Good morning. My name is Adam and I will be your conference operator today. At this time, I'd like to welcome everyone to the Third Quarter 2018 Solar Capital Limited Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question-and-answer session [Operator Instructions]. Thank you. I'd now like to turn the call over to Michael Gross, Chairman and Chief Executive Officer. You may go ahead.

Thank you very much, and good morning. Welcome to Solar Capital Limited's earnings call for the quarter ended September 30, 2018. I am joined here today by our Bruce Spohler, our Chief Operating Officer and Rich Peteka, our Chief Financial Officer. Rich, before we begin, would you please start by covering the webcast and forward-looking statements.

Of course, thanks 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 Web site at www.solarcapltd.com. Audio replay 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. Additionally, 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. 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 Web site 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. For the third quarter, Solar Capital delivered solid operating results, continuing our long-running history of strong credit quality, net asset value preservation and increased earnings power. At September 30, 2018, Solar Capital's portfolio was 100% performing and our net asset value of $21.95 per share represented our 11th consecutive quarter of net asset value growth per share. During the quarter, Solar Capital generated $0.44 of net investment income per share. Over the first two quarters of the year, our cumulative net investment income per share has exceeded our dividends by 9%. Fundamental credit performance continues to be strong, supported by stable economic conditions and corporate earnings growth. Middle market capital lending continues to be extremely competitive. We believe it is paramount to maintain our strict discipline and cash flow lending in the faith of aggressive structures, tight pricing and elevated risk. During the continued frothy market conditions and capital lending, our asset-based businesses, Crystal Financial, Nations Equipment Finance and Life Science Lending, provide investments with strong structural protections. At quarter end, approximately 69% of our comprehensive portfolio is in specialty refinance investments. Not only do our asset based owned carry credit protection and yields to periods of those in the capital market, but the higher income received from our asset based loans enables us to be highly selective in underwriting middle market capital transactions. In the face of continued spread compression and capital lending, our barbell approach to portfolio construction has allowed Solar Capital to achieve a weighted average comprehensive portfolio at fair value of 11.2% without having to take additional risk by investing in second lien loans or riskier sectors such as fixed growth or energy. Now we're reporting the progress with two important initiatives we believe that enhance the strategic position of Solar and significantly…

Thank you, Michael. Solar Capital Limited's net asset value at September 30, 2018 was $927.6 million or $21.95 per share compared to $926.8 million or $21.93 per share at June 30, 2018. At September 30, 2018, Solar Capital's on balance sheet investment portfolio had a fair market value of $1.4 billion in 110 portfolio companies across 30 industries compared to a fair market value of $1.40 billion in 100 portfolio companies across 32 industries at June 30, 2018. During the quarter, SLRC and its JV partners entered into purchase and sale agreements, whereby SLRC purchased its JV partners equity, together with an agreement to sell them their pro rata share of the investments within the SSLPs. These agreements resulted in SLRC owning 100% of the equity interest and now controlling the SSLPs. Accordingly, the SSLPs were consolidated onto SLRC's balance sheet at September 30, 2018. At September 30th, Solar Capital has $489.2 million of debt outstanding and leverage of 0.52 times net debt to equity, inclusive of the SSLPs consolidated leverage compared to $473.6 million and 0.5 times at June 30th. When considering available capital from the Company's credit facilities, combined with available capital from the non-recourse credit facilities at Crystal and NEF, Solar Capital had more than $700 millions of fund portfolio growth subject to borrowing base limits. Turning to the P&L, for the three months ended September 30, 2018, gross investment income totaled $37.1 million versus $39.2 million for three months ended June 30th. Expenses totaled $18.7 million for the three months ended September 30, 2018 compared to $20 million for the three months ended June 30, 2018. Accordingly the Company's net investment income for the three months ended September 30, 2018 totaled $18.4 million or $0.44 per average share compared to $19.2 million or $0.45 per average share for the three months ended June 30th. Below the line, the Company had net realized and unrealized losses for the third quarter, totaling $0.3 million versus net realized and unrealized gains of $0.6 million for the second quarter. Ultimately, the Company had a net increase in net assets resulting from operations of $18.1 million or $0.43 per average share for the three months ended September 30, 2018. This compares to an increase of $19.8 million or $0.47 per average share for the three months ended June 30, 2018. Finally, our Board of Directors recently declared a Q4 distribution of $0.41 per share payable on January 4, 2019 to shareholders of record on December 20, 2018. And with that, I will turn the call over to our Chief Operating Officer, Bruce Spohler.

Thank you, Rich. Overall, the financial health of our portfolio companies remained sound, reflecting our disciplined underwriting and continued focus on downside protection. At September 30th, the weighted average investment and risk rating of our portfolio was 1.9 based on our 1:4 risk rating scale with 1 representing the least amount of risk. As further indication of the strong fundamentals of our portfolio, only 3% of our portfolio was on watchlist status at quarter-end and 100% of our portfolio was performing at quarter-end. Our $1.7 billion comprehensive portfolio encompasses 230 distinct issuers across 92 industries. The average investment per issuer was $7.4 million or 0.4% highly diversified. Also at quarter-end, over 98% of our portfolio consisted of senior secured loans comprised of approximately 83% first lien loans and 14% second lien loans. We continue to reduce our exposure to second lien loans, which carry higher yields and higher risk than our first lien investments. Yet, the weighted average yield of our overall portfolio increased to 11.2% at quarter-end compared to 10.9% in Q2. Importantly, through our niche commercial finance verticals, we've been able to maintain this 11% asset level yield in spite of the spread compression we are all seeing cash flow lending. We've done this by replacing our second lien cash flow loans with lower risk yet higher return first lien asset based investments. Including activity across our four business lines, originations totaled just over $200 million and repayments were approximately $280 million, resulting in net comprehensive portfolio reduction of approximately $80 million. Given the continued heated cash flow market conditions, we intentionally allow that segment to shrink. The decline in our cash flow loan portfolio was partially offset by growth in our asset based strategies, which currently offer a much more favorable risk and return profile. Let me…

Thank you, Bruce. From the inception of Solar Capital over 12 years ago, our investment and management decisions have focused on building long term shareholder value, protecting capital and maintaining alignment with our shareholders. In 2018, we have put additional strategic building blocks in place from a reduced asset coverage requirement and enhanced platform scale that provides greater flexibility to drive long term shareholders value. Importantly, we have been prudent in the face of sustained frothy credit markets and remain disciplined in not compromising credit quality for yield. The result is a solid portfolio foundation from which to grow. We've already maintained an investment philosophy and we're assuming that we are late in the credit cycle, and we believe that in the current investment environment, it takes to be cautious. It remains to be seen whether the recent volatility in the equity markets will lead to newer attractive investment opportunities where we believe our differentiated origination platform and diversified portfolio position us well to navigate in any environment. As the credit cycle does shift, we believe our history of conservatism will enable us to outperform our peer group. I would like to take this time to reiterate our appreciation to our shareholders for their overwhelming support to approve the accelerated adoption of the modified asset coverage ratio. The resulting increased flexibility does not change our investment strategy. Rather, it meaningfully enhances our ability to grow, build the potential acquiring the structured finance businesses as we continue to broaden our diversified commercial finance platform. Importantly, the new asset coverage requirement allows us to operate with an increased cushion to the regulatory leverage threshold, which should be a significant benefit in more volatile markets. At just 0.52 times net debt to equity, we are under levered and we have substantial dry powder to deploy via our differentiated investment verticals. We believe Solar Capital has a clear path toward run-rate quarterly net investment income per share at target leverage in the low 50s from our current base of low to mid-40s today. As our earnings increase on a sustainable basis, our Board of Directors will evaluate further increase in distribution to shareholders. And 11 O'clock this morning, we'll be hoisting an earnings call for the third quarter results of Solar Senior Capital or SUNS. Our ability to provide traditional middle market senior secured financing to this vehicle continues to enhance our origination team's ability to meet our client's capital needs, and we continue to see the benefits of this value proposition in Solar Capital deal flow. Thank you for your time this morning. Operator, would you please open the line for questions.

[Operator Instructions] And your first question comes from Ryan Lynch of KBW. Ryan your line is open.

You guys spoke a little bit about the capital you guys have recently raised outside of the BDC. One of your guys -- part of your story is capital deployment was in the BDC, because you guys do have significant amount of capital, giving you guys lower leverage in the recent passage of the 2:1 leverage. So one of my concerns with the capital raised outside of the BDC is that could potentially soak up some of the capital, or I guess the fundings that could potentially be placed on SLRC's sees balance sheet. Now, you also spoke about this additional capital can open up more opportunities across the platform. Can you maybe just then further expand on how that additional capital outside of the BDC could potentially open up more opportunities for the Solar platform? And on top of that, are there any areas specifically that you guys really see that being able to really benefit whether that’s cash flow lending or ABL, or Life Sciences?

I think you do have to look at it segment by segment. I think the easiest one to address is NEF. NEF, for example, with an average loan size of $2.5 million, $2.6 million, clearly, is not capital constrained and those assets will not be shared across the platform. But I think to your point as you look at cash flow where we are a first lien and stretched first lien lender exclusively in today's market conditions and we're as you know lending to the upper mid market; mathematically, if you're making a loan to $50 million EBITDA company and they need four turns of leverage, that's $200 million loan. So the ability to take down $200 million at SLRC, we may only hold $40 million to $50 million. Again, we want to be highly diversified in each portfolio. So that would result in 2% to 3% average position, but still with the additional capital inside our fund allow us to take down that incremental $100 million, $150 million, so that the borrower sees us as $200 million providers. So I think it will be extremely relevant and we've already seen it, as I mentioned in some deals in the cash flow segment. I think additionally, as you look to both Life Sciences and ABL/Crystal, the ability for them to take larger hold sizes and I think particularly in Life Sciences where the larger hold size tends to be larger companies, which also may often be public that dovetails with this increased 30% flexibility, because as you know, large public companies greater than 250 market cap are nonqualified assets. So the combination of the scale for our Life Science team as well as our ABL team, as well as a more flexibility on the 30% nonqualified, I think it opens up a lot of opportunities for us.

I think importantly and this is becoming more and more relevant. Your counterparties, people that are borrowing money for you want you to be the full solution. And if your capital is not at the proper scale, you don't get invited to a transaction unless you can buy that full solution. So at buyback billion today, to Bruce's point, the ability between a lot of those transactions, in all those three segments that Bruce just went through, we now are positioned to become a full solutions provider, and that will only increase the deal flow we see where we have seen historically.

But we can't emphasize enough the importance of maintaining the discipline and the underlying diversity of those hold positions.

The cash flow lending portfolio continue to shrink again this quarter, which you guys have talked about that being more of an intentional move as you guys are finding that very competitive. When I look at your cash flow lending portfolio two years ago, it was over 50% of your comprehensive portfolio. As I look at it today, it's less than 30% of your portfolio. Given that the environment doesn't seem to be improving in that segment and it doesn't look like there is going to be improvement over there over the coming quarters. I mean how much more could you guys shrink that portfolio on a year or two from how could we see that being 20% or less of the overall portfolio, or does it -- there come to some point where we're stabilized -- and I don’t know if that where it is today or if you could just comment on that that would be helpful.

I think it's important to note a couple of things. First, we will see, as we mentioned, our second lien portfolio which is predominantly cash flow loans, continue to shrink. As we mentioned with the Aegis transaction, there are number of second liens that we are rotating into larger first lien -- stretch first lien holds. So you'll see that migration of the portfolio as the cash flow of mix moves to the first lien. But I think it's important to understand that during this time period, there has also been reduction by addition. And what I mean is we've added other platforms, we've grown our life sciences. As you know, that was zero just three or four years ago. We're acquired NEF last year, which is now approaching $400 million portfolio. So part of the reduction is not just the absolute dollars, it's just the expansion of the ABL businesses and specialty finance businesses. But we don't wake up and have a target for any additional segment. I think we're blessed with having diverse segments and we look at where deploying capital to where the least risk is and then where we can optimize the return.

And then just one last housekeeping one. I look at the dividend income or income upstream from NEF and so there was $3 million in Q1 and then there was $2 million Q2 and Q3. Can you just talk about is that a good run-rate to $2 million from that entity going forward? Or will that expect to go any higher up as you guys potentially grow that segment?

So I personally don't think you should focus on the dividend from the entity. We look at the equipment leasing business as a whole, because we have assets on balance sheet and assets off balance sheet, which is in the vehicle that we get dividend from. And it's a function of whether there are tax efficient leases or not. We look at the contribution as a whole through which we've disclosed, and that's what I would focus on.

Yes, because to Michael's point, the dividend from that entity has shrunk, because the assets at NEF entity has shrunk. Meanwhile, the assets on balance sheet for NEF have grown. So as Michael mentioned, we compressed the two and we look at the NEF business regardless of whether they're putting them in this 100% on subsidiary or directly on our balance sheet.

And that makes that buying number where you've seen that portfolio grow to 15% that we referenced since we acquired them a year ago.

And your next question comes from Casey Alexander of Compass Point. Casey, Your line is open.

How does the Crystal $7.5 million dividend compared to prior quarters? And given the fact that that portion of the portfolio has grown, how do you see that dividend developing over the next several quarters?

So as you may recall, the Crystal business, in particular, is a very high churn underlying asset class. That's a good thing because we get paid back quickly. It's also good thing because we accelerate fees. But it makes, Casey, difficult to smooth out on a quarter-to-quarter basis. We really look at Crystal over 12 month time periods given the duration of their assets. So, I think the short answer is the dividend has been very consistent and you'll see earnings higher and lower than that on a quarter-to-quarter basis. But I think we feel very good that it will be stable. I think the real question is if we see dislocation in the markets broadly, as we have in the equity markets as that creeps into the credit markets, we believe Crystal can grow. And when they do that over the course of a couple of quarters, you'll see that dividend grow.

And in conjunction with that, can you talk about your acquisition sourcing efforts? Obviously, you're not giving away any names or anything. But talk about your efforts and how you go about sourcing acquisitions, which might give us a feel for how long it might take you to actually execute on something?

I think that's a great question. As you know, we have a dedicated team. The team is obviously elated at the increased flexibility of Solar now with the 30% of that get expanded both by collapsing the slip and the increased leverage capability. So the team is out there constantly looking for new platforms. They are long lead time but obviously, we're constantly in dialogue. For example, Crystal, we've been talking to them for two years before they joined us in 2012. NEF we've been talking to for four years before they joined us last year. And there's a similar history with both North Mill and Gemino over our sister BDC Solar Senior. So you don't always know when it's going to be time for them and for us but we do have ongoing dialogs. And as you know, we also like to lend too many of these platforms before we bring them on and it gives us all the chance to get to know each other and also get to see other portfolios perform. So you will see more activity now that our 30% basket is open in terms of what we call lender finance where we are getting to know and lending into these companies. And as you know, we get outsized returns and are fully collateralized in those loans.

Casey, this is not a business where we can tell you what our backlog is or what amenities are, each of these are strategic acquisitions where frankly the stars in new financial line, because that'd be the right team, the right business, the right culture. And so there are more episodic than some of these you can count on semiannual basis, if you will.

Your next question comes from Chris York of JMP Securities. Chris your line is open.

So how does the approval of the reduction in asset coverage and expansion potential in your commercial finance companies affect your thinking about access in either the unsecured or convert market to lower the cost of capital of your businesses?

So as we disclosed earlier, we have enough dry powder in our unfunded revolving credit facilities, which we're borrowing at LIBOR plus 2 to 2.50 depending on the facility. And frankly that is the lowest cost from the financing we can get. So we currently have no intention of accessing those markets at this point.

But I would add as you look at our liabilities, we do have -- we have in the past accessed both the private unsecured markets as well as public IG market. And we will be opportunistic as we move forward.

And then considering the Solar owned both equity and NEF and Crystal. Is it conceivable to think that the additional origination capacity created by SICAR funds as these could increase the franchise value or valuation?

I think one of the -- we talked about earlier. But one of the biggest beneficiaries of additional capital is Crystal. Crystal has a balance sheet limited by our equity commitment. We can hold that most at Crystal $30 million to $35 million there. So this gives them the tools now to go out to market and pay $100 million to $200 million that they otherwise could have not done before. So I think it will increase originations. As Bruce mentioned, this is a high churn business. So the more originations you can do the more fees that brings into the company, which hopefully will in order to alter valuation of it.

So following up on that, so I think you guys did investment [indiscernible] in the quarter at Crystal as that an example where essentially having more capacity could allow you to keep all of that. I don't know if you've syndicated out a portion of that but just trying to think about an example?

Which investment? I'm sorry you broke up?

Indent?

The short answer is we are not today syndicating anything unless there is a strategic reason behind it. We're keeping the assets across the platform…

Where we have in the past...

Yes, syndicated…

And then do you expect to be refinanced of your core wireless loans this quarter?

Yes. As you know, they are in the market. They have launched the refinancing. So we'll see how that goes. As you know, that's one of our few remaining second lien positions. But we do like the company and our entire log in terms of how to perhaps maintain an investment there. But we'll see how that process unfolds.

And last one, what drove the sequential increase in the weighted average yield in equipment finance portfolio in the quarter, and is this change sustainable?

I think the change is sustainable. We're not expecting continued increases there, but we do think that the change is sustainable. And directionally, while as I mentioned, it can keep all of these assets on our balance sheet we have been looking at some larger loans where it has been able to drive some higher returns. And I think you'll see more of that as we move forward.

[Operator Instructions] And your next question comes from Rick Shane of JP Morgan. Rick, your line is open.

It's Melissa on for Rick today. I wanted to follow up about a practical timeline for taking advantage of this increased ability to bring on more leverage given where we are in the market cycle. How long -- it depends on the opportunities that are out there of course. But practically speaking, how long do you think it could take to get to within that target leverage range of 0.9 to 1.25?

I think in today's market environment -- you hit the nail in the head, it's not going to be cash flow lending that drives that increase. And as you know, we have leverage as a target but really drive our balance sheet composition on the liability side and the usage of liabilities is the opportunity set on the asset side. So today, I would tell you it's probably going to be slow and steady growth across our commercial finance vehicles and that's probably 12 to 18 months. I think if you see market dislocation on the cash flow side that could accelerate. I think, if we to Casey's questions, if we find an acquisition in commercial finance you could also see it accelerate.

And just follow-up on fourth quarter activity, fourth quarter can sometimes be a particularly active quarter for originations. I'm just wondered if you wanted to comment on what you're seeing so far? Thank you.

I think that throughout the year, we have seen a fair amount of activity across all of our verticals and that hasn't changed in the fourth quarter. It's really about being able to find opportunities that we are comfortable and find attractive in today's environment from not only a fundamental perspective, which generally the fundamentals extremely strong both within our portfolio and in the market, broadly speaking, but more so on the structures and the underlying terms of the investments. And that hasn't changed materially, but we continue to be active. I wouldn't say it's any different from the prior quarters.

Your next question comes from Christopher Testa of National Securities. Christopher, your line is open.

Just on top of the detail given on the Solar platform expanding nicely. Looking at the cash flow lending side, I know you guys had mentioned that ABL and life sciences this will be big beneficiaries. How do you see this as a potential to drive better pricing power for you guys being able to provide certainty of close and have larger hold sizes?

I think it's also not just pricing, the pricing on the margin, but it's really driving what's near and dear to our heart, which is less risk. And that means driving better structures, because on the margin the buyers will accept it if you're delivering certainty for size. We generally don't try to just squeeze out the last nickel, but do want to take down the risk. And as you know, we believe historically in all of our segments bigger has been safer as you look at the credit cycles. So, I think for us it's really going to be more about driving lower risk and then also getting large holds, because as Michael mentioned we're expanding our opportunities by having the balance sheet to take down these larger positions. And so we're not abandoning what we already do very well, but we're expanding our opportunities with this increased scale.

And what the commitments rate is across Solar Capital Partners? Are those somewhat side load or off into different segments or are they just generally run as SLRC is run where are you guys could invest in any loan throughout your verticals in the private capital?

It's the latter. Essentially the capital we've raised, the funds we grew to being created some 50, really invest across the platform basis. So we'll not invest, as Bruce mentioned earlier, in like equipment leasing from that because those loans are too small or loans where Gemino on the healthcare lending side or North Mill loans, which are both at SUNS. But the sense of these that we'll be lending life science asset based lending and cash flow.

And Crystal, the yield was up about 30 basis points, I guess, year-over-year. I know that's not much. But is there some prolonged stress in the retail sector that we need to see before yields could potentially pickup even more?

I think it's not the retail sector, I think it's more the economy in general. I think we're happy that we see the portfolio grow to greater than $500 million in a very benign credit environment. If you think about Crystal's business when we do hit a more difficult economy of more different finance environment, the need for that capital grows dramatically. And we are sourcing to take advantage of that, because while those companies will exist and people probably done their portfolios. At that point, not only we see demand growth but you'll see spreads widen as well. So we're excited for that eventual counter.

And do you guys have thoughts on the timing of potentially collapsing and rolling the SSLP facilities into one?

Well, we have consolidated them onto our balance sheet and we're just looking at how to optimize the individual credit facilities. I think that's something we'll be addressing over the next quarter or so.

[Operator Instructions] And your next question comes from Finian O'Shea. Your line is now open.

Just to continue on cash flow on outlook with the SSLP collapse. Can you just give color on if you'll expect the current split to hold, understanding that you'll do what makes more sense obviously. Do you have an intention to keep a blend of senior and stretched senior as we think about the yield composition in that cash flow book?

I think importantly the collapsing of those vehicles and getting the approval to increase leverage does not change at all the target companies that we're looking to do in the cash flow space or frankly any space. So you're going to see more the same, stretch first lien and first lien and similar pricing that we've been doing historically. That's not going to change.

And then just a bit more on the nature of the deal. I think, Bruce, talked about a hypothetical $50 million where you can all to $100 million. Understanding you have a larger dedicated cash flow lending capital base, it does seem to drift from your historical larger middle market club deal, correct me if I'm wrong. But is this a new line of work, if you will, in terms of what deals you're targeting to do?

If you think about the borrowers, we're still going to the same borrowers then than we have. We've always been at this upper mid market for the last 12 years since inception, average EBITDA of $65 million to $75 million that continues to be the same. The markets though have evolved, as you know, in direct lending and with the pull back of the banks post credit crisis. So that if you're an upper midmarket company years ago and you were borrowing $200 million, they would club several one of us to gather five or six of us and a bank or two, and so everyone is holding $25 million. Today, that's not the case. Today, as Michael mentioned, same borrowers that we've always underwritten are looking for fewer providers and the banks aren't generally providers, because they don't want to hold the risk on the balance sheet. So to get invited to these opportunities, we have to have the balance sheet to hold $200 million. Rarely will they let us take the entire $200 million. They typically will put two or three of us together. But again, you won't see the opportunity unless you have the balance sheet to take down $200 million. And then you'll end up, as I said in my example, holding $75 million or so each across three of you. And so that's -- to maintain the relevance at that upper mid market, you need increased scale than you did many years ago. And as you know, there are only a handful of us that have it.

And then on the on the earnings ramp eventually to the mid 50s outlined in opening remarks. I think in Melissa's question, you mentioned 12 to 15 months. Is that the same topic there? And then tacking on to that as you ramp in the specialty finance. What level of origination in those verticals are you able to grow -- incrementally add-on to what we've been seeing now that the runway is clear for that?

So, yes. As I mentioned, it was 12 to 18 months. And I think the advantage is that we have four different verticals. We don't need all four of them to be offering good growth prospects at a given point in the cycle to grow in totality. The commercial finance businesses are a little bit more a steady drip in part because they have steady amortization, so we're always getting repaid. Whereas cash flow deals are a little lumpy around the repayments. But the flip side is we are, to your point, seeing nice steady growth across those verticals. And I think the increased flexibility from the modification of our leverage, the opening up of our 30% non-qualified bucket, which many of those assets are used in, I think you'll see consistent growth in that 12 to 18 months. Today, we would say most of it will come from commercial finance rather than cash flow. I think it's really important to step back and understand in this environment where every single cash flow lender that you and we respect is saying the same thing, structures are scary. If you look back over the last 20 years and you look at average annual default rates in cash flow lending, it averages about 3.5% a year. In asset based lending, it's just over 1% a year. And it's extremely stable. There's no spikes in defaults in ABL lending the way there were in cash flow back in '08. And if you look at actual losses over the last 20 years, cash flow loans at average annual losses of just over 1%, really attractive as an asset class. But guess what, asset based loans have an average loss on an annual basis of 50 basis points. So we are going to continue in this environment where everyone is nervous about structures and cash flow lending to emphasize our commercial financial businesses. But we know having done this for 30 years that times will shift and it will be a much better opportunity to deploy capital and cash flow lending once TIF and structure comes back into the documentation, because the fundamentals are phenomenal. And so that's really what's driving our asset mix, and obviously and negatively the growth that you asked about but I think 12 to 18 months borrowing dislocation, which will help us to deploy capital. And borrowing a new strategy on platform is a fair target.

And just one more small modeling question, we see a bit of a drop in G&A this quarter, combining both G&A items. Is this something -- and apologies I am forgetting, something that was there. Was there something driving higher rates recently or is this something that we should see bounce back?

Let me take the first piece. I would say that expenses did come in a little bit lower this quarter. Nothing really that was non-recurring. But I would think they've inched up a little bit, because those seen some natural growth in the portfolio and the 100% of it doesn't translate. But ultimately, I think that year-over-year the numbers are fine. Quarter-over-quarter it could actually 100 grand to 200 grand. But that also depends on the end of the excess tax estimates, because as you know, we've been overrunning our dividend pretty significantly. So there is some accruals in there for taxes that may or may not happen based on the underlying businesses that we have in their book versus taxable income. So, there is not much more and nothing to say higher or lower. But I would say they've they inched up a little bit more from where we were for Q3.

[Operator Instructions] And we have no further questions at this time. So I'll turn the call back over to Michael Gross, Chairman and Chief Executive Officer. Please go ahead.

We thank you for your time this morning and all the great questions. And we look forward to those of you who are participating on our Solar Senior call to talking in about four minutes. Bye, bye.

And this does conclude today's conference call. You may now disconnect.