SLR Investment Corp. (SLRC) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the First Quarter 2015 Solar Capital Limited Earnings Conference Call. My name is Joyce, and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your Chairman and Chief Executive Officer, Michael Gross. Please proceed.

Thank you very much, and good morning. Welcome to Solar Capital Limited earnings call for the quarter ended March 31, 2015. I'm joined here today by Bruce Spohler, our Chief Operating Officer; and Richard Peteka, our Chief Financial Officer. Before we begin, Rich, would you please start off by covering the webcast and forward-looking statements.

Sure. 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 Solar Capital Limited and that any unauthorized broadcasts, in any form, are strictly prohibited. This conference call is being webcast on our website at www.solarcapltd.com. Audio replays of this call will be made available later today as disclosed in our earnings press release. I'd 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. 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. Solar Capital Limited 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 Chief Executive Officer, Michael Gross.

Thank you, Rich. In the first quarter macro-factors including continued weakness in oil prices, further Central Bank easing, the fed pushing up rate height and dollar strength dominated the investment landscape. These factors influenced assets flows and contributed to a choppy market environment. While the exact coming of rate heights, continuously moving target, the U.S. economy is believe to be on a positive growth trajectory, in spite of a weather-related slowdown in the first quarter. The combination of relatively low rates and healthy economic fundamentals should continue to support a benign credit environment for U.S. corporate insurers. Middle market loan issuance in the first quarter was only $9 billion, up sharply from close to $20 billion in the comparable period a year ago and up significantly to almost $18 million in the fourth quarter of 2014. Like M&A volume and lower refinancing activity added to a traditionally and seasonally slower quarter. Against this backdrop Solar Capital had modest originations for the first quarter of approximately $30 million and de minimis repayment of approximately $6 million. In the quarter muted new issuance activity we succeeded to maintain our portfolio size and we are pleased with the portfolio’s stronger credit performance. Solar Capital made enhancements to our core U.S. middle market origination business, developed our life science lending capabilities and have poised for growth in asset base lending through our investment in Crystal Financials. Since year end we have added a senior investment professional to the sponsor origination team. In addition, our strategic joint venture PIMCO give Solar Capital the scale and origination capacity to underwrite senior secured unitranche loan of up to $105 million, making us more relevant part of the sponsor community. Having this capability has definitely put us in front of expanded opportunity set. In addition, at the end of the first quarter, we added three experienced healthcare investment professionals, reuniting members of the team who build a very successful life science lending business at GE Capital. Historically, Solar Capital has originated on average $400 million per year in its core cash flow lending businesses. Our investments in this addition three distinct source of growth both enhanced and diversify our origination capabilities. At this point in time, we expect annual origination in our traditional sponsor business to increase to $500 million per year and life sciences to add approximately $100 million of senior secured assets in 2015. Origination at Crystal continues to be strong, although, their portfolio tends to be lumpier and their portfolio experiences higher churn. Together with the $600 million of equity commitments and anticipated leverage, the SSLP joint venture with PIMCO will have approximately $1.5 billion in investible capital to underwrite unitranche loans. Our growth plans are in place and we continue to expect low repayments in 2015. We are excited about the current opportunity set and we intend to grow our portfolio in 2015 with attractive assets that meet our underwriting standards. Net investment income in the first quarter was $0.34 per share. In our February earnings call, we anticipated that our net investment income would be lower in the first quarter, reflecting lower portfolio balances, resulting from the fourth quarter’s heavy $224 million of repayments. Approximately half of that repayments were from high yielding greater than 14% legacy subordinated debt investments including Graycon, Adams and [indiscernible]. While we benefited in the fourth quarter prepayments of these higher yielding investments coming late in the quarter that resulted in an anticipated step down in net investment income in the first quarter which we expect to reverse in this quarter now. Middle-market finance activity has picked up. Our originations are strong in the second quarter. Repayments remain modest which leads us to expect meaningful portfolio growth. We remain confident that Solar Capital will cover distribution for the full year 2015 out of net investment income and are optimistic about our prospects for increasing distribution in the future as we invest our substantial available capital. At the end of the first quarter, our debt to equity leverage is 0.24 times with net leverage of just 0.13 times. Subject to borrowing base limitations, the total available capital for new investments is approximately $1.2 billion, comprised of approximately $600 million of available capital on our balance sheet and approximately $650 million of off balance sheet, majority of which is for the unittranche joint venture capital and remainder is available capital at Crystal Financial. Having over $1 billion of available capital puts us in a unique position relative to our peers of not happened to issue equity in order to fund significant portfolio growth or to increase our net investment income per share. We tend to be aggressive and take full advantage of this competitive position. Yesterday, our Board of Directors declared a quarterly distribution of $0.40 per share which will be paid on July 1, 2015 record as of June 25, 2015. At this time, I’ll turn the call over to Chief Financial Officer, Rich Peteka, to take you through the financial highlights.

Thanks Michael. Solar Capital Limited net asset value of March 31, 2015 was $930.5 million or $21.91 per share. This compares to $936.6 million or $22.5 per share at December 31st. At March 31, 2015, our investment portfolio had a fair market value of $1.04 billion in 42 portfolio companies across 26 industries compared to a fair market value of $1.02 billion in 43 portfolio companies in 28 industries at December 31, 2014. At March 31, 2015, the weighted average yield on our income producing portfolio increased slightly to 10.0% measured at fair value versus 9.9% at December 31st. For the three months ended March 31st, gross investment income totaled $25.6 million, versus $32.9 million for the three months ended December 31st. Expenses totaled $11.2 million for the three months ended March 31st compared to $16.2 million for the three months ended December 31st. Accordingly, the company's net investment income for the three months ended March 31st totaled $14.4 million or $0.34 per average share versus $16.8 million or $0.40 per average share for the three months ended December 31st. Net realized and unrealized losses for the first quarter of 2015 totaled approximately $3.5 million versus net realized and unrealized loss of $11.9 million for the fourth quarter 2014. Ultimately, the company had net increase in net assets resulting from operations of $10.9 million with $0.26 per average share for the three months ended March 31, 2015. This compares to a net increase of $4.9 million or $0.11 per average share for the three months ended December 31, 2014. With that, I’ll turn the call over to Bruce Spohler.

Thank you, Rich. Today Solar Capital’s portfolio has the highest credit quality profiler ever. Overall our issuers are experiencing stable-to-modest earnings growth and the fundamentals are helping. Furthermore, we have no direct exposure to the oil and gas sector. Our predominantly senior secured floating rate portfolio construction should provide protection in the economic environment declines and/or interest rates rise. At March 31, the weighted average yield on our income producing investment portfolio when measured at fair value was 10%. The weighted average investment risk rating of our portfolio remains at approximately 2 based on our 1 to 4 risk rating scale with one representing the least amount of risk. Our one investment on non-accrual direct buy accounts for less than half of 1% of the portfolio at fair value with the other 99.7% of our portfolio performing at or above expectations. Credit fundamentals are strong across the portfolio. At the end of Q1, portfolio consisted of 42 companies, portfolio was comprised of approximately 60% senior secured loans, approximately 29% senior secured loans held by Crystal Financial, 7% subordinated debt, 2% preferred equity and just over 2% common equity and warrants. Including Crystal Financial’s four portfolio which again consists entirely of senior secured loans, approximately 90% of our portfolio is in senior secured investment. At March 31st, approximately 87% of our income producing portfolio was floating rate, which again includes Crystal’s full portfolio with measured at fair value. Now, let me give you a brief update on Crystal. At March 31, Crystal had a highly diversified portfolio of approximately $486 million of funded senior secured loans across 25 distinct issuers, with an average exposure of approximately $90 million. During the quarter, Crystal funded new loans totaling approximately $40 million and experienced repayments totaling approximately $30 million. All of Crystal’s financial investments of floating rate senior secured loans. At the end of Q1, Crystal has a net debt to invested equity ratio of 0.8 times. And for the first quarter, our investment in Crystal distributed to Solar Capital a cash dividend of $7.9 million, which is the equivalent of 11.5% annualized cash on cash yield, consistent with what they paid in the prior quarter. Now back to Solar. During Q1 Solar originated approximately $30 million of investments across one new and four existing portfolio companies. All of the assets we originated were senior secured and floating rate. Investments prepaid during the quarter were de minimis at approximately $6 million. Now let me highlight a few of our investments. We funded roughly $6.5 million investment of our $10 million commitment to a life science investment and the first lien term loan for AgaMatrix, which is a designer and developer of blood glucose monitoring system for people with diabetes. The yield maturity on this investment exceeds 10.5%. We also funded $10 million of the $20 million delayed draw term loan through Varilease Finance, which is an independent equipment lessor. As a reminder in Q3 last year, Solar invested in the same security. The loan-to-value on our investment is approximately 85% and our yields maturity is approximately 9.75%. Together with the add-on investment, we have a total investment now of just over $37 million and are looking to increase that going forward. We also increased our investment in Aegis Toxicology Sciences through an opportunistic secondary purchase of an additional $4 million of the company’s second lien term loan. Solar had originally funded a $21 million investment in the company in the first quarter of last year. Owned by ABRY, Aegis is a leading player in the specialty lab services segment. Our incremental purchase brings the solar total investment size to $29 million and our yield on the investment approximates 10%. We also increased our investment in Datapipe by $5 million via an add-on term loan to support the company’s add-on acquisitions. As a reminder, in Q3 of last year, we invested in Datapipe, which is a managed service provider. Solar’s whole position is now approximately $27 million and the investment there is a yield in excess of 9.5%. And finally, we funded a $5 million add-on term loan investment to Argo Turboserve, which is a specialized inventory management and logistics system. Solar initially funded our investment in Q2 of ‘14 and now with the add-on investment our whole size is $15 million. The yield on this investment is just over 9% and pro forma for this recent transaction total leverage is under 2.7 times. Now, I’d like to provide a brief update on our life science lending business, which is an important component of our growth and diversification strategy. During the quarter, we added three experienced healthcare investment professionals, effectively reconstituting at Solar, the core of the life science lending team of GE Capital that have been led by Anthony Storino who joined our platform early last year. Over the next several years, we believe there is a great opportunity to build a highly diversified portfolio of life science senior secured loans at a very modest debt-to-equity ratios, significant enterprise value protection and low loss given soft risk profiles. To target yields for these loans is 10% to 12%. Warrants and success fees are frequently provided to lenders as part of the financing, which can often enhance those 10% to 12% returns over time. At the end of Q1, we had a life science portfolio of approximately $65 million across eight issuers with an average investment size of $8 million dollars. We are extremely pleased with the results of our initial year in this business and anticipate increasing our exposure to this attractive asset class. On our February earnings call, we stated that our anticipated investment income in Q1 would be lower as we work to prudently reinvest the proceeds from our significant legacy repayments in Q4. We expected originations to be seasonally lower and repayments to approximately $5 million, resulting in modest portfolio growth in Q1. Sitting here today, one month into Q2, we can say confidently that the pace of transactions has picked up in second quarter and we feel very good about the level of repayments both in Q2 and the remainder of 2015 being relatively low. Reduce repayments, together with a solid origination pipeline should further facilitate portfolio growth. Based on our current visibility, we anticipate solid portfolio growth in Q2 and over the remainder of the year. Now I will turn the call back to Michael.

Thank you, Bruce. In conclusion, a well-diversified portfolio, a predominantly senior secured floating rate loans has the highest credit quality in our history. Our multi-cylinder sourcing engine provides diversification and scale. Our core underwriting business to sponsor back to private middle market companies is enhanced with the addition of origination resources as well as our ability to now underwrite unitranche loans. We are confident that Crystal Financial and our life sciences lending businesses will continue to increase their contributions to our earnings. Our origination efforts continue to be centered on finding relatively higher quality credit investments that we believe will protect net asset value and adequately compensate us for risk. While we remain disciplined and prudent in our credit underwriting, we intent to take advantage of substantial available capital and significantly grow the portfolio over the remainder of the year. Making good investments and building out the portfolio is the best path forward to enhance return on equity and drive incremental investment income for our shareholders. We are already experiencing solid traction on our growth initiatives. The pace of originations quarter-to-date is strong, although payments continue to be muted relative to experience of the prior six quarters. We expect solid portfolio growth in the second quarter and are confident net investment income will cover our distributions in 2015 and position us for higher net investment income in 2016. Solar’s low leverage and significant available capital creates potential for sizeable portfolio growth without equity dilution resulting from having to raise additional equity. At the close last night, Solar Capital is trading at 0.9 times book value with the current distribution yield of 8.1%. Our yield duration and credit profile compares extremely favorably to the Barclays US Corporate High-Yield Index, which is trading at a 5.96% yield to worst. We believe Solar is cheap on a relative and absolute basis. We have material earnings upside from our balance sheet capacity. As we execute on our growth plans, we believe there is a great potential for share price appreciation for SLRC. At 11 o’clock this morning, we will be hosting an earnings call for the first quarter 2015 results of Solar Senior Capital or SUNS. Our ability to provide senior secured financing through this vehicle continues to enhance our origination team’s ability to meet our clients capital needs. We continue to see benefits of this value proposition in Solar Capital’s deal flow. Thank you for your time. At this time, we will open up the line for questions.

[Operator Instructions] Our first question comes from the line of Troy Ward of KBW. Please proceed.

Good. Thank you. And guys thanks for taking my questions. Michael I apologize upfront if I actually repeat something, but I did miss the first couple minutes of your prepared remarks. Can I start with Crystal and the SSLP with PIMCO? On last call you commented regarding the joint venture that you expected to fund the first investment in the second quarter. Is that still your expectation?

I think it could be Q2, it could be Q3. It’s a little bit tight to pin it down slightly at this point.

Okay. And can you -- maybe you did this and I apologize, but can you give us just some color around kind of what is kind of the gating factor that’s making that goal maybe a little slower than anticipated? And can you talk about the ability to ramp that? Once it does get started, it will ramp quicker than it’s taken to get started. And also how does that ramp compare with kind of the limited activity we’ve seen in the core portfolio?

Yeah. Well, I think, yes, on that, I mean the market is the market. As Michael mentioned in his opening comments, the market has been incredibly muted in the first quarter more so than even the typical seasonal slowdown that we typically see in Q1. I think that’s the matter that you will hear from most of our peers with middle market loan is down meaningfully. So that affects everything from the unitranche product to the first lien and so senior to second lien stretching your Solar Capital, that’s just the market. So it has been quite. I think we are pretty clear on our February earnings call that that’s the environment we’re in and expect it to experience in Q1. The flip side of that as you can appreciate is prepayments have been de minimis and they will go up and down from that $6 million level. We still think it’s going to be relatively low compared to what we’ve seen over the last couple of years. So that’s a great headwind removed from us. And I think that going back to the joint venture, it’s a new product, and so it takes a little bit of time to get it out to the marketplace so that’s capability that we have. We have begun to see a lot of flow, but as you know we can’t require an issuer to take a unitranche. They may end up have decided to take a first lien, second lien structure. We are proposing unitranche wherever we think it’s appropriate. But some of the activity you will see in Q2 will be a deal for example Troy where we proposed the unitranche in the first lien and second and they just decided to take the first lien second. I would argue we would not have seen that opportunity if we couldn’t have provided both products. So the capability is incredibly strategic and it really is a situation as to whether the sponsor wants to take that unittranche. I think the other thing I would say going forward, tough to say how it will specifically impact but clearly I think the announcement by GE around their sponsor business is well with their unittranche product only creates more opportunity for us in that vehicle.

Great. That’s great color. And you spoke about your commentary on the mark -- in the last conference call. I wonder if I listened to the transcript or I’m sorry, read the transcript. I didn’t come away with the fact. You said there is going to be seasonably slow but the $30 million in this quarter was I think the second or third lowest in the last five years. And I also say how do you look at that quarter and then have so much confidence that you’re going to have portfolio growth in order to drive NII for the rest of the three quarters, like you say the markets to market. What gives you the confidence that you can actually deliver the portfolio growth?

Nick, couple comments, and you might have missed the early comments but new loan issuance in the middle market was $9 billion in Q1 compared to $20 billion a year ago in the same quarter. So it is significantly up. But the point that gives us the confidence is we’re kind of telling you kind of real time where we are in this quarter, sitting here in early May. So we know -- remember already -- we know we originated significantly in multiple that we’ve originated in Q1, so we feel good about it.

And I think the other thing Michael commented on was in his opening remarks, was we have further expanded at the end of Q1. The life science lending team bring three additional professionals over behind Anthony Storino, who moved from our platform early last year. So we now have more feet on the street there. Anthony, alone originated $60 million last year. We expect him to increase that significantly this year with his team now on the platform. We think the dynamic at Crystal is very favorable. One of their significant competitors has some significant portfolio challenges that can open up the doors. I think they’re also seeing some of the regulatory pressures on the banks, open up the this figure for banks as in Crystal to refinance some of their loans that might be a little noisier than the regulators who want to see on the book but yeah, fully collateralized and satisfied Crystals underwriting from an asset-base perspective. So we just feel that the multiple sourcing engines together with some of the competitive dislocation, positions as well that doesn't mean that issuance is down that we create issuance the way it was done in Q1 but we feel extremely low position. And to reiterate Michael’s comment, we’ve seen early science as the fruit of those labor in early Q2 here.

Great. Thanks, guys.

Thank you.

[Operator Instructions] The next question comes from the line of Doug Mewhirter with SunTrust. Please proceed.

Hi. Good morning. You covered my big question as far as your -- what you’re seeing right now. If I could maybe taken another direction, so your pickup in activity in the second quarter, which is like you said Michael is you're seeing in real time. Obviously, some of that is attributable to your individual initiatives. Is that also -- is that more of also general industry trend that sort of rebounding? And why do you think again -- and why do you think the first quarter was so dead so to speak, was it more on the financing side where people -- there is too much volatility on the lending markets or the private equity firms just more busy?

It’s a combination effect. As you know, new issue is a driver based on new M&A activity, based on refinancing activity. I think it’s fair to say also that Q1 tends to be a bit seasonal in our business because Q4 tends to be a bit elevated for whatever the reason maybe that given year where people are driving to get transaction closed by year end. So you have the normal seasonal slowdown. You had a low M&A activity. You had very little refinancing because that says that we had low rates for long enough that most people who can’t refinance to lower their cost of capital have done so. And so I think what we have seen and we have heard we went through on Q1. Most of what our financing activity was albeit only $30 million was across four different portfolio companies doing add-on acquisition. So I think thematically, sponsors are trying to rather than take 13-14 times for a new platform, given how elevated purchase price multiples have been. They’re trying to create value in their portfolios by buying in smaller tuck-in acquisitions at lower purchase prices. And for people like us that maybe an incumbent that creates an add-on financing opportunity to grow our exposure. And so that I think is thematically what you saw in Q1. It seem to us as we’re getting into Q2. Again, it’s only been a month. But our activity has been more M&A activity, less refinancing again but new M&A activity has picked up a bit and then it’s a matter of being well-positioned to win that transaction. So I think that’s really been the driver.

Great. Thanks for that, very thorough answer. I just had a follow-up question. I just want to clarify something. Mike, well you said in your opening remarks, you said, normally you have about $400 million of gross initiations per year in your core business and you said now you think you could make that up pace of $500 million a year. You're saying in any given 12 month period, I mean, do you think you could actually hit that hurdle this year knowing that you already sort of in the whole, starting out in the whole in the first quarter.

Yes. We do. I mean, we’ve always and we’ve been consistent about this when we’re in public. This is a lumpy business. And you saw last year, we had some quarter of de minimis other quarters we had close to $200 million of activity. So you can’t predict in which quarter deal would have happened but more comfortable than in the 12-month calendar year ‘15, those are the numbers we can hit.

And just a last quick question, you said $100 million of life sciences. It sound like that was -- you said that would be actually on a net basis so portfolio growth -- there will be a portfolio growth number not a gross origination number.

Exactly. Yeah.

Okay. Thanks. That’s all my questions.

Thank you.

The next question comes from the line of Chris York with JMP Securities. Please proceed.

Good morning, guys. And thanks for taking my questions. So my questions on the originations have been asked. But just wanted to get a clarification on some of your commentary from your prepared remarks, you thought net investment income will cover your dividend by the end of the year, so does that mean that you expect NII to cover the dividend in Q4 or in totality in 2015?

In totality.

Okay. That's great. Thank you very much.

Thank you.

Your next question comes from the line of Jonathan Bock with Wells Fargo Securities. Please proceed.

Good morning Michael, Bruce. Again, thank you. I will let go the distinguished Troy Wards or remarks early on. And maybe wanted to take a slightly different tacked because understanding that the market today is effectively a bit hot for a number of reasons and there’s the potential for the future to get some spread widening as effectively McDonald does no longer in the hamburger business. What I want to understand is why you wouldn’t choose to buy back your own stock and effectuate earnings and dividend accretion that way considering it would be a very compelling and shareholder friendly item to do when you are not originating much business?

Again, Jonathan, what we didn’t originate much business in Q1, which is at point in time. I think we said a couple times in this call that this quarter is actually very strong. And from our perspective, when you trade at 0.9 times book, buying back a modest, modest stock frankly is just a supporting your stock price. You are not going to buy enough to make it dance in your earnings or building book value. That's just because the volume limitation what you can and can’t buy. And our view is that given that 90% of our peer group is significantly capital constraint today because of their extreme activity over the last couple of years in investing that, returning capital at this point when we are in, what could be a very volatile market given that McDonalds is no longer in business making burgers, it’s not the right long-term shareholder friendly decision.

Okay. Appreciate that. Just a question we get from folks. And then another one just as we look at a few write-downs whether it's WireCo or Bishop, just kind of a view on maybe some of the technical versus kind of fundamental marks as you think about the building products sector in general and as well as we won’t call them energy centric. We know you’ve definitely mitigated that risk, but we’ll call it tangential exposure to some areas that might be undergoing stress even though everything is effectively related.

Sure. So as we have said to your point, we don't have any direct energy exposure, but it doesn’t mean that various portfolio companies don’t someway share perform touch energy and markets to some extent across their revenue base. SBP and Wire Rope are the two businesses that sell indirectly into energy amongst a wide variety of industrial sectors. So Wire Rope is a name you may be familiar with, it’s been in our portfolio in and out various times and different securities company we know unlike since '07 owned by FOX10. It is the manufacturer of Wire Rope that can be used in rigs, it can be used in suspension bridges all sorts of manufacturing applications. But there is a small piece that goes into rigs and drilling. Historical performance -- as recent historical performance show no degradation in earnings, they do have public bonds outstanding and traded bank debt. The bonds are carried to all private placement of bonds, which is a security we hold. And because people are or the market at March 31 was expecting I’m assuming that there may be some pressure going forward depending on your view of oil prices. The paper was markdown and vis-à-vis take a technical mark alongside that public bond. So that's the Wire Rope story. Coincidentally or not so coincidentally SBP is the number one distributor as opposed to manufacturer of Wire Rope. So obviously, a very large customer of Wire Rope. This is owned by AEA another top tier sponsor with significant equity in this business pretty for the exact same fundamental reasons I just mentioned on Wire Rope. They have indirect exposure selling into the energy sector amongst other sectors. It’s a small second lien. It was privately clubbed with us and a couple of other people does not trade, but we watch the first lien trade down a little bit again because of concerns about extended low oil prices and will that have affect on forward earnings. Again LTM earnings are up actually to flat. So we haven’t seen it in the numbers yet. But we thought conservatively let’s take a mark to reflect the first lien trading down a little bit. So that’s the specifics on those two.

Well, much appreciated guys. Thanks for taking my questions.

Thank you, Jonathan.

We have a follow-up question from the line of Troy Ward with KBW. Please proceed.

Yes. Quickly just a quick question on Crystal. Mike, I know you talked about it was in net leverage there. Can you just speak to what is the ability or desire to increase the size of your investment in Crystal on SLRC’s balance sheet? Is there a need or desire to do that?

There is currently not a need because we have debt capacity within Crystal itself. But we’ve had for sometime had a standby commitment of $50 million of additional equity into Crystal, which will give us an additional roughly $100 million of buying power there which we think is adequate for what their growth prospects are.

So is the targeted leverage for Crystal kind of one-to-one, is that what you are thinking about?

Between 0.5 and 1, yes.

And they are currently at 0.8 in that?

Yes.

Okay. Great. Thanks.

Thank you.

Our next question comes from the line of Casey Alexander with Gilford Securities. Please proceed.

Hi. Good morning. Sorry to ask such a mundane question but I can’t seem to find the table in the Q, where your loan buckets are based upon your internal ratings?

Hi. Just to clarify, you’re looking for ratings on a loan-by-loan basis or loan classifications.

Yeah. You generally -- don’t you have a one, two, three, four, five scale by which you put your loans into buckets based depend on how you and I can’t find that in the Q or in the press release.

Yeah. We haven’t disclosed that historically with regards to loans on a per rating basis, that’s why it’s hiding there. But we just -- just our guidelines on what those risk ratings are, are published in our registration statements on Form N-2. But historically, we don’t break out, which is one, two, three or four on a by-loan.

Not on a by-loan. I don’t see the table. They are just packages of your whole portfolio.

Right. I’m happy to give you a call on just to make sure you get what you want. But I know the average ratings at 2, I think we’ve said that historically on calls performing as expected.

But you don’t have a table that breaks down one, two, three, and four as a book. Okay.

We never have. We are not requiring too.

Okay. Thank you.

Thank you.

The next question comes from the line of David Miyazaki with Confluence Investment. Please proceed.

Good morning.

Good morning, David. How are you David?

Good. Good. Hey. I just wanted to revisit the topic that you had mentioned or briefly described regarding share repurchases. And it is sort of frustrating to shareholders to hear those kinds of comments, because are you communicating to us that share buybacks are just ineffective and there is no place for them.

Not at all. In fact, I think we are probably the only BDC and one of the two or three BDCs for the last several years who have actually thought about stock buyback and did it. We bought back close to $60 million stock over the last couple of years. So, we are believers at the right point of time. In fact, we are one of the largest shareholders of this company, owning anything about 6% of the company. So we are -- we want do things for shareholders and to drive shareholder value. Our point is that we have a lot of initiatives to commit capital to grow. And today in this environment that’s a huge competitive advantage relative to our peers. Things change, times change. If it turns out, we are wrong about our ability originate, we are sitting here a year from now and still ridiculously under levered, then we will definitely sit down with the Board and talk about, do something like this again.

And I guess my suggestion and I am cautious to have that discussion now, not a year from now to find that you are just still under leverage because the shareholders, we’ve seen that you’ve been under leverage, didn’t had a lot of capacity for quite sometime. And although, I respect your credit underwriting and your decisions trying to be strategic and developing the right businesses and deploying the capital properly, there is a huge cost to as a shareholders to hold your name. And if I look at the performance drag that you have in our portfolio over the past several years, it is hard to use the same adjectives when I described to my clients, why we hold your position. I just heard that you’re pleased, you’re proud, you’re confident, you’re optimistic looking forward. I can’t use those adjectives in describing how your stock has performed in our portfolio. And I appreciate that you bought back some of the stock unlike many of your peers appears that you have utilized your repurchase program. But I think you should have this discussion with the Board right now and your $0.87 on the dollar this morning. And tomorrow, if you wake up and you beat $0.85 or $0.81 on the dollar and that’s not what we want to hear you having a discussion about maybe buying back stock. We’d like you to have the abilities do that right done in there.

Got it. Thank you.

[Operator Instructions] There are no further questions in queue at this time. I’d like to turn the call back over to Michael Gross.

Thank everybody and thanks for your time this morning. We look forward to those of you who will continue on our conference call in 15 minutes on Solar Senior Capital. Thank you.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.