SLR Investment Corp. (SLRC) Q2 2022 Earnings Report, Transcript and Summary

Good day, everyone and welcome to the Second Quarter 2022 SLR Investment Corp. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note, this call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the call over to Mr. Michael Gross, Chairman and Co-CEO.

Thank you very much, and good morning. Welcome to SLR Investment Corp.'s Earnings Call Second Fiscal Quarter ended June 30, 2022. 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 by covering the webcast and forward-looking statements.

Sure. 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 expressly prohibited. This conference call is being webcast from the Investors tab on our website at slrinvestmentcorp.com. For your 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 described from time to time in our filings with the SEC. So 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 it at (212) 993-1670. Comments on today's call include forward-looking statements reflecting our current views with respect to SLRC's acquisition of SUNS, any expected synergies and savings associated with the merger, the ability to realize the anticipated benefits of the merger, our future operating results and financial performance and the payment of dividends going forward. Please specifically note that the amount and timing of past dividends and distributions are not a guarantee of any future dividends or distributions for the amount thereof, the payment, timing and amount of which will be determined by SLR Investors Corp. Board of Directors. With that, I'd like to turn the call back to our Chairman and Co-CEO, Michael Gross.

Thank you, Rich. Good morning and thank you for joining us. We are pleased to share that on today's call, we will be reporting the second quarter 2022 combined operating and financial results of SLRC and SUNS. As a reminder, on April 1, SLRC completed its acquisition of SLR Senior Investment Corp., or SUNS. We thank our investors for the support of the merger. Integration has been smooth and our efforts to realize synergies and the benefits of a larger, more diversified company are well underway. Last night, SLRC reported net investment income of $0.30 per share for the second quarter of 2022, up from $0.35 per share in the prior quarter. Net asset value at June 30, 2022 was $18.53 per share. Approximately 1/3 of the reduction in net asset value for the quarter is a result of merger accounting from the purchase price discount. The remainder of the decline was largely attributed to unrealized losses due to the impact of mark-to-market changes in the portfolio and write-down delay to three borrowers, two of which represent our remaining two second lien cash flow loans originated several years ago prior to our shift to investing solely in first lien senior secured loans. Outside of these investments, our portfolio is performing extremely well. With the close of the SUNS acquisition in the second quarter, our comprehensive portfolio has grown by $700 million to approximately $2.7 billion and now includes five specialty finance companies, resulting in a more broadly diversified portfolio with the potential for greater synergies and opportunities across our lending strategies. Additionally, our increased scale enabled us to pursue additional commercial finance investments, including platform acquisitions and asset purchases. Against the volatile market backdrop during the second quarter, the Company originated $275 million of new investments and had repayments of $199 million, excluding SLRC's acquisition of the SUNS portfolio. Terms on sponsored finance loans have become more attractive and our specialty finance businesses, which flourished during turbulent market conditions are also seeing an attractive opportunity set and have the available capital to take advantage of the investment climate. The unfolding geopolitical events, continued supply chain issues and labor shortages and a far more aggressive tone from the Fed in reaction to accelerating inflation has injected a dose of uncertainty and volatility in the global equity and credit markets. Economic concerns have dislocated the syndicated loan and high-yield markets and led banks to retreat from leveraged lending. Pricing volatility and deep trade discounts in these markets reflects the increased credit risk from tight pricing, compromised structures and loose documentation of broadly syndicated loans underwritten prior to the second quarter of 2022. However, private direct lending deals continue to be heavily negotiated with tight structures and access to deep dive private equity sale diligence. With the recession potentially looming and continued rising rates, middle market private credit is a source of relative stability and potentially high returns. SLRC is uniquely positioned to capitalize on this opportunity. As a result of our defensive portfolio and conservative underwriting, we have successfully navigated the COVID-19 pandemic. Now we believe our combined business is well positioned to not only weather the forthcoming economic challenges, but to capitalize on the more attractive investment environment for several reasons. First, enhanced by SLRC's acquisition SUNS, our portfolio is highly diversified across cash flow loans and non-cyclic industries and asset-based loans. At June 30th, 97.2% of our comprehensive best portfolio was invested in first lien senior secured loans, which provide greater downside protection during recession. Secondly, we have ample dry powder to take advantage of investment opportunities with terms more attractive and available a year ago. At June 30th, our leverage was 0.96x net debt to equity near the low end of our target leverage range of 0.9x to 1.25x. At June 30th, including available credit facility capacity at our specialty finance company and subject to borrowing base limits, SLRC had ample available capital to take advantage of the current attractive investment environment. We are seeing investment opportunities with less leverage and higher yields than loan structured during the recent period of COVID-19-related government stimulus. Recession-resilient sectors in which we specialize continue to perform well, with financial sponsors focused on deploying their dry powder into new platform buyouts as well as existing portfolio companies via add-on acquisitions. During uncertain economic times, borrowers increasingly turn to asset-based lending strategies with provider invested with greater debtor protection across economic cycles. In particular, our Credit Solutions business has historically outperformed during challenging market conditions when asset which companies as the traditional lending sources is constrained. Thirdly, our funding profile is in a strong position to weather a rising rate environment with $506 million up to $1 billion of funded debt comprised of senior unsecured fixed rate notes at a weighted average annual interest rate of 3.9%. During the second quarter, we were paid at par the $150 million of maturing senior unsecured notes, which had a weighted average annual interest rate of 4.5%. We pre-financed the approaching maturity of these notes at an average rate of 3.2%. Additionally, we are currently working with a strategic partner to structure an off-balance sheet joint venture to optimize the financing of lower-yielding first lien senior secured cash flow loans, initially those that we acquired from SUNS, expecting utilizing financing facility before year-end. Fourth, we plan to further reduce our overall cost of capital through share repurchases under our $50 million share repurchase program authorized for adoption by our Board of Directors. Due to the threat of further deteriorating market and economic conditions as the Fed works to tame inflation, and we have not yet been active with this buyback program. However, we are committed to utilizing the program and believe that our patients will translate in the ability to invest in our own portfolio at attractive discounts. The current share price is an attractive entry point, significantly more so than we first announced the buyback plan. We intend to put in place a 10b5-1 program to facilitate the ability to buy our shares at attractive levels. As outlined in our merger proposal, our plan expense reductions already underway should create shareholder value as will benefit the Company throughout market cycles. In conjunction with the merger of SLR Capital Partners, the investment buyer the SLRC permanently reduced the annual base management fee by 25 basis points from 1.75% to 1.5% on gross assets. The contractual step out of base management came 1% on gross assets above 1:1 leverage still remains in place. We've also eliminated duplicative administrative expenses. Bolstered by acquisition of SUNS, we are well positioned to not only under the economic challenges ahead but also take advantage of the more favorable investment environment that accompanies market disruptions. At this time, I'll turn the call back over to our CFO, Rich Peteka to take you into second quarter financial highlights.

Thank you, Michael. SLR Investment Corp. net asset value at June 30, 2022, was $1.02 billion or $18.53 per share compared to $826.4 million or $19.56 per share at month 31, 2022, prior to the closing of the merger with SLRC Investment Corp. At June 30, 2022, SLRC's on-balance sheet investment portfolio had a fair market value of approximately $2.0 billion in 127 portfolio companies across 40 industries compared to a fair market value of $1.63 billion in 101 portfolio companies across 33 industries at month 31, 2022. At June 30, 2022, we had investments in three portfolio companies on nonaccrual, representing 4% of the portfolio like cost and 0.6% at fair market value. At June 30, the Company had approximately $1 billion of debt outstanding with leverage of 0.96x net debt to equity. When taking into consideration the available capital from the Company's combined credit facilities, together with available capital from the non-recourse facilities at SLR Credit Solutions, SLR Equipment Finance, Kingsbridge, SLR Business Credit and SLR Healthcare ABL. SLR Investment Corp. has significant available capital to fund future comprehensive portfolio growth. Moving to the P&L. For the three months ended June 30, 2022, gross investment income totaled $42.8 million versus $33.0 million for the three months ended March 31, 2022. Net expenses totaled $22.5 million for the three months ended June 30, 2022. This compares to $19.5 million for the three months ended March 31, 2022. As previously stated, the investment manager did not include an incentive calculation to purchase discount accretion created by the Company's asset acquisition accounting under ASC 805-50. Accordingly, the Company's net estimated income from for the three months ended June 30, 2022, totaled $20.3 million or $0.37 per average share compared to $13.5 million or $0.32 per average share for the three months ended March 31, 2022. Below the line, the Company had net realized and unrealized losses for the second fiscal quarter totaled $35.9 million versus realized and unrealized losses of $12 million for the first quarter of 2022. Ultimately, the Company had a net decrease in net assets resulting from operations of $15.6 million or $0.29 per average share for the three months ended June 30, 2022. This compares to a net increase of $1.5 million or $0.04 per average share for the three months ended on 31 2022. Finally, on August 2, 2022, the Board of Directors declared a monthly distribution of $0.13 667 per share payable on September 1, 2022, to holders of record as of August 18, 2022. During the second quarter, SLRC made three monthly distributions totaling $0.41 per share. With that, I'll turn the call over to our Co-CEO, Bruce Spohler.

Thank you, Rich. With this being our first quarterly report following the acquisition of SUN, I'd like to begin by providing an overview of the combined portfolio. At June 30, the combined comprehensive portfolio consisted of approximately $2.7 billion of senior secured loans. Across 780 distinct issuers over 100 industries. The average exposure was $3.5 million or 0.1% of the total portfolio. At quarter end, 99.8% of the portfolio consisted of senior secured loans with 97.2% being in first lien loans and only 0.4% in second lien cash flow loans with the remaining 2.2% in second lien asset-based loans. Portfolio now includes all five of our specialty finance businesses, which account for 76% of the fair value of the comprehensive portfolio, with the remaining 24% committed to senior secured cash flow loans. At quarter end, our weighted average asset level yield was 9.6%. At quarter end, the weighted average investment risk rating of the portfolio was under two based on our one to four risk rating scale, with one representing the least amount of risk. Now let me turn to our investment strategies, which we now categorize in four distinct asset classes. The first is cash flow loans to upper mid-market sponsor-backed companies. The second is asset-based loans, which includes the underlying portfolios of Credit Solutions, Healthcare ABL and Business Credit. The third segment is life science loans, which are made to venture capital back late-stage drug and medical device companies. And the fourth is our equipment finance strategy, which includes both Kingsbridge and equipment finance. Now let me provide a brief update on each of these verticals. In our cash flow business, we originated first-lien senior secured loans to upper mid-market companies in noncyclical industries, with our largest industry exposure being health care, diversified financials, life sciences and recurring software. In response to deteriorating market conditions, sponsorship begun price discovery conversations with us and other lenders for new financings, we are seeing a 200 basis point widening of returns in the first quarter level, subject to the level of risk of the individual credit. This increase in yield is through a combination of both spread and original issue discount. Sponsors also recognize at leverage levels for new financings will likely be coming down by at least a half to a full turn of leverage. Lenders are requiring borrowers to have an adequate cushion in the downside scenario to meet their fixed charge and debt service requirements. We expect our second half '22 cash flow investment to have higher yields at lower levels, even in the defensive sectors that we invested. At quarter end, our cash flow portfolio was $646 million or just under 24% of the total portfolio and was invested across 45 companies. The average EBITDA for this portfolio at quarter end was $108 million. The weighted average interest coverage was above 3x at 3.1x. During the quarter, we originated $72 million of new investments and experienced repayments of $10 million. The weighted average yield for this cash flow portfolio was just over 8%. However, today, it is higher given the increase in rates in the interim period. Now let me touch on our ABL segment. Again, this consists of three underlying asset-based verticals. Credit Solutions provides collateral-backed loans to asset-rich companies in transition. This asset class requires expertise in valuing and monitoring collateral. Historically, the strategy has outperformed during periods when traditional lenders such as banks retreat. Credit Solutions, therefore, provides some counter cyclicality to our platform. The team has seen an increase in their pipeline, which should continue to build if market conditions continue to be volatile. We are extremely optimistic about this activity over the coming quarters. Business Credit provides asset-based loans collateralized predominantly by receivables as well as factoring facilities. Similar to the Credit Solutions team, they have long-standing experience in valuing and monitoring the underlying collateral that they lend against. Last year, they acquired Fast Pay, which is a factoring business dedicated to the digital media industry. This acquisition has outperformed our expectations and has contributed to the growth in business credit portfolio, which is currently at an all-time high. Healthcare ABL is similar to Business Credit but solely focuses on the health care sector. Portfolio remained healthy during COVID pandemic of 2020. However, the government's massive capital infusion into that sector caused many of healthcare's borrowers to pay down their credit lines temporarily. This dynamic is beginning to reverse itself, and we're starting to see continued growth in the portfolio and expect so during the rest of this year. And finally, our lender finance business also makes asset-based loans, however, to other commercial finance companies with their collateral being underlying commercial finance loans. We've begun to see improvement in terms in this market as banks continue to be less active. At quarter end, the total asset-based portfolio was $857 million, representing just under 32% of our total portfolio and was invested across 176 borrowers. The weighted average asset level yield in this portfolio was 10.4%. For the quarter, we originated just under $100 million of new asset-based loans and had repayments of just over $50 million. Moving to Equipment Finance. This segment consists of both our Equipment Finance business and our Kingsbridge business. Kingsbridge provides leases for essential use equipment to a diverse set of primarily investment-grade borrowers. Supply chain constraints has somewhat dampened the size of their investment pipeline has begun to lose it. Recently, we're seeing increased pipeline and expect to see increased growth in their portfolio over the next couple of quarters. Equipment Finance provides financing for mission-critical equipment across a variety of industries. This business slowed during the hype of COVID with some of the industries such as tour buses impacted severely by lockdowns. We have focused over the last couple of years on reducing risk in our portfolio and the business is extremely well positioned now to weather a potential recession. Additionally, the portfolio is benefiting from rising asset values during inflationary periods. Earlier this year, we announced the appointment of a new CEO for this division. He brings over 30 years of experience in the equipment finance industry, and that includes over 25 years of vendor financial focus expertise. He is currently positioning the business for growth, and we expect to see continued earnings momentum into year-end. At quarter end, the senior secured equipment finance portfolio totaled just under $900 million, representing 33% of our total portfolio and was invested across 542 borrowers. The weighted average asset level yield for this portfolio was just under 10%. For the quarter, we originated over $100 million of new loans and had repayments of $90 million. Finally, let me touch on our Life Science finance business. At June 30, our portfolio totaled just under $300 million, consisted of 14 borrowers and over 96% of the portfolio has over 12 months of cash runway, a critical metric for these investments. Life Science loans represent 11% of our total portfolio, yet contributes 25% of the gross investment income for the quarter. For the second quarter, the Life Science team committed $36 million of new investments and funded $3.5 million of those. We also had repayments and amortization totaling $46 million. At quarter end, we had undrawn commitments in the Life Science segment of $138 million. $47 of the million of those have already been funded during the quarter to date. Additionally, the Life Science finance team currently has a robust pipeline, which we expect to fuel additional life science growth during the rest of '22. At quarter end, the weighted average yield on this portfolio was just under 10.5%, excluding additional success fees and warrants, which contributed significantly to these returns historically. In conclusion, we see a continuation of the investment themes that have been driving our portfolio over the last few years, focusing our new origination activity on first lien cash flow loans to portfolio companies that operate in defensive sectors and increasing our investments in specialty finance assets, where we are able to get tighter structures and more attractive risk-adjusted returns. Across all of our asset classes, we see improved investment opportunities and expect current negative market sentiment to continue to translate into better terms across all of our asset classes. Given the current uncertainties and market volatility, it is important that we remain disciplined, opportunistic and highly selective in our investments. Now I'll turn the call back to Michael.

Thank you, Bruce. In closing, we believe that SLRC bolstered by its acquisition of SUN is well positioned in aluminum recession and continued market disruption. Our conservative underwriting approach focused on first lien senior secured cash loans and non-cyclic sectors and asset-based loans with significant collateral coverage that ended up during the COVID-19 pandemic, which should likewise enable us to weather future economic challenges. With our increased scale and managing cash flow, life science and our ABL verticals as well as our expertise in underwriting asset-based loans during periods of market turmoil, we currently have a sizable investment pipeline and intend to be opportunistic if market conditions decline further. Additionally, we believe the merger and resulting scale potentially makes the better acquirer and strategic buyer of specialty finance businesses. Through a combination of cost synergies, optimize or specialty fine companies, more attractive terms on our new investments are available a year ago, the $50 million share repurchase program and the impact of rising rates on our portfolio yields, we are expecting to fully cover our distribution within a couple of quarters. This revised forecast is an acceleration of our NII projections at the time of our merger announcement last December. Separately, if interest rates were to move another 100 basis points or 200 basis points, the portfolio at June 30, 2022, would generate $0.08 per share and $0.18 per share of incremental net investment income, respectively, on an annualized basis. Our investment advisers the alignment of interest with the Company's shareholders continues to be one of our guiding principles. The SLR team owns approximately 8% of the combined entity and has a significant percentage of their annual incentive compensation invested in SLRC stock. The team's investment alongside SLRC shareholders demonstrates our confidence in the Company's defensive portfolio, cable funding and favorable position to recap the expected to reach the expected benefits of the merger. We thank you for your time today. Operator, would you please open the line for questions?

[Operator Instructions] And we will take our first question from Robert Dodd with Raymond James. Your line is open.

Hi, guys and congrats on getting the merger closed, et cetera. So two quick questions, if I can. First, on -- you mentioned the formation of a JV to shift. Potentially ship the SUNS' asset and some of the lower-yielding fund assets into. Can you give us by year-end, can you give us any more color there? I mean is it intended to be a temporarily measure to house those assets or a permanent addition to the portfolio allocation going forward and permanently? What rough scale would you be targeting there?

Sure. So as you may recall, we have had vehicles like this in the past as SLR at SUNS in its prior incarnation. So it is something we expect to open before year-end. We will ramp it over time, but we do have as you know, with the acquisition of SUNS portfolio, some of the lower, I wouldn't say low, but lower yielding cash flow assets, which are very efficiently financed in these JV vehicles. And so that is something that we're seeking to set up. I would say we expect it to be a long-term part of the business model, given the combined portfolios of SLR and SUNS because, as you know, we do get to that 10%-plus type of return on the portfolio by barbelling some of these lower return cash flow assets with the higher return specialty finance, which today on a blended basis will be higher. But we do expect this to be something that we'll be lagging into starting second half of this year.

Got it. On Life Sciences, I mean, obviously, you've deployed a significant amount on the late growth after quarter end. I presume in Q2, there were limited success fees. Can you give us any framework to think about? When do you think the success fees could start flowing back into income? Obviously, they have historically been quite meaningful contributors occasionally, in a really choppy market where people are borrowing instead of refining, give us any thoughts on that.

Yes. I mean I think that's a great point. The portfolio is now up to close to $300 million. As we mentioned, there are still undrawn commitments to be drawn in addition to those that were drawn post quarter end. But that headwind of repayment, which is, to your point, what generates those repayment fees has definitely slowed down a little bit given the volatility in the public equity markets, which very often can be very attractive capital for these companies. Today, they're borrowing a little bit more. So it's a double-edged sword. The good news is we're going to be growing this portfolio, and we'll keep the good assets a little bit longer. The way they are structured is it's not like a typical cash flow loan where your back-end fees and warrants tend to decline in value over time. They're still out there. This is not just the call protection. These are exit fees on repayment regardless of when that is. So we'll get a little bit more duration. Those fees are still embedded in the portfolio, and we will continue to come into NII episodically. But I would say given the volatility, it's a little slower, but the good news is we'll get a nice yield out of a growing portfolio.

Got it. Thank you. And if I can, just one quick. You talked about on pipelines are building and robust and a couple of things. On the equipment side, particularly the leasing of the larger equipment, with the building interest there, is the supply chain functioning well enough that you can actually -- is the supply chain functioning enough that, that pipeline build can actually be on-boarded?

That's a great question. I would say if you had our team leaders on this call, they would say early days, but it's starting to. They still think it's going to take a good 12 months to work through the system so that they can actually fund the purchases of this equipment, but it is definitely starting to.

We will take our next question from Melissa Wedel with JPMorgan. Your line is open.

Good morning. Thanks for taking my question today. You made a comment in the press release about reaching dividend coverage sooner than anticipated. And I think there's another comment just now on the call about achieving that within the next couple of quarters. I'm wondering if you can help us bridge the gap from where we are now at $0.37 a share in 2Q to -- what are the key drivers? Is it interest rates? Is it leveraging the portfolio, synergies, things like that? Can you walk us through that a little bit more granularly?

Sure. The answer is it's a collection of items. I think clearly, there's a little bit more synergies that we expect from the Solar SUNS merger. The immediate one obviously came right through with the reduction in the management date. The additional opportunities here is clearly not only increased rates on the existing portfolio and yields, but new assets that we've been putting on. We did have an active quarter, but a lot of the activity came in late in the quarter. So you're not seeing that even though we ended the quarter at 0.96x leverage. You didn't see the full earnings power of those additions. So that's part of the bridge. The other part of the bridge is we're obviously sitting at 0.96, which is the low end of our leverage range. So we see a little bit -- based on our pipeline, we see a little bit of increase in the leverage, not material, but then we'll give some portfolio expansion. The additional lever that we just touched on is a more efficient vehicle for financing the lower-yielding cash flow assets, which you know in the past has been very accretive. People, including ourselves, that have used that structure. Additionally, as Michael mentioned, our commitment to the buyback will add a couple of cents there as well. So we do have a number of levers. And I think we like that. It's not just one thing that we're going to hit a button, and we're going to get there, but we have multiple levers that we think will, in aggregate, exceed the dividend in terms of the earnings power of the platform.

Okay. I appreciate that. On the share repurchase, I think you made a reference to interest in putting into place a 10b5-1 plan. When we think about that, that tends to be -- that can be fairly small bite size from quarter-to-quarter, which can be, I think quite well below the authorization that you guys have in place of $50 million even over multiple quarters. Are you thinking of the pace of share repurchases in that context? Or are you thinking of combining that with more active repurchases? Thank you.

The answer is when our window period is open, we will be actively buying the point of the 10b5 plan is when the window appears about to close, which tends to be three to four weeks before the end of the quarter until the next earnings release was put you out of the market for seven weeks. We put a 10b5 plan in place so that we can continue to be actually buying during that window period being closed. We can set the sizing of that so that we can be fairly aggressive during that time period. And frankly, at these current levels, we intend to be.

We will take our next question from Mickey Schleien with Ladenburg. Your line is open.

Yes. Good morning, everyone. Perhaps my question is for Rich. If we look at the SUNS balance sheet the last one that we saw, which I believe was for December. About 3/4 of the on-balance sheet portfolio was in individual credits and about 1/4 was in portfolio company investments at fair value. Can we expect the -- was the purchase discount apply more or less at those levels? And does that imply that a great deal of that purchase discount will unwind as those individual credits pay off? Or am I misunderstanding something?

No. Mickey, you're spot on. There's a $17 million purchase discount, approximately $5 million was allocated to the portfolio companies that only [indiscernible]. So that left around $12 million is supposed to be allocated plus the debt portfolio that would come back into income over their lives.

So that you booked at the cost and that affected fair value and the average life of these investments is what, three years or so?

Right. I mean, obviously, in this environment, people want refinancing for 25 bps anymore, but probably a little bit more duration. But yes, the cost is accreted into discount income over the remaining lives of those loans.

Okay. I appreciate that.

We're not taking any incentive on that accretion of that discount just to be clear.

I understand. That's my only question for this quarter.

[Operator Instructions] We will take our next question from Ryan Lynch with KBW. Your line is open.

Hey, good morning. Just following up on Mickey's last question. Was any discount accretion for the purchase price, any of that accretive in Q2? And what amount if so?

Great question, Ryan. Yes, it begins on April 1, the effective date and was picked up. And I would say, between two and three times. I am recalling $2.4 million. Yes, the shares are a little late this quarter with the merger when you talk about that.

Okay. And then regarding kind of the JV, you talked about performing sometime this year, later this year. You talked about lower yielding loans from SUNS potentially going in that JV. Can you give us a sense of what you all would consider like a lower-yielding loan or lower spread loan in your portfolio today? And have you guys sort of penciled any sort of -- as you guys have performed that exercise, have you sort of penciled any sort of targeted size of loans kind of an amount that could potentially go into that JV later this year?

Yes. I think lower yielding for us means generally, our cash flow book relative to the specialty finance book. The cash flow book at June 30 was around 8%, 8.1% and the specialty finance book was generally above 10% to get us close to that 9.6% blended. Again, that's at June 30; today would be higher, as you know. So it's really meant to finance the cash flow book that came over from SUNS and whatever those yields are, those are lower-yielding assets across the portfolios relative to the specialty finance and Life Science and ABL.

Okay. So just to be clear, you're talking about financing the entire cash flow book from SUNS would potentially be dropped down into this JV?

No. I think we're going to grow it over time, and we'll see, depending on the activity level, how large we grow it. I don't think it will be all of them, and we will do this over time.

[Operator Instructions] We'll pause for a moment to allow additional questions to queue. It appears we have no further questions on the line at this time. I will turn the program back over to Mr. Gross for any additional or closing remarks.

No more remarks at this point. I'll just thank you for your time and support and to reiterate that if anyone has any follow-up questions, please feel free to give us a call. Take care, everybody.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.