SLR Investment Corp (SLRC) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Solar Capital Limited earnings conference call for the quarter and fiscal year ended December 31, 2015.

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

Later we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions) As a reminder, today's call is being recorded.

I would now like to introduce you to your host for today's call; Chairman and Chief Executive Officer, Michael Gross.

Sir, you may begin.

Thank you very much and good morning.

Welcome to Solar Capital Limited earnings call for the quarter and year ended December 31, 2015.

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

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

Thank you, 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 broadcast 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 of financial conditions.

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.

During the frothy market conditions of the past few years, the adage a rising tide lifts all boats fitted this part of the credit cycle.

As you well know, the tide recently began to move out.

After three years of patience and disciplined investment approach with a focus on building strategic investment niches rather than leveraging up and buying the market, we welcome the sea change.

As significant shareholders, we share in our investors' disappointment with where our stock is currently trading.

We are however pleased with our operating performance in the fourth quarter and 2015 as a whole.

This puts us in a position of strength that will enable us to not only weather the credit conditions in 2016 and beyond, but to capitalize them in order to deliver shareholder value.

On all three major metrics by which we measure our fundamental performance; credit quality, NAV preservation, and portfolio earnings power; we had a highly successful fourth quarter and full-year 2015.

First, the credit quality of our portfolio remained strong.

Throughout 2015 we had only one legacy asset on non-accrual representing less than 1% of the entire cost of our portfolio.

Over the course of the year, our portfolio companies collectively experienced both revenue and EBITDA growth as well as deleveraging.

We continue to have no direct exposure to oil and gas or commodity industries.

Our lack of exposure to these troubled sectors is not the result of consulting a crystal ball, however it's due to our philosophy investing in non-cyclical defensive industries with high visibility on recurring cash flows.

Second, our December 31, 2015 net asset value per share of $20.79 remains above our adjusted NAV of $20.52 at the time of our IPO six years ago.

The ability to preserve NAV is largely determined by net investment income coverage and portfolio credit quality, both of which were strong for Solar.

Market technicals however do impact the net unrealized gain or loss component of our balance sheet.

Our NAV decline of 3.4% quarter-over-quarter is fully attributable to unrealized losses, the vast majority of which is due to the technical mark-to-market impact on investment fair values which we expect to fully recoup when the loan's repaid in full.

Third, our net investment income per share for the fourth quarter was $0.40 fully covering our distribution.

Our 2015 origination efforts resulting in 33% portfolio growth for the year moved us closer to our goal of increasing our quarterly distributions by the end of 2016.

We are growing our portfolio and thus our earnings power at the right time in the credit cycle.

During the fourth quarter when market terms have begun to come our way and via our proprietary sourcing engines, we originated $163 million of attractive investments.

For the entire fiscal year 2015, our $478 million of new investments and only $145 million of exits resulted in portfolio growth of $333 million.

Our fourth quarter activity included unitranche loans originated by SSLP, our strategic unitranche loan industry that was Voya Investment Management and PIMCO.

Since inception, our first lien bench with Voya at our sister company Solar Senior Capital sourced loans to 15 different issuers.

Based on this experience as well as the fourth quarter move to start ramping our newly configured strategic initiative, we are confident in our ability to scale SSLP such that we can achieve the diversity required to incur leverage and subsequently generate both mid-teens returns.

We believe our success in 2015 has positioned us well for growth in 2016 and beyond.

In today's market environment with many of our competitors fully levered and therefore shut out of the new issue market and banks indication that's generally closed for business, the collective capital resources of our three way partnership with Voya and PIMCO provides us with a tremendous opportunity to fill the financing void on attractive terms.

In short, we believe our shareholders will reap the benefit of our patience in 2016 and beyond.

Thus far the downturn in the liquid credit markets has translated into better covenant packages, lower leverage ratios, and approximately 100 basis points to 200 basis points incremental yields on new issues.

We expect to see further improvement as the middle market tends to lag the liquid markets.

While we have seen a typical slow start to the year for new issuance, the market disruption has stymied refinancing resulting in muted first quarter repayment activity.

For the year, we're anticipating meaningful portfolio growth via the deployment of our approximately $700 million of available capital including anticipated leverage at SSLP.

At the end of the year, our leverage was 0.49 times.

Based on the current positive momentum with SSLP and life science platform, we hope to reach our regulatory target leverage of 0.65 times to 0.75 times by the end of this year.

As a result of our discipline during the past three years of market euphoria, we now have a larger devoting of our efforts to portfolio expansion and what we anticipate to be a better vintage of investments.

Put another way given our over 99% portfolio, we spend virtually no time in investment committee meetings discussing credit loss situations.

We also plan to deliver incremental shareholder value in 2016 through continued shareholder friendly actions.

One of the core tenants of our management philosophy is consistent alignment of interest with those of our fellow shareholders.

Again in the fourth quarter, we waived a portion of our incentive fee so that our GAAP net investment income would fully cover our $0.40 per share dividend bringing the total amount of incentive fees waived to $1.7 million for 2015.

Further to bridge any potential gap until we've completed our prudent portfolio expansion, we are committing to waive our incentive fee in 2016 such that total GAAP net investment income is not less than $1.60 per share of expected distributions.

Additionally since we announced our $30 million share repurchase in October of last year, we have bought back $3.4 million of stock at an average purchase price of $15.76 and an average discount of 24%.

We expect to continue to repurchase shares at this level via our 10b5-1 program.

Additionally during 2015 alone, management personally purchased $3.2 million of incremental common stock taking us up to a 5.6% ownership stake and we intend to continue to purchase more this year.

Now I'd like to make a general comment.

Being shareholder friendly is as much about the actions a management team doesn't take as it is about the steps that managements do take.

The course of action we did not pursue during the past three years of frothy market conditions was raising capital and leveraging our portfolio of low yielding, highly levered investments in order to maximize management incentive fees.

From 2012 through 2015 when the daily average yield of the Bank of America Merrill Lynch was a paltry 5%, BDCs collectively raised almost $10.5 billion of public equity capital and associated debt and rapidly invested those proceeds.

During that time, we were unwilling to materially change the originations in such a frothy market environment.

In short, we abstained from taking shareholder money that we didn't believe we could invest at an attractive risk adjusted return.

As a reminder, during those years we also ran our portfolio meaningfully below our target leverage.

As a result, we willingly and knowingly allowed our portfolio to remain at a size, but our management incentive fees shrunk significantly over the last two years.

In our view, the capital not raised and invested during heated market conditions is an important component of a BDC's ability to preserve net asset value over the long term.

Our history of capital preservation is also why to date we've never issued shares below net asset value nor have we conducted a rights offering.

We believe our history of acting in the best interest of our shareholders played a big role in our success in 2015 and our strong positioning for 2016.

As the third largest shareholder, we are disappointed where our stock has been trading through this period of market volatility.

We recognize that our long-term investors have suffered during this period as well.

We thank them for their patience and continued support.

Our hope is that a conservative approach over the past three years in core portfolio growth trajectory translates into increases in net investment income over the course of 2016, our share price will reflect that strength.

At this time, I'll turn the call over to our Chief Financial Officer, Rich Peteka, to take you through the financial highlights and then Bruce will walk you through portfolio details.

Thank you, Michael.

Solar Capital Limited net asset value at December 31, 2015 was $882.7 million or $20.79 per share compared to $913.9 million or $21.52 per share at September 30.

The decline in NAV was primarily related to net unrealized depreciation from mark-to-market yield related valuation adjustments.

At December 31, 2015 our on-balance sheet investment portfolio had a fair market value of $1.31 billion in 54 portfolio companies across 30 industries compared to fair market value of $1.21 billion also in 54 portfolio companies in 30 industries at September 30.

The weighted average yield on our income producing portfolio increased to 10.5% at December 31, 2015 versus 10.1% at September 30 measured at fair value.

For the three months ended December 31, gross investment income totaled $31.5 million versus $30.4 million for the three months ended September 30.

Net expenses totaled $14.5 million for the three months ended December 31 compared to $13.5 million for the three months ended September 30.

During Q4 our investment advisor, as Michael noted, waived $994,000 of its performance based incentive fees resulting in $1.7 million of performance based incentive fees waived during 2015.

Accordingly, the Company's net investment income for the three months ended December 31, 2015 totaled $17.0 million or $0.40 per average share consistent with the $17.0 million or $0.40 per average share for the three months ended September 30.

Below the line, the Company had net realized and unrealized losses for the fourth quarter totaling $31.2 million versus net realized and unrealized losses of $16.9 million for the third quarter.

Ultimately the Company had a decrease in net assets from operations of $14.2 million or $0.33 per average share for the three months ended December 31.

This compares to a slight increase of $0.1 million or zero per share for the three months ended September 30.

And finally, our Board of Directors declared a Q4 distribution of $0.40 a share payable on April 1, 2016 to shareholders of record on March 24, 2016.

With that, I'll turn the call over to our Chief Operating Officer, Bruce Spohler.

Thank you, Rich.

I'd like to begin by providing an update on the credit quality of our portfolio.

Financial health of our portfolio companies remained sound with the trends of continued modest growth as well as deleveraging through strong free cash flow, which continued through the fourth quarter.

At 12/31 the fair value weighted average leverage level through our security was 5.3 times, down from 5.5 times at the end of the prior year.

Also at year-end, the fair value weighted average interest coverage for our portfolio companies was 2.7 times covered.

At the end of 2015, portfolio had a weighted average EBITDA of over $80 million.

On a fair value basis, revenues and EBITDA for the portfolio companies increased 7% and 15% respectively for 2015.

The weighted average investment risk weighting of our portfolio was just over 2 based on our 1:4 risk rating scale with 1 representing the least amount of risk.

Measured at fair value, over 99.9% of our portfolio was performing at December 2015.

On a cost basis, our one investment on non-accrual accounted for 63 bps of the portfolio.

Excluding this one 2007 legacy asset, our portfolio continues to perform well.

Furthermore, as Michael mentioned, we continue to have no direct exposure to the oil and gas or commodity sectors.

In the fourth quarter, our NAV decline of 3.4% was primarily due to technical mark-to-market write-downs resulting from the broad sell-off of the liquid credit markets.

We expect to fully recoup this value when our loans are repaid.

Now, I'd like to provide some color on the composition of our comprehensive investment portfolio.

This includes Crystal Financial's full portfolio of asset based loans as well as our ownership of the unitranche loans in our SSLP joint venture.

Thanks to our focused origination efforts over the last couple of years, we've essentially completed the rotation of our existing portfolio into senior secured floating rate investments.

At fiscal year-end, our $1.5 billion comprehensive investment portfolio included 76 borrowers across 46 industries with neither direct energy nor commodities on that list.

When measured at fair value, roughly 93% of our portfolio consisted of senior secured loans.

The remaining 7% of the portfolio was comprised of 4.5% in subordinated debt and 2.5% equity.

At December 2015, approximately 92% of our income-producing portfolio was floating rate when measured at fair value.

Before I turn to specific portfolio activity, let me give you a brief update on each of our strategic initiatives.

During the fourth quarter we ceded the SSLP with four investments, two of which we sold from our balance sheet into the joint venture and two of which we closed directly into the joint venture.

At quarter-end, our ownership interest totaled just over $80 million of the approximately $92 million of portfolio fair value.

The four loans in the SSLP had a weighted average yield of 8.5%.

The JV is currently unlevered.

We intend to close the credit facility for the SSLP in the second quarter and lever the vehicle approximately 1.5 times to 2 times when it's fully ramped, which we expect will result in a low to mid-teens ROE at full ramp.

Over the coming quarters, we expect our momentum with the strategic initiative to increase.

We have over $1.5 billion of available capital collectively committed to this strategy to provide Solar-PIMCO partnership with a competitive advantage in the current market.

With the benefit of hindsight, we are happy with our decision to take a patient approach to deploying our capital into this strategy.

We expect the current market dislocation to enable us to support to source unitranche loans with higher yield and better terms than had been possible last year.

In fact we view unitranche and first lien loans as providing the best risk-reward characteristic in the current market environment.

Now, let me turn to Crystal.

Crystal Financial, our stretch first lien ABL lending platform, at December 31 had a diversified portfolio consisting of approximately $465 million of funded senior secured loans across 26 borrowers with an average exposure of just under $18 million.

During 2015, Crystal funded new loans of approximately $225 million and experienced repayment totaling approximately $231 million.

As a reminder, all of Crystal's investments are floating rate senior secured loans.

For Q4, Crystal paid Solar a cash dividend of $7.9 million representing an 11.5% annualized cash-on-cash yield.

This is consistent with the prior quarter.

Crystal's net debt to equity ratio was 0.77 times at year-end.

Now, let me turn to our life science portfolio.

For the fourth quarter, our life science portfolio totaled approximately $119 million of first lien senior secured loans across nine borrowers with an average investment of $13 million and an average all-in yield excluding potential success fees and warrants of just over 10.5%.

During 2015, the life science lending platform originated $104 million of investment and had approximately $45 million of repayments.

The blended IRR on all realized life science investments to date exceeds 20%.

Our investment thesis continues to focus on building a diversified portfolio of senior secured loans and having a very modest debt-to-equity ratio along with significant enterprise value protection.

Ultimately we would like to see our life science portfolio grow to approximately $200 million to $250 million and we are well on the way to do that this year.

Now, I'd like to turn to our specific fourth quarter portfolio activity.

The restraint that we demonstrated in deploying capital during the frenzy of late 2012 through 2015 while we developed our strategic initiatives is finally paying off.

During the fourth quarter including the activity within the SSLP that is attributable to our 87.5% ownership, Solar originated approximately $162 million of senior secured floating rate loans across 11 portfolio companies.

Investments prepaid during the quarter totaled approximately $27.5 million, which resulted in net originations of approximately $135 million for the quarter.

Thus far in the first quarter, we have visibility of approximately $30 million of repays and we expect repayment activity to be muted during the remainder of this year.

For the full-year 2015, we originated approximately $478 million of new senior secured floating rate loans.

During the year we were repaid or sold $145 million of investments, which compares to $655 million of repays in 2013 and $626 million of repays in 2014.

Our strong origination results coupled with repayments far below 2013 and 2014 average resulted in net portfolio growth of $333 million last year.

I'll now provide the highlights of our fourth quarter activity.

We played a significant role in the underwriting of a $215 million senior secured first lien term loan to finance the Huntsman Family's acquisition of Ampac's specialty chemicals.

Of the total investment, Solar and the SSLP funded $50 million with Voya and our PIMCO SMA purchasing the loan as well.

The company is the only North American producer of certain rocket grade chemicals used in the US Department of Defense missile programs NASA and the US Air Force satellite market in addition to NASA's space exploration programs.

Closing leverage was 4.4 times and our yield exceeds 8.2%.

We also originated a $35 million investment in the unitranche facility of PSKW.

Owned by Genstar Capital, the company is a leading provider of copay assistance programs for branded prescription drugs.

Of the total investment, Solar and the SSLP funded $35 million.

Voya also participated directly alongside of us.

Leverage to our loan is approximately 5.8 times and the all-in yield is over 9.5%.

During Q4, we sold into the SSLP our $20 million first lien term loan for US Anesthesia Partners.

On balance sheet at Solar, we continue to hold $30 million of the company's second lien term loan which was repriced upward during Q4.

I'll touch on that momentarily.

We also sold into the SSLP in Q4 our $15 million first lien term loan issued by Debt Corp.

During the fourth quarter, our $30 million second lien investment in US Anesthesia repriced from L+800 to L+925 in conjunction with the financing to support a strategic add-on acquisition.

Since our initial investment in the company's loans in September 2014, USAP has experienced significant growth both organically and through acquisitions resulting in pro forma EBITDA today of approximately $159 million alongside significant deleveraging.

The all-in yield on our second-lien investment is now just under 11%.

In addition, we invested $32 million in a second lien term loan to Fi-Med Management, which is a leading provider of outsourced anesthesia services to hospitals and other medical providers.

Solar and Aries Capital clubbed together to provide a full second lien term loan to the company, which is owned by Ontario Teachers.

The all-in yield on the loan is just under 11%.

Lastly we made a $9 million incremental investment in TierPoint, a leading provider of infrastructure solutions, which brought our total exposure to TierPoint up to $34 million.

The incremental loan supported the company's acquisition of Windstream Hosted Solutions.

This acquisition strategically increased the company's scale, extended its national footprint, and enhances its product suite.

On a pro forma basis, the company generates EBITDA of approximately $120 million.

In conjunction with our add-on investment, our existing investment was repriced upward by 100 basis points to L+875 and the leverage levels were reduced.

Our all-in yield is now just over 10.25%.

The repricing of our loans, both TierPoint and US Anesthesia, speaks to the current trend of market terms coming our way both in terms of higher yields as well as larger more stable companies needing our capital because their access to the liquid new issue market has become limited.

During the quarter, we took advantage of headline noise in two portfolio companies that increased our holdings via the secondary market.

We purchased just under $7 million of Global Tel Link (GTL) first lien loan at a weighted average price of approximately 78% at par and a weighted average yield of 11.67%.

Global Tel provides telecom services to the US prison population.

In late 2015 the FCC passed a vote and drafted an order capping interstate and intrastate call rates and fees.

In response, Global Tel is seeking a stay and seeking to appeal the order.

The industry previously experienced similar regulatory challenges with neutral to positive outcomes for the company and the credit.

Currently senior leverage is approximately 3 times and total leverage is approximately 4.3 times.

Based on our current understanding, we believe the first lien term loan which we purchased in Q4 at steep discounts will be repaid at par.

Since the end of the quarter, the first lien term loan has been quoted up and is currently in the 80 to 83 area following the release of the company's strong 2016 budget.

This compares to our most recent purchase of the loan at 73.

Again, we believe we will be repaid in full on Global Tel Link.

As Michael mentioned, we have been patiently waiting for the credit cycle to turn all red and now is the time for us to grow our portfolio via more attractive investments.

We believe that first lien loans through our life science platform, our Crystal platform, and SSLP joint venture offer the best risk-reward characteristics in today's credit environment.

Our life science pipeline is robust.

In addition with PIMCO and Voya, our collective dry powder gives us a competitive advantage as we seek to ramp SSLP.

Now, I'd like to turn the call back over to Michael.

Thank you, Bruce.

On all relevant metrics for BDCs, we are proud of our high rankings within the industry.

With only one non-accrual accounting for less than 1% of our portfolio at cost, collective growth across the portfolio companies, and no direct exposure to oil and gas and commodities; our credit quality is among the highest in our peer group.

Despite the technical markdown through the second half of 2015, we preserved our net asset value since our IPO six years ago.

Additionally, we believe there's upside to our NAV as the loans that are marked below par are repaid in full.

With our healthy portfolio, modest leverage, and approximately $700 million of dry powder to deploy across our differentiated growth engines; we are one of only a few BDCs who can increase their investment income this year by taking advantage of the current and more favorable credit investing environment.

We always have and will continue to act in the best interest of our shareholders.

Over the past three years of heated market conditions, we did not raise capital and leverage by investing in unattractive investments.

We knowingly shrunk our portfolio such that we were paid an incentive fee in only three of the past eight quarters.

In 2015 we waived $1.7 million of incentive fees.

We've committed to future waivers of incentive fees in 2016 so that our net investment income fully covers our distributions.

Additionally, we are executing our share repurchase plans at highly accretive levels and management will continue to personally buy common stock further aligning ourselves with our shareholders.

In conclusion our alignment with shareholders and Solar Capital's conservative investment philosophy has enabled us to attract and maintain and retain high quality strategic partners and institutional investors.

In light of our strong credit quality and 2016 earnings growth potential, we are disappointed that our investors aren't reaping the benefits of our success via higher share price.

As I mentioned before, we believe we are positioned well to capitalize on the current market environment and I believe that if the stock price responds accordingly as expected, net investment income growth continues to materialize.

At 11 o' clock this morning, we'll be hosting an earnings call for the fourth quarter 2015 results of Solar Senior Capital or SUNS.

Our ability to provide additional middle market senior secured financing through this vehicle continues to enhance our origination team's ability to meet our clients' capital needs.

We continue to see the benefits of this value proposition in Solar Capital's deal flow.

We appreciate and thank you for the time this morning.

Operator, could you please open the line for questions?

(Operator Instructions) Ryan Lynch, KBW.

The first one, if I heard you guys correctly, you said that senior loan program with Voya currently doesn't have a credit facility and that's not going to close till Q2.

It looks like you in total have about $90 million of assets and equity in that fund.

Is the plan then to continue deploying equity and growing that asset base of that fund or do you kind of plan on waiting it out until you close the credit facility and then lever up that current equity base in the loan program?

You can't match the timing perfectly.

We close the credit facility when it's most efficient in terms of cost, but our goal is to close it close to when we're beginning to fund the next investment or two.

So, you will see us borrowing as we begin to ramp from here.

Okay.

And then I do appreciate you guys having a buyback in place and using it a bit in the quarter.

But just given the strength you outlined that you feel in your portfolio, your current stock price, and low leverage; why not put more resources into the buyback program?

As you know, we believe very strongly first in the environment that having capital is a huge kind of advantage.

And if you look at our growth capacity, things like our SSLP generating 15% to 16% returns on a levered basis, our life science business has been generating 15%, 18% on a realized basis or more.

So look, we intend to use judiciously and we put in place originally for a period of extreme dislocation i.e.

when our stock was trading in the mid-15s and we will our 10b5 plan back in place when our winter period closes in a few weeks so that we can continue to do the same.

We expect given the volatility there will be buying opportunities.

We just think we should be doing it at the lowest price as possible.

And then one last one.

There have been some discussions I've had with investors around fair value marks and portfolio valuation not to Solar specific, but just in general with the BDC investment community.

And so can you guys just walk through the typical valuation process Solar goes through to value your investments on a quarterly basis?

The process has been consistent since inception.

Basically the investment team at the time we make an investment signs a third-party valuation firm for the investment.

That firm will stay with the investment until the time that we are repaid.

That allows that valuation firm to have the full history of our investment in the underlying business.

They get access to all of the company's information that we receive over the course and the life of that investment.

So, we think that creates a bit of a partnership and a full knowledge base for the third-party firm.

On a quarterly basis the team will come with a recommendation collectively including Michael and I and that will be presented to the valuation firm.

The valuation firm then comes up with their independent view of value, it is then presented to our independent Board, and the independent Board then blesses the valuations on a quarterly basis.

Great.

I appreciate that commentary.

That's all from me.

Doug Mewhirter, SunTrust.

If you were to look at your portfolio companies that you held over the past year, what has been their aggregate revenue and EBITDA growth?

I know you gave statistics during the call, but I wasn't sure if that was sort of on a like-for-like basis or if that was just the total portfolio?

That was like-for-like.

So, I think it was what 15% EBITDA growth.

And 7% revenue growth.

Okay.

And I guess related to that, I mean obviously it's great to be opportunistic, it's great when prices go your way.

A skeptic might say the market is trying to tell you something and maybe there's something bad hiding around the corner.

Are you seeing anything at all like on the ground which would maybe say you don't want to catch a falling knife here or is all the indications that the underlying economy, the economics of these companies just seem to be very stable?

I would say as you know, Doug, over the last couple years when we've talked about the frothy credit markets and what's kept us disciplined, it has not been concerns over the underlying fundamentals, but more concerns over the structures that have been allowed by the marketplace broadly; be it leverage levels, be it pricing, be it lack of covenants.

And so what we have seen change over the last several months is a bit of a reversal of the technicals that have driven those frothy conditions such that today we're seeing structures that are much more aligned with what we saw historically given that we've been doing this for many years as you know.

And so, it's really the structures that have become more conservative and rational.

The underlying fundamentals as we look across our hundred plus portfolio companies are actually consistent with what we saw over the last few years to your question around revenue growth, EBITDA growth, deleveraging.

So, we feel very good about the fundamentals.

Obviously we all have to be mindful what if any overhang will exist down the road to the incentive fee, energy challenges lead in to the rest of the economy.

But so far because we have been so focused on consumer staples and some pretty defensive sectors, we're actually seeing most of our borrowers benefitting from lower oil prices today.

Keep in mind also that with our underwriting loans today or a year ago, we're doing the same thing, which is we're running significant stress cases for downside scenarios to make sure as a creditor we're in a good position that those happen and those underwriting standards continue today.

Okay.

Thanks.

That's all my questions.

(Operator Instructions) Chris York, JMP Securities.

You frequently highlighted your investment capacity as a competitive advantage in this environment, which we agree with.

So I'd be curious to get an update on how you're thinking about use of this capacity in terms of either organic growth via primary deals or potentially considering the acquisition of a company or a portfolio?

I think that our core strategy is to stick to our knitting and look for opportunities in the key strategic verticals that we have built out; the SSLP across their sponsor business, Crystal Financial in terms of asset based lending opportunities, and life sciences.

Separately we are poised to be opportunistic as we see potential portfolios.

I think as it relates to one-off secondary trade, you saw us do some of that in GTL because it's something that we have deep knowledge in we believe.

But generally speaking, we have not been a big buyer of the market over the last couple of years because of the structures and even if the paper's trading at a discount, those structures still exist; lack of covenants, lack of inability to get to the table if things go sideways.

So we are less focused on the secondary market, we'll be opportunistic as it relates to portfolios, and we'll stick to our knitting on our three core strategies.

Got it.

That's it from me.

Thanks, Bruce.

David Chiaverini, Cantor Fitzgerald.

I have a question on Crystal Financial, I was just curious.

How much growth do you expect from this business this year given that it is made up of non-correlated assets and are non-correlated with the economy?

It's a great question.

As you know, we don't have a lot of visibility.

We always have a very active pipeline with Crystal, but visibility is on actual closings is a little bit more challenging.

I do think from 30,000 feet if the dislocation continues, you should expect to see that portfolio grow this year.

We've seen it grow two steps forward, one step back since we bought it at the end of 2012 and this environment only helps that.

But it's difficult to put a specific number on it.

And does pricing change in that business the way it does in the typical middle market lending environment and broadly syndicated market when there is supply constraints or is it kind of consistent throughout cycles?

It tends to be consistent.

It will spike when there is periods of dislocation because Crystal is basically pricing to certainty of providing that capital and there is a greater premium put on that certainty in periods of stress.

And so you will see their pricing spike when things move their way, but generally their pricing has less volatility because they're not correlated to your point with the liquid credit markets.

Great.

Thanks, guys.

Arren Cyganovich, DA Davidson.

I just wanted to clarify about the repayments that you expect in the quarter, I think you said Global Tel expected to be repaid at par.

Were there any other ones that you were talking about repayments?

What we said, for clarification, is that we to date have only seen $30 million of repayments and expect repays to be muted the rest of the year.

On Global Tel, the comment was that we [hope] to be repaid in full, but that's not going to be a near-term event in our estimation.

Okay, got it.

Thank you.

Mickey Schleien, Ladenburg.

You've described what continues to be a fairly benign economic backdrop with decent performance by your borrowers.

But on the other hand, we're seeing all this volatility in the credit and equity markets and in particular meaningfully higher spreads both first lien and second lien in the middle market loans.

So what I'm trying to understand is given all of those dynamics, what's it going to take for BDC valuations to get back to sort of historical levels?

I understand there's idiosyncratic issues that certain BDCs may have exposure to CLOs or maybe they have had a poor track record of underwriting, that's certainly not the case at Solar.

So, another caller sort of was alluding to the same question.

What kind of catalysts is it going to take to get folks to recognize that the Solar portfolio is sound and then the stock is undervalued?

Great question.

I think look in general our whole sector unfortunately is kind of tied to how the liquid credit markets are doing to your point of spreads widening.

So I think it's going to take kind of a recovery of the lower market, which probably means retail investors coming back in and giving money back to the mutual funds to [back buy] again.

I'm not sure when that's going to happen.

That said, we're not sitting around waiting for that.

I think our catalyst for us and look the knock has always been that we've been too conservative.

We've run low leverage and therefore our earnings have not been high enough.

We're very comfortable that in this credit environment we're able to add assets that are very attractive and drive our equity to its target and most importantly for all of us and all of our investors, it's increased our earnings.

I think our revaluations when we demonstrate that we continue our growth and we see our earnings go from $0.40 a quarter level to somewhere in the mid $0.40s.

I think that's going to differentiate us from our peers because I don't think there's many people out there who can actually talk about delivering net investment income per share growth in 2016.

Thank you for that.

That was my only question.

(Operator Instructions) Jonathan Bock, Wells Fargo Securities.

Perhaps just first on Crystal, so we do understand that the current environment actually is a bit advantageous for Crystal to make loans in more of a distressed sense to perhaps troubled retailers et cetera and I'd imagine that there will be a fair share of those hence your comments on growth.

I'm more interested in the mark and at a point when you understand the business prospects are likely going to get better, why take the mark to the portfolio or to the investment?

And two, walk us through the credit trends in the portfolio and whether or not any credit dimunition led to that mark-to-market on Crystal Financial in the financial statements?

From 30,000 feet, as you know, this is marked by a third party every quarter and has been since we acquired it.

And generally speaking what the third party is looking to is comparables in the marketplace and as you know and understand the Crystal business, it's not the easiest thing to find a comparable to Crystal's business; but they do look broadly at the finance companies, BDCs, other finance providers into stressful situations.

And so as those move just as our portfolio loans we mark based on a technical basis, as those valuations of underlying finance companies move quarter to quarter, that is the predominant reflection in the valuation of Crystal.

So, that's the valuation comment.

We do believe and you've seen it, as you know, over the three years that we've owned it, it has moved quarter to quarter up and down a bit.

It's really just comparables, no different from any other equity that we might own in a private company.

As it relates to the credit trends, as you know, their trends are such that they always have a fair number of companies on watch.

They watch everything almost from the time they fund it.

We didn't see anything materially shift in Q4.

They had one investment in Q3 on non-accrual, which they are continuing to work through, but there's no real indicators more broadly about the health of their portfolio.

Again, they tend to work through stressful situations and have a phenomenal track record of doing so.

Okay.

And let's dive into the actual originations that you made this quarter in particular several that were split between unitranche fund.

And when we think of a unitranche or senior secured loan fund, we typically come with a view that it's you, it's your partner and you're writing a big check facilitating something ala Aries and understand I mean there is a couple iterations.

So, would you characterize this fund that way or would you characterize it as you're buying some pieces of other largely originated deals ala a large GSO one flash Franklin Square where you take $20 million and actually a little bit more across the franchise and you lever that up a little bit.

I understand that directly originated aspect Aries versus this is fundamentally different, that's okay.

I just kind of want to know what investors are dealing with because that is a question when we see deals that you're doing that others are likely writing larger ticket sizes and taking the entire deal down, at least I would assume from GSO, we'll know that when Franklin Square reports here shortly.

I would say a couple things, Jonathan.

What we're trying to do in the unitranche joint venture first and foremost is find good first lien or stretch first lien risk at attractive pricing.

That may come in the form as it did with Ampac in Q4 where we and our partners were able to speak for $215 million of a loan or it may come in PSKW where we clubbed with Aries on a deal.

So, it really is a home for both.

I think in this environment where peers are somewhat capital constrained just like in the old days as you recall of mezzanine deals getting clubbed together as they got larger in size, we are seeing more clubbing together; but we are doing the same direct deep dive due diligence as our partners are on those situations whether with a sole provider or whether we have another BDC in that mix.

So, hopefully that answers your question.

And part of this also relates to just ramp and sponsor relationship with the product and there's lots of variables that just take time and you actually have to operate and here we now are kind of early in its operation.

But Bruce, could it takeaway from what you're saying to say that it's really going to be more pieces of others deals?

The short answer is going to be both as it was in Q4.

And I think what you should take away is that the ramp can be accelerated because it's not only going to be as it was two years ago where people didn't share and we didn't really fully have this open and people were doing more sole deals.

Today things are being clubbed and so we might lose the lead, but still have the ability to participate alongside somebody on a very attractive basis with the same deep dive direct origination.

So, I think the clubbing environment for us in particular as well as some of our peers who have capital will allow us to leverage this faster than we would have otherwise.

But you'll see us doing both, Jonathan.

And Michael and Bruce, this kind of question goes to you.

You wouldn't shy away, haven't shied from repurchases in the past and appreciate the comments on 10b5, et cetera so that we get, that's an easy question.

Where we would go is you've seen a few moves on behalf of peers and I won't refer to them as your peers, but obviously you've seen kind of news in terms of activism et cetera.

And I'm interested in your thoughts as to whether or not you believe this business, this participating with others and doing some direct together, is this really a two and twenty business today because if I look at it, I think prospects at a base of two and tenants at a base of two.

And when you think of Apollo, they've got fee waivers which have lowered it; Fifth Street also lowered it admittedly as well.

I'm just curious if you still think it's a two and twenty business when the vast majority are not and if so, why?

First of all and I go back to what Bruce said earlier, everything we do whether we're doing a hunt for the deal ourselves or partnering, we are directly underwriting.

We're not just finding people's deals.

When someone brings us a deal and they say you have three days to do it and you'll get that [asset].

The answer no matter how good the deal looked on paper is no.

So, we do the same amount of work on whether we're underwriting the $200 million Ampac deal or we're buying a $40 million participation in an Aries deal for example.

I'm not going to comment on what our peers or lack of peers have done.

I think we've always shown that we've aligned ourselves with our shareholders.

We've done shareholder friendly things.

We're the only BDC out there I think who has let their business shrink so that we fell our hurdle rate and had no incentive fees.

Everyone else has been running full out and clipping God knows how many fees.

So frankly, as you know we're starting to spend (inaudible) we've had no trouble with our shareholders and frankly it's never been raised.

I appreciate the commentary and of course can't fight against the shareholder friendly things that you have done.

So, thank you for the description and the discussion, guys.

That's all my questions.

Thank you.

Thank you.

And I would now like to turn the call back over to Michael Gross for closing remarks.

I apologize if there's anyone else who have questions.

We actually have our Solar Senior earnings call starting in two minutes.

If you do have further questions, please feel free to contact us directly so we can address those.

Thank you for your time.

This concludes today's conference.

You may now disconnect.

Have a great day, everyone.