SLR Investment Corp (SLRC) 2019 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2019 Solar Capital Ltd.

Earning Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

(Operator Instructions)

I would now like to hand the conference over to your speaker today, Michael Gross, Chairman and Co-CEO.

Thank you.

Please go ahead, sir.

Thank you very much and good morning.

Welcome to Solar Capital's earnings call for the quarter-ended September 30, 2019.

I'm joined here today by Bruce Spohler, my Co-CEO; and Rich Peteka, Solar Capital's Chief Financial Officer.

Rich, before we begin, would you please start 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 broadcasts in any form are strictly prohibited.

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

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

I 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.

Additionally, past performance is not indicative of future results.

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 Co-CEO, Michael Gross.

Thank you, Rich.

Solar Capital delivered solid operating results in the third quarter, continue our long-running history of strong credit quality and earnings power.

At September 30, Solar Capital's net asset value was $21.90 per share.

During the quarter, Solar Capital generated $0.44 of net investment income per share and paid a distribution of $0.41 per share.

Overall credit performance remains solid supported by continued corporate earnings growth.

The market and economic environment have changed significantly over the last year with the Fed moving from rate increases to rate decreases amidst the backdrop of elevated recession concerns and hosts of uncertainties headlined by trade wars, Brexit and an uncertain political environment.

Cash flow lending remains extremely competitive due to inflows of capital to private credit funds and reduced middle-market transaction volumes in the third quarter 2019 compared to a year ago.

In the face of continued aggressive structures, tight pricing and elevated risk, we believe it is paramount to maintain our discipline with cash flow lending.

While facing competition for the higher quality cash flow leveraged lending investment opportunities, our specialty finance businesses namely Crystal Financial, Nations Equipment Finance and Life Science Lending provide us with investments having collateral coverage and other strong structural protections.

These niche businesses continue to originate investments that are very attractive on both an absolute and relative value basis.

During the third quarter, we originated $256 million new investments, 86% of which were in the specialty finance verticals.

Our repayments of $196 million were distributed across our 4 lending strategies resulting in $60 million of net portfolio growth.

At September 30, approximately 3 quarters of our comprehensive portfolio was comprised of specialty finance investments reflecting our successful transition to a diversified specialty finance platform focused on senior secured lending across a number of middle-market niches.

Not only do our specialty finance loans carry strong credit protections and yields superior to those available in today's cash flow market, but the higher income we receive from these loans enables us to be extremely selective when evaluating middle market cash flow transactions.

In the face of continued frothy cash flow lending market conditions, our approach to portfolio construction has allowed Solar Capital to achieve a weighted average comprehensive portfolio of approximately 10.7% at fair value without having to take additional risk by investing in second lien cash flow loans or more volatile sectors such as cyclicals or energy.

Notably, second lien cash flow loans now represent only about 5% of Solar Capital's comprehensive portfolio, reflecting our preference for $1 risk in a borrowers' capital structure.

We intend to move closer to our target leverage of 0.9x to 1.25x by growing our portfolio, but only as the market opportunity presents itself with investments that meet our strict underwriting criteria.

We view the increased leverage flexibility as simply another investment and risk management tool that provides significant capacity to expand our specialty finance platform as well as to enhance our ability to invest opportunistically, when the primary and secondary cash flow markets offer more compelling risk rewards.

In the current environment, we'll continue to invest in first lien senior secured loans with a current emphasis on specialty finance transactions.

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

Thank you, Michael.

Solar Capital Limited's net asset value at September 30, 2019 was $925 million or $21.90 per share compared to $929 million or $21.98 per share at June 30, 2019.

At September 30, 2019, Solar Capital's on balance sheet investment portfolio had a fair market value of $1.5 billion (sic) [$1.8 billion] in 110 portfolio companies across 28 industries compared to a fair market value of $1.5 billion in a 109 portfolio companies across 28 industries at June 30.

At September 30, Solar Capital had $571 million of debt outstanding and leverage of 0.61x net debt to equity compared to $563.2 million and 0.59x net debt to equity at June 30.

That said, we renewed our credit facility during the third quarter.

The new $545 million facility maturing in 2024 is comprised of $470 million of revolving credit and $75 million of term loans.

When considering availability from the companies' credit facilities combined with the available capital from the non-recourse credit facilities at Crystal and NEF, Solar Capital had approximately $570 million to fund portfolio growth as of September 30, 2019 subject to borrowing base limits.

Turning to the P&L.

For the 3 months ended September 30, 2019, gross investment income totaled $39.7 million versus $38.7 million for the 3 months ended June 30.

Expenses totaled $21.3 million for the 3 months ended September 30 compared to $20.3 million for the 3 months ended June 30.

Accordingly, the company's net investment income for the 3 months ended September 30, 2019 totaled $18.4 million or $0.44 per average share, compared to $18.4 million or $0.44 per average share for the 3 months ended June 30.

Below the line, the company had net realized and unrealized losses for the third quarter totaling $4.7 million versus net realized and unrealized gains of $1.2 million for the second quarter.

Ultimately, the company had a net increase in net assets resulting from operations of $13.7 million or $0.32 per average share for the 3 months ended September 30.

This compares to an increase of $19.6 million or $0.46 per average share for the 3 months ended June 30, 2019.

Finally, our Board of Directors recently declared a Q4 2019 distribution of $0.41 per share payable on January 3, 2020 to stockholders of record on December 19, 2019.

With that, I'll turn the call over to our Co-CEO, Bruce Spohler.

Thank you, Rich.

Overall, the financial health of our portfolio companies remains sound reflecting our disciplined underwriting and focus on downside protection.

At quarter-end, the weighted average investment risk rating of our portfolio was 1.9 based on our 1 to 4 risk rating scale, with 1 representing the least amount of risk.

As further indication of the strong underlying fundamentals of our investments, over 98% of the portfolio was performing at quarter end.

Our $1.8 billion comprehensive portfolio is highly diversified, encompassing 233 issuers across a 104 industries.

The average investment per issuer was $7.8 million or 0.4%.

At quarter-end, 98.4% of the portfolio consisted senior secured loans, comprised of approximately 89% first lien loans; 9% second lien senior secured loans with 5.3% of our second lien exposure in cash flow loans and 4% in asset-based loans.

We continue to prioritize reducing our exposure to second lien cash flow loans, which generally carry more risk than we believe is prudent given the current environment.

At quarter-end, our weighted average yield was 10.7%.

By focusing on our niche commercial finance verticals, we've been able to maintain asset level yields north of 10% despite a decrease in LIBOR and spread compression in cash flow lending.

Notably, we've been able to maintain these double-digit yields, while actively reducing our exposure to second lien cash flow investments, which generally carry higher yields.

Including activity across our 4 business lines, originations totaled $256 million and repayments were $196 million resulting in $60 million of net portfolio growth.

Now let me provide an update on each of our investment verticals.

Our cash flow business, which invests in senior secured loans which are predominantly first lien and stretched first lien investments to upper mid-market companies where we have a weighted average EBITDA of approximately $60 million at quarter-end.

During the third quarter, we originated $35 million of first lien loans which were primarily add-on investments in 2 existing credits.

We experienced repayments and amortization of just over $12 million.

At quarter-end, our first lien cash flow loan portfolio was $425 million representing just over 23% of our $1.8 billion portfolio.

During the third quarter, we placed one investment, a second lien cash flow loan onto non-accruals, which represents 1.7% of the cost of our balance sheet portfolio.

The company IHS is a provider of wellness solutions to midsize corporations and is currently evaluating strategic alternatives together with the support of our co-lenders, first lien lenders as well as the sponsor.

We will keep you apprised of the developments with this company over the next few quarters.

Across the rest of our portfolio, we are continuing to see healthy financial performance.

At quarter-end, the weighted average trailing 12 month revenue and EBITDA of our portfolio companies in the cash flow sector grew in the mid-single and high single digits level respectively.

For the portfolio companies in our cash flow segment, leverage to our security was just over 5x and interest coverage was just over 2.5x.

In addition, the weighted average yield of our cash flow portfolio was just over 9% at quarter-end.

Now let me turn to our asset-based strategy Crystal Financial.

During the third quarter, we funded $139 million of new and existing investments and had repayments of just under $72 million.

The senior secured ABL portfolio, which includes assets both on balance sheet and in Crystal's subsidiary totaled $662 million, which represents just over 36% of our total portfolio for the third quarter and carried an average yield of just over 12%.

Crystal paid to Solar a third quarter dividend of $7.5 million equating to a 10.7% yield on cost which was consistent with the prior quarter.

Now let me mention NEF.

During the third quarter, NEF, our equipment finance strategy invested $47 million and had repayments totaling just over $41 million.

At September 30, NEF had a total portfolio of just over $400 million of funded equipment asset-based loans.

The portfolio was invested across a 140 borrowers with an average exposure of just above $3 million.

As a reminder, included in this segment are equipment financings held both on Solar's balance sheet as well as in NEF Holdings, a portfolio company that for tax efficiency purposes holds certain of the NEF loan investments.

The equipment finance asset class represents just under 23% of our comprehensive portfolio.

100% of NEF's investments are in first lien loans.

And at quarter-end, the average yield was just over 10%.

Now finally, let me provide an update on our Life Science lending business.

At quarter-end, our portfolio totaled approximately $287 million.

It consisted of 18 issuers with an average investment of approximately $16 million.

Life Science loans represented just under 16% of the total portfolio, and yet over 30% of Solar's gross investment income reflecting the higher yields on these investments.

In the third quarter, the Life Science team originated approximately $35 million of new investments.

Repayments and amortization totaled just over $70 million.

The weighted average IRR on these assets for Life Science investments was just over 15% during the third quarter.

The weighted average yield of our Life Science portfolio is approximately 10.6% which excludes any success fees or warrants.

In conclusion, Solar's portfolio activity during the third quarter represents a continuation of the investment teams that had been driving our portfolio over the last couple of years.

The gradual increase in portfolio leverage focusing, our new originations on first lien loans to existing companies in defensive sectors and increasing our investments in specialty finance assets, where we are able to get both tighter structures and more attractive risk adjusted returns.

Given today's market environment, we intend to remain prudent and deploy capital selectively, thereby preserving our flexibility to capitalize on compelling opportunities that may arise from a market dislocation.

At this time, I'll turn the call back to Michael.

Thank you, Bruce.

In closing, we are pleased with our third quarter results and believe that Solar Capital is very well positioned.

Our long-term strategy of developing diversified specialty financed verticals that enable us to flex our cash flow loan exposure down or up, depending on conditions in that more competitive market continues to drive superior results.

Solar is firmly established as a diversified commercial finance company with a solid track record of providing solutions across the capital structure to U.S. middle-market businesses.

Importantly, our diversified origination engines and enhanced platform scale afford us greater flexibility to allocate capital to the best risk return opportunities, while retaining our investment discipline across credit cycles.

We are seeing interesting origination opportunities, particularly with existing portfolio companies.

However, we remain highly selective in cash flow investing, while maintaining a preference for specialty finance loans in this current environment.

We've been prudent in the face of credit market frothiness and remain disciplined and not compromising credit quality for yield.

Importantly, we've been able to maintain close to a 11% weighted average asset level yield through growing our specialty finance verticals, while actively reducing exposure to second lien cash flow investments.

The result is a solid portfolio well positioned for growth.

If the credit cycle does shift, we believe our history of conservatism will enable us to outperform and will allow us to deliver attractive returns for our shareholders.

At approximately 0.6x net debt to equity, we have significant leverage capacity and the accompanying dry powder to deploy via our differentiated investment verticals.

We currently believe SLRC has a clear path to increase run rate quarterly net investment income per share as we approach target leverage.

As our earnings increase on sustainable basis, our Board of Directors will evaluate further to increasing our quarterly distributions to our shareholders.

At 11:00 this morning, we'll be hosting an earnings call for the third quarter 2019 results of Solar Senior Capital or SUNS.

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

We thank you for your time.

Operator, would you please open up the line for questions?

(Operator Instructions) And your first question comes from the line of Rick Shane with JPMorgan.

Just wanted to talk a little bit about IHS and the implications for the rest of the portfolio.

I'm curious if this is idiosyncratic.

When I look at your portfolio, IHS screens as a healthcare company and a few of the other healthcare investments and the fair values are marked a little bit below cost as well.

I'm curious if there's anything thematic there or are we just looking at random data and seeing a pattern?

Yes.

This IHS is company specific.

It is a business that is focused on using wellness as a means for mid-sized corporations to provide testing for their employees to try to get ahead of any potential health issues.

Most of our healthcare investments are more focused on acquisitions and have been performing extremely well as you know over time.

This is more situation specific to the company's performance.

Got it.

And when we look at the other healthcare investments, anything there to consider?

No.

We feel very good.

As you know, between our Life Science team and over at Solar Senior, our Gemino Healthcare ABL platform, we feel that this is a sector that we have very good insight both into reimbursement as well as the FDA approval process as well as ongoing growth metrics.

So we feel very good about our healthcare portfolio.

Our next question comes from the line of Casey Alexander with Compass Point.

Remind us where you are in your target -- in your leverage ratio compared to your target leverage ratio?

And perhaps, would you push that target leverage ratio a little bit depending upon the opportunity set that you're seeing?

And then secondly, on top of that, in which vertical are you seeing sort of the repeat lending opportunities?

I mean equipment financing would seem to make sense, because the equipment is still there, and those are fairly short-term loans.

But I'm curious where you're seeing a repeat opportunities in the legacy portfolio?

Thanks for your question.

I'll take a shot at the first one, question.

Our current leverage is about 0.6 -- specifically 0.61 at the end of September.

Our target, which we put in place, when our shareholders approved the ability to do 2 to 1 leverage, it remains at 0.9 to 1.25.

We see no reason to go beyond that.

As you can see in our portfolio is yielding an 11%.

We don't need to put more leverage on our portfolio to drive our net returns for shareholders, so we're comfortable with maintain that leverage.

I think the second part of your question, Casey, regarding repeat opportunities.

Actually, the equipment finance sector is one where we generally because of the life of the equipment might just amortize out and move on.

Most of our repeat opportunities, for add-on opportunities just to expand your question a little bit, come really from our cash flow business as sponsors are adding on to existing facilities to fund future acquisition growth.

That has been a theme where we have selectively found good cash flow opportunities in today's frothy market environment.

So we have been growing on the cash flow side with certain issuers as they grow.

Additionally, in Life Sciences, that is a sector where sometimes we will see an opportunity to extend or do a new facility for existing issuers.

As you may recall, life science companies that we lend to are very late stage, but also have portfolios of drugs and devices.

So sometimes, we may extend our duration with a new facility as new drugs and devices that maybe further behind that lead drug or device start to get real momentum in the FDA process and then commercialization.

So that's been a nice opportunity.

You see, for example, GenMark is a name that's been in and out of portfolio a few times.

And we have extended that facility on a couple of occasions as they have grown their business and expanded their footprint.

I think the ABL business is really a business, where you'll see companies come in and out of portfolio based upon either seasonal needs or just headwinds that they may face in the marketplace as they move from us into more cost efficient capital.

And then they may come back into us, if they had additional headwinds.

And so that's the nature of the repeat business across the Solar platform.

All right.

Thank you for that.

And if I can just follow on to Michael's answer and then I'll get out of the way.

Michael, in the past, you had said you were sort of reserving that target leverage ratio of 0.9 to 1.25 for an opportunistic acquisition in a more spread-friendly environment.

I didn't actually hear that in your answer.

So is it possible that you might organically move at least towards the bottom end of that target leverage ratio on an organic basis without an acquisition?

Absolutely.

I think we continue to see growth opportunity across all our verticals, but we are continually looking for acquisitions.

We have a good pipeline there.

But again, those are incredibly hard to predict, given our strict criteria on what platforms we're allowing to kind of join our business.

But we definitely see a path to getting to the lower end part for sure, just on a total growth basis.

Okay.

So in essence, the potential for a distribution increase is not necessarily based upon executing an accretive acquisition?

It's correct.

That's exactly right.

Your next question comes from the line of Ryan Lynch with KBW.

I did want to follow up on a question that Casey was asking regarding the leverage.

Getting to the bottom end of your target range of 0.9, can you guys do that, assuming no change or no growth in the cash flow lending portfolio and purely growth in some of these specialty lending areas?

Yes.

I think the answer is we'd like a little bit of help from the cash flow business.

I don't think we need a lot.

But clearly, at least if you look at our Life Science segment and our Crystal ABL segment, those segments as you know which we greatly are attracted to are short duration assets, so it does create a little bit of headwind, generates a lot of income as they repay as you saw with Life Sciences this quarter.

So I think we'd like a little bit of help from cash flow, but we're not dependent entirely on that to get to that range.

The only thing I would add also is we are seeing a benefit of the fact that we have grown our platform to the point where about we have about $6 billion in capital, including BDCs and private capital, which is allowing us to chase down bigger transactions and spread it across the platform, so we're seeing a benefit of that.

That will drive more growth as well.

Okay.

And we've heard a couple other BDCs, particularly some BDCs who play in the upper middle market talk about some loans that may be single B rated loans, that could go to the broadly syndicated loan markets, some of these borrowers are opting for direct lending solutions.

Just wanted to get your opinion.

Are you guys -- in the markets that you play in, are you guys seeing any of that?

And are you guys seeing any improvements in what has been a very competitive cash flow lending market historically?

I would say, as we sit here in the middle of Q4, directionally, yes.

We are feeling that there are more opportunities that might have historically gone to syndicated markets coming to the direct market.

To echo Michael's comment a moment ago, as a direct lending, you need scale to be a relevant participant in that opportunity set.

It is definitely a club environment, where sponsors will pick 3, 4, 5 people that can hold at least a $100 million typically to participate in that investment opportunity and then grow with the portfolio company.

So we have a number of investments today that you would think would have left our private lending world and gone to the syndicated market, $100 million, $200 million of EBITDA, and yet they continue to grow with us.

So it's too soon to call it a trend, but sentiment is definitely tipping our way a little bit.

But the other thing I would add is, what we're seeing is that some of the things you're alluding to, these larger single B that are kind of crossing over, normally, they have a covenant.

But we've been passing on deals, for example, where it start at 6x leverage and it's a 10x covenant for life.

That was -- it's not a covenant.

And so we are not prepared to do that kind of stuff.

Okay, that's helpful.

And then lastly, you mentioned about $6 billion across your platform.

Can you just comment on what is the whole size that, that Solar as a platform would be comfortable holding across your both your platform as well as what is the maximum pool size you would be comfortable holding within the BDC structure?

So good question.

We're typically, Ryan, looking at up to $200 million holds across the platform.

You'll see if you look at SLRC, most of the investments are going to be in the $35 million to $40 million size in terms of their participation.

And then as you move away from cash flow, it might be more like a $150 million type hold size in Life Sciences or ABL.

But we find that, that $200 million capability is a real differentiator.

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

So it appears there was a nice quarter production at Crystal.

And then post quarter-end, I've noticed you guys have [agented in] some larger deals at Crystal.

So are you guys seeing anything in the market that is leading to some acceleration in demand for ABL solutions by its sponsors?

Or is the value proposition provided by Crystal increasing?

I think, again to follow up on our comments a moment ago about what's going on in the large syndicated market.

Just as that any dislocation there or tightening trickles down into the mid-market cash flow, it also benefits Crystal on the ABL side.

Again I think that would be too soon to say that's a real driver.

But they do deliver certainty of capital, and that's increasingly valued when the markets get a little bit nervous.

And then also they are continuing to capitalize on the secular trend in retail and find the good ABL opportunities in retail.

But as you know with Crystal, they will have very strong quarters, and then they may have a significant redemptions in the next quarter, as companies leave their portfolio and find more attractive financing opportunities.

So I wouldn't read it as a theme yet.

But I think from 30,000 feet, we're thrilled with the fact that we do have these diversified engines that do in the aggregate allow for a very consistent and very often counter to each other drivers of our originations.

And just a reminder and sort of follow-up also the question about where our growth could come from to get that lower end of our target.

Crystal's business to Bruce's way is countercyclical, and we do run into a more different economy which is inevitable.

We could easily see the portfolio of Crystal double in size because the investment opportunities will at that point expand beyond just things like the retail sector today.

Makes sense.

And then I guess staying on some of these conversations, so it seems like some of the deals that are larger than their average size, I think at Crystal which is like $18 million, what is the largest size ABL that you are comfortable holding?

What do you think?

And then do you think about it as a percentage of Crystal's assets or the total platform's assets?

So it's definitely total platform.

Within Solar itself, you might see some on Crystal's balance sheet, that's typically around up to $25 million or so hold and then some on Solar's balance sheet.

So you may aggregate to that $40 million to $50 million in the aggregate for Solar.

But then if you look at the scale of the SCP platform, that'll take you up to about a $150 million which is very, very competitive in that market for them.

Okay.

Just to be clear, so 40 -- is it $40 million to $50 million, that would be the largest size or $150 million?

$40 million, $50 million would be the largest we'd hold within Solar Capital to BDC between Crystal's balance sheet and Solar balance sheet.

And then a $150 million in total, including that $40 million to $50 million across all the different funds that we manage.

Got it.

Okay, very helpful.

And then we've known that you guys have continued to emphasize your specialty lending niches, and you're being very conservative in cash flow lending, given the frothy conditions there.

I think investors appreciate that.

But then alternatively do you worry that, that decision on the cash flow side may have any negative impacts with your sponsor relationships, as you become maybe a less of a first call?

I think that's a great question.

I think if you look at our sponsor relationships, they actually have been very consistent.

We're not everybody's cash flow solution, but sponsors who have strong track records in industry verticals that we feel very comfortable with, be it healthcare, a couple of years ago, data centers.

As you know, we're very active in insurance brokerage.

So sponsors who are strong in those sectors, we have longstanding relationships and have been their go-to club members and our increased scale only has enhanced that relevance.

So it's not a strategy where we're trying to be all things to all sponsors.

It's a very targeted approach.

And we're seeing this quarter a renewed activity as those sponsors are shying away from the syndicated market.

Got it.

Fair enough.

And then last question, as a modeling question to maybe Mr. Peteka here.

What drove the sequential increase of $400,000 in interest expense as I think outstandings were flat sequentially and then LIBOR was down sequentially?

That's right.

It was really the timing of the investments made and that's a combination of the end of Q2.

There were a lot of expenses -- a lot of deals done at the very end of Q2, which show there for the interest expense in Q2 was a little bit understated on average.

If you look at that way, and then we also the beginning of Q3 ended up having a lot of investment activity.

And therefore, we levered up earlier in the quarter and had that interest expense burden to the entire Q3.

So it's that combination that made the interest expense higher quarter-over-quarter.

Okay.

Let's say it in other way, it's maybe the average daily outstandings on your revolving credit facilities are going to be higher than the simple average of just the Q3 quarter-end and the 2Q quarter-end?

It will depends on the quarter.

But last quarter, like I said, the average would have been lower, this quarter would have been higher.

It's all based on the timing of when investments get funded.

Your next question comes from the line of Robert Dodd with Raymond James.

Okay.

Just a follow up on the last question and then some others.

Was there anything one-time related to the credit facility?

Because you quote that the new one was new rather than an amendment.

So was there anything accelerated on the time in the old facility?

No.

Okay, got it.

And then just on the general trend.

So as we see here, rather than the large syndicated market, when we look even into the more middle market spreads that we could -- that I can see they've been widening somewhat.

Now on the cash flow side, obviously, spreads are low and not something you focus on, right, you want structure as well.

Your comments about not doing effectively [cuff like] loans, if the covenant is weak enough.

Are you seeing anything shift in the last couple of months in terms of structural terms that may potentially start making the cash flow business a little bit more attractive from structural protections?

I think we are just feeling there has been a higher level of inquiry from sponsors, where we've got longstanding relationships where that could, given the size and performance of a particular business, tap into the syndicated market, and yet they're opting to come to us in the direct lending market.

So we are seeing -- and I know that with that comes more structure and more covenants.

So I just -- I sense that they're looking for more certainty and are willing, as typically in the case, not necessarily they give us much more spread, but definitely give us much more structure.

Again, it's only been a couple of months, but our activity is just higher quality in terms of structure and company than it was a quarter ago.

Got it, I appreciate that.

And then if I can kind of following up on Rick's question on Life, from the beginning on healthcare.

When you look at the more broadly syndicated markets, healthcare is an area that is exhibiting a little bit more stress than some other areas of the syndicated markets out there.

And so obviously, you said IHS was idiosyncratic.

But is there any in the areas where the syndicated markets are -- that's basically trading values, if there's growth there, is showing some weakness.

Is there any overlap between the portfolio exposures you have and the type of industries in the broad market, so they're showing weakness?

No, not that we see.

We've been very focused.

Again just to refresh, at Solar Senior, we own Gemino, which is a ABL lender against receivables into the healthcare sector.

So we have very good insight in terms of reimbursement headwinds.

And so we've been very focused on making sure that we're going into the more stable reimbursement markets, essential services, whether it's physical therapy, whether it's anesthesia.

So we've actually had very good performance at times and we've seen issues.

It's been just blocking and tackling with people on execution of collections for their services.

But very good and consistent patient visits.

So we feel very good about the portfolio from a healthcare perspective and rely heavily on our team at Gemino and our Life Science team.

Your next question comes from the line of Chris Kotowski with Oppenheimer.

Mine have been asked.

But just in the Life Sciences segment, you had pretty heavy pay downs, and it's been one of your best growing areas obviously over the last 2 years.

And with the pay downs this time around, it was a kind of $36 million down.

Just curious, I mean how easily is that volume replaced and was there anything underlying that caused all those prepayments?

Was it just a whole bunch of companies could get financing in the public markets or something like that or/and how ongoing a phenomenon is it?

The repayments as Bruce mentioned earlier, this is a high churn portfolio.

The average life is 2 years.

So that said, it's somewhat episodic.

You could have a quarter like that where a lot fall at one quarter, if you have a quarter where there is zero.

And so it's not something that we look at as a trend in any way, shape or form.

We would expect the portfolio to rebuild back to its prior size in the next few quarters.

And to your point, Chris, the portfolio from a stand, from start is still up a $250 million.

As you know with repays comes substantial acceleration of income.

So that while it was only 15% of our comprehensive portfolio at quarter-end, it generated 30% of the quarter's income, so you need them to repay to generate that income.

So we're thrilled with how they perform.

And it's going to vary quarter-to-quarter.

But we still feel great about the underlying drivers, which has really been -- if you look at venture capital raise for the healthcare sector continues to grow exponentially over the last 10 years and that is the capital that we will eventually 10, 15 years down the road lend against as it gets into late stage investment.

(Operator Instructions) Your next question comes from the line of Fin O'Shea with Wells Fargo Securities.

Just first question on the new credit facility.

It looks like you have venture loans in there.

Are the equipment and specialties financings, are they lumped in with first lien on your advanced rated schedule?

Yes, they are, but they were baskets for Life Science.

Okay, thank you.

And then on the cash flow side, you've mostly been lending this portfolio, maybe not run-off but repay at a faster pace than you invest.

If you go into the old -- the deeper vintages, the '15, '16 and isolated this group in terms of performance according to plan.

Is this generally -- it looks all reasonably well marked.

Is everything healthy at this point?

Like are these the names that you've added on to over time?

Or have these things maybe some of them not gone exactly according to plan and that's why they are still there?

Any color on just that specific bracket of your portfolio would be appreciated?

Sure.

I think there is 2 dynamics.

First of all, there are companies where you go back.

We were in a second lien position as part of our focus on migrating towards first lien.

You saw us refinance out of the second lien and move into a first lien position, thereby extending our investment duration in a company that we knew and had a good performance in underwriting history with.

So some of the extended duration came from that transition from second to first lien.

And then to your commentaries, some of it was also we've been growing and doing add-on investing into some of these businesses that really started in 2015, '16 and are getting to the point where they're rather sizable.

We're actually already seeing some of them positioned for sale.

But so a lot of it has also been growing with those companies.

There are no further questions at this time.

I would like to turn the call over to Michael Gross, Chairman and Co-CEO for closing remarks.

No remarks this time.

Just thank you for your constructive questions and all your support.

And for those of you, who'll be present on the SUNS call, we'll talk to you in 10 minutes.

Thank you.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may now disconnect.