Good day, ladies and gentlemen, and welcome to the Q2 2018 Solar Senior Capital Ltd. Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Michael Gross, Chairman and Chief Executive Officer. You may begin.

Thank you very much, and good morning. Welcome to Solar Senior Capital Ltd. earnings call for the fiscal year ended June 30, 2018. I'm 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'd 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, 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 of financial condition. These statements are not guarantees of our future performance, financial condition or results and they 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 Ltd. undertakes no duty to update any forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website or call us at 212-993-1670. At this time, I'd like to turn the call back to our Chairman and Chief Executive Officer, Michael Gross.

Thank you, Rich. The second quarter of 2018 marked another solid quarter of operating performance for Solar Senior Capital. Our comprehensive portfolio grew approximately 4.5% than the prior quarter with net positive portfolio activity across all business units. Overall, our diversified portfolio of senior secured cash flow and asset-based loans continues to perform well. Net asset value was $16.83 per share at June 30, and GAAP net investment income of $0.35 per share fully covered our distributions. At June 30, 98.1% of our comprehensive portfolio was in first lien senior secured cash flow and asset-based loans. Nearly 40% of our comprehensive portfolio is now comprised of first lien senior secured asset-based loans with the remainder primarily in first lien senior secured cash flow loans. Importantly, we believe, the risk-adjusted return profile and our asset-based lending initiatives is currently more attractive than many of the cash flow opportunities we are seeing. As evidence, year-to-date, 80% of new issuance in the liquid leveraged loan market has been covenant-lite. During these frothy market conditions, our asset-based lending businesses, Gemino and North Mill have been facilitating our continued portfolio expansion via loans with strong structural protection. Not only do our asset-based senior secured first lien loans carry credit protections and yields superior to those available in liquid leveraged loan markets, but the higher income received from them enables us to remain extremely selective in the cash flow middle market. Expanding our ability to invest in these senior secured first lien asset-based loans was a significant consideration in our board decision to approve the reduction of the asset coverage requirement set forth in Section 61(a)(2) of Investment Company Act of 1940 as amended by the Small Business Credit Availability Act. As a result, on August 2, 2019, the SUNS asset coverage requirements will change from…

Thank you, Michael. Solar Senior Capital Ltd.'s net asset value at June 30 was $269.9 million or $16.83 per share. This compares to a net asset value of $270.0 million or $16.84 per share at March 31, 2018. Solar Senior's investment portfolio at June 30 had a fair market value of $470.2 million in 49 portfolio companies, operating in 22 industries compared to a fair market value of $424.2 million in 46 portfolio companies operating in 21 industries at March 31. At June 30, the weighted average yields on our income producing portfolio was 8.9% measured across and over 98% of Solar Senior portfolio investments are performing. At June 30, 2018, net leverage increased to 0.65x from 0.51x at March 31. Once the modified asset coverage change goes into effect, Solar Senior's new target leverage will be 1.25x to 1.50x debt-to-equity. From a P&L perspective, gross investment income for the three months ended June 30, 2018 totaled $9.5 million versus $9.3 million for the three months ended March 31. Net expenses for the three months ended June 30 were $3.8 million compared to $3.7 million for the three months ended March 31. In Q2 2018, the investment adviser waived $0.4 million of performance-based incentive fees. On a cumulative basis, since SUNS IPO in 2011, the investment adviser has waived the management and performance-based investment fees and covered equity offering costs totaling $10.6 million. Ultimately, net investment income for the quarter ended June 30, 2018 was $5.7 million or $0.35 per average share consistent with the prior quarter. Below the line, Solar Senior had net realized and unrealized losses for a second fiscal quarter totaling $0.1 million consistent with the first quarter. Accordingly, Solar Senior had a net increase in net assets resulting from operations of $5.5 million or $0.34 per average share for the three months ended June 30. This compares to a net increase in net assets resulting from operation of $5.5 million or $0.34 per average share for the three months ended March 31. At this time, I'd like to turn the call over to our Chief Operating Officer, Bruce Spohler.

Thank you, Rich. Before diving into the details of our portfolio, I'd like to take a moment and provide an overview of our 3 principal lines of business. Our cash flow business invest in senior secured, predominantly first lien loans to sponsor-backed companies in the upper mid-market. Our health care asset-based business provides first lien senior secured loans to midsize companies, operating exclusively in the healthcare industry. We do this through our Gemino platform. These loans are typically secured by our borrower's accounts receivable. Our third platform, North Mill provides asset-based loans and factoring facilities, which are secured by a borrower's accounts receivable and are extended to mid-sized companies operating predominantly in the manufacturing, services and distribution industries. As Michael mentioned, our intention with the greater flexibility afforded by the modified asset coverage requirement is to expand our portfolio via loans in these three segments, but only when market conditions make it conducive to do so. Additionally, we will evaluate opportunities to further expand our specialty finance lines of business. In the aggregate, at quarter end, our investments across all three verticals totaled approximately $700 million, encompassing 171 distinct borrowers. The average investment per issuer was approximately $4 million or 0.6% of our total portfolio. Measured at fair value, just under 100% of SUNS portfolio consisted of senior secured loans of which 59% are in first lien senior secured cash flow loans, 39% in first lien senior secured asset-based loans and just under 2% are in second lien senior secured cash flow loans with a de minimis amount of equity at 0.1% of the portfolio. In addition, approximately 94% of loans have floating rate coupons, which should continue to benefit our portfolio's performance in a rising rate environment. SUNS weighted average yields with its comprehensive portfolio was 9.6%. Looking at…

Thanks, Bruce. Since the inception of SUNS, our investment and management decisions have consistently been focused on building long-term value, protecting capital and maintaining alignment with our shareholders. We've been conservative in the phase of sustained frothy credit markets and remain patient and disciplined in not compromising credit quality for yield. And, as you know, we have never allowed leverage to drive our investment decisions. Since inception, SUNS has averaged 0.36x debt-to-equity despite a historical target of 0.75 to 0.85. For SUNS, our board decision to approve the modified asset coverage requirements focused on balance sheet optimization, portfolio financing flexibility and risk management and not on maximizing leverage. The greater flexibility does not change our investment strategy. It's enhanced our ability to execute on our existing strategy, including acquiring, building and growing specialty finance businesses. At last night's close of $16.90 per share, SUNS trades at an approximate 8.3% yield, which represents a significant discount to the 5.4% implied yield of the S&P/LSTA leveraged loan index. Given the overall credit quality of SUNS diversified portfolio, our differentiated origination engines and our disciplined investment philosophy, we believe, SUNS represents an attractive investment on both a relative and absolute value basis. We thank you very much for your time this morning. We look forward to speaking to you next quarter. Operator, at this time, could you please open it up to the questions, if there are any?

We thank you for taking the time this morning. And if you have any follow-up questions that we didn't cover in our script today, please feel free to give us a call. Thank you.