SLR Investment Corp (SLRC) 2016 Q1 法說會逐字稿

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

first-quarter 2016 earnings conference call.

(Operator Instructions) As a reminder, today's conference may be recorded.

I would like to introduce your host for today's conference, Mr. Michael Gross, Chairman and Chief Executive Officer.

Sir, please go ahead.

Thank you very much and good morning.

Welcome to Solar Capital Ltd.'s earnings call for the first-quarter 2016, ended March 31.

I'm joined here today by Bruce Spohler, 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?

Sure; 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 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 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 directly 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.

In the context of a volatile market environment, Solar Capital made steady progress in the first quarter.

Our conservative approach during the frothy credit markets over the past two years has resulted in us having a portfolio with strong credit fundamentals, together with available capital to drive our earnings at the right time in the right investments.

The first quarter of 2016 was quiet for syndicated leverage loan and high-yield new issuance, given the heightened market volatility and continued economic uncertainties.

The choppy public markets impacted middle market sponsor activity in what is traditionally a seasonally slow first quarter.

Private equity buyers remained cautious during the quarter, given recent financial market instability and valuation discrepancies between buyers and sellers.

As a result, overall sponsor-driven middle market volume declined 21% quarter-over-quarter to the lowest levels recorded since the second quarter of 2013, according to PitchBook.

The value of upper middle market transaction volume fell over 70% compared to the fourth-quarter 2015.

This trend has begun to reverse itself, and we've seen a recent pickup in sponsor activity, supported by the record levels of capital raised by private equity fund managers over the past two years.

Solar remains focused on building the portfolio's earnings power through utilizing our available capital to make prudent investments across traditional cash flow lending; asset-based lending through Crystal Financial; our Senior Secured Unitranche Program, SSLP, with Voya and PIMCO; and our Life Science lending platforms.

As a result of slower sponsor activity, we had modest net originations in the first quarter; but that does not tell the entire story.

Approximately $75 million of the $100 million of our total platform originations in the quarter came from our Crystal and Life Science lending teams.

The Life Science and asset-based originations demonstrate the strategic value of having diversified sourcing engines.

In addition, we made substantial progress during the quarter to accelerate the growth and diversification of our Life Science portfolio.

Last week we completed the purchase of Capital One's healthcare life science finance portfolio, which Capital One acquired from GE Capital in 2015.

The approximately $74 million par-value portfolio purchased by Solar Capital is comprised of senior secured first-lien loans, many of which were underwritten by members of our Life Science team while they were previously employed by GE Capital.

Based upon the purchase price, we expect a mid-teens IRR on the acquired portfolio.

The transaction, which was offered to us on an exclusive basis, is expected to contribute just under $0.02 per share in net investment income in the current second quarter and approximately $0.03 per share in the third quarter, setting us well on the path in 2016 to increase our net investment income beyond the current $0.40 of quarterly distribution.

This opportunistic purchase puts us ahead of schedule on our three-year business plan for Life Science lending and accelerates the ramp towards our $250 million portfolio target.

In addition, it enhances Solar Capital's position as a leader in Life Science venture lending.

Bruce will provide additional details of this important development.

From year-end, our net asset value increased 1.4% to $21.08 per share at March 31 as a result of combination of mark-to-market gains spurred by the late-quarter market rally and fundamental improvements of a few investments.

We continue to expect full recovery of the mark-to-market write-downs we experienced over the second half of 2015.

At March 31, 2016, the credit quality of our portfolio remained strong, with only one legacy investment on nonaccrual, representing less than 0.6% of the cost of our portfolio.

We have no direct exposure to the oil and gas or commodities industries.

Given the unpredictable economic and market environment, we will be selective in terms of deploying new capital and will continue to focus our sourcing efforts on non-cyclical, defensive industries with high visibility on recurring cash flows.

Net investment income per share for the first quarter was $0.40, fully covering our distribution to shareholders.

Our investment manager, Solar Capital Partners, voluntarily waived $800,000 of incentive fee in the first quarter to bridge the temporary shortfall as we continue to ramp the portfolio towards our target leverage.

As a reminder, we committed to waive incentive fees in 2016 so that total GAAP net investment income will not be less than $1.60 per share of distributions.

Pro forma for the purchase of the Life Science portfolio, our leverage is now approximately 0.58 times debt to equity, and we remain on pace to reach our target regulatory leverage of 0.65 to 0.75 times by year-end.

The first quarter highlights our differentiated growth opportunities and ability to source attractive investment through our asset-based lending and Life Science lending verticals in a period of slow sponsor-driven transaction volume.

We continue to anticipate meaningful portfolio growth over the balance of 2016 via the deployment of our approximately $600 million of available capital, which includes anticipated leverage at SSLP.

In addition, we see only muted repayment activity on the horizon.

At this time I'll turn the call back 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 Ltd.'s net asset value at March 31, 2016, was $890.6 million or $21.08 per share, compared to $882.7 million or $20.79 per share at December 31.

At March 31, 2016, our investment portfolio had a fair market value of $1.34 billion in 56 portfolio companies in 30 industries, compared to a fair market value of $1.31 billion in 54 portfolio companies in 30 industries at December 31.

At March 31, the weighted average yield on our income-producing portfolio was 10.3%, measured at fair value, versus 10.5% at December 31.

For the three months ended March 31, investment income totaled $34 million versus $31.5 million for the three months ended December 31, 2015.

Net expenses totaled $17.1 million for the three months ended March 31, compared to $14.5 million for the three months ended December 31.

The investment manager voluntarily waived $795,000 of incentive fees for Q1 versus $994,000 for Q4 2015.

Accordingly, the Company's net investment income for the three months ended March 31, 2016, totaled $16.9 million or $0.40 per average share, versus $17.0 million or $0.40 per average share for the three months ended December 31, 2015.

Net realized and unrealized gains for the first-quarter 2016 totaled approximately $11.3 million, versus a net realized and unrealized loss of $31.2 million for the fourth-quarter 2015.

Ultimately, the Company had a net increase in net assets resulting from operations of $28.2 million or $0.67 per average share for the three months ended March 31.

This compares to a net decrease of $14.2 million or $0.33 per average share for the three months ended December 31, 2015.

Finally, our Board of Directors declared a Q2 distribution of $0.40 per share, payable on July 1, 2016, to shareholders of record on June 23, 2016.

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

Thank you, Rich.

Let me begin by providing an update on the credit fundamentals of our portfolio.

The financial health of our portfolio companies remains sound, with the trends of continued modest growth and deleveraging continuing through the first quarter.

On average, the most recently reported latest 12 months' revenue and EBITDA across our portfolio companies for which we hold debt securities was up 5.2% on revenue and 9.7% on EBITDA, respectively, consistent with Q4's results.

Measured at fair value, weighted average interest coverage for our portfolio companies was 2.7 times at March 31, again consistent with the prior-quarter reading.

At the end of the first quarter, the fair value weighted average EBITDA for our portfolio companies was just under $90 million.

Clearly we're operating at the large end of mid-market.

The weighted average investment risk weighting of our portfolio was 2.1 times when measured at fair market value, based on our 1 to 4 risk rating scale, with 1 representing the least amount of risk.

Measured at fair value, just under 100% of our portfolio is performing at March 31.

On a cost basis, our one investment on nonaccrual accounted for 0.6% of the total portfolio.

Excluding this one 2007 legacy asset, DirectBuy, our portfolio is performing extremely well.

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

At March 31, the weighted average yield on our income-producing portfolio was 10.3%.

On a current cost basis, the weighted average yield on our income-producing portfolio was 10.1% at March 31.

During the first quarter, our NAV increased 1.4%, due to a combination of mark-to-market appreciation resulting from the rally in the liquid credit markets, as well as fundamental improvement across specific credits including WireCo and Global Tel'Link.

We continue to expect to fully recapture the unrealized mark-to-market losses on our portfolio from the second half of 2015.

Now I'd like to provide some color on the composition of our Comprehensive Investment Portfolio, which includes Crystal Financial's full portfolio of asset-based loans as well as our ownership of the Unitranche loans held in the SSLP.

At the end of the first quarter, our $1.55 billion Comprehensive Investment Portfolio included 81 distinct issuers across 37 industries, with neither direct energy nor commodities on that list of industries.

The average investment per issuer is just over $19 million or 1.2% of the Comprehensive Portfolio.

Our single largest investment is 4%.

When measured at fair value, 92.6% of our portfolio consists of senior secured loans.

The remainder of the portfolio was comprised of 4.7% subordinated debt, and 2.7% equity and equity-like securities.

At 3/31, approximately 92% of our income-producing Comprehensive Portfolio was floating rate when measured at fair value.

Before I turn to our investment activity, I'll provide a brief update on our strategic initiatives as well as two specific credits.

At March 31, our Life Science portfolio totaled approximately $136 million at fair value of first-lien senior secured loans across 11 issuers with an average investment size of just over $12 million.

The average all-in BDC yield excluding potential success fees is 10.8%.

Be mindful that the blended realized IRR on our Life Sciences investments to date exceeds 20% when factoring in warrants and success fees.

During the first quarter, the Life Science platform originated $17 million of investments across two new and one existing portfolio company.

There were no repayments during the quarter.

As Michael touched on, after the close of the first quarter we completed the purchase of Capital One's healthcare financial solutions portfolio which Capital One had previously acquired from GE last year.

The approximate $74 million par-value portfolio that we purchased is comprised of senior secured first-lien loans to 14 different borrowers with an average loan investment of $5.3 million.

The portfolio is well diversified across drug discovery, healthcare information technology, medical devices, as well as healthcare diagnostics.

Based upon our purchase price, we expect a mid-teens IRR on this portfolio and a contribution of just under $0.02 per share in the second quarter and approximately $0.03 per share in Q3, when we will have held the portfolio for the full quarter.

With our available capital to make strategic acquisitions and the experienced investment team,

Solar Capital was in a unique position to take advantage of this proprietary investment opportunity.

Our Life Sciences team's underwriting expertise with many of these specific investments while they were previously employed at GE facilitated the due diligence process to re-underwrite these investments.

The transaction, which was offered on an exclusive basis to Solar, accelerates the ramp of our Life Science portfolio to approximately $210 million of par-value across 25 borrowers with an average investment of $8.5 million.

We are ahead of schedule in building out our diversified Life Science portfolio, with a target of $250 million, and currently have an active pipeline of attractive investment opportunities beyond this portfolio purchase.

Now let me turn to Crystal.

Crystal, as you know, is our stretch first-lien asset-based lending platform.

Crystal's loans benefit from collateral coverage and tight covenants, which provide a differentiated and attractive risk-return profile relative to our cash flow lending business and has a low correlation to traditional leverage credit markets.

The asset diversification, differentiated growth opportunities, and countercyclical nature of Crystal's investment strategy are highly complementary to our lending platforms and represent significant strategic value to the Solar platform.

At 3/31, Crystal had a diversified portfolio consisting of approximately $500 million of funded senior secured loans across 29 borrowers with an average exposure of approximately $17.25 million.

During the first quarter, Crystal funded new loans totaling just under $60 million and experienced repayments of approximately $22.5 million, representing approximately 8% portfolio growth contrasted with the prior quarter.

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

For the first quarter, Crystal paid Solar a cash dividend of $7.9 million representing an 11.5% annualized cash-on-cash yield, consistent with the prior quarter.

Crystal's effective advance rate on their current credit facility was just over 50% at March 31.

Now I'd like to provide quick update on two portfolio companies whose credit fundamentals and fair values and improved significantly since year-end.

Wire Rope: at 3/31, the fair value of our $48 million par investment in the private senior notes of WireCo was marked at 94.25%, up approximately 10 points from our mark at year-end; and post quarter-end some trades have occurred just over 97% of par.

The Company, which is a leading manufacturer of wire rope, has engaged Goldman Sachs to explore strategic alternatives to address the company's upcoming loan maturities next year.

While WireCo faces some headwinds for the portion of its business derived from the oil sector, it also sells wire rope into a wide range of industrial applications, and their business appears to have stabilized.

We remain extremely confident that our loan will be paid off in full, but continue to closely monitor the situation as the company approaches its debt maturities next year.

Now let me turn to Global Tel'Link, a prison telephone operator investment.

At March 31, we had an aggregate $26 million par position in Global Tel, a leading provider of prison phone and security systems.

In early March, the D.C. Court of Appeals granted a partial stay on the FCC's rate order from last fall.

We view the stay announcement as a positive for the GTL credit, which has helped to assuage some of the market's concern around the regulatory environment that the company is facing.

Additionally, GTL continues to perform on an operating basis, generating stable EBITDA growth and consistent deleveraging trends.

We continued to add to our GTL exposure in the first quarter, with an additional opportunistic purchase of just under $1 million of the company's first-lien term loan at a price of approximately $0.73 of par, representing a just under 13% yield to maturity.

Including our secondary market purchases of the first-lien loans for GTL in the fourth quarter, our total first-lien purchases are now approximately $7.5 million at an average purchase price of $0.77 on the dollar.

At March 31, the price of this position was marked at just under $0.91 on the dollar, representing a 16% unrealized gain.

As of this morning, the same security was quoted in the low to mid $0.90s and our investment in GTL's second lien was quoted at $0.78.

We continue to remain encouraged about the prospect of being repaid in full on our investment in GTL.

Now I'd like to turn to our first-quarter portfolio activity.

During the first quarter, Solar originated approximately $43 million of senior secured floating-rate loans across three new and three existing portfolio companies.

Investments repaid during the quarter totaled approximately $31 million.

First off, we funded a $25 million second-lien investment in MedAssets in support of Pamplona's acquisition of the company in a take-private transaction.

Concurrent with signing the definitive agreement to purchase MedAssets, Pamplona simultaneously agreed to sell MedAssets' clinical resource management business to Vizient for just under $2 billion.

Our second-lien investment, which was a bridge financing, was repaid in full upon the closing of the sale at the end of Q1, well ahead of our expected time frame.

Solar realized just over 1.04 multiple on our invested capital given the short duration in this transaction.

The downturn in the liquid credit markets has translated into better covenant packages, lower leverage levels, and approximately 100 to 200 basis points of incremental yield on new middle-market issuers versus what we had experienced last year.

For now, pricing for stretch senior middle-market loans is holding, and leverage levels have stabilized.

We continue to believe that first-line loans through our Life Science initiative, our Crystal platform, and the SSLP offer the best risk/reward opportunity in the current environment.

Activity is picking up, and we currently see only $6 million of prepayments in the second quarter.

We are in the fortunate position of having available capital to take advantage of the right opportunities on attractive terms.

Now I'll turn the call back to Michael.

Thank you, Bruce.

Since the inception of Solar Capital 10 years ago, our portfolio investment and management decisions have been focused on building long-term value and maintaining alignment with our shareholders.

As credit market conditions became frothy over the past few years, we consciously migrated the portfolio to approximately 90% senior secured floating-rate loans in order to create a more defensive portfolio and conservative risk profile.

In addition, during the wave of refinancings and elevated repayments we did not chase the market, and we were highly selective in our investments.

As a result of choosing not to double or triple our pace of originations, we allowed the portfolio to shrink and regulatory leverage to fall to zero on a net basis.

Our portfolio decisions were driven by a focus on maintaining our disciplined underwriting standards and acting as a significant shareholder.

Over the same period, we developed highly differentiated investment platforms through Crystal's asset-based lending and our Life Science venture lending businesses.

Both strategic lending initiatives are less correlated to our traditional cash flow sponsored-lending business and provide attractive, risk-adjusted returns while diversifying our opportunity for growth.

We also created strategic partnerships with Voya and PIMCO to provide additional origination scale that increase our opportunity set and enhance our competitive ability to underwrite unitranche loans that we believe offer superior risk/reward, protect with full covenants, and control as a dollar-one lender.

In spite of the first-quarter slowdown in the traditional sponsored finance business, we benefited from our diverse lending platforms, with approximately $75 million of $100 million total platform originations coming from our asset-based lending and Life Science teams.

Moreover, having available capital enabled us to take advantage of a proprietary investment opportunity to acquire a diversified portfolio of Life Science loans.

This transaction will have a significant impact on net investment income beginning in the second quarter and puts us well on track to increase quarterly net investment income in 2016 beyond the $0.40 per share quarterly distribution.

As a result of the steps we have taken, Solar Capital has a very healthy and well-diversified portfolio that is 99%-plus performing.

We are one of the few BDCs who will grow net investment income this year by taking advantage of the current more favorable credit investment environment.

We have approximately $600 million of available capital to deploy in our differentiated investment initiatives and are well positioned for continued growth in 2016.

We will always remain highly disciplined in our investment process and prudent in deploying our capital into investments that meet our strict underwriting criteria.

At last night's close of $17.61 per share, Solar was trading at a 16% discount to our net asset value.

During the first quarter, our management and investment teams made additional stock purchases taking our ownership stake in Solar to 5.8% as of the end of March.

Solar Capital continues to be well positioned, with a diversified origination engine and substantial available capital to take advantage of investment opportunities and market dislocations.

We believe SLRC is a compelling investment.

At 11:00 this morning, we'll be hosting our earnings call for the first-quarter 2016 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 benefit of this value proposition in Solar Capital's deal flow.

Thank you for your time this morning.

Operator, at this time would you please open the line for questions?

Jonathan Bock, Wells Fargo Securities.

Thank you for taking my questions.

Clearly we see the benefit of having a diversified platform, and I noticed that you did predominantly -- only Life Science investments in the quarter in addition to the large portfolio transaction -- beneficial portfolio transaction that you did in Life Sciences this quarter.

Yet we wouldn't have expected to see zero in terms of the steady, steady, stable cash flow lending business.

Can you give us a sense of whether or not that picks up?

And walk us through the reason it was effectively -- it was de minimis this quarter relative to the market volatility, which we would have thought would have presented you some opportunities to put some money out there at attractive yields in your core business.

Sure, well, I guess -- a couple things, Jonathan.

I would say that our core business is evolving, as you know, to incorporate our Crystal platform and our Life Sciences business.

I think on the sponsor business, which has been on platform since inception, as you know, when dislocation occurs it takes a few months for that to actually drift through to deal activity.

So we're starting to see that activity pick up in Q2 and would expect to see more sponsor volume.

But as you know, we operate at the upper end of mid-market, and statistics are out that show volume of transaction activity was off 75%, 80% in Q1 for the upper mid-market sponsor community.

I would further add that our focus, as you know, is really on providing the unitranche stretch senior product.

That's the risk that we are most comfortable with, other than some opportunistic second liens like the MedAsset investment that we highlighted that unfortunately didn't last long enough.

So, that product is starting to ramp, and we see more opportunities as we get into Q2 and Q3.

And that's where I think you'll see most of our sponsor activity.

Got it.

Then, Michael, you mentioned mid-teens IRR on the new purchase of Life Sciences assets.

Just a question here.

What's the actual coupon coming off of that portfolio on average today?

Yes, the coupon is consistent with our current portfolio in the mid to high 10%s.

But given purchase price discounts that we will be amortizing, as we do any of our closing fees on deals, over the life of the security, that takes you up to mid-teens -- assuming they're held to maturity.

But as you know, most of these will repay prior to maturity.

So there is some upside on that yield.

But the yield is nothing more than upfront discount and the coupon.

Got it, got it.

Then in terms of dividend policy, so with the acquisition of the Life Sciences portfolio, with adding $0.03 to NOI going forward, and the potential for the mid-teens on the levered SSLP as that grows, we're pretty solid in seeing that Solar will start overearning the dividend as you grow leverage.

I would love to get your thoughts on dividend policy and spillover, right?

Because you're in a pretty unique position.

Not a lot of folks can really be growing earnings in this environment, relative to their dividend, at least.

And a view on whether you pay more out or whether you retain it would be helpful.

Yes, I think, look, as we've talked about we expect to be able to march earnings to the mid 40s level.

I think when we get there, we believe it's sustainable, that we have visibility over the next several quarters that it will stay at that level, we'll sit down with the Board and talk about increasing our dividend.

We do expect to increase our dividend at that time, but we want to do it in a way that we provide adequate excess coverage as well.

Okay, great.

I'll hop back in queue.

Thank you.

Mickey Schleien, Ladenburg.

Yes, good morning, everyone.

I was hoping you could give us an update on the SSLP's credit facility and the trajectory we might expect for growth in that vehicle.

Yes, I think to Jonathan's question around the sponsored business, that is, Mickey, where we're focusing our sponsor activity, is on the SSLP.

We do have some transactions that are in pipeline, as well as some things that we've thought about perhaps moving in from on-balance-sheet that are some nice low risk but also lower returns, that would benefit from the structure.

So I think you're going to see that pick up as we move into the second half of the year.

I think as we've talked about, we're looking to time the closing of the credit facility so that we can begin to leverage that entity as we have over at Solar Senior with FLLP.

Bruce, can you just remind us what kind of terms you're thinking about for the facility?

Yes, the borrowing costs are in the L-2.75% area, all-in with upfronts.

Again, pretty similar to what you've seen us have and others on platform, its borrowing base.

Depending on the asset, your leverage or your advance ratios are anywhere from 0.55 up to 0.7; and it's living, breathing advance rate.

So as the underlying credits improve you can increase the advance rate and the effective leverage.

But they tend to range between 1.5 and 2 turns of leverage.

And they're nonrecourse facilities, looking only to the assets.

I understand.

In the past you've disclosed that the senior secured portfolio, if I recall correctly, was in the neighborhood of 60/40 second lien and first lien.

But we've got a lot of moving pieces now, and with the addition of this new Life Sciences portfolio and the unitranche strategy.

Could you perhaps give us an update on, at least within a range, what is true first lien and second lien?

And to the extent your selling out first-lien pieces, what's unitranche?

Yes.

As we mentioned, as we look through -- to your point -- our Comprehensive Portfolio with this Life Science acquisition approaches $1.6 billion.

It is predominantly first lien, either Life Sciences, Crystal, or Solar traditional unitranche.

I would say that that number is approaching -- second lien as we continue to rotate out is approaching roughly 30%, with first lien being closer to 70%.

And that 70% includes the unitranche deals?

Yes, yes.

How actively do you sell out first pieces of unitranche?

Not at all.

Not at all?

Okay.

Our goal -- just to be real clear there -- I think that's a great question.

We generally are attracted to the unitranche because it is dollar-one risk; and are uncomfortable, by and large, selling off the first lien in order to try to enhance our economics and effectively re-create a first-lien/second-lien structure in a first-out/last-out.

We'd rather be in that secured position and get our additional return through additional leverage against the asset itself, the loan itself, as opposed to putting more risk in the loan that we're holding.

I understand.

My last question -- I'm sure you're frustrated that the stock is still trading below book value, although obviously it provides an opportunity to buy back shares at an accretive price.

But from my perspective, perhaps one of the reasons that that continues to be the case is the fee structure, which is to some extent out of line with more recent vintage BDCs.

Is the Board taking a look at that at this point in time?

What is the outlook for perhaps a change in the fee structure to bring it more in line with your competitors?

Yes, we talk about it on a regular basis, as you would expect us to.

I think the Board and most of our significant institutional supporters who have been with us for years -- to your point, it's an old structure, but I guess Michael and I have been around a long time -- and they take comfort from our behavior rather than the contractual structure, as evidenced by us both waiving fees as well as not putting on leverage in order to drive increased fees over the last couple years that we have seen some frothy credit markets.

So it is something we continually evaluate.

But I think based on the actual fees paid, they're very comfortable with where we are.

Okay.

My last question, any comments you can give us on the issues that are confronting Bishop Lifting?

Yes.

As I touched on, Wire Rope is the largest manufacturer of wire rope for a variety of industrial applications, including into the oil sector.

Bishop Lifting is actually one of their largest customers; it is a distributor of wire rope, but that is not their only product.

Bishop has struggled just as Wire did in terms of its sales of wire rope into the oil and gas sector.

But they have a much broader product offering and end-markets that they're selling into.

So there is some technical mark there, but we feel very comfortable where we sit with that investment.

Terrific.

Thanks for your time this morning.

Ryan Lynch, KBW.

I have one question.

The pro forma of your guys' Life Science portfolio you said is about $210 million.

I think you guys also mentioned a target portfolio size of about $250 million.

Just wanted to get a clarification.

Is that target size based on the capabilities you feel comfortable with, the current team, the current Life Sciences team you have in place today?

Or is that $250 million based on relative size of your portfolio?

What I'm driving at is: Is there potential that you guys would look to further expand your Life Sciences team, which would eventually be able to expand that target portfolio size?

Yes, good question.

I think as we mentioned we are ahead of plan in terms of the ramp of that portfolio.

These assets do have high amortization on a monthly basis, once you get typically 12 to 18 months into your investment period, and this was a seasoned portfolio.

So both the assets that our team originated a year or so ago on our platform as well as this portfolio will begin to run off.

Having said that, while at GE the team had, at its peak, a portfolio approaching $500 million.

So I think it's fair to assume that we would see a target that would approach $300 million, given how quickly we've ramped here.

But bear in mind the team, similar to the rest of the Solar platform, shares our conservatism in terms of underwriting.

So we're trying to keep them focused on picking the best-in-class assets out there rather than growing the portfolio to any particular size.

But I think there is some upside beyond that $250 million.

Okay, great.

That's actually all for me.

Thanks.

Chris York, JMP Securities.

Morning, guys, and thanks for taking my questions.

I'm following up on Jonathan's and Mickey's questions a bit.

The manager has waived fees for three consecutive quarters, and so I was hoping if you could provide us an update on how we should be thinking about the sustainability in those fees, given that the purchase of the Life Sciences portfolio is now going to bring earnings above the dividend run rate.

Right.

I think we said pretty clearly on the conference call two months ago that we had volunteered to the Board as a manager to waive whatever incentive fees it took to make sure that we earned at least $1.60 of that investment income.

And that hasn't changed.

Okay.

Then secondly, I believe pro forma balance sheet leverage for the portfolio acquisition is maybe around like 0.56 times, which you said is below the target leverage of 0.65.

So, fully ramped, what do you expect the ROEs should expand to?

Look, as we've said, when we hit our target debt to equity, we expect to be in the mid 40s in terms of earnings on a quarterly basis.

And when we get SSLP fully ramped, which is no additional leverage to us effectively on a regulatory basis, that number should grow beyond that.

And, Chris, the target's 0.65 to 0.75.

Okay, oh, 0.75?

Okay.

So would maybe 9% ROE on the net investment income basis sound about right?

Probably a little higher when you get SSLP fully ramped.

Got it; okay.

Then lastly for me, it looked like Aeropostale filed reorg paperwork in Manhattan; and it appears that Crystal is providing the DIP.

I was curious if you could provide us an update on the terms of this facility and then if you have any exposure related to the bankruptcy.

Yes.

We went in as part of the bankruptcy.

This was a strategy.

We put the money as a DIP going to bankruptcy, and that's what the pricing and the returns are based on.

And you should see some exposure on both Crystal as well as Solar's balance sheet.

The question will be how long the duration will be, based on the Company's strategy.

But we're excited that we can capitalize on Crystal's long-standing track record of lending to and investing in retailers, and underwriting their current assets.

We think this is a unique opportunity.

Crystal was extremely well positioned, and we expect to see more of these.

Great.

That's it for me.

Thanks, guys.

(Operator Instructions) Doug Mewhirter, SunTrust.

Hi, good morning.

I just have one question.

Looks like you -- I think you bought back a few shares this quarter (technical difficulty) were kind of slow.

How are you approaching share repurchases?

I know you had that big Life Science purchase, but you are still relatively underlevered and the core sponsor business is still trying to get traction.

So if the core sponsor business is still a little slow in the second quarter, would you anticipate repurchasing additional shares?

The answer to that, at current levels, no; we're trading pretty close to 0.9 times book value.

We don't think it's a great use of capital to buy back stock yielding dividends in the 8s given our potential return on new investments.

That said, we put the plan in place originally to allow us to buy stock in periods of extreme dislocation.

The stock we bought was sub $15, which we think was a great purchase price -- sub $16, I'm sorry -- a great purchase price.

So you should expect that when we come back into our blackout period we'll put another 10b5 plan in place, so that if we do hit extreme dislocation again that we have the ability to buy stock.

Okay, thanks.

That's all my questions.

Christopher Testa, National Securities Corporation.

Hi, good morning.

Thanks for taking my questions.

Just with your remarks on better covenants and structure from last year, just curious how you see those different in the sponsor and non-sponsor sides of the business.

Sure.

On the non-sponsor side, and that's pretty much where Crystal operates, there is always covenant packages.

It's just a matter of degree of tightness, but that is generally not a covenant-light product.

I would say the same is true for unitranche, which is another reason we like it.

In addition to being dollar-one in the capital structure of the borrower is that they do come with full covenant packages.

I think where covenants have come in is in the broader market.

You've seen less cov-light issuance in the first quarter.

Obviously, there was also not a lot of issuance in an absolute basis.

But you have seen covenants come back into some of the syndicated structures in order to clear deals.

Okay, great.

With the Life Sciences lending are you seeing less competition, more people pulling back there?

Also with regards to Life Sciences, where are you seeing most of the pipeline of opportunity there, in terms of early, intermediate, late-stage, etc.?

Yes, the Life Science business really hasn't changed dramatically.

It is a clubby business.

There's two or three people, maybe four who operate in it; tends to share paper with each other, depending on who wins the mandate.

It's not typical for somebody to take down the whole deal.

Again, it's a club deal.

The only real change that's happened is obviously GE exiting the business, us having the good fortune of bringing their team on our platform, and now Capital One exiting the business as part of the sale of the portfolio to Solar.

I'm sorry, the second part of your question?

Just where Life Sciences, where the pipeline is most concentrated, whether it be early-stage or later-stage.

Yes.

Our team focuses on late-stage exclusively.

That's where we are most comfortable from a risk perspective, that we have a diversified portfolio of drugs or devices that have either commercialization -- in some cases some of our deals actually have revenues.

And we have an occasional deal or two that has positive cash flow, which is unique for the sector.

But we like late-stage.

We don't like binary outcome.

We feel that's more of an equity play where you're taking a lot of warrants and you'll have some wins and some losses.

Our team has a phenomenal track record in consistency of returns, and that's where we like to play, and that tends to be in late-stage.

Great.

Just with the unrealized appreciation.

Do you have an indication of what percentage of that came from specific credits and how much was from the general recovery in markets at the end of the first quarter?

Yes, I would say that roughly 60% was from specific credits.

As you know, the market was up a little bit by the end of the quarter; and so call it 40% or so was across the market.

Great.

That's all for me.

Thanks, guys.

(Operator Instructions) Rick Shane, JPMorgan.

Thanks, guys, for taking my question.

Just like a little bit of additional information on the portfolio you bought from Capital One.

Specifically that was a pretty significant acquisition for them.

Love to understand why the specific portfolio that you acquired wasn't a good fit for them and why it is for you.

Yes.

I'm not going to speak for them, but our speculation is that this was a very small piece of the entire healthcare portfolio that they bought from GE.

One of the reasons why GE exited the business was regulatory issues; and frankly, these assets are quite expensive from a regulatory perspective for the commercial banks to hold, given that there is no cash flow in these businesses.

So I think given the size of it, they decided to divest it.

And given that we had a very unique knowledge base of the portfolio, we were the logical party for them to go to, and they did so effectively on an exclusive basis.

For us it basically allowed us to move towards our goal and our ramp with assets that our team knew and were able to re-underwrite, and added additional diversification, and met all of our return requirements.

Got it; okay.

And I apologize, we're bouncing around between conference calls today, so if you mentioned this specifically -- I know that you were the exclusive bidder for this.

But did they actually approach you directly because of that history?

Yes.

Yes, they did.

It was a call from them to us.

Great.

Thank you, guys.

Thank you.

I'm showing no further questions, and I'd like to turn the conference back over to Mr. Michael Gross for any closing remarks.

Thank you very much for your time and attention this morning and continued support.

We look forward to talking to you in the next few weeks and at the end of our next quarter.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program, and you may all disconnect.

Everyone have a great day.