Good day, everyone, and welcome to today's SLR Investment Corporation Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions. [Operator Instructions] Please note this call will be recorded. I will be standing by should you need assistance. It is now my pleasure to turn today's call over to Mr. Michael Gross, Chairman and Co-Chief Executive Officer of SLR Investment Corp. Mr. Gross, you may begin the conference.

Thank you very much, and good morning. Welcome to SLR Investment Corp.'s earnings call for the second quarter ended June 30, 2023. I'm joined today by Bruce Spohler, our Co-Chief Executive Officer; and our Chief Financial Officer, Shiraz Kajee. Shiraz, before we begin, would you please start by covering the webcast and forward-looking statements.

Thanks, Michael. Good morning, everyone. 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 also being webcast from the events founded in the Investors section on our website at www.slrinvestmentcorp.com. Audio replays of this call will be made available later today as disclosed in our August 8 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 on today's conference call and webcast may constitute forward-looking statements which relate to the future events or future performance or financial condition. These statements are not guarantees -- these statements are not guarantees of our future performance, financial condition or results and involve a number of risks and uncertainties as 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. SLR Investment Corp does not undertake to update any forward-looking statements unless required to do so by both. 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 over to our Chairman and Co-CEO, Michael Gross.

Thank you, Shiraz. We are pleased to report that for the second quarter of 2023, SLRC generated net investment income of $0.42 per share, over-earning the quarterly distribution and continuing the steady growth in net investment income over the past several quarters as we rebuild the portfolio post our COVID area deleveraging and importantly, during a very attractive investment environment. The improved NII performance resulted from the combination of a larger portfolio and the increase in index rates for a predominantly floating rate portfolio. At June 30, our net asset value per share was $17.98, compared to $18.04 at March 31. Before digging into our performance, I'll touch on the market conditions and investment climate. As the Federal Reserve has continued to fight to curb inflation, labor statistics and consumer spending have remained relatively stable. Based on both the recent economic data and our portfolio company success in navigating higher interest rates as well as input expenses, we view a recession as less inevitable. As the full impact of higher rates reverb rates to the economy, we believe our defensively positioned portfolio should weather those conditions. As conservative credit investors, we have always managed our portfolio is that we are heading into a downturn, and we will continue to do so despite signs that the U.S. government's fiscal policy may result in a soft landing for this cycle. The overall health of our portfolio remained solid, and we did not place any assets on nonaccrual during the second quarter. Our weighted average interest coverage on our sponsor finance loans remains at comfortable levels at approximately 2 times. We believe that this is a result of our investment focus in sponsor finance and recession-resilient industries with high recurring free cash flow, such as health care and business services as well as…

Thank you, Mike. SLR Investment Corp.'s net asset value at June 30, 2023, was $981 million or $17.98 per share compared to $984 million or $18.04 per share at March 31, 2023. At quarter end, SLRC's on-balance sheet investment portfolio had a fair market value of approximately $2.2 billion in 156 portfolio companies across 45 industries compared to a fair market value of $2.1 billion and 145 portfolio companies across 45 industries at March 31. At June 30, the company had approximately $1.2 billion of debt outstanding with leverage of 1.23 times net debt to equity. The increase in leverage is temporarily higher as the company continues to ramp its SSLP. When considering the company's plan to utilize the SSLP's facility as well as the available capacity from the company's credit facilities, together with available capital from the company's specialty finance subsidiaries, SLRC has ample available capital to fund future portfolio growth while remaining within its target leverage range of 0.9 times to 1.25 times net debt to equity. Moving to the P&L. For the 3 months ended June 30, 2023, gross investment income totaled $56.3 million versus $53.5 million for the 3 months ended March 31, 2023. Net expenses totaled $33.7 million for the 3 months ended June 30. This compares to $31.4 million for the 3 months period March 31st. As a reminder, at the time of the merger of SLR's Senior Investment Corp or SUNS into the company last year, the investment adviser agreed to waive incentive fees resulting from income earned due to the accretion of purchase discounts allocated to investments acquired as part of the merger. During the quarter ended June 30, the company waived approximately $125,000 of merger-related incentive fees. Accordingly, the company's net investment income for the 3 months ended June 30 totaled $22.7 million or $0.42 per average share compared to $22.1 million or $0.41 per average share for the 3 months ended March 31. Below the line, the company had net realized and unrealized loss for the second quarter totaling $3.7 million versus a net realized and unrealized loss of $15.3 million for the first quarter of 2023. As a result, the company had a net increase in net assets resulting from operations of $19 million or $0.35 per average share for the 3 months ended June 30, 2023. This compares to a net increase of $6.8 million or $0.13 per average share for the 3 months ended March 31, 2023. Finally, on August 8, the Board of SLRC declared a monthly distribution of $0.137 per share, payable on August 30, 2023, was already as of August 18, 2023. Moving forward, the company intends to make its distributions on a quarterly rather than a monthly basis. We expect this change to begin in Q4 2023. With that, I'll turn the call over to our co-CEO, Bruce Spohler.

Thank you, Shiraz. Let me begin by providing an overview of our portfolio. June 30, on a fair value basis, the comprehensive portfolio consisted of approximately $3.1 billion of senior secured loans to approximately 780 distinct borrowers across over 115 industries, with an average exposure of just under $4 million. Measured at fair value, 99.4% of our portfolio consisted of senior secured loans with approximately 98% invested in first lien loans, including investments in the SSLP attributable to the company and only 0.2% was invested in second lien cash flow loans, with the remaining 1.2% invested in second lien asset-based loans. Our specialty finance investments account for approximately 76% of the portfolio with the remaining 24% invested in senior secured cash flow loans to upper mid-market sponsor-backed companies. We believe that this defensive portfolio composition positions us well for potential economic weakness and provides a differentiated risk return profile for our shareholders. At quarter end, our weighted average asset level yield was 12.1% up from 11.9% at Q1. The weighted average investment risk rating was under 2 based on our 1 to 4 risk rating scale, with 1 representing the least amount of risk. During the second quarter, we restructured our investment in AmeriMark, which we had placed on nonaccrual last quarter. While it's still early days, we are pleased with the results of our efforts thus far. To date, we foreclosed on the business, contributed transition capital, which has since been fully repaid at par, sold certain assets for cash entered into a partnership with both operating and financial investors in respect to the company's core operations and expect to exit bankruptcy later this month. As a result, we increased our second quarter mark by 10% from the prior quarter. We view the successful restructuring of this investment as…

Thank you, Bruce. In closing, we are pleased with our progress in reramping our portfolio since our COVID era lows into investments that have more attractive terms we've seen in many years. Our specialty plans businesses, which were particularly impacted by borrowers having access to government stimulus during the pandemic have either reached or near nearing pre-COVID portfolio balances. Importantly, the available capital across our platform provides us with the capacity for additional earnings growth. With our investment strategy is benefiting from the reduced competition from regional banks in the BSL market, we currently have a sizable investment pipeline. Importantly, we believe it's one of the most attractive we've ever had. In closing, our investment advisers' alignment of interest with the company's shareholders continue to be one of our guiding principles. The SLR team owns over 8% of the company's stock including have a significant percentage of the annual incentive compensation invested in its stock. The team's investment alongside fellow SLRC shareholders demonstrates our confidence in the company's defensive portfolio, stable funding and favorable position. Thank you for your time today. Operator, will you please open up the line for questions.

[Operator Instructions] And we'll take our first question from Sean-Paul Adams with Raymond James. Please go ahead. Sean-Paul, your line is open. Please check your mute function.

I was hoping you guys were able to share some commentary on whether you plan to amend your credit facility to extend their maturities since both mature in 2026 and provide some insight whether the revolving period for the secured credit facilities are the same as maturity?

Yes. No, we have some time on our primary corporate revolver. I think that maturity, if I'm not mistaken, is in '25 in terms of the investing period. And then we have the smaller SUNS facility that came with the merger with SUNS, which matures next spring, and we're already in conversations to both upsize it and extend it.

And as a follow-on, can you provide just any details on the impact of the bank -- banking market tightening?

Can you just repeat in terms of specifically what you'd like us to address on that front?

Yes, yes, of course. And so in regards to the -- like just generally the banking market tightening and just issuance and, I guess, general flows. Can you provide some just general targets for the next couple of quarters?

Sure. I would just say, high level, the cash flow market has been impacted by the tightening on the money center banks, who are the biggest players there, the BSL market is really only open for the largest of issuers. And so on the cash flow side, as you can see in our origination numbers year-to-date, we've seen great opportunity in the upper mid-market there. I think on the specialty finance businesses, they're most impacted and benefit from the tightening in the regional banks, whether it's equipment finance, all the way through ABL strategies into Life Sciences, where obviously, Silicon Valley and to some extent, Signature Bank were put on the sidelines. Those teams have we surface, but we'll see whether the banks that they landed at will actually put up the capital to support that sector. So we have seen that dislocation create better opportunities for us, not so much in terms of the fundamentals, but as you know, the regional banks were relatively aggressive when they like investment opportunities relative to direct lenders such as ourselves. And so having more rationality in those sectors, I think, has led to higher-quality opportunities as well as better pricing. Too soon to know how long that will last, but it has definitely given us a better opportunity set.

[Operator Instructions] We will take our next question from Paul Johnson with KBW. Please go ahead.

On the equipment financing vertical, specifically the SLR equipment, formerly NEF Equipment Financing. This year, there's obviously been no return out of that investment. I know there was no dividend return on investment last year as well, either. Can you just remind us, I guess, how -- I guess, what you intend to do with the return from that investment? And if there's anything, I guess, that you say the portfolio seems to be performing quite well. So was there I guess, anything that's lumpy in there on timing? Or is there anything pressuring the return at this moment? Just any kind of thoughts around that investment would be kind of helpful.

Sure. So just as a reminder, that -- we have 2 equipment finance verticals. One is the Kingsbridge vertical that provides equipment finance for investment-grade borrowers and then there's the equipment finance vertical, formerly NEF that is more focused on noninvestment-grade borrowers. And that vertical, particularly has been repositioning itself particularly in this stage of the economic cycle to take less -- more focus on the fundamental credit of the borrower and a little bit less reliance purely on the liquidation value of the equipment. So it's a short way of saying we've been taking down the risk in that portfolio. Having said it has been growing. And just as a reminder, that portfolio is housed on balance sheet as well as in that subsidiary. So the expense of the team is in the subsidiary, but the majority of the assets are on balance sheet. So when we report, we report on a consolidated basis rather than just look at that legal subsidiary. So it has been generating nice income. We expect that to grow. But you need to look at it consolidated between the subsidiary as well as the assets on balance sheet.

And then just kind of broadly, you guys had a lot of growth this quarter. It sounds like you're -- you like what you see in terms of coming up with the pipeline and expect growth this year. Leverage is up to about 1.2 times on a gross basis this quarter. However, the ROE is obviously clearly lagged the space quite a bit to date. I'm just wondering what are kind of in your mind, the catalyst to get that ROE up maybe increase return from some of your verticals? Is there any sort of repricing catalyst within the portfolio somewhere your ideas there would also be helpful.

There are several levers we can pull in our point to accomplish that across our strategies. The first, as we mentioned, our leverage we quoted was at a point in time with the actions we have in place to pull more assets into the SSLP that will bring our leverage back down to kind of the midpoint of the range. It will also have the effect of increasing our ROE because we're putting assets into that levered 2 times just as a refresh. We've been selling assets into that with our JV partner at par, and these are assets yielding L plus 550. So we're able to take that capital, we get back from those sales and redeploy it into assets that are yielding anywhere from 12% to 15%, depending on the strategy.

We'll take our next question from Casey Alexander with Compass Point. Please go ahead.

Can you quantify the capacity that the JV has in terms of how much can you sell down to the JV that then you can replace on balance sheet?

Sure. So Casey, at June 30, we had about $79 million down in the slip and it's been set up to take $300 million of assets. So roughly another $220 million of assets.

My second question is -- and this may be an entirely ignore question. But it seems to me that one of the assets that the JV was designed to take was some of the lower-yielding assets from Solar Senior. But it seems to me that the assets from Solar Senior are now yielding more than the average yield on the equipment finance portfolio. Is there anything that prevents you from down streaming some of the equipment finance loans so that you can replace those with significantly higher yielding assets on balance sheet?

The JV is set up both from an equity partnership perspective as well as the credit facility to only take cash flow loans. So to your point, it was set up to take the lower-yielding SUNS cash flow loans, which, as Michael just shared, are in the L5 handle spread at par versus the new cash flow loans, which are coming at SOFR 650 at 97. So there is a nice yield delta there. But no, I think on the Equipment Finance business, as you know, those are fixed-rate assets. They do have a longer life, but they do amortize down monthly. And so we are looking to continue to cycle out of those assets and bring on higher-yielding equipment finance assets or not. If we are seeing better opportunities elsewhere, we'll deploy the capital into higher-yielding strategies.

We'll see what happens when you give an analyst a calculator, he'll start trying to get you to do things you're not allowing to.

We like your idea.

We're going to take the calculator away from you.

[Operator Instructions] And it does appear that we have no further questions at this time. I'll turn the call back to Mr. Gross for closing remarks.

Just thank you for your time, and have a great summer. And again, as always, if you have any questions, please feel free to reach out to any of us directly. Take care.

Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.