SLR Investment Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2025
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Operator

Good day, everyone, and welcome to today's Q1 twenty twenty five SLR Investment Corp. Earnings Call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask a question during the question and answer session. Please note this call is being recorded and I will be standing by if you should need any assistance.

Operator

It is now my pleasure to turn the conference over to Michael Gross, Chairman and Co CEO.

Michael Gross
Michael Gross
Chairman, President & Co-CEO at SLR Investment

Thank you very much and good morning. Welcome to SLR Investment Corp's earnings call for the quarter ended 03/31/2025. I'm joined today by my long term partner, Bruce Spohler Co Chief Executive Officer as well as our Chief Financial Officer, Shiraz Khaji and the SLR Investor Relations team. Shiraz, before we begin, would you please start by covering the webcast and forward looking statements?

Shiraz Kajee
Shiraz Kajee
CFO & Treasurer at SLR Investment

Thank you, Michael. Good morning, everyone. I would like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of SLR Investment Corp. And that any unauthorized broadcast in any form is strictly prohibited.

Shiraz Kajee
Shiraz Kajee
CFO & Treasurer at SLR Investment

This conference call is also being webcast from the Events Calendar in the Investors section on our website at www.srinvestmentcorp.com. Audio replays of this call will be made available later today as disclosed in our May 7 earnings press release. I would also like to call your attention to the customary disclosures in our press release regarding forward looking statements. Today's conference call and webcast may include forward looking statements and projections. These statements are not guarantees of our future performance or financial results and involve a number of risks and uncertainties.

Shiraz Kajee
Shiraz Kajee
CFO & Treasurer at SLR Investment

Past performance is not indicative of future results. Actual results may differ materially as a result of a number of factors, including those described from time to time in our filings with the SEC. We do not undertake to update any forward looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website or call us at (212) 993-1670. At this time, I'd like to turn the call back over to our Chairman and Co CEO, Michael Close.

Michael Gross
Michael Gross
Chairman, President & Co-CEO at SLR Investment

Thank you, Shiraz, and thank you to everyone for joining our earnings call this morning. Following a strong year of operating performance, portfolio credit quality and platform expansion in 2024, we're pleased to report a solid start to 2025 despite looming global economic and policy uncertainties. While the path ahead is fraught with many unknowns from the impact of tariffs, changes in supply chains and investor angst, we believe FLRC's portfolio is entering this uncertain period in a position of strength. Our first quarter results reflect another quarter resilience, furthering a pattern of performance at SLRC, which is grounded in conservatism, broad diversification, tactical asset allocation and downside protection. The appearance of these tenants can be evaluated in the lens of the portfolio's credit quality via SLRC's substantial portfolio composition in first lien loans, low levels of non accruals, low level of stressed investments and low levels of PIK income.

Michael Gross
Michael Gross
Chairman, President & Co-CEO at SLR Investment

Consequently, we remain confident in our ability to navigate this period of uncertainty and any slowing in the domestic economy and to capitalize on volatility from widening credit spreads, create a growing investment pipeline across our specialty finance strategies. Summarizing results, SLRC reported net investment income of $0.41 per share in the first quarter of twenty twenty five compared to our base dividend of $0.41 per share, representing return on equity of approximately 9%. Net investment income per share in the first quarter withstood the lag effect from the FOMC's one hundred basis points reduction in base rates in the second half of twenty twenty four and a continuation of fiercely competitive market conditions in sponsor finance that led to a compression in illiquidity premiums on new investments. The company's net asset value at quarter end was $18.16 per share, down only $04 from December 31. We believe the durability of our portfolio yields and our strong credit profile reflected by the stability in our net asset value are the direct result of the disciplined exercise during borrower friendly market conditions and our multi strategy approach to private credit investing.

Michael Gross
Michael Gross
Chairman, President & Co-CEO at SLR Investment

More than a year ago, we began a gradual shift in the portfolio mix to asset based specialty finance strategies that provide greater downside protection of principal from underlying liquid and hard collateral. We have favored these borrowing based structures to the protection of principal from the more cyclical nature of enterprise value that secures cash flow loans, while simultaneously offering attractive and often higher yields from the complexity premiums of specialty finance investments. As of March 31, approximately 80% of our portfolio was derived from specialty finance investments, the remainder of the portfolio being comprised of cash flow, sponsor backed loans to companies in recession resilient industries like healthcare services. SLRC originated $361,000,000 of new investments across the comprehensive portfolio and received repayments of $391,000,000 in the first quarter, resulting in a total portfolio of $3,100,000,000 at quarter end. Originations were up approximately 38% year over year and 7% versus seasonally strong fourth quarter.

Michael Gross
Michael Gross
Chairman, President & Co-CEO at SLR Investment

The yield on the comprehensive portfolio was 12.2%, representing a 10 basis points increase in the yield of 12.1% in the fourth quarter and a 40 basis points increase in the yield of 11.8% in the first quarter of twenty twenty four, which we believe compare favorably to changes in base rates over the comparable periods. Due to the more favorable conditions in the specialty finance markets, the company's investments in the first quarter were once again more heavily weighted to those asset classes, which we believe currently provide a more attractive risk adjusted return relative to sponsor finance loans. Approximately 88% of our first quarter originations were in specialty finance. We passed on the refinancing of several cash flow investments within our portfolio, allowing our sponsor finance portfolio to further shrink. Cash flow loans now represent less than 20% of our comprehensive portfolio, the lowest level in three years.

Michael Gross
Michael Gross
Chairman, President & Co-CEO at SLR Investment

A bright spot against the more competitive environment for cash flow investments has been the supportive fundamental and technical tailwinds for our asset based lending strategies. Regional banks continue to tighten credit standards, modernize regulatory capital ratios and rationalize business lines providing an increasing supply of portfolio level transactions, joint ventures or acquisition opportunities. This coincides with frequent financial sponsors seeking more creative ways to provide liquidity to their portfolio companies through ABL financing solutions. Today, the current environment is marked by a degree of policy volatility and economic uncertainty that is unprecedented in recent memory. Sweeping policy shifts, particularly around trade and tariffs, have introduced a wide range outcomes with most market participants now significantly increasing their expectations for elevated inflation, slower global growth and the risk of a tariff driven recession.

Michael Gross
Michael Gross
Chairman, President & Co-CEO at SLR Investment

In operating a business development company that invests in The United States companies, we think investors should take comfort in the fact that our cash flow investment portfolio is heavily focused on domestic service oriented businesses, primarily the healthcare providers insurance brokerage services, business services and select financial and software services. In addition, the majority of our specialty finance loans are backed by working capital collateral, which we expect to be more insulated from the direct impacts of higher tariffs as a result of less exposure to international markets and global supply chains. Quarter to date, the impact from tariffs has little to no impact on the existing portfolio. Across SLR, we are actively engaged with portfolio companies and are carefully monitoring any primary or secondary impacts from tariffs. We remain pleased with the composition, quality and performance of our portfolio.

Michael Gross
Michael Gross
Chairman, President & Co-CEO at SLR Investment

The tactical allocation afforded by SLR's multi strategy approach and the city more discerning in cash flow loans has safeguarded our performance through the prolonged high interest rate and inflationary environment. At quarter end, '90 '6 point '4 percent of our comprehensive investment portfolio was comprised of first lien senior secured loans. SLR's long standing focus on first lien loans has resulted in a portfolio which we believe is conservatively positioned and better equipped to withstand persistent inflationary pressures and high interest rates than portfolios with second lien and broader cyclical exposure. As of March 31, we had only one investment on non accrual representing just 0.60.4% of the investment portfolio on a cost and fair value basis respectively. And only 2% of our income our total income was from restructured PIK in cash flow loans.

Michael Gross
Michael Gross
Chairman, President & Co-CEO at SLR Investment

We believe these metrics compare very favorably to peer public BDCs. At March 31, including available credit facility capacity at SSLP and our specialty finance portfolio companies, we had over $800,000,000 of available capital to deploy. This puts the company into position to take advantage of either durable economic conditions or softening of the economy. I'll now turn the call back over to Shiraz, our CFO to take you through the Q1 financial highlights.

Shiraz Kajee
Shiraz Kajee
CFO & Treasurer at SLR Investment

Thank you, Michael. SLR Investment Corp. Net asset value at 03/31/2025 was $990,500,000 or $18.16 per share compared to $18.2 per share at 12/31/2024. The quarter end SLRC's on balance sheet investment portfolio had a fair market value of approximately $2,000,000,000 in 118 portfolio companies across 32 industries compared to a fair market value of $2,000,000,000 in 122 portfolio companies across 32 industries at December 31. SLRC's investment portfolio is funded by a combination of our revolving credit facilities and the issuance of term debt in the unsecured debt markets.

Shiraz Kajee
Shiraz Kajee
CFO & Treasurer at SLR Investment

The company is investment grade rated by Fitch, Moody's and DBRS. During the first quarter, the company issued privately placed $50,000,000 of three year unsecured notes at a fixed interest rate of 6.14%, representing a spread to the then three year treasury rate of only 190 basis points. As of 03/31/2025, SLRC had $359,000,000 of unsecured debt, representing over 34% of funded debt. The company does not have any near term refinancing obligations with the next maturity occurring in December 2026. Given our pipeline and expectations to expand leverage, we expect to opportunistically access debt capital markets.

Shiraz Kajee
Shiraz Kajee
CFO & Treasurer at SLR Investment

At March 31, the company had approximately $1,000,000,000 of debt outstanding with a net debt to equity ratio of 1.04x. We expect our net debt to equity ratio to migrate towards the middle of our target range of 0.9 to 1.25 times. In terms of liquidity, we believe we have ample amounts of cash and borrowing capacity to support unfunded commitments with capacity amounting to more than two times our unfunded commitments to non controlled borrowers. Moving to the P and L. For the three months ended March 31, gross investment income totaled $53,200,000 versus $55,600,000 for the three months ended December 31.

Shiraz Kajee
Shiraz Kajee
CFO & Treasurer at SLR Investment

Net expenses totaled $31,100,000 for the three months ended March 31. This compares to $31,800,000 for the prior quarter. Accordingly, the company's net investment income for the three months ended 03/31/2025 totaled $22,100,000 or $0.41 per average share compared with $23,800,000 or $0.44 per average share for the prior quarter. This was in line with our $0.41 per share distribution during the period. Below the line, the company had net realized and unrealized loss for the first quarter totaling $2,200,000 versus a net realized and unrealized loss of $1,200,000 for the fourth quarter of twenty twenty four.

Shiraz Kajee
Shiraz Kajee
CFO & Treasurer at SLR Investment

As a result, the company had net increase in net assets resulting from operations of $19,900,000 for the three months ended March 31 compared to a net increase of $22,600,000 for the three months ended 12/31/2024. On May 7, the Board of SLRC declared a Q2 twenty twenty five quarterly distribution of $0.41 per share payable on 06/27/2025 to holders of record as of 06/13/2025. With that, I'll turn the call over to our Co CEO, Bruce Olin.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Thank you, Shiraz. Before I give an update on the portfolio, let me spend a minute reminding shareholders that our multi strategy investment approach, which spans both specialty and sponsor finance credit investments is designed to deliver consistent returns and protect capital across market cycles. Asset backed strategies often exhibit countercyclical characteristics, benefiting from periods of market volatility and capital dislocation, while sponsor finance can outperform in periods of economic expansion and robust M and A activity. The low correlation between these investment strategies enhances portfolio stability, while diversified exposure enables us to capture protection and more actionable risk controls relative to traditional sponsor finance only portfolios. Our specialty finance strategies include ABL, Life Science and Equipment Finance and are underpinned by high quality collateral such as accounts receivable, finished goods inventory, commercial loan portfolios, essential use equipment as intellectual property.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

In most cases, the assets are governed by dynamic borrowing based frameworks, which enable real time monitoring of the underlying asset performance and levers to manage our exposure, which include eligibility tightening, advance rate adjustments and cash dominion. Unlike sponsor finance loans that can delay active lender engagement, especially advance finance investments allow us to engage early with our borrower, intervene proactively and take steps to ensure repayments. In the current market environment, the relative value in specialty finance is especially compelling, not only offering greater structural protection and real time risk monitoring, but also delivering what we believe is a superior risk adjusted return profile compared to cash flow lending. Our flexibility to allocate capital to the most attractive risk return investment opportunities is especially critical in a market where selectivity and downside risk mitigation are paramount. Now let me turn to the portfolio.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

At quarter end, the comprehensive investment portfolio consisted of $3,100,000,000 of investments with an average exposure of approximately 3,200,000 Measured at fair value, 98.2% of our portfolio consisted of senior secured loans with 96.4% invested in first lien loans, including investments in our percent was invested in second lien cash flow loans with the remaining 1.6% invested in second lien asset based loans. At quarter end, our weighted average yield on the portfolio was from 12.1% the prior year end. Based on our quantitative risk assessment scale, our portfolio currently has one of the strongest credit profiles in our history. At quarter end, the weighted average risk rating was under two based on our one to four risk rating scale with one representing the least amount of risk. Just under 90% of the portfolio was rated two or higher.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Moreover, 99.4% on a cost basis and 99.6% on a fair value basis was performing with only one investment on non accrual. Now let me touch on each of the four investment verticals. Cash flow sponsor finance. In this business, we originate first lien senior secured loans to middle market companies in non cyclical industries such as healthcare, business services and financial services. This has helped to mitigate the impact on the portfolio from cyclical economic factors.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

At quarter end, this portfolio was just under $590,000,000 across 35 borrowers, representing 19% of our comprehensive portfolio. With approximately 99% of this portfolio invested in first lien loans, we believe we are well positioned to withstand pressures that our borrowers may face. Our borrowers have a weighted average EBITDA of approximately $90,000,000 and carry low LTVs of under 44%. Sponsor Finance, the portfolio company average EBITDA and revenue growth continues to be in the mid single digits year over year. Overall, they have successfully managed the transition to an environment with higher cost of capital as well as inflationary premiums.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Weighted average interest coverage on this portfolio increased to two times from 1.8 times the prior quarter. Additionally, only 2% of our gross income is in the form of capitalized PIK income from cash flow borrowers resulting from amendments. During the quarter, we made investments of $45,000,000 in first lien cash flow loans and had repayments of $73,000,000 As Michael mentioned, sponsor finance deal flow continues to be muted due to lower M and A volume, and we are selectively letting investments go in connection with refinancings if the new risk return profiles do not meet our criteria. As credit investors focused on downside protection, our ability to say no and pass on opportunities that don't meet our high hurdle can often be measured by the investments that we don't do. At quarter end, the weighted average cash flow yield was 10.4% compared to 10.6 at year end.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Thus far in 2025, there has not been a significant uptick in M and A and the supply demand for middle market debt supporting sponsor finance transactions remains out of balance. In addition, the introduction of punitive tariffs has led to economic uncertainty resulting in widened spreads for new issuance U. S. Middle market debt. That said, wider spreads do not compensate for poor credit risk and we will remain highly selective.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Now let me turn to our Specialty Finance segments. Across the board, the credit quality of these investments continues to be solid with attractive LTVs, which have meaningful collateral support and borrowing based structures. Let me first discuss our asset based lending portfolio. At quarter end, this portfolio totaled $1,100,000,000 across two fifty four issuers, representing 37% of the comprehensive portfolio. Regional domestic banks have continued to adjust their business models in a higher rate environment and are retreating from the ABL market, creating an attractive opportunity for SLR's ABL team.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Under tighter credit regulations, regional banks ABL loans to non rated companies are bumping into higher risk capital charges, making those business lines economically less attractive for the banks. SLR is positioned to collaborate with regional banks who are shifting their ABL strategies in reaction to these challenges. Our late acquisition last late last year acquisition of the loan portfolio and servicing platform from Webster Commercial Services is an example of this. Integration of the portfolio went smoothly and it's performing in line with our expectations. For the first quarter, we had approximately $164,000,000 of new ABL investments and repayments of just under 100,000,000 The weighted average asset level yield was 13.8% compared to 14.6% the prior quarter.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Additionally, we're continuing to see opportunities to provide ABL facilities to traditional cash flow borrowers who are experiencing tightening liquidity pressures. Some sponsor backed borrowers who had access to the cash flow and BSL market in a lower rate environment are now more receptive to our ABL solutions in order to provide incremental capital. These ABL facilities carve out working capital assets that are pledged to our borrowing base and which support the loan and will provide liquidity for the borrower. The new business pipeline has also expanded as fallen angel credits and other businesses seek additional liquidity in light of macroeconomic headwinds. Access to the larger SLR platform has allowed SLRC to speak for bigger hold sizes and accordingly win more business, which led to our ABL team recently originating some of the largest investments in the company's history.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Finally, our ABL teams added new business development personnel, including senior level hires and origination professionals last year and 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 approximately 36% of our comprehensive portfolio and was highly diversified across six thirty six unique borrowers. Credit profile of this portfolio remains stable quarter over quarter. During the first quarter, we originated $128,000,000 of new assets with the majority of this coming from our business that provides leases to investment grade borrowers for mission critical equipment.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

We had repayments of approximately $173,000,000 Weighted average asset level yield was 11.5%. Our investment pipeline has expanded in conjunction with the disruption caused by last year's regional bank failures, and we are seeing demand from our borrowers to extend leases equipment at higher tariff adjusted prices. Finally, let me turn to our Life Science portfolio. Quarter end, this portfolio totaled $187,000,000 across eight borrowers. Just under 89% of this portfolio is invested in companies that have over twelve months of cash runway.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Additionally, all of our Life Science portfolio companies have revenues and at least one product in the commercialization stage, which significantly de risk our investments. Life Science investments represented 6% of the portfolio and contributed 13% of our gross investment income for the quarter. During the first quarter, the team funded $25,000,000 in one new investment and had $45,000,000 of repayments. At quarter end, the weighted average yield on our Life Science portfolio, including success fees, but excluding warrants was 12.5% compared to 12.1% in the prior quarter. While The U.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

S. Remains the most robust global market for biotech innovation and venture funds continue to sit on record levels of dry powder, recent cuts at the FDA and NIH will likely affect research, innovation and public initiatives with anticipated disruptions to the pipeline for new medical innovations. Initial signs of recovery from lower than normal originations in Life Sciences are expected this year, but it may take more time for a substantial market reset until greater policy clarity is realized, which should result in improved investor confidence, increased investment activity. In the interim, we will continue to focus on later stage life science companies, which are in or preparing for commercialization with very little FDA related risk that seek non dilutive capital to fund commercial scale up. Lastly, let me touch on our SSLP.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

During the first quarter, we earned income of $1,900,000 representing a 15.7% annualized yield consistent with the prior quarter. During the quarter, we made $6,600,000 of new investments and had repayments of approximately $20,000,000 At quarter end, the SSLP had an additional investment capacity excess of $70,000,000 and a portfolio fair value of $165,000,000 Now let me turn the call back to Michael.

Michael Gross
Michael Gross
Chairman, President & Co-CEO at SLR Investment

Thank you, Bruce. Concerns about earnings and credit quality in private credit and BDC portfolios continue to remain top of mind for investors. We believe many of the decisions taken at SLRC over the last couple of years have put both the portfolio and the company in a position of strength today and view the consistency of results as a testament to SLR's multi strategy approach to private credit investing. The operating environment remains highly unpredictable, but we believe our fifteen plus year track record with de minimis losses and a successful history of managing through periods of economic distress should give investors comfort to expect more of the same from us. The SLR platform has grown meaningfully over the last couple of years creating a diversified commercial finance company with broad investment capabilities and deep experience through a three thirty member team.

Michael Gross
Michael Gross
Chairman, President & Co-CEO at SLR Investment

Our multi strategy approach to private credit investing emphasize emphasis on preservation of capital and dynamic portfolio construction with a specialty finance emphasis differentiates us from majority of our peers and provides us an investment portfolio that contains very limited investment overlap. This platform growth along with the stability of performance positions the company favorably with momentum across our businesses and a growing investment pipeline heavily tilted towards specialty finance investments. We are confident that we will remain opportunistic and prudent as we deploy capital with discipline and conviction. In closing, SLRC trades at approximately a 10.5% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income seeking and value investors and offers a more diversified investment portfolio compared to cash flow only private credit strategies. Our investment advisor alignment of interest with SLRC shareholders continues to be one of our significant hallmark principles.

Michael Gross
Michael Gross
Chairman, President & Co-CEO at SLR Investment

The SLR team owns over 8% of the company's stock and it's a significant percentage of their annual incentive compensation invested in SLRC stock each 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. As we know, it's a busy day for those who follow the listed BDC marketplace closely. Operator, will you please open the line for questions?

Operator

Thank And we will take our first question from Eric Zwick with Lucid Capital Markets. Please go ahead. Your line is open.

Erik Zwick
Managing Director, Equity Research at Lucid Capital Markets LLC

Thank you. Good morning, everyone. Wanted to start with just kind of a follow-up on some of your commentary about the pipeline being more weighted towards the ABL and equipment finance opportunities. I if you could just maybe put some rough percentages around the pipeline through your kind of main lending verticals as well as touch on where spreads are today versus say three, six months ago?

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Sure. Great question. The pipeline I would say is 75%, eighty % weighted towards ABL in particular. And as a reminder, our ABL strategies cover not only regional areas of focus, but also industry focus such as healthcare, digital media, apparel in connection with the Webster acquisition. So it's across industries and country. So that is the dominant part of our pipeline. I think as you look at pricing, we really don't think of this as a spread business. This is an all in return business because there are a variety of fees that go into the eventual IRR. And this has been one of the hallmarks of ABL lending is that it doesn't have the same variability. It didn't cap out the way cash flow lending did when rates popped up to 5.25 base rates, but it also doesn't compress to the same extent. So it tends to be an absolute return asset class that moves between, I would say, 1113% depending on where we are in the cycle. Today, it's probably in the midpoint.

Erik Zwick
Managing Director, Equity Research at Lucid Capital Markets LLC

That's helpful. Thanks. And just in terms of I think you used the word opportunistic in terms of cash flow lending opportunities that you would choose to move forward. I'm wondering if you could just kind of maybe generally give a kind of a description of something you've done recently where you did see what was attractive about our cash flow deal that you've done recently.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Yes. Most of what we're seeing and this is consistent with the broader cash flow environment. You're not seeing the creation of many new platforms. And so what's attractive to us is to finance a tuck in acquisition. It's a seasoned platform that the sponsor has owned for a couple of years, probably only have a couple of years left on the facility.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

So it gives us a short duration and an ability to re underwrite in two years, three years, determine if we want to stay in or move on. And again, we're financing an add on acquisition, so the business is growing. Typically, additional equity might be coming in alongside that. And it will be in a sector that both the sponsor and we are extremely comfortable with. So we saw this similar dynamic in dislocation in 2023 and we're able to take advantage of it.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

So that's the typical opportunity The ability to finance an acquisition or two as the sponsor is getting closer to potentially exiting that investment.

Erik Zwick
Managing Director, Equity Research at Lucid Capital Markets LLC

That's great color. Thank you. And last one for me. It looks like the contribution from Kingsbridge in the quarter up relative to where it had the last few quarters. Curious if there's anything kind of one time in nature there or is that a decent run rate going forward?

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Yes, it's a combination. There's some one time where they had some gains from some asset sales, but it is continuing to perform well. As we mentioned in our comments, this is an environment where borrowers will extend their leases and that's just falls to the bottom line as additional income. So we're cautiously optimistic, but there is definitely a little bit of one time elevated income in Q1.

Erik Zwick
Managing Director, Equity Research at Lucid Capital Markets LLC

Thank you. That's all for me today. I appreciate it.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Thank you.

Operator

Thank you. And we will take our next question from Melissa Wedel with JPMorgan. Please go ahead.

Melissa Wedel
Melissa Wedel
Vice President, U.S. Equities Research at JP Morgan

Good morning. Thanks for taking my questions today. First, I wanted to say thanks for talking about how you're monitoring tariff exposure in the portfolio. I may have missed it, but did you give sort of a ballpark estimate of tariff exposed companies in the portfolio?

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

No, didn't miss it. As always, Melissa, you're on top of it. Specifically, let me just comment that if you think of the industries where we are lending into healthcare services, business services, financial services, all domestic. By definition, it would actually be difficult to have much exposure just because we're service based, U. S.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Service based and recession resilient businesses that are not dependent on the global economy broadly speaking. So as we look at it, we really think less than 1% of the portfolio has any direct exposure. There are a couple of healthcare companies in life sciences that may manufacture goods in Mexico. We think those are exempt and a small part of the business that those companies do. But we're trying to really dig into every little opportunity to face some headwinds and we feel very, very good about it.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

I think as we also mentioned a corollary is we're more focused on policy around healthcare policy than we are around tariffs given the construct of our portfolio. We'll say that in our ABL portfolio, there are borrowers because we're financing inventory in a number of cases that are going to struggle. But because we are lending against liquid collateral, we feel extremely well protected. Obviously, we're monitoring these borrowers and because we are monitoring and have a front row seat on trends in their receivables and their inventory turns, collections, we can see if they're beginning to struggle and clamp down on our advance rates and make sure that we continue to be protected. So it's not to say that our ABL borrowers won't have some headwinds, but we feel extremely well protected given both our collateral and our underlying controls and ability to monitor that risk real time.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

But I think broadly, we're more focused on some of the policy initiatives around healthcare as we touched on and how that may impact not so much existing investments, but the future pipeline.

Melissa Wedel
Melissa Wedel
Vice President, U.S. Equities Research at JP Morgan

That's very helpful. I appreciate the extra detail there. To follow-up on a comment you made about the equipment finance business and you're seeing borrowers wanting to extend leases rather than go buy more expensive new equipment in a sort of post tariff world. That why is that repricing that extension? Is that why the yield on that portfolio was up meaningfully quarter over quarter?

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

It is. But as I've mentioned also, there are some onetime gains as they had some assets that they were able to sell off because our Equipment Finance business is selling off streams and keeping the residuals and there is profit in that residual. That profit increases to your point if they extend the leases because they have sold off the stream. And so that's additional profit that falls to the bottom line. It's too soon for us to know what the run rate of that will be.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

So there is some onetime, as I mentioned, in Q1. But we do think that there's an opportunity to have elevated income subject to how the tariffs play out. Because again, the borrowers, both because of the increased cost of new equipment as well as the uncertain economic environment, it's easier to extend the lease than to start expending capital expenditures.

Melissa Wedel
Melissa Wedel
Vice President, U.S. Equities Research at JP Morgan

Makes sense. Thank you.

Bruce Spohler
Bruce Spohler
Co-CEO, COO & Director at SLR Investment

Thank you.

Operator

Thank you. And it appears that there are no further questions at this time. I will now turn the program back to Michael Gross for closing remarks.

Michael Gross
Michael Gross
Chairman, President & Co-CEO at SLR Investment

I just want to say thank you for all your time on what we know is a busy earnings season. As always, if you have any follow-up questions, please feel free to reach out to any of us. Have a great day.

Operator

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.

Executives
Analysts
    • Erik Zwick
      Managing Director, Equity Research at Lucid Capital Markets LLC
    • Melissa Wedel
      Vice President, U.S. Equities Research at JP Morgan
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Key Takeaways

  • Net investment income of $0.41 per share in Q1 matched the base dividend, and NAV was $18.16 per share, reflecting an approximate 9% return on equity.
  • The portfolio is now ~80% specialty finance and 96.4% first-lien senior secured loans, with non-accruals at just 0.4% and PIK income under 2%, underscoring a strong credit profile.
  • Originations rose 38% year-over-year to $361 million (88% in specialty finance) with repayments of $391 million, driving a portfolio yield of 12.2% and a pipeline ~75% weighted to ABL and equipment finance.
  • Direct tariff exposure remains minimal (<1% of the portfolio), as the focus on domestic service-oriented businesses and asset-based collateral reduces macroeconomic risks.
  • SLRC holds over $800 million of available capital, is rated investment grade, and maintains a net debt/equity ratio of 1.04x with no refinancing obligations until late 2026.
AI Generated. May Contain Errors.
Earnings Conference Call
SLR Investment Q1 2025
00:00 / 00:00

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