SUNS - NASDAQ

Good day and thank you for standing by. Welcome to the Q2 2021 SLR Senior Investment Corp Earnings Call. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the conference over to our speaker today, Michael Gross, Chairman and Co-CEO. Please go ahead.

Thank you very much, and good morning. Welcome to SLR Senior Investment Corp's earnings call for the second quarter ended June 30, 2021. I'm joined today by Bruce Spohler, our Co-Chief Executive Officer; and Richard Peteka, our Chief Financial Officer. Rich, could you please start off by covering this webcast and forward-looking statements.

Of course. Thanks, Michael. I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of SLR Senior Investment Corp. and that any unauthorized broadcast in any form are strictly prohibited. This conference call is being webcast from the Investors Tab on our website at www.slrseniorinvestmentcorp.com. Audio replays of this call will be made available later today as disclosed in our press release. I would also like to call your attention to the customary disclosures in our press release regarding forward-looking information. Statements made in today's conference call and webcast may constitute forward-looking statements, which relate to future events or our future performance or financial condition. These statements are not guarantees of our future performance, financial condition, or results and involve a number of risks and uncertainties, including the impacts from COVID-19. Past performance is not indicative of future results. Actual results may differ materially as a result of a number of factors including those described from time to time in our filings with the SEC. SLR Senior Investment Corp. undertakes no duty to update any forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website or call us at 212-993-1670. At this time, I'd like to turn the call back to our Chairman and Co-CEO, Michael Gross.

Thank you very much, Rich. SLR Senior Investment Corp.'s second quarter results benefited from both portfolio expansion and strong overall fundamentals. Net asset value per share for the quarter ended June 30 was $15.87, and net investment income per share of $0.25, represented a 25% increase over the prior quarter. Against the backdrop of the continued economic rebound, the U.S. middle market has reflected a more favorable economic climate punctuated by resurgence and sponsored activity and a robust pick up on M&A transactions. Supportive financing markets and record amounts of private equity dry powder has the combined result in record levels of deal activity in the second quarter. We expect robust transaction volume to continue through the remainder of the year as firms look to execute deal ahead of potential changes to the U.S. tax code. During the second quarter, SUNS originated $127 million investments consisting of $96 million of new originations, and $31 million of incremental financing for existing portfolio companies. New cash for investments in large upper middle market companies were made possible by the scale of SLR's platform. This allows SUNS participate in transactions that are available only to managers who have been hold up to $200 million in position sizes. A number of these transactions were a combination of funded loans and delayed loss term loan commitments. It provides certainty of debt capital to facilitate future acquisitions, and future growth of portfolio companies. Of note, our second quarter investment activity included SLR business credits strategic acquisition of Fast Pay Partners, a factoring platform that provides working capital solution to media firms across the United States. Based in California, Fast Pay enable clients to accelerate receivable collections and access liquidity. The acquisition, which Bruce discussed in more detail further diversifies SLR business credits financing capabilities into a new niche market with attractive risk adjusted returns. At June 30, over 99.9% of our comprehensive investment portfolio at fair value was invested in first lien loans, and approximately 57% consisted of loans, and especially finance verticals including SLR business credit acquisition of Fast Pay. At June 30, our net debt to equity was 0.51 time, up from 0.4 times at March 31, an approximately 62% as SLR's senior funded debt was comprised of unsecured term notes. We have over $325 million of available capital to support future earnings growth, and importantly, the economic climate has improved considerably in our pipeline across all four business verticals is very attractive. We expect portfolio growth to continue in the coming quarters from first lien cash flow, as well as asset based investment opportunities. Our priority in 2021 take advantage of the strong economic rebound and attractive opportunities that deploy our considerable available capital both through new investments, and drawdowns of previously committed delay draw term loans, which drive continued growth in our net investment income. SUNS is an unique position to allocate capital across a diversified lending strategies, the most favorable risk adjusted return investments. We're confident in our ability to grow the portfolio while remaining disciplined in our underwriting. At this time, I'll turn the call over to our CFO, Rich Peteka to take you through the second quarter highlights.

Thank you, Michael. SLR Senior Investment Corp.'s net asset value at June 30 was $254.8 million or $15.87 per share. This compares to a net asset value of $255.3 million or $15.91 per share at March 31, 2021. SLR Senior balance sheet investment portfolio at June 30, 2021 had a fair market value of $382.9 million in 47 portfolio companies operating in 18 industries, compared to a fair market value of $367.5 million in 47 portfolio companies operating in 18 industries in March 31, 2021. In addition, as of June 30, 2021, the company had unfunded loan commitments, excluding revolvers of $27 million. Turning to SUNS funding profile and leverage, during the second quarter of 2021, we amended SUNS revolving credit facility and extending its maturity until June 2026. As said at June 30, 2021, SUNS had only $136.3 million of debt outstanding with a net debt to equity ratio of 0.51 times up from 0.4 times at March 31, 2021. At June 30, approximately 62% of SUNS debt was in the form of unsecured 3.9% fixed rate notes. When including the non-recourse credit facilities at SLR Healthcare ABL and SLR Business Credit, SLR Senior has over $325 million to fund earnings growth as of June 30, 2021, subject to borrowing base limitations. As a reminder SLR’s in senior’s and target leverage ratio is 1.25 times to 1.5 times net debt to equity under the reduced asset coverage requirement. From a P&L perspective, gross investment income for the three months ended June 30, 2021 totaled $7.5 million, compared to $6.6 million for the three months ended March 31, 2021. Expenses for the three months ended June 30, 2021 were $3.6 million, compared to $3.5 million for the three months ended March 31. Net investment income for the quarter ended June 30, 2021 was $4.0 million or $0.25 per average share, as compared to $3.2 million, or $0.20 per average share for the three months ended March 31, 2021. Below the line, SLR Senior had net realized and unrealized gains for the second fiscal quarter of 2021, totaling $0.3 million compared to net realized and unrealized gains of $1.6 million for the three months ended March 31, 2021. Accordingly, SLR Senior had net increase in net assets resulting from operations of $4.2 million, or $0.26 per average share for the three months ended June 30, 2021. This compares to a net increase in net assets resulting from operations of $4.8 million, or $0.30 per average share for the three months ended March 31, 2021. And lastly, our Board of Directors declared a monthly distribution for August 2021 of $0.10 per share, payable on September 3, 2021, to stockholders of record on August 19, 2021. At this time, I'd like to turn the call over to our co-Chief Executive Officer, Bruce Spohler.

Thank you, Rich. We continue to focus on expanding both our asset base and cash flow lending businesses. The combination of these strategies enables SUNS to act as a solutions provider to middle market companies and offers multiple avenues for portfolio growth. SUNS’ comprehensive portfolio total $570 million at June 30, and was highly diversified, encompassing 230 borrowers across 110 industries. Approximately 57% of our portfolio was invested in asset-based and life science lending strategies and the remaining 43% was in senior secured cash flow loans. Our largest industry exposures were digital media, healthcare services, and insurance. The average investment per issue was $2.5 million or less than one half of 1%. At June 30, approximately 100% of our portfolio consisted of first lien loans with no second lien loan exposure and a de minimis amount of equity. At June 30, our weighted average asset level yield on the portfolio was 9.8%. I have in 57% of the portfolio allocated to our commercial finance verticals, we have been able to maintain asset level yields approximating 10% despite the low LIBOR rate, and spread compression in the marketplace. At quarter end, the weighted average investment risk rating remained at 1.9 based on our one to four risk rating scale, with one representing the least amount of risk. Including activity across our four business lines, originations totaled $127 million for the quarter, and repayments were $52 million resulting in $75 million of net portfolio growth. Now, let me provide an update on each of our verticals. Cash flow, at quarter end our cash flow portfolio was $245 million or approximately 43% of the total portfolio was invested across 33 borrowers, with an average investment of approximately $7.5 million, 100% of this portfolio is in first liens loans. SUNS’ cash flow portfolio had a weighted average EBITDA of over $100 million representing - reflecting our preference to finance larger companies. The weighted average yield in this portfolio was 6.7%. In particular, our healthcare cash flow loans are performing well. We attribute this both to the recession resilient and essential service nature of this sector, as well as our underwriting expertise. We have an experienced healthcare cash flow team, and access to healthcare industry insights to our life science and healthcare ABL verticals. During the second quarter, we originated over $35 million of first lien cash flow loans and had repayments of $31 million. At quarter end, we also had unfunded first lien cash flow commitments of $25 million, which we expect to be drawn down in future quarters to fund future growth. We believe these delayed draw acquisition lines offer prudent opportunity for SUNS’ to grow its investment and establish credits with existing financial covenants. In addition, by stepping into an existing loan facility with shorter duration, the yield to maturity is enhanced. We are encouraged since sponsor activity is picked up this year with significantly higher M&A volumes. We expect this momentum to continue through the remainder of the year, which we believe will provide opportunities to invest in attractive, resilient upper mid-market companies. Now let me turn to our asset base strategies. As a reminder SUNS’ owns two commercial finance portfolio companies that specialize in making asset - backed loans, collateralized by accounts receivable. These companies lend to small and mid-sized U.S. businesses who typically have limited access to traditional bank financing. Now let me provide an update on each of them. Business credit, as Michael mentioned, late in the in the quarter, SLR business credit acquired Fast Pay a factoring platform that provides working capital solutions to digital media firms across the U.S. led by an experienced team with a strong track record Fast Pay operates in a high growth industry and offers us an expanded product suite in geographic coverage, which should continue to fuel our growth. In conjunction with the acquisition of Fast Pay SLR business credit, amended its credit facility, increased its size, reduced its pricing and created additional flexibility. This transaction is expected to be accretive to business credits income. At quarter end, Fast Pay had a $72 million portfolio consisting of 34 our borrowers. In the second quarter Business Credit funded approximately $80 million of new investments, and had repayments of $10 million. At quarter end, the portfolio totaled approximately $227 million or nearly 40% of our total portfolio consisted of 147 borrowers with an average investment of a $1.5 million. Utilization rates under business credit loans have been lower during COVID due to many of the borrowers benefiting from government stimulus programs, and using that liquidity to pay down our revolvers. As economic conditions continue to normalize, we expect these borrowers to redraw on our existing credit lines. Pipeline remains strong heading into the second half of the year driven both by increased utilization rates of our facilities, as well as new investment opportunities. The weighted average portfolio yield for business credit was approximately 12.5%. We're very pleased with the credit quality which is 100% performing. For the quarter they paid a $1.26 million dividend to SUNS consistent with the prior quarter. Now let me turn to our Healthcare ABL segment. The portfolio was $73 million representing nearly 13% of our total portfolio was comprised of loans to 38 borrowers with an average investment of approximately $2 million was 100% performing and had no defaults since the start of COVID. The weighted average yield was just under 12%. In the second quarter, they funded $10 million of new investments have repayments of just over $2 million. Similar to business credit Healthcare ABL was impacted by stimulus programs that enable borrowers to significantly reduce the funded balances on their outstanding revolving credit facilities. These programs have begun to roll off which should result in our borrowers drawing more of their facilities and moving our portfolio closer to its pre-COVID size. For the quarter, they paid a cash dividend to SUNS of $900,000 consistent with the prior quarter. Finally, let me give an update on our life science business. Overall, the portfolio is largely insulated from short-term market and economic dislocations given the long dated venture equity investment periods and product life cycles. 100% of this portfolio is performing. We remain confident in the quality of the underwriting. Currently 100% of the portfolio has more than 12 months of cash runway, at critical metric. At quarter end, our portfolio totaled $25 million across eight borrowers with an average investment of approximately $3 million. During the quarter, we had repayments amounting to just over $8 million, including the full repayment for $7.5 million, which generated over 13% asset level IRR. Weighted average yield of this portfolio is 10% which excludes any success fees and warrants. Overall, we believe SUNS is well positioned to take advantage of an improving economy and a more robust opportunity set across each of its verticals. SLR Capital Partners diversified commercial finance platform and significant dry powder enables us to provide structured solutions including both cash flow and asset-based loans. Given what we know about our third quarter pipeline, we expect to experience similar growth this quarter as we did in the second. Now let me turn the call back to Michael.

Thank you, Bruce. Since inception, our priority has always been to construct a portfolio that generates steady income for our shareholders and protects our capital. With the economic rebound in full swing, we remain disciplined in the face of a tighter pricing environment, higher leverage and loose structures all of which have elevated a risk in middle market capital lending over an extended period. As a result, we have positioned SUNS defensively, diversified our portfolio across cash flow and specialty finance, first lien senior secured loans to manage downside risk and preserve liquidity. While multiples and leverage in middle market direct lending remains near all-time high. The economy is in the midst of a strong recovery and we are seeing a broader set of attractive investment opportunities. With over $325 million of available capital and a strong foundation given our defensive portfolio, and low fund leverage, we believe the company is positioned to capitalize on significant increased, attractive opportunities across our business verticals. We believe that the improved investment opportunities that expanded through SLR business credits acquisition of Fast Pay will continue to increase as companies require financing solutions for working capital and growth initiatives. Sponsor activity is on the upswing and the PE industry is armed with significant dry powder SUNS’ in a great position to capitalize on this opportunity. In July, our advisor announced that it completed an initial closing of over $480 million in equity commitments for its private healthcare lending fund capitalizing on our strength and deep experience in the healthcare lending industry across cash flow, ABL and life science investment strategies. With anticipated leverage that SUNS adds over $1 billion of investable capital to our platform. Our pipeline of healthcare investments is strong. Due to the industry diversification targets, our platform has originated more healthcare opportunities than funds and its affiliated funds can hold on their own respective balance sheets. The addition of the private healthcare fund enables the SLR platform to continue to provide full capital solutions of over - $20 million as benefits SUNS to increased diversification within its healthcare portfolio and a steady stream of new investments into which we can invest. Finally, our investment advisor's alignment of interest with the company shareholders continues to be one of our guiding principles. To significant SUNS share purchases since inception, the SLR team owns approximately 6% of our debt and common stock. Additionally, the investment team has a significant percentage of annual compensation invested in SUNS stock. Management - and investment alongside fellow SUNS shareholders demonstrates our confidence in the company's defensive portfolio, our stable funding, our strong liquidity, and favorable position to make new investments. We hope that all of you are in good health and we'd like to thank you for your time today and the support of our company. Operator, could you please open the line for questions.

We thank you for your time today and again if you have any follow-up questions. Please feel free to reach out and contact us. Take care.