Sunrise Realty Trust, Inc. (SUNS) Q4 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q4 2017 Solar Senior Capital Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. I would like to introduce your host for today’s conference, Mr. Michael Gross, Chairman and Chief Executive Officer. Sir, you may begin.

Thank you, very much and good morning. Welcome to Solar Senior Capital Limited’s earnings call for the fiscal year ended December 31, 2017. I am joined here today by Bruce Spohler, our Chief Operating Officer; and Rich Peteka, our Chief Financial Officer. Rich, would you please start off 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 Senior Capital Ltd. and that any unauthorized broadcast, in any form, are strictly prohibited. This conference call is being webcast on our website at www.solarseniorcap.com. Audio replays of this call will be made available later today as disclosed in our press release. I'd 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 conditions. These statements are not guarantees of our future performance, financial condition or results and involve a number of risks and uncertainties. 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 Senior 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 website or call us at 212-993-1670. At this time, I would like to turn the call back to our Chairman and Chief Executive Officer, Michael Gross.

Thank you, Rich. The fourth quarter 2017 marked a strong end to a successful year for Solar Senior Capital. Our diversified portfolio of senior secured floating rate loans continues to perform well and is 100% performing at December 31, 2017. Net asset value was $16.84 per share, amongst increase with prior quarter and for the year. GAAP net investment income per share for the quarter of $0.35 fully covered our distributions. For the year, our distributions were also fully covered by GAAP net investment income. The fourth quarter saw the continuation of recent trends with the leverage loan market supported by capital inflows, low interest rates and stable issuer fundamentals. The lack of new money opportunities combined with below average default rates and slow but steady economic growth, have extended the issuer friendly underwriting environment. Despite the challenging origination condition, we were able to grow despite of our portfolio be it for let new first lien loan investments and through the acquisition of North Mill. And importantly despite the spread compression occuring at the credit market, we were able to increase our portfolio weighted average yield by 120 basis points year-over-year meaningfully but together an uptick in line what we experienced. We are confident primarily through our higher utilization of FLLP’s credit facility and to the acquisition of North Mill, a leading commercial finance company that provides asset back financings to U.S. based small to medium size businesses. In this extended period of elevated repayments and frothy credit markets, Solar Senior Capital remains steadfastly committed to its long setting priorities. First and foremost is to preserve capital and protect net asset value. Second, is to prudently deploy our available capital into first lien senior secured loans that meet our strict underwriting criteria in order to grow our net investment income. Third, is to leverage our strategic initiative to enhance SUNS’ weighted average yield. Four, to continue to seek investment opportunities that expand our tough finance capabilities in senior secured lending that are less competitive, offer track adjusted returns and have a low correlation to the liquid leverage loan market and finally to invest as principle aligned with our fellow shareholders and focus on building long-term value for all of us. Our acquisition of North Mill in the fourth quarter furthered each of these core priorities. North Mill was founded in 2010 by senior management team has worked together for more than 20 years across multiple organizations. The acquisition offered a compelling opportunity for Solar Senior to invest in established business with experienced management team that is undergoing approximately $500 million in total credit facility since inception and has built exceptionally strong track record. The addition of North Mill sourcing channel enhances Solar Senior flexibility to originate across multiple business lines in order to find the best risk award investments while not being exclusively reliant on the sponsored cash flow market. Importantly, the North Mill acquisition immediately increased the earnings power of SUNS. We expect that our investment in North Mill will generate approximately 11% cash yield on our cost and North Mill will distribute substantially all of its earnings to Solar Senior on a quarterly basis. Consistent with that the approximately two months in North Mill in the fourth quarter, we generated $1.1 million in investment income for SUNS. Solar Senior Capital funded its investment with borrowings under Solar Senior existing credit facility. At December 31, we had approximately $124.2 million of debt outstanding equating to a 0.45 net debt to equity ratio. At December 31, approximately 40% of our exposure including with a North Mill and Gemino consists of first lien senior secured loans collateralized by current assets with the remainder from directly originated investments in senior secured cash flow loans. At December 31, when considering the unused debt capacity of our balance sheet and within our strategic initiative FLLP, Gemino and North Mill, we had over $170 million combined available capital for new investments subject to borrowing base limitations. Finally, our Board of Directors declared a multi-distribution for March 2018 of $11.75 per share payable on April 3, 2018 to stockholders record on March 22, 2018. At this time, I'll turn the call to our Chief Financial Officer, Rich Peteka.

Thank you, Michael. Solar Senior Capital Limited's net asset value at December 31, was $270.1 million or $16.84 per share. This compares to a net asset value of $269.5 million, or $16.81 per share at September 30. Solar Senior's on balance sheet investment portfolio at December 31, 2017 had a fair market value of $408.1 million in 45 portfolio companies operating in 20 industries. This compared to a fair market value of $368 million in 46 portfolio companies operating in 22 industries at September 30, 2017. At December 31, 2017, the weighted average yield on our income producing portfolio was up to 8.9% measured at fair value, versus 8.3% for the prior quarter and 100% of our portfolio of investments were performing. At December 31, 2017, net leverage increased to 0.45 times from 0.32 times at September 30, and Solar Senior's target leverage continues to be at 0.80 times. From a P&L perspective, gross investment income for the three months ended December 31, 2017 totaled $9.0 million versus $8.0 million for the three months ended September 30. For the full fiscal year 2017, gross investment income totaled $32.2 million compared to $27.2 million for the 2016 fiscal year. Net expenses for the three months ended December 31, 2017 were $3.4 million compared to $2.3 million for the three months ended September 30. In Q4 2017, the Investment Advisor waived $0.3 million of performance-based incentive fees versus $0.7 million of management performance-based incentive fees for Q3 2017. The reduced fee waiver in Q4 is a direct result of the company’s generating higher gross income due to its net portfolio growth as well as its increase in the weighted average portfolio yield primarily attributable to its recent acquisition of North Mill LSD and to a lesser extent the increase in LIBOR. On a cumulative basis, since SUNS’ IPO in 2011, the Investment Advisor has waived management fees, waived performance-based incentive fees and covered equity offering costs totaling approximately $9.8 million. Ultimately, net investment income for the quarter ended December 31, 2017 was $5.7 million or $0.35 per average share versus $5.7 million or $0.35 per average share for the prior quarter. For the fiscal year 2017, net invested income totaled $22.6 million or $1.41 per share compared to $18.3 million or $1.42 per share for the 2016 fiscal year. Below the line, Solar Senior had net realized and unrealized gains for the fourth fiscal quarter totaling $0.6 million compared to $0.4 million of net realized and unrealized gains for the quarter ended September 30. For the full fiscal year 2017, net realized and unrealized gains totaled $0.8 million compared to gains of $5.9 million for the 2016 fiscal year. Accordingly, Solar Senior had a net increase in net assets resulting from operations of $6.2 million or $0.39 per average share for the three months ended December 31, 2017. This compares to a net increase in net assets resulting from operations of $6.0 million or $0.37 per average share for the three months ended December 30. For the full fiscal year 2017, Solar Senior had a net increase in net assets resulting from operations of $23.4 million or $1.46 per share compared to $24.3 million or $1.88 per average share for 2016 fiscal year. With that, I would like to turn the call over to our Chief Operating Officer, Bruce Spohler.

Thank you, Rich. Let me begin by providing an update on the credit quality of our portfolio. Overall, the financial health of our portfolio companies remains sound, reflecting our disciplined underwriting and focus on downside protection. At the end of the fourth quarter, the weighted average EBITDA of our first lien investments in SUNS' portfolio including our ownership in FLLP was approximately 82 million. Additionally, on a fair value weighted average basis, leverage to our security averaged 4.3 times and interest coverage was approximately 3 times, both similar to the prior quarter. At yearend the weighted average, latest 12-month revenue and EBITDA trends continue to be positive across our portfolio of companies. As evidenced by these portfolio metrics, our portfolio continues to have a lower risk profile than the broader liquid leverage loan market. Measured at fair value a 100% of our portfolio is performing at year end, we continue to have no direct exposure to the oil and gas or commodity sectors. Our internal risk assessment on weighted average of our loan portfolio remains at approximately two at year end, based on our one to four scales. Also, at year end the weighted average yield of our portfolio was 8.9% up from 8.3% the prior quarter. This is primarily due to the acquisition of North Mill as well as higher LIBOR. At year end SUNS 472 million portfolio which includes FLLP and loans to 49 borrowers across 21 industries with an average investment of 9.5 million or 2% of the portfolio, virtually 100% of this portfolio was invested in senior secured loans including our investments at Gemino and North Mill who portfolios consist entirely of firstly lien senior secured loans. Including our equity investment in Gemino and North Mill 95% of the comprehensive portfolio is floating rate. The senior secured and floating rate compensation of our portfolio sensibly position to protect our capital in today's rising rate environment. Before I give an update on the strategic initiatives I would like to provide additional info on North Mill. By way of background our investment team is very familiar with the ABL lending industry having diligence dozens of platforms in the context of evaluating both potential debt investments as well as control equity acquisitions in the broader as a bit lending sector. We also benefit from additional market insight to our ownership of asset base lenders including Gemino healthcare finance as well as Solar capitals ownership of both crystal finance and nations equipment. Our investment team continues to evaluate specialty finance companies that operate in attractive lending market niches which are less competitive and have a lower correlation to the broader liquid leverage debt capital markets. Solar had closely followed North Mill for a number of years, we believe North Mill is a unique asset due to the experience and track record of the North Mill management team as well as its scaleable platform. North Mill has 29 employees operating out of Princeton, New Jersey and Minneapolis, Minnesota. North Mill is a 150 million funded portfolio at year end highly diversified with over 90 borrowers and an average funded exposure of 1.6 million. At year end the weighted average yield on North Mills portfolio to just over 13%. Collateral securing the portfolio mainly consist of accounts receivable. These loans are fully secured with collateral sufficient to repay all of the principal, interest and fees in a liquidation scenario. Average life is, I'm sorry -- tenure is 1 to 3 with an average life of approximately 2.5 years. North Mill portfolio is predominantly floating rate. The typical customer of the North Mill is a small to medium sized business in the manufacturing, services and distribution industries. It's typical financing need ranges from $500,000 to $10 million. During the fourth quarter North Mill made approximately $29 million of new investments and that had no repayment following the acquisition of the company. We believe the acquisition of North Mill further expands Solar Senior's product offering in a meaningful way. With its collateralized loan portfolio add a substantially floating rate, the addition of North Mill complements our existing sponsor cash flow and Gemino ABL lending businesses. In addition, we believe North Mill business is extremely scalable and provides Solar Senior access to a highly differentiated asset class and offers attractive risk adjusted returns. Pro forma for the acquisition of North Mill over 40% of SUNS' investments are generated from first lien senior secured loans that are collateralized by current assets with the remainder being from directly originated investments in senior secured cash flow loans. During the fourth quarter, North Mill paid SUNS a $1.1 million dividend for the two months that we owned them, which equates to an 11% annualized ROE at cost. Now I'll provide a brief update on our other strategic investments. As a reminder, Gemino focuses on providing senior secured asset-based loans to small and mid-sized businesses exclusively in the healthcare industry. Gemino's expertise and ABL platform creates a risk return profile that has a very low correlation to SUNS' traditional cash flow senior investments. A quarter-end Gemino's portfolio totaled $106 million of funded loans across 29 borrowers with an average funded amount of $3.7 million. At year-end the average yield on Gemino's loans was approximately 10.3%. All of the commitment to Gemino are floating rate first least and a 100% of their portfolio's performance. For the fourth quarter Gemino paid a distribution of $924,000, up to SUNS which equates to an 11.25% annualized distribution yield on the average cost of our investment. This is consistent with the prior quarter. For the year ended 12-31-2017, Gemino has distributed $3.7 million to SUNS which is also an annualized distribution yield of 11.25%. Now let me provide a brief update on our first lien loan program of FLLP. At year-end, FLLP had approximately $114 million of first lien senior secured floating rate loans across 23 borrowers with an average investment of $5 million. FLLP's portfolio is also 100% performing. The annualized ROE for the fourth quarter was 12% for LLP. We had outstanding $37.5 million of our $50 million equity commitment at year-end. In the fourth quarter, including FLLP, we made approximately $84 million of new investments and had sales and repayments of approximately $51 million. Our investments during the fourth quarter consisted of our acquisition of North Mill as well as a combination of new investments and incremental first lien term loans to existing portfolio companies. Very often we chose not to reinvest in loans that we either repaid or re-priced during the quarter based on what we saw on tighter pricing and elevated risk. As a result of our discipline, we were able to avoid yield compression and the risk in our portfolio is measured by the weighted average leverage and interest coverage ratios remain consistent with the prior quarter. Now let me highlight just a couple of our fourth quarter investments beyond the acquisition of North Mill. The Solar platform made a $90 million investment with SUNS funding $50 million of that in the first lien term loan of on location experiences, which is the exclusive partner with the NFL providing premium hospitality and tickets to Super Bowl and our sporting events. Financing funded the company’s acquisition of Prime Sport, which is a leading provider of hospitality services for other high-profile sporting events such as the NCAA final pore [ph] in the U.S. Open. The long yield just over 7% and carries a low leverage ratio of three quarters times. We also invested $6 million in the incremental first lien term loan of SmartStart, which is an existing portfolio company backed by Agri Partners. SmartStart is the leading provider of alcohol monitoring systems for cars in the U.S. Since closing, the company has grown their EBITDA from $32 million to $46 million and has deleverage down to 3.9 times leverage. In December 17’, SmartStart issued an incremental first lien loan to fund an add-on acquisition. This is the loan we participated in. Pro forma for the acquisition or leverage is approximately four and three quarters and our loan carries a yield of close to 6.5%. We also funded a $5 million investment in the first lien term loan of Legal Zoom, a portfolio company at Premier and the market leading provider of online legal services to small businesses and consumers in the U.S. Solar had previously invested $60 million in the company back in 2015 and realized an IRR of just under 11%. At the time of that investment, the company was generating $30 million of cash EBITDA and leverage was four in a quarter times. Since then the company has grown significantly resulting in EBITDA growth to $74 million and leverage to our new investment was only 3.7 times offering a yield of just over 6.25%. Now let me touch briefly on our repayments in the fourth quarter. Our $10 million investment in the second lien term loan of secured was repaid at far resulting in an IRR of 9.75%. We were also repaid on our $6 million investment in the first lien loan to [indiscernible] resulting in a return of 6.7%. We also had a $5 million investment [ph] in financial services, which resulted in an IRR of approximately 8% and additionally we repaid on our first lien term loan to data center holdings resulting in an IRR of 8%, and finally we sold our investment in the first lien loan to ABB Optical for gain which resulted in a return of 6.8%. While we believe that the long-term thesis for private middle market loan investing remains intact, we cannot predict how long the current environment, which is defined by loose structures and low pricing will persist. Our priorities remain to protect capital first and earn a fair return to the risk we’re willing to underwrite. When making our investment decisions we always assumed we're in the latter stages of the credit cycle and correspondingly we try to maintain a lower risk portfolio. In competitive and property credit markets like today it is essential that we remain disciplined, opportunistic and patient. Because 40% of our total loan exposure consists of active base loans, we hope to continue to increase a portfolio yield as we grow these businesses, despite the challenging conditions in the sponsor backed half of the market. This enables us to avoid investing in riskier second lien loan asset classes to chase yield. As evidenced by the fact that only 3.5% of our portfolio was in second lien loans. We feel confident that through our multiple origination engine concluding North Mill and Gemino as well as enhance scale across the solar platform, we will continue to grow some portfolio. We’re confident that the solid foundation of our portfolios strong credit profile combined with our available capital and ability to originate across multiple business lines positions SUNS to grow investment income. Now I will turn the call back to Michael.

Thank you, Bruce. At the beginning of the call, I reiterated our long-term priorities for Solar Senior Capital. From the inception of SUNS seven years ago, our investment and management decisions have consistently been focused on building long term value, protecting capital and maintaining in-line with our shareholders. We have been conservative in the faith of sustained frothy credit market and have remained patient and disciplined and not compromising credit quality for yield. Given the challenging environment and persistently tighter spreads and elevated risk and sponsor cash flow lending we pursue strategic alternative to provided SUNS with the resources of both enhance and diversify the earnings power or maintaining our strict investment discipline. We formed the first lien loan program in a strategic partnership with an institutional investor allowing us to invest in first lien senior secured cash flow loans while using modestly higher leverage in the vehicle to generate a more attract on return on equity for SUNS. We also diversified into specialty finance verticals of asset base lending through investments in Gemino healthcare finance and now North Mill Capital which has broaden our platform and enabled us to source senior secured collateral base floating-rate loans and specially niches that are less competitive than traditional cash flow lending. With the acquisition of North Mill, SUNS has further evolved to a more diversified specialty finance company with expertise in several market niches including cash flow senior secured lending and asset-based lending in the form of senior secured cash loans collateralized on a first lien basis primarily by current assets which at 12/31 accounted for 40% of our total loan exposure. Our specialty finance strategies are less correlated to the liquid credit markets and have a differentiated risk return profile that is complementary to our cash flow lending and greater flexibility to stick to investment discipline. In fact, importantly distributions from our strategic initiatives have helped grow SUNS' weighted average portfolio as evidenced by the 120 basis points increase year-over-year. In light of spread compression to credit markets that occurred during 2017 we're particularly pleased with this accomplishment. And finally, as evidence of our continuing shareholders friendly management philosophy, the investment adviser has waived the cost for $4.1 million of management and incentive fees since our last equity offering in 2016 to ensure that net investment from income covered our distribution while we redeployed our available capital to target a 0.8 times debt-to-equity leverage ratio. Including covered all expense of the offering. The investment advisor has no way the total of approximately $10 million in combined management incentive fees and offer expenses since our IPO. With the comprehensive portfolio that is 100% performing, 100% senior secured and 95% floating rate, we believe we are well positioned for strong performance as we look ahead. Given our solid foundation coupled with the earnings potential of our strategic initiatives, we believe Solar Senior has a clear path to generate an incremental investment income as we carefully and opportunistically deploy or approximately $170 million of available capital. As last night's quote $16.72, SUNS' trade at 8.4% dividend yield which represents a significant discount of 5.2% implied yield of the S&P LSTA Leverage Loan 100 Index and a 6.1% yield of a representative sample of 13 closed end loan funds. Given the credit quality of SUNS' diversified portfolio, our differentiated origination engines, our disciplined investment philosophy and our low fee structure, we believe SUNS represents an attractive investment on both a relative and absolute value basis. Thank you very for your time this morning. We look forward to talking to you again next quarter. Operator, at this time, would you please open up the line for questions.

[Operator Instructions]. And our first question comes from the line of Mickey Schleien from Ladenberg. Your line is now open.

Hi guys, good morning everyone. I wanted to ask about the credit watch investments. They were generally marked up quarter-to-quarter which is a nice trend. So, I'd like to understand if those increases were driven by any specific factors perhaps like tax reform or something else?

So that's a great question. They were marked up based on credit fundamentals.

In other words, improved performance across the board for these companies?

Yes. I would say that it's either fundamental performance Mickey, or there may be a repayment path either through a sale of a business or refinancing that would give us a confidence that there is greater value that we have may have in market previously.

And Bruce, some of that performance related to acceleration of the economy and perhaps there is more upside as this year progresses?

No. I wish I could do that granular and tie to anything going on the economy. I just think that, generally speaking there is some injection of equity, there has been some just specific benefits at some of these companies some new contracts. As you know, we tend to take a pretty conservative perspective and mark things down or put them on watchlist in anticipation of something that might create some headwinds. And when that begins to clear, we market back up, and might move it off the watchlist. Maybe the new capital that came in or resolution of an amendment et cetera.

[Operator Instructions] And our next question comes from the line of Chris Kotowski from Oppenheimer. Your line is now open.

Yeah. I just want to talk a little bit about get your thoughts on interest rate sensitivity and presumably with through all the LIBOR floor is now so the December rate hike should that be like fully felt in the first quarter earnings yield?

Yes.

Okay. And presumably there has been some lift, right.

Sure. I mean when you move this, when you look at let’s say a 50-basis point additional move from your December year end, that’s going to accrete to SUNS on a comprehensive portfolio look through basis of another $0.04 to $0.05 on 50 basis points move up, a 100 basis points move is going to be around $0.09 accretive to NII.

Yeah, okay, yes.

That’s for a year not quarter, for the year.

Okay, yes. Now we can dream. And then I guess I just curious as you are talking to your borrowers you talked about how your portfolio overwhelming like floating rate. How do your borrowers think about the risk of rising rates and how do they protect themselves and at what point do rising rates become painful for them in terms of servicing their debt? I know that’s a hard question to answer but how do you people think about it?

No, it’s a great question because clearly debt service requirements are going up for the borrowers. I think if you look at our different segments because you got our EDL businesses where North Mill and Gemino were basically providing working capital financing right against account receivables. And so, it’s just their cost of working capital is going up and they are going to have to try to find a way to pass that through their customers, but we are fully collateralized. And so, we benefit from that. They generally don’t have a lot of other debt in their capital structure and so they are low leveraged and can handle the additional cost. I think as we turn to our cash flow segment as you know this is predominantly a first lien portfolio with only 3.5% second lien and shrinking by the quarter. And so, from our perspective, we’re cumulative defensively positioned at the top of the capital structure and we are cumulative low leveraged. The average leverage as I mentioned to our investment is 4.3 times. So, the challenge would be I think more felt by some of the second lien and junior capital mezzanine investors where rising rate will put some pressure on debt service if the companies aren’t unable to grow their earnings or cash flows commensurate with an increase in interest rate. But we still are at absolute low levels of interest rate, right. So, it’s more about saying the way from the highly leveraged structure where that leverage again rising rates will be more severely felt.

[Operator Instructions] And our next question comes from the line of Jonathan Bock from Wells Fargo. Your line is now open.

Hi guys. Fin O'She for Jonathan Bock this morning. Thanks for taking our question. Just to start out with a couple of more global items, so then perhaps a couple follow ons, first just as it relates to the core cash flow portion of SUNS, understanding that these are going to be more senior larger companies and that also this is presumably one of the smaller vehicles on your platform. Can you, I know we saw couple of co investments with all of this quarter but for the core senior activity. Can you describe sort of your investment power as it relates to the platform, what kind of whole sizes you can do and these more senior and market deals?

Sure, I think that’s a great question and we think it’s a real benefit to SUNS and Solar and other pools of capital on our platform, is that as you know the borrowers just want to know what solar as a platform can hold, which vehicle goes into is our focus and concern but clearly not our borrowers. And so, we touched on the one investment. On location into the hospitality sector, predominantly to the NFL, Super Bowl and other sporting events and there we took down $90 million on the platform over senior took 15 of that 90 and I think that clearly if we didn’t have the rest of the platform and so we're seeing with standalone is a $15 million standalone buyer in that specific situation, we would have been nearly as relevant. And at 90 million we were the largest holder. So, I think that's sort of where we’re today, we continue to expand our capital base alongside the BDCs to allow them to continue to collectively increase our whole levels, the goal being sort of that $150 million to $200 million old level across the platform.

Thank you for that color its very helpful and then just sort of a question on the AVM or higher such businesses, there are now several. With the exception of NEF and solar a lot of these look just at least pretty similar in yield and return profiles. So just question on, when you allow, you will find it attractive the broader platform, you find it attractive specialty finance business that wants to be part of the solar family, how do you decide if it goes with the solar SUNS.

Great question, so when you think about what’s is SUNS its Gemino and North Mill, they are both working capital finance providers to small businesses lending and receivables much like the local bank does and that’s really when they compete. And so, this is very low risk to return some from the fact with they're going where the banks are not but very, very low risks as its against conceivable collateral that in of itself turns every 30 to 40 days. So, their underlying loan can unwind naturally within 30 to 40 days based on the collateral and so we feel that’s very appropriate consistent with first lien, senior secured cash flow loans at SUNS. I think to your point if you look at Crystal and NEF they are at solar cap and they are while Crystal is an ABL lender, it looks at other forms of assets that they underwrite in addition to the working capital and clearly NEF is lending against equipment liquidation value and so less liquid, perhaps the current receivables that are turning every 30 days. So, we feel that the -- we assess, first and almost the underlying risk profile. And that's how we determine. But there are individual deals that will be risk appropriate across the platform just as the word on location from a cash flow perspective. And you'll see us allocate those appropriately if it fits the risk of both verticals.

And I wanted to just reiterate one point. So, I think we are extremely excited that at this point, 40% of our portfolio literally is back by receivables. It just a very, very take place to be and just to put in perspective, these are smaller companies. And we're getting 11% 12% type deals, large companies that financing pay LIBOR plus 250, 300. So, we're getting a real benefit of the illiquidity risk that's proceeds when we don't think there is one, and getting a huge risk premium just because these are private companies. But again, you need very specialized sourcing and back off capabilities to manage those business.

And when you asked appropriately about returns. But what we haven't touched on is the underwriting the performance. And the losses are de minimis at both North Mill and Gemino to Michael's point given there are underwriting receivables.

One more promise, an update and just understanding this is a much more competitive market. Do you have an update on the Life Science JV? Should we expect that to be a 2018 funding?

Yeah, it's great question. I think that the Life Science business as you know is looking at financing both private companies, public companies and within the public sector small public companies and large public companies. And so, the JV is just to refresh for a minute was set up exclusively for the Life Science loans that are large public companies. We do expect to see some activity there this year. But when the Life Science team is going to market, they're looking at good Life Science risk adjusted returns, regardless of whether they're in the private market small public companies or large public companies. And so, we expect to see some growth there, but the Life Science team I think stepping back has been extremely active. We're finding some good lower risk opportunities that you'll see some co-investing in regardless of whether it's in the JV or on balance sheet. I would expect more Life Science loans to creep into SUNS this year.

[Operator Instructions]. And at this time, I'm showing no further questions. I'd like to turn the call back over to Mr. Michael Gross, Chairman and Chief Executive Officer for any closing remarks.

No remarks. I'd like to thank you all for your continued support and participation. And we forward to talking to you again soon. Thank you.