SLR Investment Corp (SLRC) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2015 Solar Capital Limited Earnings Conference Call.

My name is Denise and I will be your operator for today.

At this time, all participants are in listen-only mode.

Later we will conduct a question-and-answer session.

(OPERATOR INSTRUCTIONS.)

As a reminder, this conference is being recorded for replay purposes.

I will now turn the conference over to Mr. Michael Gross, Chairman and Chief Executive Officer.

Please proceed, sir.

Thank you very much and good morning.

Welcome to Solar Capital Limited's earnings call for the quarter ended June 30, 2015.

I am joined here today by Bruce Spoehler, our Chief Operating Officer; and Richard Peteka, our Chief Financial Officer.

Rich, before we begin, 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 Capital Limited and that any unauthorized broadcasts in any form are strictly prohibited.

This conference call is being webcast on our website at www.solarcapltd.com.

Audio replays of this call will be made available later today as disclosed in our earnings press release.

I'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 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 Chairman and Chief Executive Officer, Michael Gross.

Thank you, Rich.

We are pleased with our strong results for the second quarter of 2015.

Our origination engine is operating on all cylinders, supporting our thesis that a thoughtful, strategic approach to increasing our proprietary searching channels will be more additive long term than rushing to reinvest the proceeds from the prior two years' heavy repayments into less attractive transactions.

Against the backdrop of a modest uptick in (inaudible) activity from the first quarter, we originated approximately $203 million of senior-secured floating-rate loans.

Net of $79 million of repayments, our portfolio grew by $124 million, or 12.4%, to approximately $1.2 billion.

Importantly, this portfolio expansion was comprised of senior-secured loans with the attractive risk-reward characteristics we targeted during the strategic expansion of our origination platform.

Crystal Financial and our life science lending business provide us with important sources of returns that are less correlated with the liquid credit markets.

As a result of our larger average portfolio, net investment income for the quarter increased to $0.38 per share.

Our net asset value at June 30 was $21.92, which was slightly higher than the prior quarter, and our portfolio is over 99.8% performing on a fair value basis.

In addition, we have no direct energy exposure.

Through our core business, lending to sponsor-backed middle-market companies, we made direct investments for which we were able to negotiate attractive terms compared to liquid credit markets.

Our life science lending platform originated additional senior-secured first lien loans, bringing our total life science investment portfolio to approximately $90 million.

Furthermore, we currently expect to contribute assets into the

SSLP unitranche joint venture over the next few months.

With approximately $233 million of new investments in the first half of this year and our incremental activity to date in the third quarter, we believe we are on pace with our origination target of approximately $500 million of new investments for 2015.

Additionally, we anticipate relatively modest repayments in the current quarter.

At the end of Q2, Solar Capital's net debt-to-equity ratio was 0.23 times.

At June 30, the total current available debt capital was $490 million, subject to (inaudible) limitations.

Off balance sheet, we have access to another $500 million of investible capital, bringing our total capital available for investment in our platform to approximately $1 billion.

Thus far in the third quarter, we have begun drawing on our revolver to fund new investments.

Given that we anticipate repayments to be relatively light for this quarter, we expect to further increase our leverage as we fund additional investments.

As the banks have been exiting the middle-market lending sector due to regulatory constraints and capital reserve requirements, BDCs are emerging as a dominant subset of the shadow banking system.

One of the major competitive advantages that the BDCs with available capital have over alternative asset managers in this nascent industry is their permanent capital.

Our long-term investment horizon and ability to be patient is conducive to the illiquid nature of private middle-market loans.

Also, our ability to recycle capital rather than raising serial funds enables us to have a lower cost of capital over the long term.

When we are evaluating the best use of our available capital, we take into consideration the intangible benefits of our permanent capital base.

Due to our decision to not aggressively invest in the frothy liquid credit markets of the past three years, we currently have the scale and available capital that those of our peers who are fully leveraged do not.

That scale, available capital and our permanent capital base are three competitive advantages that should enable us to succeed in either a continued low-rate capital-rich environment or if credit markets dislocate.

And finally, yesterday our board of directors declared a quarterly distribution of $0.40 per share which will be paid October 2, 2015, to shareholders of record as of September 24, 2015.

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

Thanks, Michael.

Solar Capital Limited's net asset value at June 30 was $930.8 million, or $21.92 per share, compared to $930.5 million, or $21.91 per share, at March 31, 2015.

At June 30, our investment portfolio had a fair market value of $1.17 billion in 50 portfolio companies across 30 industries.

This compares to a fair market value of $1.04 billion in 42 portfolio companies across 26 industries at March 31.

At June 30, the weighted average yield on our income-producing portfolio decreased slightly to 9.9% measured at fair value, versus 10.0% at March 31, 2015.

For the three months ended June 30, gross investment income totaled $28.0 million versus $25.6 million for the three months ended March 31.

Expenses totaled $12 million for the three months ended June 30, compared to $11.2 million for the three months ended March 31.

Accordingly, the Company's net investment income for the three months ended June 30, 2015, totaled $16.0 million, or $0.38 per average share, versus $14.4 million, or $0.34 per average share, for the three months ended March 31, 2015.

Net realized and unrealized gains for the second quarter of 2015 totaled approximately $1.3 million versus a net realized and unrealized loss of $3.5 million for the first quarter of 2015.

Ultimately, the Company had a net increase in net assets resulting from operations of $17.3 million, or $0.41 per average share, for the three months ended June 30, 2015.

This compared to a net increase of $10.9 million, or $0.26 per average share, for the three months ended March 31.

At this time, I'd like to turn the call over to our Chief Operating Officer, Bruce Spoehler.

Thank you, Rich.

The credit quality of Solar's portfolio remained very strong.

Overall, our issuers are experiencing stable to modest EBITDA growth and the fundamentals are healthy.

We continue to have no direct exposure to the oil and gas sector.

Our predominantly senior-secured floating-rate portfolio should provide protection if the economic environment declines and/or interest rates rise.

At June 30, 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 portfolio remained at approximately 2 when measured at fair market value, based on our 1 to 4 risk-weighting scale, with 1 representing the least amount of risk.

Our one investment on non-accrual direct buy accounts for less than 0.5% of the portfolio at fair value, with the other 99.8% of the portfolio performing at or above our expectations.

Again, the credit fundamentals are strong across the portfolio.

At the end of Q2, our portfolio consisted of 50 different companies operating across 30 industries.

When measured at fair value, and including Crystal Financial's full portfolio, over 91% of our investments were in senior-secured loans, including 57% in direct senior-secured loans and 34% in Crystal's directly-originated portfolio.

The remaining 9% of the portfolio was comprised 6% of sub-debt, 1.5% of (inaudible) equity and just under 2% in common equity and warrants.

At June 30, approximately 90% of our income-producing investment portfolio was floating rate, when including Crystal's full portfolio at fair value.

At June 30, Crystal Financial had a diversified portfolio consisting of approximately $455 million of funded senior0secured loans across 24 issuers with an average issue exposure of approximately $19 million.

During the quarter, Crystal funded new loans totaling approximately $68 million and experienced repayments totaling approximately $104 million.

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

At the end of Q2, Crystal had a net-debt-to-invested-equity ratio of 0.7 times.

Crystal paid Solar Capital a cash dividend of $7.9 million which is equivalent to an 11.5% annual cash-on-cash yield, consistent with the prior quarter.

During Q2, Solar originated approximately $203 million of senior-secured floating-rate loans.

Investment prepaid during the quarter ended June 30 totaled approximately $79 million, resulting in net originations of $12 million.

I'll now highlight some of our second-quarter investments which were sourced via our strategic channels, specifically our sponsor-focused direct origination business with its unitranche capabilities and our life science lending platform.

We sourced and invested in the unitranche loan for Legal Zoom, which is majority-owned by Permira Partners.

Legal Zoom is the leading provider of online legal services to small businesses and consumers in the US.

Solar funded $50 million of $156 million unitranche which was jointly underwritten by a small club of investors.

The loan has an attractive covenant package, as well as call protection.

The investment carries an all-in yield of 8.7% and total leverage approximates 4.2 times.

During the quarter, we also led the underwriting of the second lien tranche for IHS, Interactive Health Services, in conjunction with FF&L's acquisition of the company.

IHS is the nation's largest independent provider of corporate wellness and health management services.

With regards to this transaction, Solar leveraged our historical relationship with the company and knowledge of the credit.

As a reminder, we had previously underwritten a unitranche loan for IHS back in 2011 when it was owned by CI Capital Partners.

Solar is currently holding $25 million of a $60-million second lien loan, and the investment carries an all-in yield of just under 10%.

Additionally, we reinvested in a second lien loan to EMC, Emerging Market Communications, which is a global provider of satellite communication services to remote locations.

In conjunction with an add-on acquisition, the company, which is owned by ABRY, refinanced its capital structure.

We were repaid at a premium to par on our original $27-million second lien investment, which resulted in an IRR of just under 13%.

Due to our close relationship with both ABRY and the company's management, we played an active role in determining EMC's new capital structure.

The company's EBITDA has grown from $26 million at the time of our initial funding to $67 million today, pro forma for this acquisition.

EMC is one of many examples where Solar work actively with top-tier financial sponsors to be a value-added solutions partner, providing both capital, as well as advice, on new opportunities and refinancing existing portfolio companies.

Our $26.5-million investment in this new second lien loan carries an all-in yield of 11%.

Moving to life sciences.

The life science team underwrote three new transactions during the quarter which totaled approximately $26 million of new investments, the largest of which was a $16-million first lien term loan to Rapid Micro Biosystems.

Rapid Micro is a life science company focused on products for detecting bacterial contamination during a manufacturing process of consumer goods.

The company is backed by a syndicate of venture capital firms, including TPG, Longitude Venture and Quaker Ventures.

The loan has a full covenant package, call protection, as well as a success fee.

When excluding the success feel, our all-in yield on the investment is 10.5%.

At the end of Q2, our life science portfolio had grown to approximately $90 million of first-lien senior-secured loans across 9 different borrowers with an average position size of $10 million and an average all-in yield, including our warrant values but excluding any success fees, of just over 11.5%.

The team is running hard since arriving late Q1, and given their strong current pipeline, we expect further growth in this portfolio in Q3.

Now let me touch on our realizations.

We were repaid at a premium to par on Blue Coat Systems in conjunction with Thoma Bravo's sale of the company.

The IRR on this investment was just under 12%.

We were also repaid at a premium to par on our $19-million second-lien investment in Ikaria in conjunction with Madison Dearborn's sale of the business.

Our IRR for this investment was just under 11%.

Thus far in the third quarter, we have visibility on approximately $25 million in total redemptions and are currently not expecting any additional material repayments in Q3.

As Michael mentioned, we expect continued portfolio growth in the second half of the year.

Now I'll turn the call back to Michael.

Thank you, Bruce.

In conclusion, in the second quarter, we began to see the fruits of our efforts to expand our sourcing engines, and we anticipate further growth in the coming quarters.

We believe that a prudent approach to investing during the frothy credit market conditions of the past three years is paying off.

Today, not only do we have approximately $1 billion of capital available to invest, which places us in a select group amongst the BDCs, but we have multiple attractive investment channels through which to deploy it.

In Solar's core underwriting business of sponsor-backed middle-market companies, we offer both breadth of product and depth.

Additionally, Crystal Financial and our life science lending businesses, with the current ROEs in the low teens, provide us with diversified earning streams with growth potential.

Based on current visibility, we expect continued strong net portfolio growth in the second half of this year.

On a relative value basis, we believe Solar is a very compelling investment opportunity.

At the close last night, Solar was trading at 0.81 times book value, with a current distribution yield of 9%, compared to the Barclays US Corporate High-Yield Index yield (inaudible) of just 6.9%.

On the absolute basis, we view Solar as highly attractive as well.

Spread compression has been a recent theme in the BDC industry.

For Solar and its diversified sourcing engines, we anticipate this trend reversing itself over the coming quarters.

The wave of repayments of our high-yielding, older vintage subordinated debt investments has ended, and as we fund more investments through our strategic initiatives which carry expected return on equities in the low to mid-teens, we anticipate increases to our portfolio weighted average yield which, in turn, should boost our net investment income.

We believe that we are one of the only of a few BDCs which have this capability.

At 11:00 this morning, we'll be hosting an earnings call for the first-quarter results of Solar Senior Capital, or SUNS.

Our ability to provide traditional middle-market 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 to the value proposition in Solar Capital's deal flow.

Thank you for your time.

Operator, would you please open the line for questions?

(OPERATOR INSTRUCTIONS.) Our first question comes from Ryan Lynch with KBW.

Please proceed.

Good morning.

Thank you for taking my questions.

You guys mentioned dropped some assets in CSSLP potentially over the next few months.

Have you guys originated any assets on your balance sheet that would make sense and fit into dropping into the SSLP in the future?

And how big would that portfolio have to be, both in terms of amount and number of portfolio companies that you'd like to get before you drop assets into the SSLP?

We have, as we just touched on, a couple assets on balance sheet, one of which is Legal Zoom that we would consider dropping in as a unitranche.

Another one that we originated during the quarter is something called Salient, which is unitranche to a -- or stretch first lien into an asset manager.

I think -- and we have additional deals we're working on this quarter that we would drop in.

As you know, the credit provider likes to see a certain amount of equity come in prior to allowing you to tap into the leverage facility, not different from some of our other facilities on the platform.

So I think that generally they like to see 4 or 5 investments in there prior to tapping into the leverage.

Okay.

And then it looks like you guys are also making really nice progress in building your life sciences portfolio, and it looks like that's going to continue into Q3.

Maybe just looking a little bit further out, can you maybe just give us some color on what size do you see that portfolio ultimately getting to, call it 2 to 3 years down the road?

I guess what I would say is that at its peak, the team in their prior life at GE had taken the portfolio as large as $500 million.

We've been sort of targeting $250 million-plus but are optimistic based on the early returns.

Okay.

And then one last one.

You mentioned that you guys have no direct energy exposure in the portfolio.

Given some of the disruption we've seen in the energy markets, is that an area you guys would look to explore making some investments in?

Probably pretty unlikely.

The fact that we have no energy exposure today kind of speaks to the fact that we don't view ourselves as having expertise in that sector, and so for us to kind of dip our toe in the market when things are in distress as opposed to doing new issues is probably unlikely.

Alright.

Thanks for answering my questions.

Our pleasure.

Thank you.

Our next question comes from Rick Shane with JP Morgan.

Please proceed.

Thanks.

I'd actually just like to follow up on the last question related to SSLP.

Two things.

One, it sounds like the reason you were putting things on balance sheet for now really has more to do with pool diversity.

Is the expectation, once you achieve pool diversity, that loans will be funded directly through SSLP and not through the Solar balance sheet?

Yes.

Okay.

Great.

And then the second is, just as we think about, in your words, dropping those loans into the SSLP, is there anything that we need to think about from an economic perspective that would change?

Nothing really material.

I think as we drop them in and incur leverage, you'll see our return equity go up off of unitranche after we originate.

And we would own -- we effectively sell 12.5% of the loan to our partner there, but to Michael's point is we ramp our ROE on the invested capital to drive towards the low to mid-teens.

Got it.

And when you talk about your overall origination guidance for the remainder of the year, what is the expectation between the mix that will go onto the Solar balance sheet and what will go into SSLP?

It's really tough to read.

As you know, this business is very lumpy so it's hard to predict for how much would be life sciences, how much would be Crystal, how much would be untranche, how much would be just direct originated loans (inaudible).

It's really hard for us to kind of give you that guidance.

I think, as we just talked about on the life science side, we're with a $90-million portfolio at June marching towards $250 million over the next call it 18 months -- could be more -- and so there we have some visibility.

And then the issue is to Michael's point -- the core sponsor business, whether they choose a unitranche option in financing their companies versus a second lien.

So that product mix is tougher for us to predict.

Fair enough.

Okay.

Thank you, guys.

Thank you.

Our next question comes from Doug Mewhirter with SunTrust.

Please proceed.

Yes.

Good morning.

Just had two questions, one on the SLP and one on your life science venture lending business.

So just maybe educate me a little bit on what the mechanics might look like in your financial statements when you sort of move your existing unitranche loans off the balance sheet to the SSLP.

I would take it that you would record 12.5% of the value of those loans in the sort of the sales or exits portion in that financial statement, so it might artificially increase that piece of it.

Or -- and also because it's -- you're technically changing it to -- part of that to an equity investment.

I don't know if -- will that show up differently as well?

Just wondering sort of how your financial statements would change as you shift assets around.

Yes.

Hi, Doug.

What you should expect is the sale of the asset off the balance sheet and a purchase of the asset into the SSLP, similar to the way we did it at Solar senior if you look at our 10-Q.

And it is effectively a scheduled investment and summary financial statements and notes within that, so very similar to the other joint ventures that you see in the industry.

Okay.

Thanks for that.

Maybe a question -- it's more of a hypothetical -- on your venture lending.

Obviously the biotech or life science industries can be very volatile on the public markets, and I know that one purpose of venture lending is to provide sort of a bridge to the market publics.

And what is your team's contingency plans or how would we see your behavior change if the -- if there was extended volatility in the public life sciences, biotech markets and the IPO window maybe closed?

Would you slow down lending?

Would you change the terms of the loans?

Would that really change the behavior of your venture lending team and how you do business?

Yes.

I would say it's important to note that the venture lending team has been doing this for close to 15 years, so across cycles, substantial dollars invested with de minimis losses.

So we have incredible faith in their track record and ability to navigate both strong and weak public markets.

The other point I would make is that where we play in the life science venture lending tends to be in the late-stage later innings where they have proven out some technology or some drug efficacy.

They're through Phase 2 and are deep into Phase 3, may have been fast-tracked for FDA approval.

So generally speaking, what we find is we have multiple exits.

It's not just to the public market.

It's also to strategics who are often part of the venture or investing community in these deals that we've been looking at.

So we know we have an obvious buyer.

It may not be at the price that the VC firms think they can take it public at, but we know as a lender we're in at de minimis loan to value and that there'd be strategic interest, or alternatively, the VC funds we are also confident that when we go in, they have substantial capital to continue to fund the development through commercialization.

So we look at multi paths to get out and really do not rely honestly on the IPO window.

Great.

Thanks.

That's all my questions.

Our next question comes from David Chiaverini with Cantor Fitzgerald.

Please proceed.

Hi.

Thanks.

Good morning.

So a couple questions for you on Crystal Financial.

So you mentioned during the quarter that the net portfolio declined by about $35 million when netting out the repayments.

First question is -- and it's nice having this business being less correlated with the overall business (inaudible) very strong net portfolio growth, but first question is just -- is the $455 million size of Crystal -- is that right in the sweet spot of where you'd like to keep it or would you -- or is it a bit higher, a bit lower?

What's the range that we should expect there?

Yes.

I think the answer is we are happy to see it grow.

It has been as high as low 500s, as low as high 300s.

It is a short-duration asset class and so there's a fair bit of churn which drives a fair bit of recognition of fee income, both up-front fees and exit fees, as well as amendment fees along the way.

So that's just the way that business flows.

It's not a direct -- or a straight line to growth, but generates, as you can see, very consistent ROEs.

They paid us 11.5% for the second quarter in a row.

And so I think we'd be very happy if they grew that business, but like us, they are prudent in picking their times and their opportunities for growth.

Thanks for that.

And the nature of the borrowers for that business -- would you say that it's counter-cyclical in that you could see additional growth if the environment were to get a little bumpy?

Yes because generally the companies are lending to our -- companies going through some kind of transition.

That could either be something because of their (inaudible) themselves or something to have to do with the economy.

And so in a more difficult economy, there will be a greater demand for this type of capital.

Great.

Thanks very much.

Thank you.

Our next question comes from Andy Ellner with JMP Securities.

Please proceed.

Good morning and thank you for taking my question.

Can you update us on our your investment, [EZ] Financial Services?

We've noticed their value has trended down the last few quarters and wanted to get a sense of your comfort with the performance of this credit?

Yes.

That's really just reflecting currency hedges.

It's a Canadian dollar-denominated, and you know the loonie has not performed well, and we are fully-hedged.

Great.

That's helpful.

Thank you.

Thank you.

Our next question comes from Casey Alexander with Gilford Securities.

Please proceed.

Hi.

Good morning and thanks for taking my questions.

First of all, in the -- it's great to see you out there originating again.

How late in the quarter did the originations come?

Was there much income recorded in the quarter from the originations that you did or was it fairly back-ended?

I would say it was middle to end, so you will see more of a full quarter's run rate this quarter.

Okay.

And you did say that you expect to have positive originations in this quarter as well.

Would it be your expectation then that in the current quarter that we're in that it's likely that you'll cover the dividend with net investment income?

Yes.

I would say that, first of all, just as a regulated investment company, we have taxable income, unlike other investment companies -- BDCs.

We recognize income for tax up front but we amortize it as an adjustment to yield.

So taxable income and covering the dividend is sometimes definitional.

But from our perspective, you will see some net growth and how that plays out in the yields on those assets, time will tell.

But we feel very comfortable with our run rate dividend right now.

Okay.

Great.

And lastly, just from a clean-up note, the senior-secured portion of the portfolio -- is it possible -- I checked the queue and I couldn't find -- to break that into percentages of first and second lien?

Yes.

It's not broken out.

What happens is you see things like these unitranche deals that we're talking about and others, there's first dollars as attachment points.

When you look across the industry, it's not necessarily clear.

So we're really breaking them out by just secured and also unsecured.

We would point you to the average weighted yields in our portfolio, and so you get a really good perspective on the risk that the portfolio has relative to others in the space.

Alright.

Okay.

Great.

Thank you very much for taking my questions.

Thank you.

(OPERATOR INSTRUCTIONS.) Our next question comes from Jonathan Bock with Wells Fargo Securities.

Please proceed.

Good afternoon and thank you for taking my questions.

Just curious with one of the larger investments of the lot, particularly in Legal Zoom.

Can you talk about how that was sourced and who was the lead originator of that unitranche, because I know you mentioned a partner.

I was just curious if this was an item where you were brought in as they syndicated down to credit due to the fact that they're somewhat capacity-constrained or not?

No.

I would say this was a horse race between use and another entity who is public so I won't release their name.

I will.

It's Fifth Street.

Okay.

So this was a horse race and, at the end of the day, the sponsor asked us to share.

Very nice.

Okay.

That's excellent.

And then as we think about it -- originations going forward, obviously this is great as it continues to push positive inertia and momentum for earnings.

I'm just curious about two employees at the external manager, namely Brian Gerson and Bill Eckmann that I believe left for Lone Star and left for McQuarrie.

And Michael, what I'm trying to understand is, one, can you talk about why these folks chose to leave, given that you have a significant amount of origination capacity for growth, so there seems to be no constraint on their ability to conduct transactions.

And does that limit your origination ability to fund assets kind of in the future?

Trying to understand those two departures as important and how we look at that in the entire ecosystem of your ability to grow the portfolio.

Sure.

I think it's important to note, just as an aside, Jonathan, that both these individuals left over a year ago.

Yes.

But -- so I just haven't really talked about it of late, other than seeing them socially.

The -- you might also recall that at the beginning of last year, prior to their departure, we hired the senior original from Apollo across their entire credit platform, and I think that was meant to bring a different type of energy to our origination efforts.

And so you'd have to ask those two individuals as to their motivations.

But we were in the midst of, again, sort of diversifying and growing our origination capabilities.

As you saw, we also brought on the life science business early last year, which strategically is something that those two individuals were not going to be involved in because it's obviously a different asset class.

But we club together with them.

We have some deals in common and think it's great to have like-minded partners out there.

(Inaudible).

Go ahead, Michael.

Without casting aspersion on the two of them because they're both great friends of ours and we (inaudible) with them, I would just say that our origination engine and our due diligence engine are the strongest they've been since our history.

So we're very comfortable with the team and our ability to put to work the capital that we're doing.

So --

Yes.

And again, understanding the timing.

I guess it was just -- the view -- did that somehow impeded kind of the efforts to deploy capital early on, but now that you have folks in place with the machine running and kind of humming, if you will, not only have you beat but also exceeded your -- exceeded where you were according to plan, and it sounds like you definitely have.

So great.

I think, Jonathan, it's important to note the timing, too.

Right?

Our unitranche capability didn't kick off until after those two left, and so that just was not an opportunity that existed for the team that was here last year.

And the life science effort really ramped up this year when we brought on three additional individuals, as well as we brought on a couple of individuals from GE on the sponsor side.

So I think the capabilities are different than when those individuals had been there.

Don't know if that would have changed their thinking, but we're, to Michael's point, clearly thrilled with the additions.

Got it.

And I guess kind of cat and mouse -- you've got some assets that you could onboard into SSLP but you're kind of waiting to build a portfolio so one could get some leverage from your leverage provider.

I guess the only question kind of remains is with substantial amounts of unitranche product out there, folks are trying to understand the risk-return of the asset class, or is it also possible, guys, while people talk about unitranche, could you somehow choose to fund this facility with BSL which I'd imagine would please the liquidity providers, given the liquidity of that asset, and allow you to eke out some levered returns as you slowly sell those down into more proprietary assets.

Could you maybe talk about the ability to start generating ROE on -- in that vehicle with the -- with liquid assets versus maybe the time lag that it takes to start really closing significant unitranche assets in the fund.

Sure.

And look, that is the strategy.

We'll say that if you look over at SUNS where we have the joint venture with VOYA and we've been ramping there, we've really stuck to our knitting.

Not surprising, as you know Michael and my DNA -- to be focused and to be disciplined.

The risk in straying from middle-market illiquid assets into more liquid collateral is liquidity dries up, as we know --

Yes.

And what we don't want to do is be unable to get out of the assets at the time that we're trying to build into our core investment class.

And I'd say the other thing to add is this is really utilizing one of our competitor advantages in that we have a lot of capital available to us.

So we're not capital-constrained.

There's no need to buy temporary assets to get temporary return.

Yes.

We're comfortable buying these (inaudible) on our balance sheet and funding with L+2 and change bank debt and getting the net investment for ourselves until we drop it in there.

Yes.

Yes.

No.

It makes total sense.

And I guess, to your point -- and this was always a big item that you outlined about the unitranche program you started, while we haven't maybe dropped an asset in there, the fact that you were at the table offering the product in Legal Zoom that the sponsor wanted obviously led to an attractive asset being booked alongside another partner.

So I understand and look forward to next quarter.

Thank you so much for taking my questions.

Thank you, Jonathan.

Thank you, Jonathan.

Appreciate it.

Thanks.

We have no further questions.

I will now turn the call back over to management for any closing remarks.

Please proceed.

Thank you for all your time and support and your patience.

We look forward to talking to you again in a few months to talk about our successful third quarter.

Thank you.

This concludes today's conference.

You may now disconnect.

Have a great day, everyone.