SLR Investment Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2025

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

Transcript Sections

Skip to Participants
Operator

Good day, everyone, and welcome to today's Q1 2025 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. You may register to ask a question at any time by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing star and two. Please note this call is being recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Michael Gross, Chairman and Co-CEO.

Michael Gross
Michael Gross
Chairman and Co-CEO at SLR Investment Corp

Thank you very much, and good morning. Welcome to SLR Investment Corp's Earnings Call for the quarter ended March 31st, 2025. I'm joined today by my long-term partner, Bruce Spohler, Co-Chief Executive Officer, as well as our Chief Financial Officer, Shiraz Kajee, 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 at SLR Investment Corp

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. This conference call is also being webcast from the events calendar in the investor section on our website at www.slrinvestmentcorp.com. Audio replays of this call will be made available later today, as disclosed in our May 7th 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. They involve a number of risks and uncertainties. Past performance is not indicative of future results.

Shiraz Kajee
Shiraz Kajee
CFO at SLR Investment Corp

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 Gross.

Michael Gross
Michael Gross
Chairman and Co-CEO at SLR Investment Corp

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 SLRC's portfolio is entering this uncertain period in a position of strength. Our first quarter results reflect another quarter of stability and resilience, furthering a pattern of performance at SLRC, which is grounded in conservatism, broad diversification, tactical asset allocation, and downside protection.

Michael Gross
Michael Gross
Chairman and Co-CEO at SLR Investment Corp

The appearance of these tenets can be evaluated through the lens of the portfolio's credit quality via SLR Investment's substantial portfolio composition in first-line loans, low levels of non-accruals, low levels of stressed investments, and low levels of PIK income. 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, creating a growing investment pipeline across our specialty finance strategies. Summarizing results, SLR Investment reported net investment income of $0.41 per share in the first quarter of 2025, compared to our base dividend of $0.41 per share, representing a return on equity of approximately 9%.

Michael Gross
Michael Gross
Chairman and Co-CEO at SLR Investment Corp

Net investment income per share in the first quarter withstood the lag effect from the FOMC's 100 basis points reduction in base rates in the second half of 2024 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 quarter-end was $18.16 per share, down only $0.04 from December 31. We believe the durability of our portfolio yields and our strong credit profile reflect the stability in our net asset value as a direct result of the discipline exercised during borrower-friendly market conditions and our multi-strategy approach to private credit investing. 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.

Michael Gross
Michael Gross
Chairman and Co-CEO at SLR Investment Corp

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 and business services. SLRC originated $361 million of new investments across the comprehensive portfolio and received repayments of $391 million in the first quarter, resulting in a total portfolio of $3.1 billion at quarter-end. The originations were up approximately 38% year-over-year and 7% versus a seasonally strong fourth quarter.

Michael Gross
Michael Gross
Chairman and Co-CEO at SLR Investment Corp

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 2024, which we believe compares 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-financed 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-financed 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 and Co-CEO at SLR Investment Corp

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 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 of potential economic 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 and Co-CEO at SLR Investment Corp

In operating a business development company that invests in 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 and services, 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 our 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 and Co-CEO at SLR Investment Corp

The tactical allocation afforded by SLR's multi-strategy approach and decision to be more discerning in cash flow loans has safeguarded our performance through the prolonged high-interest rate and inflationary environment. At quarter-end, 96.4% of our comprehensive investment portfolio was comprised of first-line, senior-secured loans. SLR's long-standing focus on first-line 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-line and broader cyclical exposure. As of March 31, we had only one investment on non-accrual, representing just 0.6% and 0.4% of the investment portfolio on a cost and fair value basis, respectively. Only 2% of our total income was from restructured PIK and cash flow loans. We believe these metrics compare very favorably to peer public BDCs.

Michael Gross
Michael Gross
Chairman and Co-CEO at SLR Investment Corp

At March 31, including available credit facility capacity at SSLP and our specialty finance portfolio companies, we had over $800 million of available capital to deploy. This puts the company in a position to take advantage of either durable economic conditions or a softening of the economy. I'm now turning the call back over to Shiraz, our CFO, to take you through the Q1 financial highlights.

Shiraz Kajee
Shiraz Kajee
CFO at SLR Investment Corp

Thank you, Michael. SLR Investment Corp's net asset value at March 31, 2025, was $990.5 million, or $18.16 per share, compared to $18.20 per share at December 31st, 2024. The quarter-end SLRC's unbalanced sheet investment portfolio had a fair market value of approximately $2 billion in 118 portfolio companies across 32 industries, compared to a fair market value of $2 billion in 122 portfolio companies across 32 industries at December 31st. 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. The company is investment-grade rated by Fitch, Moody's, and DBRS. During the first quarter, the company privately placed $50 million 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.

Shiraz Kajee
Shiraz Kajee
CFO at SLR Investment Corp

As of March 31st, 2025, SLR Investment had $359 million 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. At March 31st, the company had approximately $1 billion of debt outstanding with a net debt-to-equity ratio of 1.04 times. We expect our net debt-to-equity ratio to migrate towards the middle of our target range of 0.9-1.25 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.

Shiraz Kajee
Shiraz Kajee
CFO at SLR Investment Corp

Moving to the P&L, for the three months ended March 31st, gross investment income totaled $53.2 million versus $55.6 million for the three months ended December 31st. Net expenses totaled $31.1 million for the three months ended March 31st. This compares to $31.8 million for the prior quarter. Accordingly, the company's net investment income for the three months ended March 31st, 2025, totaled $22.1 million with $0.41 per average share, compared with $23.8 million with $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 $2.2 million versus a net realized and unrealized loss of $1.2 million for the fourth quarter of 2024.

Shiraz Kajee
Shiraz Kajee
CFO at SLR Investment Corp

As a result, the company had net increase in net assets resulting from operations of $19.9 million for the three months ended March 31st, compared to a net increase of $22.6 million for the three months ended December 31st, 2024. On May 7th, the board of SLR Investment declared a Q2 2025 quarterly distribution of $0.41 per share, payable on June 27th, 2025, to holders of record as of June 13th, 2025. With that, I'll turn the call over to our Co-CEO, Bruce Spohler.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

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-financed 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&A activity. The low correlation between these investment strategies enhances portfolio stability, while diversified exposure enables us to capture shifting market dynamics without compromising our credit discipline. As Michael indicated, we've deliberately tilted the portfolio to specialty finance investments, which we believe offer superior downside protection and more actionable risk controls relative to traditional sponsor-finance-only portfolios.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

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 well as intellectual property. 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, specialty 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.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

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. At quarter-end, the comprehensive investment portfolio consisted of $3.1 billion of investments with an average exposure of approximately $3.2 million. Measured at fair value, 98.2% of our portfolio consisted of senior-secured loans, with 96.4% invested in first-line loans, including investments in our SSLP, and only 0.2% was invested in second-line cash flow loans, with the remaining 1.6% invested in second-line asset-based loans. At quarter-end, our weighted average yield on the portfolio was 12.2%, up 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.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

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. 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-line 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. At quarter-end, this portfolio was just under $590 million across 35 borrowers, representing 19% of our comprehensive portfolio.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

With approximately 99% of this portfolio invested in first-line 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 million and carry low LTVs of under 44%. Sponsor finance, the portfolio company's average EBITDA and revenue growth continues to be in the mid-single digits year over year. Overall, they have successfully managed to transition to an environment with higher costs of capital as well as inflationary premiums. Weighted average interest coverage on this portfolio increased 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 million in first-line cash flow loans and had repayments of $73 million.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

As Michael mentioned, sponsor finance deal flow continues to be muted due to lower M&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 do not meet our high hurdle can often be measured by the investments that we do not do. At quarter-end, the weighted average cash flow yield was 10.4% compared to 10.6% at year-end. Thus far, in 2025, there has not been a significant uptick in M&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.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

That said, wider spreads do not compensate for poor credit risk, and we will remain highly selective. Now, let me return 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 $1.1 billion across 254 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. 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.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

Our late-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 million of new ABL investments and repayments of just under $100 million. The weighted average asset-level yield was 13.8% compared to 14.6% the prior quarter. 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, which support the loan and will provide liquidity for the borrower.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

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. 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 billion, representing approximately 36% of our comprehensive portfolio, and was highly diversified across 636 unique borrowers. Credit profile of this portfolio remained stable quarter over quarter.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

During the first quarter, we originated $128 million of new assets, with the majority of this coming from our business that provides leases to investment-grade borrowers for mission-critical equipment. We had repayments of approximately $173 million. 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 on equipment rather than buy new equipment at higher tariff-adjusted prices. Finally, let me turn to our life science portfolio. Quarter-end, this portfolio totaled $187 million across eight borrowers. Just under 89% of this portfolio is invested in companies that have over 12 months of cash runway. Additionally, all of our life science portfolio companies have revenues and at least one product in the commercialization stage, which significantly de-risked our investments.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

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 million in one new investment and had $45 million 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% the prior quarter. While the U.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 health initiatives, with anticipated disruptions to the pipeline for new medical innovations.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

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, and M&A activity. In the interim, we will continue to focus on later-stage life science companies which are in or preparing for commercialization with very limited FDA-related risk that seek non-dilutive capital to fund commercial scale-up. Lastly, let me touch on our SSLP. During the first quarter, we earned income of $1.9 million, representing a 15.7% annualized yield consistent with the prior quarter. During the quarter, we made $6.6 million of new investments and had repayments of approximately $20 million. At quarter-end, the SSLP had additional investment capacity in excess of $70 million and a portfolio fair value of $165 million. Now, let me turn the call back to Michael.

Michael Gross
Michael Gross
Chairman and Co-CEO at SLR Investment Corp

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 SLR Investment 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 15-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 330-member team.

Michael Gross
Michael Gross
Chairman and Co-CEO at SLR Investment Corp

Our multi-strategy approach to private credit investing, emphasis on preservation of capital and dynamic portfolio construction with a specialty finance emphasis, differentiates us from the 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's alignment of interest with SLRC shareholders continues to be one of our significant hallmark principles.

Michael Gross
Michael Gross
Chairman and Co-CEO at SLR Investment Corp

The SLR team owns over 8% of the company's stock and has 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 is a busy day for those that follow the listed BDC marketplace closely. Operator, will you please open the line for questions?

Operator

Thank you. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We will take our first question from Erik Zwick with Lucid Capital Markets. Please go ahead to where line is open.

Erik Zwick
Managing Director at Lucid Capital Markets

Thank you. Good morning, everyone. I 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 wonder 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 at SLR Investment Corp

Sure. Great question. The pipeline, I would say, is 75-80% 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 Webster acquisition. It is across industries and the country. That is the dominant part of our pipeline.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

I think if you look at pricing, we really do not 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 does not have the same variability. It did not cap out the way cash flow lending did when rates popped up to 5.25% base rates. But it also does not compress to the same extent. It tends to be an absolute return asset class that moves between, I would say, 11-13%, depending on where we are in the cycle. Today, it is probably in the midpoint.

Erik Zwick
Managing Director at Lucid Capital Markets

That is helpful. Thanks. 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.

Erik Zwick
Managing Director at Lucid Capital Markets

I wonder if you could just kind of maybe generally give kind of a description of something you've done recently where you did see what was attractive about a cash flow deal that you've done recently?

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

Yeah. Most of what we're seeing, and this is consistent with a broader cash flow environment, you're not seeing the creation of many new platforms. 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. 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. We're financing an add-on acquisition, so the business is growing. Typically, additional equity might be coming in alongside that.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

It will be in a sector that both the sponsor and we are extremely comfortable with. We saw this similar dynamic in dislocation in 2023, and we were able to take advantage of it. That is the typical opportunity that we would see. The ability to finance an acquisition or two as the sponsor is getting closer to potentially exiting that investment.

Erik Zwick
Managing Director at Lucid Capital Markets

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

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

Yeah. It is a combination. There is some one-time where they had some gains from some asset sales. It is continuing to perform well.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

As we mentioned in our comments, this is an environment where borrowers will extend their leases, and that just falls to the bottom line as additional income. We are cautiously optimistic, but there is definitely a little bit of one-time elevated income in Q1.

Erik Zwick
Managing Director at Lucid Capital Markets

Thank you. That is all for me today. I appreciate it.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

Thank you.

Operator

Thank you. As a reminder, if you would like to ask a question, please press the star and one on your telephone keypad now. We will take our next question from Melissa Wedel with J.P. Morgan. Please go ahead.

Melissa Wedel
Melissa Wedel
VP of U.S. Equities Research at J.P. Morgan

Good morning. Thanks for taking my questions today. First, I wanted to say thanks for talking about how you are 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 at SLR Investment Corp

No. You did not miss it, as always, Melissa.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

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. service-based, and recession-resilient businesses that are not dependent on the global economy, broadly speaking. 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. 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 at SLR Investment Corp

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. Because we are lending against liquid collateral, we feel extremely well protected. Obviously, we're monitoring these borrowers. 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. 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 at SLR Investment Corp

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
VP of U.S. Equities Research at J.P. 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, is 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 at SLR Investment Corp

It is. As I mentioned also, there are some one-time 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. There is profit in that residual.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

That profit increases, to your point, if they extend the leases because they have sold off the stream. That is additional profit that falls to the bottom line. It is too soon for us to know what the run rate of that will be. There is some one-time, as I mentioned, in Q1. We do think that there is an opportunity to have elevated income subject to how the tariffs play out. Again, the borrowers, both because of the increased cost of new equipment as well as the uncertain economic environment, find it easier to extend a lease than to start expending capital expenditures.

Melissa Wedel
Melissa Wedel
VP of U.S. Equities Research at J.P. Morgan

Makes sense. Thank you.

Bruce Spohler
Bruce Spohler
Co-CEO at SLR Investment Corp

Thank you.

Operator

Thank you. 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 and Co-CEO at SLR Investment Corp

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 at Lucid Capital Markets
    • Melissa Wedel
      VP of U.S. Equities Research at J.P. Morgan
Powered by Quartr