Good day, ladies and gentlemen and welcome to your Solar Capital Limited Earnings Conference Call for the quarter and fiscal year ended December 31, 2015. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s call is being recorded. I would now like to introduce you to your host for today’s call Chairman and Chief Executive Officer, Michael Gross. Sir, you may begin.

Thank you very much and good morning. Welcome to Solar Capital Limited’s earnings call for the quarter and year ended December 31, 2015. I am joined here today by Bruce Spohler, our Chief Operating Officer and Richard Peteka, our Chief Financial Officer. Before we begin, Rich, could you please start off by covering the webcast and forward-looking statements?

Of course. Thank you, Michael. I would like to remind everyone that today’s call and webcast are being recorded. Please note that they are the property of Solar Capital Limited and that any unauthorized broadcasts, in any form, are strictly prohibited. This conference call is being webcast on our website at www.solarcapltd.com. Audio replays of this call will be made available later today as disclosed in our earnings press release. I would also like to call your attention to the customary disclosures in our press release regarding forward-looking information. Statements made in today’s conference call and webcast may constitute forward-looking statements, which relate to future events or our future performance or financial condition. These statements are not guarantees of our future performance, financial condition or results and involve a number of risks and uncertainties. Actual results may differ materially as a result of number of factors, including those described from time-to-time in our filings with the SEC. Solar Capital Limited undertakes no duty to update any forward-looking statements, unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website or call us at 212-993-1670. At this time, I would like to turn the call back to our Chairman and Chief Executive Officer, Michael Gross.

Thank you, Rich. During the frothy market condition of the past few year, the [indiscernible] credit cycle. As you well know, the tide recently began to move out. After three years of patience and disciplined investment approach with a focus on building strategic investment niches, rather than leveraging up and buying the market, we welcome the sea change. As significantly shareholders we share our investor’s disappointment with where our stock is currently trading. We are however pleased with our operating performance in the fourth quarter and 2015 as a whole. This puts us in a position of strength that will enable us to not only by weather the credit conditions in 2016 and beyond, but to capitalize them in order to deliver shareholder value. On all three major metrics by which we measure our fundamental performance; credit quality, NAV preservation and portfolio earnings power, we had a highly successful fourth quarter and full year 2015. First, the credit quality of our portfolio remained strong. Throughout 2015, we had only one legacy asset on nonaccrual, representing less than 1% of the entire cost of our portfolio. Over the course of the year, our portfolio companies collectively experienced both revenue and EBITDA growth, as well as deleveraging. We continue to have no direct exposure to oil and gas or commodities industries. Our lack of exposure to these troubled sectors is not the result of [indiscernible]; however it is due to our philosophy investing in non-cyclical defensive industries with high visibility and recurring cash flows. Second, our December 31, 2015 net asset value per share of $20.79 remains above our adjusted NAV of $20.52, at the time of our IPO six years ago. The ability to preserve NAV is largely determined by net investment income coverage and portfolio of credit quality, both of…

Thank you, Michael. Solar Capital Limited’s net asset value at December 31, 2015 was $882.7 million or $20.79 per share compared to $913.9 million or $21.52 per share at September 30. The decline in NAV was primarily related to net unrealized depreciation from mark-to-market yield related valuation adjustments. At December 31, 2015 our on balance sheet investment portfolio had a fair market value of $1.31 billion in 54 portfolio companies across 30 industries compared to a fair market value of $1.21 billion also in 50 portfolio companies and 30 industries at September 30. The weighted average yield on our income-producing portfolio increased to 10.5% at December 31, 2015 versus 10.1% at September 30 measured at fair value. For the three months ended December 31, gross investment income totaled $31.5 million versus $30.4 million for the three months ended September 30. Net expenses totaled $14.5 million for the three months ended December 31 compared to $13.5 million for the three months ended September 30. During Q4, our investment advisor, as Michael noted, waived $994,000 of its performance-based incentive fees, resulting in $1.7 million of performance based incentive fees waived during 2015. Accordingly, the company’s net investment income for the three months ended December 30, 2015 totaled $17.0 million or $0.40 per average share consistent with $17.0 million or $0.40 per average share for the three months ended September 30. Below the line, the company had net realized and unrealized losses for the fourth quarter totaling $31.2 million versus net realized and unrealized losses of $16.9 million for the third quarter. Ultimately, the company had a decrease in net assets from operations of $14.2 million or $0.33 per average share for the three months ended December 31. This compares to a slight increase of $0.1 million or $0.00 per share for the three months ended September 30. Finally, our board of directors declared a Q4 distribution of $0.40 per share payable on April 1, 2016 to shareholders of record on March 24, 2016. With that, I’ll turn the call over to our Chief Operating Officer, Bruce Spohler.

Thank you, Rich. I’d like to begin by providing an update on the credit quality of our portfolio. The financial health of our portfolio companies remained sound. With the trends of continued modest growth, as well as deleveraging through strong free cash flow, which continued through the fourth quarter. At 12/31, the fair value weighted average leverage level through our security was 5.3 times down from 5.5 times at the end of the prior year. Also at year end, the fair value weighted average interest coverage for our portfolio of companies was 2.7 times covered. At the end of 2015, our portfolio had a weighted average EBITDA of over $80 million. On a fair value basis, revenues and EBITDA for the portfolio of companies increased 7% and 15% respectively for 2015. The weighted average investment risk waiting of our portfolio was just over 2, based on our 1 to 4 risk rating scale with one representing the least amount of risk. Measured at fair value, our 99.9% of our portfolio was performing at December 15. On a cost basis, our one investment on non-accrual accounted for 63 bps of the portfolio. Excluding this one 2007 legacy asset, our portfolio continues to perform well. Furthermore, as Michael mentioned, we continue to have no direct exposure to the oil and gas or commodity sectors. In the fourth quarter, our NAV decline of 3.4% was primarily due to technical mark-to-market write-downs resulting from the broad sell off in the liquid credit markets. We expect to fully recoup this value when our loans are repaid. Now I’d like to provide some color on the composition of our comprehensive investment portfolio; this includes Crystal Financials full portfolio of asset based loans, as well as our ownership of the Unitranche Loans in our SSLP joint venture.…

Thank you, Bruce. On all of our metrics for BDCs, we are proud of our high rankings within the industry. With only one non-accrual accounting for less than 1% of our portfolio at cost, collective growth across the portfolio of companies and no direct exposure to oil and gas and commodities, our credit quality is among the highest in our peer group. Despite the technical markdowns during the second half of 2015, we preserved our net asset value since our IPO six years ago. Additionally, we believe there is upside to our NAV as our loans that are marked below par are repaid in full. With our healthy portfolio, modest leverage and approximately $700 million of dry powder to deploy across our differentiated growth engines, we are one of only a few BDCs who can increase net investment income this year by taking advantage of the current and more favorable credit investing environment. We always have and will continue to act in best interest of our shareholders. Over the past three years of heated market conditions, we did not raise capital and leveraged it up by investing in an attractive investment. We knowingly shrunk our portfolio such that we are paid an incentive fee in only three of the past eight quarters. In 2015, we waived $1.7 million of incentive fees, we’ve committed to future waived of incentive fees in 2016 so that our net investment income fully covers our distributions. Additionally, we are executing our share repurchase plan at highly accretive levels and managed to do by common stock, further aligning ourselves with our shareholders. In conclusion, our align with shareholders and Solar Capital’s conservative investment philosophy has enabled us to attract and maintain and retain high quality strategic partners and institutional investors. In light of our strong credit quality and 2016 earnings growth potential, we are disappointed our investors aren’t reaping the benefits of our success via higher share price. As I mentioned before, we believe, we are positioned well to capitalize on the current market environment and I believe as the stock prices spuns, accordingly expecting net investment income growth continues to materialize. At 11 o’clock this morning, we’ll be hosting earnings call for the fourth quarter 2015 results of Solar Senior Capital Funds. Our ability to provide traditional middle market senior secured financing to this vehicle continues to enhance our origination teams ability to meet our clients capital needs. We continue to see the benefit of the value proposition in Solar Capital deals flow. We appreciate and thank you for the time this morning. Operator, could you please open the line for questions.

[Operator Instructions] And our first question comes from the line of Ryan Lynch with KBW. Your line is now open.

Hey good morning guys and thank you for taking my questions. But first one, if I heard you guys correctly, that – senior loan program with Voya currently doesn’t have a credit facility and that’s not going to close till Q2. It looks like you guys in total have about $90 million of assets and equity in that fund. Is the plan then to continue deploying equity and growing that asset base of that fund or do you kind of plan on waiting it out, so you close the credit facility and then lever up that current equity base, in the loan program?

You can’t match the timing perfectly, but the goal is to close the credit when it’s most efficient in terms of cost. But our goal is to close in – close to when we’re beginning to fund the next investment or two. You will see us borrowing as we begin to ramp from here.

Okay. Then I do appreciate you guys having a buy back in place and using it a bit in the corner, but just given the strength you guys outlined, you guys still in your portfolio, current stock price and low leverage, why not put more resources into the buyback program?

Look as you know, we believe very strongly first requirement that having capital is huge type of advantage. And if you look at kind of our growth capacity, things like our SSLP generates 15% to 16% returns on levered basis, our Life Science business has been generating 15% to 18% on a realized basis or more. So look, we intend to use it judiciously and we’ve put in place originally for a period to stream this location, i.e., when a stock is trading in the mid-15s and we will put back a 10b5 plan back in place when our winter period close in a few weeks, so that we can continue to do the same. And we expect given the volatility of that there will be buying opportunities, so we just think we should be doing at the lowest price as possible.

And then one last one; there have been some discussions I’ve had with investors around fair value marks and portfolio valuation, not Solar specific, but just in general with the BDC investment community. So, can you guys just walk through the typical valuation process, Solar goes through to value your investments on a quarterly basis?

Sure. The process has been consistent since inception. Basically the investment team at the time we make an investment assigns a third-party valuation firm to the investment. They will say that the firm will stay with the investment until the time that we are repaid, that allows that valuation firm to have the full history of our investment in the underlying business, they get access to all of the company’s information that we receive over the course and the life of that investment. So we think that creates a bit of a partnership and a full knowledge base for the third-party firm. On a quarterly basis, the team will come up with a recommendation collectively including Michael and I, and that will be presented to the valuation firm. The valuation firm then comes up with their independent view of value, it is then presented to our independent board and the independent board then blesses the valuations on a quarterly basis.

Great I appreciate that commentary. That’s all for me.

Thank you.

Thank you. And our next question comes from the line of Doug Mewhirter with SunTrust. Your line is now open.

Hi. Thank you. Good morning. Just one question and a follow-up related to that question. If you were to look at your portfolio, your portfolio companies that you held over the past year, what is the aggregate revenue and EBITDA growth? I know you gave some specifics during the call, but I was not sure if that was sort of on a like-for-like basis or if that was just the total portfolio?

That was like-for-like.

So I think it was 15% EBITDA growth?

And 7% revenue growth.

Okay. Thanks for that. And I guess related to that, I mean obviously it’s great to be opportunistic, it’s great when prices go your way. A skeptic might say, well the market is trying to tell you something and maybe there is something bad hiding around the corner. I mean are you seeing anything at all like on the ground which would give you – which would maybe say you don’t want to catch a falling knife here, or is all the indications that the underlying economy – the economics of these companies just seem to be very stable?

I would say, as you know, Doug, over the last couple of years, and we’ve talked about the frothy credit markets and what’s kept us disciplined. It has been concerns over the underlying fundamentals, but more concerns over the structures that have been allowed by the marketplace broadly, be it leverage levels, be it pricing, be it lack of covenants. And so what we have seen change over the last several months is a bit of reversal of the technicals that have driven those frothy conditions, such as today we are seeing structures that are much more aligned with what we saw historically given that we’ve been doing for many, many years as you know. And so, it’s really the structures that have become more conservative and rational. The underlying fundamentals as we look across our 100 plus portfolio companies are actually consistent with what we saw over the last few years to your question around revenue growth, EBITDA growth, deleveraging, so we feel very good about the fundamental. Obviously, we all have to be mindful of what if any overhang will exist down the road to the sense that the energy challenges bleed into the rest of the economy. But so far, because we have been so focused on consumer stay full and some pretty defensive sectors, we are actually seeing most of our borrowers benefiting from lower oil prices today.

Keep in mind also that with our underlying loans today or year ago, we are doing the same thing which is our – we are running significant stress cases for downsides to make sure as a creditor we are in a good position if those happen and those underlying standards continue today.

Okay. Thanks. That’s all my questions.

Thank you.

[Operator Instructions] Our next question comes from Chris York with JMP Securities. Your line is now open.

Good morning guys. Just have a one question. So you’ve frequently highlighted your investment capacity as a competitive advantage in this environment, which we agree with. So I would be curious to get an update on how you are thinking about use of this capacity in terms of either organic growth of your primary deals or potentially considering the acquisition of a company or a portfolio?

I think that our core strategy is to stick to one thing and look for opportunities in the key strategic verticals that we have built out. The SSLP across our sponsor business, Crystal Financial in terms of asset based lending opportunities and Life Sciences. Separately, we are poised to be opportunistic as we see potential portfolios, I think as it relates to one off secondary trades, you saw us do some of that in G Tel because it’s something that we have deep knowledge in we believe. But generally speaking, we have not been a big buyer of the market over the last couple of years because of the structures and even if the paper is trading at a discount those structures still exist, lack of covenant, lack of inability to get to the table if things go sideways. So we are less focused on the secondary market. We’ll be opportunistic as it relates to portfolios and we’ll stick to our three core strategies.

Got it. That’s it for me. Thanks Bruce.

Thank you. And our next question comes from David Chiaverini with Cantor Fitzgerald. Your line is now open.

Thanks guys. Just I have a question on Crystal Financial. I was just curious how much growth do you expect from this business this year given that it is a non – made up of non-correlated assets and a non-correlated with the economy?

It’s a great question. As you know we don’t have a lot of visibility. We always have a very active pipeline with Crystal, but visibility is our actual closings is a little bit more challenge. I do think from 30,000 feet if the dislocation continues, you should expect to see that portfolio grow this year. As you know we’ve seen a grow two-steps forward, one step back since we’ve bought it at the end of 2011 and this environment only helps them, but it’s difficult to put a specific number on it.

And does pricing change in that business the way it does in the typical middle market lending environment broadly syndicated market when there is supply constrains or is it kind of consistent throughout cycles?

It tends to be consistent. It will spike when there is series of diversification because Crystal is basically pricing to certainty of providing that capital, and there is a greater premium put on that certainly in periods of stress. And so you will see their pricing spike when things move their way, but generally their pricing has less volatility because they are not correlated to your point with the liquid credit markets.

Great. Thanks guys.

Thank you. And our next question comes from Arren Cyganovich with D.A. Davidson. Your line is now open.

Thanks. I just want to clarify about the repayments that you’re expecting in the quarter, I think you said Global Tel, expected to be repaid at par. Where there any other ones that you were talking about repayments?

No. What we said, I am sorry for clarification is that we today have only seen $30 million of repayments and expect repays to be muted the rest of the year. On Global Tel, the comment was that we expect to be repaid in full, but that’s not going to be a near-term event in our estimation.

Okay, got it. Thank you.

Thanks.

Thank you. And our next question comes from Mickey Schleien with Ladenburg. Your line is now open.

Good morning, Michael and Bruce. You’ve described what continues to be a fairly denying economic backdrop with decent performance by borrowers. But on the other hand we are seeing all these volatility in the credit and equity markets, and in particular, you know meaningfully higher spreads both first lien and second lien in the middle market loans. So what I am trying to understand is given all of those dynamics, you know what it’s going to take for BDC valuations to get back to sort of historical levels. I understand there is idiosyncratic issues that certain BDCs that may have exposure to CLOs or maybe they have had a poor track record of underwriting, that’s certainly not the case at Solar. So, another caller sort of was alluding to the same question, you know what kind of catalyst is it going to take to get folks to recognize that the Solar portfolio is sound and then the stock is undervalued?

I think, look, in general, our whole sector unfortunately is kind of tied to properly liquid credit markets are doing to your point about spread widening, so I think it’s going to take kind of a recovery of a higher market leverage loan market, which probably means retail investments coming back in and giving money back to mutual funds to back buy again. I am not sure when that’s going to happen. That said, you know we are not sitting and waiting for that. I think our catalyst for us and look the knock has always been that we’ve been too conservative, we’ve run low lever and therefore our earnings have been – not been high enough. We are very comfortable in this credit environment. We are going to add assets that are very attractive and drive our equity to its target, and most importantly for all of us and all of our investors is increase our earnings. I think to our revaluation is when we are kind of – when we demonstrate that we continue our growth and we see our earnings go from $0.40 a quarter level to somewhere to mid $0.40. I think that’s going to differentiate us from our peers because I don’t think there is many people out there who can actually talk about delivering net investment income for share growth in 2016.

Thank you for that. That was my only question.

Thanks Mickey.

[Operator Instructions] Our next question comes from Jonathan Bock with Wells Fargo Securities. Your line is now open.

Good afternoon and thank you for taking my questions. Perhaps just first on Crystal, so we do understand that the credit environment actually is a bit advantageous for Crystal to make loans in more of a distress sense to perhaps trouble retailers et cetera, and I’d imagine that there will be a fair share of those – hence your comments on growth. I am more interested in the mark. And at a point when you understand the business prospects are likely going to get better, why you take the market as a portfolio to the investment? And two, walk us through the credit trends in the portfolio and whether or not any credit diminution led to that mark-to-market on Crystal Financial in the financial statements?

From 30,000 feet as you know, Jonathan, this is marked by a third-party every quarter and has been since we acquired it. And generally speaking what the third-party is looking to is comparables in the marketplace, and as you know, and understanding Crystal business it’s not the easiest thing to find a comparable to Crystal’s business. But they do look broadly to finance companies, BDCs, other finance providers into stressful situations. And so, as those moves just as our portfolio loans we mark based on a technical basis, as those valuations of underlying finance companies moves quarter-to-quarter that is the predominately reflection in the valuation of Crystal. So that’s the valuation comment. We do believe – and you’ve seen it as you know over the three years that we’ve owned it, it has moved quarter-to-quarter up and down, that’s really just comparable, no different from any other equity that we might own in private company. As it relates to credit trends, as you know, their trends are such that they always have a fair number of companies on watch. They watch everything almost from the time they fund it. We didn’t see anything materially shift in Q4. They had one investment in Q3 on non-accrual, which they are continuing to work through, but there is no real indicators more broadly about the health of their portfolio. Again, they tend to work through special situations and have a phenomenal track record of doing so.

Okay. I appreciate that. And let’s dive into the actual originations that you made this question in particular, you know several that were split between the unitranche fund. And you know when we think of a unitranche, we’re seeing your senior secured loan fund, we typically come with a view that it’s you, it’s your partner and you're writing a big check facilitating something ala Aries, right, and understand I mean there is a couple iterations. So, would you characterize this fund that way or would you characterize it as you're buying some pieces of other largely originated deals ala, a large GSO ones, flash Franklin Square where you take 20 million and actually a little bit more across the franchise, and you’ll lever that up a little bit. I understand that directly originated aspect Aries versus this is fundamentally different, that’s okay. I just kind of what to know what investors are dealing with because that is a question when we see deals that you're doing that others are likely writing larger ticket sizes and taking the entire deal down. At least I would assume from GSO will know that when Franklin Square reports here shortly.

Yeah. I would say a couple of things, Jon. What we are trying to do in the unitranche joint venture, first and foremost is find good first lien or stretched first lien risk at attractive pricing. That may come in the form as it did with MBAC in Q4 where we and our partners were able to speak for $215 million of a loan or it may come in PSKW where we clubbed with Aries signed a deal. So it really is a home for both. I think in this environment where peers are somewhat capital constrained just like in the old days as you recall of mezzanine deals getting clubbed together as they got larger in size. We are seeing more clubbing together, but we are doing the same direct deep dive due diligence as our partners are on those situations whether we’re the sole provider or whether we have another BDC in that mix. So, hopefully that answers your question.

And part of this also relates to just ramp and sponsor relation with the product and there is a lots of variables that just take time and you actually have to operate and here we now kind of early in its operation. But, Bruce, would you be kind of take away from what you are saying to say that it’s really going to be more pieces of others deals?

So, the short answer is it’s going to be both as it was in Q4. And I think what you should take away is that the ramp can be accelerated because it’s not only going to be as it was two years ago where people did share and we didn’t really fully have this open, and people were doing more sole deals. Today things are being clubbed and so we might lose the lead, but still have the ability to participate alongside somebody on very attractive basis with the same deep dive direct origination. So I think the clubbing environment for us in particular as well as some of our peers who have capital will allow us to leverage this faster than we would have otherwise, but you’ll see us doing both Jonathan.

Makes total sense, and Michael and Bruce, this question goes to you, wouldn’t shy away, you haven’t shied away from repurchases in the past and appreciate the comments on 10b5 et cetera, so that we get that’s kind of a – that’s an easy question. Where we would go is, you know you’ve seen a few moves on behalf of peers and I won’t refer to them as your peers, but obviously you’ve seen kind of news in terms of activism et cetera. And I am interested in your thoughts as to whether or not you believe this business, participating with others and doing some direct together. Is this really a two and twenty business today? Because if I look at it, I think prospects at a base of two and tenants at a base of two, and when you think of Apollo they’ve got few waivers which have lowered it – Fifth Street also lowered it, so Medley as well. I am just curious if you still think it’s a two and twenty business when others – when the vast majority or not, and if so, why?

Well, first of all, and I’ll go back to Bruce, everything we do, whether work – [indiscernible], we are directly underwriting. We’re not just finding people’s deal. When someone brings the deal and they say, three days do it, and you’ll get that asset, the answer no matter how good the deal look on paper, is no. So we do the same amount of work on whether we’re underwriting the $200 million deal or we are buying $40 million of participation in an Aries deal, for example. I am not going to comment on what our peers or lot of peers have done. I think we’ve always shown that we’ve aligned ourselves to the shareholders. We’ve done shareholder friendly things. We’re the only BDC out there, I think who has lesser business shrink so that we fell below our hurdle rate and had no incentive fee. Everyone else is being running full out and clipping, god knows how many fees, so frankly, we’ve never had – as you know we’re – shareholders and frankly it’s never been raised.

I appreciate the commentary and of course you can’t fight against the shareholder friendly things that you have done, so thank you for the description, the discussion guys. That’s all my questions. Thank you.

Thanks Jonathan.

Thank you. And I would now like to turn the call back over to Michael Gross for closing remarks.

Yeah, I apologize if there is anyone else who have questions, we actually have our Solar Senior earnings call starting in two minutes. If you do have further questions, please feel free to contact us directly, so we can address those. Thank you for your time.

This concludes today’s conference. You may now disconnect. Have a great day everyone.