Good everyone and welcome to today's Q1 2023 SLR Investment Corp. Earnings Call. At this time, all participants are in listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] It is now my pleasure to turn the conference over to Michael Gross, Chairman, President and Co-CEO. Please go ahead.

Thank you very much and good morning. Welcome to SLR Investment Corp.'s earnings call for the first - fiscal quarter ended March 31, 2023. I'm joined today by Bruce Spohler, our Co-Chief Executive Officer; and our new Chief Financial Officer, Shiraz Kajee. Shiraz, before we begin, would you please start by covering the webcast and forward-looking statements.

Thanks, 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 are 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 10, 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. 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. SLR Investment Corp. 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 over to our Chairman and Co-CEO; Michael Gross.

Thank you, Shiraz. Good morning, and welcome to this SLR team. We're pleased to report that for the first quarter of 2023 SLRC earned net investment income of $0.41 per share, representing a 28% increase year-over-year and essentially covering distributions for the second quarter in a row. Improved NII performance resulted from a combination of the synergies realized from the merger with SLR Senior Investment Corp. or SUNS and higher interest income on our portfolio due to a larger portfolio size than a year ago and higher base rates. Based on current visibility, we anticipated earnings will fully cover our distributions for the foreseeable future. At March 31, our net asset value per share was $18.04 compared to $18.33 at year end, decline was primarily due to the write-down of one investment outside of the idiosyncratic circumstances for that single investment. Our sponsor finance portfolio is performing well with both positive average revenue and EBITDA growth. Despite the continued inflationary pressures and higher interest rates our portfolio of credit quality has remained strong. We believe that this is a result of our focus on sponsor finance on recession resilient industries, with high recurring free cash flow, which is healthcare, software and business services, as well as our emphasis on specialty finance investment, with defined borrowing bases supporting our loans. At March 31, 98.6% of our comprehensive investment portfolio is comprised of first lien senior secured floating rate loans. Our longstanding investment focused on first lien loans has resulted in a portfolio better equipped to withstand continued inflationary interest expense pressures than portfolios with second lien loans or equity exposure. Additionally, with 77% of our comprehensive investment portfolio invested in specialty finance assets, which are volume basis supporting the first lien loans and full covenants structures were defensively positioned for a…

Thank you, Michael. SLR Investment Corp.'s net asset value at March 31, 2023, was approximately $984 million or $18.04 per share compared to $1 billion or $18.33 per share at December 31, 2022. At quarter end, SLRC's on-balance sheet investment portfolio had a fair market value of approximately $2.1 billion and 145 portfolio companies across 45 industries compared to a fair market value of $2.1 billion and 139 portfolio companies across 45 industries at year-end. At March 31, the company had approximately $1.1 billion of debt outstanding with leverage of 1.12 times, net debt to equity. When considering the available capacity from the company's combined credit facilities, together with the available capital from the company's significant subsidiaries, SLRC had significant available capital to fund future portfolio growth while remaining within its target leverage range of 0.9 to 1.25 times net debt to equity. Moving to the P&L, for the three months ended March 31, 2023, gross investment income totaled $53.5 million versus $54.1 million for the three months ended December 31. Net expenses totaled $31.4 million for the three months ended March 31, and this compares to $31.6 million for the three months ended December 31, 2022. As a reminder, at the time of the merger of SLR Senior Investment Corp. or SUNS into the company last year, the investment adviser agreed to waive incentive fees resulting from income fund due to the accretion of purchase discount allocated to investments acquired as part of the merger. During the quarter ended March 31, the company waived approximately $110,000 of related incentive fees. Accordingly, the company's net investment income for the three months ended March 31, 2020, totaled $22.1 million or $0.41 per average share compared to $22.5 million or $0.41 per average share for the three months ended December 31, 2022. Below the line, the company had net realized and unrealized loss for the first quarter totaling $15.3 million versus a net realized and unrealized loss of $3.5 million for the fourth quarter of 2022. As a result, the company had a net increase in net assets resulting from operations of $6.8 million or $0.13 per average share for the three months ended March 31, 2023. This compares to a net increase of $19 million or $0.35 per weighted average share for the three months ended December 31, 2022. Finally, on May 9, the Board of SLRC declared a monthly distribution of $0.136667 per share, payable on June 1, 2023 to holders of record as of May 24, 2023. With that, I'll turn the call over to our Co-CEO, Bruce Spohler.

Thank you, Shiraz. Let me begin by providing an overview of our portfolio. At quarter end, on a fair value basis, the comprehensive portfolio consisted of approximately $2.9 billion of senior secured loans to 780 distinct borrowers across 110 industries with an average exposure of $3.7 million. Measured at fair value 99.8% of the comprehensive portfolio consisted of senior secured loans with 98.6% invested in first lien loans, including the investment in the SSLP attributed to SLR. And only 0.2% was invested in second lien cash flow loans with the remaining 1% invested in second lien asset-based loans. Our specialty finance investments account for approximately 77% of the comprehensive portfolio, with the remaining 23% invested in senior secured loans to upper mid-market sponsor-backed companies. We believe that this defensive portfolio composition and strategy diversification positions us well for potential economic weakness and provide a differentiated risk return profile for our shareholders. At 3/31, the weighted average asset level yield was 11.9%. At quarter end, the weighted average investment risk rating on our portfolio was just under two based on our 1 to 4 risk rating scale, with one representing the least amount of risk. During the quarter, we placed one investment of AmeriMark on nonaccrual. Due to the current ongoing reorganization process, we unfortunately cannot provide any detail on the situation at this time. Importantly, we consider the write-down of AmeriMark to be idiosyncratic to this investment and not indicative of stress elsewhere in our portfolio. Now let me turn to our investment strategies. Sponsor finance, cash flow investing. In this segment, we originated first lien senior secured loans to upper mid-market companies in noncyclical industries with our largest exposure being in healthcare and diversified financials. As Michael mentioned, the broad middle market cash flow segment saw a seasonally low…

Thank you, Bruce. In closing, we believe that our conservative underwriting approach and defensively constructed portfolio comprised of first lien cash flow loans to borrowers in noncyclical industries and asset-based loans of significant collateral coverage positions us well for the continued market volatility. All of our asset classes are benefiting from the disruptions in the BSL and CLO markets as well as the REIT of regional banking issues. We currently have attractive investment pipelines in all of our businesses. In fact, we believe that our current pipeline is one of the most attractive we've ever had. Based on current visibility, we are not expecting heavy repayment activity in 2023, which would translate into portfolio growth be attractive new investments. Our investment adviser, SLR Capital Partners, has been investing in SLR platform through addition of several key hires to our investment operations team. In total, the SLR platform, including the commercial finance companies owned by SLRC has recently hired over 30 people. Our collective expertise with a senior team that has an average 27 years of investing, gives us the necessary expertise to navigate the current economic climate. Our people, our balance sheet and our portfolio position us well to take advantage of the attractive investment climate as well as any challenges ahead. In closing, our investment adviser alignment of interest the company shareholders' continues to be one of our guiding principles. The SLR team owns over 8% of the company's common stock, including have a significant percentage of the annual incentive compensation invested in SLRC stock. The team's investment alongside fellow SLRC shareholders demonstrates our confidence in the company's defensive portfolio, stable financing and favorable position. We thank you for your time today. Operator, would you please open up the line for questions.

[Operator Instructions] Our first question comes from Melissa Wedel from JPMorgan. Please go ahead.

Good morning, thanks for taking my questions and Shiraz, congrats on the new role.

Thank you.

Of course, I was hoping you guys could elaborate a little bit on the scaling of the SSLP. We heard you say that you expect that to grow, I believe, to $250 million of assets by year-end. I just want to make sure we are hearing that right and also if you could help frame the size of impact to NII from that scaling? Thank you.

Sure, great question, Melissa. So as Michael mentioned, we are targeting to build that to about 250 by year-end. Based upon assets, both already dropped in as well as the pipeline that is in the process of closing, we're already at about $150 million, which, as you may recall, the entire portfolio is targeting towards $300 million between roughly $100 million of equity, half from SLRC and half from our equity partner and then approximately $200 million of borrowings. So - and we are drawing down leverage with our equity as we drop assets into the SSLP. So part of the - timing is really dictated both by replenishing assets on the balance sheet as we move assets down into SSLP as well as originating direct into SSLP. But we're already about $150 million of the $300 million based upon current pipeline and expect to get, to your point, about $250 million by year-end.

And could you help us think about the size of impact on NII from further ramp?

So, I can't give you a specific number. It's a little bit of a multi-varied equation, because on one hand, you have the 12% to 14% ROE on that $50 million equity investment by SLRC. And then on the other hand, you have yield pickup by taking lower-yielding SUNS assets and moving them down and replacing them on balance sheet with higher-yielding assets that we're originating in this environment. So it's a bit of a double pickup.

Okay, thank you. And one follow-up, if I could it seems like perhaps the yields in ABL and equipment finance declined a bit quarter-over-quarter. I was hoping you could touch on that and whether that was just a function of timing of transactions or something else?

Yes. No, it is just timing. ABL is really just because of the churn in the portfolio. We expect that yield to continue to cover up in the 13% to 14% range. And then I think on Equipment Finance, there, as you know, these are fixed rate assets, by and large, we are funding it with fixed rate liabilities, but we do need to churn off those old assets. The nice thing is, as you know, there's monthly amortization on those assets. So we're constantly paying down the existing portfolio and replacing it with higher yields. So you should see that start to pick up. I would say just as an expansion of your question, the specialty finance businesses are not seeing the same pickup in yields that you see in cash flow with the spreads widening out. Life Science is a great example. That's always been kind of a mid-teens return asset. Maybe they're getting 50, 75 basis points more. But unlike cash flow that's getting 150, 200 basis points more spread. Specialty Finance has kind of been high relative to cash flow historically and doesn't gap out as much or contract as much.

That's helpful context. Thank you very much.

Thank you.

The next question is from Paul Johnson with KBW. Please go ahead.

Hi, good morning. Thanks for taking my questions. So your guys' operating ROE is well below, I guess, the group sort of average is a decent range in there, but it's definitely below the average. I guess we'd just ask you, is it your - I guess, your intention to increase the ROE over time? And if that is the case, I guess, how do you expect to do that?

The answer is, we definitely expect to increase our ROE. As we mentioned, we've bought $800 million of dry powder across the platform, including within the finance company. So, we have significant capital to be able to put to work at attractive net yield. So, we fully expect that our NII will grow over the course of the year, and as a result, our ROE will as well.

And as Melissa asked the SSLP, as that ramps, you'll pick up a couple of pennies a share just from ramping that alone.

Okay thanks. That's helpful. And then I just kind of say broadly, I mean, you guys obviously have built a fairly diverse engine for deal flow with all the various finance and specialty finance company. Where, I guess, do you think you're finding the best relative value or the best opportunities in today's market?

Yes, I would say that in the specialty finance businesses, as I mentioned a moment ago, you're not seeing the same increase in yields, but you are seeing a reduction in risk. And so that is making those segments, Life Science and ABL and equipment plants very attractive, which you don't see on the returns. And then as you look at cash flow, we have benefited not only from a reduction in risk with lower leverage and still attractive fixed charge coverage ratios, but obviously, premium returns that are starting to approach what we're seeing in our specialty finance business. But in cash flow, as you know, in this environment, it's really about picking a couple of defensive sectors. The broad cash flow market is really not open for businesses away from sectors where we focus, such as healthcare and business services and financial services. So, I would say the short answer is we're seeing attractive risk in each of them and the returns are more similar than they've been in the past across the segments.

Thanks for that. Last question, you mentioned that, I guess, you guys hired a number of people across the platform more recently. Just curious how long do, you expect, I guess, that to start, I guess, generating production just kind of from the date of hire. I mean how long does that sort of typically take? And I mean, I guess, do you think that have a meaningful sort of driving impact on portfolio growth?

Yes as I think - look, typically, I would say it takes a year to see that impact. I think in environment that we're in, where you have severe disruption it's easier to hit the ground running. And these are experienced senior professionals. So, we're expecting contribution as we get into the second half of this year. They were across our ABL and cash flow, equipment finance segments. So - and we already - as you may recall, about a year and a half ago, brought on our digital finance team that hit the ground running and has actually shown nice growth. So, I think it will be sooner than normal in this environment given the dislocation.

Okay. Let's get it out. Thanks for that, that's all from me.

Thanks for your questions.

[Operator Instructions] Our next question comes from Sean-Paul Adams with Raymond James. Please go ahead.

Hi guys, good morning. Your liability side looks really good, and that's likely not to be the case for all the other alternative lenders in some of your end markets. Does this represent more of a share gain opportunity or acquisition opportunity over like the next 12 months?

It's a great question. As you know, one of our strategies within our platform and within SLRC is our lender finance business. And yes, I think lenders that are smaller than us will be challenged and kind of raising the appropriate debt capital to fund their businesses and the working capital. So our lender finance lending partners are extremely active. And to your point, that also tends to lead to potential acquisitions for us. Several of our platforms today are businesses that we lend money to first and then subsequently acquired. So, I would say our pipeline both on the lending side as well as the acquisition side is quite robust. And I think if this environment persists, we will see more and more opportunities.

I also think that we're starting to see some tuck-in acquisition opportunities where there are some peers of ours that might expand our strategic footprint. So, we're evaluating those as well as add on to existing platforms.

Okay, that's very helpful. Thank you.

[Operator Instructions] The next question comes from Robert [indiscernible]. Please go ahead.

Could you tell us whether you have other situations that you think will result in bad debt experience in the second and third quarters like the first quarter?

Sure. The first quarter, just to clarify, is something that we are working on. So I'm not - the jury is yet to be written. We just can't discuss it because we're working through the potential resolution. I think as we mentioned across the whole portfolio, our watch-list is at an all-time low. We feel very strong about the portfolio quality. The issue that came up in one investment for this quarter was very specific to that investment between the sponsor and the execution. They really underperformed, unfortunately, but we don't feel like there's, any systemic issues across the portfolio.

Do you think you might get repaid on that write-off in the first quarter?

We haven't written it off. So, we do expect some level of repayment, but the outcome is still to be determined in terms of the exact level.

Thank you.

Thank you.

It appears we have no further questions at this time. I will now turn the program back over to our presenters for any additional remarks.

No just remarks, but then thank you all for your support and your time today. And as always, if you have any questions or comments, please feel free to call any of us. Have a great day.

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