Sunrise Realty Trust, Inc. (SUNS) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2020 Solar Senior Capital Limited Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference may be recorded. [Operator Instructions] I would now like to hand the conference over to your host, Chairman and Co-CEO, Michael Gross. Sir, please go ahead.

Thank you very much and good morning, everybody. Welcome to Solar Senior Capital Limited’s Earnings Call for the first (sic) [second] quarter ended June 30 2020. I’m joined here today by Bruce Spohler, our Co-CEO and Richard 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 Limited and that any unauthorized broadcasts 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 would also like to draw 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 future performance or financial condition. These statements are not guarantees of our future performance, financial condition or results and it involve a number of risks and uncertainties, including the impact of COVID-19 and related changes in base interest rates and significant market volatility in our business, on our portfolio companies and the global economy. Additionally, 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. 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’d like to turn the call back to our Co-CEO, Michael Gross.

Thank you, Rich. Good morning, everybody, and thank you for joining us today. We hope you and your family, friends and colleagues are healthy. Our thoughts continue to remain with all of our stakeholders including the dedicated employees across Solar Senior Capital and the company’s investment advisors, Solar Capital Partners. We’d also like to express our gratitude to all the healthcare and other frontline workers, and our sincere condolences to those families who have lost loved ones. Before turning to our second quarter results, I’d like to take a moment to reflect back on the initial months of this public health and economic crisis, which have tested us as a nation and global community. Closer to home, it has also tested Solar Senior Capital, and its borrowers, management teams and sponsors. On a human level, the collaboration and dedication that our employees and counterparties have shown, as they’ve worked to support our portfolio companies through a crisis of previously inconceivable proportions has been nothing short of breathtaking. While investment professionals and the sponsors and management teams at our portfolio companies have been through multiple economic cycles, the added emotional toil of this health crisis has been the first for everyone. Yet, despite the added stress associated with the contagion itself, working from home and caring for young ones suddenly homebound, our colleagues, both internal and external, across our portfolio are working tirelessly to ensure the financial soundness of our borrowers. The quick conservative actions that our portfolio companies took at the beginning of this crisis to preserve liquidity and shore up their balance sheets are a testament to the high quality of their management teams and owners. Their efforts coupled with our employees’ dedication speak to the resilience of the human spirit. In the year that’s been dominated by negative news, we believe it’s important to recognize we’ve collectively achieved thus far and how the progress has positioned us to successfully weather the remainder of this storm. Solar Senior Capital’s solid performance through the crisis thus far has proven that our longstanding investment thesis that asset-based loans in niche markets and first lien cash flow loans to upper-middle-market companies provide meaningful downside protection during challenging economic periods. SUNS’ primary objective is to consistently deliver income while preserving capital. And I’m pleased to report that our portfolio remains 100% performing. Additionally, we do not anticipate that any of our investments result in less than 100% par repayment. Our portfolio companies are proving to have resilient business models and access to liquidity that will enable them to successfully withstand this crisis. We attribute our healthy portfolio to our strategic efforts to expand into niche ABL verticals, as well as our longstanding investment discipline centered in the philosophy that we always invest as if we are late in a credit cycle. As a result of improving credit market technicals, on the heels of massive fiscal and monetary policy stimulus, as well as our proactive steps taken by our management teams and sponsors, our June 30 marks represent a 58% recovery of the unrealized depreciation recorded at March 31. This improvement translated to a 6.6% increase in our net asset value quarter over quarter to $15.55 per share. At June 30, 99% of our Comprehensive Investment portfolio at fair value was invested in first lien loans, and 45% of the total fair value consisted of loans in specialty finance niches. These businesses have historically exhibited lower default and loss rates throughout business cycles compared to traditional cash flow lending. Importantly, the ABL and Life Science teams have each managed through multiple cycles over career spanning 20 to 30 plus years. At June 30, our Comprehensive Investment portfolio at fair value totaled $532 million, representing a decline of $93 million from the prior quarter. Net portfolio repayment activity partially offset by unrealized depreciation drove the decline. To borrow a bank cliché, the temporary shrinking of our portfolio is a high-class problem, essentially all of our repayments incurred in our 2 ABL subsidiaries, where many of our loans are structured as revolving credit facilities. Bruce will provide more detail. But in short, the vast majority of our ABL borrowers received government aid and almost all were deemed essential services. Suddenly flush with cash, many of these borrowers paid down, but did not terminate our credit lines to them. So this trend is temporarily reduced to earnings of our ABL businesses. We view these borrowers’ temporary increase in liquidity as a credit positive. Over the next couple of quarters as these companies’ working capital requirements exceed the government support fund they received, we expect these borrowers to again draw down their credit lines which will bring the funding for ABL portfolios back in line with historical norms. Our sponsor-backed cash flow loan activity essentially stayed flat quarter-over-quarter. For many years, we have espoused the benefit of maintaining adequate dry powder in the event of a market dislocation. This spring when the U.S. initially went to lockdown, we expected opportunities to abound. However, the unprecedented level of government support created a sudden overheating of the market, translating into an overpricing of the increased risk. Simply put, prices did not reflect the risk inherent in poorly structured loans to borrowers suddenly facing stress. Consistent with our conservative investment philosophy, we remain patient to avoid catching falling knives. Additionally, the sponsor community, as a whole, focused their time and capital on supporting their portfolio companies via negotiating amendments to existing credit facilities and contributing additional equity in the hopes of avoiding the dilution and onerous terms associated with rescue financing. In general, the sponsor community’s collective intense focus on their existing portfolios produced little refinancing and M&A activity during the quarter. Our patience coupled with lack of [new issuer] [ph] activity resulted in little investment during the quarter. However, a lack of repayments for the cash flow loan portfolio offset this dynamic. As our country has transitioned from a near-universal-quarantine to pockets of escalating COVID cases and accompanying stalled business activity, we have seen the investment opportunity-set across both our cash flow and ABL business lines increase. While many underwriting processes have been somewhat slowed by the constraints of the virtual business landscape, we expect to see our portfolio grow as we head into the second half of 2020 and begin a new year that hopefully sees the end of this pandemic. SUNS remain under-levered at point 0.68 times relative to our target range of 1.25 times to 1.50 times. As a reminder, last quarter response to SUNS low leverage and expectation of low base rates for an extended period, the Board approved a reduced cash distribution of $0.10 per share per month for May and for the foreseeable future. In addition, the investment advisor agreed to waive management incentive fees to the extent necessary for net investment income to cover this rate of monthly distributions throughout 2020. This new run rate distribution target of $0.30 per quarter aligns with their earned second quarter earnings of $0.32, resulting from a lower average portfolio balance and the dramatic fall in LIBOR, approximately 82% of our loans of LIBOR floors. As of June 30, all of our borrowers made their interest payments. For the second quarter, cash interest and dividends represented over 99.3% of our gross investment income. Importantly, as the investor available liquidity, we expect SUNS net investment income to cover its distributions without the support of fee waivers by the advisor. As we approach the target leverage of 1.5 times, we would expect that investment income to exceed the current distributions. Recently as the economic climate markets have stabilized, our investment pipeline has increased. We expect the next several months to present compelling investment opportunities at higher expected returns with federal structure protections, which will be an ideal time to grow our income producing portfolio. Our diversified investment platform spending cash flow lending, multiple ABL strategies and Life Science venture landing position SUNS as solutions provider to borrowers. It also enables us to originate attractive risk that is unavailable to firms which under – only underwrite cash flow loans. We expect portfolio growth to come in the form of higher yielding assets with more lender funding terms, which will ultimately drive our increased net investment income. We have the available capital support expansion of our portfolio. At June 30, nearly 50% of our funded debt was comprised of unsecured term notes, which gives SUNS significant unencumbered assets and provides a meaningful over collateralization of its combined $300 million senior secured credit facilities, which at this point are 70% undrawn. As our long-term investors now, we have managed this company in anticipation of an economic downturn. Now that it’s arrived, unfortunately a tragic fashion. We are fortunate to have a solid foundation and are poised to deploy capital support our valued sponsors and management teams. Finally, our investment advisors alignment of interest with the company stakeholders has always been one of our principle – guiding principles. Through significant SUNS share repurchases – purchases since inception, our senior management team now owns approximately 6% of our outstanding common stock. Additionally, all members investment team have a significant percentage of annual compensation invested in our stock. Senior management’s investment alongside fellow shareholders demonstrates our confidence in the company’s defensive portfolio, stable funding, strong liquidity and federal position to make new investments. At this time, I’ll turn over call to CFO, Rich Peteka to take you through the financial highlights with specific emphasis on the liquidity and funding profile.

Thank you, Michael. Solar Senior Capital Limited net asset value at June 30 was $249.5 million or $15.55 per share. This compares to a net asset value of $234.1 million or $14.59 per share at March 31, 2020. Solar Senior’s balance sheet investment portfolio at June 30, 2020, at a fair market value of $416.4 million in 46 portfolio companies operating in 21 industries compared to a fair market value of $395.8 million in 45 portfolio companies operating in 21 industries at March 31, 2020. Turning to our funding profile and leverage, SUNS continues to have a strong balance sheet, which we believe is serving as well in the current downturn. At June 30, 2020, SUNS had $175.8 million of debt outstanding and net leverage of 0.68 times down from 0.69 times net leverage in the prior quarter. SUNS has no near-term debt maturities having termed out both its primary $225 million credit facility, and its secondary $75 million credit facility in 2023 and 2024, respectively. In addition, SUNS has $85 million of unsecured notes with a maturity date of March 31, 2025. Solar Senior Capital has nearly $215 million to fund portfolio growth subject to borrowing base limits. As a reminder, Solar Senior’s target leverage is 1.25 times to 1.50 times that the equity under the reduced asset coverage requirement. As of June 30, 2020, the company had unfunded revolver commitments of only $5 million that can be fully drawn by the borrower’s. Some significant liquidity allows us to be opportunistic in our originations during this location. From a P&L perspective, gross investment income for the 3 months ended June 30, 2020, totaled $7.9 million versus $8.8 million for the 3 months ended March 31, 2020. Net expenses for the 3 months ended June 30, 2020 were $2.8 million compared to $3.1 million for the 3 months ended March 31. Ultimately, net investment income for the quarter ended June 30, 2020, was $5.1 million, or $0.32 per average share as compared to $5.7 million or $0.35 per average share for the 3 months ended, March 31, 2020. For the quarter ended June 30, investment advisor and voluntarily waive management incentive fees of approximately $960,000 compared to the approximate $1 million of fees waived in the prior quarter. Below the line, Solar Senior had a net realized and unrealized gain for the second fiscal quarter totaling $15.4 million compared to net realized and unrealized losses of $27.7 million for the 3 months ended March 31, 2020. Accordingly, Solar Senior had a net increase in net assets resulting from operations of $20.5 million, or $1.28 per average share for the 3 months ended June 30, 2020. This compares to a net decrease in net assets resulting from operations of $22.1 million or $1.37 per share for the 3 months ended March 31. Lastly, our Board of Directors declared a monthly distribution for August 2020 of $0.10 per share payable on September 2, 2020 to stockholders of record on August 20, 2020. At this time, I’d like to turn the call over to our Co-CEO, Bruce Spohler.

Thank you, Rich. First and foremost, let me say, how pleased we are with the portfolio and how well it is whether the crisis so far. This supports our underwriting pieces, but minimizing the risk of loss by investing at the top of the capital structure in cash flow loans to non-cyclical industries, and allocating the significant exposure to asset based loans through our specialty finance lending verticals. At quarter end, the weighted average investment risk rating of SUNS portfolio remained at 2 based on our 1 to 4 risk rating scale, with one representing the least amount of risk. As further indication of the current resiliency of our portfolio 100% of our investments were performing at quarter end. At June 30, our $532 million comprehensive investment portfolio was highly diversified, encompassing 215 borrowers across 115 industries. Approximately 45% of the portfolio was invested in our senior secured, asset based and life science lending strategies, and the remaining 55% was invested in senior secured cash flow loans. Our largest industry exposures are healthcare providers, professional services, and insurance brokerage. The average investment per issuer was $2.5 million or approximately 0.5% of the total portfolio. At June 30, approximately 100% of our portfolio consisted of senior secured loans, comprised of 99% first lien, and 1% second lien senior secured loans. We believe that our efforts to position our portfolio to almost entirely invested in first lien loans, which carry less risk than second lien and subordinated loans will result in greater capital preservation during this crisis. At quarter end, our weighted average asset level yield was 9.2%. By focusing on our commercial finance verticals, we’ve been able to maintain asset level yields approaching 10%, despite the sharp drop in LIBOR resulting from the Federal Reserve’s efforts to aid the economy. Including activity across our 4 business lines, originations totaled just over $23 million and repayments were just over $128 million, resulting in a net portfolio reduction of $105 million. Substantially all of our portfolio contraction in the second quarter resulted from revolver pay downs in our 2 ABL businesses by the borrowers who had received government fiscal support. I’ll now provide an update on our investment verticals, including valuation updates. Let’s start with the cash flow segment. We believe the cash flow portfolio is well positioned to withstand prolonged recession. Our cash flow portfolio does not have direct exposure to cyclical industries, such as energy, travel, retail, leisure, heavy manufacturing, or consumer discretionary sectors. We’ve been in regular dialogue with the management teams and sponsors of our portfolio companies regarding their business prospects during COVID. We are encouraged by the steps taken by our portfolio companies to preserve liquidity, as well as the continued strong sponsor support. Our 99% first lien portfolio, relatively modest average, first lien leverage of 5 times, significant junior capital cushion and strong sponsor support positions as well to withstand economic headwinds. We view the majority of our portfolio companies as providing essential services in non-cyclical sectors that will continue to be required during periods of regional stay in place mandates. As a reminder, our evaluation framework incorporates sector specific market spread movements in the quarter, adjusting for the existence of LIBOR floors, weighted average life of the investments, the existence of covenants, and other borrower specific factors such as their liquidity profile, sponsor support and our investment position in the capital structure. The majority of the increase in our portfolio marks this quarter, a reflective of market spread movements. To provide further context market spreads for the LCD first lien single B index tightened approximately 300 basis points, or 68% from the end of the first quarter to the end of the second quarter. Given the fundamental strength of our portfolio, we expect to recoup the remaining unrealized appreciation over the coming quarters. At June 30, our cash flow portfolio was $295 million, or approximately 55% of the total portfolio. It was invested across 32 borrowers with an average investment of just over $9 million. These companies had a weighted average EBITDA of $107 million, which highlights our longstanding commitment to finance larger businesses, which we believe are better positioned to withstand economic headwinds. The weighted average yield on our cash flow portfolio was just under 7%. The 32 cash flow borrowers, 2 portfolio companies had a temporary covenant waiver to support a decline in revenues as a result of stay at home during COVID. Well, it’s early days revenues are recovering strongly by more than 80% in the majority of cases, our borrowers are well capitalized with ample liquidity and strong sponsor support. Majority of the amendments that we executed were related to request for audit extensions, as a result of the disruption caused by stay at home orders. And the instances where we provided covenant release, we’ve managed to get some combination of increased fees and improved documentation terms. Overall, we are optimistic concerning your portfolio’s performance. In addition, we had no instances where cash interest payments were either partially or fully converted to pick interest payments. During the second quarter, period of inactivity for the middle market landscape, as sponsors focused their efforts on supporting existing portfolio companies. We originated roughly $4 million of first lien senior secured cash flow loans and experienced a similar amount of repayments. Our significant available liquidity of SUNS enables us to be active while maintaining our selectivity as new issue activity increases. Over the last few years, we’ve made a conscious decision to shrink our cash flow portfolio owing to frothy market conditions, resulting in highly leveraged deals with loose documentation. We’ve begun to see more opportunities to finance larger upper middle market companies have lower leverage levels and with better covenants and call protection. We will continue to maintain our discipline of investing in non-cyclical sectors focused on the upper end of the middle market in our cash flow segment. Now, let me turn to our asset based lending businesses. As a reminder, SUNS owned 2 commercial finance companies that specialize in making senior secured asset based loans collateralized on a first lien basis, primarily by accounts receivable. These portfolio companies lend to small- and mid-sized U.S. businesses, who typically have limited access to traditional bank financing. Gemino Healthcare is focused on providing revolving accounts receivable facilities exclusively to healthcare service providers. Collateral includes Medicare, Medicaid and private insurance receivables. North Mill finances companies primarily in the distribution, business services and manufacturing industries. North Mill is typically the sole lender to its borrowers, and its financing structures primarily include revolving accounts receivable financing, as well as factoring agreements. In addition, all factoring arrangements have recourse to the underlying borrowers. Both Gemino and North Mill are led by teams of seasoned professionals who have been an asset based lending for 25 to 40 years. The management teams are experienced risk underwriters across multiple economic cycles. Their business models are highly resilient, relationship driven, and serve as a lifeline of working capital to small businesses across the U.S. In addition, the collaboration across Gemino and North Mill business developments efforts. Together with North Mill’s acquisition last year of Summit Finance, has broadened and deepened the coverage across any regions and enhance the pipeline of investment opportunities. In prior economic downturns, asset based loans collateralized with cash receivable generally provide higher recovery rates than those supported only by cash flows with few or no maintenance covenants. Let me now provide an update on each of these businesses. Our valuation approach and the current investment environment they’re facing. I’ll start with North Mill, at quarter end, North Mill’s portfolio was over $134 million representing 25% of SUNS total portfolio. It consisted of 145 borrowers with an average investment of just under $1 million. Over 99% of the borrowers are deemed essential businesses and the PPP has been highly beneficial to North Mills portfolio companies. Importantly, North Mill’s portfolio is defensively positioned with approximately one-third of its exposure in the distribution industry with a concentration and food distribution, one-third in staffing with an emphasis on outsourced and remote IT staffing, and one-third in manufacturing with many borrowers operating in essential industries. At June 30, there were no defaults or delinquencies across North Mill’s portfolio. The yield on its portfolio was just over 13% compared to 12.5% during the first quarter. In the second quarter, North Mill funded just over $14 million of new and existing asset based investments and I’ve repayments of approximately $62 million. The heightened repayment activity occurred as North Mill’s borrowers pay down their credit line with North Mill with the proceeds from their paycheck protection program loans from the government, 87% of this total pay down during the quarter, related to revolving credit facilities that continue to remain in place and for which we expect to be drawn down yet again, as these borrowers liquidity profiles normalize. At quarter end, the fair value of our investment in North Mill was marked up slightly from the first quarter in line with improved valuations of the comparable companies we use in our valuation process. SUNS’ uses the services of an independent third-party to this valuation. Our framework is primarily driven by price to book values of pure comparables as well as private market transactions for similar businesses. Knowing where comparable businesses have been bought and sold over the past few years, we believe North Mill remains conservatively marked. During the second quarter, North Mill paid the company, cash dividend of approximately $1.25 million consistent with the first quarter and in line with North Mills current earnings power. This summer marks the one year anniversary of North Mills acquisition of Summit. The integration is complete and has been faster than we had expected. We’re encouraged by the discipline and shared culture, credit culture, broader geographic coverage, an expanded pipeline of investments across both asset base and factoring opportunities. We view factoring is a highly attractive asset class, and this portfolio as well as the addition of the core underwriting and business development team has increased North Mills exposure and expertise in factoring. Importantly, North Mill takes a conservative approach by prioritizing factoring agreements with recourse to the underlying borrowers. We anticipate continued steady performance for the North Mill. Now let me turn to Gemino. Gemino’s portfolio was $75 million at quarter end, representing 14% of SUNS total portfolio. Portfolio was comprised of loans to 29 borrowers, with an average investment of just over $2.5 million. The impairment risk remains extremely low, given Gemino’s disciplined underwriting and focus on financing health service providers, who have government and high quality insurance company accounts receivable is their collateral. Cash collections typically go directly into lockboxes and fees and interest payments are debited by Gemino automatically. At quarter end, there were no defaults across Gemino’s borrowers. The yield on Gemino’s portfolio was 10.8%. During the first – during the second quarter, we funded no new or existing investments and had repayments of approximately $62 million. The significant repayment activity resulted from pay downs on its borrower’s facilities with Gemino, with proceeds from the Medicare advanced payment program, HSS Grants, and the PPP… As with North Mill, we expect the amount drawn on Gemino’s borrower facilities to normalize over time. During the second quarter Gemino paid SUNS a cash dividend of just under $1 million, consistent with the first quarter, and in line with Gemino’s earnings power. During the quarter, Gemino delivered an 11% return on equity. At quarter end, fair value of our equity investment in Gemino was marked up 1% from the prior quarter, in line with improved valuations of the companies that we use in our valuation process. SUNS uses the services of an independent third-party as part of this process. While evaluation framework is fundamentally grounded in assessment of pure price to book values, there are not great comparable public companies. So we rely more on private transaction values for this highly specialized business. Since owning Gemino, our price to book value has been conservative relative to commercial finance companies with similar risk profiles. As we look forward, we’re confident in the portfolio quality of Gemino and believe the company is well positioned to capture additional growth as the market settles. Now, let me turn to Life Science lending. Overall, our portfolio is largely insulated from short-term market and economic dislocations given the long-dated equity investment periods and product development cycles. The impact of COVID has had a de-minimis impact on the underlying Life Science portfolio. 100% of our loans are performing and we continue to expect to incur no losses in this segment. As a reminder, we have never realized a loss in our Life Science investments. Currently, 100% of our Life Science portfolio have more than 12 months of cash runway. This is largely a result of our investment focus on public and venture capital backed late-stage pharmaceutical and medical device companies that are close to or entering commercialization. It’s important to remember that our discipline is to make Life Science investments at loan to values generally less than 20%. Here value is defined as actual cash invested in the business and not the enterprise value post the most recent VC funding ramp or market capitalization if the company is public. While the FDA may be slowing trials in favor of fast-tracking COVID treatments or vaccines, patients may be somewhat reluctant to participate in trials given the pandemic. The projected short-term delay for some companies is very short in relation to the 5- to 15-year development process, as well as the significant capital invested in these companies relative to the investment size of our loan. In addition, there are some late-stage companies whose revenues may be deferred as a result of delays in procedures or elective surgeries. The financial viability of hospitals, doctors and healthcare providers depend upon these sources of revenues, and we expect these services to continue to ramp back up during the rest of 2020. At quarter end, our Life Science portfolio was $27 million. The portfolio consisted of 8 borrowers, with an average investment of just over $3 million. The weighted average yield on this portfolio was 9.4%, excluding any success fees or warrants. Our valuation framework for Life Sciences is based on marking each investment at approximately its amortized cost, including the final fee received as a contractual payoff. There is no liquid market for private life science venture debt. We do not use equity benchmarks for determining our values. In accordance with this methodology the weighted average mark on our life science loans was approximately par at quarter end. The healthcare space in general continues to be attractive, and we are not seeing any slowdown in new Life Science investment opportunities. Also, the increased scale of the broad Solar platform enhances the opportunity set for investments in later larger-stage public pharma and medical device companies. We will continue to be highly disciplined in evaluating these new investment opportunities. In conclusion, we believe SUNS is well positioned to weather this crisis. As we continue to navigate this challenging environment, we will remain in close contact with our portfolio companies, their management teams and sponsor owners. We support them. We will also work with our extensive network of relationships to continue to source new investment opportunities. Our commercial finance platform and significant dry powder enable us to provide structured solutions including both cash flow and asset based loans for capital-constrained companies during these times. Solar Senior will be able to participate in these financings while maintaining significant diversification in its portfolio. Now, let me turn the call back to Michael.

Thank you, Bruce. In closing, we would like to thank Solar Senior Capital’s shareholders for their continued support during this difficult time. From inception, we’ve endeavored to make the right decisions to preserve and enhance long-term shareholder value. Our priority has always been to create and maintain a portfolio that can generate steady income for our shareholders and protect capital. Over the course of the extended frothy credit markets, we remain disciplined in the face of significant spread compression, higher leverage and loose structures, all of which had elevated the risk of principal loss in middle-market leveraged finance. As a result, we have positioned SUNS defensively, diversified our portfolio across cash flow and specialty finance first lien senior secured loans to manage downside risk. We have operated well under target fund leverage and have preserved liquidity. We believe we have taken the appropriate steps to navigate successfully through what we anticipate to be a prolonged and difficult period. Throughout we have maintained alignment through our ownership of SUNS alongside our fellow shareholders. Our decisions to prioritize capital preservation rather than leveraging the portfolio and taking on more risk at the wrong time of the cycle have allowed us to enter into this dislocation in a position of relative strength. Importantly, we have confidence that our team’s expertise and ability to provide financing across cash flow and ABL solutions should enable SUNS to continue to support its existing portfolio companies and make new investments during this period of turmoil. As a result of recent fundraising, the SCP platform now has over $6.5 billion of investable capital, including potential leverage. Our private funds maintain a co-investment strategy with Solar Senior Capital, which provides the company access to attractive co-investment opportunities in upper-middle-market companies that otherwise would not have been able to have with its capital base alone. Specifically, the collective dry-powder enables the platform to speak for large positions and to provide rescue financings as well as add-on acquisition financing when M&A activity resumes. Now, more than ever, SCP’s scale should serve as a competitive advantage for Solar Senior Capital. Importantly, for Solar Senior Capital, this scale and flexibility to finance cash flow and asset based solutions for larger companies is a significant advantage today. With $250 million of available capital, and a strong foundation, given our defensive portfolio and low leverage, we believe the company’s position originate, attracts new investments, while also supporting our existing portfolio companies as needed. Our patience and willingness to remain under-invested provides us the foundation to be opportunistic. Given the magnitude of the economic disruption, we believe that the improved investment opportunities set will persist for several quarters as companies seek liquidity and financing solutions. With our solid portfolio foundations, stable funding sources and strong liquidity, SUNS is in an ideal position to capitalize on opportunistic investments. We currently have no anticipated need for additional equity, liquidity or capital. And accordingly, we have no plans to issue dilutive equity. Each year for the past 8 years, our shareholders have granted us the approval to issue shares below net asset value subject to Board approval. We have always viewed this trust in us as a great responsibility and have managed the business accordingly. Given our belief in the company’s ability to successfully navigate the current challenges, we’re disappointed in our current stock price. We remain confident that the quality of our portfolio will result in a stable net asset value, which ultimately will be reflected in a higher absolute and relative share price. We hope that all of you are in good health. And we would like to thank you all for your time today and for your continued support of our company. Operator, would you please open the line for questions?

[Operator Instructions] Our first question comes from the line of Mickey Schleien of Ladenburg. Your line is open.

Yes, good afternoon, everyone. Hope all is well on your end.

Thank you, Mickey.

Yeah, Michael and Bruce, I appreciate all your color on the tone of the market. Just wanted to follow up. In many cases, spreads are wider versus pre-COVID levels in leveraged loan market. But with the amount of private debt capital that’s been created alongside all the private equity that’s been created, how concerned are you that your competitors will chase deal flow and drive down those spreads; while at the same time the forward LIBOR curve is basically flat, which could pressure the portfolio’s yield in the cash flow segment and limit your opportunity to grow that business?

So – that is a great question. It is definitely a concern. There has been a couple of transactions, not many, too soon to call it market, where you’ve seen of late spreads coming pretty tight, actually, tight to pre-COVID levels. But importantly, Mickey for us the opportunity set is more based upon where risk is, and specifically what leverage levels and covenant packages look like. And that’s where we can be active, because as you know, we are benefiting from the higher yields that we get in our ABL portfolio at SUNS to balance out lower yields in cash flow. So you’re spot on, we have not seen yet the widening that we would have anticipated. But, again, it’s a very small sample set of new cash flow deals that have come to market so far. But we are seeing better terms and better risk. And so, that’s really what is going to drive our activity level.

Okay. Thanks for that, Bruce. And in terms of the opportunity set, I know, historically, you’ve preferred middle market to upper middle market. But I have seen some very interesting terms done recently in the lower middle market with leverage even below 3. And so far, even though it’s early days, I understand and none of us really know what the ultimate impact of the pandemic is going to be, but lower-middle-market borrowers seem to be performing relatively well, apart from the idiosyncratic issues in restaurants and hotels and things like that. So has – given what I just said, do you have any incremental interest in perhaps looking at some smaller borrowers?

So we – as you know, we go to market in the lower-mid-market through our ABL platforms. At SUNS, it’s North Mill and Gemino; and over at Solar, it’s through Nations Equipment. And then, it’s also through our Life Science vertical, where you’re dealing with smaller businesses that are just coming into commercial commercialization for drugs and medical devices. So that’s really been our comfort is to have the added benefit when we’re going to lend into smaller companies, to not do it on an exclusively cash flow basis, because you’re right, leverage multiples may be low, but EBITDA by definition is small. And it’s – you’re in the land of small numbers where a $2 million move on an $8 million EBITDA business, for example, can have a material impact on those ratios, and more importantly, the sustainability of your loan. So we prefer to attack it with collateral as well as cash flows at the lower-end of mid market.

I understand. Those are all my questions for this morning. I appreciate your time. Thank you.

Thank you.

Thank you, Mickey. Stay well.

Thank you. [Operator Instructions] As there are no further questions, at this time, I’d like to turn the call back to Michael Gross, Chairman and Co-CEO for closing remarks, sir?

We have nothing more to add at this time other than to thank you for your continued support and your participation this morning. Hope everyone is well. Take care. Bye-bye.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.