SLR Investment Corp. (SLRC) Q3 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Solar Capital Limited Q3 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference Chairman and Chief Executive Officer, Michael Gross. Sir, you may begin your conference.

Thank you very much and good morning. Welcome to Solar Capital Limited’s earnings call for the quarter ended September 30, 2015. I am joined here today by Bruce Spohler, our Chief Operating Officer and Richard Peteka, our Chief Financial Officer. Rich, before we begin, would you please start off by covering the webcast and forward-looking statements.

Of course. Thank you, Michael. I would like to remind everyone that today’s call and webcast are being recorded. Please note that they are the property of 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 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. Actual results may differ materially as a result of the 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 would like to turn the call back to our Chairman and Chief Executive Officer, Michael Gross.

Thank you, Rich. In the third quarter global economic growth concerns and uncertainty accompanying the direction of interest rates created a challenging quarter for risk assets and upswing in bond and equity market volatility. Market technical’s were negative for both high-yield and bank loan funds. The S&P high-yield B corporate index yield towards widened over 200 basis points in the quarter with spreads at the highest level in three years. In middle market corporate credit, lighter M&A volume and transaction values combined with lower refinancing activity to reduce financing activity and what is traditionally or seasonally slower quarter of leverage loan issuance. Measured by S&P Capital IQ middle-market loan volume declined 28% sequentially and 47% year-over-year in the third quarter. Against this challenging backdrop, we originated approximately $83 million of senior secured floating-rate loans. Our new investments are comprised of senior secured loans with attractive risk award characteristics and reflect continued progress in our life sciences lending segment. We continue to see growth opportunities for Solar Capital in niche asset classes whose risk written profile is less correlated with the liquid credit markets. During quarter of [muted] new issue activity and muted repayments were approximately $33 million. We succeeded in growing our portfolio by approximately 3% to over $1.2 billion. Year-to-date, our portfolios grown by approximately 20%. At September 30, our portfolio is over 99.9% performing on a fair value basis. In addition, we have no direct energy exposure. We continued to be pleased with the credit quality of our portfolio. Net investment in the third quarter was $0.40 per share fully covering our quarterly distribution. We elected to wave a portion of our incentive fee this quarter while we grow our net investment income through redeployment of available capital across the strategic growth initiatives that include unitranche, life sciences and asset-backed senior secured loans through Crystal Financial. Subsequent to the close of the third quarter, we announced that Voya investment management made an initial equity commitment of $25 million to the senior secured unitranche loan program which we call SSLP with an ability to upsize the program. Voya plans to allocate additional capital to co-invest in unitranche loans alongside the SSLP, once ramped we expect a joint venture to generate return on equity in the low to mid-teens and to be accretive to Solar Capital’s net investment income. With the addition of Voya and the $300 million recommitment from our existing institutional investor PIMCO, equity commitments to our unittranche initiative have now grown to $625 million. Committed capital represents an access of $1.5 billion investable capital including anticipated leverage. Investable capital unitranche loans expected to be increased with additional co-investments by our partners. We believe the strategic development will provide more opportunities to fund the ramp of our unitranche loan initiative and enhances our origination platforms ability to provide complete financial solutions to our clients. We recently committed to our first unittranche loan and transaction with both of our institutional partners which we expect to close during the fourth quarter. We plan to fund the SSLP will additional assets by the end of the fourth quarter as well. Bruce provide additional details later in the call. With strong originations and minimal expect repayments, we anticipate fourth quarter net portfolio growth will be in excess $100 million enclosed to the $125 million that we experienced in the second quarter. This credit market have shifted the volatility have translate into better terms and wider spreads, while it’s too early to confirm a trend we incurred with these developments and are pleased with traction in our strategic growth initiatives. At the end of the third quarter our net debt-to-equity ratio was 0.32 times, we have ample capital to execute on a strategic growth initiatives as they move forward towards our target leverage of 0.65 to 0.75 times debt-to-equity. After the close of the quarter we also announced the Board of Solar Capital authorized the company to purchase up to $30 million of its common stock. At a time with increased market volatility this share repurchase program provides management with additional flexibility and look to drive shareholder value. As a reminder under the companies prior repurchase program which expired in July 31, 2014 we purchased approximately $57 million of our stock in the open market at a weighted average price below within current net asset value. Our previous purchases reach us as we’ve demonstrate our willingness to buyback shares at discounts, when we believe to provide to more attractive return on capital then funding to investments. Finally our Board of Directors declared yesterday share, a quarterly distribution of $0.40 per share which we paid on January 6, 2016 to stockholders of record on December 17, 2015. At this time I will turn the call back over to our Chief Financial Officer, Rich Peteka to take you through the financial highlights.

Thank you, Michael. Solar Capital Limited’s net asset value at September 30, 2015 was $913.9 million or $21.52 per share compared to $930.8 million or $21.92 per share at June 30. The decline in NAV was primarily related to net unrealized appreciation and the value of our investments from general mark-to-market conditions. At September 30, our investment portfolio had a fair market value of $1.21 billion in 54 portfolio companies across 30 industries compared to a fair market value of $1.17 billion in 50 portfolio companies across 30 industries at June 30. At September 30, the weighted average yield on our income-producing portfolio increased to 10.1% measured at fair value versus 9.9% at June 30. For the three months ended September 30, 2015 gross investment income totaled $30.4 million versus $28.0 million for the three months ended June 30. Net expenses for the quarter ended September 30, 2015 totaled $13.5 million, this compares to $12.0 million for the three months ended June 30. For the three months ended September 30, as Michael noted earlier, the investment advisor voluntarily waived $700,000 in its performance-based incentive fees. Accordingly, the company’s net investment income for the three months ended September 30, 2015 totaled $17.0 million or $0.40 per average share versus $16.0 million or $0.38 per average share for the three months ended June 30. Below the line the company had net realized and unrealized losses for the third quarter totaling $16.9 million versus net realized and unrealized gains of $1.3 million for the second quarter. Ultimately, the company had a slight increase in net assets from operations of $0.1 million or $0.00 per share for the three months ended September 30. This compared to net increase of $17.3 million or $0.41 per average share for the three months ended June 30, 2015. With that, I’ll turn the call over to our Chief Operating Officer, Bruce Spohler.

Thank you, Rich. Let me begin by providing our portfolio update. Overall, we are pleased with the credit quality of Solar’s portfolio. Our issuers are experiencing stable to modest EBITDA growth and credit fundamentals remain healthy. In addition, we have no direct exposure to oil and gas. We continue to believe that our predominantly senior secured floating rate portfolio construction should provide protection if the economic environment declines and/or if interest rates rise. In Q3, our NAV declined 1.8% to $21.52 per share and primarily reflects the market sell-off and technical mark-to-market factors consistent with the decline to the leveraged loans and syndicated high-yield indices. The technicals have reverse course thus far in Q4 and high-yield spreads have already been covered approximately 40% of the widening that we experienced last quarter. At September 30, the weighted average yield on our income producing portfolio when measured at fair value was 10.1% up from 9.9% in Q2. The weighted average investment risk rating of our portfolio remained at 2, when measured at fair value based on our 1 to 4 risk rating scale with one representing the least amount of risk. Measured at fair value 99.9% of our portfolio is performing at September 30. At the end of the third quarter, our portfolio consisted of 54 companies operating in 30 industries. Measured at fair value and including Crystal Financial portfolio 91% of our investments were in senior secured loans including 66% in direct senior secured loans, and roughly 25% through Crystal’s portfolio. The remaining 9% of our portfolio was comprised of just under 6% in subordinated debt, 1.5% in preferred equity and just under 2% in common equity and warrants. At September 30, approximately 90% of our income-producing portfolio was floating-rate, when including Crystal's full portfolio measured at fair value. Now, let me provide an update on our strategic initiatives including the senior secured unitranche loans program, Crystal Financial and our life sciences lending platform. As Michael mentioned, shortly after quarters end we announced the addition of Voya as an additional joint venture partner in our unitranche loan initiative and co-investment partner in the SSLP. Over the last 12 months, we have established a successful co-underwriting process and working relationship with Voya through co-investments across 15 different investments we made in our first lien loan program at our sister company Solar Senior. Voya’s extensive mid-market credit experience and their interest in expanding their access to investments in the private middle-market senior secured loan asset class makes them an ideal partner to expand our unitranche loan initiative. Voya’s initial commitment to SSLP and their plans to allocate additional capital from their insurance company affiliates together with the recommitment of $300 million of co-investment capital from PIMCO enhances our origination capacity and ability to utilize the balance sheet more efficiently. Once we expect the joint venture to generate the return on equity in the low to mid-teens and to be accretive to Solar Capital’s NII. We recently committed two unitranche loan underwritten by Solar in both of our institutional partners Voya and PIMCO and we expect the SSLP to invest an additional transactions during Q4. Now, let me turn to Crystal. At September 30, Crystal Financial which is our stretch first lien ABL lending platform had a diversified portfolio consisting of approximately $530 million of funded senior secured loans across 28 issuers with an average issuer exposure of approximately $90 million. During the quarter, Crystal funded new loans totaling approximately $86 million and experienced repayments totaling approximately $11 million. As a reminder all of Crystal Financial’s investments are floating rate senior secured loans. At the end of Q3, Crystal paid Solar a cash dividend of $7.9 million, which is the equivalent of 11.5% annualized cash on cash yield, consistent with Q2. Crystal net debt to equity ratio was just under one times at September 30. At the end of our life science portfolio has grown to approximately $110 million of first lien senior secured loans across 11 issuers with an average investment of $10 million and an average yield including warrant related values, but excluding success fees of in excess of 11%. Our investment thesis continues to be focused on building a diversified portfolio of senior secured loans having very modest debt to equity ratio – enterprise value protection and most importantly low loss given default risk. The life science is portfolio activity now includes both origination as well as access. We’ve realized the blended IRR close to 16% our life sciences portfolio repayment today excluding any warrant values. The results thus far validate our investment thesis and confirm the opportunity to underwrite loans offer an attractive risk adjusted returns in this highly specialized healthcare segment. Given the team’s current strong pipeline we expect further growth in our life science portfolio in Q4 2016. Now let me turn to our originations. During the third quarter Solar originated approximately $83 million of senior secured floating rate loans across six portfolio companies. Investment prepaid during the quarter totaled approximately $33 million resulting in net originations of approximately $50 million. During the quarter our life sciences team closed and funded three new and two follow-on transactions totaling approximately $46 million. We reinvested $20 million in a first lien term loan for Pronutria Biosciences which is the company focus on developing therapeutic proteins derived from naturally occurring amino acids to target a variety of medical conditions. This loan refinance or $10 billion investment Pronutria Biosciences which is repaving Q3 and realized that IRR an excess of 12.5%. This new loans – new call protection and success fee. The yields maturity excluding the success fee is approximately 10.5%. We also funded a $15 million first lien term loan and a clinical stage Biopharma company that is developing an IV antibiotic used to treat multidrug -resistant bacterial infections obtained to hospital acquired infection that can have extremely high mortality rates. This loan success fee however excluding that fee our yield – our investment has a yield of just under 11%. We also made a $15 million investment and second lien term loan to support J.C. Flowers acquisition of AmeriLife. Just a large independent distributor of health life and fixed annuity products to the senior market in the U.S. Leverage to our second lien is 5.7 times and our yield is just over 10%. Finally we funded $22.5 million dollars investment $5 million in the first lien and $17.5 million in the second lien term loan of healthcare just a large for-profit home healthcare provider. Pro forma senior in total leverage runs to 2.6 times senior and 3.7 times total leverage respectively and our blended yield on these investments exceeds 10%. Now, let me touch on our realizations all of which came from our life sciences portfolio. In addition to the Pronutria repayment we mentioned we were also repaid at premium to par on our 12.5 million first lien term loan investment radius health. Including the value of 9.30 of our radius common stock which resulted from more and exercises IRR in this investment exceeds 28%. Finally, we repaid on our investment of $10 million in Infrared as part of the sale of the company to Nipro. Half of the loan, which we paid in Q2 and the balance that we paid on October 1, the blended IRR in this investment exceed 18.5%. We are seeing the fruits of our efforts to expand and diversify our sourcing engines and to enhance our solution capabilities to sponsor back middle-market companies. Our origination efforts across unitranche and life sciences lending are getting solid traction along with continued strong performance from Crystal Financial. As Michael, mentioned we anticipate meaningful net portfolio growth in Q4, the combination of the anticipated strong originations and visibility are less than $25 million of repayments thus far in Q4 should translate into net portfolio growth that is closer to Q2’s level of a $120 million than the $50 million we experienced in Q3. Now, I’d like to turn the call back to Michael.

Thank you, Bruce. Those of you have been following us for sometime and have been our investors have known that we have taken a very prudent approach to investing during these frothy credit market conditions we’ve experienced over the past three years. During this time however, we’ve expanded our growth engines across our life sciences, unitranche and ABL lending capabilities. These strategic initiatives have created diversified set of investment opportunities that we believe offer a unique attractive risk award profile in the current environment. Importantly, we’ve enhanced both the product breadth and depth of our core underwriting business to sponsor back private middle market companies. The addition of Voya and the recommitment of PIMCO to our unitranche loan initiative gives us great origination scale and provide more opportunities to accelerate the ramp of the senior secured unitranche loan program. As we build out the SSLP and more fully utilize it’s credit facility, the joint venture has expect to generate a return on equity in the low to mid teens and to be accretive to Solar Capital’s net investment income. Additionally, Crystal Financial and our life sciences lending business with our current ROEs and low-teens provide us with diversified earnings streams and further growth potential. Based on current visibility originations and de minimis repayments we expect solid net portfolio growth in the fourth quarter and for the full year. We will continue to be prudent and highly selective with our investments and fully intend to be opportunistic in deploying our significant available capital into investments across our strategic growth engines that meet our strict criteria. Our interest remain closely aligned with U.S. shareholders to senior managements and investment teams purchased ownership of 5.5% of the common shares outstanding. Early in the fourth quarter we announced a new program authorized the repurchase of up to $30 million of our stock provide management with additional flexibility to drive shareholder at a time of extreme market volatility. We also waived a portion of incentive fees in the third quarter allowing us to fully cover our $0.40 per share quarterly distribution while we deployed capital across our strategic initiatives and grow our net investment income. We appreciate the patience and support of our shareholder through this process. At the close last night Solar Capital is trading at approximately 0.8 times book value within a current distribution yield of approximately 9.2% compared with Barclays U.S. corporate high yield index, yield towards the 7.5%, we anticipated higher return on equity on investments across our strategic initiatives and more efficient use of our balance sheet, we expect increases to our portfolio weighted average yield to boost our net investment income of the coming quarters. We are confident toward capital to credit disciplines, sourcing and balance sheet flexibilities perform, need of extended low interest environment or the credit market location. At 11 o’clock this morning, we will be hosting an earnings call for the third quarter 2015 results of Solar Senior Capital, or SUNS. Our ability provides additional middle-market senior secured financing through this vehicle continues to enhance our origination team’s ability to meet our clients’ capital needs and we continue to see benefits of this value proposition in Solar Capital’s deal flow. Operator, would you please open up the line for questions at this time?

Thank you. [Operator Instructions] And our first question comes from Arren Cyganovich with D.A. Davidson. Your line is now open.

Thanks. With respect to the fee waiver, I was pleased to see that, would you anticipate using that again as you are continuing to ramp your leverage in SLRC?

I think what we are going to look it on a quarter-by-quarter basis. But it’s potential for us to use, yes.

Okay, great. And then in terms of SSLP adding a new partner maybe you could just talk a little bit about the underwriting process that you have, now that you have three folks involved in decision-making and kind of one of the benefits of SSLP historically or different versions in this event quickly being able to underwrite something and not having the deal with a lot of different people involved in syndicate. How does adding another person impact the process of all?

Sure. Good question. As you know Voya who just joined the program has been with us at Solar Senior for close to year and a half and has jointly underwritten with Solar Senior 15 transactions to date. So it's important to note that we are not adding somebody that we don't have close experience with someone we haven’t been through the underwriting process with. So I think given that they will be in the JV with us, we think that that will actually accelerate the ramp given our experience at co-underwriting together. Separately PIMCO also needs to underwrite, but they are underwriting for their balance sheet through their managed account as opposed to through the joint venture for Solar’s balance sheet. So we think it's a win-win, it expends our capability by having the balance sheets of all three of us and we think that Voya’s experience with us should make it a very smooth transition.

Okay, thank you.

Thank you.

And our next question comes from Rick Shane with JP Morgan. Your line is now open.

Guys, thanks for taking my questions. Obviously there are sort of fits and starts in terms of deploying capital, we’ve seen some good progress this year. I’m curious as you achieve full leverage and think about the different parts of the business whether it’s SSLP and Crystal and the impact of both of those businesses. What do you think is a realistic ROE when you achieve your leverage target?

I think that obviously it’s going to depend on the asset mix across the portfolio I think as we’ve talk through Crystal is currently paying us a 11.5%, we think there is some upside there, obviously we’ve highlighted the unitranche should be in the low to mid-teens and our life science business is already proven realizations in the mid-teens. So I think it’s really about balancing that math and further helped by the fact that we’ve seen some spread widening in our core sponsored business as well. So we feel very good about the ROE potential.

And I think importantly as you know you’ve run the numbers given that we are relative to that number today as we deploy our capital, we will be increasing our net investment income – net income per share that’s when Bruce actually talked about. Increasing you dividend as opposed to what many of the parties are having discussions about today.

Okay, I don’t think you actually answered my question. I hate the penny that was down, but I’d love to get some sense of where you might see this going.

It’s really hard to say, we have to see where the mix of business comes I think as you know we are opportunistic and so we are going to follow where we think the best investment opportunities are and make sure it meets our return criteria.

Okay, I didn’t get a specific answer, fair enough. Other question, you alluded to the competitive dynamic and frankly your advantage with dry powder on the balance sheet. Or you starting to see that manifest in terms of less competition for potential transactions are there peers out there that you would have expected to see competing for business historically that you just aren’t seen as much right now.

I would say you have to go niche by niche, but I think obviously in life sciences GE exited that business, it’s not clear that the acquirer of the healthcare portfolio is going to continue that business so we still have the three or four people who are active and it’s a bit of a club, but generally speaking competition is a little bit lighter. I think if you look at Crystal, they’ve seen a couple of competitors sit on the sidelines so as well as banks be a little bit less aggressive in asset-based lending so I think directionally they have been helped as well. And then I think as you look at whether it’s unitranche or other products into the sponsor community I would say that there are fewer competitors but I would say that the competitors are working together more so and thanks rather than trying take down the entire tranche and could be a result of capital constraints it appears I don't know but we have definitely seen more clubbing over the last couple months then we add it the last few years.

And given your liquidity is – opportunity for your lien those transactions and great some of the fees?

Yes.

Okay. Thanks guys.

Thank you.

And our next question comes from Doug Mewhirter with SunTrust. Your line is now open.

Hi, good morning. I had two questions. First you talked your stock repurchase authorization looks like you didn’t have any meaningful activity in the third quarter. have you repurchased any shares to date in the fourth quarter?

As you know when you know we put the plan in the middle of October and we were in the middle of [indiscernible] period of times. So we have not – by any thought legally from when that plans was in place until we released.

Okay thanks for that. My second question you mentioned in your prepared remarks about the activity in the joint venture the SSLP you said you have one deal that could potentially close in the fourth quarter and then you had mentioned additional investment which are implied to be in the fourth or first quarter. Is that mean – is that from a organic pipeline are you talking about by downs from the Solar portfolio are you talking about club deal or you talking about adding a liquid assets. I just wanted to…

Sure. Yes no problem at all not liquid assets the point is really that and one of your peers asked earlier how are you Voya and PIMCO working together and we already have a transaction that all three of us have committed to is not yet funded but we expected to fund shortly. And then in addition to your question we had some additional unitranche asset that were currently underwriting that we hope to close this quarter as well as potentially some assets on balance sheet, but no liquid assets its all illiquid private resource unitranche.

Okay it sound like a mix of a pipeline plus some Solar assets. Okay.

Yes.

Thanks that’s all my questions.

Thank you.

And our next question comes from Vernon Plack with BB&T Capital Markets. Your line is now open.

Thanks very much and Mike you could give me some color on what you're thinking in terms of your industry concentration in healthcare. If you look at all the subgroups whether its providers and services pharma equipment suppliers, facilities technology, tools service of the 29.9% obviously lots of diversification within that group but just wanted to get your thoughts on what you think about regarding the healthcare industry concentration?

Yes, it is something that were focused on this is the place clearly we think you need expertise, just as we’ve stay away from energy because we lack expertise we feel that we built a nice team with healthcare expertise particularly around potential reimbursement risk stay clear of and so I think between Anthony Storino in the life sciences team that we brought over from GE last year. As well as you know our Sister companies over senior owns a business called Gemino Healthcare Finance with 20 plus investment professionals there. So I think that we feel like we have a great deal of expertise on platform and it is a sector where we can expertise is extremely important and if you have that expertise in good access to diligence and sponsors who also have industry specialization we believe we sound some pretty attractive risk-adjusted returns. So it is a focus of ours but your point we want to remain extremely disciplined and diversified.

Okay I don’t know exactly what it means in terms if you look at that whole area as a group but I guess what I'm also hearing you say perhaps is that the your healthcare exposure with actually could very well go up from here. Correct?

As a percentage I don’t think so, because you are going to see meaningful assets in the unitranche space, which is like – not be healthcare.

Yes, okay, all right. That’s very helpful. Thank you.

Thank you.

Our next question comes from Greg Mason with KBW. Your line is now open.

Hey, good morning guys. Just a couple of follow-ups. Just on Arren’s question about the underwriting with Voya and PIMCO, do you it just our perception that PIMCO has seemed to be dragging its feet on investments maybe that’s incorrect perception. But do you have the ability to just do deals with Voya, is the capital separate from each other?

Yes, the answer is Voya and Solar are in our joint venture and PIMCO’s capital is in a managed account, it had been historically, it’s just now completely in a managed account where it is historically part of it was in the joint venture. So short answer is we all on the right for each other, but Voya and we decided to do a transaction and hypothetically PIMCO doesn’t, we can still invest in that asset.

Okay, great. And then one last follow up on the stock buyback I know you've been in a blackout period. So far once you come out of that you know what is your view at current prices on utilizing that $30 million buyback?

Look I think we are going to opportunistic as you can tell from our conversation so far this morning, we have a lot of growth ahead of us that experiences that you are going to see us tap in hundred plus million dollars into our revolver this quarter. So our true available capital for buyback is not as significant as you might may think. And with returns that we can generate in the low to mid-teens on a ROE basis, on our various businesses that the bar is pretty high, on that said when we put the plan in place you know our stock would trade as low as the mid-teens. And to the extent there is severe market [indiscernible], we want to be a position to take advantage of that.

Got it. So I am hearing is that, current prices not necessarily on your top of your list to use it but available if the stock goes back down?

Correct.

Okay, great. Thanks, guys.

Thank you.

Our next question is from David Chiaverini with Cantor Fitzgerald. Your line is now open.

Thanks, good morning. Couple of questions for you, first on Crystal Financial can you talk about the driver behind the strong originations and also what the target leverages there you mentioned that now at 121 as of September 30?

Sure, as you know over the last couple years that we've been fortunate up to be partners with the Crystal platform. Their portfolio has moved from $400 million to over $500 million on a quarter to quarter basis. The point being that as you know this is a high churn portfolio back in 2013% 80% of the portfolio turned over in one year. So we really don't measure Crystal quarter-to-quarter we look at it over sort of a trailing 12 month period. And so you will see their portfolio grow, their originations, I wouldn’t say it’s schematic it’s a little bit episodic that can reverse itself this quarter. But having said that we see consistent performance from the team and are extremely pleased with how they performed. I think in terms of target leverage this is about where they will get up to, there is a little bit more borrowing capacity there, because again these are first lien ABL loans, so they do have more capacity but their leverage as isolated between 0.3 and 1 times. I think that’s a fair range.

Okay, thanks for that. And then within the unitranche product which industries appear attractive in this environment?

The it’s a little bit hard for me to be specific, I am responding to that, the choice of unitranche versus first lien, second lien cap structure is really determined by the sponsor or the buyer of the company together with their management team. And so it really isn't so much industry driven I think what we begun to see evolve is the value of the unitranche to a borrower is to state the obvious, you have a very small group or one lender and so it's an ease of execution, ease of amendment assuming that they understand your business and work with you. And so what we find is it’s more been depends on the sponsor rather than the industry and it depends on the state of their holdings in that company if they are going to make a lot of add-on acquisitions and change things around a fair bit the unitranche is a pretty convenient product to have in place until you are in a more mature stage of holding that investment you might want something more like the first lien and second lien or a bond deal. And so it’s less industry centric to be honest with you.

I see, so it sounds like it’s more of a bottoms up process and you're not targeting any specific industries per se?

Yes, exactly. We are offering it to all of our clients and then it’s very client specific as to whether they want that product for that company at that stage and so it’s more of a lifecycle type product then it is industry centric.

And giving Solar’s overall very low leverage as you kind of use up that available capacity, how much is going to come from you ramping up the SSLP versus say life sciences or any other whether it’s first lien, second lien or unitranche. Can you kind of breakout where some of that available capacities going to be used up?

Sure, as you know we have a 300 mark limit to the SSLP I think our anticipation – expectations that we will fully use that payment over the next 12 to 18 months. And then we will fill in from there with life sciences and Crystal.

Those kind of a blend across the board.

Yes, and we do have a standby equity commitment into Crystal of $50 million, they are yet to tap into that, but that’s growth capital that we set aside for them so the market come their way and obviously they can leverage that equity a little bit further. And then I think we’ve talked in the past life science portfolio, while the team was at GE was anywhere from $300 million to $400 million, we sort of targeted $250 million plus depending on the opportunity. So those are just some broad parameters.

Thanks very much.

And our next question comes from Christopher Testa with National Securities. Your line is now open.

Good morning guys, thanks for taking my questions. Just can you kind of elaborate on the SSLP, it seems like it's been slower to ramp than was originally forecast just I guess why that's been the case and how quickly you see that ramping over the next couple quarters?

Yes, I think that there is one answers to the ramp as we’ve talked about in the past sometimes sponsors might choose the first lien, second lien and we might fund that asset on our balance sheet, but you won’t see that we actually have proposed the unitranche as well. So there has been a lot of product mix historically, we do think the average size of the unitranche has increased in terms of what borrowers are looking for from one lender, historically the target have been sort of $100 million plus, today I’d say it’s probably closer to $200 million and that sort of the size of the deal that I referenced earlier that we have committed to with PIMCO and Voya this quarter. So I think that having that increase scale with Voya and PIMCO, as Voya will also invest on their balance sheet alongside the joint venture makes us more competitive as a threesome. And in terms of additional ramp I think as Michael mentioned sort of the next 12 to 18 months we expect meaningful ramp.

Okay, great. And how do you expect or how are you seeing the pricing change across life sciences, Crystal and the traditional middle market. Is the traditional middle-market loans is that what you are seeing the most, the best pricing, is that a good way to look at that were life sciences and Crystal are kind of remaining where they’ve been historically?

I would say that life sciences had been consistent, but consistent at some pretty high relative level.

Right.

Realizations have been north of 15% for us so those are just good absolute returns, but I don’t think there has been much movement. It is a competitive niche amongst the four, five players who compete in that business. So we haven’t seen much compression, it seems to stabilize, but it’s a clubby sector. I think as you look at unitranche, as you look at Crystal we would all say that spread compression has stopped for the time being and if anything in the past quarter we’ve seen some widening out anywhere from 50 to 150 basis points depending on the situation.

Okay, great. And just I guess touching on that same point there, are you still seeing you know much wider spreads in the second lien market. I know that that's - bounce back somewhat, so are you still seeing a good amount of opportunities there to get some incremental yields.

Yes, we are looking at a situation today for example, the short answer is yes, but to give you anecdotal, we are looking at one today where we've made an investment historically in this mid-to-high sevens over the LIBOR as a spread and they're looking to may be, make some add-on acquisitions, which keep leverage the same. So generally de-risking we believe bigger is better even at the same leverage ratio more diversified cash flow streams et cetera and spreads are probably going to wide now at 75 to 100 basis points in spite of that lower risk. So long with a way of saying yes we’re seeing spreads widen out there and more importantly for us as you know risk is coming down a little bit.

Right. And last one for me would just be, how do you see the sponsor versus non-sponsor originations going forward and what do you make about sponsor finance volume potentially bouncing back in this quarter into next year?

First of all our unitranche business, our traditional middle-market lending business is really 95%, 98% sponsor business.

Okay.

The life sciences, in fact it was a sponsor business as well, so it’s all venture capital firms, Crystal generally is not, look I think we are going to see volumes bounce back, there is huge amount of unspent product to capital on the sidelines that will be spent. And there will – take place response and refinancing. So we are not worried about where volumes are headed, it’s just – always see dips here and there and we are pretty confident, next year is going to be a big year.

Great. That’s all for me. Thanks guys.

Just the last thing I would tell you, there is a lot of add-on, a lot of the volume is add-on acquisitions that we are seeing which as I mentioned can be very nice attractive transactions in de-risking.

Right. Okay, thank you, guys.

And our next question comes from Chris York with JMP Securities. Your line is now open.

Good guys. Just a couple of questions, we noticed small fair value write-down on Crystal and announced on the 10-K disclosed that net income at Crystal decline year-over-year, it was $3.8 million, which was about half the dividend payment to Solar. So can you talk a little bit about this distribution disconnect?

Hi, Chris. With regard to – I just want to make sure I understand your question with regard to Crystal, yes there was a mark-to-market there out of that 7 million bucks, so both of question was Crystal net income.

Yes, correct.

Not Solar’s. There was a change, but it has to just do with timing and there is a lot of non-cash things like depreciation and such, so there wasn’t really any driver to that.

And the mark-to-market and I’m glad you brought up you saw our NAV went down about 2% for the quarter overall and really is for the most part if not almost all reflect to the technical fact of the marketplace in the quarter and Crystal for example, our job it to fair value than every quarter and if you think about the peer group of companies in this sector they all experienced some weakness in the quarter from a valuation perspective also probably come down, but we think there write-downs have taken are truly temporary.

Okay. And then question on the buyback so what recently changed in the board in support of the buyback program because in the last couple of calls it seems you expressed limited interest to put program in place.

Yes, the change wasn’t kind of led by the manager level was that when we saw our stock at 15.50 in October, we really wished we had an ability to buy stock at that point in time, because that value and that return it’s more compelling than the best companies we have. So we think we are in a world of volatility today and it could happen again in three weeks where the stock level given just the volatility, so by having this in place we could potentially buy this stock really cheaply.

Yes, it makes sense. And then lastly it seems just kind of listening the call here I’m hearing bunch of questions about the senior loan front and the slowness in ramping the JV, so do you think there are any issues of marketing or potentially an awareness among the sponsors and your ability to provide the unitranche?

No, I think that as we mentioned its really been a situational as well as getting our partners up to speak that’s something I think we’ve accomplished both with Voya and Solar, senior now joining the mix as well as having been through some transaction with PIMCO so we feel very good about it. I don’t think it really goes to the marketing of the product per se, but again it’s very situational as to whether sponsors are going to decide to go with unitranche or not. So we’ve had some bad luck, but we do feel we are well positioned with the clients. There is a handful of investors that are know to have the capability on the unitranche and as we mentioned earlier there is an increase in clubbing on that unitranche product, because the average unitranche loan is going up from $100 million to $200 million to $300 million and so people are looking to club these together with two or three of us.

Got it. Thanks for the additional color Bruce and thanks for time guys.

Thank you.

And our next question comes from Fin O'Shea with Wells Fargo Securities. Your line is now open.

Hi, guys thanks for taking my question. First just a couple of company portfolio holding names our Global Tel*Link and easy financial recent previous slide marks if you could give us any color on how you feel about these thing company specific?

Yes, no nothing is company specific on easy financial and business that you may recall we’ve been investors since the middle of 2012. There is some currency of volatility because it's Canadian dollars, its Canadian Domiciled company but nothing fundamental this is the first lien we are lending against the pool of assets. So we feel very good about easy. So nothing other than technical and the mark. Global Tel*Link good question that’s the name that have got suppress in the last week or two posts quarter end and so what I would say there is we do expect a little bit more pressure if you called up today will be more lower than the 90 or so we had mark that. And as predominantly to the recent announcement by the SEC to examine intrastate rates being charged is a company that has along with the sister company duopoly on managing phone calls and security RAM communications for the prisoners. And so there was an issue actually a couple years ago on interstate rate which the company resolved after 18 month to 24 month period favorably but that greats a little bit of an overhang right now was the SECs putting pressure on these two companies to lower the rates of their charging on interstate calls. And so we think this is going to be borne out over the next 18 months to 24 months as interstate was fortunately for us Global Tel*Link is a business that has over $150 million of EBITDA and as we mentioned is a duopoly providing these services into prisons and so from our perspective is delivered nicely from six times to the mid force and we believe that even if there was no change in what the SEC is currently proposing that we believe we are going to be in fine situation with no risk of impairment given that the leverage is come down rather meaningfully. But you know I think there's going to be some volatility around the name over the next year. So as this gets resolved between the companies and SEC. So that is a name that we're watching, but not name that we’re worried about risk of impairment to our non-accrual.

Okay. Thank you and quick question on the SSLP to the extent that the strategic partners: invest alongside would they be able to use leverage and does that affect the economics of the SSLP equity position?

So SSLP its we will be leverage that returns in the mid-teens with PIMCO they intend to use leverage and so there $300 million give us investment of capital there and Voya and likelihood just putting assets balance sheet not using leverage.

Okay. And just one final question is it relates to the buyback program and it sort of the Global question for your perspective is some would done in the past. So we’ve recently seen a lot of BDCs jump on and launch buyback program but very little repurchasing relative to this and kind of everything here that this has to do with the nature of the 10b-18 discretionary program that you could say as the same much fewer in terms of actually entered in terms of the automatic programs. In sort of the segway of the dialogue you had with Greg on you the right price you know what's to stop he refuses to say you believe 75% of books the right price to put in an automated program there and that would help you know avoid insider allegations blackout periods et cetera any perspective on that would be helpful? Thank you.

All I can say is if you look back historically, we bought back $57 million of our stock, we did it both during our winter periods and we’ve not – we actually put in by 10b-05 plan in the path to allow us to buy during the back out periods. So that is definitely tool available to BDC then if there serious about if the board to use the events and prices that’s should be put in place.

Okay very well. End of Q&A

I appreciate your questions. Unfortunately we have to cut off at this time as we our other call beginning two minutes. If there any questions we will not able to answer you know we are available after 11 O’clock call those calls. Thank very much for your time.