SLR Investment Corp (SLRC) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Solar Capital Ltd.

earnings conference call for the quarter and year ended 31st of December 2014.

(Operator Instructions).

I would now like to turn the call over to Michael Gross, Chairman and CEO.

Please go ahead, sir.

Thank you very much, and good morning.

Welcome to Solar Capital Ltd.

earnings call for the quarter and year ended December 31, 2014.

I'm joined here today by our Bruce Spohler, our Chief Operating Officer; and Richard Peteka, our Chief Financial Officer.

Before we begin, Rich, could you start off by covering the webcast and forward-looking statements.

Certainly.

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 Capital Ltd., 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'd 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 a number of factors, including those described from time to time in our filings with the SEC.

Solar Capital Ltd.

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.

Thanks, Rich.

This month marked our 5th anniversary as a public company.

Since our team made its first investment we have consistently operated in adherent to the core tenant of our management philosophy.

We invest with a long-term perspective.

We pursue long term initiatives, we acts as partners to our clients in order to maintain their trust and deepen our long term relationship with them and we are aligned with our fellow shareholders through our long-term ownership of Solar Capital shares.

With that in mind, I would like to take a few minutes to highlight how our long-term perspective has benefited Solar Capital since we went public.

At the time of our IPO in February 2010 our pro forma net asset value per share at December 31, 2009, was $21.50 compared to our current NAV per share of $22.05 on December 31, 2014.

Over the course of the past five years we have paid out a total of $10.54 per share in dividends.

And based on last night's closing stock price which represents 11% discount to current net asset value shareholders who have held our stock since the IPO have realized a total return of 63% and an IRR annualized of 13%.

Since our IPO we have maintained a conservative approach to growth.

On a cost basis our investment portfolio is only up marginally from its size at the time of our IPO debut.

Based solely on investment conditions we have adjusted leverage and the size of our portfolio.

We have not grown our asset base with aim of increasing the fee stream to the manager.

In fact our fees in 2014 were lower than any other year in our history as a public Company.

As credit market conditions have changed over the course of this cycle we have shifted our portfolio to a far greater concentration in senior secured assets.

At the time of our IPO in February 2010 our portfolio was only 20% in senior secured loans compared to approximately 90% at December 31, 2014, when including Crystal Financial' s full portfolio.

At the IPO 30% of our income producing portfolio was floating rate compared to over 88% at December 31, 2014.

Over 20% of our interest income in the first quarter of 2010 came from all PIC investment.

Based on our portfolio at the end of this year PIC income today accounts for less than half of 1% of our total investment income.

At December 31 less than 1% of the fair value of our portfolio was non performing and we feel very good about the financial performance of our portfolio companies.

We have no direct exposure to the oil and gas industry.

In addition to maintaining a conservative investment approach over the course of our history as a public company as large shareholders ourselves we have very carefully managed our equity base.

In five years we have only completed one underwritten fallen offering which was priced at a premium to book value.

The proceeds capitalize our strategic investment in Crystal Financial.

We completed two additional smaller direct offers both at or above book value.

Net of the $57 million of shares repurchased in our share repurchase program we have increased our equity base to only approximately $200 million over five years and the average of $40 million or approximately 4% of our current net asset value.

On a the subject of stock repurchase programs our previous repurchases demonstrate our willingness to buyback shares at a discount when we believe it provides a more attractive return on capital than funding new investment.

We will employ the strategy again when situation merits.

At the present time we believe there are more accretive uses for our available capital such as our senior secured unitranche loan program with PIMCO our new life science venture lending initiative and funding further growth at Crystal Financial.

Additionally we believe having capital at time others are capital constrained creates a significant competitive advantage.

The average leverage for our BDC peer group currently stands at around 0.7 times whereas our 12/31 net leverage was just 0.09 times.

In fact we currently have over $600 million of available capital on our balance sheet and additional anticipated $1.2 billion of capacity through unitranche partnership with PIMCO.

As a reminder we have committed $300 million of equity to our senior secured unitranche loan program or SSLP our joint venture with PIMCO.

Together with PIMCO's $300 million equity commitment and the anticipated credit facility we have lined up the program will have approximately $1.5 billion of investable capital.

The JV has been evaluating a number of unitranche investments and seeks to fund its initial investment in the second quarter of this year.

Our origination team has found that our ability to provide unitranche solutions has increased our relevance with sponsors resulting in an increase in Solar Capital traditional investments opportunities as well.

In addition, we plan to increase our allocation to the life science venture lending space which we entered during 2014.

After exploring various ways to get exposure to this attractive assets class, we hired a financial services veteran with over 25 years of experience and a stellar track record.

Prior to joining us he ran the life science venture lending business at GE Capital for over 13 years after launching it in 2001.

During 2014 we funded $57 million in to six companies with an average issue or exposure of $9.6 million and all in yield of approximately 10.7%.

These loans are senior secured loans with very modest debt to equity ratio and significant enterprise value protection.

Frequently warrants or success fees are provided to us as part of the financing which can often enhance the total returns over time.

We are extremely pleased with the results initially in this business and we anticipate increased exposure to this assets class.

Our investment in Crystal Financial continues to meet our expectations.

During 2014 Crystal paid us $30.8 million in dividends which equates to an 11.2% cash on cash yield.

Crystal had a strong year for originations and the credit quality of the portfolio remains high.

Yesterday our Board of Directors declared a quarterly distribution of $0.40 per share which will be paid on April 2, 2015 to shareholders of record as of March 19, 2015.

Since we reset our dividend six quarters ago on a accumulative basis our net investment income has more than covered distributions.

As result of our low leverage, available capital and strategic initiatives we are positioned well for growth and so we have the luxury of thinking about our dividend in terms of a future increase not a reduction.

At this time, I'll turn the call over to our Chief Financial Officer, Rich Peteka, to take you through the financial highlights.

Thank you, Michael.

Solar Capital Ltd.

net asset value at December 31, 2014 was $936.6 million or $22.05 per share compared to $948.7 million or $22.34 per share at September 30th.

At December 31 our investment portfolio had a fair market value of $1.02 billion in 43 portfolio companies in 23 industries, compared to a fair market value of $1.13 billion in 47 portfolio companies and 31 industries at September 30, 2014.

For the three months ended December 31 gross investment income total $32.9 million versus $28.4 million for the three months ended September.

Expenses totaled $16.2 million for the three months, compared to $12 million for the thee months ended September 30.

Accordingly the Company's net investment income for the three months ended December 31, 2014, totaled $16.8 million or $0.40 per average share versus $16.4 million $0.39 per average share for the three months ended September 30.

Net realized and unrealized losses for the fourth quarter 2014 totalled approximately $11.9 million versus the net realized and unrealized loss of $3.6 million for the third quarter 2014.

Ultimately the Company had a net increase in net assets resulting from operations of $4.9 million or $0.11 per average share for the three months ended December 31.

This compares to $12.8 million or $0.30 per average share for the three months ended September 30, 2014.

At this time I would like to turn the call over to our Chief Operating Officer, Bruce Spohler.

Thank you, Rich.

During the fourth quarter of 2014 the high yield and liquid leverage loan markets experienced fund outflows which resulted in spread widening.

Our middle market business benefited from the weakness in the liquid markets predominantly in the form of better covenants on new issues.

The degradation of secondary trading levels driven in large part by the decline in oil prices is not reflective of the financial condition of our portfolio companies.

Overall our issuers are experiencing stable to modest EBITDA growth.

Furthermore we have no direct exposure to the oil and gas sector.

At December 31 the weighted average yield on our income producing investment portfolio when measured at fair value was 9.9%.

The weighted average investment risk weighting of our total portfolio remained at approximately 2 measured at fair market value based on our 1 to 4 risk rating scale with 1 representing the least amount of risk.

Our two investments on non accrual account for less than 1% of the portfolio at fair value with the other 99% plus our portfolio performing at or above our expectations.

At the end of the fourth quarter our portfolio consisted of 43 companies operating across 28 industries.

When measured at fair value our portfolio was comprised of roughly 59% senior secured, 29% Crystal Financial, 7% subordinated debt, 2% preferred equity and 2.5% in other common equity and warrants.

When including Crystal Financial full portfolio which consists entirely of senior secured loans approximately 90% of our portfolio is in senior secured investments.

At December 31 approximately 88% of our income producing portfolio was floating rate including Crystal's full portfolio.

Now let me give you a quick update on Crystal.

Crystal which provides asset based and other secured financing solution to mid market companies had a very strong quarter.

At December 31 Crystal had approximately $478 million of funded senior secured loans across 27 issuers with an average exposure of $17.7 million per issuer.

During the quarter Crystal funded new loans totaling approximately $104 million and experience repayments totaling approximately $36 million.

All of Crystal Financial investments are floating rate senior secured loans.

At the end of Q4 Crystal had a net debt to invested equity ratio of 0.85 times.

For the quarter our investment in Crystal paid Solar Capital cash dividend of $7.9 million which is the equivalent of 11.5% annualized cash on cash yield.

For the full year Crystal paid Solar close to $31 million equating to a 11.2% cash on cash yield.

Now let me discuss our portfolio origination.

During Q4 Solar originated approximately $115 million of investment across eight portfolio companies.

All of the loans that we originated were senior secured and carried a floating interest rate.

Investment prepaid or sold during the quarter total approximately $224 million.

As a reminder, on our Q3 earnings call we indicated that our portfolio growth for the second half of last year would be essentially flat as result of expected legacy investment repayments in Q4.

Not only we were pleased to be repaid on those investment but our origination efforts exceeded our projection for the quarter resulting in approximately $42 million of portfolio growth for the second half of 2014.

For the full year our origination including Crystal Financial totaled approximately $820 million and our repayment and sales total approximately $858 million.

Now I will highlight some of our Q4 investments.

We originated a $51.5 million second lien term loan in DISA Global Solutions to support the acquisition of the company by (Inaudible) partners.

DISA provides drug and alcohal testing as well as background checks, occupational and medical services and transportation services.

We underwrote the entire second lien tranche which enable us to achieve more attractive credit and economic terms.

The all in yield in this investment is approximately 10%.

Additionally we funded a $25 million second lien term loan to Tecomet provider of IT infrastructure solutions.

The company had recently acquired [Exan] Corporation in which Solar Capital had previously invested.

Our experience with that credit facilitated ordure due diligence process for this new investment.

Not only is the 9% yield on this new investment higher than our original investment in Exan but our leverage ratios through which we invested are lower and the Company is larger and more diversified from a cash flow perspective.

During the quarter we also funded $10 million of an incremental second lien term loan to support Kore Wireless Groups acquisition of RacoWireless.

Our investment which now totals $55.5 million yields just under 10%.

In Q4 we also originated $25 million of senior secured loans to four distinct companies in the life science sector bringing our total funded loans to $57 million in the life sciences sector.

As Michael highlighted we are pleased with the initial results of this strategy and are optimistic regarding our ability to continue to grow this leg of the origination platform in 2015.

I will now highlight a few of our Q4 repayments.

Approximately $105 million of the $224 million of repayments realized during the quarter were from sub debt or equity investments across four companies.

Upon the sale of Greycon to Industrial Growth Partners we received just over $25 million in proceeds for our subordinated debt and equity investments.

As a reminder we had placed Grey on nonaccrual back in the third quarter of 2010 at which time we fair valued our debt investment at $0.25 on the dollar and our equity investment at zero.

We help lead a restructuring of the company which was completed during Q1 of 2011.

From our initial investment to our final exit we realized an IRR on the debt investment of 13.2% and a multiple on invested equity of 1.4 times.

This is a great case study in why the average recovery value for (Inaudible) market loans is higher than that of large liquid loans.

We were able to work directly with the company and sponsor to control our destiny rather than trying to corral a large group of lenders with varied agendas.

Additionally we benefited from our ability to exercise patience as the company's performance rebounded thanks to our permanent capital base and long-term perspective.

In addition in Q4 we were repaid on our $42.5 million investment in Adams Outdoor Advertising which resulted in IRR since funding of over 20%.

Furthermore in connection with Ontario Teachers acquisition of [New Bean] we received approximately $23 million of consideration in Q4.

We also were redeemed on our $23 million mezzanine investment in (Inaudible) Food at a premium to par.

Our IRR since inception was in excess of 16%.

In the aggregate the exits of these portfolio companies reduced our exposure to unsecured investments from 20% at September 30 to just over 12% at December 31.

Also during the fourth quarter we were repaid on our $61 million second lien term loan (Inaudible) at a premium to par which resulted in IRR in access of 17%.

We are pleased with the reduction in our exposure to subordinated debt that resulted from these Q4 repayments.

However we anticipate that our NII will be lower in Q1 as we work to reinvest these proceeds.

As a reminder in the mid market lending business Q1 can be a seasonally lower quarter for origination.

In the current market environment we anticipate a lighter volume of repayments in 2015 than we have experienced in 2014 and 2013.

To be specific thus far in Q1 two months through we have received repayments of under $5 million and currently are not aware of any significant repayments expected in 2015.

Now I would like to turn the call back over to Michael.

Thank you, Bruce.

Now that we have covered our recent quarter and our path, I would like to wrap up by discussing our future.

We believe that our philosophy of managing the business with a long-term perspective has positioned us well for a successful 2015 and beyond.

We believe our current portfolio is the highest quality it has been.

It is predominately senior secured loan rate construction should provide protection of the economic environment declines and/or interest rates rise.

With only two trouble assets that have a de minimis fair market value and no direct exposure to the oil and gas industry we are confident in our ability to preserve our book value.

With the addition of the ability to provide unitranche loans through our SSLP our core underwriting business is primed for another strong year of originations.

We anticipate the additional cylinders of origination engine Crystal Financial and our life science venture lending business to continue to increase their contribute to earnings.

We have ample dry powder without raising the addition of equity to fuel our origination business and strategic initiatives as well as to take advantage of any market dislocations that may occur.

At year end we had (Inaudible) in cash and $490 million available on our credit facility subject to borrowing limitations.

In conclusion while our Q1 net investment income will reflect a lower portfolio balance as we reinvest the fourth quarter repayments we are excited about our current opportunity set.

Our conservative long-term oriented philosophy has positioned us to be on the offensive at a time when others may have to take a defensive approach.

We are confident in our ability to cover a dividend and are optimistic about our prospects for increasing it in the future as we use our multi cylinder sourcing engine to grow net investment income with our current substantial available capital.

At 11 this morning we will hosting an earnings call for the quarter end 2014 results of Solar Senior Capital or SUNS.

(Inaudible) fourth quarter results.

Our ability to provide senior secured financing through this vehicle continues to enhance our origination team's ability to meet our clients capital needs and we continue to see benefits of the value proposition in Solar Capital's deal flow.

We appreciate your time this morning.

Operator, will you please open up the line for questions.

Thank you.

(Operator Instructions).

Your first question comes from the line of Greg Mason of KBW.

Go ahead please.

Great, good morning everyone.

Thanks for taking my questions.

The biggest issue over the last 18 months has been the significant repayments versus the new originations.

You just painted a pretty favorable outlook for 2015.

As we think about that $600 million plus of available capital, how much of that are you guys hoping or anticipating to be able to put to work on a net basis in 2015?

I think you're correct.

The first part of that equation, Greg, is obviously the repayment activity.

And I think in both 2013 and 2014 we saw an excess of $600 million per year come back.

As I mentioned this quarter we have less than $5 million of repayments and no visibility on any meaningful repayments for the rest of the year.

Doesn't mean we won't see one later in the year, but nothing we see sitting here today.

I think that is a significant part obviously of the math.

Our origination path as you know historically has been in the $100 million to $150 million a quarter on average it has been north of $500 million a year.

Q1 can be a light quarter as we touched on for this year and I think in prior years as well, but I think we feel extremely well positioned because unlike the prior years we have multiple growth engines not only our core sponsor business but as Michael mentioned the PIMCO joint venture, Crystal which obviously joined our platform at the end of 2012 and now life science venture lending platform that we are ramping up.

We feel extremely well positioned.

As you know if we find the right opportunities as we did in Q3 of last year where we had elevated origination level we would be happy to deploy all of this capital this year but we are going to be prudent in doing so.

Great.

And then on the joint venture with PIMCO you said you expect your first investment to be in the second quarter.

How do you view the timing of that versus when you originally did the deal.

Is this taking longer than expected or in line with expectations, and just kind of the view of once you get that closed the ramp up pace after that first deal is done?

I think to be honest with you it is consistent with what we had anticipated.

We opened the doors on this at the beginning of Q4 as you know, and the team has been out there getting the word out we have this product in our arsenal.

As we touched on before the strategic benefit of the product is significant.

And what I mean by that is when sponsors are evaluating how to best finance a potential platform investment for themselves, they evaluate multiple financing structures first lien, second lien, bank debt, mezzanine and unitranche.

So having that product offering gets us invited to more opportunities and gives us more looks widening out our origination funnel.

But at the end of the day we can't direct which capital structure they decide to go with.

What I would say is we have seen more second lien investments we saw in Q4 were directly the result of having had a unitranche (Inaudible) original consider that as a financing structure.

So as long it is accretive for them it is obviously extremely beneficial regardless of which asset gets funded.

Having said that, we are actively out there offering the unitranche product on multiple situations and are optimistic we will begin to ramp that this year.

Okay, great.

And then one final question direct buy the new non accrual.

You have got a 53% of par on non accrual status.

One of your peers has the exact same loan I believe at 76% of par and still on accrual status.

So could you just give us a little commentary on direct buy and what at least appears to be to us at least a relatively conservative view of that investment.

I think you summed it correctly it is a conservative investment.

As you know all investments are meaningful to us, but this is in the context of our billion dollar portfolio somewhat de minimis at just over $8 million at face value, fair value obviously is closer to $4 million.

I will say that we have a smaller position so we are not on the Board the way some of our peers are and they may hopefully have better information We'd love their mark to be closer to real value but we are reflecting conservatism.

Great, thank you guys.

Thank you.

Thank you.

Your next question comes from the line of Rick Shane of JPMorgan.

Go ahead please.

Thanks, guys for taking my question.

We have seen an interesting dislocation in the market in terms of the BDC having reduced access to capital.

You guys are well positioned, you are not the only one that is well positioned but you are well positioned in terms of liquidity versus a number of your peers.

Are you seeing this stark impact to competitive landscape in any way or are you seeing the opportunity to drive better deal terms as some of your peers are more cautious with their capital?

I think everybody that we respect in the sector is prudent about their capital management so that they can continue to be in the business.

What we are seeing is people more willing to share on assets which does broaden our funnel obviously as we are likely partner in many of these opportunities.

So I think from that perspective we are back to a couple of years ago to some extent where people are more willing to club things up, A, to preserve their capital and, B, to provide the issuer multiple capital sources as they look to expand their operation and need more funding.

And from a pricing structure I think things have stabilized.

Got it.

Great, thank you guys.

Thank you.

The next question comes from the line of Chris York of JMP Securities.

Go ahead please.

Good morning guys.

Thanks for taking my question.

It is just follow-up on the direct buy question.

When did you guys recognize that as a non accrual?

In Q4.

Which month?

It took effect -- it went retroactive the entire quarter.

Right.

There was no income.

There is no income at all from it for the quarter.

That's it from me.

Thanks.

Thank you.

Your next question comes from the line of Doug Mewhirter of SunTrust.

Go ahead please.

Good morning.

A couple of quick question.

First with the disruption in the liquid markets have you considered any opportunities to find some miss priced or pieces of miss priced liquid loans to put some capital to work?

I know that is not your core thing, but sometimes things can get blown out of wack and there might some opportunities on the trading desk so to speak.

A couple of comments, that one doesn't really follow our philosophy of directly underwriting loans.

Those would be more of a trading opportunities if you will.

And to be frank given where we are on our invested capital the only beneficiary of a trade like that is (Inaudible) asset manager because we are in the catch up phase of our earnings.

That is just not something we would do.

Also the liquid market continues to have highly compromised structures and complete lack of covenants.

Great, thanks for that.

Second question --

The one thing I would add what we have seen is in some of our club year transaction back to the earlier question of one of your peers, people are more willing to maybe allow us to buy a little bit more of an existing position trading amongst club members as they are trying to allocate their capital.

So we have seen a little bit of that around the edges/

Thanks for that.

Very helpful.

Second question pretty quick question.

Your life science venture lending is the average term of the loan shorter or longer or about the same as your core business?

The stated maturity of the loans is typical around five years, but they do unlike our traditional loans have amortization after a year or two period.

So on average I would say you probably get back to the same sort of three year average life you just get there differently.

Okay.

I heard there is a little bit more churn in the that market given the VC funding is so dynamic.

My last question about Crystal you have had it since again the end of -- I guess for a couple of years now.

And it has kind of grown in fits and starts you seem to be a little bit more confident in its outlook to grow for the whole year even though quarterly fluctuations can be wide.

Is there something changed in their business where you are feeling a little bit more confident now.

Just you language has seem to have shifted versus the way you have talked about that business say last year.

I would say Crystal's business thrives particularly in periods of greater volatility because what they predominately offer is certainty of funding among other things.

And I think what we saw in Q4 was fewer repayments and portfolio churn.

As you may recall in 2013 80% plus of their portfolio turned.

So you are correct.

It is a high velocity portfolio, but the churn slows down in periods of volatility and the origination effort is that much more effective.

So I think it really goes to as you see the portfolio grown to just under $500 million.

I think if we collectively underwrite additional volatility this year you will see growth.

If not, you will see churn, but as you know their economic model is such that they generate significant fee income as result of the churn.

So we're happy either way, but I think it really goes to ones underlying assumption of volatility.

Okay, great.

That's all my questions.

Thank you.

Your next question comes from the line of Andrew Kerai of the BDC Income Fund.

Please go ahead.

Good morning.

Thank you for taking my questions.

I was just wondering if you could give a little bit more color on what you're seeing out there in the market in terms of so obviously as you eluded to right most of the BDC universe is at target leverage given that the majority of the universe is trading below NAV growth is like to slow.

Have you seen that impacting either the rate, the leverage attachment point or both on your new deals?

It seems like you are gearing up for as you put it kind of offense in growth mode.

Just wondering if you are seeing any change in dynamic from a pricing and underwriting standpoint?

In Q4 we clearly did.

You need volume in order to see these impacts and we did see good volume in Q4 of actively both at Solar and Solar Senior, so you saw pricing I would say widen out on average maybe 50 basis points and more importantly from where we sit we saw leverage ratios come in a little bit and structures get a little bit more attractive from our perspective.

It is a little bit earlier to say whether that has continued because this has been a slow start to the year as you often see in the deal business given the elevated activity in Q4 as people try to drive closing.

So we are cautiously optimistic, but I think to Michael's commentary we are not just relying on the core sponsor business to drive that growth for us.

We have created less correlated growth engine in the form of Crystal which is not dependable or susceptible to what is going on in the liquid credit markets to the same extent as well as our life science business which is also a bit of niche business.

We tried to diversify our originations effort but I think broadly speaking we do think we are well positioned we just can't control the level of M&A activity out there.

Sure.

That certainly makes a lot of sense.

Thank you for that color.

How should we given that you are ramping up our (Inaudible) to JV with PIMCO which tends to be sort of a mid teens type target IRR for you guys, how should we think about the portfolio yield as we move along in 2015 here?

As you saw in Q4 the new origination were about 9, and we think about our growth -- I'm glad you brought this up.

The JV is low to mid double digits, life science is 11% on an unleveled basis, Crystal is generally 11% plus return.

I think we would expect the overall yields and returns to go up as those strategies grow.

Sure.

I think that makes sense.

Sorry.

No, go ahead.

Sure.

And I think the last question I had was just on the origination side.

So certainly appreciate the color on the repayments coming in.

It seems like from your commentary that I'm not sure if I was reading this correctly but it seemed like origination levels would be modestly higher compared to 2014 or is just that the origination levels themselves on a growth basis might be relatively constant it is just that the driver of the net portfolio growth is coming from pay down.

Just any color on your outlook for gross originations.

I think as you know we have never been in the habit of projecting origination so we kind of point to history.

Right.

Last year we did about $550 million of originations.

$50 million of that was in the life science business none of it was in the SSLP.

So I think we view the PIMCO program as totally incremental and we expect the growth in life sciences to be more than $50 million this year.

So assuming we are in kind of a similar environment to last year our origination should exceed last year.

And the net portfolio will be significantly benefited we believe today by significant reduction in repayments.

Great.

Certainly makes sense.

Thank you.

Thank you.

Thank you.

Your next question comes from the line of Casey Alexander of Gilford Securities.

Go ahead please.

Good morning.

You reported for the quarter $11.9 million of realized and unrealized losses.

How much was realized versus unrealized?

About 6.7.

That's broken out in our income statement but it is about 6.7 on the realized side.

I'm sorry.

I missed it.

Secondly you report 88% senior secured.

Can you break that into first and second lien?

What I would say is that when you look through with Crystal portfolio on a consolidated basis close to two-thirds of the portfolio is first lane.

Okay.

That's very helpful.

Lastly, while you don't have much of any exposure to oil and gas now that doesn't mean there might not be opportunities in the future.

Have you seen anybody coming to you with recap ideas or things that might carry a good rate with good covenants and potentially good equity kickers to it?

What I would say is we are not taking credit for being smarter than others by not having energy exposure.

We have never had energy exposure in our portfolios because we don't have a team dedicated to the sector and don't feel that we have the expertise as a lender to focus on the sectors.

And that continues to be the case.

It is something that we evaluate constantly as to whether we should be adding that expertise, but I think until we feel we have sector expertise which obviously recent volatility has proven out is important if not essential I think we are going to stay on the side lines.

Fair enough.

Thanks for taking my questions.

I appreciate it.

Thank you.

Your next question comes from the line of John Bock of Wells Securities.

Please go ahead.

Good morning, and thank you for taking my questions.

Michael, Bruce, regarding the JV can you give us a sense of the limiting factors at the speed at which it can be deployed?

If we look at the credit facility or what is in place are their govern to the pace of growth depending on what you want to do?

We understand that it is particularly for you guys going to be a target rich environment and I'm just wondering how you can maybe expand upon maybe some of the limitations that might govern the speed at which you deploy what is a very attractive assets?

There are no structural limitations at all.

Frankly it is just finding good, solid investments that meet our risk reward that we are able to win.

Okay.

So then moving on from that, when you offer your unitranche product offering can you give us a sense of the fee structure or excuse me the up front fees that are charged as part of that product offering?

Would you expect to generate a certain amount of up front fee income off of that vehicle?

As you know our policy is that we amortize any up front fees over the life of the loan so you won't see an up front benefit from that.

Great.

It is no different than existing loan.

We get a point , a point and half, maybe 2 points if we're lucky, two points and that would be amortized over five or six years.

So you are not going to see a huge ramp up in NII because of paid originations increasing

Very good.

Go ahead, Bruce.

I would just add that the limiting factor is not competing with other unitranche.

Generally speaking there is an ability to club together as we are seeing larger and larger unitranche.

What we don't control however as I mentioned before is whether the sponsor elects unitranche versus a first lien, second lien.

And unitranche as you know has only been around the last couple of years, not every sponsor likes it depending on the stage of development for their underlying portfolio company.

I would actually say that is the biggest determinant we just can't control whether they are going to select the unitranche versus some other form of capital structure.

But as it relates to the credit facility we have one available it just hasn't been economically prudent to close it, pay those fee until we start funding in to the joint venture.

One last question and I apologize if it has been asked in one iteration or another previously.

When we look at second lien exposure, I understand that you outline credits that are senior secured but we in the market understand that there may in fact be a difference what is a first lien secured loan and what is a second lien secured loan of which you do have a healthy amount of second lien exposure.

I don't necessarily want to opine good or bad just want to understand that at a point when people automatically associated second lien with risk, heightened risk at that given where we were in the credit cycle how do you answer whether or not now is a time to be exposed to such an assets class like second lien debt because I know a lot of us would be interested in the answer.

Sure.

Great question.

I think if you look at our portfolio on a consolidated basis whether it is Crystal capital which is all first lien assets whether it is how we are going to look to grow out the unitranche which is as you know is dollar one risk first lien as well, life sciences which is first lien on a consolidated basis at 12/31 as I mentioned earlier in excess of 60% of the portfolio is first lien.

Okay.

When you get to our second lien exposure as you know we don't believe all assets or all second lien assets are created equally.

And what I mean by that is predominance of our second lien investment are directly originated underwritten transactions where we control the only one or one of two lenders and we have full covenant packages.

There have been a small asset or two in the books where we participated in a secondary transaction or I'm sorry liquid transaction because it is a business that we have underwritten in the past such as (Inaudible) or such as [Tear Point] but those are small positions.

Again they are things that we have been underwriting for a number of years.

The predominance of our second lien investments are directly originated and have full covenant and we think those are therefore higher quality.

And I would add you look at our most significant repayment in Q4 was a business called [Ticomat] which was a second lien investment which totally appreciate from your vantage point you wouldn't really know the underlying fundamentals but we made that investment in Q4 of 2013 got repaid within 12 months and realized an IRR in excess of 17%.

Why we believe because it was a directly originated second lien transaction.

Guys great answers.

Look forward to coming portfolio growth.

Thank you.

Thank you.

Thank you.

Your next question comes from Mickey Schleien of Ladenburg.

Please go ahead.

Good morning.

I realize we are running out of time because of the other call.

But just quickly then spreads look like they were pretty attractive in the fourth quarter.

We certainly see that in the SUNS results.

But they have tightened dramatically this quarter so far.

I would like to get your sense of how you feel about the market today.

Again I think, Mickey, that there hasn't been a lot of activity I think in the liquid market as well, but clearly you can see from secondary trading levels to your point spreads have tightened back.

But fortunately because we are playing in the direct originated market we are really not seeing a material shift because I think Solar Capital whether it is stretched first or second lien that's not where you seen spreads tightened.

Spreads have tightened predominately in the first lien liquid loan market.

So we haven't seen much of a trickle down effect yet.

As you know it take as little bit of a time to create a trend in this market.

Right.

Thank you.

I wanted to move on to dividend income, Crystal dividend to Solar was more or less stable quarter to quarter, but overall dividend income was up sharply from third quarter to the fourth quarter.

Can you tell me what drove that?

Mickey, I think the dividend were -- we had a little bit more maybe but dividend income was pretty stable from Crystal.

I said that.

I understand.

But total dividend income was up sharply from the third quarter to the fourth quarter, so something else paid a large dividend to Solar unless I'm doing the math wrong.

We get some dividends from our aircraft so it could be a million bucks there.

Hold on let me take a look.

Do you have any other questions while --

One is just a fine tuning question.

I saw in the statement of changes in that assets that $2 million from other source for distribution was that a return of capital or something else?

It was due to some timing differences.

Okay.

Those are all my questions.

Great.

Thanks.

Mickey, I will look up the dividend and get back to you offline.

I just don't have the detail with me.

That's fine.

Thank you.

Thank you.

Your last question comes from [Randy Rockman] of (Inaudible).

Please go ahead.

Mike, congratulation.

I think you are doing a good job in the transaction.

I had two questions but one has already been answered.

So the remaining question is the following, given the consistencies of the production out at Crystal and the tightening spreads we have seen globally how much more is Crystal worth than what you guys bought it for?

Look we always carry our values conservatively.

Let's put it this way we would never sell it for anywhere close to what we bought it for or any where close to where it is marked together today.

It is just a great recurring earnings stream for us with phenomenal management team.

And it is a business that is somewhat counter cyclical when we do hit a rough spot in the economy we will see a lot more portfolio growth out of these guys because their capital becomes more needed.

We think there is a lot of upside here.

We have no intent to ever sell it so we don't really focus on what the market value is per se.

Okay.

And then one follow-on question.

If you add up the unrealized loss mark that the portfolio has incurred for the 99 point change percent that is all performing what do you think that aggregates?

In dollars, pennies per share?

Pennies per share.

Well, we were down (inaudible) so we're down 1%.

Essentially the vast majority of the mark changes were really technical changes given the choppiness in the market in the fourth quarter so you saw.

Exactly.

Notwithstanding my comments about Crystal, we do move the value of Crystal a little bit because the evaluation firm focus on where comparable companies are trading.

We think those are all temporary mark to marks given the choppiness of the market and we'll come back to NAV at some future point in time.

I think the only fundamental mark was the direct buy at $2.5 million.

The rest was all fundamental -- technical excuse me.

I'm just trying to figure out what the loans mark the originated loan in 98 you are accreting the discount but now you are carring it at 96 we all know it is money good.

I'm just trying to figure out what the aggregation of all those 96 to 98s are.

Maybe on the balance sheet on the bottom in equity section is a net on realized there.

Okay.

We can walk you through it offline.

I'm happy to do it.

Okay.

That's fine.

Thanks guys.

Thank you.

Thank you, ladies and gentlemen.

I would now like to it turn the call over to Michael Gross for the time closing remarks.

Thank you very much.

We appreciate all your time and hopefully we'll entertain many of you in the next three minutes on SUNS call when we talk about all the positive developments we experienced in the fourth quarter.

Thank you for your patience and your participation in today's conference call.

That concludes the presentation.

You may now disconnect.

Thank you and have a very good day.