been reduced.
Speaker Change: SLR is positioned to collaborate with banks who are shifting their ABL strategies in reaction to these challenges.
Speaker Change: Our recent acquisition of the Loan Portfolio and Servicing Platform from Webster Commercial Services is an example of this type of opportunity.
Speaker Change: We're currently involved in other strategic discussions regarding either purchasing portfolios, joint ventures, or referral programs.
Speaker Change: Additionally, we'll continue to see opportunities to provide ABL-structured facilities to traditional cash flow borrowers who are facing liquidity pressures.
Speaker Change: borrowers who have traditionally accessed the cash flow market are now more receptive to SLR's ABL solutions to provide working capital financing.
Speaker Change: These ABL facilities carve out working capital assets from a borrower into a borrowing base that supports an incremental ABL facility ahead of their cash flow facility and provides additional liquidity for our borrowers.
Speaker Change: For the third quarter, we had $244 million of new ABL investments, including the Webster acquisition, and repayments of $107 million.
Speaker Change: Turning to equipment finance, at quarter end this portfolio totaled $1.0 billion, representing a third of our comprehensive portfolio.
with facilities across 540 borrowers.
Speaker Change: The credit profile of this portfolio continues to be stable. Weighted average asset level yield was 9.4%.
Speaker Change: During the third quarter, we originated $138 million of new assets, with the majority of this coming from our business that provides leases to investment-grade borrowers.
for their mission-critical equipment.
We had repayments of approximately $104 million.
Speaker Change: Our investment pipeline has expanded in conjunction with the disruption caused by last year's regional bank failures, as well as the expansion of our vendor finance program.
Now let me turn to life sciences.
A quarter in this portfolio totaled $267 million.
Speaker Change: approximately 90% of the portfolio is comprised of investments in borrowers that have over 12 months cash runway.
Speaker Change: Additionally, all of our portfolio companies have revenues with at least one product in commercialization stage, which significantly de-risks our life science investment.
Speaker Change: These investments represented 8.4% of the total portfolio for the third quarter and contributed over 25% of our gross investment income.
Speaker Change: The life science industry continues to be somewhat challenged, with 28% of the deals to date being invested in down or flat rounds, which is the highest level in recent history.
Speaker Change: Many small-cap and private biotech values have remained significantly lower than their pre-Silicon Valley Bank collapse highs. And over $300 billion of VC dry powder has remained mostly on the sidelines awaiting for valuations to reach a better equilibrium.
particularly in later stage development companies where we invest.
Speaker Change: Well, SLR's portfolio has held up well, in part due to our focus on late-stage, post-commercialization life science companies.
Speaker Change: There has been an increase in defaults in life science portfolios due to weaker lender protections that prevailed in the market prior to the collapse of Silicon Valley Bank.
A forward-looking rate environment should result
Speaker Change: in a more normalized life science lending activity, but it will also slow the process, and we anticipate current conditions to persist for at least another couple of quarters.
Speaker Change: Venture debt financing in healthcare-related IT service companies has been active, but due to the lack of IP protection and other collateral that we require, SLR has remained on the sidelines.
Speaker Change: In addition to sourcing new opportunities in late-stage drug development and device companies, we remain focused on supporting, and in some cases expanding, our existing portfolio of borrower relationships.
Speaker Change: By keeping healthy life science credits longer and increasing our credit facilities to finance their growth, we have been able to maintain meaningful exposure to this asset class during a challenging time for the life science industry broadly, while maintaining a comfortable level of diversity.
Speaker Change: During the third quarter, the team funded a million dollars of new facilities and had 78 million of repayments.
Speaker Change: At quarter end, the weighted average yield on our life science portfolio was 12.6%, including potential success fees, however excluding any potential warrant gains.
Speaker Change: With early signs of improvement in the life science market, we've seen a modest uptick in private and public equity valuations, as well as in our investment pipeline.
Speaker Change: given our ability to allocate capital to the best risk-reward opportunities across our various private credit asset classes.
Speaker Change: We have the luxury of being highly selective as we look to deploy capital in life sciences while still generating positive originations across the entire platform.
Lastly, let me touch on our SSLP.
Speaker Change: During the quarter, SLRC earned $1.9 million from SSLP, representing a 15.7% annualized yield consistent with the prior quarter.
Speaker Change: At quarter end, it had a fair value of $204 million.
including unfunded commitments.
Thank you for your time. Thank you.
at SSLP totaled approximately $219 million.
Now let me turn the call back to Michael.
Michael Gross: In conclusion, we remain pleased with the stability achieved in our third quarter results and encouraged by the overall credit quality of our investment portfolio.
Michael Gross: which is evidenced by another quarter of NAB stability, no changes to a low level of non-accrual investments, a low level of watchlist investments, and minimal payment in kind income with broad diversification.
Michael Gross: While concerns about credit quality and private credit portfolios continue to creep into the market psyche, we view the consistency of results achieved in 2024 as a testament to our multi-strategy approach to private credit investing.
Michael Gross: As we sit here today and observe the growth in our platform over the last few years that has expanded our diversified commercial finance investment capabilities and momentum across our business, we believe the company is positioned very favorably.
Michael Gross: This situation may present a challenge for some private credit portfolio yields and earnings that are constructed with predominantly floating rate, cash flow, loans, vintage, concentrations.
Michael Gross: with approximately 35% of our portfolio indexed to fixed rates. Investors should come to appreciate...
Michael Gross: that SLRC's specialty finance assets have a lower correlation to base rates and offer a more substantial, more absolute return, like profile, and the company therefore has portfolio yields that are expected to have a lower beta to future changes in SOFR.
Michael Gross: Our investment advisors' alignment of interest with SLRC shareholders continues to be one of our significant hallmark principles.
Michael Gross: The entire investment team and the entire firm own over 8% of the company's stock and includes having a significant percentage of their annual incentive compensation reinvested in SLRC stock.
Michael Gross: The team's investment, alongside fellow institutional and private wealth investors, demonstrates our confidence in the company's portfolio, stable funding, and earnings outlook.
Michael Gross: We thank you all again for your time today. As we know, it's a busy time for those that follow the listed BDC marketplace closely. Operator, will you please open up the line for questions?
Speaker Change: Thank you. And at this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. And we will pause for a moment to allow questions to queue.
Speaker Change: And once again if you would like to ask a question please press the star and 1 on your telephone keypad now.
Michael Gross: And we will take our first question from Bryce Rowe with B. Reilly. Please go ahead.
Thanks. Good morning. Good morning, Bryce.
Speaker Change: I wanted to, I guess, just kind of a quick one here on business credit and, you know, the Webster acquisition.
Speaker Change: You put some equity into that subsidiary, the SLR business credit subsidiary. I'm kind of curious what your thoughts are around
maybe increased dividend or increased earnings.
Speaker Change: from that particular investment. Again, it's really early days in terms of the investment, but certainly expecting some level of increased return there. Thanks.
Yeah, um...
Speaker Change: We definitely are expecting some increased return. I think in the first quarter or so You know, it will start a little bit slower as we integrate the business into the platform we did buy a business came with about 14 people as well as the 125 million dollar or so portfolio
Speaker Change: So, we're targeting sort of a low to mid-teens ROE on that investment. So, I think if you put that across the $30 million or so of equity that we dropped in, that's a good starting point and we hope there's upside from there.
Okay, that's helpful Bruce
Speaker Change: And maybe a couple more here as we think about the SLR senior credit.
Speaker Change: Are you at kind of a level where, you know, where leverage within that particular portfolio is where you want to be, or would you like to operate it with potentially more leverage?
Thank you.
Speaker Change: No, I think the leverage is where we want it to be. We are thematically, as Michael mentioned...
Speaker Change: You know, rotating out of cash flow loans, and the entire strategy at SSLP is cash flow investing, so...
Speaker Change: You'll see it bump around a little bit as we get some repayments and opportunistically add to it.
Speaker Change: So, I don't think there's much more leverage there. I think, you know, there's a little bit more upside as we optimize the size of SSLP, but we'll let a few loans go in this repricing environment.
Yeah, okay.
Speaker Change: And then maybe one more around the repricing environment. We've heard a lot about.
the potential for M&A to pick up to help.
maybe, I guess, remix the supply and demand.
within private credit as it relates to cash flow lending.
Do you all sense that there could be...
Speaker Change: an opportunity to maybe to re-emerge within that market now that you're pivoting and just kind of trying to get a feel for how long the pivot lasts and how opportunistic you all can be with the current market environment.
Speaker Change: I think the first thing that happens is, to your point, it takes the pressure off the existing portfolio because everybody starts to underwrite new opportunities and that supply dynamic shifts such that...
Speaker Change: It's difficult for borrowers to come in and reprice the existing portfolio.
Speaker Change: You know, from our perspective, we took our portfolio down from 26% sponsor finance, 22%.
I'm sorry, 24 down to 22.
Speaker Change: Last year we peaked at over 26%, so it will move around for us. We never see it much more than high 20s, and we don't see it getting down to much lower than high to mid-teens.
Speaker Change: It's not going to change the yields that we're seeing dramatically at all. What it does do for us though, given how picky we are in cash flow lending, it gives us more opportunity to choose amongst and find things that fit our type box.
Speaker Change: But I would not sit here today and assume that you know spreads are going to widen dramatically just because there's more M&A supply coming
Yeah, okay.
All right. Appreciate your perspective.
Thanks for your questions.
Speaker Change: Thank you and we will take our next question from Melissa Weddle with JP Morgan. Please go ahead.
Speaker Change: Good morning. Thanks for taking my questions today. I was hoping you could elaborate a little bit more on the assets that were acquired in that factoring portfolio. Can you just talk a little bit about how those maybe provide, you know, some – or do they diversify the rest of that existing portfolio?
They're consistent with our existing platform.
Speaker Change: that is already both either factoring or in an ABL structure lending against receivables. So the collateral is something that we're incredibly familiar with.
Speaker Change: What it does for us is, yes, it adds an element of diversity.
Speaker Change: We had approximately 94 different borrowers across the 124 million of funded assets.
So it's a very diverse portfolio.
Speaker Change: high-quality receivables, in this case, you know, think Walmart, Costco, Amazon, and yet our customers are clearly not of the same credit quality, and so therefore we get to charge higher returns, but our underlying risk really is close to investment grade.
Speaker Change: What we like about the portfolio is that it is long-standing, long-tenured relationships. This is not an M&A sponsor finance portfolio that churns every couple of years as sponsors come in and out of investments.
Speaker Change: Here, this is working capital financing for our borrowers, so the average relationship in the Webster portfolio is nine years, so it's very stable assets.
but the underlying collateral turns every 30, 60, 90 days.
Speaker Change: So we have the ability to unwind our investment rather quickly if we want out. Obviously, that's not what we're seeking to do with—
Speaker Change: relationships that have lasted nine years, but from a risk mitigation perspective, the ability to unwind quickly against very high quality collateral and yet keep long duration.
and high returns on these assets is.
you know, extremely attractive. It's also...
Speaker Change: I would say unique to our platform in that you need to be in this business
Speaker Change: to be able to make an acquisition like this. We acquired a business, came with a team. Not all of the team that Webster had. We were able to find some synergies and bring it on platform.
Speaker Change: And it also adds diversity to the industries that we focus on. We already are very active in.
Speaker Change: Healthcare ABO. We're very active in digital media ABO with our acquisition a couple years back.
Speaker Change: And this is very, as Michael mentioned, focused on, you know, traditional factoring industries such as apparel, textile, jewelry. So it expands a region and an industry focus for the team there. So we think it's extremely attractive and would love to do more.
I appreciate all that context.
Speaker Change: Speaking of doing more, leading right into my next question. Are you constrained, are you getting constrained by the 30% cap? I mean, how much capacity do you have to do additional deals like this? Thank you.
So, just as a quick reminder, remember the 30%
Speaker Change: catches some of our FinCo's because of the structure of owning the FinCo. We can put their assets actually on the parent company's balance sheet, and it doesn't utilize the 30%.
Speaker Change: So we have a lot of flexibility and as we see large portfolios
Speaker Change: The BDC, as you know, benefits from the affiliation with the broader platform with over $14 billion of investable capital. We can take assets both into the BDC and alongside in our private funds as well. So we feel we bring a lot of flexibility and don't feel constrained by the 30% test.
Okay, I appreciate that distinction. Thanks.
Thank you.
Speaker Change: Thank you and we will take our next question from Sean Paul Adams with Raymond James. Please go ahead.
Hey guys, good morning.
Speaker Change: On Rug Doctor, I know it's been on non-accrual for a couple years now. It's also held by a number of other BDCs, but it looks like the portfolio markdowns really haven't shifted in the last couple of quarters. Has there been any change or any pathway for resolution on that non-accrual?
Yeah, so that's a great question.
Speaker Change: As you know, you know, while we care about every investment, it's rather de minimis in size across the portfolio. The big thing that happened with the rug doctor is a couple years back we entered into a JV with Bissell, who was a major player in
The, uh...
Speaker Change: vacuum business, but not so much so in the rental vacuum business. And so Bissell actually runs this JV and so what you're seeing is
our ownership and our peers, BDC's ownership in the JV.
The only reason it's on non-accrual is because...
Speaker Change: We have not been collecting interest. We've been keeping it in the business.
Speaker Change: This was a likely acquirer of the remaining interest from ourselves and our peer BDCs.
Perfect. Thank you for the clarity. I appreciate it.
Speaker Change: Thank you. And it appears that we have no further questions at this time. I will now turn the program back to our presenters for any additional or closing remarks.
Speaker Change: No additional remarks other than to thank you for your time and attention on this particular busy season of quarter earnings. And again, as always, if you have any other follow-up questions, please feel free to follow up with any of our team. Have a great day.
Speaker Change: Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.
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