Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2020 Solar Senior Capital Limited Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference may be recorded. [Operator Instructions] I would now like to hand the conference over to your host, Chairman and Co-CEO, Michael Gross. Sir, please go ahead.

Thank you very much and good morning, everybody. Welcome to Solar Senior Capital Limited’s Earnings Call for the first (sic) [second] quarter ended June 30 2020. I’m joined here today by Bruce Spohler, our Co-CEO and Richard Peteka, our Chief Financial Officer. Rich, would you please start off by covering the webcast and forward-looking statements?

Of course. Thanks, Michael. I’d like to remind everyone that today’s call and webcast are being recorded. Please note that they are the property of Solar Senior Capital Limited and that any unauthorized broadcasts in any form are strictly prohibited. This conference call is being webcast on our website at www.solarseniorcap.com. Audio replays of this call will be made available later today as disclosed in our press release. I would also like to draw 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 future performance or financial condition. These statements are not guarantees of our future performance, financial condition or results and it involve a number of risks and uncertainties, including the impact of COVID-19 and related changes in base interest rates and significant market volatility in our business, on our portfolio companies and the global economy. Additionally, 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. Solar Senior 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’d like to turn the call back to our Co-CEO, Michael Gross.

Thank you, Rich. Good morning, everybody, and thank you for joining us today. We hope you and your family, friends and colleagues are healthy. Our thoughts continue to remain with all of our stakeholders including the dedicated employees across Solar Senior Capital and the company’s investment advisors, Solar Capital Partners. We’d also like to express our gratitude to all the healthcare and other frontline workers, and our sincere condolences to those families who have lost loved ones. Before turning to our second quarter results, I’d like to take a moment to reflect back on the initial months of this public health and economic crisis, which have tested us as a nation and global community. Closer to home, it has also tested Solar Senior Capital, and its borrowers, management teams and sponsors. On a human level, the collaboration and dedication that our employees and counterparties have shown, as they’ve worked to support our portfolio companies through a crisis of previously inconceivable proportions has been nothing short of breathtaking. While investment professionals and the sponsors and management teams at our portfolio companies have been through multiple economic cycles, the added emotional toil of this health crisis has been the first for everyone. Yet, despite the added stress associated with the contagion itself, working from home and caring for young ones suddenly homebound, our colleagues, both internal and external, across our portfolio are working tirelessly to ensure the financial soundness of our borrowers. The quick conservative actions that our portfolio companies took at the beginning of this crisis to preserve liquidity and shore up their balance sheets are a testament to the high quality of their management teams and owners. Their efforts coupled with our employees’ dedication speak to the resilience of the human spirit. In the year that’s been dominated by negative…

Thank you, Michael. Solar Senior Capital Limited net asset value at June 30 was $249.5 million or $15.55 per share. This compares to a net asset value of $234.1 million or $14.59 per share at March 31, 2020. Solar Senior’s balance sheet investment portfolio at June 30, 2020, at a fair market value of $416.4 million in 46 portfolio companies operating in 21 industries compared to a fair market value of $395.8 million in 45 portfolio companies operating in 21 industries at March 31, 2020. Turning to our funding profile and leverage, SUNS continues to have a strong balance sheet, which we believe is serving as well in the current downturn. At June 30, 2020, SUNS had $175.8 million of debt outstanding and net leverage of 0.68 times down from 0.69 times net leverage in the prior quarter. SUNS has no near-term debt maturities having termed out both its primary $225 million credit facility, and its secondary $75 million credit facility in 2023 and 2024, respectively. In addition, SUNS has $85 million of unsecured notes with a maturity date of March 31, 2025. Solar Senior Capital has nearly $215 million to fund portfolio growth subject to borrowing base limits. As a reminder, Solar Senior’s target leverage is 1.25 times to 1.50 times that the equity under the reduced asset coverage requirement. As of June 30, 2020, the company had unfunded revolver commitments of only $5 million that can be fully drawn by the borrower’s. Some significant liquidity allows us to be opportunistic in our originations during this location. From a P&L perspective, gross investment income for the 3 months ended June 30, 2020, totaled $7.9 million versus $8.8 million for the 3 months ended March 31, 2020. Net expenses for the 3 months ended June 30, 2020 were $2.8 million…

Thank you, Rich. First and foremost, let me say, how pleased we are with the portfolio and how well it is whether the crisis so far. This supports our underwriting pieces, but minimizing the risk of loss by investing at the top of the capital structure in cash flow loans to non-cyclical industries, and allocating the significant exposure to asset based loans through our specialty finance lending verticals. At quarter end, the weighted average investment risk rating of SUNS portfolio remained at 2 based on our 1 to 4 risk rating scale, with one representing the least amount of risk. As further indication of the current resiliency of our portfolio 100% of our investments were performing at quarter end. At June 30, our $532 million comprehensive investment portfolio was highly diversified, encompassing 215 borrowers across 115 industries. Approximately 45% of the portfolio was invested in our senior secured, asset based and life science lending strategies, and the remaining 55% was invested in senior secured cash flow loans. Our largest industry exposures are healthcare providers, professional services, and insurance brokerage. The average investment per issuer was $2.5 million or approximately 0.5% of the total portfolio. At June 30, approximately 100% of our portfolio consisted of senior secured loans, comprised of 99% first lien, and 1% second lien senior secured loans. We believe that our efforts to position our portfolio to almost entirely invested in first lien loans, which carry less risk than second lien and subordinated loans will result in greater capital preservation during this crisis. At quarter end, our weighted average asset level yield was 9.2%. By focusing on our commercial finance verticals, we’ve been able to maintain asset level yields approaching 10%, despite the sharp drop in LIBOR resulting from the Federal Reserve’s efforts to aid the economy. Including…

Thank you, Bruce. In closing, we would like to thank Solar Senior Capital’s shareholders for their continued support during this difficult time. From inception, we’ve endeavored to make the right decisions to preserve and enhance long-term shareholder value. Our priority has always been to create and maintain a portfolio that can generate steady income for our shareholders and protect capital. Over the course of the extended frothy credit markets, we remain disciplined in the face of significant spread compression, higher leverage and loose structures, all of which had elevated the risk of principal loss in middle-market leveraged finance. As a result, we have positioned SUNS defensively, diversified our portfolio across cash flow and specialty finance first lien senior secured loans to manage downside risk. We have operated well under target fund leverage and have preserved liquidity. We believe we have taken the appropriate steps to navigate successfully through what we anticipate to be a prolonged and difficult period. Throughout we have maintained alignment through our ownership of SUNS alongside our fellow shareholders. Our decisions to prioritize capital preservation rather than leveraging the portfolio and taking on more risk at the wrong time of the cycle have allowed us to enter into this dislocation in a position of relative strength. Importantly, we have confidence that our team’s expertise and ability to provide financing across cash flow and ABL solutions should enable SUNS to continue to support its existing portfolio companies and make new investments during this period of turmoil. As a result of recent fundraising, the SCP platform now has over $6.5 billion of investable capital, including potential leverage. Our private funds maintain a co-investment strategy with Solar Senior Capital, which provides the company access to attractive co-investment opportunities in upper-middle-market companies that otherwise would not have been able to have…

[Operator Instructions] Our first question comes from the line of Mickey Schleien of Ladenburg. Your line is open.

Yes, good afternoon, everyone. Hope all is well on your end.

Thank you, Mickey.

Yeah, Michael and Bruce, I appreciate all your color on the tone of the market. Just wanted to follow up. In many cases, spreads are wider versus pre-COVID levels in leveraged loan market. But with the amount of private debt capital that’s been created alongside all the private equity that’s been created, how concerned are you that your competitors will chase deal flow and drive down those spreads; while at the same time the forward LIBOR curve is basically flat, which could pressure the portfolio’s yield in the cash flow segment and limit your opportunity to grow that business?

So – that is a great question. It is definitely a concern. There has been a couple of transactions, not many, too soon to call it market, where you’ve seen of late spreads coming pretty tight, actually, tight to pre-COVID levels. But importantly, Mickey for us the opportunity set is more based upon where risk is, and specifically what leverage levels and covenant packages look like. And that’s where we can be active, because as you know, we are benefiting from the higher yields that we get in our ABL portfolio at SUNS to balance out lower yields in cash flow. So you’re spot on, we have not seen yet the widening that we would have anticipated. But, again, it’s a very small sample set of new cash flow deals that have come to market so far. But we are seeing better terms and better risk. And so, that’s really what is going to drive our activity level.

Okay. Thanks for that, Bruce. And in terms of the opportunity set, I know, historically, you’ve preferred middle market to upper middle market. But I have seen some very interesting terms done recently in the lower middle market with leverage even below 3. And so far, even though it’s early days, I understand and none of us really know what the ultimate impact of the pandemic is going to be, but lower-middle-market borrowers seem to be performing relatively well, apart from the idiosyncratic issues in restaurants and hotels and things like that. So has – given what I just said, do you have any incremental interest in perhaps looking at some smaller borrowers?

So we – as you know, we go to market in the lower-mid-market through our ABL platforms. At SUNS, it’s North Mill and Gemino; and over at Solar, it’s through Nations Equipment. And then, it’s also through our Life Science vertical, where you’re dealing with smaller businesses that are just coming into commercial commercialization for drugs and medical devices. So that’s really been our comfort is to have the added benefit when we’re going to lend into smaller companies, to not do it on an exclusively cash flow basis, because you’re right, leverage multiples may be low, but EBITDA by definition is small. And it’s – you’re in the land of small numbers where a $2 million move on an $8 million EBITDA business, for example, can have a material impact on those ratios, and more importantly, the sustainability of your loan. So we prefer to attack it with collateral as well as cash flows at the lower-end of mid market.

I understand. Those are all my questions for this morning. I appreciate your time. Thank you.

Thank you.

Thank you, Mickey. Stay well.

Thank you. [Operator Instructions] As there are no further questions, at this time, I’d like to turn the call back to Michael Gross, Chairman and Co-CEO for closing remarks, sir?

We have nothing more to add at this time other than to thank you for your continued support and your participation this morning. Hope everyone is well. Take care. Bye-bye.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.