SLR Investment Corp (SLRC) 2024 Q4 法說會逐字稿

Good day everyone and welcome to the Q4 2024 SLR Investment Corp earnings call.

(Operator Instructions).

Please note this call may be recorded.

I'll be standing by if you should need any assistance.

It is now my pleasure to turn the conference over to Michael Gross, Chairman and co-CEO.

Thank you very much and good morning.

Welcome to SLR Investment Corp's earnings call for the year end in December 30, 2024.

I'm joined today by my long term partner Bruce Spoller, co-Chief Executive Officer for a 60th quarter of SLRC results, along with Chief Financial Officer Shiraz Kaji and the solar investor relations team.

Shiraz, before we begin, would you please start by covering the webcast and forward-looking statements.

Thank you, Michael.

Good morning, everyone.

I'd like to remind everyone that stage calls and webcast are being recorded.

Please note that they are the property of Investment Corp and that any unauthorized broadcasts in any form is strictly prohibited.

This conference call is also being webcast from the events calendar in the investors section on our website at www.slainvestmentcorp.com.

Audio replays of this call will be made available later today as disclosed now February 25th on each press release.

I would also like to call your attention to the customary disclosures in our press release regarding forward-looking statements.

Today's conference call and webcast may include forward-looking statements and projections.

These statements are not guarantees about future performance or financial results and involve a number of risks and uncertainties, as 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.

We did not undertake to update any forward-looking statements unless required to do so by law.

You gain 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 over to our Chairman and co-CEO Michael.

Thank you very much, Shiraz, and thank you to everyone for joining our earnings call this morning.

Before I discuss our fourth quarter earnings and the drivers of our results, I'd like to briefly reflect on a milestone both the company and its investment advisor, SLR Capital Partners.

This month marks the 15 year anniversary of trading since our IPO on February 10, 2010 and more than 18 year of operating history as a private credit fund and alternative investment manager.

Since the company's IPO, we have deployed over $7.5 billion of investments, including 5 platforms plus finance acquisitions and 4 related to acquisitions with an average loss rate of less than 11 basis points.

We are very proud of the SLR team's investment track record and long-standing history of successfully managing SLRC through periods of significant economic distress, including the great financial crisis, the dramatic drop in oil prices in 2015, COVID-19, and the current elevated interest rate.

Cumulative effect, our team's experience has informed our disciplined approach to private credit underwriting and served as SLR's foundation for creating our multi-strategy platform.

Over 13 years ago we began our initiative to generate higher risk adjusted returns, the diversification achieved with a combination of sponsor finance and complementary specially financed strategies.

Our asset-based specialty financed strategies provide greater downside protection of principle from underlying liquid collateral in the more cyclical nature of enterprise value that secures cash flow loans while simultaneously offering attractive.

And often higher yields from the extraction of complexity premiums.

Today we see market conditions that include very tight liquidity for premiums and sponsor-backed direct lending, concurrent with burgeoning global economic uncertainties from a combination of rising geopolitical tensions, recent executive actions from the US President's new administration, and expectations for a rated environment that is higher for longer.

Consequently, We think our company's long standing history, investment track record, and multi-strategic approach to private credit investing is as relevant now as it was during past economic challenges.

We believe we can continue to achieve a durable and stable stream of its recurring income by pivoting across our commercial finance strategies to capture the best risk reward investment opportunities as current economic conditions unfold.

In particular, we are seeing a significant increase in our ABL pipeline.

For the fourth quarter of 2024, SLRC generated net investment income of $0.44 per share, which was flat year for year but down a penny for the 3rd quarter.

Net investment and can continue to cover the quarterly dividend of $0.41. Despite the meaningful decline in base rates in the second half of 2024 and competitive conditions in the sponsor finance market, our solid finish of the year contributed to a full year NAI per share of $1.77 representing a 5% increase over a 2023 net investment income per share.

The company's net asset value year end increased to 1,820 from 1,809 a year ago, which we view as a test of the overall credit quality of our portfolio.

We believe the stability of our portfolio yields and our strong credit profile are the direct result of our conservative underwriting and multi-strategy approach to private credit investing.

In response to the currently more attractive conditions in the special strategies, our comprehensive portfolios composition at 1,231 included a 79% allocation to investments.

The remainder of the portfolio primarily consists of cash flow loans to borrowers that operate in recession resistant industries and have low CapEx requirements.

This approach is safeguarding our performance to the prolonged high interest rate in inflationary environment, while other portfolios that are more susceptible to fixed charge coverage declines have seen the increased non accruals in some signs of distress such as elevated pick.

SLRC originated $338 million of new investments across the comprehensive portfolio and received repayments of $442 million in the fourth quarter, resulting in a total portfolio of $3.1 billion a year.

The yield of the portfolio is 12.1%, a slight increase in the prior quarter yield 11.8%.

Due to the more favorable conditions in our special financed markets, the company's investments in the fourth quarter were once again more heavily weighted to those after the classes, which we believe currently provide a more attractive just relative return to sponsored finance loans which are currently offering spreads in the 400 basis points in some instances for unitron structures to upper middle market borrowers.

94% of Q4 originations were in special finance.

We passed on the refinancing of several cash flow investments within our portfolio, allowing our sponsor finance portfolio to shrink.

While yields that are cash flow fulfilled decline in the fourth quarter, our yields within our strategies remain more insulated and even increased in some instances, providing higher returns than cash flow loans.

We remain pleased with the composition quality and performance of our portfolio.

At quarter end, 96.4% of our comprehensive portfolio was comprised of first lien senior secured loans.

SLR's long standing focus on first a loans has resulted in a portfolio which we believe is more conservative positions than BDC peers with less first exposure and better equipped to withstand persistent inflationary pressures and high interest rates and portfolios with second lien loans and broader cyclical exposure.

As of December 30th first, we had only one investment on accrual representing just 0.6% and 0.4% in the portfolio on a cost and fair value basis respectively.

We believe our low rate of non accruals as a result of our multi-strategic investment approach is well below the peer BDC average.

December 31, including available credit facility capacity at SSLP and especially portfolio companies, SLC had over $900 million of available capital to deploy.

This puts the company in a favorable position to take advantage of either durable economic conditions or softening of the economy.

I'm now the call back over to Shiraz, our CFO take you through Q4 financial highlights.

Thank you.

Ear Investment Corp's net asset value at December 31st, 2024 was $993 million or $18.20 per share.

Consistent with the quarter ended September 30, 2024.

A quarter end SRC's unbalance sheet investment portfolio at a fair market value of approximately $2 billion in 122 portfolio companies across 32 industries compared to a fair market value of $2.1 billion in 131 portfolio companies across 34 industries at September 30th.

At December 31st, the company had approximately $1 million of debt outstanding with a net debt to equity ratio of 1.03 times.

We expect our net debt to equity ratio to migrate towards the middle of our target range of 0.9 to 1.25 times.

During the quarter, the company closed a $49 million private three year unsecured note offering at a fixed interest rate of 6.24%.

Subsequent year end, the company issued $50 million of three year unsecured notes at a fixed interest rate of 6.14%, representing a spread to the three-year treasury of 190 basis points.

We believe these note issuances were executed on both a cost effective and attractive basis and addressed the company's efforts to refinance mature and unsecured notes.

As of December 31, 2024, perform for the issuance.

SLRC had $444 million of unsecured debt.

Representing Approximately 41% of funded.

Moving to the P&L for the three months ended December 31st, gross investment totaled $55.6 million versus $59.8 million for the three months ended September 30th.

Net expenses total $31.8 million for the three months ended December 31.

This compares to $35.4 million for the prior quarter.

Accordingly, the company's net investment income for the three months ended December 31, 2024, totaled $23.8 million for $0.44 per average share compared with $24.3 million or $0.45 per average share for the prior quarter and covered over $0.41 per share distribution during the period.

Below the line, the company had Annette realized an unrealized loss for the fourth quarter to $1.2 million versus Annette realized an unrealized loss of $2.3 million for the prior quarter.

As a result, the company had a net increase in net assets resulting from operations of $22.6 million for the three months end of December 31, compared to a net increase of $22 million for the three months ended September 30th.

On February 25th, the board of SLRC declared a Q1 2025 quarterly distribution of $0.41 per share, pay below March 28, 2025.

It is a record as of March 14, 2025.

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

Thank you, Shiraz.

At quarter end and on a fair value basis, the comprehensive portfolio consisted of approximately 3.1 billion of senior secured loans to over 880 distinct borrowers.

The average exposure is 3.5 million.

Measured at fair value, 98.2% of our comprehensive portfolio consisted of senior secured loans with 96.4% invested in first lane loans, including our investments in the SSLP attributable to the company, and only 0.3% was invested in second lian cash flow loans with the remaining 1.5% invested in second lean asset-based loans.

Michael mentioned earlier, our specially financed investments account for over 79% of the total portfolio, with the remaining.

Portfolio comprised of senior secured cash flow loans to mid-market sponsor owned companies.

We believe this defensive portfolio construction positions us well and provides a differentiated risk return profile relative to sponsor finance only portfolios.

At year end, our weighted average yield on the portfolio was 12.1% compared to 11.8% the prior quarter.

Based on our quantitative risk assessment scale, our portfolio currently has one of the strongest credit profiles in our history.

At year end, the weighted average investment risk rating was under 2 based on our 1 to 4 risk rating scale, with 1 representing the least amount of risk.

Over 99% of the portfolio is rated 2 or higher.

Moreover, 99.4% of the portfolio on a cost basis and 99.6% at fair value was performing with only one investment on non-accrual.

With the recent levies of tariffs, the looming threat of trade wars, our investment team completed a thorough review of our entire portfolio to assess the impact of current tariffs in place and perspective tariffs that could impact countries such as China, India, and others.

We are pleased to share that we believe the potential direct impact of tariffs is minimal.

Now let me touch on our 4 investment verticals.

Starting with sponsor or cash flow lending.

In our sponsor finance business, we originate first lien, senior secured loans to mid-market companies in non-cyclical industries such as healthcare, business, and financial services.

This has helped to mitigate the impact on the portfolio from cyclical economic factors.

At year end, our cash flow portfolio was $634 million across 37 borrowers, including our senior secured loans in the SSLP.

With approximately 99% of our cash flow loan portfolio invested in first name loans, we believe that we are well positioned to withstand any pressures that our borrowers may face.

Our borrowers have a weighted average EBITA of over 135 million and median EBITA of 73 million.

And carry low loan to values of approximately 46%.

Sponsor finance, the weighted average EBITA and revenue growth continues to be in the mid-single digits for our portfolio companies.

Overall, they have successfully managed the transition to an environment with higher cost of capital as well as inflationary premiums.

Weighted average interest coverage on our sponsored finance loans has been stable at approximately 1.8 times.

Additionally, only 1.6% of our fourth quarter gross income is in the form of capitalized pick income from cash flow borrowers resulting from amendments.

We believe these healthy credit metrics are the result of the diversity of our portfolio across private credit strategies and our focus within sponsor finance on recession resilient industries with high recurring free cash flow.

During the quarter we made investments of just over 20 million and experienced repayments of just over $100 million.

As Michael mentioned, sponsor finance field flow continues to be muted due to lower M&A volume, and we are selectively letting investments go in connection with refinancing if the new risk return profiles do not meet our criteria.

Credit investors focused on downside protection, our ability to say no and pass on investment opportunities that don't meet our high hurdle can often be measured by the deals we don't do.

For the year we invested in $113 million of cash flow loans and had repayments of over $190 million.

At your end, weighted average yield on this portfolio was 10.6%, down from 11.1% in the prior quarter.

Thus far in 2025, there has not been a significant uptick in M&A which spreads at tight levels and incremental weaker protections creeping into structures.

We remain highly selective.

However, we are optimistic that sponsor finance conditions will improve throughout this year as CEO confidence increases and we start to see increased activity in M&A.

Now let me turn to our specialty finance segments.

Across the board, the credit quality of these loans continues to be solid with attractive loan to values which have meaningful collateral support and borrowing-based structures.

Let me first touch on our asset-based lending portfolio.

At year end, the portfolio totaled a billion dollars across 257 issuers.

Regional domestic banks have continued to adjust their business model in a higher rate environment and are retreating from the ABL market, creating an attractive opportunity for SLR's ABL team.

Under tighter credit regulations, regional banks Asset-based loans to non-investment great companies are often ineligible for Fed liquidity programs and often require banks to hold more capital against these loans.

SLR is positioned to collaborate with these banks who are shifting their ABL strategies in reaction to these market challenges.

Our recent acquisition of the loan portfolio and servicing platform from Webster Bank is an example of this.

The integration of the platform and the portfolio is going smoothly.

And is performing in line with expectations.

For the quarter we had 128 million of new ABL investments and repayments of $205 million.

Weighted average asset level yield was 14.6% compared to 14.4% in the prior quarter.

Additionally, we are seeing opportunities to provide EBL structured facilities to traditional cash flow borrowers who are experiencing tight liquidity pressure from declining interest coverage ratios.

Some sponsor back borrowers who had access to the cash flow and BSL market in a lower rate environment are now perceptive to our ABL solutions in order to provide working capital and liquidity.

These ABL facilities with us carve out working capital assets to be pledged into a borrowing base supporting the incremental ABL facility and provide liquidity relief for the borrower.

The new business pipeline has expanded as fallen agent credits and other well capitalized businesses seek additional liquidity in light of macroeconomic headwinds.

Access to the larger SLR platform has allowed us to speak for bigger hold sizes and accordingly win more attractive investments.

Finally, our AVL teams added new originators in 2024, continued to do so in 2025.

Now let me touch on equipment finance.

At quarter end, this portfolio totaled just over a billion dollars, representing 37% of our total portfolio.

Credit profile continues unchanged from the prior quarter.

During the fourth quarter we originated approximately $180 million of new assets, with the majority of this coming from our business that provides leases to investment grade borrowers.

We had repayments of just over $101 million.

Weighted average asset level yield was 10.7% compared to 9.4% the prior quarter.

Our investment pipeline has expanded in conjunction with the disruption caused by the regional bank failures.

Finally, let me touch on life sciences.

At year end, a life-size portfolio totaled approximately $240 million.

Over 87% is invested in portfolio companies that have over 12 months of cash runway.

Additionally, all of our portfolio companies in life sciences have revenues and at least one product in the commercialization stage.

This significantly de-risks our investment.

Life science investments represented just under 8% of the portfolio and contributed 18% of the gross investment income for the fourth quarter.

In recent months we have seen green shoots in our life science pipeline, and we expect that activity will continue to improve during 2025.

While we expect to see some industry changes stem from the evolving regulatory environment, our life science team is keenly focused on these developments and benefits from their 20 plus year history of investing in life sciences.

During the fourth quarter, we funded just over $6 million of an investment to an existing borrower and had $33 million of repayments.

A quarter end, the weighted average yield on the life science portfolio.

Including fees but excluding warrants was just over 12% compared to just over 12.5% the prior quarter.

With early signs of improvement in the life science market, we have seen a modest uptick in the pipeline.

Given our ability to allocate capital to the best risk reward opportunities across our investment strategies, we have the luxury of being highly selective in our capital deployment in life sciences, yet still generating positive total originations collectively across the firm.

Lastly, I want to touch on the company's SSLP.

During the fourth quarter, we earned $1.9 million, representing a 15.6% annualized yield consistent with the prior quarter.

As a quarter end The portfolio had a fair value of just over $178 million.

Now let me turn the call back to Michael.

Thank you, Bruce.

As we close the book on 2024, we are pleased with the stability, evidence in the fourth quarter results and encouraged by the overall credit quality of the investment portfolio.

This is evidenced by another quarter of net asset value stability, continued very low levels no accruals.

A small percentage of watch list investments, minimal payment and kind, and broad portfolio diversification.

While concerns about credit quality and private credit portfolios continue to creep into the market narrative from high profile defaults as the trailing 12 month loss rate in public BDC crested above the long-term average in 2024, we view the consistency of our results achieved throughout the year as a testament to SLR's multi-strategy approach in private credit investing.

As reflecting the growth of our platform over the last 15 years that has created a diversified commercial finance company with broad investment capabilities, we believe that our multi-strategy approach, emphasis on preservation of capital, and portfolio construction of the specialty finance emphasis differentiates us from the majority of our peers.

The company is positioned favorably with momentum across all of our businesses and a growing pipeline tilting towards specially financed investment opportunities.

Since our IPO 15 years ago, we have generated a 10.5% IRR for our shareholders.

We are grateful to and humbled by the support of our investors, lenders, rating agencies, for fellow companies, and more than 300 employees, including affiliates across the SLR platform who have contributed to this milestone.

Thank you to all of you who have contributed to FORC's performance.

In closing SOC currently trades at a 9.4% dividend yield as of yesterday's market closed, which we believe presents an attractive investment for both seeking and valued investors and offers shareholders portfolio diversification benefits compared to cash only private credit strategies.

Our investment advisors alignment of interest with with the shareholders continues to be one of our significant hallmark principles.

The SLR team owns over 8% of the company's stock and includes having a significant percentage of their annual incentive compensation invested in SLC stock every year.

The team's investment alongside fellow institutional and private wealth investors demonstrates our confidence in the company's portfolio, stable funding, and earnings outlook.

Thank you all again for your time today, as we know it's a busy time of the year for those that follow the list of BBC Marketplace closely.

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

(Operator Instructions)

And we'll take our first question from Eric Zwick of Lucid Capital Markets.

Thank you.

Good morning, everyone.

A fair amount of time spent a fair amount of time talking about the opportunities for your specialty finance verticals and how strong the pipeline is there today.

I'm curious with respect to potentially acquiring.

Portfolios or teams what that part of the pipeline looks like and you know you mentioned that the webs dropped last year.

Were there any others last year that you looked at and you know didn't choose to go forward with and if so.what might those reasons be?

Great question.

Yes, starting with last year, we did see some opportunities that we could have transacted on, and we decided to pass.

I think that generally if we pass it's because we get in there and begin to see some of the credit underwriting processes and how the portfolio looks relative to the portfolios that we own.

And generally have passed on that basis where we feel that we can create organically a better something than what we would be buying in the market, but we do have a team that is dedicated, as you may recall, to sourcing portfolios and teams, and we have post the regional banking disruption seen elevated activity level across specialty finance in terms of bringing on teams and portfolios.

So we expect it to be a contributor this year.

But you do have to kiss a lot of frogs.

Sure it makes sense.

I like that analogy.

And maybe moving towards, sponsor finance, and I know the majority of the capital you put to work last year was on the specialty finance side.

You're seeing better risk adjusted returns there.

You noted that the spreads remain, very tight in sponsor finance.

I'm curious if you could just maybe address what you're seeing from a structure perspective as well.

Are you seeing, any actors out there that are starting to bend there or primarily just the The spread pressure that keeps the risk adjuster opportunity not as attractive.

So I would say that both the spread compression and the loosening of terms in the sponsor market feels to have stabilized, albeit at a level that we find relatively unattractive in comparison to our EBL and specially financed strategies, but there does seem to be a little bit of stability there.

I don't know if.

The influx of new capital relative to the deal flow has kind of found its equilibrium, but at the moment we're just not liking the absolute returns afforded in the sponsor finance business, new platforms are if you can find them are in the 9 to 9.5% all in.

As you heard, our yield in the sponsor book moved from 11.1% down to 10.6%, and that's kind of what we're targeting is 10.5 to 11% returns if we're going to invest in sponsor, but I would say things have stabilized for the moment.

I appreciate the thought, I'll step aside and hop back in the queue.

Thank you.

Thank you.

Casey Alexander from Compass Point.

Hi, good morning.

My first question is about the equipment finance sector.

I mean, it's the, if you look at the comprehensive portfolio, it's the largest segment of the portfolio and because of its sort of unique structure, fixed rate loans, floating rate liabilities, the yield has improved 260 basis points over the last two quarters back up to what I think is sort of an acceptable BDC level.

Is it, are you, it doesn't really feel like you're matching liabilities and assets though.

Is there anything that you can do to change the liability side of the structure to kind of, I don't lock it in or reduce the yield volatility that occurs in that portfolio?

I'm just curious if there's something that you can do now that it's returned to a more acceptable yield.

So good question.

It is reasonably well matched.

Look, the equipment finance sector benefits in this environment from a couple of things.

On the liability side, the floating rate debt is actually part of our parent company's investment came in as debt, about 150 million.

As well as the equity that is floating rate, so it's just another way to pull our income out.

You could say it benefits us when you know rates are up, but that's not a real driver.

We just look at the total income across our debt and equity investment.

So obviously if the debt's down a little bit, the equity will be up a little bit since we own both 100%.

I think the big driver here is in this environment, in an inflationary environment.

This business does outperform.

We have investments that we've been putting on the last two years in a higher rate environment, to your point, that is helping the business because we did put in fixed rate liabilities a few years back.

You also find in this environment that borrowers will keep the asset longer and extend our lease, and that is where we make profit.

We want the inflationary environment such that the lease versus buy decision is such that in their minds the check that they're writing every month is cheaper to keep the existing equipment, and that's where we're seeing elevated profitability.

So long winded answer to your question, but we feel well matched.

And we do think that in this environment we will continue to see nice stable returns.

Okay, thank you for that.

My second question is, I just want to make sure that I understand you building the pipeline in ADL.

You what you're talking about is more transitioning what might have been traditional cash flow opportunities into ABL opportunities as opposed to having a stack up of, stand-alone, new specialty finance companies that you would want to buy.

That's where the increase in the pipeline is coming from.

Yeah, correct.

It's individual ABL loans.

I mean, you saw, we've taken down our cash flow book from what was a peak of 26% of the portfolio in 23 when we like that risk down to just about 20% and my guess is that we'll have lower.

I think our trough in the last A few years has been closer to 15% and instead we are doing individual ABL loans that is separate and apart to your question from any potential portfolios like the one we purchased from Webster that would accelerate that.

But as you see, we Have taken down our leverage to 1.03 was up at 1.19 about a year ago, so we do have ample capacity to both buy portfolios and just pursue the individual loans that are making up our pipeline of ABL assets.

Right, okay, great.

I appreciate your stance of, not seeing enough return from, spreads that are 475 or wherever.

The SSLP was set up to accept lower yielded loans, lower yielding loans from solar senior.

I mean, is there a place for those if the if the if the credit is good, is there a place to take a piece of those lower spread loans on and ship them down to, the JV and a follow on to that is as it stands right now, if you're not going to do that, is the JV kind of at its functional capacity at this point in time?

So great question, and yes, 100%.

We are continuing to put loans into the cash flow loans into the SSLP.

Remember, originally it was migrating loans that we had acquired in connection with the merger with Suns back in 22, many of which back then were priced at the 475 type level.

So we are doing that, which is why we think that we can continue to run that portfolio at close to full optimization.

All right, thank you, thank.

You, thank you.

Melissa Wedel from JP Morgan.

Thanks for taking my questions this morning.

Some of them have actually been asked already, but I thought maybe we could touch back on the ADL opportunities.

I, given What you've described as, some funders leaving the space and we see the opportunity there.

I was a little bit surprised by just the volume of exits during the quarter.

So yields seem to be pretty resilient and if I'm correct, there was even a quarter over quarter increase in yields.

Just want to understand that dynamic and what's driving both the yield changes in the space, but also some of the The repayments that you saw in 4.

Thank you.

Sure, so the yield is, I think the takeaway there should be more about the stability whether it takes up a couple of basis points quarter over quarter is really not indicative of a systemic trend in ABL.

What we like about ABL is that it is a stable return asset.

Across interest rate cycles, so but to your point about repayments, sometimes you get repaid as a lender, and that's something that we celebrate, as at SLR.

The average duration of the loans that got repaid, we had 205 million of ABL repayments in the fourth quarter.

The average duration was four years.

So if you think about it, that's longer than you typically see in sponsors.

Loans life science loans, so it just happened to be idiosyncratic that we had a number of loans that were coming due and they were moving on.

We'd love to have kept them, but that is the nature of APL.

These companies will move to lower cost financing when they can.

But again, we kept them on SLR's balance sheet for over close to 4 years, so it was just an odd quarter in that regard.

The other point worth noting.

In ABL lending, if you think about, for example, the Webster portfolio that we purchased at the end of the quarter, you often structure your loan unlike cash flow where you have a term loan and maybe a small revolving credit facility.

The entire facility in ABL is often structured as a revolver.

And so what happens is you will have usage of that facility we mandate economically through fees and minimal utilization of the facility.

You will see outstandings go up and down.

So just to put it in context, we saw 60 million.

Of repayments in that $205 million in the fourth quarter were temporary repayments of a facility.

They were not loss of a borrowing relationship per se, as you think about a typical repayment.

So those outstandings will ebb and flow across the EBL credit facilities.

Paul Johnson from Keefe, Bruyette & Woods.

Thanks.

Good morning.

Thanks for taking my questions.

In terms of just the sponsor backed lending business and you know you've been allowing that portfolio to run off, and that's been the case for quite some time going back, several years, give or take a few windows of opportunity for growth in that vertical, but in terms of like the broader SLR platform.

Can you just tell us, how much is still, I guess, investing in cash flow loans are there other parts of the platform that are still, involved in that business where you know you can.

Manage your share and relevance with sponsors and maintain.

Those great question.

All of our funds we manage for the most part are multi-strategy funds, so they have exposure to all the ABL strategies and the cash flow.

So with very few exceptions, any cash flow that we're putting into SLRC is also being invested on behalf of all the high net worth funds of one, and commingled funds, and that allows us.

To take down anywhere from $50 to 100 $200 million of a loan and keep diversification across the platform.

So we're not treating SOC different than we are with regards to cash flow loans than we are our institutional funds.

But I think you know a corollary.

Is You may wonder what is our relevance to the borrowing sponsored community if it seems that our commitment to the asset class ebbs and flows across cycles, and the answer is we are very targeted in our sponsored cash flow lending business towards three industries healthcare, business services, financial services that probably comprises 75%, 80% of our cash flow portfolio.

And so we have deep relationships in those industries and we will be active as a lender when those sponsors are active.

But in those sectors, they tend to be the sponsors much more focused on creating value for the equity over time, less focused on trying to drive the cheapest borrowing costs with the least amount of covenants.

It's much more of a partnership, so we make sure that we maintain our relevance to these cash flow borrowers, to the sponsored community in those industries across the cycle.

So our activity closely follows theirs in terms of how they see the investment opportunity just as we do.

Got it.

I appreciate that.

That's helpful.

And then last question from me, I apologize if you said this earlier on in the beginning of the call, but just on what looked like higher dividend income this quarter and on the equipment finance investment I've obviously been performing well, but what drove that in.

I'm looking at basically about 16 million or so of dividend income in the fourth quarter.

Is that kind of a good run rate going forward or is there anything non-recurring in there we should be thinking about for next year?

Sure, so no, that was what we would like to think of as run rate hopefully, but you got to hold the economic conditions constant.

Some of it, to your point, was definitely increased income coming in from the lease portfolio, but the majority of it actually was from the ABL businesses in large part the acquisition of the Webster portfolio.

We closed at the last day of Q3, so you had the full quarter impact for Q4.

Those were very attractive returning assets, mid-teens returns, so that should be continuing those relationships.

Early days have stuck with us, so we'd like to think that's a run rate and I just, I can't emphasize enough our commitment to the AB. Asset class, it is direct lending just like cash flow.

The only difference is you're underwriting collateral in addition to cash flows and seeking collateral and the liquidation of collateral if needed as your primary source of repayment.

We've been very active, as I mentioned, in adding originators in ABL both last year and continuing into Q1.

So we do see that as a growth area.

And that is a lot of what you're seeing in terms of the elevated dividend income in Q4.

Just to expand for one more second, you may know that our focus in ABL goes beyond just types of collateral, mostly working capital receivables and inventory, but it also extends into industry expertise, just as we have healthcare expertise in life sciences and healthcare cash flow lending, we have a dedicated healthcare ABL team that is underwriting.

Healthcare receivables, both commercial pay and government pay.

We also have businesses dedicated to digital media industry with the Webster acquisition.

We pivoted to some old school industries such as apparel, so there is a lot of white space out there and very often in ABL regional and industry expertise can be a differentiator.

I appreciate that.

I mean, one more on on the ABL.

I mean you mentioned some new hires there.

I mean, what is kind of the requirement for additional headcount in those businesses?

I mean, is most of the existing, human capital basically kind of in place for those companies, or would you expect.

They need to hire.

If you look at a lot of portfolio companies under the SLRC, they're all built for growth, so the infrastructure is all there.

I'd the fact that we bought the Webster portfolio into business credit, the prior owner had about 90 people servicing it.

We took 9 people to service it since we already have the infrastructure in place.

What we're adding people is really exclusively on the origination side.

To boost we are committed to the ABL business and we're able to recruit highly talented and experienced people from commercial banks that are looking for a different experience in a different way to grow their personal business.

Got it.

And when those hires like that headcount, is that added at the adviser level or is that headcount at the specialty Finco level?

That's especially fin.

Got it.

Thank you very much.

That's all for me.

Thank.

You.

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