SLR Investment Corp (SLRC) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2016 Solar Capital Limited earnings call. 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, this conference is being recorded.

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

Thank you very much and good morning. Welcome to Solar Capital Limited's earnings call for the quarter ended June 30, 2016. I am joined here today by Bruce Spohler, 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 would 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, www.solarcapltd.com. Audio replays of this call will be made available later today as disclosed in our earnings press release.

I would 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 would like to turn the call back to our Chairman and Chief Executive Officer, Michael Gross.

Thank you, Rich. Our second-quarter 2016 fiscal results can be summed up with one word: growth. We grew net investment income by 15%, net asset value by 2%, and our comprehensive (inaudible) portfolio by 11%. This growth reflects our strong credit performance and the robustness of our diversified origination platform.

Importantly, we feel confident about the trajectory of this trend. For the quarter ended June 30, 2016, net investment income per share totaled $0.46. A sizable increase in NII from Q1 was partially attributable to one-time portfolio company events, as well as our acquisition of a life science portfolio from Capital One.

During the quarter, we increased our run rate net investment income per share to approximately $0.42, and we expect to reach the mid-[40s] as we achieve portfolio growth through our life sciences, SSLP and Crystal Financial platforms with their expected returns in the low to mid teens.

Our net asset value accretion to $21.51 resulted from increases in the fair values of our investments, as well as an excess of net investment income over our quarterly distribution.

Also, supporting our net asset value uptick were the absence of any credit issues across our portfolio. In fact, the dollar value of our [locks lift] meaningfully declined during the quarter.

Furthermore, we continue to have no direct exposure to the energy or commodities sectors.

Finally, through another quarter of continued low sponsor backed middle-market new issue volume, we originated $172 million of new investments, predominantly for our ownership of SSLP and our life science lending business, which included the $74 million portfolio acquisition from Capital One.

As Bruce will detail, during the second quarter, SSLP achieved sufficient size and diversification to warrant incurrence of leverage. Subsequent to quarter end, we drew on our new SSLP credit facility to fund new investments. At June 30, our net leverage was .63 times.

Including full leverage capacity at SSLP, we have an additional $450 million of investment capacity subject to borrowing base limitations. Our near-term focus is to grow Crystal Financial and life sciences, as well as utilize our SSLP credit facility to ramp that portfolio and increase our return on equity. Post a strong quarter of originations, our comprehensive portfolio, which includes our ownership of SSLP and Crystal Financial's full portfolio, now stands at $1.72 billion and is 93.3% senior secured and 91.8% floating rate.

In an expected prolonged, low interest rate environment, we believe our recurring high income portfolio presents an attractive investment opportunity. Furthermore, we believe its predominantly floating-rate nature provides investors with a hedge against rising interest rates.

Additionally, our senior secured position and issuance capital structures provide protection should economic conditions deteriorate.

Looking forward, we are encouraged by the continued strong credit quality of our portfolio, and we are confident they will continue to over-earn our $0.40 per share quarterly distribution in 2016.

Over the medium to long term, we anticipate growth in both net investment incomes and net asset value. And, once we believe we have achieved a sustainable level of net investment income that exceeded distribution, we will increase our quarterly payout.

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

Thank you, Michael. Solar Capital Limited's net asset value at June 30, 2016 was $908.8 million or $21.51 per share compared to $890.6 million or $21.08 per share at March 31.

At June 30, our investment portfolio had a fair market value of $1.48 billion in 74 portfolio companies across 30 industries compared to a fair market value of $1.34 billion in 56 portfolio companies across 30 industries at March 31.

At June 30, 2016, the weighted average yield on our income producing portfolio measured at fair value decreased slightly to 10.2% versus 10.3% at March 31. However, the weighted average yield cost basis improved to 10.5% at June 30 versus 10.1% at March 31.

For the three months ended June 30, investment income totaled $41.4 million versus $34.0 million for the three months ended March 31. Net expenses totaled $21.8 million for the three months ended June 30 compared to $17.1 million for the three months ended March 31. The increase in expenses for the three months ended June 30 is primarily related to higher management and performance-based incentive fees, as well as higher interest expense on a larger income producing investment portfolio.

In addition, other general and administrative expenses included nonrecurring costs related to the acquisition of the life sciences portfolio from Capital One.

Accordingly, the Company's net investment income for the three months ended June 30, 2016, totaled $19.5 million or $0.46 per average share versus $16.9 million or $0.40 per average share for the three months ended March 31. Net realized and unrealized gains for the second-quarter 2016 totaled approximately $15.6 million versus a net realized and unrealized gain of $11.3 million for the first-quarter 2016. Ultimately, the Company had a net increase in net assets resulting from operations of $35.2 million or $0.83 per average share for the three months ended June 30. This compares to a net increase of $28.2 million or $0.67 per average share for the three months ended March 31.

Finally, our Board of Directors declared a Q3 distribution of $0.40 per share, payable on October 4, 2016, to shareholders of record on September 22, 2016.

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

Thank you, Rich. I would like to begin by providing an update on the credit quality of our portfolio. Overall, the financial health of our portfolio companies remains sound with the trends of continued modest growth and deleveraging continuing during the second quarter.

On average, the most recently reported organic LTM revenue and EBITDA for our portfolio companies in which we hold debt securities were each up over 7.5% year over year. When measured at fair value, the weighted average interest coverage for our portfolio companies was 2.8 times at June 30, up slightly from Q1.

And at the end of Q2, the fair value weighted average EBITDA for our portfolio companies was just under $95 million.

Also, at June 30, the weighted average investment and risk weighting of our portfolio was just under 2 when measured at fair market value and based on our 1 to 4 risk grading scale with 1 representing the least amount of risk.

Measured at fair value, 99.9% of our portfolio is performing. On a cost basis, our one legacy investment on nonaccrual accounted for just under 60 bps of the entire portfolio. Excluding this one legacy asset, DirectBuy, our portfolio is performing well.

On a current cost basis, the weighted average yield on our income producing portfolio was 10.5% at June 30, up from 10.1% for the prior quarter. Our average mark on our income producing debt investments as a percentage of par increased to 97% at Q2 due to a combination of mark-to-market depreciation resulting from the rally in the liquid credit markets, as well as fundamental improvement in a couple of specific credits.

We continue to believe that there is additional NAV upside as our loans that are marked below par due to technical factors are repaid in full.

Now I would like to provide some color on the composition of our comprehensive investment portfolio, which includes Crystal Financial's portfolio of asset-based loans, as well as our ownership of the stretch senior loans withheld within SSLP.

At the end of the second quarter, our $1.7 billion comprehensive investment portfolio included 100 distinct issuers across 37 industries with neither energy nor commodities on that list. The average investment per issuer is $17 million or 1% of the comprehensive portfolio. Our largest single investment is 3.2%.

Measured at fair value, 93%-plus of our portfolio consists of senior secured loans. The remainder of the portfolio is comprised of 4.5% subordinated debt and 2.25% equity and equity-light securities. At June 30, approximately 92% of our income-producing portfolio was floating rate when measured at fair value.

Now before I turn to our investment activity, I would like to provide a brief update on our strategic initiatives. During the second quarter, SSLP funded just over $41 million of new stretch senior loans, bringing our total portfolio to approximately $134 million.

Additionally, as Michael mentioned, we closed an initial $200 million revolving credit facility for SSLP. The facility carries an interest rate of LIBOR plus 2.50% with no LIBOR floor and a final maturity of five years. Since the end of the second quarter, we have begun to draw on the facility and expect to fund new investments in SSLP through the use of this facility in order to generate an expected low to mid teens return on Soler's equity as we ramp this JV.

Turning to life sciences, during the second quarter, our platform originated close to $97 million of investments and experienced repayments of $9.5 million. As we discussed on our last earnings call, early in the second quarter, we completed the purchase of Capital One's healthcare financial solutions portfolio, which Capital One had acquired from GE back in 2015.

Our life science team had originated these investments while employed by GE. The approximately $74 million par value portfolio that we purchased is comprised of senior secured first lien loans to 14 different borrowers with an average loan balance of just over $5 million. The portfolio is well diversified across drug discovery, healthcare information technology, medical devices, as well as diagnostic subsectors. We expect midteens IRR on the acquired portfolio.

As a result of the acquisition of this portfolio, as well as additional direct investments by our life science team, the portfolio totaled just over $225 million fair value at the end of Q2. The average all-in yield, excluding potential exit and success fees, as well as any potential future warrant gains, is 11.7%. The blended IRR on our realized life science investments to date is just over 20%.

Portfolio acquisition accelerates the ramp towards our initial $250 million targeted life science portfolio. In addition, it enhances Solar's position as a leader in life science venture lending.

Now let me turn to Crystal Financial, our stretch first lien asset-based lending platform. Crystal's loans have collateral coverage and (technical difficulty) covenants, which provides a differentiated and extremely attractive risk return profile when compared to the cash flow lending business and has a low correlation to the traditional cash flow credit markets. The asset diversification, differentiated growth opportunities, and countercyclical nature of Crystal's investment strategy are highly complementary to the rest of Solar's lending platforms. For example, during the second quarter, Solar and Crystal collectively committed approximately $60 million to an asset-based DIP credit facility for Aeropostale. Crystal's strong reputation as a lender to the retail industry, coupled with its ability to bring together a like-minded syndicate of lenders, positioned us well to lead this financing. The investment carries an expected return of 10.6% yield to maturity.

At June 30, Crystal had a diversified portfolio consisting of approximately $517 million of funded senior secured loans across 30 issuers with an average exposure of approximately $17 million. During the second quarter, Crystal funded new loads of approximately $64 million and experienced repayments totaling just under $50 million. All of Crystal's investments are floating rate, senior secured loans.

For the second quarter, Crystal paid Solar Capital a cash dividend of just under $8 million, resulting in an 11.5% annualized cash-on-cash yield, consistent with the first quarter.

At June 30, the Company's net leverage was 0.9 times.

Now I would like to turn to our second-quarter portfolio activity at Solar. During the second quarter, including through our ownership of SSLP, Solar originated approximately $170 million of predominantly senior secured floating rate loans across 23 portfolio companies. Investments repaid during the quarter totaled approximately $37 million, resulting in net portfolio of growth of just over $135 million.

During the quarter, we originated a stretch senior first lien secured loan to support the merger of Pet Supermarket and Pet Valu, which became the third largest pet retailer in the US. As a reminder, Solar is an incumbent lender to Pet Supermarket, which is owned by Roark Capital. Solar's commitment totals $35 million. Solar's sister fund, Solar Senior, also participated in this transaction as did our strategic partner, Voya, resulting in a combined commitment of $65 million. Leverage through our investment is 4.9 times, and the yield on the investment is just under 7%.

The acquisition of Pet Valu created a significantly larger company with over $110 million of EBITDA, almost triple the cash flow from our original investment while being priced just under our original 7% yield.

We also originated a stretch senior secured term loan for CIBT, the largest provider in the highly fragmented travel document process servicing industries. Solar had been a junior capital provider and averaged original buyout in CIBT back in 2011 and will be paid in 2013. Solar's current commitment totaled just over $21 million. Solar Senior also participated in this transaction, resulting in a total commitment across the Solar platform of just under $30 million.

Leverage to our investment is 4.4 times, and the loan carries a yield to maturity of 6.6%.

Now let me touch on our one meaningful repayment during the quarter. In conjunction with the sale of the Company, Solar was repaid on our remaining $11.3 million of our initial $21.5 million investment in the Robbins Company.

In addition to receiving our full principal, we earned an exit fee, which resulted in an IRR to realization of just over 20%.

Looking forward, we expect to be repaid at par on our $48 million investment in WireCo during the second half of this year. Our pipeline across our diverse originations businesses remains robust. We anticipate additional growth in our proprietary -- in our portfolio via these proprietary channels in the second half of 2016.

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

Thank you, Bruce. In spite of the slowdown earlier this year and the traditional sponsor finance business, we benefited from our diverse lending platform to achieve 11% portfolio growth in the quarter. Our $1.72 billion comprehensive portfolio provides us with a great foundation for over-earning our current quarterly distribution on a recurring basis.

In the coming quarters, we expect to continue to ramp SSLP and our life science lending portfolio. We believe these two engines should provide us with the best risk reward in today's investing climate.

Additionally, Crystal Financial remains well-positioned to continue to generate an attractive return on our equity investment. Although it is early in the second-quarter BDC earnings season, we expect to be one of only a few to have meaningfully grown our net investment income year to date. Over the remainder of 2016, we expect to meet or exceed our current estimated quarterly run rate net investment income of $0.42. Once we believe we have achieved a sustainable level of net investment income in the mid-[40s], we will increase our quarterly distribution.

As evidenced by our low nonaccrual rates, as well as our stable net asset value per share, our overall credit performance has been strong. Our shareholders have reaped the benefit of our disciplined, patient underwriting. For those investments who bought in at our IPO six and a half years ago, we provided an approximately 78% total return for approximately a 13% annualized return based on last night's closing share price.

While we are pleased with our recent share price performance, we believe the future is even more promising, given the earnings power of our current portfolio and capacity for future growth.

At 11:00 this morning, we will be hosting an earnings call for the second-quarter results of Solar Senior Capital or SUNS. Our ability to provide traditional middle-market senior secured financing for this vehicle continues to enhance our origination team's ability to meet our clients' capital needs, and we continue to see benefits of the value proposition in Solar Capital's deal flow.

Thank you for your time. Operator, at this time, we will open up the line for questions.

(Operator Instructions) Ryan Lynch, KBW.

First one, you guys had some technical portfolio depreciation in the third and fourth quarter of last year, and since then, in the first quarter and second quarter, you guys have had some portfolio appreciation for reversing some of those technical markdowns.

Bruce, I believe you said there is still some technical upside in some of your loans from technical markdowns that you have taken. Would you be willing to quantify how much upside do you think are in your portfolio of loans if they get repaid at par, how much technical upside are in those loans?

Yes. I think that, as we just look at the pool to par across the portfolio, it is approximately another $0.50 a share. Obviously, the timing is a little bit uncertain in terms of when you get repaid, but that is where we see full value.

Okay. And then, I know it is still early on with the ramping of your senior loan fund with Voya, but have you guys had any further discussions around Voya and your guys' willingness and ability to potentially expand your guys' equity commitment from that $325 million level?

Yes. The current commitment to the platform for Solar is $300 million and for Voya is $25 million. But be mindful that Voya also will invest on their balance sheet alongside the initiative. Both we and Voya are very pleased with the program, as well as the program over at Solar Senior in FLLP. So they have already expressed an indication and willingness to grow this.

Okay. Great. And then, just one more. On your guys' leverage target, you guys have historically talked about a .75 debt to equity kind of target range. That target has been in place for several years. Certainly, your guys' portfolio has changed over several years from being more in mezzanine subordinated debt versus now today you guys are definitely more in senior secured loans. So that .75 debt to equity kind of target, is that something that you guys still stand by, or are you guys willing to potentially go a little higher than that now that you guys', your portfolio composition is a little more senior secured paper versus where it was a few years ago?

Look, I think with the current regulatory constraint of two times, I think you always want to have a cushion. I'm sorry, 1 to 1. You always want to have a cushion because there could be market disruptions where you're forced to mark to market your portfolio because type of the move to the marketplace. So we would not really go beyond .75. Where we are getting beyond that is through our off-balance-sheet vehicles with SSLP and Crystal, potentially. So that is where we get closer to 1 to 1 leverage when we look through to those facilities.

Okay. Great. Really excellent quarter overall.

Arren Cyganovich, D. A. Davidson.

Just following up on the SSLP contribution, wonder if you could talk a little bit about your expected pace of investments over the next year or so. Do you expect a quarterly increase in contribution to your NII from that and what the targeted leverage would be for that vehicle?

Yes. So, a couple of things. The targeted leverage is 2 to 1. As you know, when you open these facilities, which is part of the reason why we've delayed opening until just recently, when you open these credit facilities, you need a certain amount of equity pre-funded, after which you start to fund with predominantly credit drawn under the revolving credit facility, after which you start to grow pro rata with that 2 to 1.

So what you will start to see is we're going to be drawing now to fund the next round of investments, and then we will get to a point where we will start to be in that 2 to 1 ratio, and we will start to draw pro rata and fund equity pro rata. And I think the pace is still -- unfortunately, it won't be consistent quarter to quarter, but it is steady as she goes. We still have a nice pipeline there and expect to continue to ramp it over the next four quarters.

Great. Thanks. And then, with respect to Crystal, it looks like the net income has been exceeding the dividend payments up to Solar for the past few quarters. Just curious as to -- if there is going to be a catchup there or if there is some sort of difference between, I don't know, taxable income or something that is actually sent up to Solar.

No, we try to smooth it out. As you know, Crystal has short duration assets. Portfolio churns pretty quickly. Two years ago, I think 80% of the portfolio churned in one year, and so they generally raise a lot of income from upfront fees and prepayment fees relative to coupon payments like the rest of our platform. So we try to smooth it out, and we will look appropriately at the right time when to increase our distribution there.

Okay. Thank you.

(Operator Instructions) Christopher Testa, National Securities.

Just on the -- I know you started taking leverage on the facility and the joint venture. Can you give an indication on when you expect to make up the $200 million of commitments that you have? Do you have a timetable, an estimate for that?

No, we really don't. I think that will happen over the next couple of quarters here into next year.

Okay. Great.

But be mindful that the $200 million is just the opening size. That facility is expandable, and we will expand it as we increase our equity funding. But, again, we are trying to match fund this to be as efficient as possible in our usage and not incur on use fees and so forth.

Right. And just to be clear, you are targeting 1.5 debt to equity, so that facility likely would increase $600 million or so with $900 million in assets?

Yes, assuming the full $300 million committed is funded.

Okay. Great. And just with the $15.7 million in unrealized appreciation, how much of that was technical in nature versus company specific marks?

I would say the majority of it is technical. There is some. As we mentioned, WireCo is being repaid, and I think we picked it was a $48 million position, picked up about 5 points on that. So that was a couple of points. But it was more across the platform. Crystal was up a little bit, as you know, but I look at Crystal as more technical.

Okay. And just, Mike, your outlook on sponsor finance and M&A volume for the middle market, for the second half of the year, it seems that LBO multiples have come down a bit back to earth. Do you see that sort of picking up? Have you seen a quarter to date?

I think what we have seen is a little bit more activity, but a continuation of the trend where sponsors are (inaudible) add-on acquisitions. We touched on Pet Supermarket where one of our existing portfolio companies is making an add-on acquisition.

So CIBT is a result from an add-on acquisition. So we are seeing a lot more of sponsors trying to grow through acquisition, buy down their original acquisition multiple of the platform, and that is where most of the activity appears to be at the moment.

Okay. That's great color.

Mickey Schleien, Ladenburg.

Just a couple of questions. Michael, I think you mentioned a run rate NII for the quarter of $0.42 versus the $0.46 that was recorded. Is the $0.04 difference due entirely to the Robbins Company prepayment?

Effectively, yes.

Okay. And I noticed in the subsequent events section that Solar bought out management shares of Crystal. I am interested in understanding why that occurred. Is the management leaving or are you incentivizing them in a different fashion in the future?

Fair question. It is more technical in nature. The motivation behind it is by having Solar on a 100% rather than 99.9% or, in this case, it was about 98%, it allows us as a platform to leverage Crystal's origination and invest alongside crystal across the platform. It is a (inaudible) nuance, but only 100% is more flexible than owning anything under 100%.

Just more specifically, the (inaudible) we have to invest across the platform only applies to 100% owned businesses. So the 2% (inaudible) tripped us up, so management is definitely not leaving. We love management. They have done a great job, and they are taking up a large part of what they are getting back from our buyout and they are going to market and buying solar stock.

Terrific. (multiple speakers).

And, additionally, you should know, that the way the incentive program works there, for the team, is that a large part of their incentive compensation is also through deferred comp into Solar stock, as well as the initial buy-in.

I understand. So I want to join the others in congratulating you on a very good quarter. Look forward to more.

(Operator Instructions) Jonathan Bock, Wells Fargo Securities.

It is always a pleasure when I can follow Mickey and also join the mutual admiration society based on your results. And so a couple of things I wanted to continue based on Mr. Schleien's line of questioning. Could the Aeropostale deal have been done if you did not buy out management equity in Crystal?

The answer is yes because we invested across Solar and Crystal, which is a subsidiary of Solar. What it opens us up to do is to also look at Solar Senior participating. We could not have invested in Solar Senior.

Got it. Okay.

You can invest down, but you can't invest to the side. (multiple speakers)

Got it. Okay.

An speakers) ABL DIP facility into Aeropostale assault is 10.6%. We think it is also Senior Secured SUNS risk, but we couldn't capitalize on that.

Got it. Very smart. And then, as we take a moment to understand your thinking -- and I know, Michael, you and Bruce have outlined n this and you certainly outlined it in your commentary on the call, you're in a fairly enviable position with the dividend yield that you do have. Not in that it needs to necessarily be increased, but it gives you the cost of capital to chase the true, strong risk-adjusted returns that are available instead of forcing us into the wrong part of the capital stack at the wrong time.

So you have outlined a desire to build spillover income, and you are kind of weighing that versus a dividend increase that you could see over time. Give us some context over the cost of capital that you are looking at to originate new investments and whether or not the dividend necessarily has to be increased in order to continue to generate very, very good returns for your clients who based on the stock price are certainly happy in terms of the way things have moved?

As you know, with us, it is always a balancing act. I think that we see targeted earnings potential once we fully ramp these various strategies that will be closer to approximately $0.50. And I think relative to today's $0.40, there is clearly room to have both spillover and sustainable earnings that more than cover a dividend that is higher than today's.

Okay. And then, if we think about the number of strategies that you have got, generally speaking, with a focus on true first lien type of risk that you are putting on, walk us through the competitive dynamic that you enter in with sponsors of first versus, quote-unquote, other. Because, right now, you are more geared to attack the first lien stretches and the unit tranches than you have ever been. And what I am kind of interested in understanding is the competitive dynamic on how much is actually out there relative to how much has been out there in the past and, also, what sponsors are looking at versus a first lien stretch versus a first lien mezz or first lien second option?

Sure. I think, two seconds of history, the advent of the stretch senior loan has really evolved over the last several years. In part because I think of the volatility in the liquid credit markets, the borrowers and the sponsors have begun to value the certainty. It is a competitive market for them to try to win an acquisition that they want to versus some of their PE peers and showing up with fully committed capital, no flex on pricing or structure or terms, has become a valued competitive advantage. And I think, as we have seen some of the dislocation over the last several years, whether it was Greece, whether it was Brexit, whether it was Russia moving into Crimea, you have seen periods of volatility where the markets have pulled back for short periods of time in each case so far. And the sponsors and they are in the middle of an auction that is taking a three-month process, they cannot handle that volatility.

So the value of the unit tranche has gone up, stretch senior, and the other thing that has happened is they have moved up in terms of the size. So the typical unitranche that used to be $20 million, $25 million of EBITDA, $100 million loan, it has now gone up to $50 million to $100 million. You saw recently (inaudible) announced a $1 billion unitranche deal for going private.

So I think what has happened is the need to have scale in terms of our balance sheet -- and I am sure you have heard it from our peers at (inaudible) and areas who are big players in this asset class is very, very valuable. And it is, for the moment, moving more towards a club market on some of these larger unitranche deals, which, again, historically has been where we've preferred to play. Whether we are doing first lien, second lien, or mezzanine, our average EBITDA up at $95 million, we like these large businesses. And so the fact that they are looking for stretch senior is something that we see as a real competitive advantage and is a real strategic push for us.

It is still competitive, obviously, Jonathan, but there are only a handful of people who can really play there. So it is less competitive than the broader sponsor business.

Got it. And then, if we think about these initiatives, the one question that always lingers in the backs of folks' minds is how are you going to judge fresh equity capital or the use of fresh equity capital to the extent that you trade in excess of book value. Right?

And so I understand that we can punt the question until it happens, but many times managers that give a sense of equity discipline or focus often can appreciate or benefit from share price appreciation because managers or investment managers believe that discipline is instituted, and no one is just going to hit the bid the minute it gets to book.

Michael outline and Bruce outline how you look at new equity capital and whether or not it is needed as you look at these new initiatives growing forth because that is the one variable that investors really always want it when it deals with a BDC to get a better handle of.

Great question. So, first of all, as you know, we always think as equity holders first, given how much stock that Bruce and I and the rest of the team own and continue to buy with our deferred comp plan. So we think about stock appreciation as the number one priority for this business. So anything we do can't get in the way of that.

As Bruce laid out, we have the capital in place, the financing in place, the platforms in place to kind of get from our $0.42 to about $0.50 a share. We would not raise equity if it slowed our ability to get that $0.50 a share. We felt it could accelerate it or it could be put in position to exceed it, you will see us do that. Those are really the primary criteria.

That is excellent color. Thank you so much and congratulations.

And, at this time, I am showing no further questions. I would like to turn the call back over to Mr. Michael Gross for any closing remarks.

I just want to thank everybody for your continued support and being patient with us to allow us to execute our program. We look forward to talking to you -- those of you who are involved on the SUNS call in 20 minutes. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.