Good morning, ladies and gentlemen. Welcome to today's SLR Investment Corporation Second Quarter 2025 Earnings Call. [Operator Instructions] Also today's call is being recorded. [Operator Instructions] Now, at this time, I'd like to turn things over to Mr. Michael Gross, Chairman and Co-CEO. Please go ahead, sir.

Thank you very much, and good morning. Welcome to SLR Investment Corp's earnings call for the quarter ended June 30, 2025. I'm joined today by my long-term partner, Bruce Spohler, Co-Chief Executive Officer as well as our Chief Financial Officer, Shiraz Kajee and the SLR Investor Relations team. Shiraz before begin, would you please start by covering the webcast and forward-looking statements.

Thank you, Michael. Good morning, everyone. I'd 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 is strictly prohibited. This conference call is also being webcast from the events calendar 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 5 earnings press release. I would also like to call your attention to the customary disclosures in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections. These statements are not guarantees of our future performance or financial results and involve a number of risks and uncertainties. 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. We do not undertake 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 over to our Chairman and Co-CEO, Michael Gross.

Thank you, Shiraz, and thank you, everyone, for joining our earnings call this morning. We are pleased to report that SLRC's second quarter results continue to reflect broad stability and highlight the benefits of our multi-strategy investment approach to private credit. Summarizing results, SLRC reported net investment income of $0.40 per share and net income of $0.44 per share in the second quarter. NAV per share of $18.19 as of June 30 increased slightly quarter-over-quarter and was approximately flat year-over-year. We believe this compares quite favorably to peer publicly traded BDCs. SLRC's annualized net investment -- net income returned 10% equity in the quarter. While net investment income per share was $0.01 below SLRC's base dividend of $0.41 per share in the second quarter, we note that the investment portfolio began the quarter levered at 1.04x and ended the quarter levered at 1.17x as the company was able to source attractive new investments that led to a quarterly record of new originations. Many of the new investments funded towards the end of the quarter and, therefore, had a limited impact on second quarter results. We originated $567 million of new investments across the comprehensive portfolio and received repayments of $387 million in the second quarter resulting in comprehensive portfolio growth of $180 million to $3.2 billion. Our record originations for Q2 included the largest ABL commitments in SLRs history. These are partially offset by a slightly higher than usual volume of exits. Our portfolio has achieved an annualized growth rate of 15.5% over the past 5 years. While conditions in the sponsor-backed cash flow market remained fiercely competitive, we experienced more attractive conditions across SLR's broad ABL strategies. With the supply/demand imbalance in the sponsored finance market, there's been a decline of private credit alpha. However, thanks to higher barriers…

Thank you, Michael. SLR Investment Corp's net asset value at June 30, 2025, was $992.3 million or $18.19 per share compared to $18.16 per share at March 31. At quarter end, SLRC's on balance sheet investment portfolio had a fair market value of approximately $2.1 billion and 115 portfolio companies across 32 industries compared to a fair market value of $2 billion in 118 portfolio companies across 32 industries at March 31. SLRC's investment portfolio is funded by a combination of our revolving credit facilities and the issuance of term debt in the unsecured debt markets. The company is investment-grade rated by Fitch, Moody's and DBRS. As of June 30, 2025, SLRC had $359 million of unsecured debt. Subsequent to quarter end, the company privately placed with institutional investors, $50 million of 3-year unsecured notes at a fixed interest rate of 5.96%. Inclusive of the $50 million unsecured notes issued on July 30, the company has $409 million of unsecured notes outstanding. We believe our issuance with these notes reflects an attractive and flexible cost of debt capital for shareholders. We expect to continue to opportunistically issue unsecured debt in the future. The company does not have any near-term refinancing obligations for the next unsecured note maturing occurring in December 2026. At June 30, the company had approximately $1.2 billion of debt outstanding with a net debt-to-equity ratio of 1.17x. We believe we have ample liquidity of cash and borrowing capacity to support our unfunded commitments. Moving to the P&L. For the 3 months ended June 30, gross investment income totaled $53.9 million versus $53.2 million for the 3 months ended March 31. Net expenses totaled $32.3 million for the 3 months ended June 30. This compares to $31.1 million for the prior quarter. Accordingly, the company's net investment income for the 3 months ended June 30, 2025, totaled $21.6 million or $0.40 per average share compared with $22.1 million or $0.41 per average share for the prior quarter. Below the line, the company had net realized unrealized gains for the second quarter totaling $2.6 million versus a net realized and unrealized loss of $2.2 million for the first quarter of 2025. As a result, the company had a net increase in net assets resulting from operations of $24.2 million for the 3 months ended June 30, 2025, compared to a net increase of $19.9, million for the 3 months ended March 31. On August 5, the Board of SLRC declared a Q3 2025 quarterly base distribution of $0.41 per share payable on September 26, 2025, to holders of record as of September 12, 2025. With that, I'll turn the call over to our Co-CEO, Bruce Spohler.

Thank you, Shiraz. As Michael indicated, we've continued to shift our portfolio towards specialty finance strategies because of their more attractive risk-adjusted returns in today's market. Our specialty finance strategies offer higher pricing than sponsor finance loans and greater downside protection through their underlying collateral, which includes accounts receivable, finished goods inventory, commercial loan portfolios, essential use equipment as well as intellectual property. In most cases, the assets are governed by dynamic borrowing base frameworks, which enable real-time monitoring of the underlying asset performance. Moreover, they provide levers for us to manage our exposure, including eligibility tightening, advanced rate adjustments and cash dominion. This downside protection is critical in periods of economic uncertainty like today. Importantly, we are fortunate to have the infrastructure across our investment strategies that enables us to capitalize on this attractive opportunity set in collateral-based lending strategies. Now let me turn to the portfolio. At quarter end and on a fair value basis, comprehensive investment portfolio consisted of approximately $3.2 billion with an average exposure of $3.5 million. Measured at fair value of 98.3% of the comprehensive portfolio consisted of senior secured loans with approximately 96% invested in first lien loans including our investment in the SSLP and only 0.2% was invested in second lien cash flow loans with the remaining 2.2% invested in second lien asset-based loans. At quarter end, our weighted average yield on the comprehensive portfolio was 12.2%, consistent with the first quarter. We attribute this consistency to the heavy weighting towards specialty finance in our first half of 2025 originations. Based on our quantitative risk assessment scale, the portfolio currently has one of the strongest credit profiles in SLRC's history. At quarter end, the weighted average investment risk rating was under 2 based on our 1 to 4 risk rating scale, with…

Thank you, Bruce. While the path ahead is fraught with looming economic uncertainties from the ultimate impact of tariffs, the level of interest rates and an overhang in the supply-demand imbalance in sponsor finance conditions, we believe that our diversified and predominantly asset-backed portfolio sits in a position of relative strength to deliver attractive results for shareholders across economic cycles. We are pleased with the growth of SLRC over the last couple of years, creating a diversified commercial finance company with broadened investment capabilities and deep experience through a 320-person team across the SLR platform. These investments across the platform can be evaluated through the lens of record quarter originations, which was led by SLR's asset-based strategies and strong credit performance. SLR's multi-strategy approach to private credit investing, our emphasis on preservation of capital and our portfolio construction with a specialty finance emphasis differentiates us from the majority of our BDC peers and provides an investment portfolio that contains very limited investment overlap with other private credit managers. The combination of a diversified portfolio with strong credit metrics, momentum across our investment strategies and a growing investment pipeline tilted heavily towards specialty finance investments, positions the company favorably to navigate the current climate. Heading to the second half of the year, we will remain opportunistic and prudent as we deploy capital with discipline and conviction. In closing, SLRC trades at an approximate 10.3% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income-seeking and value investors and also offers a more diversified investment portfolio compared to cash flow only private credit strategies. Our investment advisers' alignment of interest with our shareholders continues to be one of our significant hallmark principles. The SLR team owns over 8% of the company's stock and has a significant percentage of their annual incentive compensation reinvested in SLRC stock every year. The team's investment alongside fellow institutional and private wealth investors demonstrates our confidence in the company's portfolio, stable funding and earnings outlook. We thank you all again for your time today as we recognize it's a busy day for those that follow the listed BDC marketplace closely. Operator, will you please open up the line for questions.

[Operator Instructions] We'll go first this morning to Erik Zwick of Lucid Capital Markets.

First, congratulations on such a strong quarter of originations. That's an impressive feat by the originations team. Curious, you noted that the new originations didn't have much of an impact on 2Q results due to the timing of when they hit the balance sheet in order to just to kind of think about that impact going forward. Are you able to provide any -- what was the average yield on the new originations? And I'm curious how that compared to either the exits during the quarter or just relative to the average yield on the existing portfolio?

Yes. So the Investments and the repayments did sort of on a weighted average dollar basis happened more towards the end of May. So you really saw that net growth of $180 million impact the portfolio in June predominantly. The exits were just over 10% on average. And the new investments were at about 11.8% on average.

Okay. That's a nice pickup then on that swap. And then just given the strong originations in the quarter, I'm curious that the level of the pipeline entering the third quarter relative to, say, maybe 3 months ago, how does that stand? And what does it look like in terms of new versus add-on opportunities?

So it is definitely geared towards new opportunities. I would say it's fair to assume that it's not going to be as robust as Q2 was, but still should be in line with our traditional activity levels. As you know, the summer can be a little bit seasonally slow just in terms of getting things close. But we feel like we have a steady cadence.

Okay. And just, I mean, it's been several years now that you've talked about the opportunity in ABL with the banks pulling back due to capital restraints and you've been in a great position to take advantage of that, and that continues to be an opportunity for you. I'm curious, is that bringing any new entrants in the other specialty lenders or any nonbanks into that arena? And are you seeing any increased competition there at this point?

Not really. Look, I think we've talked a lot about -- we've been doing this since 2012. We've added 100 people. This is -- these are not businesses that you can wake up 1 day and say, "I'm going to go be in them." You have to build out the infrastructure because of how complex they are. And so we have not seen new entrants because it takes a significant investment to do in a long time. There's been a lot of talk about people in private credit investing in asset-based lending, the predominance of it and the vast, vast majority is in more of ABS, buying portfolios of consumer loans, whether it's credit card receivables, car loans, et cetera. So we don't see new entrants into the space that we compete in today.

No, it's a great position for you to be in. And one last one for me, and I'll step aside. Your portfolio from a credit perspective continues to be very clean and you pointed out the low risk weighting today and just 1 credit on non-accruals. As you kind of look out at just into the economy and potentially into your pipeline and deals that you turned down, are you seeing any concerning developments in any sectors or any parts of the economy at this point?

No. First of all, as you know, we're burdened by and benefit from the fact that we are generally focused on noncyclical sectors. When we do look at cyclical opportunities, it will be on an asset basis where we're really just looking to the liquidity and liquidation value of the working capital assets. So that protects us. But across the cash flow book, as you know, it's centered on recession resilient sectors such as health care. So we really don't have a great wind into it. But I will say that as we look across our ABL portfolio, which does lend to some cyclical sectors, we are seeing some stress, but I would not call it significant.

We go next now to Melissa Wedel of JPMorgan.

Appreciate all the color that you offered on the ABL's strategies. A quick follow-up on that. You mentioned that some of the changing capital rules have led regional banks to sort of pull away from that market, creating some opportunity for you. I'm just wondering with those capital rules or some capital rules being revisited, is there any chance that some relief might be bought to those regional banks that might bring them back into the market?

So I guess that's always a possibility, but we're not seeing signs of that. Similar to Michael's commentary, around the barriers to entry for private credit managers, the banks face those same barriers once they pull out. It's not something that you can dip your toe in and out of. You need the investment in infrastructure and you can't create that quickly. And this is not the first place they're going to be looking to redeploy capital. So as you think back to the acquisition we made in the second half of last year at Webster Bank, we bought the infrastructure, we bought the portfolio, we brought the team. It's very difficult to then turn that back on quickly.

Okay. Understood. I think there was a reference to the timing of the strong origination -- net origination sort of benefiting maybe 1 month out of the quarter. How -- I mean if you were to analyze or estimate the NII impact. If you would have the benefit of a full quarter of that deployment, would there have been full dividend coverage?

Yes.

Okay. And then, I guess, last question for me right now would just be around the leverage levels within the portfolio. There's not a ton of dry powder, just given, again, the strong deployment. Is there -- given sort of the forward curve implying future rate cuts, can you talk about how you're thinking about the sustainability of the earnings power of the portfolio going forward, if we were to get those rate cuts that are currently embedded in forward expectations?

Sure. So we do have some dry powder. We mentioned, over $600 million to deploy. We are going to be very focused on continuing this rotation from low-yielding to higher-yielding assets. As I think we've talked about in the past, the added benefit of the specialty finance assets is not just that they carry borrowing bases and collateral and we think better risk management tools for the lender, but they also carry higher returns, as you can see across the portfolio and are less geared towards and correlated with changes in base rates. So we think that gives us a little bit of cushion there in terms of potential spread compression because what we find is an all-in return asset. So as base rates or spreads come down, we can compensate and with fees and other levers still keep those returns rather healthy. Obviously, we went back to a 0 rate environment, that would have some impact. But we generally find that there is much less correlation with rates across the specialty finance assets.

[Operator Instructions] We go next now to Heli Sheth of Raymond James.

Thanks for the question. So you mentioned you earned a total of $1.1 million from the SSLP this quarter. and that's lower than what we've seen in 2024 and also last quarter in 1Q. Can you provide any additional color there? Was this quarter a one-off? Or was there an over distribution in the previous quarters, and this is the new normalized dividend distribution run rate?

Sure. So just to step back for a moment, if you look back, the SSLP had been in ramp mode and got to full deployment which is where you saw that more elevated distribution level closer to the $1.8 million level. There's a lag effect. So we had let some of those assets repay consistent with what we did on balance sheet as we were getting repriced to rates that we thought were not acceptable. And so that's trickled through in Q2 even though you saw the portfolio come down in Q1, we had some built-up income over the last year that we distributed. So as we mentioned, the portfolio did rebuild a little bit in Q2, and we hope to continue to do that. So it will ebb and flow, but I don't see the $1.1 million as a constant. We expect to continue to rebuild that and already did in Q2 and the dividend and distribution will grow accordingly.

[Operator Instructions] And we'll take a follow-up question now from Melissa at JPMorgan.

Just 1 more question for me. When we look at the schedule of investments within equipment finance, it looks like the business that you have there on balance sheet, which is the majority of that portfolio there, the multi-sector holding SLR Equipment Finance. It looks like the fair value to cost of that has sort of declined pretty steadily over the last year or so. Can you talk about what's driving that mark and what's happening within that portfolio?

Sure. So we have been shrinking that portfolio, which has been what's driving that valuation. We are starting to rebuild the portfolio, but we had pulled back on that risk over the last 1.5 years and pivoted more towards our investment-grade leasing portfolio. So the Kingsbridge sister subsidiary. So you'll start to see that grow over the next couple of quarters here.

Thank you. And Mr. Gross, it appears we have no further questions today. So I'd like to turn the conference back to you for any closing comments.

Once again, we thank you all for your attention today. I recognize it is quite a busy time and week in the BDC space. And as always, if you have any follow-up questions, please feel free to call any of us at any time. Have a great day.

Thank you, Mr. Gross. Ladies and gentlemen, again, that will conclude the SLR Investment Corp's Second Quarter Earnings Call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.