Good day, and thank you for standing by. Welcome to the Q3 2021 SLR Investment Corp. Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Michael Gross, Chairman and Co-CEO. Thank you, and please go ahead.

Thank you, operator, and good morning, everybody. Welcome to SLR Investment Corp.'s earnings call for the third fiscal quarter ended September 30, 2021. I'm joined here today by Bruce Spohler, our Co-Chief Executive 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.

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 SLR Investment Corp., and that any unauthorized broadcast in any form are strictly prohibited. This conference call is being webcast from the Investors tab on our website at www.slrinvestmentcorp.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, including impacts from COVID-19. Past performance is not indicative of future results. Actual results may differ materially as a result of a number of factors, including those from time to time in our filings with the SEC. SLR Investment Corp. undertakes no duty to update any forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website or call us at 212-993-1670. At this time, I'd like to turn the call back to our Chairman and Co-CEO, Michael Gross.

Thank you, Rich, and again, good morning, and thank you for joining us. The third quarter and the fourth quarter thus far have been an active period for origination teams, including those at SLRC specialty finance subsidiaries. In particular, our sponsor finance business has had a very strong quarter. Against the backdrop of the continued economic rebound and record levels of private equity and leverage finance activity, our pipeline has been extremely robust. During the quarter, we directly and indirectly originated $358 million of investments, our largest total, excluding platform acquisitions in the past several years. We've been able to remain highly selective while generating portfolio growth. Net asset value per share for the quarter ended September 30 was $20.20. And for the third quarter of 2021, our net investment income was $0.36 per share. At September 30, over 99% of our comprehensive investment portfolio was invested in senior secured loans, and 77% of the portfolio's fair value was allocated to our specialty finance investments. Our most recent commercial finance acquisition, Kingsbridge is performing well above our expectations. Our other specialty finance subsidiaries continue to rebuild their portfolios following their trough utilization levels resulting from government stimulus and other COVID-induced challenges. SLRC's leverage at September 30 was 0.79x net debt to equity. Elevated levels of investment activity have continued in the fourth quarter based primarily on a few investments funding post-quarter end, our net leverage at November 1 would be 0.9x. We believe that as existing loan commitments are funded and additional investments currently being underwritten are closed over the next couple of months, SLRC will approach the midpoint of its target range of 0.9x to 1.25x net debt to equity. During the third quarter, we issued $50 million of five-year private unsecured notes at 2.95%. As a result, now…

Thank you, Michael. SLR Investment Corp.'s net asset value at September 30, 2021, was $853.5 million or $20.20 per share compared to $857.4 million or $20.29 per share at June 30, 2021. At September 30, 2021, SLRC's on-balance sheet investment portfolio had a fair market value of $1.62 billion in 106 portfolio companies across 33 industries. This compared to a fair market value of $1.50 billion in 101 portfolio companies across 27 industries at June 30, 2021. At September 30, the company had $718 million of debt outstanding with leverage of 0.79x net debt to equity. When considering available capital from the company's credit facilities, together with available capital from the non-recourse credit facilities at SLR Credit Solutions, SLR Equipment Finance, and Kingsbridge. SLR Investment Corp. had significant available capital to fund future portfolio growth. Moving to the P&L. For the three months ended September 30, 2021, gross investment income totaled $32.2 million versus $35.6 million for the three months ended June 30. Expenses totaled $17.2 million for the three months ended September 30, 2021, and this compares to $20.1 million for the three months ended June 30, 2021. Accordingly, the Company's net investment income for the three months ended September 30, 2021, totaled $15.0 million or $0.36 per average share, compared to $15.5 million or $0.37 per average share for the three months ended June 30. Below the line, the company had net realized and unrealized losses for the third fiscal quarter totaling $1.6 million versus net realized and unrealized gains of $3.0 million for the second quarter of 2021. Ultimately, the company had a net increase in net assets resulting from operations of $13.4 million or $0.32 per average share for the three months ended September 30, 2021. This compares to a net increase of $18.6 million or $0.44 per average share for the three months ended June 30, 2021. Finally, our Board of Directors declared a Q4 2021 distribution of $0.41 per share payable on January 5, 2022, to shareholders of record on December 16, 2021. And with that, I'll turn the call over to our co-CEO, Bruce Spohler.

Thank you, Rich. SLRC's strong portfolio performance supports our underwriting thesis of investing at the top of the capital structure and first lien cash flow loans to upper middle market borrowers in non-cyclical industries, as well as allocating a significant portion of our exposure to collateralized loans through our specialty finance verticals. At quarter end, SLRC's comprehensive portfolio was just over $2 billion and remained highly diversified, encompassing over 600 issuers across 75 industries. Our largest industry exposures where healthcare providers, diversified financials, Life Sciences, and software. At September 30, over 99% of our total portfolio consisted of senior secured loans. Of those loans, approximately 95.5% were first lien and only 3.8% were second lien. Of the 3.8% second lien loans, 2.3% were cash flow, and 1.5% were asset-based loans benefiting from borrowing basis. At quarter-end, our weighted average asset level yield was 9.9%, up slightly from the prior quarter. By focusing on our niche commercial finance verticals, we've been able to maintain asset-level yields close to 10% despite a decrease in LIBOR and spread compression. Notably, we've been able to maintain these yields while actively reducing our exposure to higher-yielding second lien cash flow investments. At quarter-end, the weighted average investment risk rating of SLR's portfolio was under 2 based on our 1 to 4 risk rating scale, with 1 representing the least of amount of risk. Total originations for the third quarter were $358 million, and repayments were $260 million. In addition, we had approximately $150 million of unfunded investment commitments outstanding at quarter-end, which we expect to fund over the next couple of months. Now let me provide an update on each of our investment verticals. SLR sponsored finance, our cash flow vertical. At September 30, our sponsor cash flow book was $456 million or approximately 23%…

Thank you, Bruce. In closing, the third quarter on the heels of a strong first half represented a robust origination period for SLRC, with several of these investments funding in the fourth quarter. In particular, our sponsor finance team capitalized on a strong opportunity set in our core industries. We are optimistic about our earnings growth potential and the opportunity set across each of our investment verticals. With the economic recovery in full swing, and our portfolio on solid footing, we are focused on deploying our available capital into attractive investment opportunities. Across our investment strategies, which span cash flow, ABL, Life Sciences in addition to Equipment Financing and Corporate Leasing, we are seeing robust origination activity, which would translate into continued portfolio growth in the coming quarters. We believe we are still in the early innings with substantial runway as financial sponsors deploy record amounts of dry powder and more of the larger businesses we prefer to lend to choose direct financings over syndicated debt markets. These industry tailwinds, combined with the scale of our investment adviser, should benefit SLRC investors through greater access to upper-middle market cash flow investment opportunities, which last year has proven, are better-positioned to protect capital than most smaller companies. Additionally, we are reaping the benefits of our scale advantage in our cash flow, Life Science and ABL verticals. We have access to ample low-cost capital with which to fund portfolio growth. As we continue to grow the portfolio, we believe NII will return to covering the dividend. At 11:00 this morning, we will be hosting an earnings call for the Q3 2021 results of SLR Senior Investment Corp. or SUNS. Our ability to provide traditional middle market senior secured financing through this vehicle continues to enhance origination team's ability to meet our clients' capital needs, and we continue to see benefits of this value proposition in our deal flow. We thank you for your time. Operator, could you please open the line for questions.

[Operator Instructions]. Our first question comes from the line of Melissa Wedel of JP Morgan.

I wanted to clarify first. You mentioned $150 million that I believe it's committed, but you expect to fund over the next couple of months. I am taking that as by year-end. Is that a fair assumption?

That's probably a little faster than we would anticipate, Melissa. I think it's more likely over the next the three or four quarters. It's a little bit unpredictable only because these are generally acquisition lines that we don't get a lot of for warning at the time of draws. It's usually only a couple of weeks in advance. But it's important to note that that's just what's been committed to on an unfunded basis that will be drawn down. We also have additional fundings during the fourth quarter that we do expect to get funded. So, it's a combination of these unfunded lines and new funded investments that will be coming on this quarter. So, you'll probably get to the same result, but it won't be just from the usage of those unfunded lines this quarter.

And then as a follow-up, I want to think about as that increase in leverage occurs within the portfolio. I'm trying to size the impact on NII because if I done the back of the loan math right, it seems like maybe some of those unfunded amounts are skewed a little bit more towards the lower-yielding categories, the cash flow loans and some others. Is that my -- I thinking about that the right way?

So, that's a great question. I would say that the -- it's a mixture. It is skewed there, but it is also inclusive of ABL as well as Life Science, which, as you know, are higher yielding. So, we generally think it will blend out to the portfolio yield that we carry today when you look across the mix. And to put in perspective, virtually all of our net originations this quarter weren't cash flow. And our portfolio yield went from 9.7% to 9.6%. So, it was a 10 basis point move - not significant.

We have a question from Matt Tjaden of Raymond James.

So, first one for me on the interest income line. So, down quarter-over-quarter even with portfolio growth and sounds like yields were flat. Any noise in that line item we should be aware of this quarter, or was that purely just a function of origination and repayment timing?

Sure. Yes. I think, first of all, Q2, we did have more repayment income, some of the life science investments in particular. As you know, as those repay generate a lot of fees at repayment, be it OID, prepayment fees, warrants, etc. But also in Q3, as we discussed, most of the activity funded late in the quarter and in fairness in October and the beginning of Q4. So, there's definitely a timing element as well.

Second one for me on the cash flow segment. So, I've been a couple of theme over the last couple of quarters. Expectations for 2022 in the cash flow segment, do you -- sitting here today, do you expect continued growth in this segment in 2022, or a flattening after growth this quarter and the next?

Well, look, today it's about 23% of the portfolio. To Melissa's questions, there is continued cash flow portfolio growth that will just come from drawing down the acquisition line commitments that we've already made. So, we do see some additional growth there. But again, in the context of the overall business, we are seeing volumes pick up across each of our verticals. So, I don't think the mix will shift much. We expect growth in cash flow, but I would not call it disproportionate to the broader portfolio, maybe get to 25%, 26%, but not a significant change in the mix, just overall growth across the segments.

And last one for me, just on pipeline and target leverage. Based on fundings quarter-to-date, is it your expectation to achieve the midpoint of the target range in Q4, or is that something more so in early 2022?

So, I would say that the following. We had expected to achieve the 0.9 at September, we ended up achieving October. So, whether it's going to be late Q4 or early Q1, it's hard for us to say. But I would say, just because, as you know, in the deal business, things get shifted a month here or there. It's a little bit of a dynamic process. But I would say, over the next few months, we do expect to get to that midpoint.

[Operator Instructions].

If you have no other further questions, we thank you for your time this morning. And for those of you who will be on our call for SLR Senior, we'll talk to you in 25 minutes.

This concludes today's conference call. Thank you for participating. You may now disconnect.