Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SLR Investment Corp (SLRC, Financial) reported stable net investment income of 45¢ per share for Q3 2024, consistent with the prior quarter.
- The company's net asset value remained stable at $18.20 per share, reflecting strong credit quality.
- SLRC's portfolio is heavily weighted towards special finance investments, which are considered more recession-resilient.
- The company successfully acquired an asset-based factoring portfolio from Western banks, enhancing its ABL capabilities.
- SLRC has over $750 million of available capital, positioning it well for future economic conditions.
Negative Points
- The sponsor finance market remains fiercely competitive, impacting SLRC's ability to originate new loans in this segment.
- SLRC's life sciences portfolio faces challenges due to increased defaults and weaker lender protections.
- The company experienced a net realized and unrealized loss of $2.3 million for the third quarter.
- SLRC's portfolio includes one investment on non-accrual, representing 0.6% of the investment portfolio on a cost basis.
- The life sciences industry continues to face valuation challenges, affecting SLRC's investment pipeline.
Q & A Highlights
Q: Can you provide insights on the Webster acquisition and its impact on SLR Business Credit?
A: Bruce Spohler, Co-Chief Executive Officer, explained that the acquisition came with a 14% portfolio, targeting a low to mid-teens return on equity. They invested about $30 million in equity, expecting upside from this starting point.
Q: Is the leverage within the SLR Senior Credit portfolio at the desired level, or is there potential for more leverage?
A: Bruce Spohler stated that the current leverage is where they want it to be. They are rotating out of cash flow loans, and the strategy at SSLP is cash flow investing. The leverage might fluctuate slightly due to repayments and opportunistic additions.
Q: With the potential for increased M&A activity, do you see opportunities to re-enter the cash flow lending market?
A: Bruce Spohler noted that while M&A activity could relieve repricing pressure, it might not significantly change yields due to the substantial capital raised for sponsor finance. Michael Gross added that more M&A supply provides more opportunities to find suitable investments, but spreads are unlikely to widen dramatically.
Q: Can you elaborate on the assets acquired in the factoring portfolio and their impact on diversification?
A: Bruce Spohler explained that the acquired assets are floating rate and consistent with their existing platform. The portfolio is diverse, with 94 borrowers and an average investment of $1.3 million per borrower. The yields are in the low to mid-teens, with minimal losses due to high-quality collateral.
Q: Are you constrained by the 30% cap, and how much capacity do you have for additional deals?
A: Bruce Spohler clarified that the 30% cap affects some fincos due to their structure, but the BDC benefits from the broader platform's flexibility. They do not feel constrained by this cap and can take assets into the BDC and alongside private funds.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
