Good day, everyone, and welcome to today's SLR Investment Corp. First Quarter 2024 Earnings Call. [Operator Instructions] It is now my pleasure to turn today's call over to Chairman and Co-CEO, Michael Gross. Please go ahead.

Thank you very much, and good morning. Welcome to SLR Investor Corp.'s earnings call for the fiscal quarter ended March 31, 2024. I'm joined today by my long-term partner of 17-plus years Bruce Spohler, Co-Chief Executive Officer and our Chief Financial Officer, Shiraz Kajee; and the Solar Investors Relations team. Shiraz, you begin, could you please start by covering the webcast and forward-looking statements.

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 Ivestment Corp and any untied broadcast in any form is strictly prohibited. This conference call is also being webcast on the Events county in the Investors section on our website at www.slrinvestmentcorp.com. Audio replays of this call will be made available later today as disclosed in our May 8 earnings press release. I would also like to call your attention to the customary disclosures in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections. These statements are not guarantees of our future performance or financial results and involve a number of risks and uncertainties. Past performance is not indicative of future results. Actual results may differ materially as a result of a number of factors, including those described from time to time in our filings with the SEC. We do not undertake to update any forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website or call us at 212-993-1670. At this time, I'd like to turn the call back over to our Chairman and Co-CEO, Michael Gross.

Thank you, Shiraz, and again, thank you to everyone for joining our earnings call this morning. After the market closed yesterday, SLRC reported net investment income of $0.44 per share in the first quarter of 2024, representing year-over-year growth of 7.7%. First quarter results marked the sixth consecutive quarter of NII per share meeting or exceeding the quarterly dividend and contributed to an increase in net asset value per share to $18.19 as of March 31, 2024, from $18.09 per share at December 31, a sequential increase of 0.6%. Despite a continuation of tepid M&A activity in the first quarter, the further strengthening in bank participation in the BSL market and recovery in the CLO issuance, we continue to find attractive investment opportunities across our complementary private credit strategies of sponsor finance and specialty finance. In the first quarter, we originated new investments of approximately $261 million and received repayments of approximately $314 million that resulted in a slight decline in the comprehensive investment portfolio to $3.1 billion. SLR is one of a handful of private credit managers that have been in existence since before the great financial crisis, and we have the experience and strong track record of navigating a variety of market environments across credit cycles over a 20-year history. The cyclicality of the sponsored finance markets, which can be governed by the ebbs and flows of the more markets is a condition that is not new to us as private credit investors. In fact, it is this condition that led us to diversify our investments away from strictly cashflow lending more than a decade ago their expansion to asset-based lending in 2012. Since then, SLRC has added several commercial finance teams to expand our investment strategies, resulting in a more diverse private credit investment model. Our multi-strategy…

Thank you, Michael. SLR investment corporate net asset value at March 31, 2024, was $992 million or $18.19 per share compared to $987 million or $18.09 per share at December 31. The quarter end, SLRC's on balance sheet investment portfolio had a fair market value of approximately $2.1 billion and 145 portfolio companies across 41 industries compared to a fair market value of $0.2 billion in 151 portfolio companies across 43 industries at December 31. At March 31, the company had approximately $1.2 billion of debt outstanding with leverage of 1.16x net debt to equity. We expect our leverage ratio to remain in the middle of our target leverage range of 0.9 to 1.25x. SLRC's funding profile is in a strong position to continue to weather the current interest rate environment. Our existing $470 million of senior unsecured fixed notes have a weighted average annual interest rate of only 3.8%. And we expect to opportunistically access the investment-grade debt market and are always a dialogue with investors in the fixed income community. Moving to the P&L. For the 3 months ended March 31, gross investment income totaled $58.1 million versus $59.8 million for the 3 months ended December 31. Net expenses totaled $34.2 million for the 3 months ended March 31. This compares to $35.9 million for the prior quarter. Accordingly, the company's and investment income for the 3 months ended March 31, 2024, totaled $23.9 million or $0.44 per average share, the same as the prior quarter. Total line, the company had net realized and unrealized gains for the first quarter totaling $4 million versus a net realized and unrealized loss of $0.3 million for the fourth quarter of 2023. As a result, the company had a net increase in net assets resulting from operations of $27.9 million for the 3 months ended March 31 compared to a net increase of $23.6 million for the 3 months ended December 31, 2023. On May 8, the Board of value declared a Q2 2024 distribution of $0.41 per share payable on June 27, 2024, to holders of record as of June 13, 2024. With that, I'll turn the call over to our co-CEO, Bruce Spohler.

Thank you, Shiraz. We believe that SLRC's commercial finance investment model provides us with the flexibility and capabilities to capitalize on the most attractive lending opportunities across our 4 private credit investment strategies. This diversity provides us with the flexibility to determine where we want to invest today and importantly, the ability to say no. We take a fundamental bottom-up approach to our portfolio construction based on the relative attractiveness or risk-adjusted returns across our investment verticals. At quarter end, on a fair value basis, the comprehensive portfolio consisted of $3.1 billion of senior secured loans to approximately 800 distinct borrowers. This was across 110 industries with $3.8 million as our average position. Measured at fair value, 99.3% of the portfolio consisted of senior secured loans with 97.8% invested in first lien loans, including investments in the SSLP attributable to the company and only 0.3% was invested in second lien cash flow loans with the remaining portfolio invested in second lien asset-based loans aggregating 1.2%. Our specialty finance investments account for approximately 75% of our comprehensive portfolio with the remaining 25% invested in senior secured cash flow loans to upper mid-market sponsor-backed companies. We believe that this defensive portfolio construction positions us well for potential economic weakness and provides a differentiated risk return profile for our shareholders compared to cash flow only portfolios. At quarter end, our weighted average asset level yield was 11.8%, up from 11.6% in the prior quarter. Our portfolio credit quality remains strong. At March 31, the weighted average investment risk rating of our portfolio was just under 2 based on our 1 to 4 risk rating scale with 1 representing the least amount of risk. Consistent with last quarter, over 97% of the portfolio is rated at 2 or higher and 99.2% of the portfolio…

Thank you, Bruce. In conclusion, we are pleased with the results achieved at SLRC in the first quarter of 2024. The continued momentum we are seeing across the lending verticals and the credit quality and diversity of our investment portfolio. Asset quality remains top of mind for investors today with tight risk premium priced across risk assets. From our seat, we have started to see the dispersion in credit quality metrics within the private credit marketplace and believe our history of conservatism and predominantly first lien investment portfolio with significant diversification has begun to differentiate our performance. As of March 31, nonaccrual investments represented 0.8% and 0.6% of the investment portfolio on a cost and fair value basis, respectively. We believe our low rate of nonaccruals as a result of a multi-strategy approach, which are specialty finance strategies, which accounted for 75% of our comprehensive portfolio at March 31, enable us to be more selective in our sponsor finance business. Furthermore, only 1.8% of our gross investment income is in the form of capitalized PIK on restructured cash flow loans, which we believe is also significantly below the peer group. Looking forward, we expect the origination opportunities to be driven by a combination of an increase in M&A activity, refinancings and regulatory forces impacting regional banks to the benefit of direct lenders such as SLRC. In addition, our specialty finance teams continue to seek tuck-in acquisition opportunities and have the resources and experience to acquire portfolios. We continue to believe that a diversified portfolio approach across sponsor and commercial enhanced assets is the most effective way to generate income and manage risk across economic cycles. While the current market expectations are for rates to stay higher for longer, it is important to remember that specialty finance spreads and returns are not as volatile as cash flow sponsor finance investments. As a result, we would not expect yield contraction for specialty finance assets to the same extent as Sponsor Finance when base rates move lower. In closing, SLRC trades at 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 offer shareholders diversification benefits compared to sponsor finance only strategies. Our investment buyers as alignment of interest to SLRC shareholders continues to be one of our hallmark principles. The SLR team owns over 8% of the company's stock and includes having a significant percentage of their annual incentive compensation reinvested in SLRC stock. The team's investment alongside fellow institutional and private wealth investors demonstrates our confidence in the company's portfolio, stable funding and earnings outlook. We thank you all again for your time today. As we know, it's an especially busy day for those who have followed the listed BDC Marketplace closely. Operator, would you please open up the line for questions.

[Operator Insrtuctions] And we will take our first question from Eric Zwick with Hovde Group.

I wanted to start a little bit in terms of maybe just getting your view of competition in both the ABL and equipment finance markets. And I know you kind of mentioned in your prepared comments that there were a couple of new entrants that you've seen in the ABL market. So wondering if you could additionally kind of mention what type of companies those are that are entering the market and how you see that, that may impact pricing and underwriting terms.

Yes, I think the most important thing that we can share with you, Eric, is that the magnitude of participants departing far exceeds any new entrants. These were, as we've talked about, historically, regional banks were very active in these markets, and they have been continuing to pull back or reaching out, looking for ways to joint venture in their business model such that we would become their balance sheet and they would retain relationships and deposits. So we're really not that concerned about new entrants. The competition, it's difficult to enter these businesses, particularly on ABL related businesses because a significant investment in infrastructure. As you know, we have 18 offices around the country as well as a major investment in systems and people. We have 300 people across our $13 billion AUM platform, many of whom are dedicated to the ABL intensive strategies for monitoring underlying collateral and borrowing bases. So it's not to say that there is no competition, but I would say directionally, there has been a reduction in competition. And where we are in the economic cycle is such that borrowers tend to borrow more on an ABL basis at this stage of the cycle as many borrowers are finding the cash flow market close to them if they are not in very recession resilient sectors.

No, that's very helpful. I appreciate that, and it's good to hear that the kind of the way you frame that, that there's been many more exits than new entrants. And we've heard a lot over the past few days with companies reporting that there's been a fair amount of spread compression in the sponsor finance market. So it's safe to say you're not seeing that a whole lot in the specialty finance lending verticals to the same degree?

Yes. And as Michael mentioned, our overall yield went up from 11.6% to 11.8% quarter-over-quarter. And that is driven by increased actually returns on the ABL asset classes. There is a cap to that. But I think the important point is that we don't see the compression to your specific question. These are more absolute return cost of capital strategies. And so they did not widen out as much as cash flow did over the last 2 years, going from 6%, 7% up to 12%, 13%. And we have not and don't expect to see them compressed to the same extent that we've run correlation analyses and the specialty finance businesses, unlike the cash flow business is really not correlated to movement in base rates in a meaningful way the way the sponsor cash flow business is. And as you know, we already even with elevated base rates, are seeing pricing compression just because of the amount of capital coming into the cash flow market relative to the deal opportunity set.

[Operator Instructions] We will pause a moment to allow any further questions. We'll take our next question from Melissa Wedel with JPMorgan.

Just one for you today. I was hoping that you might elaborate a little bit on your comment about having the willingness and availability of capital to do additional tuck-ins. Obviously, you guys have diversified your strategy and your origination approach over the years. When you look at that portfolio in totality, where are you seeing the potential for additional tuck-ins? Would it be within the same verticals that you have existing now? Or are there other opportunities out there?

Yes, it would be in the same verticals, predominantly across the asset-based strategies. I think anything we would do as an adjacent vertical would more likely be a greenfield organic approach to that side of the market. But the tuck-in opportunities are definitely coming out of our existing ABL strategies.

And it allows us to take advantage of the significant invest we've made in infrastructure at those companies. As you know, we have close to 300 people. A lot of them spread through the ABL strategy. So we're in a position where we can buy portfolios and service them without having to put much more overhead into those entities.

[Operator Instructions] And there appears to be no further questions at this time. I will turn the call back over to Michael Gross for any closing comments.

No closing comments other than thank you for your attendance this morning, and we realize it is a very busy time. So if you have any follow-up questions, please feel free to reach out to any of us. Thank you.

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