Q1 2025 SLR Investment Corp Earnings Call
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Operator: Good day everyone, and welcome to today's Q1 2025 SLR Investment Corp. Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask a question 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.
Good day, everyone and welcome to today's Q1 2025 US all our investment Corp earnings call. At this time all participants are in a listen only mode. Later, you will have the opportunity to ask a question. During the question and answer session. You may registered I asked a question at any time by pressing.
Speaker Change: These star and one on your telephone keypad, you may withdraw yourself from the queue by pressing star and two. Please note. This call is being recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Michael gross Chairman and co CEO.
Michael Gross: It is now my pleasure to turn the conference over to Michael Gross, Chairman and Co-CEO. Thank you very much and good morning. Welcome to SLR Investment Corps' earnings call for the quarter ended March 31st, 2025. I'm joined today by my long-term partner Bruce Spohler, Co-Chief Executive Officer, as well as our Chief Financial Officer, Shiraz Kajee, and the SLR Investor Relations Team.
Michael Gross: Thank you very much and good morning, welcome to SLR investment Corp's earnings call for the quarter ended March 31st 2025 mm.
Speaker Change: I'm joined today by my long term partner Bruce bowler co Chief Executive Officer, as well as our Chief Financial Officer, Shiraz, Kashi and the SLR Investor Relations team Shroud before begin would you. Please start by covering the webcast and forward looking statements.
Shiraz Kajee: Shiraz, before we begin, would you please start by covering the webcast and forward-looking statements? Thank you, Michael. Good morning, everyone. 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 Group and that any unauthorized broadcast in any form is strictly prohibited. This conference call is also being webcast on the events calendar in the investor section on our website at www.slrinvestmentcall.com.
Speaker Change: Michael Good morning, everyone I would like to remind everyone that todays call and webcast are being recorded.
Speaker Change: Please note that as stay at the property has a lot of investment and that any unauthorized broadcast in any form is strictly prohibited.
Speaker Change: This conference call is also being webcast from the events calendar in the Investor section on our website at Www Dot Ashlock investment cool Dot com.
Shiraz Kajee: or do a replay of this call will be made available later today as disclosed to now May 7th on the Expressway. 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. This statement is not a guarantee of our future performance or financial results. It involves a number of risks and uncertainties. Past performance is not indicative of future results. Actual results may differ materially as a result of number.
Speaker Change: Audio replays of this call will be made available later today as disclosed in our May 7th press release.
Speaker Change: I would also like to call your attention to the customary disclosures in our press release regarding forward looking statements.
Speaker Change: 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: 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.
Shiraz Kajee: including those described from time to time in our filings with the We do not undertake to update any forward-looking statements unless required to do so by law.
Speaker Change: And 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 212-993-1670.
Speaker Change: Copies of our latest SEC filings, please visit our website or call us at 212.
Speaker Change: 1670.
Michael Gross: At this time, I'd like to turn the call back over to our Chairman and Co-CEO, Michael Gross. Thank you, Shiraz, and thank you to everyone for joining our earnings call this morning. Following a strong year of operating performance, portfolio credit quality, and platform expansion in 2024, we are pleased to report a solid start to 2025, despite looming global economic and policy uncertainties. While the path ahead is fraught with many unknowns from the impact of tariffs, changes in supply chains, and investor angst, we believe SLRC's portfolio is entering this uncertain period in a position of strength.
Speaker Change: This time I would like to turn the call back over to our chairman and co CEO.
Speaker Change: Thank you Sharon and thank you to everyone for joining our earnings call. This morning.
Speaker Change: Following a strong year of operating performance portfolio credit quality and platform expansion in 2024, we're pleased to report a solid start to 2025, despite looming global economic and policy uncertainties.
Speaker Change: While the path ahead is fraught with many unknowns from the impact of tariffs change them.
Speaker Change: Supply chain and Investor and we believe <unk> portfolio is entering this uncertain period in a position of strength.
Michael Gross: Our first quarter results reflect another quarter of stability and resilience, furthering a pattern of performance at SLRC which is grounded in conservatism, broad diversification, tactical asset allocation, and downside protection. The appearance of these tenants can be evaluated through the lens of the portfolio's credit quality via SLRC's substantial portfolio composition in first lien loans, low levels of non-accruals, low levels of stressed investments, and low levels of PIC income. Consequently, we remain confident in our ability to navigate this period of uncertainty and any slowing in the domestic economy and to capitalize on volatility from widening credit spreads, creating a growing investment pipeline across our specialty finance strategy.
Speaker Change: Our first quarter results reflect another quarter of stability and resilience berthing a pattern of performance of epilepsy, which is grounded in conservatism broad diversification tactical asset allocation and downside protection.
Speaker Change: The parents of these tenants can be evaluated in Atlanta, the portfolio's credit quality via SLR sees substantial portfolio composition in first lien loans low levels of non accruals low level stress investments and low levels of Pik income.
Speaker Change: Consequently, we remain confident in our ability to navigate this period of uncertainty and any slowing in the domestic economy.
Speaker Change: Capitalize on volatility from widening credit spreads credit growing investment pipeline across our specialty finance strategies.
Michael Gross: Summarizing results, SLRC reported net investment income of $0.41 per share in the first quarter of 2025 compared to our base dividend of $0.41 per share, representing a return on equity of approximately 9%. Net investment income per share in the first quarter withstood the lag effect from the FOMC's 100 basis points reduction in base rates in the second half of 2024 and a continuation of fiercely competitive market conditions in sponsor finance that led to a compression in illiquidity premiums on new investors. The company's net asset value at quarter end was $18.16 per share, down only four cents from December 31st.
Speaker Change: Summarizing results Src Src reported net investment income of 41 cents per share in the first quarter of 2025 compared to our base dividend <unk> 41 per share representing a return on equity of approximately 9% net.
Speaker Change: Net investment income per share in the first quarter withstood the lag effect from the S. O M. F. O M 600 basis points reduction in base rates in the second half of 2024, and a continuation of a fiercely competitive market conditions and sponsor finance that led to a compression in illiquidity premiums on new investments.
Speaker Change: The company's net asset value at quarter end was $18.16 per share down only four cents from December 31st.
Michael Gross: We believe the durability of our portfolio yields and our strong credit profile reflect the stability in our net asset value of the direct result of a disciplined exercise during borrower-friendly market conditions and a multi-strategy approach to private credit investing. More than a year ago, we began a gradual shift in the portfolio mix to asset-based, specially financed strategies that provide greater downturn protection principle from underlying liquid and hard collateral. We have favored these borrowing-based structures to the protection of principle from the more cyclical nature of enterprise value that secures cash flow loans, while simultaneously offering attractive and often higher yields from the complexity premiums of specialty finance investments.
Speaker Change: We believe the durability of our portfolio yields and a strong credit profile reflected by the stability Internet asset value are the direct result of a disciplined exercise drink borrower friendly market conditions, and a multi strategy approach to private credit investing.
Speaker Change: More than a year ago, we began a gradual shift in the portfolio mix to asset base, especially fast strategies that provide greater downside protection of principal from underlying liquid and hard collateral.
Speaker Change: We have a favorite these Brian based structures to the protection of principal for the more cyclical nature of enterprise value that secures castle loans, while simultaneously offering attractive and often higher yields isn't it.
Speaker Change: Complexity premiums of specialty finance investments.
Michael Gross: As of March 31st, approximately 80% of our portfolio was derived from specialty finance investments, the remainder of the portfolio being comprised of cash flow, sponsor-backed loans to companies in recession-resilient industries like healthcare and business services. SLRC originated $361 million of new investments across the comprehensive portfolio and received repayments of $391 million in the first quarter, resulting in a total portfolio of $3.1 billion at quarter end. Originations were up approximately 38% year-over-year and 7% versus seasonally strong fourth quarter. The yield on the comprehensive portfolio is 12.2 percent, representing a 10 basis points increase in the yield of 12.1 percent in the fourth quarter and a 40 basis points increase in the yield of 11.8 percent in the first quarter of 2024, which we believe compare favorably to changes in base rates over the comparable period.
Speaker Change: As of March 31st approximately 80% of our portfolio is derived from specialty finance investments the remainder of the portfolio being comprised of cash flow sponsor backed loans to companies are recession resilient industries like health care and business services.
Speaker Change: S. L. R. C originated $361 million of new investments across the comprehensive portfolio and received repayments of $391 million in the first quarter, resulting in a total portfolio of $3 1 billion at quarter end.
Speaker Change: Originations were up approximately 38% year over year, and 7% versus a seasonally strong fourth quarter.
Speaker Change: The yield on our comprehensive portfolio was 12, 2%, representing a 10 basis points increase in the yield of 12, 1% in the fourth quarter and a 40 basis point increase in the yield of 11, 8% in the first quarter of 2024, which we believe compare favorably to changes in base rates over the comparable periods.
Speaker Change: Yeah.
Michael Gross: Due to the more favorable conditions in especially finance markets, the company's investments in the first quarter were once again more heavily weighted to those asset classes, which we believe currently provide a more attractive risk-adjusted return relative to sponsored finance loans. Approximately 88% of our first quarter originations were in specialty finance. We passed on the refinancing of several cash flow investments within our portfolio, allowing our sponsor finance portfolio to further shrink. Cash flow loans now represent less than 20% of our comprehensive portfolio, the lowest level in three years. A bright spot against a more competitive environment for cash flow investments has been the supportive, fundamental, and technical tailwinds for our asset-based lending strategy.
Speaker Change: Due to the more favorable conditions, and especially finance markets. The company's investments in the first quarter, where once again more heavily weighted to those asset classes, which we believe currently provide a more attractive risk adjusted return relative to sponsor finance loans.
Speaker Change: Proximately, 88% of our first quarter originations were in specialty finance with.
Speaker Change: We passed on the refinancings of several castle investments within our portfolio, allowing our sponsor finance portfolio to further shrink cashcall loans now represent less than 20% of our comprehensive portfolio the lowest level in three years.
Speaker Change: A bright spot against a more competitive environment for castle investments had been the supportive fundamental and technical tailwind for our asset based lending strategies.
Michael Gross: Regional banks continue to tighten credit standards, modernize regulatory capital ratios, and rationalize business lines, providing an increasing supply of portfolio-level transactions, joint ventures, or acquisition opportunities. This coincides with financial sponsors seeking more creative ways to provide liquidity to their portfolio companies through ABL financing solutions. Today the current environment is marked by a degree of policy volatility and economic uncertainty that is unprecedented in recent memory. Sweeping policy shifts, particularly around trade and tariffs, have introduced a wide range of potential economic outcomes, with most market participants now significantly increasing their expectations for elevated inflation, slower global growth, and the risk of a tariff-driven recession.
Speaker Change: Regional banks continued tightened credit standards modernized regulatory capital ratios and rationalize business lines, providing an increasing supply of portfolio level transactions joint ventures or acquisition opportunities. This coincides with frequent with financial sponsors seeking more creative ways to provide liquidity to their portfolio companies through.
Speaker Change: B L financing solutions.
Speaker Change: Today. The current environment is marked by a degree of policy volatility in there.
Speaker Change: Economic uncertainty that's unprecedented in recent memory.
Speaker Change: Sweeping policy shifts, particularly around trade and tariffs have introduced a wide range of potential economic outcomes with most market participants now significantly increasing their expectations for elevated inflation slower global growth and the risk of a tariff different recession.
Michael Gross: In operating a business development company that invests in United States companies, we think investors should take comfort in the fact that our cash flow investment portfolio is heavily focused on domestic, service-oriented businesses, primarily the healthcare providers and services, insurance brokerage services, business services, and select financial and software services. In addition, the majority of our specialty finance loans are backed by working capital collateral, which we expect to be more insulated from the direct impacts of higher tariffs as a result of less exposure to international markets and global supply chains. A quarter to date, the impact from tariffs has little to no impact on the existing portfolio.
Speaker Change: And operating a business development company that invests in the United in United States companies, We think investors should take comfort in the fact that our cashflow investment portfolio is heavily focused on domestic service oriented businesses, primarily to health care providers and services insurance brokerage services business services and select financial and <unk>.
Speaker Change: Software services. In addition, the majority of our specialty finance loans are backed by working capital collateral, which we expect to be more insulated from the direct impacts of higher tariffs as a result of lexis less exposure to international markets and global supply chains.
Speaker Change: Quarter to date, the impact from tariffs has little to no impact on the existing portfolio.
Michael Gross: Across SLR, we are actively engaged with our portfolio companies and are carefully monitoring any primary or secondary impacts from tariffs. We remain pleased with the composition, quality, and performance of our portfolio. The tactical allocation afforded by SLR's multi-strategy approach and decision-making more discerning in cash flow loans has safeguarded our performance through the prolonged high interest rate and inflationary environment. At quarter end, 96.4% of our comprehensive investment 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 conservatively positioned and better equipped to withstand persistent inflationary pressures and high interest rates than portfolios with second lien and broader cyclical exposure.
Speaker Change: Cross SLR, we are actively engaged with our portfolio companies are carefully monitoring any primary or secondary impacts from tariffs.
Speaker Change: We remain pleased with the composition quality and performance of our portfolio.
Speaker Change: Tactical allocation afforded by SLR is multi strategy approach and the Sydney more discerning in cash flow loans has safeguarded our performance through the prolonged high interest rate and place an inflationary environment.
Speaker Change: At quarter end 96, 4% of our comprehensive investment portfolio was comprised of first lien senior secured loans.
Speaker Change: That's a large long standing focus on first lien loans has resulted in our portfolio, which we believe is conservative positioned and better equipped to withstand persistent inflationary pressures and high interest rates.
<unk> portfolio is a second lien and broader cyclical exposure.
Michael Gross: As of March 31st, we had only one investment on non-accrual, representing just 0.6% and 0.4% of the investment portfolio on a cost and fair value basis, respectively. And only 2% of our income, our total income, was from restructured PIC and cash flow loans. We believe these metrics compare very favorably to peer public BDCs. At March 31st, including available credit facility capacity at SSLP and our specialty finance portfolio companies, we had over $800 million of available capital to deploy. This puts the company into position to take advantage of either durable economic conditions or a softening of the economy.
Speaker Change: As at March 31st we had only one investment on non accrual representing just 0.60, 0.4% of the investment portfolio on a cost and fair value basis, respectively.
Speaker Change: And only 2% of our income our total income was restructured pik and cash flow loans. We believe these metrics compare very favorably to peer public bdcs.
Speaker Change: At March 31st including available credit facility capacity at S. S. L P and especially fast portfolio companies, we had over $800 million of available capital to deploy this puts the come into position to take advantage of either dural backend of conditions or softening of the economy and.
Shiraz Kajee: I'll now turn the call back over to Shiraz, our CFO, to take you through the Q1 financial highlights. Thank you, Michael. SLR Investment Corp's asset value March 31, 2025 was $990.5 million, or $18.16 per share, compared to $18.20 per share December 31, 2024. Quota and SLRC's unbalanced sheet investment portfolio had a fair market value of approximately $2 billion in 118 portfolio companies across 32 industries. pay to a fair market value of $2 billion in 122 portfolio companies across 32 industries at December 31. SLRC's investment portfolio is funded by a combination of our revolving credit facilities and the issuance of term debt in the unsecured debt model.
Shiraz Kashi: Now I'll turn the call back over to Shiraz, our CFO to take you through the Q1 financial highlights.
Michael Gross: Hey, Michael.
Michael Gross: That's a lot of investment clubs.
Michael Gross: At March 31, 2025 was $995 million.
Michael Gross: <unk> $18.16 per share.
Michael Gross: Page $18 20 per share at December 31, 2024.
Michael Gross: According to an SLR sees on balance sheet investment portfolio had a fair market value of approximately $2 billion and 118 portfolio companies across 32 industries compared to a fair market value of $2 billion and 122 portfolio companies across 32 industries at December 31st.
Michael Gross: That said, obviously its investment portfolio is funded by a combination of our revolving credit facilities and the issuance of term debt in the unsecured debt market.
Shiraz Kajee: The company is investment grade rated by Fitch, Moody's, and DBRS. During the first quarter, the company privately placed $50 million of 3-year unsecured notes at a fixed interest rate of 6.14%. representing a spread to the then three-year treasury rate of only $192. As of March 31, 2025, SLRC had $359 million of unsecured debt, representing over 34% of funded debt. The company does not have any near-term refinancing obligations with the next maturity occurring in December 2022. Given our pipeline and expectations to expand leverage, we expect to opportunistically access debt capital. At March 31st, the company had approximately $1 billion of debt outstanding.
Michael Gross: Company is investment grade rated by Fitch, Moodys and D. B R. S.
Michael Gross: During the first quarter the company privately placed $50 million of three year unsecured notes at a fixed interest rate of $6, one 4% rep.
Michael Gross: Representing a spread to the three year treasury rate of only 190 basis points.
As of March 31, 2025.
Michael Gross: So you had $359 million of unsecured debt.
Michael Gross: Representing over 34% of our funded debt.
Michael Gross: The company does not have any near term refinancing obligations within the next with the next maturity occurring in December 2026.
Michael Gross: Given our pipeline and expectations to expand leverage we expect to opportunistically access the debt capital markets.
Michael Gross: Yes.
Michael Gross: At March 31, the company had approximately $1 billion of debt outstanding.
Shiraz Kajee: with a net debt-to-equity ratio of 1.04. We expect our net debt to equity ratio to migrate towards the middle of our target. of 0.9 to 1.25.
Michael Gross: So the net debt to equity ratio of 1.04 times.
Michael Gross: We expect our net debt to equity ratio to migrate towards the middle of our target range of 0.92125 times.
Shiraz Kajee: In terms of liquidity, we believe we have ample amounts of cash and borrowing capacity to support unfunded commitments with capacity amounting to more than two times our unfunded commitment to non-controlled borrowers. Moving to the P&L, for the three months ended March 31st, gross investment income totaled $53.2 million versus $55.6 million for the three months ended December 31st. at expenses totaled $31.1 million for the three months ended March 31st. This compares to $31.8 million for the prior year. Accordingly, the company's net investment income for the three months ended March 31st, 2025. $22.1 million, $0.41 per average share, compared with $23.8 million, $0.44 per average share for the prior year.
Michael Gross: In terms of liquidity, we believe we have ample amounts of cash and borrowing capacity to support our unfunded commitments.
Michael Gross: <unk> amounting to more than two times or unfunded commitments and uncontrolled borrowers.
Michael Gross: Moving to the P&L.
Michael Gross: Three months ended March 31, gross investment income totaled $53 $2 million versus $55 $6 million. So the three months ended December 31st.
Michael Gross: Net expenses totaled $31 1 million for the three months ended March 31. This compares to $31 8 million for the prior quarter.
Michael Gross: Accordingly, the company's net investment income for the three months ended March 31, 2025 totaled $22 $1 million with 41 cents per share compared with $23.8 million or 44 cents per average share for the prior quarter.
Shiraz Kajee: was in line with our $0.41 per share distribution during. Below the line, the company had net realized and unrealized loss for the first quarter totaling $2.2 million versus a net realized and unrealized loss of $1.3 million. This is the fourth quarter of 2024. As a result, the company increased net assets resulting from operations of $19.9 million. for the three months ended March 31st compared to a net increase of $22.6 million for the three months ended December 31st.
Michael Gross: Was in line with all 41 cents per share distribution during the period.
Michael Gross: Below the line the company had net realized and unrealized loss for the first quarter totaled $2 $2 million versus a net realized and unrealized loss of $1 2 million for the fourth quarter of 2024.
Michael Gross: As a result, the company a net increase in net assets, resulting from operations of $19 $9 million for the three months ended March 31st compared to a net increase of $22 $6 million for three months ended December 31st 2024.
Shiraz Kajee: On May 7th, the Board of SLRC declared a Q2 2025 quarterly distribution of $0.41 per share. payable on June 27, 2025 to holders of record as of June 13, 2025.
Michael Gross: On May seven the board of first of all she declared a Q2 2025 quarterly distribution of 41 cents per share.
Michael Gross: Payable on June 27, 2020 to holders of record as of June 13th 2025.
Bruce Spohler: With that, I'll turn the call over to our co-CEO, Bruce Spohler. Thank you, Shiraz. Before I give an update on the portfolio, let me spend a minute reminding shareholders that our multi-strategy investment approach, which spans both specialty and sponsor finance, credit investment, Designed to deliver consistent returns and protect capital across market cycles. Asset-backed strategies often exhibit counter-cyclical characteristics. benefiting from periods of market volatility and capital dislocation while sponsor finance can outperform in periods of economic expansion and robust M&A activity. The low correlation between these investment strategies enhances portfolio stability, while diversified exposure enables us to capture shifting market dynamics without compromising our credit disability.
Bruce Bowler: With that I'll turn the call over to our co CEO Bruce <unk>.
Speaker Change: Thank you Suraj before I give an update on the portfolio, let me spend a minute reminding shareholders that our multi strategy investment approach, which spans both specialty and sponsor finance credit investments is designed to deliver consistent returns and protect capital across market cycles.
Speaker Change: Asset backed strategies, often exhibit counter cyclical characteristics benefiting from periods of market volatility and capital dislocation, while sponsor finance can outperform in periods of economic expansion and robust M&A activity.
Speaker Change: A low correlation between these investment strategies enhances portfolio stability, while diversified exposure enables us to capture shifting market dynamics without compromising our credit discipline.
Bruce Spohler: As Michael indicated, we've deliberately tilted the portfolio to specialty finance investors. which we believe offer superior downside protection and more actionable risk controls relative to traditional sponsor finance only portfolios.
Speaker Change: As Michael indicated we've deliberately tilted the portfolio to specialty finance investments, which we believe offer superior downside protection and more actionable risk controls relative to traditional sponsor finance only portfolios.
Bruce Spohler: or Specialty Finance Strategy. ABL, Life Science, and Equipment Finance, and are underpinned by high-quality collateral such as accounts receivable, finished goods inventory, commercial loan portfolios, essential use equipment, as well as intellectual property. In most cases, the assets are governed by dynamic, borrowing-based frameworks which enable real-time monitoring of the underlying asset performance. and levers to manage our exposure, which include eligibility tightening, advance rate adjustments and cash dominion. Unlike sponsor finance loans that can delay active lender engagement. Specialty Finance Investments allow us to engage early with our borrower, intervene proactively, and take steps to ensure repayment. In the current market environment, the relative value in specialty finance is especially compelling.
Speaker Change: Our specialty finance strategies.
Speaker Change: Include ABL life science, and equipment finance and are underpinned by high quality collateral such as accounts receivable finished goods inventory.
Speaker Change: Commercial loan portfolios essentially use equipment as well as intellectual property.
Speaker Change: In most cases the assets are governed by dynamic borrowing based frameworks, which enable real time monitoring of the underlying asset performance and levers to manage our exposure which include eligibility tightening advance rate adjustments and cash Dominion.
Speaker Change: Unlike sponsor finance loans that can delay active lender engagement, especially in van finance investments allow us to engage early with our borrower intervene proactively and take steps to ensure repayments and.
Speaker Change: In the current market environment, the relative value in specialty finance is especially compelling.
Bruce Spohler: not only offering greater structural protection and real-time risk monitoring, but also delivering what we believe is a superior risk-adjusted return profile compared to cash flow lending. our flexibility to allocate capital to the most attractive risk-return investment opportunities. especially critical in a market where selectivity and downside risk mitigation are paramount.
Speaker Change: Not only offering greater structural protection and real time risk monitoring, but also delivering what we believe is a superior risk adjusted return profile compared to cash flow lending.
Speaker Change: Our flexibility to allocate capital to most attractive risk return investment opportunities is especially critical in a market where selectivity and downside risk mitigation are paramount.
Bruce Spohler: Now let me turn to the portfolio. The Comprehensive Investment Portfolio consisted of $3.1 billion of investments with an average exposure of approximately $3.2 million. Measured at fair value, 98.2% of our portfolio consisted of senior secured loans, with 96.4% invested in first lien loans. including investments in our SSL. And only 0.2% was invested in second lien cash flow. with the remaining 1.6% invested in second lien asset. quarter end our weighted average yield on the portfolio was 12.2% up from 12.1% the prior year end. Based on our quantitative risk assessment Our portfolio currently has one of the strongest credit profiles in our history.
Speaker Change: Now, let me turn to the portfolio.
Speaker Change: At quarter end, the comprehensive investment portfolio consisted of $3 $1 billion of investments with an average exposure of approximately $3 2 million.
Speaker Change: Measured at fair value 98, 2% of our portfolio consisted of senior secured loans with 96, 4% invested in first lien loans, including investments in our S. S. L P and.
Speaker Change: And only <unk>, 2% was invested in second lien cash flow loans with the remaining 1.6% invested in second lien asset based loans.
Speaker Change: At quarter end, our weighted average yield on the portfolio was 12, 2% up from 12, 1% in the prior year at.
Speaker Change: Based on our quantitative risk assessment scale. Our portfolio currently has one of the strongest credit profiles in our history.
Bruce Spohler: quarter end, the weighted average risk rating was under 2 based on our 1-4 risk rating . one representing the least amount of risk. Just under 90% of the portfolio was rated 2 or higher. Moreover, 99.4% on a cost basis and 99.6% on a fair value basis was performing, with only one investment on non-equilibrium.
Speaker Change: At quarter end, the weighted average risk rating was under two based on our one to four risk rating scale with one representing the least amount of risk.
Speaker Change: Just under 90% of the portfolio was related to the fire.
Speaker Change: Moreover, 99, 4% on a cost basis, and 99, 6% on a fair value basis was performing with only one investment on non accrual.
Bruce Spohler: Now let me touch on each of the four investment verdicts. Cash Flow Sponsor. In this business, we originate first lien senior secured loans to middle market companies in non-cyclical industries. such as health care, business services, and financial services. This has helped to mitigate the impact on the portfolio from cyclical economic factors. Quarter end, this portfolio was just under $590 million across 35 borrowers. representing 19% of our comprehensive portfolio. With approximately 99% of this portfolio invested in first lien loans, we believe we are well positioned to withstand pressures that our borrowers may face. borrowers have a weighted average EBITDA of approximately $90 million.
Speaker Change: Now, let me touch on each of the four investment verticals.
Speaker Change: Cash flow sponsor finance.
Speaker Change: In this business, we originate first lien senior secured loans to middle market companies and non cyclical industries, such as healthcare business services and financial services. This has helped to mitigate the impact on the portfolio from cyclical economic factors.
Speaker Change: At quarter end. This portfolio was just under $590 million across 35 borrowers.
Speaker Change: Representing 19% of our comprehensive portfolio.
Speaker Change: With approximately 99% of this portfolio invested in first lien loans.
Speaker Change: We believe we are well positioned to withstand pressures that our borrowers may face.
Speaker Change: Our borrowers have a weighted average EBITDA of approximately $90 million and carry low ltvs of under 44%.
Bruce Spohler: carry low LTVs of under 44%. Sponsor finance, the portfolio company Average EBITDA and revenue growth continues to be in the mid-single digits year over year. Overall, they have successfully managed to transition to an environment with higher costs of capital as well as inflationary premiums. Weighted average interest coverage on this portfolio increased two times from 1.8 times the prior quarter. Additionally, only 2% of our gross income is in the form of capitalized PIC income from cash flow borrowers resulting from amendments. During the quarter, we made investments of $45 million in first lien cash flow loans and had repayments of $70 million.
Speaker Change: Sponsor finance portfolio company average EBITDA and revenue growth continues to be in the mid single digits year over year.
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 this portfolio increased two times from one eight times the prior quarter.
Speaker Change: Additionally, only 2% of our gross income is in the form of capitalized pick income from cash flow borrowers, resulting from amendments.
Speaker Change: During the quarter, we made investments of $45 million in first lien cash flow loans and had repayments of $73 million.
Bruce Spohler: 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. Credit Investors Focused on Downside Protection, our ability to say no and pass on opportunities that don't meet our high hurdle can often be measured by the investments that we don't At quarter end, the weighted average cash flow yield was 10.4% compared to 10.6% at year end. there's not been a significant uptick in M&A, Transactions remains out of balance. In addition, the introduction of punitive tariffs led to economic uncertainty resulting in widened spreads for new issuance U.S.
Speaker Change: Michael mentioned sponsor finance deal flow continues to be muted due to lower M&A volume.
Speaker Change: And we are selectively letting investments go in connection with refinancings give the new risk return profiles do not meet our criteria.
Speaker Change: As credit investors focused on downside protection, our ability to say no and pass on opportunities that don't meet our high hurdle can offer would be met often be measured by the investments that we don't do.
Speaker Change: At quarter end, the weighted average cash flow yield was 10, 4% compared to 10, 6% at year end.
Speaker Change: Thus far in 2025, there's not been a significant uptick in M&A and the supply demand for middle market debt supporting sponsor finance transactions remains out of balance. In addition, the introduction of punitive tariffs has led to economic uncertainty, resulting in widen spreads for new.
Bruce Spohler: middle market debt. That said, wider spreads do not compensate for poor credit risk and we will remain highly selective.
Speaker Change: Issuance U S middle market debt.
Speaker Change: That said wider spreads do not compensate for poor credit risks and we will remain highly selective.
Bruce Spohler: Now let me return to our specialty finance. Across the board, the credit quality of these investments continues to be solid, with attractive LTVs which have meaningful collateral support and borrowing-based structure.
Speaker Change: Now, let me turn to our specialty finance segments.
Speaker Change: Cross the board the credit quality of these investments continues to be solid with attractive ltvs, which have meaningful collateral support and borrowing based structures.
Bruce Spohler: Let me first discuss our asset-based lending portfolio. Quarter end, this portfolio totaled $1.1 billion across 254 issuers, representing 37% of the comprehensive portfolio. Regional domestic banks have continued to adjust their business models in a higher rate environment and are retreating from the ABL market, creating an attractive opportunity for SLR's ABL team. Under tighter credit regulations, regional banks' ABL loans to non-rated companies are bumping into higher risk capital charges, making those business lines economically less attractive for the bank. SLR is positioned to collaborate with regional banks who are shifting their ABL strategies in reaction to these challenges.
Speaker Change: Let me first discuss our asset based lending portfolio.
Speaker Change: At quarter end this portfolio totaled one totaled $1 1 billion across 254 issuers, representing 37% of the comprehensive portfolio.
Speaker Change: Regional domestic banks have continued to adjust their business models and a higher rate environment and are retreating from the ABL market, creating an attractive opportunity for SLR is ABL team.
Speaker Change: Under tighter credit regulations regional banks ABL loans to non rated companies are bumping into higher risk capital charges, making those business lines economically less attractive for the banks.
Speaker Change: <unk> positioned to collaborate with regional banks, who are shifting their ABL strategies in reaction to these challenges are.
Bruce Spohler: Our late last year acquisition of a loan portfolio and servicing platform from Webster Commercial Services. is an example of that. The integration of the portfolio went smoothly and it's performing in line with our expectations. The first quarter, we had approximately $164 million of new ABL investment. and repayments of just under $100,000. The weighted average asset level yield was 13.8% compared to 14.6% the prior year. Additionally, we're continuing to see opportunities to provide ABL facilities to traditional cash flow borrowers who are experiencing tightening liquidity pressures. Some sponsor-backed borrowers who had access to the cash flow and BSL market in a lower-rate environment are now more receptive to our ABL solutions in order to provide incremental capital.
Speaker Change: Our elite acquisition last late last year acquisition of our loan portfolio and servicing platform from Webster commercial services is an example of this.
Speaker Change: The integration of the portfolio went smoothly and it's performing in line with our expectations.
Speaker Change: For the first quarter, we had approximately $164 million of new ABL investments and repayments of just under $100 million.
Speaker Change: The weighted average asset level yield was 13, 8% compared to 14, 6% the prior quarter.
Speaker Change: Additionally, we're continuing to see opportunities to provide ABL facilities to traditional cash flow borrowers who are experiencing tightening liquidity pressures.
Speaker Change: Some sponsor backed borrowers who had access to the cash flow and BSL market and a lower rate environment are now more receptive to our ABL solutions in order to provide incremental capital.
Bruce Spohler: These ABL facilities carve out working capital assets that are pledged to our borrowing base which support the loan and will provide liquidity for the borrower. The new business pipeline has also expanded as Fallen Angel Credits and other businesses seek additional liquidity in light of macroeconomic headwinds. Access to the larger SLR platform has allowed and SLRC to speak for bigger hold sizes and accordingly win more business.
Speaker Change: ABL facilities carve out working capital assets that are pledged to our borrowing base, which support the loan and will provide liquidity for the borrower.
Speaker Change: The new business pipeline has also expanded has fallen angel credits in other businesses seek additional liquidity in light of macroeconomic headwinds.
Speaker Change: Access to the larger SLR platform has allowed.
Speaker Change: SLR seat to speak for bigger hold sizes, and accordingly win more business, which led to our ABL team recently originating some of the largest investments in the company's history.
Bruce Spohler: led to our ABL team recently originating some of the largest investments in the company's Finally, our AVL teams added new business development personnel, including senior level hires and origination professionals, last year and continue to do so in 2025.
Speaker Change: Finally, our ABL teams added new business development personnel, including senior level hires and origination professionals last year and continue to do so in 2025 now.
Bruce Spohler: Now let me touch on Equipment Finance. quarter end, this portfolio totaled just over a billion, representing approximately 36% of our comprehensive portfolio. highly diversified across 636 unique borrowers. Credit Profile, this portfolio remains stable quarter over quarter. During the first quarter, we originated $128 million of new assets, with the majority of this coming from our business that provides leases to investment-grade borrowers for mission-critical equipment. had repayments of approximately $170,000. Weighted Average Asset Level Yield was 11.5%.
Speaker Change: Now, let me touch on equipment finance.
Speaker Change: At quarter end this portfolio totaled just over $1 billion, representing approximately 36% of our comprehensive portfolio was highly diversified across 636 unique borrowers.
Speaker Change: Credit profile of this portfolio remains stable quarter over quarter.
Speaker Change: During the first quarter, we originated $128 million of new assets with the majority of this coming from our business that provides leases to investment grade borrowers for mission critical equipment.
We had repayments of approximately $173 million.
Speaker Change: Weighted average asset level yield was 11, 5%.
Bruce Spohler: Our investment pipeline has expanded in conjunction with the disruption caused by last year's regional bank failures, and we are seeing demand from our borrowers to extend leases on equipment rather than buy new equipment at higher tariff-adjusted prices.
Speaker Change: Our investment pipeline has expanded in conjunction with the disruption caused by last year's regional bank failures, and we are seeing demand from our borrowers to extend leases on equipment, rather than buy new equipment at higher tariff suggested prices.
Bruce Spohler: Finally, let me turn to our life science portfolio. Quarter end, this portfolio totaled $187 million across 8 borrowers. Just under 89% of this portfolio is invested in companies that have over 12 months of cash runway. Additionally, all of our life science portfolio companies have ripped. and at least one product in the commercialization. which significantly de-risks our investment. Life Science Investments represented 6% of the portfolio. 13% of our gross investment income for the quarter. During the first quarter, the team funded $25 million in one new investment. and had $45 million of rebate.
Speaker Change: Finally, let me turn to our life science portfolio.
Speaker Change: Quarter end this portfolio totaled 187 million across eight borrowers.
Speaker Change: Just under 89% of this portfolio is invested in companies that have over 12 months of cash runway Adil.
Speaker Change: Additionally, <unk>.
All of our life science portfolio companies have revenues and at least one product in the commercialization stage, which significantly de risks our investments.
Speaker Change: Life Science investments represented 6% of the portfolio and contributed 13% of our gross investment income for the quarter.
Speaker Change: During the first quarter the team funded $25 million and one new investment.
Speaker Change: And had $45 million of repayments.
Bruce Spohler: quarter end, weighted average yield on our life science portfolio. including success fees but excluding warrants. 12.5% compared to 12.1% the prior quarter. While the U.S.
Speaker Change: Water and the weighted average yield on our life science portfolio.
Speaker Change: Excluding success fees, but excluding warrants was 12, 5% compared to 12, 1% the prior quarter.
Speaker Change: While the U S remains the most robust global market for biotech innovation and venture funds continue to sit on record levels of dry powder recent cuts at the FDA and NIH will likely affect research innovation and public health initiatives with anticipated.
Bruce Spohler: remains the most robust global market for biotech innovation and venture funds continue to sit on record levels of dry powder, recent cuts at the FDA and NIH will likely affect research, innovation, and public health initiatives. with anticipated disruptions to the pipeline for new medical innovation. Initial signs of recovery from slower than normal originations in life sciences are expected this year, but it may take more time for a substantial market reset until greater policy clarity is realized. It should result in improved investor confidence. and M&A. In the interim, we will continue to focus on later stage life science.
Speaker Change: Disruptions to the pipeline for new medical innovations.
Speaker Change: Initial signs of recovery from lower than normal originations in life Sciences are expected this year, but it may take more time for substantial market reset until greater policy clarity is realized.
Speaker Change: Which should result in improved investor confidence increased investment.
Speaker Change: And M&A activity.
Speaker Change: In the interim we will continue to focus on later stage life science companies.
Bruce Spohler: which are in or preparing for commercialization with very limited FDA-related risk that seek non-diluted capital to fund commercial scale-up.
Speaker Change: Which are in or preparing for commercialization with very little FTA related risk that seek non dilutive capital to fund commercial scale up.
Bruce Spohler: Lastly, let me touch on our SSLP. During the first quarter, we earned an income of $1.9 million, representing a 15.7% annualized yield. with the prior quarter. During the quarter, we made $6.6 million of new investment. and had repayments of approximately $20 million. Porter End, the SSLP had an additional investment capacity in excess of $70 million and a portfolio fair value of $165 million.
Speaker Change: Lastly, let me touch on our S. S L P.
Speaker Change: During the first quarter, we earned income of $1 9 million, representing a 15, 7% annualized yield consistent with the prior quarter.
Speaker Change: During the quarter, we made $6 $6 million of new investments and had repayments of approximately $20 million.
Michael Gross: Quarter end the S. S. L. P had additional investment capacity in excess of $70 million and our portfolio fair value of $165 million now, let me turn the call back to Michael.
Michael Gross: Now let me turn the call back to Mike. Thank you, Bruce. Concerns about earnings and credit quality in private credit and BDC portfolios continue to remain top of mind for investors. We believe many of the decisions taken at SLRC over the last couple of years have put both the portfolio and the company in a position of strength today and view the consistency of results as a testament to SLR's multi-strategy approach to private credit investing. The operating environment remains highly unpredictable, but we believe our 15-plus-year track record with de minimis losses and a successful history of managing through periods of economic distress should give investors comfort to expect more of the same from us.
Michael Gross: Thank you Bruce.
Michael Gross: Turns out earnings and credit quality in private credit and BDC portfolios continue to remain top of mind for investors. We believe many of the decisions taken at Epsilon C. Over the last couple of years have put the both the portfolio and the company in a position of strength today and view the consistency of results is a testament to SLR is multi strategy approach.
Michael Gross: Private credit investing.
Michael Gross: The operating environment remains highly unpredictable, but we believe our 15 plus year track record with de Minimis losses, and a successful history of managing through periods of economic distress should give investors comfort to expect more of the same from us.
Michael Gross: The SLR platform has grown meaningfully over the last couple of years, creating a diversified commercial finance company with broad investment capabilities and deep experience through a 330-member team. Our multi-strategy approach to private credit investing, emphasis on preservation of capital and dynamic portfolio construction with a specially financed emphasis, differentiates us from a majority of our peers and provides us an investment portfolio that contains very limited investment overlap. This platform growth, along with the stability of performance, positions the company favorably, with momentum across our businesses and a growing investment pipeline, heavily tilted towards specialty finance investments. We are confident that we will remain opportunistic and prudent as we deploy capital with discipline and conviction.
Michael Gross: <unk> platform has grown meaningfully over the last couple of years, creating a diversified commercial finance company with broad investment capabilities and deep experience through a 330 member team.
Our multi strategy approach to private credit investing emphasize emphasis on preservation of capital and dynamic portfolio construction with a specialty finance emphasis differentiates us from majority of our peers and provides US an investment portfolio that contains very limited investment overlap.
Michael Gross: This platform growth along with the stability of performance positions the company favorably with momentum across our businesses and a growing investment pipeline heavily tilted towards specialty finance investments.
Michael Gross: We are confident that we will remain opportunistic and prudent as we deploy capital with discipline and conviction.
Michael Gross: In closing, SLRC trades at approximately a 10.5% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income-seeking and value investors and offers a more diversified investment portfolio compared to cash flow-only private credit strategy.
Michael Gross: In closing Src trades at approximately a 10, 5% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income seeking and value investors and offers a more diversified investment portfolio compared to cash flow only private credit strategies.
Michael Gross: Our Investment Advisors' Alignment of Interest with SLRC Shareholders continues to be one of our significant... The SLR team owns over 8% of the company's stock and is a significant percentage of their annual incentive compensation invested in SLRC stock each year. 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: Our investment advisors alignment of interest with Src shareholders continues to be one of our significant.
Michael Gross: Hallmark principles.
Michael Gross: Our team owns over 8% of the company stock and it's a significant percentage of their annual incentive compensation invested in SLR feedstock each year.
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. Thank you all again for your time today as we know it's a busy day for those that follow the listed BDC marketplace closely operator would you. Please open the line for questions.
Michael Gross: Thank you all again for your time today. As we know, it's a busy day for those that follow the listed BDC marketplace closely.
Operator: Operator, will you please open the line for questions? Thank you. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question.
Speaker Change: Thank you and at this time, if you would like to ask a question. Please press the star and one on your telephone keypad, you may or may have yourself from the queue at any time by pressing star to you. Once again that is star one to ask a question.
Erik Zwick: And we will take our first question from Erik Zwick with Lucid Capital Market. Please go ahead. Your line is open. Thank you. Good morning, everyone.
Michael Gross: And we will take our first question from Erik Zwick with loop capital markets. Please go ahead. Your line is open.
Speaker Change: Thank you and good morning, everyone I wanted to start with just kind of a follow up on some of your commentary about the pipeline being more weighted towards the.
Bruce Spohler: I wanted to start with just kind of a follow-up on some of your commentary about the pipeline being more weighted towards the ABL and equipment finance opportunities. I wonder if you could just maybe put some rough percentages around the pipeline through your kind of main lending verticals, as well as touch on where spreads are today versus, say, three, six months ago. Sure. Great question. The pipeline, I would say, is 75-80% weighted towards ABL in particular. And as a reminder, our ABL strategies cover not only regional areas of focus, but also industry focus, such as healthcare, digital media, apparel in connection with Webster acquisition.
Speaker Change: And ABL and equipment finance opportunities wondering if you could just maybe put some rough percentages around the pipeline through your kind of main lending verticals as well as touch on where spreads are today versus say three six months ago.
Speaker Change: Sure Great question.
Speaker Change: The pipeline I would say is 70, 580% weighted towards a b L. In particular.
Speaker Change: And as a reminder, our ABL strategies cover.
Speaker Change: Not only regional.
Speaker Change: Areas of focus, but also industry focus such as health care.
Speaker Change: Digital media.
Speaker Change: Apparel in connection with the Webster acquisition, so it's across industries in the country.
Bruce Spohler: So it's across industries and the country. So that is the dominant part of our pipeline. I think as you look at pricing, we really don't think of this as a spread business. This is an all-in-return business because there are a variety of fees that go into the eventual IRR. And this has been one of the hallmarks of ABL lending is that it doesn't have the same variability. It didn't gap out the way cash flow lending did when rates popped up to five and a quarter base rates. But it also doesn't compress to the same extent.
Speaker Change: So that that is the dominant.
Speaker Change: Part of our pipeline I think as you look at pricing, we really don't think of this as a spread business. This is an all in return business.
Speaker Change: There are a variety of fees that go into the eventual IRR.
Speaker Change: And this has been one of the hallmarks of ABL lending is that it doesn't have the same variability it didn't cap out the way cash flow lending did win rates popped up to five and a quarter base rates, but it also doesn't compress to the same extent so it tends to be an absolute return asset class that moves between.
Bruce Spohler: So it tends to be an absolute return asset class that moves between, I would say, 11 and 13 percent, depending on where we are in the cycle. Today it's probably in the midpoint. That's helpful, thanks.
Speaker Change: <unk> I would say 11, and 13% depending on where we are in the cycle today, it's probably in the midpoint.
Speaker Change: That's helpful. Thanks, and just in terms of I think he used the word opportunistic in terms of cash flow lending opportunities that you would choose to.
Bruce Spohler: And just in terms of, I think you used the word opportunistic in terms of cash flow lending opportunities that you would choose to move forward.
Bruce Spohler: I wonder if you could just kind of maybe generally give a kind of a description of something you've done recently where you did see what was attractive about, you know, a cash flow deal that you've done recently. Yeah, most of what we're seeing, you know, and this is consistent with a broader cash flow environment, you're not seeing the creation of many new platforms, and so what's attractive to us is to finance a tuck-in acquisition, it's a seasoned platform that the sponsor has owned for a couple years, probably only have a couple years left on the facility, so it gives us a short duration and an ability to re-underwrite in two years, three years, determine if we want to stay in or move on, and again, we're financing an add-on acquisition so the business is growing, technically additional equity might be coming in alongside that, and it will be in a sector that both the sponsor and we are extremely comfortable with, so we saw this similar dynamic in dislocation in 23, and we're able to take advantage of it, so that's the typical opportunity that we would see, the ability to finance an acquisition or two as the sponsor is getting closer to potentially exiting that investment.
Speaker Change: Move forward and I Wonder if you could just kind of maybe generally give up.
Speaker Change: Kind of a description of.
Speaker Change: Something you've done recently, where you did see what was attractive about.
Speaker Change: Actual deal that you've done recently.
Speaker Change: Most of what we're seeing and this is consistent with the broader.
Speaker Change: Cash flow environment, Youre, not seeing the creation of many new platforms and so what's attractive to us is to finance a tuck in acquisition.
Speaker Change: Season platform that the sponsor zone for a couple of years, probably only have a couple of years left on the facility. So it gives us a short duration and an ability to re underwrite in two years three years determined if we want to stay in or move on.
Speaker Change: And again, we're financing and add on acquisitions. So the business is growing.
Speaker Change: Typically additional equity might be coming in alongside that and it will be in a sector that both the sponsor and we are extremely comfortable with.
Speaker Change: We saw this similar dynamic in dislocation in 2003, and we're able to take advantage of it. So that that's the typical opportunity that we would see the ability to finance at an acquisition or two is the sponsor.
Speaker Change: Is getting closer to potentially exiting that investment.
Bruce Spohler: That's a great caller, thank you.
Speaker Change: Yes.
Erik Zwick: And last one for me, it looks like the contribution from Kingsbridge in the quarter was up relative to where I've been the last few quarters.
Speaker Change: Great color. Thank you and last one for me is the fact that the contribution from Kingsbridge in the quarter was up relative to where it'd been in the last few quarters. Just curious if there's anything kind of onetime in nature, there or is that a decent run rate going forward.
Bruce Spohler: Curious if there was anything kind of one-time in nature there or is that a decent run rate going forward? Yeah, it's a combination. There's some one time where they had some gains from some asset sales, but it is continuing to perform well, as we mentioned in our comments. This is an environment where borrowers will extend their leases, and that just falls to the bottom line as additional income. So we're cautiously optimistic, but there is definitely a little bit of one-time elevated income in QI.
Yes, it's a combination there's some there's some one time.
Speaker Change: Where they had some gains from some asset sales.
Speaker Change: But it is continuing to perform well as we mentioned in our comments.
Speaker Change: This is an environment where.
Speaker Change:
Speaker Change: Borrowers will extend their leases and that's just falls to the bottom line as additional income so we're cautiously optimistic, but there's definitely a little bit.
Speaker Change: One time elevated income in Q1.
Erik Zwick: Thank you.
Erik Zwick: That's all for me today. I appreciate it.
Speaker Change: Thank you that's all for me today I appreciate it.
Operator: Thank you.
Speaker Change: You.
Speaker Change: Thank you.
Operator: And as a reminder, if you would like to ask a question, please press the star and 1 on your telephone keypad now.
Speaker Change: As a reminder, if you would like to ask a question. Please press the star and one on your telephone keypad now.
Melissa Wedel: And we will take our next question from Melissa Wedel with J.P. Morgan. Please go ahead. Good morning. Thanks for taking my questions today. First, I wanted to say thanks for talking about how you're monitoring tariff exposure in the portfolio. I may have missed it, but did you give sort of a ballpark estimate of tariff exposed companies in the portfolio? No, you didn't miss it. As always, Melissa, you're on top of it. Specifically.
Speaker Change: And we will take our next question from Melissa Wedel with JP Morgan. Please go ahead.
Melissa Wedel: Good morning, Thanks for taking my questions today.
Melissa Wedel: Firstly I wanted to say thanks for talking about how you're monitoring tariff exposure in the portfolio I may have missed it but did you give sort of a ballpark estimate of tariff exposed companies in the portfolio.
Melissa Wedel: No you didn't Miss it is always Melissa you're on top of it.
Melissa Wedel: Specifically.
Michael Gross: You know, let me just comment that as you think of the industries where we are lending into healthcare services, business services, financial services, all domestic, by definition it would actually be difficult to have much exposure just because we're service-based, U.S. service-based, and recession-resilient businesses that are not dependent on the global economy, broadly speaking. So, as we look at it, we really think less than 1% of the portfolio has any direct exposure. There are a couple of healthcare companies in life sciences that may manufacture goods in Mexico. We think those are exempt and a small part of the business that those companies do.
Let me just comment that.
Melissa Wedel: As you think of the industries, where we are lending into healthcare services business services financial services, all domestic by definition it would actually be difficult to have much exposure, just because where service based U S service space and recession resilient businesses that are not dependent on the globe.
Melissa Wedel: Economy broadly speaking.
Melissa Wedel: So as we look at it we really think less than 1% of the portfolio has any direct exposure. There are a couple of health care companies in life Sciences that may manufactured goods in Mexico. We think those are exempt and a small part of the business that those come.
Melissa Wedel: <unk> do.
Michael Gross: But we're trying to really dig into every little opportunity to face some headwinds, and we feel very, very, very good about it.
Melissa Wedel: But we're trying to really dig into every little.
Opportunity to face some headwinds and we feel very very very good about it I think as we also mentioned.
Michael Gross: I think, as we also mentioned, a corollary is we're more focused on policy around healthcare policy than we are around tariffs, given the construct of our portfolio. I will say that in our ABL portfolio, there are borrowers, because we're financing inventory in a number of cases, that are going to struggle, but because we are lending against liquid collateral, we feel extremely well-protected. Obviously, we're monitoring these borrowers. Because we are monitoring and have a front row seat on trends in their receivables and their inventory, turns, collections, we can see if they're beginning to struggle and clamp down on our advance rates and make sure that we continue to be protected.
Melissa Wedel: Corollary is we're more focused on policy around health care policy. Then we are around tariffs given the construct of our portfolio. We will say that in our ABL portfolio. There are borrowers because we're financing inventory in a number of cases that are going to struggle.
Melissa Wedel: But because we are lending against liquid collateral, we feel extremely well protected obviously.
Melissa Wedel: We're monitoring these borrowers and because we are.
Melissa Wedel: Monitoring and have a front row seat on trends in their receivables and their inventory turns and collections. We can see if they're beginning to struggle.
Melissa Wedel: And clamped down on our advance rates and make sure that we continue to be protected so it's not to say that our ABL borrowers won't have some headwinds.
Michael Gross: So it's not to say that our ABL borrowers won't have some headwinds, but we feel extremely well protected given both our collateral and our underlying controls and ability to monitor that risk real time.
Melissa Wedel: But we feel extremely well protected given both our collateral and our underlying controls and ability to.
Melissa Wedel: To monitor that risk real time, but I think broadly we're more focused on.
Melissa Wedel: But I think broadly, we're more focused on some of the policy initiatives around healthcare as we touched on and how that may impact not so much existing investments, but the future pipeline. That's very helpful. I appreciate the extra detail there.
Melissa Wedel: Some of the policy initiatives around health care as we touched on and how that may impact not so much existing investments, but the future pipeline.
Speaker Change: No that's very helpful. I appreciate the extra detail there.
Bruce Spohler: To follow up on a comment you made about the equipment finance business and you're seeing borrowers wanting to extend leases rather than go buy, you know, more expensive new equipment in a sort of post tariff world. Is that why, is that repricing that extension, is that why the yield on that portfolio was up meaningfully quarter over quarter? It is, but as I mentioned also, there are some one-time gains as they had some assets that they were able to sell off because our Equipment Finance Business is selling off streams and keeping the residuals, and there is profit in that residual.
Melissa Wedel: To follow up on a comment you made about the.
Speaker Change: <unk> finance business and Youre seeing borrowers wanting to extend leases rather than go by more expensive new equipment and that sort of post tariff world.
Speaker Change: Is that why is that repricing that extension is that why the yield on that portfolio was up.
Speaker Change: <unk> quarter over quarter.
Speaker Change: It is.
Speaker Change: But.
Speaker Change: As I've mentioned also.
Speaker Change: There are some one time.
Speaker Change: Gains as they had some assets that they were able to sell off because our.
Speaker Change: Equipment finance business is selling off streams and keeping the residuals and there is profit in that residual that profit increases to your point if they extend the leases.
Bruce Spohler: That profit increases, to your point, if they extend the leases. because they have sold off the stream, and so that's additional profit that falls to the bottom line. It's too soon for us to know what the run rate of that will be. So there is some one-time, as I mentioned in Q1, but we do think that there's an opportunity to have elevated income subject to how the tariffs play out. Because again... the borrowers, both because of the increased costs of new equipment as well as the uncertain economic environment, it's easier to extend a lease than to start capital expenditure.
Speaker Change: Because they have sold off the stream. So that's additional profit that falls to the bottom line. It's too soon for us to know what the run rate of that will be.
Speaker Change: So there is some one time as I mentioned in Q1.
Speaker Change: But we do think that there is an opportunity to have elevated income subject to how the tariffs play out because again the.
Speaker Change: The borrowers both because of the increased cost of new equipment as well as the uncertain economic environment, it's easier to extend a lease then to start expanding capital expenditures.
Operator: make sense. Thank you. And it appears that there are no further questions at this time.
Speaker Change: Makes sense. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: And it appears there are no further questions at this time I will now turn the program back to Michael gross for closing remarks.
Michael Gross: I will now turn the program back to Michael Gross for closing remarks. I just want to say thank you for all your time on what we know is a busy earning season. As always, if you have any follow-up questions, please feel free to reach out to any of us.
Michael Gross: I just want to say thank you for your time on what we know is a busy earnings season as always if you have any follow up questions. Please feel free to reach out to any of us have a great day.
Michael Gross: Have a great day. Thank you.
Michael Gross: Thank you. This does conclude today's presentation. Thank you for your participation you may disconnect at any time.
Operator: This does conclude today's presentation. Thank you for your participation.
Operator: You may disconnect at any time.
Michael Gross: [music].