SLR Investment Corp. Price & Performance (SLRC)

Thus far, in 2025, there has not been a significant uptick in M and A. With spreads at tight levels and incremental weaker protections creeping into structures we remain highly selective However, we are optimistic that sponsor finance conditions will improve throughout this year. As CEO confidence increases and we start to see increased activity in M and A. Now let me turn to our Specialty Finance segments. Across the board, the credit quality of these loans continues to be solid attractive loan to values which have meaningful collateral support and borrowing based structures. Let me first touch on our asset based lending portfolio. At year end, the portfolio totaled $1,000,000,000 across two fifty seven issuers. Regional domestic banks have continued to adjust their [indiscernible] in a higher rate environment and are retreating from the ABL market. Creating an attractive opportunity for SLR's ABL team. Under tighter credit regulations, regional banks asset based loans to non investment grade companies are often in ineligible Fed liquidity programs and often require banks to hold more capital against these loans. SOR is positioned to collaborate with these banks who are shifting their ABL strategies reaction to these market challenges. Our recent acquisition of the loan portfolio and servicing platform from Webster Bank is an example of this.

The integration of the platform and the portfolio is going smoothly. And is performing in line with For the quarter, we had $128,000,000 of new ABL investments and repayments of $2.00 $5,000,000 Weighted average asset level yield was 14.6% compared to 14.4% the prior quarter. Additionally, we are seeing opportunities to provide ABL structured facilities to traditional cash flow borrowers who are experiencing tight liquidity pressure from declining Some sponsor backed borrowers who had access to the cash flow and BSL market in a lower rate environment are now perceptive to our ABL solutions in order to provide working capital and liquidity. These ABL facilities with us carve out working capital assets to be pledged into a borrowing base supporting the incremental ABL facility and provides liquidity relief for the borrower. The new business pipeline has expanded age old credits and other well capitalized businesses seek additional liquidity in light of macroeconomic headwinds. Access to the larger SLR platform has allowed us to speak from bigger hold sizes and accordingly win more attractive investments. Finally, our ABL teams added new originators continue to do so in 2025. Now let me touch on equipment finance. At quarter end, this portfolio totaled just over $1,000,000,000 representing 37% our total portfolio.

Credit profile continues unchanged from the prior quarter. During the fourth quarter, we originated approximately $180,000,000 of new assets with the majority of this coming from our business that provide leases to investment grade borrowers. We had repayments of just over $101,000,000 Weighted average asset level yield was 10.7% compared to 9.4% the prior quarter. Our investment pipeline has expanded in conjunction with the disruption caused by the regional bank failures. Finally, let me touch on Life Sciences. At year end, our Life Science portfolio totaled approximately $240,000,000 over 87% is invested in portfolio companies that have over twelve months of cash runway Additionally, all of our portfolio companies in life sciences have revenues. [indiscernible] at least one product in the commercialization This significantly de risks our investment Life Science investments represented just under 80% of the portfolio and contributed 18% of the gross investment income for the fourth quarter. Recent months, we have seen green shoots in our life science pipeline we expect that activity will continue to improve While we expect to see some industry changes stem from the evolving regulatory environment. Our life science team is keenly focused on these developments and benefits from their twenty plus year history of investing in life sciences.

During the fourth quarter, funded just over $6,000,000 of an investment to an existing borrower and had $33,000,000 of repayments. At quarter end, the weighted average yield on the life science portfolio excluding fees but excluding warrants, was just over 12% just over 12.5% the prior quarter. With early signs of improvement in the life science market, have seen a modest uptick Given our ability to allocate capital to the best risk reward opportunities across our investment strategies have the luxury of being highly selective in our capital deployment in life sciences yet still generating positive total originations collectively across the Lastly, I want to touch on the company's SSLP. During the fourth quarter, we earned $1,900,000 representing a 15.6% annualized yield consistent with the prior quarter. As of quarter end, the portfolio had a fair value of just over $178,000,000 Now let me turn the call back to Michael. Thank you, Bruce. As we close the book on 2024, we are pleased with the stability evidenced in our fourth quarter results and encouraged by the overall credit quality of the investment portfolio. This is evidenced by another quarter of net asset value stability continued very low level of nonaccruals a small percentage of watch list investments minimal payment and kind income and broad portfolio diversification While concerns about credit quality and private credit portfolios continue creep into the market narrative, profile defaults, as the trailing twelve month loss rate in public BDC crested above the long term average 2024, we view the consistency of our results achieved throughout the year as a testament to SLR's multi strategy approach in private credit investing.

As we reflect in the growth of our platform over the last fifteen years that has created a diversified commercial finance company, with bond investment capabilities we believe our multi strategy approach emphasis on preservation of capital and portfolio construction with the specialty finance emphasis differentiates us from the majority of our peers. The company is positioned favorably with momentum across all of our businesses and a growing pipeline chills towards specialty finance investment opportunities. Since our IPO fifteen years ago, we have generated a 10.5% IRR for our shareholders. We are grateful to and humbled by the support of our investors, lenders rate agencies portfolio companies and more than 300 employees including affiliates, across the SLR platform who have contributed to this milestone. Thank you to all of you who have contributed to FRC's In closing, SoC currently trades at a 9.4% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income seeking value investors and offers shareholders portfolio diversification benefit compared to cash flow only private credit strategies. Our investment advisor alignment of interest with the shareholders continues to be one of our significant hallmark principles. The SLR team owns over 8% of the company's stock, and includes having significant percentage of their annual incentive compensation in Sea 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. Thank you all again for your time today. We know, it's a busy time of the year for those that follow the list of BDC Marketplace closely. Operator, would you please open up the line for questions? Certainly.

And we'll take our first question from Eric Zwick, of Lucid Capital Markets.

Thank you. Good morning, everyone. It's been a fair amount of time talking about the opportunities for your specialty finance verticals and how strong the pipeline is, there today. I'm curious with respect to potentially acquiring whole portfolios or teams part of the pipeline looks like and you mentioned that the web's dropped opportunity last year. Were there any others last year that you looked at and, didn't choose to go forward with? And if so, what might those reasons be?

Great question. Yes, starting with last year, we did see some opportunities that could have transacted on. And we decided to pass I think that generally if we pass, it's because we get in there and begin to see some of the credit underwriting processes and how the portfolio looks relative to the portfolios that we own and generally have passed on that basis where we feel that we can create or better something than what we would be buying in the market. But we do have a team that is dedicated, as you may recall, to sourcing portfolios and teams And we have post the regional banking disruption seen elevated activity level across specialty finance in terms of bringing on teams and portfolios. So we expect it to be a contributor this year. But you do have to kiss a lot of frogs.

Sure. Makes sense. I like that analogy. And maybe moving towards sponsor finance, and I know your majority of the capital you put to work last year was on the specialty finance side. You're seeing better risk adjusted You noted that the spreads remain very tight in sponsor finance. I'm curious if you could just maybe address what you're seeing from a structure perspective as well? Are you seeing any actors out there that are starting to bend there or is it primarily just The spread pressure that keeps the risk adjusted opportunity not as attractive.

So I would say that both the Sprint compression and the loosening of terms in the sponsor market feels to have stabilized albeit our ABL and specialty finance strategies. But there does seem to be a little bit of a stability there. I don't know if the influx of new capital relative to the deal flow has kind of found its equilibrium at the moment, we're just not liking the absolute returns afforded in the sponsor finance business. New platforms are if you can find them are in the 9% to 9.5% all in. As you heard, our yield in the sponsor book from 11.1% down to 10.6% that's kind of what we're targeting is 10.5% to 11% returns we're going to invest in sponsor. But I would say things have stabilized for the moment. I appreciate the thought I'll step aside and hop back in the queue. Thank you. Thank you. We'll take our next question from Casey Alexander of Compass Point.

Hi, good morning.

Good morning.

My first question is about the equipment finance I mean, it's the if you look at the comprehensive portfolio, it's the largest segment of the portfolio [indiscernible] because of its sort of unique structure, fixed rate loans, floating rate liabilities, the yield has improved two sixty basis points over the last two quarters.

Back up to what I think is sort of an acceptable BDC level. Are you it doesn't really feel like you're matching liabilities and assets though. Is there anything that you can do to change the liability side of the structure to kind of I don't lock it in or reduce the yield volatility that occurs in that portfolio? I'm just curious if there's something that you can do now that it's returned to a more acceptable yield? So good question. It is reasonably well matched Look, equipment finance sector benefits in this environment from a a couple of things. On the liability side, the floating rate debt is actually part of our parent company's investment came in as debt about 150,000,000 as well as the equity. That is floating rate. So it's just another way to pull our income out. You could say it's been [indiscernible] rates are up. But that's not a real driver. We just look at the total income of across our debt and equity investment.

We So obviously, if the debt's down a little bit, the equity will be up a little bit since we own both. 100%. I think the big driver here is in this environment, in an inflationary environment, this business does outperform. We have investments that we've putting on the last two years in a higher rate environment to your point that is helping the business because we did put in fixed rate liabilities a few [indiscernible] You also find in this environment [indiscernible] borrowers will keep the asset longer and extend our lease and that is where we make profit. We want inflationary environment such that lease versus buy decision is such that is in their equipment. And that's where we're seeing elevated profitability. [indiscernible] long winded answer to your question, but we feel well matched And we do think that in this environment, we will continue to see nice stable returns. Okay. [indiscernible] Thank you for that. My second question is, I just want to make sure that I understand building the pipeline in ABL What you're talking about is more transitioning what might have been traditional cash flow opportunities into ABL opportunities as opposed to having a stack up of standalone new specialty finance companies that you would want to buy?

That's where the increase in the pipeline is coming from?

Yes, correct. It's individual ABL loans. I mean, you saw we've taken down our cash flow book from what was a peak of 26% of the portfolio in 'twenty three when we like that risk.

Down to just about 20% and my guess is that we'll head lower, I think, our trough in the last few years has been closer to 15%. And in ABL loans. That is separate and apart to your question from any potential portfolios like the one we purchased from Webster that would accelerate that. But as you see, we have taken down our leverage to 1.03, was up at 1.19 about a year ago. So we do have ample capacity to both buy portfolios and just pursue the individual loans that are making up our pipeline.

Of ABL assets. [indiscernible] appreciate your stance of not seeing enough return [indiscernible] spreads that are $4.75 or wherever The SSLP was set up to accept lower yielded loans lower yielding loans from Solar Senior, I mean, is there a place for those if If the If the credit is good, is there a place to take a piece of those lower spread loans on and ship them down to The JV, and a follow on to that is, as it stands right now, if you're not going to do that, is the JV kind of at its functional capacity at this point in time? So great question. And yes, 100%. We are continuing to put loans into the cash flow loans into the SLR. Remember, originally, it was migrating loans that acquired in connection with the merger with SUNS back in 2022. Many of which back then were priced at the $4.75 level. So we are doing that, which is why we think that we can continue to run that portfolio at close to full optimization. All right. Thank you.

Thank you. Thank you.

We'll move next to Melissa Weddle.

Of JPMorgan.

Thanks for taking my questions this morning. Some of them have actually been asked already, but I thought maybe we could touch back on the ABL opportunity. Given What you described as some funders leaving the space and we see the opportunity there was a little bit surprised by just the volume of exits [indiscernible] seem to be pretty resilient. And if I'm correct, there was even a quarter over quarter increase in yields. Just want to understand that dynamic and what's driving both the yield changes in the space, but also some of the the repayments that you saw in 4Q. Sure. So the yield is, I think the takeaway there should be more about the stability. Whether it ticks up a couple of basis points quarter over quarter, is really not indicative of a system systemic trend in ABL we like about ABL is that it is a stable return asset across interest rate cycles. So but to your point about repayments, sometimes you get repaid as a lender and that's that we celebrate as you know at SLR. The average [indiscernible] of the loans that got repaid. We had $2.00 $5,000,000 dollars of ABL repayments in the fourth quarter.

Average duration was four years. If you think about it, that's longer than you typically see in sponsor loans, life science loans. So it just happened to be idiosyncratic that we had a number of loans. That were coming due and they were moving on. We'd love to have kept them, but that is the nature of ABL. These companies will move to lower cost financing when they can. But again, we kept them on SLR's balance sheet for over close to four years. So it was just an odd quarter in that regard. The other point worth noting is in ABL lending, as you think about, for example, the Webster portfolio that we purchased at the end of the quarter, you often structure your loan unlike cash flow where you have a term loan and maybe a small revolving credit facility, the entire facility in ABL is often structured as a revolver. And so what happens is you will have usage of that facility we mandate economically through fees and minimal utilization of the facility, you will see So just to put it in context, we saw $60,000,000 of repayments in that $2.00 $5,000,000 in the fourth quarter, were temporary repayments of a facility.

They were not loss of a borrowing relationship per se as you think about a typical repayment. So those outstandings will ebb and flow across the ABL credit facilities.

Thank you. We'll move next to Paul Johnson of KBW.

Thanks. Good morning. Thanks for taking my questions. In terms of just the sponsor back, lending business and you've been allowing that portfolio to run off and that's been the case for quite some time going back several several years give or take a few windows of opportunity for growth in that vertical.

But broader SLR platform Can you just tell us how much is still, I guess, investing in cash flow loans? SLR there other parts of the platform that are still involved in that business where you can manage your share and relevance with with sponsors and maintain those relationships? That's a great question. All of our funds we manage for the most part are multi strategy funds. So they have exposure to all the SLR strategies and the cash flow. So with very few exceptions, any cash flow that we're putting into SLRC is also being invested on behalf of all the high net worth funds, [indiscernible] and commingle funds. And that allows us to take down anywhere from $50,000,000 to 100 and million dollars of a loan and keep diversification across the platform. So we're not treating SLRC different than we are with regards to cash flow loans than we are in our institutional funds.

But I think a corollary is you may wonder what is our relevance to the borrowing sponsored community if it seems that our commitment to the asset class ebbs and flows across cycles. And the answer is we are very targeted in our sponsored cash flow lending business towards three industries: healthcare SLR, business services financial services. That probably comprises 75%, 80% of our cash flow portfolio. So we have deep relationships in those industries and we will be active as a lender when those sponsors are active. But in those sectors, they tend to be the sponsors much more focused on creating value for the equity over time less focused on trying to drive the cheapest borrowing cost with least amount of covenants. It's much more of a partnership. So So we make sure that we maintain our relevance to these cash flow borrowers to the sponsor community in those industries across the cycle. So our activity closely follows theirs in terms of how they see investment opportunity just as we do.

Got it. I appreciate that. That's helpful. And then last question from me. I apologize if you said this earlier on in the beginning of the call, but Just on what looked like higher dividend income this quarter [indiscernible] investment obviously been performing well, but what drove that? And I'm looking at basically about $16,000,000 or so of dividend income in the fourth quarter. Is that kind of a good run rate going forward or is there anything non recurring in there we should be thinking about for next year? Sure. So, no, that was what we would like to think of as run rate, hopefully. But you got to hold economic conditions constant. Some of it to your point was definitely increased income coming in from the lease portfolio but the majority of it actually was from the ABL businesses. In large part, the acquisition of the Webster portfolio We closed that the last day of Q3. So you had the full quarter impact Q4 returning assets mid teens returns So that that should be continuing those relationships. Early days have stuck with us. So we'd like to think that's a run rate. And I just I can't emphasize enough our commitment to the ABL asset class It is direct lending just like cash flow.

The only difference you're underwriting collateral addition to cash flows and the liquidation of collateral if needed is your primary source of repayment. We've been very active, as I mentioned, in adding originators in ABL. Both last year and continuing into Q1. So we do see that as a growth area and that is a lot of what you're seeing in terms of the elevated dividend income in Q4. Just to expand for one more second, you may know that our focus in goes beyond just types of collateral, mostly working capital receivables and inventory, it also extends into industry expertise. Just as we have healthcare expertise in life sciences and healthcare cash flow lending, we have a dedicated healthcare ABL team that is underwriting healthcare receivables, both commercial pay government pay. We also have businesses dedicated to digital media industry. With the Webster acquisition, [indiscernible] pivoted to some old school industries such as apparel. So there is a lot of white space out there And very often in ABL, regional and industry expertise can be a differentiator.

Got it. I appreciate that. I mean one more on on the ABL. I mean, you mentioned some new hires there.

Mean, what is kind of the requirement for additional headcount in those businesses? I mean, is most of the existing human capital basically kind of in place for those companies or would you If you look at all our portfolio companies under SLRC, they're all built for growth. So the infrastructure is all there. As evidenced by the fact that we bought the Webster portfolio into The prior owner had about 90 people servicing it. We took 90 people to service it. Since we already have the construction in place. What we're adding people is really exclusively on the origination side. To Bruce O'Lacombe, we are committed to the ABL business and we're able to recruit highly talented and experienced people from commercial banks that are looking for a different experience in a different way to grow their personal business.

Got it. And when those hires like that headcount, is that at the advisor level or is that headcount at the [indiscernible] [indiscernible] [indiscernible] Got it. Thank you very much. That's all for me.

Thank you.

It appears that we have no further questions at this time. We thank you all for your attendance today. We recognize it's a busy time of year. So those you who missed it or just listen to the recording, please feel free to follow-up for any questions you may have. This does conclude today's conference. You may now disconnect your lines. And everyone, have a great day.