Q4 2024 SLR Investment Corp Earnings Call

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Operator: [music] Good day, everyone, and welcome to the Q4 2024 SLR Investment Corp. Earnings Call.

Good day, everyone and welcome to the Q4 2024 S L. Our investment Corp earnings call.

Operator: 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 2.

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

<unk> 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 one on your telephone keypad you may withdraw yourself from the queue by pressing star. Two. Please note. This call may be recorded I'll be standing by if you should need any assistance.

Operator: Please note, this call may be recorded.

Operator: I'll be standing by if you should 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 Investor Corps earnings call for the year-ended December 31st, 2024.

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 for the year ended December 31 2024.

Michael Gross: I'm joined today by my long-term partner Bruce Spohler, Co-Chief Executive Officer for 60th quarter of SLRC Results, along with Chief Financial Officer Shiraz Kajee and the Solar Investor Relations Team.

Michael Gross: And today by my long term partner for smaller co Chief Executive Officer for 16th quarter of Src results, along with <unk>, Chief Financial Officer Shiraz Koji.

Speaker Change: So investor Relations team Shrontz 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 loading. Thank you Michael. I would 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. This conference call has also been webcast on the events calendar in the investors section on our website at www.slarinvestmentcall.com. Audio replays of this call will be made available later today, as disclosed now February 25th.

Speaker Change: Thank you Michael good morning, everyone I'd.

Speaker Change: I would like to remind everyone that today's call and webcast and recorded.

Please note that they are the property of <unk> investment Corp, any unauthorized broadcast in any form is strictly prohibited.

Speaker Change: This conference call is also being webcast from the events calendar at the investors section on our website.

Speaker Change: Www Dot that's not the best one called Dot com.

Speaker Change: What are your replays of this call will be made available later today as disclosed in our February 25th 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 linking statements and projection. These statements are not guaranteed for our future performance or financial results. 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 filings with the SBA. We do not undertake to update any forward-looking statements unless required to do so by law.

Speaker Change: 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 future performance or financial results.

Speaker Change: And 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.

Shiraz Kajee: To obtain copies of our latest SEC filings, please visit our website or call us at 213-993-1670.

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

Speaker Change: Two one.

Speaker Change: We won 670.

Michael Gross: This time, I'd like to turn the call back over to our Chairman and Co-CEO... Thank you very much, Shiraz, and thank you to everyone for joining our earnings call this morning. Before I discuss our fourth quarter earnings and the drivers of our results, I'd like to briefly reflect on a milestone both the company and its investment advisor, Solar Capital Partners.

Speaker Change: This time I'd like to turn the call back over to our chairman and co CEO Michael Thank.

Michael Thank: Thank you very much Rob and thank you to everyone for joining our earnings call. This morning.

Michael Thank: Before I discuss our fourth quarter earnings and the drivers of our results I'd like to briefly reflect on a milestone both the company and its investment adviser solar capital partners.

Michael Thank: This month marks the 15 year anniversary of trading since our IPO in February 10th 2010.

Michael Gross: This month marks the 15-year anniversary of trading since our IPO on February 10, 2010. more than 18 years of operating history as a private credit fund and alternative investment manager. This company's IPO, we have deployed over 7.5 billion dollars of investment. including five platforms, Peltier Finance, Acquisition. Tuck & Acquisitions with an average loss rate of less than eleven basis points. We are very proud of the SLR team's investment track record and long-standing history of successfully managing SLRC through periods of significant economic distress. The Great Financial Crisis, the dramatic drop in oil prices in 2015, COVID-19, and the current elevated interest rate environment.

Michael Thank: More than eight years of operating history.

Michael Thank: Credit fund and alternative asset manager.

Michael Thank: The company's IPO, we have deployed over seven $5 billion of investments.

Michael Thank: Putting five platforms, plus you finance acquisitions and formulated tuck in acquisitions with an average loss rate of less than 11 basis points.

Michael Thank: We are very proud of.

Michael Thank: The SLR tunes investment track record and long standing history of successfully managing through periods of significant economic distress.

Michael Thank: It's been a great bench of crisis, the dramatic drop in oil price in 2015, COVID-19, and the current elevated interest rate environment.

Michael Thank: Cumulative effect, where teams experience has informed our disciplined approach to private credit underwriting and served as SLR is foundation for creating a multi strategy platform.

Michael Gross: The cumulative effect of your team's experience has informed our disciplined approach to private credit underwriting. who served as SLR's foundation for creating our multi-strategy platform. Over 13 years ago, we began our initiative to generate higher risk-adjusted returns through diversification to achieve... The combination of sponsor finance and complimentary specialty finance strategy. Our asset-based specialty finance strategies provide greater downside protection of principal from underlying liquid collateral in the more cyclical nature of enterprise value that secures cash flow loans, while simultaneously offering attractive and often higher yields from the extraction of complexity. Today, we see market conditions that include very tight illiquidity risk premiums, sponsor-backed direct lending, and burgeoning global economic uncertainties from a combination of rising geopolitical tensions, recent executive actions from the U.S.

Michael Thank: We're 13 years ago, we began our initiative to generate higher risk adjusted returns the diversification to change with.

With a combination of sponsor finance.

Michael Thank: Complementary specialty finance strategies are.

Michael Thank: Our asset base, especially finance strategies provide greater downside protection of principal from underlying liquid collateral and the more cyclical nature of enterprise value.

Michael Thank: <unk> cash flow balance well simultaneously offering attractive and often higher yields for the extraction of complexity premiums.

Michael Thank: Today, we see market conditions that include very tightened liquidity risk premiums and sponsor backed direct lending concurrently burgeoning global economic uncertainties from a combination of rising geopolitical tensions recent executive access in the U S. President's do administration and expectations for a rate environment that is high.

Michael Gross: President to administration, and expectations for a rate environment that is higher for longer.

Michael Thank: Higher for longer.

Michael Thank: Consequently.

Michael Gross: Consequently... We think our company's long-standing history, investment track record, and multi-strategy approach to private credit investing is as relevant now as it was during past economic challenges. We believe we can continue to achieve a durable and stable stream of recurring income by pivoting across our commercial finance strategies to capture the best risk-reward investment opportunities as current economic conditions unfold. In particular, we are seeing a significant increase in our ABL pipeline. For the fourth quarter of 2024, SLRC generated net investment income of $0.44 per share, which was flat year-over-year, but down a penny from the third quarter.

Michael Thank: We think our company's longstanding history.

Michael Thank: Investment track record and multi strategy approach to private credit investing because it's relevant now as it was during past economic challenges.

Michael Thank: We believe it can continue to achieve a durable and stable recurring income activity across our commercial finance strategies to capture the best risk reward investment opportunities as current economic conditions unfold in particular, we are seeing a significant increase in our ABL pipeline.

Michael Thank: For the fourth quarter of 2020 for Src generated net investment income of 44 per share, which was flat year over year, but down a penny penny for the third quarter.

Michael Gross: Net Investment Inc. will continue to cover the quarterly dividend of $0.41. Despite the meaningful decline in base rate in the second half of 2024. competitive conditions in the sponsor finance market, our solid finish to the year contributed to full year NII per share of $1.77, representing a 5% increase over a 2023 net investment income per share. The company's net asset value at year-end increased to $1,820 from $1,809 a year ago, which we view as a testament to the overall credibility of our portfolio. We believe the stability of our portfolio yields and our strong credit profile are the direct result of our conservative underwriting and multi-strategy approach to private credit investment.

Michael Thank: Net investment income continue to cover the quarterly dividend of 41 sense. Despite the meaningful decline in base rates in the second half of 2024 and competitive conditions in the sponsored finance market.

Michael Thank: Solid finish the year contributed to full year NII per share of $1 77, representing a 5% increase over our two top 2023 net investment income per share.

Michael Thank: The company's net asset value increased to $18 20 from 18 O nine a year ago, which we view as a testament to the overall credit quality our portfolio.

Michael Thank: We believe the stability of our portfolio yield and our strong credit profile are the direct result of our conservative underwriting and multi strategy approach of private credit investing.

Michael Gross: In response to the currently more attractive conditions in our specialty finance strategies, our Comprehensive Investment Competition at 1231 included a 79% allocation to specialty finance investors. The remainder of the portfolio primarily consists of cash flow loans to borrowers that operate in recession-resistant industries and have low CapEx requirements. This approach has safeguarded our performance to the prolonged high interest rate and inflationary environment while other portfolios that are more susceptible to fixed charge coverage declines have seen an increase in non-accruals in subtler sizes of stress such as elevated pickings. SLRC originated $338 million of new investments across the comprehensive portfolio and received repayments of $442 million in the fourth quarter, resulting in a total portfolio of $3.1 billion at year-end.

Michael Thank: In response to the currently more attractive conditions in the stomach that strategies are comprehensive I suppose composition at 12, 31 and included a 79% allocation to specialty finance investments.

Michael Thank: The remainder of the portfolio primarily consists of cash flow loans to borrowers and operate in a recession resistant industries.

Michael Thank: Low capex requirements.

Michael Thank: This approach is to safeguard our performance of the prolonged high interest rate an inflationary environment. While other portfolios that are more susceptible to fixed charge coverage decline has seen an increase in non accruals and seller signs of distress such as elevated Pik income.

Michael Thank: Src originated $338 million of new investments across the comprehensive portfolio and received repayments of $442 million in the fourth quarter, resulting in a total portfolio of $3 1 billion at year end.

Michael Gross: The yield of the portfolio was 12.1%, a slight increase to the prior quarter yield, 11.8%. Due to the more favorable conditions in our specialty finance markets, the company's investments in the fourth quarter were once again more heavily weighted to those asset classes, which we believe currently provide a more attractive risk-adjusted relative return to sponsored finance loans, which are currently offering spreads in the 400 basis points, in some instances for Unitron structures to upper middle market borrowers. 94% of our Q4 originations were in specialty finance. We've passed on the refinancing of several cash flow investments within our portfolio, allowing our sponsor finance portfolio to shrink.

Michael Thank: The portfolio was 12, 1% a slight increase the prior year quarter yield of 11, 8%.

Michael Thank: Due to the more favorable conditions in our specialty finance markets. The company's investments in the fourth quarter, where once again more heavily weighted to those asset classes, which we believe currently provide more attractive risk adjusted relative return to sponsor finance loans, which are currently offering spreads in the 400 basis points and somebody says that for unit tranche structures.

Michael Thank: Our middle market borrowers.

Michael Thank: 94% of our Q4 originations were in specialty finance, we pass in the refinancings of several castle and best friends with our portfolio lower sponsored finance portfolio shrink.

Michael Gross: While yields in our cash flow portfolio declined in the fourth quarter, our yields within our special finance strategies remained more insulated and even increased in some instances, providing higher returns than cash flow loans. We remain pleased with the composition, quality, and performance of our portfolio. At quarter end, 96.4% of our Comprehensive Invest portfolio was comprised of first lien senior secured loans. SLR's longstanding focus on first lien loans has resulted in a portfolio which we believe is more conservatively positioned than BDC peers with less first lien exposure and better equipped to withstand persistent inflationary pressures in high interest rates and portfolios with second lien loans and broader secure exposure.

Michael Thank: Yields on our castle patrol declined in the fourth quarter, our yields within our specialty finance strategies remain more insulated and even increased since providing higher returns than cash hold outs.

Michael Thank: We remain pleased with the composition quality and performance of our portfolio at quarter end 96, 4% of our comprehensive portfolio was comprised of first lien senior secured loans.

<unk> long standing focus on first lien loans have resulted in our portfolio, which we believe is more conservative position. The BDC peers with less first lien exposure and better equipped to withstand persistent inflationary pressures and high interest rates and portfolios with second lien loan and brought us to quote exposure.

Michael Gross: As of December 31st, we had only one investment amount accrual, representing just 0.6% and 0.4% of the investment portfolio on a cost and fair value basis, respectively. We believe our low rated non-accruals as a result of our multi-strategy best approach is well below the peer BDC average. December 31st, including available credit facility capacity at SSLP and our special finance portfolio companies, SLSC had over $900 million of available capital to deploy.

Michael Thank: As of December 31, we had only one investment on non accrual representing just one 6% and <unk>, 4% for the best portfolio on a cost and fair value basis, respectively.

Michael Thank: We believe I believe our low rated non accruals as a result of our multi strategy best approach is well below the peer P. D C average.

Michael Thank: December 31st including available credit facility capacity of F. L P and especially finance portfolio companies. That's obviously had over $900 million of available capital to deploy this puts the company in a favorite position to take advantage of either durable economic conditions or a softening of the economy.

Michael Gross: This puts the company in a favorable position to take advantage of either durable economic conditions or a softening of the economy.

Shiraz Kajee: I'm now turning the call back over to Shiraz, our CFO, to take you through the Q4 financial highlights. Thank you, Mike. SLR Investment Corp's net asset value at December 31, 2024 was $993 million, or $18.20 per share.

Speaker Change: I'll turn the call back over to Ross, our CFO take you through Q4 financial highlights.

Michael Thank: Yeah.

Ross: Thank you Mike.

Speaker Change: That's a lot of investment Corp's net asset value at December 31st 2024 was $993 million or $18 20 per share.

Shiraz Kajee: Consistent with the court ended September 30th, 2021. Quota and SRC's unbalanced shared investment portfolio at a fair market value of approximately $2 billion in 122 portfolio companies across 32 industries. compared to a fair market value of $2.1 billion in 131 portfolio companies across 34 industries at September 30. December 31st, the company had approximately $1 million of debt outstanding with a net debt-to-equity ratio of 1.03 tons. We expect our net debt-to-equity ratio to migrate towards the middle of our target range of 0.9 to 1.25 times. During the quarter, the company closed a $49 million private 3-year unsecured note offering at a fixed interest rate of 6.24%.

Ross: Consistent with the quarter ended September 30 of 2024.

Ross: At quarter end, our CS on balance sheet investment portfolio had a fair market value of approximately $2 billion.

Ross: 22 portfolio companies across 32 industries compared to a fair market value of $2 $1 billion and 131 portfolio companies across 34 industries at September 30.

Ross: At December 31, the company had approximately $1 billion of debt outstanding with a net debt to equity ratio of 1.03 times, we expect our net debt to equity ratio to migrate towards the middle of our target range 0.92125 times.

Ross: During the quarter the company closed a $49 million private unsecured note offering at a fixed interest rate of $6 two 4%.

Ross: Subsequent to year end the company issued $50 million three year unsecured notes at a fixed interest rate of $6, one 4% representing a scratchy. This weird treasury of 190 basis points.

Shiraz Kajee: Subsequent to year-end, the company issued $50 million of 3-year unsecured notes at a fixed interest rate of 6.14%, representing a spread to the 3-year treasury of $190 billion. We believe these note issuances were executed on both a cost-effective and attractive basis and address the company's efforts to refinance maturing unsecured notes.

Ross: We believe these new note issuances, we'll execute it in a cost effective and attractive basis and address the company's efforts to refinance maturing unsecured notes.

Ross: As of December 31st 2020, full pro forma of the issuances I said oxy had $444 million of unsecured debt.

Shiraz Kajee: as of December 31st, 2024, performer for the issue. SLRC had $444 million of unsecured debt, representing... approximately 41% of funding. Moving to the P&L, for the three months under December 31st, Gross Investment Income totaled $55.6 million. $59.8 million for the 3 months ended September 30th. Net expenses totaled $31.8 million for the three months ended December 31st. This compares to $35.4 million for the prior quarter. Accordingly, the company's net investment income for the three months ended December 31, 2024 totaled $23.8 million, or $0.44 per average. compared with $24.3 million or $0.45 per average share for the prior year.

Ross: Representing <unk>.

Ross: Proximately, 41% of funded debt.

Ross: Moving to the P&L for the three months ended December 31, gross investment income totaled $55 $6 million versus $59 8 million ounces. We months ended September 30.

Ross: Net expenses totaled $31 8 million for the three months ended December 31st.

Ross: This compares to $35 4 million for the prior quarter.

Ross: Accordingly, the Companys net investment income for the three months ended December 31, 2024 totaled $23 $8 million or 44 cents per average share.

Ross: Compared with $24 3 million or <unk> 45 cents per average share for the prior quarter and covered 41 cents per share distribution during the period.

Shiraz Kajee: and Coverdell, $0.41 per share distribution during Below the line, the company had a net realized and unrealized loss for the 4th quarter, totaling $1.2 million versus a net realized and unrealized loss of $2.3 million for the prior quarter. As a result, the company had a net increase in net assets resulting from operations of $22.6 million for the three months ended December 31st. compared to a net increase of $22 million for the three months ended September 30.

Ross: Below the line the company had a net realized and unrealized loss for the fourth quarter.

Ross: $1 $2 million versus a net realized and unrealized loss of $2 3 million for the prior quarter.

Ross: As a result, the company had a net increase in net assets, resulting from operations of $22 6 million for the three months ended December 31.

Ross: Compared to a net increase of 22 million for the three months ended September 30.

Ross: On February 25th the border Pestalozzi declared a Q1 2025 quarterly distribution of <unk> 41 per share payable on March 28, 2025 told us of record as of March 14th 2025.

Shiraz Kajee: On February 25th, the Board of SLRC declared a Q1 2025 quarterly dis- $41.00 per share, pay below March 28th, 2025 to hold as a record as of March 14th, 2020.

Bruce Spohler: With that, I'll turn the call over to our co-CEO. Thank you, Shiraz. Quarter end and on a fair value basis, the comprehensive portfolio consisted of approximately 3.1 billion of senior secured loans. over 880 distinct borrowers. The average exposure is three and a half... Measured at fair value, 98.2% of our comprehensive portfolio.

Ross: With that I'll turn the call over to our co CEO Bruce Butler.

Bruce Butler: Thank you Suraj.

Speaker Change: At quarter end and on a fair value basis. The comprehensive portfolio consisted of approximately $3 1 billion of senior secured loans.

Bruce Butler: Over 880 distinct borrowers.

Speaker Change: Average exposure.

Speaker Change: $5 million.

Speaker Change: Measured at fair value 98, 2% of our comprehensive portfolio consisted of senior secured loans with 96, 4% invested in first lien loans, including our investments in the S. S. L. P attributable to the company and.

Bruce Spohler: Thank you for watching. Please see the complete disclaimer at https://sites.google.com 96.4% invested in first. including our investments in the SSLP attributable. 0.3% was invested in second lien cash flow. remaining 1.5% invested in second lien assets.

Speaker Change: Only <unk>, 3% was invested in second lien cash flow loans with the remaining one 5% invested in second lien asset based loans.

Bruce Spohler: Michael mentioned earlier. Specialty Finance Investments account for over 79% of the total portfolio, with the remaining...

Michael mentioned earlier, our specialty finance investments account for over 79% of the total portfolio with the remaining.

Speaker Change: Portfolio comprised of senior secured cash flow loans to mid market sponsor owned companies.

Bruce Spohler: Thank you. and Marketsponsor. I believe this Defensive Portfolio Construction as well and provides a differentiated risk-return profile relative to sponsor finance. At year-end, our weighted average yield on the portfolio was 12.1% compared to 11.5%. Based on our quantitative risk assessment Our portfolio currently has one of the strongest credit profiles in our history. At year-end, the Weighted Average Investment Risk Rating was under 2 based on our 1-4 Risk Rating . one representing the least amount 99% of the portfolio. Moreover, 99.4% of the portfolio... on a cost basis at 99.6% at fair value.

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 year end, our weighted average yield on the portfolio was 12, 1% compared to 11, 8% the prior quarter.

Speaker Change: Based on our quantitative risk assessment scale. Our portfolio currently has one of the strongest credit profiles in our history.

Speaker Change: At year end, the weighted average investment risk rating was under two based on our one to four risk rating scale with one representing the least amount of risk.

Speaker Change: Over 99% of the portfolio is rated two or higher.

Speaker Change: Moreover, 99, 4% of the portfolio.

Speaker Change: On a cost basis at 99, 6% at fair value was performing with only one investment on non accrual.

Bruce Spohler: One investment, anonymous. The recent levies of tariffs, the looming threat of trade wars. Our investment team completed a thorough review of our entire portfolio to assess the impact of current tariffs in place. respective terrorists that could impact countries such as China, India, and other nations. We are pleased to share that we believe the potential direct impact of tariffs...

Speaker Change: With the recent levies of tariffs are looming threat of trade wars.

Speaker Change: Our investment team completed a thorough review of our entire portfolio to assess the impact of current tariffs in place and prospective terrorist that could impact countries, such as China, India and others. We are pleased to share that we believe the potential direct impact of tariffs is minimal.

Bruce Spohler: Now let me touch on our four investors. starting with sponsor or cash flow. and Sponsor Finance. We originate first lien, senior secured loans to mid-market... and non-cyclical industries such as healthcare. help to mitigate the impact on the portfolio from cyclical economic factors. At year end, our cash flow portfolio... $634,000,000 across 37 borrowers. Approximately 99% of our cash flow loan portfolio invested in first lien loans.

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

Speaker Change: Starting with sponsor or cash flow lending.

Speaker Change: Our sponsor finance business, we originated first lien senior secured loans to mid market companies.

Speaker Change: Non cyclical industries, such as health care business and financial services.

Speaker Change: This has helped to mitigate the impact on the portfolio so from cyclical economic factors.

Speaker Change: At year end, our cash flow portfolio was $634 million across 37 borrowers, including our senior secured loans in the S. S. L. P.

Speaker Change: With approximately 99% of our cash flow loan portfolio invested in first lien loans. We believe that we are well positioned to withstand any pressures that our borrowers may face.

Bruce Spohler: We believe that we are well-prepared for the challenges that lie ahead. Our borrowers have a weighted average EBITDA of over $135,000. carry low loan-to-values of approx. $1,000,000.

Speaker Change: Our borrowers have a weighted average EBITDA of over $135 million and median EBITDA of $73 million.

Speaker Change: Carry low loan to values of approximately 46%.

Speaker Change: The sponsor finance the weighted average EBITDA and revenue growth continues to be in the mid single digits for our portfolio companies.

Bruce Spohler: Sponsor Finance, The Weighted Average, EBITDA, and Revenue Growth. to be in the mid-single digits for our portfolio. Overall, they have successfully managed the transition to an environment with higher costs of capital. as well as inflationary... Weighted Average Interest Coverage on our Sponsor Finances.

Speaker Change: Overall, they have successfully managed the transition to an environment with higher cost of capital as well as inflationary premiums.

Speaker Change: Weighted average interest coverage on our sponsor finance laws has been stable at approximately one eight times.

Bruce Spohler: Thank you for watching. Additionally, only 1.6% of our fourth quarter gross income. We believe these healthy credit metrics are the result of the diversity of our portfolio.

Speaker Change: Additionally, only one 6% of our fourth quarter gross income is in the form of capitalized pick income from cash flow borrowers, resulting from amendments.

Speaker Change: We believe these healthy credit metrics are the result of the diversity of our portfolio.

Bruce Spohler: Cross-Private Credit Strategy. and our focus within sponsors.

Speaker Change: Cross private credit strategies, and our focus within sponsor finance on recession resilient industries with high recurring free cash flow.

Bruce Spohler: Succession Resilient.

Bruce Spohler: High Recurring Free Cash Flow. During the quarter, we made invest- As Michael mentioned, sponsor finance deal flow continues to be muted due to lower M&A volume.

Speaker Change: During the quarter, we made investments of just over $20 million and experienced repayments of just over $100 million.

Speaker Change: As Michael mentioned sponsor finance deal flow continues to be muted due to lower M&A volume and we are selectively letting investments go in connection with refinancings, if the new risk return profiles do not meet our criteria.

Bruce Spohler: We are selectively letting investments go in connection with refinancing. if the new risk return profiles do not meet our criteria. Credit Investors focused on downside protection, our ability to say no and pass on investment opportunities. that don't meet our high hurdle can often be measured by the deals we don't meet.

Speaker Change: Credit investors focused on downside protection, our ability to say no and pass on investment opportunities that don't meet our high hurdle can often be measured by the deals we don't do.

Speaker Change: For the year, we invested in $113 million of cash flow loans and had repayments of over $190 million.

Bruce Spohler: We invested in a hundred and thirteen million of cash flow. and have repayments of over $100,000. Your end, weighted average yield on this portfolio.

Speaker Change: At year end weighted average yield on this portfolio was 10, 6% down from 11, 1% in the prior quarter.

Bruce Spohler: Thank you. Thus far in 2025. There has not been a significant uptick in M&S.

Speaker Change: Thus far in 2025.

Speaker Change: Not been a significant uptick in M&A with spreads at tight levels in.

Speaker Change: An incremental weaker protections creeping into structures, we remain highly selective.

Bruce Spohler: Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com곳.com we remain highly selective. However, we are optimistic that sponsor finance conditions will improve throughout.

Speaker Change: However, we are optimistic that sponsor finance conditions will improve throughout this year.

Speaker Change: CEO confidence increases and we start to see increased activity in M&A.

Bruce Spohler: CEO Confidence Inc. start to see increased activity.

Bruce Spohler: Now let me turn to our special... across the board, the credit quality of these loans. Collateral Support, and Borrowing-Based Structure.

Speaker Change: 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 loan to values, which have meaningful collateral support and borrowing based structures.

Speaker Change: Let me first touch on our asset based lending portfolio.

Bruce Spohler: first touch on our asset-based lending. At year-end, the portfolio totaled $1 billion across 257 years. National Domestic Banks have continued to adjust their business model. higher rate environment and are retreating from the ABL. creating an attractive opportunity for SORs A, B, L, D. Under tighter credit regulations, regional banks... asset-based loans to non-investment grade companies are often ineligible. FedLiquidity.com and often require banks to hold more capital against these loans. SLR is positioned to collaborate with these banks who are shifting their ABL strategy.

Speaker Change: At year end, the portfolio totaled $1 billion across 257 issuers.

Speaker Change: Regional domestic banks have continued to adjust their business model in a higher rate environment and are retreating from the ABL market.

Speaker Change: Creating an attractive opportunity for SLR ABL team.

Speaker Change: Under tighter credit regulations regional banks.

Speaker Change: Asset based loans to non investment grade companies are often.

Speaker Change: Ineligible for fed liquidity programs and often require banks to hold more capital against these loans.

Speaker Change: S. O R is positioned to collaborate with these banks, who are shifting their ABL strategies and reaction to these market challenges.

Operator: Thanks for watching. Please like and subscribe.

Bruce Spohler: Our recent acquisition of the Loan Portfolio and Servicing Platform. and Webster Bank is an example of... The integration of the platform and the portfolio is going... and others.

Speaker Change: Our recent acquisition of the loan portfolio and servicing platform from Webster Bank is an example of this.

Speaker Change: The integration of the platform.

Speaker Change: The portfolio is going smoothly.

Speaker Change: And is it performing in line with expectations.

Bruce Spohler: Thank you for joining us. For the quarter, we had $128 million of new ABL investment. payments of $205,000. Weighted Average Asset Level Yield 4% in the prior. Additionally, we are seeing opportunities to provide ABL-structured facilities. Traditional cash flow borrowers are experiencing tight liquidity pressure from declining interest coverage. who had access to the cash flow and BSL market in order to provide working capital. These ABL facilities, with us, carve out working capital assets. All pledged into abhorrence. Supporting the Incremental ABL Facility. provides liquidity relief for the borrower. New Business Pipeline has expanded. Fallen Angel Credits and other well-capitalized...

Speaker Change: For the quarter, we had $128 million of new ABL investments and repayments of $205 million.

Speaker Change: Weighted average asset level yield was 14, 6% compared to 14, 4% in the prior quarter.

Speaker Change: Additionally, we are seeing opportunities to provide E. B L structured facilities to traditional cash flow borrowers who are experiencing tight liquidity pressure from declining interest coverage ratios.

Speaker Change: So sponsor backed borrowers who had access to the cash flow and DSL market and a lower rate environment are now receptive to our ABL solutions in order to provide working capital and liquidity.

Speaker Change: He's ABL facilities with us carve out working capital assets to be pledged into our borrowing base supporting the incremental ABL facility and provides liquidity relief for the borrower.

Speaker Change: The new business pipeline has expanded.

Speaker Change: Fallen Angel Angel credits and other well capitalized businesses seek additional liquidity in light of macroeconomic headwinds.

Bruce Spohler: Access to the larger SLR platform has allowed us to speak for bigger hold sizes and according more attractive investors. Finally, our ABL...

Speaker Change: Access to the larger SLR platform has allowed us to speak for bigger hold sizes and accordingly.

Speaker Change: When more attractive investments.

Speaker Change: Finally, our ABL teams.

Speaker Change: Added new originators in 2024 continue to do so in 2025.

Bruce Spohler: to do so in 2025.

Speaker Change: Now, let me touch on equipment finance.

Bruce Spohler: Now let me touch on equipment. Quarter end, this portfolio totaled just over a billion dollars, representing 37% of our total portfolio. Credit profile continues unchanged from the prior quarter. During the fourth quarter, we originated approximately $180 million of new assets. The majority of this coming from our business that provides... Investment Grade Borrower We have repayments of just over $101,000. asset level yield was 10.7%.

Speaker Change: At quarter end this portfolio totaled just over $1 billion, representing 37% of our total portfolio.

Credit profile continues unchanged from the prior quarter.

Speaker Change: During the fourth quarter, we originated approximately $180 million of new assets, but the majority of this coming from our business that provides leases to investment grade borrowers.

Speaker Change: Had repayments of just over 101 billion.

Speaker Change: Weighted average asset level yield was 10, 7% compared to nine 4% in the prior quarter.

Speaker Change: Our investment pipeline has expanded in conjunction with the disruption caused by the regional bank failures.

Bruce Spohler: and many others.

Speaker Change: Finally, let me touch on life Sciences.

Bruce Spohler: Finally, let me touch on life science. At your end, a life-size portfolio. totaled approximately $240,000. 87% is invested in portfolio companies. that have over 12 months of cash run. Additionally, all of our portfolio companies in life sciences have revenue. and at least one product in the commercial. significantly de-risk our investors. Life Science Investments represented just under 8% of the portfolio.

Speaker Change: At year end, our life science portfolio totaled.

Speaker Change: <unk> totaled approximately $240 million.

Speaker Change: Over 87% is invested in portfolio companies that have over 12 months of cash runway.

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

Speaker Change: This significantly de risks our investments.

Speaker Change: Life Science investments represented just under 8% of the portfolio.

Speaker Change: And contributed 18% of the gross investment income for the fourth quarter.

Bruce Spohler: Thank you all for joining us today. shoots in our life science pipeline. 2025. Well, we expect. These changes stem from the involving regulatory environment. Life Science.

Speaker Change: Recent months, we have seen green shoots and our life science pipeline and we expect that activity will continue to improve during 2025.

Speaker Change: While we expect to see some industry changes stem from the evolving regulatory environment. Our life science team is keenly focused on these developments and benefits from their 20 plus year history of investing in life Sciences.

Bruce Spohler: Thank you. and benefits from their 20 plus year history of investing in life science. During the fourth quarter, we funded just over $6 million of an investment. Bar, and had $33 million. ¼ End, The Weighted Average Yield on the Life Science Portfolio. Excluding fees but excluding warrants. Just over 12%. just over 12.5% the prior early signs of improvement in the life science market, we have seen a modest uptick in the pipeline.

Speaker Change: During the fourth quarter, we funded just over $6 million of an investment to an existing borrower and had $33 million of repayments.

Speaker Change: At quarter end, the weighted average yield on our life science portfolio.

Speaker Change: Excluding fees, but excluding warrants was just over 12% compared to just over 12, 5% the prior quarter.

Speaker Change: With early signs of improvement in the life science market, we have seen a modest uptick in the pipeline.

Speaker Change: Given our ability to allocate capital to the best risk reward opportunities across our investment strategies, we have the luxury of being highly selective in our capital deployment and life Sciences, yet still generating positive total originations collectively across the firm.

Bruce Spohler: Thank you. We have the luxury of being highly selective in our capital deployment in lifestyle. still generating positive total. collectively across the firm.

Bruce Spohler: Lastly, I want to touch on the company's SS... During the fourth quarter, we earned $1.9 million, representing...

Speaker Change: Lastly, I wanted to touch on the company's S. S. L P.

Speaker Change: During the fourth quarter, we earned $1 9 million, representing a 15, 6% annualized yield consistent with the prior quarter.

Speaker Change: As of quarter end.

Michael Gross: Quarter End Now let me turn the call back. Thank you, Bruce. As we close the book on 2024, we are pleased with the stability, evidence, and our fourth quarter results and encouraged by the overall credit quality of the investment portfolio. This is evidenced by another quarter of net asset value stability, continued very low level non-accruals. a small percentage of watchlist investments, minimal payment and kind income, and broad portfolio diversification. While concerns about credit quality in private credit portfolios continue to creep into the market narrative from high-profile defaults, as the trailing 12-month loss rate in public BDC crested above the long-term average in 2024, we view the consistency of our results achieved throughout the year as a testament to SLR's multi-strategy approach in private credit investment.

Speaker Change: Portfolio had a fair value.

Speaker Change: Just over $178 million.

Speaker Change: Let me turn the call back to Michael Thanks.

Speaker Change: Thank you Bruce as we close the book on 2024, we are pleased with the stability evidenced in our fourth quarter results and encouraged by the overall credit quality of the investment portfolio.

Speaker Change: This is evidenced by another quarter of net asset value stability continued very low level of non accruals.

Speaker Change: Small percentage of walks us investments minimum payment in kind income and broad portfolio diversification.

Speaker Change: While concerns about credit quality in private credit portfolios continue to creep into the market narrative from high profile defaults as a trailing 12 month loss rate in public BDC crested above long term average in 2024, we view the consistency of our results achieved throughout the year is a testament to SLR is multi strategy approach.

Speaker Change: In private credit investing.

Speaker Change: Is it reflecting the growth of our platform over the last 15 years that has created a diversified commercial finance company with broad investment capabilities, we believe that our multi strategy approach.

Michael Gross: As we reflect on the growth of our platform over the last 15 years that has created a diversified commercial finance company. We believe that our multi-strategy approach, emphasis on preservation of capital, and portfolio construction with a specialty finance emphasis, differentiates us from the majority of our peers. Companies positioned favorably with momentum across all of our businesses and a growing pipeline tilted towards specialty finance investment opportunities. Since our IPO 15 years ago, we have generated a 10.5% IRR for our shareholders.

Speaker Change: Preservation of capital and portfolio construction with the specialty finance emphasis.

Speaker Change: French age us for the majority of our peers.

Speaker Change: The company is positioned favorably with momentum across all of our businesses and a growing pipeline tilted towards specialty finance investment opportunities.

Speaker Change: Since our IPO 15 years ago, we have generated a 10, 5% IRR for our shareholders. We are grateful to and humbled by the support of our investors lenders rating agencies portfolio companies in more than 300 employees, including affiliates across the SLR platform have contributed to this milestone.

Michael Gross: We are grateful to and humbled by the support of our investors, lenders, rating agencies, portfolio companies, and more than 300 employees, including affiliates, across the SLR platform who have contributed to this milestone.

Speaker Change: Thank you to all of you who have contributed to Frc's performance.

Michael Gross: Thank you to all of you who have contributed to FLRC's performance.

Michael Gross: In closing... SolarCity currently trades at a 9.4% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income-seeking and value investors and offers shareholders portfolio diversification benefits compared to cashflow-only private credit strategies. Our investment advisor's alignment of interest with the shareholders continues to be one of our significant hallmark principles. 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 every year. 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.

Speaker Change: And so I see currently trades at a nine 4% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income seeking value investors and offer shareholders portfolio diversification benefits compared to cash flow only private credit strategies.

Speaker Change: Our investment advisors alignment of interest with the shareholders continues to be one of our significant hallmark principles, yes, Lar team owns over 8% of the company's stock and includes a significant percentage of their annual incentive compensation invested in ethylene feedstock every year.

Speaker Change: 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 we know, it's a busy time of year for those that follow the list of BDC Marketplace closely.

Speaker Change: You all again for your time today as we know it's a busy time of year for those that followed the listed BDC marketplace closely.

Operator: Operator, would you please open up the line for questions? Certainly. At this time, if you would like to ask a question, please press star 1 now on your telephone keypad. To withdraw yourself from the queue, you may press star 2. Once again, to ask a question, please press star 1 now.

Speaker Change: Operator would you. Please open up the line for questions certainly at this time, if you'd like to ask a question. Please press star one now when your telephone keypad.

Speaker Change: Draw yourself from the queue you May press star two once again to ask a question. Please press star one now.

Speaker Change: And we'll take our first question from Erik Zwick of lucid capital markets.

Erik Zwick: And we'll take our first question from Erik Zwick of Lucid Capital Markets. Thank you.

Erik Zwick: Thank you and good morning, everyone.

Bruce Spohler: Good morning, everyone. It's been a fair amount of time talking about the opportunities for your specialty finance verticals and how strong a pipeline is there today. I'm curious with respect to potentially acquiring whole portfolios or teams, what that part of the pipeline looks like. And you mentioned that the Webster opportunity last year, were there any others last year that you looked at and didn't choose to go forward with? And if so, what might those reasons be? Great question. Yes, starting with last year, we did see some opportunities that we could have transacted on and we decided to pass.

Speaker Change: When you spend a fair amount of time good morning, it's been a fair amount of time talking about.

Speaker Change: The opportunities for your specialty finance verticals and how strong our pipeline is there today I'm curious with respect to potentially acquiring.

Speaker Change: The whole portfolios our teams what that part of the pipeline looks like and you mentioned that the Webster opportunity last year were there any others last year that you looked at and didn't choose to go forward with and if so what might those recent speak.

Speaker Change: Great question, Yeah, it's starting with last year.

Speaker Change: We did see some opportunities that we could have transacted on and we decided to pass.

Bruce Spohler: I think that generally if we pass, it's because we get in there and begin to see some of the credit underwriting processes and how the portfolio looks relative to the portfolios that we own and generally have passed on that basis where we feel that we can create organically a better something than what we would be buying in the market. But we do have a team that is dedicated, as you may recall, to sourcing portfolios and teams and we have, post the regional banking disruption, seen elevated activity level across specialty finance in terms of bringing on teams and portfolios.

I think that generally if we pass it's because we get in there and begin to see some of the credit underwriting processes and how the portfolio.

Speaker Change: Fully it looks relative to the portfolios that we own and generally have passed on that basis, where we feel that we can create organically a bet or something than what we would be buying in the market, but we do have a team that is dedicated as you may recall to sourcing portfolios and teams and we have post the.

Speaker Change: The regional banking disruption seen elevated activity level across specialty finance in terms of bringing on teams and portfolios. So we expect it to be a contributor this year.

Erik Zwick: We expect it to be a contributor this year, but you do have to kiss a lot of frogs. Sure makes sense. I like that analogy.

Speaker Change: But you do have to kiss a lot of frogs.

Speaker Change: Sure It makes sense like that analogy.

Bruce Spohler: And maybe moving towards, you know, sponsor finance and I know the majority of the capital you put to work last year was on the specialty finance side. You're seeing better risk adjusted returns there. You noted that the spreads remain, you know, very tight in sponsor finance. I'm curious if you could just maybe address what you're seeing from a structure perspective as well. Are you seeing, you know, any actors out there that are starting to bend there or is it primarily just the spread pressure that keeps the risk adjusted opportunity not as attractive? So I would say that both the spread compression and the loosening of terms in the sponsor market feels to have stabilized, albeit at a level that we find relatively unattractive comparison.

Speaker Change: Maybe moving towards sponsor financing that I know, you're a majority of the capital you put to work well last year was on the specialty finance side are you seeing better risk adjusted returns there you'd noted that the spreads remain very tight in sponsor finance I'm curious if you could just maybe address what you're seeing from a structure perspective.

Speaker Change: As well are you seeing any actors out there that are starting to bend there or is it primarily just the.

Speaker Change: The spread pressure that that keeps the risk adjusted opportunity not as attractive.

So I would say that both the.

Speaker Change: Spread compression and the loosening of terms in the sponsor market feels to have stabilized, albeit at a level that we find relatively unattractive comparison to our ABL and specialty finance strategies, but there does seem to be a little bit of a stability. There I don't know if the.

Bruce Spohler: influx of new capital relative to the deal flow has kind of found its equilibrium. But at the moment, we're just not liking the absolute returns afforded in the sponsor finance business. You know, new platforms are, if you can find them, are in the 9% to 9.5% all in. As you heard, our yield in the sponsor book moved from 11.1% down to 10.6%. And that's kind of what we're targeting is 10.5% to 11% returns if we're going to invest in sponsor. But I would say things have stabilized. I appreciate the thoughts. I'll step aside and hop back in the queue.

Speaker Change: Influx of new capital relative to the deal flow has kind of found its equilibrium, but at the moment.

Speaker Change: Or just not liking the absolute returns afforded in the sponsor finance business, new platforms or if you can find them or in the nine to nine 5% all in.

Speaker Change: You heard our yield in the sponsor book moved from 11, one down to 10.6, and that's kind of what we're targeting is 10, 5% to 11% returns if we're going to invest in sponsor.

Speaker Change: But I would say things have stabilized for the moment.

Speaker Change: I appreciate the thoughts I'll step aside and hop back in the queue. Thank you.

Erik Zwick: Thank you.

Speaker Change: Thank you.

Speaker Change: We'll take our next question from Casey Alexander of Compass point.

Casey Alexander: We'll take our next question from Casey Alexander of Compass Point.

Casey Alexander: Hi, good morning.

Bruce Spohler: Hi, good morning. My first question is about the equipment finance sector. I mean, if you look at the comprehensive portfolio, it's the largest segment of the portfolio and You know, because of its sort of unique structure, fixed rate loans, floating rate liabilities, the yield has improved 260 basis points over the last two quarters, back up to what I think is sort of an acceptable BDC level. It doesn't really feel like you're matching liabilities and assets, though. Is there anything that you can do to change the liability side of the structure to kind of, you know, lock it in or reduce the yield volatility that occurs in that portfolio?

Speaker Change: Good morning.

Michael Thank: Mike My first question is about the equipment finance sector I mean, its still if you look at the comprehensive portfolio. It's the largest.

Speaker Change: Segment of the portfolio.

Speaker Change: And.

Speaker Change: Because of its sort of unique structure.

Speaker Change: Fixed rate loans floating rate liabilities. The yield has improved 260 basis points over the last two quarters back up to what I think is sort of an acceptable BDC level.

Speaker Change: Is it are you it doesn't really feel like you're matching liabilities and assets, though is there anything that you can do to change the liability side of the structure to kind of.

Speaker Change: You know I don't lock it in or reduce the yield volatility that occurs in that portfolio I'm. Just curious if theres something that you can do now that it's returned to a more acceptable yield.

Bruce Spohler: I'm just curious if there's something that you can do now that it's returned to a more acceptable yield.

Bruce Spohler: So, good question. It is reasonably well-matched. Equipment finance sector benefits in this environment from a couple of things. On the liability side, the floating rate debt is actually part of our parent company's investment, came in as debt, about $150 million, as well as the equity. That is floating rate, so it's just another way to pull our income out. You could say it benefits us when rates are up, but that's not a real driver. We just look at the total income across our debt. investment. So obviously if the debt's down a little bit, the equity will be up a little bit since we own both 100%.

Speaker Change: So good question it is reasonably well matched.

Speaker Change: Look the <unk>.

Speaker Change: Equipment finance.

Speaker Change: Sector benefits in this environment from a a couple of things on.

Speaker Change: On the liability side, the floating rate debt is actually part of our parent Companys investment came in is that about $150 million as well as the equity that is floating rate. So it's just another way to pull our income out you could say it benefits us when rates are up but.

Speaker Change: It's not a real driver we just look at the total income across our debt and equity investment.

Speaker Change: So obviously, if the debt is down a little bit the equity will be up a little bit since we own both 100% I think the big driver here is in this environment in an inflationary environment. This business does outperform.

Bruce Spohler: I think the big driver here is in this environment, in an inflationary environment, this business does outperform. We have investments that we've been putting on the last two years in a higher rate environment, to your point, that is helping the business because we did put in fixed rate liabilities a few years back. You also find in this environment that borrowers will keep the asset longer and extend our lease and that is where we make profit. We want the inflationary environment such that the lease versus buy decision is such that is, in their mind, the check that they're writing every month is cheaper to keep the existing equipment and that's where we're seeing elevated profitability.

Speaker Change: We have investments that we've been putting on in the last two years in a higher rate environment to your point that is helping the business because we did put in fixed rate liabilities a few years back.

Speaker Change: You'll also find in this environment.

Speaker Change: That.

Speaker Change: Borrowers will keep the asset longer and extend our lease and that is where we make profit.

Speaker Change: We want.

Speaker Change: The inflationary environment, such that the lease versus buy decision as such that is in their minds to check that they're writing every month, it's cheaper to keep the existing equipment and that's where we're seeing elevated profitability.

Bruce Spohler: So, a long-winded answer to your question, but we feel well matched and we do think that in this environment we will continue to see nice stable returns.

So.

Speaker Change: Long winded answer to your question, but we feel well matched.

Speaker Change: We do think that in this environment, we will continue to see nice stable returns.

Speaker Change: Okay. Thank.

Casey Alexander: Okay, thank you for that.

Casey Alexander: My second question is, I just want to make sure that I understand, building the pipeline in ABL, what you're talking about is more transitioning what might have been traditional cash flow opportunities into ABL opportunities, as opposed to having a stack up of, you know, standalone, you know, new specialty finance companies that you would want to buy. That's where the increase in the pipeline is coming from? Yeah, correct. It's individual ABL loans. I mean, you saw, you know, we've taken down our cash flow book from what was a peak of 26% of the portfolio in 23, when we like that risk, down to just about 20%.

Speaker Change: Thank you for that my second question is I, just want to make sure that I understand you're building the pipeline in a b L.

What you're talking about is more transitioning what might've been traditional cash flow opportunities into ABL opportunities as opposed to having a stack up of you know stand alone.

Speaker Change: New specialty finance companies that you would want to buy that's where the increase in the pipeline is coming from yeah correct. Its individual ABL loans I mean, you saw.

Speaker Change: We've taken down our cash flow book from what was a peak of 26% of the portfolio and 23, when we like that risk down to just about 20% and you know my guess is that we'll have lower I think our trough in the last.

Bruce Spohler: And, you know, my guess is that will head lower, I think our trough in the individual ABL loans that that is separate and apart to your question from any potential portfolios, like the one we purchased from Webster, that would accelerate that. But as you see, we have taken down our leverage to 1.03 was up at 1.19, about a year ago. So we do have ample capacity to both buy portfolios, and just pursue the individual loans that are making up our pipeline of ABL assets.

Speaker Change: Few years has been closer to 15% and instead, we are doing individual ABL loans that that is separate and apart to your question from any potential portfolios like the one we purchased from Webster that would accelerate that but as you see we have taken down our leverage to 1.03.

Speaker Change: <unk> up at 1.19 about a year ago. So we do have ample capacity to both buy portfolios and just pursue the individual loans that are making up our pipeline of ABL assets.

Casey Alexander: Okay, great.

Speaker Change: Okay, Okay great.

Bruce Spohler: Now, I appreciate your stance of, you know, not seeing enough return from, you know, spreads that are 475 or wherever. The SSLP was set up to accept lower yielded loans, lower yielding loans from Solar Senior. I mean, is there a place for those if the, you know, if the credit is good, is there a place to take a piece of those lower spread loans on and ship them down to, you know, the JV? And a follow on to that is, as it stands right now, if you're not going to do that, is the JV kind of at its functional capacity at this point in time?

Speaker Change: I appreciate your stance of of you.

Speaker Change: No not seeing enough return from you know spreads that are 475 or wherever.

Speaker Change: That's L. P was set up to accept lower yielded loans lower yielding loans from solar senior.

Speaker Change: Is there a place for those.

Speaker Change: If that if the.

Speaker Change: Credit is good is there a place to take a piece of those lower spread loans on and ship them down to.

Speaker Change: You know the JV.

And a follow on to that is as it stands right now if you're not going to do that is the JV kind of at its functional capacity at this point in time.

Bruce Spohler: So, great question. And yes, 100%, we are continuing to put loans into the cash flow loans into the SSLP. Remember, originally, it was migrating loans that we had acquired in connection with the merger with Suns back in 22, many of which back then were priced at the 475 type level. So, we are doing that, which is why we think that we can continue to run that portfolio at close to full optimization.

Speaker Change: No great question, and yes, 100%, we are continuing to put loans into the <unk> cash flow loans into the S. S. L. P.

Speaker Change: Remember originally it was migrating loans that we had acquired in connection with the merger with sons back in 'twenty too.

Speaker Change: Many of which back then were priced at $4 75 type level.

Speaker Change: So we are doing that which is why we think that we can continue to run that portfolio at close to full optimization.

Speaker Change: Alright, thank you.

Casey Alexander: Alright, thank you.

Speaker Change: Thank you.

Operator: And once again to ask a question that is star 1 on your telephone keypad.

Speaker Change: And once again to ask a question that is star one on your telephone keypad will move next to Melissa Wedel of J P. Morgan.

Operator: We'll move next to Melissa Wedel of J.P. Morgan. Thanks for taking my questions this morning. Some of them have actually been asked already, but I thought maybe we could touch back on the ABL opportunities. Given what you've described as, you know, some funders leaving the space and you see the opportunity there, I was a little bit surprised by just the volume of exits during the quarter. Though yields seem to be pretty resilient. And if I'm correct, there was even a quarter-over-quarter increase in yields. I just want to understand that dynamic and what's driving both the yield changes in the space, but also some of the repayments that you saw in 4Q.

Speaker Change: Thanks for taking my questions. This morning.

Speaker Change: Some of them have actually been asked already but I thought maybe we could touch back on the ABL opportunity.

Speaker Change: Given.

Speaker Change: It's what you've described as you know.

Speaker Change: Funders, leaving the space and you see the opportunity there I was little bit surprised by just the volume of exits during the quarter.

Speaker Change: Seem to be pretty resilient and I, if I'm correct, there was even a quarter over quarter increase in yields.

Speaker Change: Just want to understand that dynamic and what's driving the yield changes in this space, but also.

Speaker Change: Some of that the repayments that you saw in forecast. Thank you sure. So the yield is I.

Melissa Wedel: Thank you.

Bruce Spohler: Sure. So the yield is, I think the takeaway there should be more about the stability of it. Whether it takes up a couple of basis points quarter-over-quarter is really not indicative of a systemic trend in ABL. What we like about ABL is that it is a stable return asset across interest rate cycles. So, but to your point about repayments, you know, sometimes you get repaid as a lender and that's something that we celebrate, as you know, at SLR. The average duration of the loans that got repaid, we had 205 million of ABL repayments in the fourth quarter, the average duration was four years.

Speaker Change: I think the takeaway there should be more about the stability, whether it ticks up a couple of basis points quarter over quarter.

Speaker Change: It's really not indicative of a systemic systemic trend in ABL, what we like about ABL is that it is a stable return asset.

Speaker Change: Across interest rate cycles.

Speaker Change: So but to your point about repayments.

Speaker Change: You know, sometimes you get repaid as a lender and that's something that we celebrate as you know what SLR.

Speaker Change: The average duration of the loans that got repaid we had $205 million of ABL repayments in the fourth quarter. The average duration was four years. So if you think about it that's longer than you typically see in sponsor loans life science loans. So so it just happened to be idiosyncratic.

Bruce Spohler: So if you think about it, that's longer than you typically see in sponsor loans, life science loans. So it just happened to be idiosyncratic that we had a number of loans that were coming due and they were moving on. We'd love to have kept them, but that is the nature of ABL. These companies will move to lower cost financing when they can. But again, we kept them on SLR's balance sheet for over four, close to four years.

Speaker Change: We had a number of loans that were coming due and they were moving on.

Speaker Change: We'd love to have kept them, but that is the nature of APL. These companies will move to lower cost financing when they can but again, we kept them on SLR balance sheet for over close to four years. So it was just an odd quarter in that regard the other point worth noting is in ABL lending as you think about.

Bruce Spohler: So it was just an odd quarter in that regard. The other point worth noting is in ABL lending, as you think about, for example, the Webster portfolio that we purchased at the end of the third quarter, you often structure your loan, unlike cash flow, where you have a term loan and maybe a small revolving credit facility. The entire facility in ABL is often structured as a revolver. And so what happens is you will have usage of that facility while we mandate economically through fees and minimal utilization of the facility, you will see outstandings go up and down.

Speaker Change: For example, the Webster portfolio that we purchased at the end of third quarter, you often structure you're alone. Unlike cash flow, where you have a term loan and maybe a small revolving credit facility. The entire facility in ABL is often structured as a revolver.

Speaker Change: And so what happens is you will have usage of that facility, while we mandate economically through fees.

Speaker Change: Minimal utilization of the facility you will see Outstandings go up and down so just to put it in context, we saw 60 million of repayments in that $205 million in the fourth quarter were temporary repayments of a facility. They were not loss of a borrowing relationship per se as you think about.

Bruce Spohler: So just to put it in context, we saw 60 million of repayments in that 205 million in the fourth quarter were temporary repayments of a facility. They were not loss of a borrowing relationship per se, as you think about a typical repayment. So those outstandings will ebb and flow across the ABL credit facility. Thank you.

Speaker Change: A typical repayment so those outstandings will ebb and flow across the ABL credit facilities.

Speaker Change: Thank you.

Paul Johnson: And once again that is star one to ask a question, we'll move next to Paul Johnson of K B W.

Operator: And once again, that is star one to ask a question.

Paul Johnson: We'll move next to Paul Johnson of KBW. Thanks. Good morning. Thanks for taking my questions. In terms of just sponsor backed lending business, and you've been allowing that portfolio to run off, and that's been the case for quite some time going back several years, give or take a few windows of opportunity for growth in that vertical. But in terms of like the broader SLR platform, you know, can you just tell us, you know, how much is still, I guess, investing in cash flow loans. Are there other parts of the platform that are still, you know, involved in that business where, you know, you can, you know, manage your share and relevance with sponsors and maintain those relationships?

Paul Johnson: Thanks, Good morning, Thanks for taking my questions.

Paul Johnson: In terms of just the sponsor backed lending business and you've been allowing that portfolio to run off.

Paul Johnson: And that's been the case for quite some time going back several several years.

Paul Johnson: To give or take a few few windows of opportunity for growth in that vertical but in terms of like the broader SLR platform. You know can you just tell us how much.

Paul Johnson: <unk> is still I guess investing in cash flow loans are there other parts of the platform that are still involved in that business, where you know you can.

Paul Johnson: Manage your share and relevance with with sponsors and maintain those are great question.

Bruce Spohler: All of our funds we manage, for the most part, are multi-strategy funds, so they have exposure to all the ABL strategies and the cash flow. So, with very few exceptions, any cash flow loan that we're putting into SLRC is also being invested on behalf of all the high net worth funds, funds of one, and commingled funds. And that allows us to take down anywhere from $50 to $200 million of a loan and keep diversification across the platform. So, we're not treating SLRC different than we are with regards to cash flow loans than we are in our institutional funds.

Paul Johnson: All of our funds, we managed for the most part of our multi strategy funds. So they have exposure to all the ABL strategies and the castle. So with very few exceptions any cash flow that we're putting into Src is also being invested on behalf of all the all the high net worth funds funds of one and commingled funds in that.

Paul Johnson: Laos us to take down anywhere from 50 to 100 200 millimeters it alone and keep diversification across the platform. So we're not we're not treating src different than we are with regards to cash flow loans and we are our institutional funds.

Bruce Spohler: But I think, you know, a corollary is... You may wonder what is our relevance to the borrowing sponsor community if it seems that our commitment to the asset class ebbs and flows across cycles. And the answer is we are very targeted in our sponsor cash flow lending business towards three industries, healthcare, business services, financial services. that probably comprises 75 percent, 80 percent of our cash flow portfolio. And so we have deep relationships in those industries. and we will be active as a lender when those sponsors are active. But in those sectors, they tend to be, the sponsors, much more focused on creating value for the equity over time, less focused on trying to drive the cheapest borrowing costs.

Speaker Change: But I think you know a corollary.

Is.

Speaker Change: You May wonder what is our relevance to the borrowing sponsored community. If it seems that our commitment to the asset class ebbs and flows across cycles and the answer is we're very targeted in our sponsor cash flow lending business towards three industries health care.

Speaker Change: Services financial services that probably comprises 75% 80% of our cash flow portfolio and so we have deep relationships in those industries and we will be active as a lender when those sponsors are active but in those sectors. They tend to be the sponsors.

Speaker Change: Much more focused.

Speaker Change: Creating.

Speaker Change: Creating value for the equity over time less focused on trying to drive the cheapest borrowing cost with the least amount of covenants. It's much more of a partnership so we make sure that we maintain our relevance to these cash flow borrowers to the sponsored community in those industries.

Bruce Spohler: Please see the complete disclaimer at https://sites.google.com across the cycle. So our activity closely follows theirs in terms of how they see the investment opportunity just as Thank you so much to all attendees for patrolling with us!

Speaker Change: Across the cycle. So our activity closely follows theirs in terms of how they invest.

Speaker Change: The investment opportunity just as we do.

Speaker Change: Got it I appreciate that.

Speaker Change: That's helpful. And then last question for me I apologize. If you said this earlier on in the beginning of the call, but just on what looked like higher dividend income.

Speaker Change: This quarter I know the equipment finance.

Speaker Change: Investment.

Bruce Spohler: I've obviously been performing well but what drove that and you know I'm looking at basically about 16 million or so of dividend income in the fourth quarter. Is that kind of a good run rate going forward or is there anything non-recurring in there we should be thinking about for for next year? Sure, so that was what we would like to think of as run rate, hopefully, but you've got to hold economic conditions constant. Some of it, to your point, was definitely increased income coming in from the lease portfolio, but the majority of it actually was from the ABL businesses.

Speaker Change: Obviously been performing well, but what drove that and you know I'm looking at basically about $16 million or so of dividend income in the fourth quarter is that kind of a good run rate going forward or is there anything nonrecurring in there we should be thinking about for next year.

Speaker Change: Sure.

Speaker Change: No that was that was.

Speaker Change: What we would like to think of as run rate hopefully, but you've got a hold economic conditions constant some of it to your point was definitely increased income coming in from the lease portfolio, but the majority of it actually was from the ABL businesses in large part the acquisition of the Webster portfolio.

Bruce Spohler: In large part, the acquisition of the Webster portfolio, we closed that the last day of Q3, so you had the full quarter impact for Q4. Those were very attractive returning assets, mid-teens returns, so that should be continuing. Those relationships early days have stuck with us, so we'd like to think that's a run rate. I can't emphasize enough our commitment to the ABL asset class. It is direct lending, just like cash flow. The only difference is you're underwriting collateral in addition to cash flows and seeking collateral and the liquidation of collateral if needed as your primary source of repayment.

Speaker Change: We closed at the last day of Q3. So you had the full quarter impact for Q4, those are very attractive returning assets mid teens returns.

Speaker Change: So that that should be continuing those relationships early days have stuck with us. So we'd like to think that's a run rate in that and I, just I can't emphasize enough our commitment to the ABL asset class.

Speaker Change: It is direct lending just like cash flow. The only difference is your underwriting collateral in addition to cash flows and seeking collateral.

Speaker Change: And the liquidation of collateral if needed as your primary source of repayment, we've been very active as I mentioned in adding originators in ABL, both last year and continuing into Q1.

Bruce Spohler: We've been very active, as I mentioned, in adding originators in ABL, both last year and continuing into Q1, so we do see that as a growth area, and that is a lot of what you're seeing in terms of the elevated dividend income. Just to expand for one more second, you may know that our focus in ABL goes beyond just types of collateral, mostly working capital receivables and inventory, but it also extends into industry expertise. Just as we have healthcare expertise in life sciences and healthcare cash flow lending, we have a dedicated healthcare ABL team that is underwriting.

Speaker Change: So we do see that as a growth area.

Speaker Change: And that is a lot of what youre seeing in terms of the elevated dividend income in Q4.

Speaker Change: Just to expand for one more second may know that our focus in ABL goes beyond just types of collateral, mostly working capital receivables and inventory, but it also extends into industry expertise.

Speaker Change: Just as we have health care expertise in life Sciences, and healthcare cash flow lending, we have a dedicated healthcare ABL team that has been underwriting.

Speaker Change: Health care receivables, both commercial pay.

Bruce Spohler: healthcare receivables, both commercial pay and government pay. We also have businesses dedicated to digital media industry with the Webster acquisition. We pivoted to some old school industries such as apparel. So there is a lot of white space out there and very often in ABL, regional and industry expertise. can be a differentiator. Got it.

Speaker Change: And government pay we also have businesses dedicated to digital media industry with the Webster acquisition.

Speaker Change: We pivoted to some old school industries, such as apparel. So there is a lot of white space out there and very often in ABL.

Speaker Change: General and industry expertise can be a differentiator.

Speaker Change: Got it I appreciate that I mean, one more on the a b L.

Paul Johnson: I appreciate that.

Paul Johnson: I mean, one more on on the ABL. I mean, you mentioned some new hires there. I mean, what what is kind of the requirement for additional headcount in those businesses? I mean, is most of the existing, you know, human capital basically kind of in place for those companies? Or would you expect? Yeah, I think, you know, If you look at all of our portfolio companies under SLRC, they're all built for growth, so the infrastructure is all there. As evidenced by the fact that we bought the Webster portfolio into business credit. The prior owner had about 90 people servicing it.

Speaker Change: You mentioned, some new hires there I mean, what what is kind of the requirement for additional head count in those businesses.

Speaker Change: Most of the existing.

Speaker Change: Human capital basically kind of in place for those companies or would you expect.

Speaker Change: I think that they need.

Speaker Change: Good news is the.

Speaker Change: If you look at our portfolio companies out of Src, they're all built for growth. So the infrastructure is all there.

Speaker Change: As evidenced the fact that we bought the Webster portfolio into business credit.

Speaker Change: The prior owner had about 90 people servicing that we took nine people to service. It since you already have the infrastructure in place, where we're adding people is really exclusively on the origination side to.

Bruce Spohler: We took nine people to service it since we already had the infrastructure in place. Where we're adding people is really exclusively on the origination side. To Bruce's earlier comment, we are committed to the ABL business, and we're able to recruit highly talented and experienced people from commercial banks that are looking for a different experience and a different way to grow their personal business.

Speaker Change: Bruce will come we are committed to the ABL business and we're able to recruit.

Speaker Change: Highly talented and experienced people from commercial banks.

Speaker Change: That are looking for a different experience in a different way.

Speaker Change: Grow their personal business.

Speaker Change: Got it and when those hires like that head count is that added at the advisor level or is that head count at the.

Bruce Spohler: Got it. And when those hires, like that headcount, is that added at the advisor level or is that headcount at the specialty FinCo level? That's specialty FinCo.

Speaker Change: Specialty fin co level.

Speaker Change: Especially because.

Speaker Change: Got it. Thank you very much that's all for me.

Paul Johnson: Thank you very much.

Operator: That's all for me. Thank you. And once again, that is star 1 to ask a question. One moment while we queue. And it appears that we have no further questions at this time.

Speaker Change: Yeah.

Speaker Change: And once again that is star one to ask a question one moment, while we queue.

Speaker Change: Okay.

Speaker Change: And it appears that we have no further questions at this time.

Speaker Change: We thank you all for your time today, we recognize it's a busy time of year. So those of you who missed it or just listen to recording.

Operator: We thank you all for your attendance today. We recognize it's a busy time of year, so those of you who missed it or just listened to the recording, please feel free to follow up for any questions you may have.

Speaker Change: Please feel free to follow up for any questions you may have.

Operator: This does conclude today's conference. You may now disconnect your lines and everyone have a great day.

Speaker Change: This does conclude today's conference you may now disconnect your lines and everyone have a great day.

Speaker Change: [music].

Speaker Change: Sure.

Speaker Change: [music].