SLR Investment Aktie

Hello, and welcome, everyone, joining today's Q2 2026 SLR Investment Corp. Earnings Call. [Operator Instructions] Please note, this call is being recorded. It is now my pleasure to turn the meeting over to Michael Gross, Chairman and Co-CEO. Please go ahead.

Thank you very much, and good morning. Welcome to SLR Investment Corp.'s Earnings Call for the quarter ended June 30, 2026. I'm joined today by my long-term partner, Bruce Spohler, Co-Chief Executive Officer; as well as our Chief Financial Officer, Shiraz Kajee; and members of the SLR 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 would like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of SLR Investment Corp. and that any unauthorized broadcast in any form is strictly prohibited. This conference call is also being webcast on the Events calendar in the Investors section on our website at www.slrinvestmentcorp.com. Audio replays of this call will be made available later today as disclosed in our August 4 earnings 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 of our future performance or financial results and involve a number of risks and uncertainties.

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. We do not undertake 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 Co-CEO, Michael Gross.

Thank you, Shiraz. And again, thank you to everyone for joining our earnings call this morning. Before we discuss our Q2 results, I'd like to spend a moment on our approach to navigating what has become a more challenging environment for direct lending. My partner, Bruce and I as well as our partners have been in private credit for a long time. This summer marks our 20th year managing SLRC. Over those years, we've seen time and again that patience and discipline pay off for the long run. Importantly, over 15 years ago, we also saw the need to diversify our investment focus with higher barriers to entry and consistent performance across economic cycles. Against the backdrop of a market ripe with risk taking, we view our specialty finance platform as a differentiator that enables us to successfully navigate this environment. With the retrenchment of regional banks and the experience and skill set needed to underwrite and monitor collateral, we are not seeing the level of competition in our specialty finance strategies that has gripped the sponsor cash flow market. As a result, we are securing higher yields than the market levels for cash flow loans with better structural protection and importantly, liquid collateral coverage, which we actively monitor and adjust. Nearly all of originations last quarter were in specialty finance, and this trend is continuing in our third quarter pipeline.

Turning to our second quarter results. For the second quarter of 2026, SLRC reported net investment income or NII of $0.33 per share and net income of $0.15 per share. As of June 30, the company had a net asset value per share of $18, down less than 90 basis points from the prior quarter.

The decline was primarily driven by a markdown in 2 loans, which we placed on nonaccrual during the quarter, a move from 0 nonaccruals. Bruce will provide more detail on these. Importantly, these are isolated situations and do not represent a systemic trend in our portfolio. At June 30, our watch list accounts for only 2.5%, and we continue to have strong conviction in the credit quality of our portfolio companies. Moreover, our de minimis exposure to the software industry puts us in a position of strength as the software maturity wall draws closer. We are concerned that many of the software loans currently outstanding, which according to KBRA represents $224 billion or 22% of total private debt exposure may be challenging to refinance. This dynamic provides us with the ability to be opportunistic in other areas as the software maturity wall approaches. Meanwhile, after having been repaid at a premium to par on a software investment during Q2, our exposure to the software industry now stands at less than 1% of fair value.

Furthermore, only 2% of our gross income is derived from restructured PIK resulting from amendments. With a conservatively positioned portfolio, we are focused on attractive investment opportunities in asset-based lending. During the second quarter, we originated $471 million of new investments across the comprehensive portfolio. This volume weighted 98% of specialty finance was 60% higher than our average gross originations since 2018. During the second quarter, we received repayments of $431 million for net originations of approximately $40 million, resulting in a quarter end comprehensive portfolio of $3.2 billion.

We view this level of portfolio churn favorably as repayments typically represent successful realizations at par or better and the associated prepayment and exit fees add a further source of income. Based on our current pipeline, we are expecting another solid quarter of originations with a similar weighting towards specialty finance investments. With our strategic focus on specialty finance, we are executing growth strategies to expand our footprint through new hires, acquisitions and sourcing partnerships. We remain active in the cash flow market in our core industry, healthcare and are ready to pivot to this asset class more broadly should market dislocation improve the opportunity set.

At June 30, including available credit facility capacity at SSLP and our specialty finance portfolio companies, SLRC had over $900 million of available capital to deploy. Our liquidity profile and minimal watch list puts us in a position to take advantage of either stable economic conditions or softening of the economy. I'll now turn the call over back to Shiraz, our CFO, to take you through second quarter financial highlights.

Thank you, Mike. SLR Investment Corp.'s net asset value at June 30, 2026, was $982 million or $18 per share compared to $18.16 per share at March 31, 2026. At quarter end, SLRC's on-balance sheet investment portfolio had a fair value of approximately $2.1 billion in 79 portfolio companies across 24 industries compared to a fair value of $2.1 billion in 99 portfolio companies across 28 industries at March 31. SLRC's investment portfolio continues to be funded by a combination of our multi-lender revolving credit facilities and the issuance of term debt in the unsecured debt markets to institutional investors.

Company is investment graded by Fitch, Moody's and DBRS and more than 40% of the company's debt capital is comprised of unsecured debt as of June 30. At June 30, the company had approximately $1.16 billion of debt outstanding with a net debt-to-equity ratio of 1.16x, within our target range of 0.9 to 1.25x. We have ample liquidity to fund our unfunded commitments and for future portfolio growth.

Looking forward, the company has 3 unsecured debt maturities of $75 million in December 2026, $135 million in January 2027 and $50 million in March 2027. We expect to continue to prudently access the debt capital markets and issue unsecured debt as and when needed. During Q2, the company increased its revolving facility capacity by $25 million with the addition of a new lender. Total revolving commitments across our 2 credit facilities now totals $995 million.

Moving to the P&L. For the 3 months ended June 30, gross investment income totaled $48.8 million versus $49.3 million for the 3 months ended March 31. Net expenses totaled $31.1 million for the 3 months ended June 30. This compares to $31.4 million for the prior quarter. Accordingly, the company's net investment income for the 3 months ended June 30 totaled $17.8 million or $0.33 per average share, in line with the prior quarter. Below the line, the company had net unrealized losses of $9.5 million in the second quarter versus net unrealized losses of $0.7 million for the first quarter of 2026. As a result, the company had a net increase in net assets resulting from operations of $8.3 million for the 3 months ended June 30, 2026, compared to a net increase of $17.1 million for the 3 months ended March 31, 2026.

Lastly, on August 4, 2026, the Board of Directors declared a quarterly distribution of $0.31 per share payable on September 25, 2026, to holders of record as of September 11, 2026. With that, I'll turn the call over to our Co-CEO, Bruce Spohler.

Thank you, Shiraz. As Michael mentioned, we are maintaining a defensive investment approach in the current uncertain investment environment. Fixed income markets are now pricing in more rate hikes, not relief. We are, therefore, treating this as a lasting rise in operating interest expense, not a temporary peak. Companies growing EBITDA organically are managing well. Those with flat or declining cash flows are seeing interest coverage erode and prolonged high interest rates are turning manageable strain into real stress for this group. This gap reinforces our long-standing approach at this stage of the credit cycle to prioritize asset-heavy, liquid collateral-backed lending over cash flow dependent structures.

Before I dive into our portfolio, I'd like to touch on our approach to investing during the seismic advance of AI in our world. As a reminder, earlier this year, we formed an AI committee that assesses the risk of AI disruption on potential new as well as existing investments. Regarding our view of AI as it relates to cash flow investments specifically, we have historically avoided software lending, given questions about the long-term durability of software IP, a decision that is currently paying off. We do, however, prefer the more defensible IP profile of late-stage life science companies where value requires years of clinical and regulatory validation to create.

In healthcare services and physician practice management companies, we look for AI that solves real operational problems. For example, unifying fragmented legacy billing systems into standardized claims processes, cutting administrative friction and errors and speeding up collections, specifically assess how AI makes the business more resilient to disruption, not just more efficient. Now let me turn to the portfolio. At quarter end, on a fair value basis, the comprehensive portfolio consisted of approximately $3.2 billion with an average exposure of $3.7 million. Measured at fair value, approximately 98% of the portfolio consisted of senior secured loans with approximately 96% invested in first lien loans.

2% of our loan portfolio invested in second lien investments consists entirely of asset-based loans, which contain underlying borrowing basis with no second lien cash flow loans. At quarter end, over 86% of the comprehensive portfolio is comprised of specialty finance investments. June 30, our weighted average asset level yield was 11.1%, consistent with the prior quarter. Overall, we believe our portfolio has been less impacted by changes in base rates and spread compression compared to the broader peer group due to our higher allocation to specialty finance loans. As Michael mentioned, during the second quarter, we increased our nonaccrual loans from 0 to 2 investments.

Now let me just briefly address both of those. We have a cash flow loan to RQM Corporation, a contract research organization and consulting firm that focuses on medical devices and diagnostics. After strong performance in our initial years following our $26 million investment, the company faced challenges following a change in regulations that delayed the market need for their services. We are focused on maximizing our returns and are currently in constructive dialogue with the stakeholders, and we'll share updates as we move forward.

Now let me turn to our second nonaccrual, OmniGuide Holdings, which is a manufacturer of advanced surgical lasers and proprietary single-use fibers used predominantly for urological indications. They have been adversely affected by operational and supply chain issues. In anticipation of liquidity challenges, we placed the $34 million par value loan on nonaccrual. We have engaged third parties to assist us with the operational challenges and are committed to maximizing our value.

Outside of these 2 investments, which accounts for the majority of our watch list, our portfolio continues to perform well. At quarter 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. 97.5% of the portfolio is rated 2 or higher at quarter end.

Our portfolio companies continue to exhibit healthy business fundamentals and perform at or above our expectations. In addition, only 2% of our gross income is derived from PIK interest resulting from amendments.

Now let me touch on each of our 4 investment verticals. Let me start with asset-based lending. Direct corporate ABL remains a highly fragmented industry and contains high barriers to entry through the complexity of sourcing, underwriting, collateral monitoring and active borrowing base management.

Commercial banks have continued to retreat from this market. Due to the significant investment in experienced human capital as well as infrastructure required for this strategy, competition from other private credit firms also remains limited. Our priority remains a first lien position on liquid current assets, predominantly accounts receivable and inventory, which has historically minimized our risk exposure. At quarter end, our ABL portfolio totaled just over $1.4 billion across 246 borrowers, representing over 43% of our comprehensive portfolio. For the first quarter, we originated just over $200 million and had $246 million of prepayments. Weighted average asset level yield on this portfolio was 12% compared to 12.3% in the prior quarter.

We are seeing increased activity across our ABL platform. see an uptick post a very quiet first quarter from both sponsor finance clients as well as entrepreneurs who are seeking incremental liquidity through ABL solutions for their portfolio companies. PE firms are increasingly using ABL structures to finance LBOs, strategic acquisitions as well as turnaround asset purchases. In particular, we are seeing traction with healthcare sponsors given our understanding of complex healthcare accounts receivable.

SLR and its affiliates have been financing healthcare receivables for over 30 years and understand the reimbursement nuances of accounts receivable typically used for ABL facilities in the healthcare industry. This kind of asset-level diligence is often what separates a lender willing to structure around complexity from one that simply lacks the historical context of healthcare accounts receivable collectability. Based on our third quarter pipeline and longer-term outlook, we expect to produce net portfolio growth across our ABL strategy this year.

Turning to our asset-based lending strategic initiatives. Our adviser recently established a sourcing arrangement for ABL investments with a large U.S. commercial bank that spans many of our ABL strategies. This partnership broadens our origination reach. We're optimistic that this initiative will enhance our investment sourcing funnel and support portfolio growth and attractive ABL investments.

We are currently in discussions for other partnership opportunities. We are also continuing to evaluate strategic acquisitions such as portfolio and business acquisitions, and we continue to expand our ABL origination team. Now let me touch on equipment finance. At quarter end, this portfolio totaled just over $1.1 billion, representing 34% of our comprehensive portfolio. It was diversified across 580 borrowers.

Credit profile of this portfolio was stable quarter-over-quarter. During the second quarter, we originated $154 million of new assets with the majority of those investments coming from our business that provides leases predominantly to investment-grade corporate borrowers for mission-critical equipment. During the quarter, we had repayments of just under $140 million. Weighted average asset level yield for this portfolio was 10.7%. Our equipment finance pipeline has expanded. Additionally, we're continuing to see demand from existing borrowers who are looking to extend their existing lease on equipment rather than buying new equipment at higher tariff-adjusted prices.

Now let me turn to life sciences. Life science industry and the corresponding capital market conditions continue to recover in the first half of '26. The opportunity set for late-stage life science loans is improving. With greater market activity, our pipelines increased. That said, we are holding firm on our rigorous underwriting standards in the face of an environment where new competitors are winning transactions by offering terms and structures that don't align with our approach to long-term capital preservation.

During the second quarter, we had originations of $24 million and repayments of $11 million. At quarter end, the portfolio had $190 million senior secured investments across 6 borrowers, representing just under 6% of our total portfolio. This is down from a peak of 15% in 2020. With our recently expanded life science finance team and product offering, we have been seeing a broader set of opportunities.

We are issuing term sheets that combine our capabilities such as a traditional first lien term loan with an asset-based revolver for working capital needs. We believe these efforts to provide full financing solutions should generate portfolio growth over the coming quarters, which will eventually increase our portfolio churn as well as our fee income.

Finally, let me turn to cash flow lending. With greater competition in the sponsor finance market, we are taking an opportunistic approach to this asset class. Our broad platform expertise in healthcare enables us to continue to serve as a valuable cash flow loan provider to companies in the healthcare industry.

Broadly, cash flow activity continues to be muted. Sponsors have been focused on working on portfolio companies as well as amend and extend executions with 2021 maturity wall approaching.

Activity in healthcare is starting to pick up as these companies have suffered less enterprise value degradation than many other industries. Many private credit lenders have pulled back from healthcare as they may lack the expertise, which gives us an even larger opportunity set and the ability to be more discerning. At quarter end, our sponsor cash flow portfolio was $450 million across 26 borrowers, including our loans held in the SSLP.

Following the repayment of a software investment at a premium to par in the second quarter, our direct software exposure accounts for less than 1% of our total portfolio. Weighted average EBITDA of the cash flow portfolio was approximately $116 million. 100% of our cash flow investments are first lien structures, and the portfolio had a weighted average loan-to-value of approximately 39%.

Our underlying borrower fundamentals remain solid with growth in average year-over-year revenue and EBITDA and the average interest coverage ratio for our sponsor finance cash flow loans was 2.25x at quarter end. During the second quarter, we made investments of $9 million in first lien cash flow loans and had repayments of approximately $34 million. Weighted average yield on this portfolio was 9.6% compared to 9.9% at the end of the first quarter.

Now let me touch on our SSLP. During the quarter, SSLP invested just over $6.5 million and had $12 million of repayments. Net leverage was 9x. In the second quarter, we earned income of $1.4 million from the SSLP, representing an annualized yield of 11.8% compared to 12.2% in the prior quarter. At quarter end, SSLP had $55 million of undrawn capacity, and we expect to continue to grow this portfolio opportunistically as conditions in the cash flow market warrant.

Now let me just turn to originations. Regarding our outlook. Specialty finance now makes up the majority of our near-term pipeline. This is a deliberate relative value response to the current cycle, not style drift. In our specialty finance underwriting, we focus on liquidity, quality of collateral with requirements for frequent updated appraisals, monitoring of collateral with weekly or monthly borrowing basis and importantly, tight credit documentation.

Our processes have been refined through our team's 4 decades of managing collateral-based loan facilities. A multi-strategy approach built on decades across multiple cycles ensures that our capital is deployed only when the market rewards discipline. We see this as a long-time resident of specialty finance, not a recent arrival during the current cycle.

Our teams have drawn have underwritten these strategies across multiple cycles. Capital deployment is a genuine challenge for the industry right now with more capital chasing a narrower set of attractive opportunities than at almost any point in recent memory. Our diversified platform and broad solution set positions us to take advantage of opportunities as they evolve across our investment strategies. This combination of flexibility, experience and resources gives us the confidence during this more uncertain stage of the credit cycle. Now let me turn back to Michael.

Thank you, Bruce. To sum up, our strategy for navigating the challenges facing private credit as the industry matures is centered on our unique specialty finance platform. This can be most clearly viewed via the lens of our stability in our net asset value per share over the last 3 years following what was labeled the golden period of private credit, resulting in a total economic return that has exceeded the average of externally managed BDC peers. The solid financial health of our portfolio provides us with a foundation to focus on growing our portfolio of interest-earning assets and therefore, earnings power.

We are advancing several growth initiatives that we expect will lift net investment income over the next year. We're continuing to expand our ABL personnel and infrastructure to deepen origination reach and adding life science investment professionals to broaden our capabilities. The collaboration between our life science and ABL teams has resulted in multiple investments combining term loans with working capital ABL facilities. In addition, we are evaluating an active pipeline of specialty finance acquisition opportunities. Our entire team at SLR owns over 8% of the company's stock today as a significant percentage of the annual incentive compensation invested in SLRC stock each year, including purchase that took place in the first quarter of this year. We thank you all again for your time today, given how busy this is with BDC earnings season. Operator, you please open the line for questions.

Our first question is from Jason Stewart with Compass Point.

Just in terms of ROEs on incremental new investment activity, could you frame out how you're seeing that given the mix that you discussed on the pipeline? And maybe discuss a little bit of how that perhaps shifts the leverage profile given the durable nature of specialty finance loans?

I think the yield that you're seeing across our underlying assets of around 11% continues to be a good target. We are seeing some things, as you heard in the cash flow portfolio opportunistically in the 9s. And we are seeing some opportunities in the 12s. But I think the 11% is a good target asset level return that we're seeing today aside from one's perspective on the forward base rate curve.

Okay. And then in terms of leverage, I mean, does this shift in origination mix shift your leverage profile at all to the higher end of that range or shift the range?

Yes. I think the short answer is we have been comfortable taking that leverage ratio up to the higher end of the range. It's really been the pace of repayments that has led it to be sort of stable in this, call it, 1.15 area. But our underlying comfort is extremely strong in taking that leverage higher up.

Our next question is from Rick Shane with JPMorgan.

Look, we are basically now about a year into a really bullish cycle in biotech and life sciences. I'm curious how you guys think about that. You talked about staffing up, but I'm curious about how that impacts both M&A, refinancing opportunities and pricing in the sector?

Sure. I think it's important to just sort of frame our track record in Life Sciences as kind of a key foundation that together with the market conditions, encourages us to lean in on the sector. While we did touch on the fact that we have a nonaccrual in life sciences, I think it's important to note that this team has been investing with us for close to 15 years, deploying $3 billion of capital. And that $3 billion of capital has generated 16% asset level returns with 0 defaults and 0 losses. So this is actually the first nonaccrual they've experienced, and that is consistent with the track record they had before they joined us having founded the business at GE Capital. So I have no doubt that all of our peers would welcome that type of track record, one nonaccrual over 20-plus years.

So with that as a foundation, we are definitely leaning into the market. We have added senior-level professionals this year to expand the capability. You heard Michael talk about our focus on delivering full healthcare financing solutions. Our capabilities extend across not only life sciences and later-stage businesses that have revenues and royalty streams, but also underlying healthcare asset-based loans as well as our focus in healthcare cash flow. So it is a strong and deep bench for us.

And you're right, the market has come our way. As we look back, the biotech index is up 100% since the trough a year ago. It's up 25% year-to-date. M&A activity, which is also a driver of velocity and churn of capital here has been up significantly. It's up over 2x first half of this year versus last year. And importantly, what drives all of this and attracts capital is FDA approvals. We've seen growth this year, up 44% in FDA approvals in this sector versus prior year. So it is a tremendously favorable backdrop. But as you know, the equity capital comes in first.

And then as a late-stage lender, we come in after that fact. So we view it, Rick, as when, not if. but we do see a tremendous amount of opportunity. It's also led to some of the repays. We've seen some very high valuations taking out our existing portfolio, both across drugs and devices. So we do believe, as we look at our pipeline, which is up 20% over the prior year, that you will see growth across our Healthcare/Life Science book as well as the healthcare ABL book in tandem. But as I mentioned earlier, we will maintain our discipline because those returns are attractive. They bring in new entrants. But as you can appreciate, there is a tremendous amount of complexity in life sciences. And the good news is many of the new entrants, unfortunately, we wish ill will, but come in without their eyes wide open and kind of stub their toe quickly and exit. So long-winded way of saying we're very encouraged about the backdrop, to your point on the sector and expect additional growth there over the next...

Our next question is from Eric Zwick with Lucid Capital.

You mentioned in your prepared commentary that you continue to remain open and review opportunities to add teams, specifically within specialty finance. Just curious, as you kind of look at what you may have done year-to-date, if there's been any material change in the number of opportunities you've reviewed and taken a look at? And also just kind of maybe a second part of the question, do you find more opportunities coming from banks or nonbank competitors?

So... I would say let's break that into 2 categories. Individuals, as we mentioned, we've already added to our life science team. We're actively adding to our ABL origination team. But we also, on the portfolio and team side, are looking at, as we continue to over the years, additions to the ABL platform and the volume of activity there has been elevated. I will say, given a lot of what we have talked about in the ABL investment strategy, it is attracting others who are thinking about getting in, and it's difficult to build.

Many of our peers are thinking about ways to acquire other platforms. There's just not many platforms of scale. So our focus has been looking at tuck-in platforms. ABL is a regional business. It's highly fragmented. So we're looking at filling out our footprint, both regionally as well as in certain industries. You may recall, we have not only our healthcare specialty.

We have a team that specializes in ABL for the staffing industry, ABL for the digital media sector, retail sector, apparel sector. So there's a lot of white space for us beyond those regions and beyond those industries. And with that do come localized teams who can assist both in collateral monitoring but localized sourcing because this is a localized business beyond the sponsor as well as calling to your other question on regional banks.

We are seeing a lot of opportunities from the regional banks, not so much from the private credit peers because, again, not many of them are in the ABL business. Although we're starting to see cash flow borrowers come to us and say, we've taken the keys. We're restructuring this business. Can you SLR provide an ABL liquidity line to this formerly cash flow borrower. So that is another place we're spending time talking to some of our peers trying to assist them with liquidity lines in situations where they may be taking the keys.

I appreciate the details there. And just the last question for me. There's been some discussion that potentially the negative sentiment that's surrounding the private credit and BDC industry now could result in lower capital coming to the sector and that could have the effect of turning the market to be a little bit more lender-friendly as borrower friendly in terms of covenants and underwriting and things of that nature with less capital to go around. Are you seeing any signs of that at this point?

Not in traditional cash flow lending. And the main reason for that is, on the other side, just lack of activity amongst the PE community. There's just not a lot of new transactions happening. There's not a lot of refinancings and not a lot of acquisitions or add-ons. And so you kind of need to see both of those work in lockstep. But also away from -- we focus a lot on the BDC industry talk about, but capital is also coming into institutional funds. We're still seeing real interest by institutional LPs who want to be in private credit, not in the redemptions that we're seeing in the retail BDCs. And so I'm not sure there's that big of a net capital outflow in the space, and it would take a much bigger dent in that to really make a difference from that perspective.

[Operator Instructions] Our next question is from Robert Dodd with Raymond James.

On one of the questions around AI, if I can first kind of flipping it all. I mean there are a number of start-ups and AI is a competitive threat to you guys. Call me a skeptic on that, but I want to ask you about it. There are a number of start-ups, I mean, receivable factoring, et cetera, et cetera, and asset-backed finance and AI-powered where the AI is processing invoices, et cetera. We'll see how that works out long term.

To your point on the biotech, sometimes new entrants come in, they stub their toes, but then they do potentially represent a short-term threat, if not a long-term threat. I mean -- what do you think the risks are to that to your platform in terms of the way you do business? Are some people going to come in, throw money at it with AI-powered platforms and represent either a structural or quality threat for some period of time before they all.

I think you're seeing more of that, Robert, is in things like consumer-based lending, payday lending, credit card receivables, car loans. With what we do, which again is kind of -- for better forces, it's trench warfare. We're dealing borrower by borrower, finding the right party, evaluating the collateral, valuing the inventory. For us, it's actually -- it's a tool. It's going to make us more efficient. It's not going to replace us. You can't replicate what we have using AI.

You can make it better, you can make it more efficient, you can make it more cost effective, but you can't replicate the collateral management, collateral monitoring and evaluation that needs to take place by sticking a computer on it.

I think just to echo Michael's comments, it's really important to appreciate that the good news about ABL lending is you're getting weekly information and insight to operating metrics such as inventory turns and receivable dilution and collectability that you don't get in broad-based cash flow lending. But what that means is it comes with a tremendous volume of information and data. And to Michael's point, we are actively rolling out AI across our ABL platforms to make those teams more efficient in monitoring and structuring our borrowing bases on a weekly basis. But at the end of the day, as you know, ABL is not a formula. It's not $0.85 on receivables and $0.50 on inventory, all being created equally. It's a business of judgment, having the tools, having the -- not only the collateral monitoring, but also having the tight documents and the experience to know when to use those tools to take your advance rate down actively so that you keep your exposure down.

People get in trouble in ABL because they end up over advancing and not having the judgment to know when to start to derisk and use those very strong documents that we possess as ABL lenders. So that is the true barrier. I think to Michael's point, AI will make us more efficient, but the barrier to entry and the moat that exists in ABL lending is rather high and will take years to rebuild. And that's why people are looking to make acquisitions rather than to try to create de novo ABL platform.

And then kind of the flip side of that, kind of embracing the point you made, it is a slow and steady kind of business, right? It takes teams. It takes a long time to do all these things. Is there to build relationships with commercial banks or other things just on the sourcing side. It's not snap your fingers and they materialize out of the air. Is there anything -- obviously, acquisitions, right? But is there anything organically that you can do to kind of accelerate not the closings, not the documentation, but finding the incremental potential borrower, basically. So anything that could accelerate the breadth of the pipeline while maintaining the quality of the underwriting?

So yes, I think the 3 primary -- 4 primary avenues that we're focused on right now is adding originators, further penetrating the sponsor finance market, providing ABL loans to their portfolio companies. Additionally, as I touched on earlier, providing ABL facilities to cash flow borrowers who need liquidity that may not be held by sponsors, may be held by peer lenders. Approaching regional banks that don't want to hold the assets. The JV that we started, we've got others that are in the works. Some will be more formalized than others. But we have an active calling effort, a dedicated team that just calls on regional banks for ABL product that they don't want to hold. So that is a very, very large pipeline.

And then last but not least, tuck-in acquisitions that expand the ABL footprint also expands our origination capabilities. So it's a multivariate approach to expanding that pipeline because to your point, we pass on a lot, so you need a broad pipeline. And their borrowing is not as consistent. It's not driven by an M&A transaction where you need to fund an event. It's working capital across the course of a year. So you want to have a very big and broad portfolio. And as we always like to say, there is high churn. We celebrate getting repaid as a lender, but that is a headwind to growth. So a long-winded way of saying the larger that pipeline is, the more we can grow that book.

At this time, there are no further questions in the queue. I will now turn the meeting back to Michael Gross.

Thanks very much, and we appreciate all your time this morning and all the great questions you all had. And as always, we are always available offline if you have any questions for any of us. Thanks again.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Hello, and welcome, everyone, joining today's Q1 2026 SLR Investment Corp. Earnings Call. [Operator Instructions]. Please note this call is being recorded, and we are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Michael Gross, Chairman and Co-CEO. Please go ahead.

Thank you very much, and good morning. Welcome to SLR Investment Corp's earnings call for the quarter ended March 31, 2026. I'm joined today by my long-term partner, Bruce Spohler, our Co-Chief Executive Officer; as well as our Chief Financial Officer, Shiraz Kajee and members of team.

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

Thank you, Michael. Good morning, everyone. I would like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of SLR Investment Corp. and that any unauthorized broadcast 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.slrinvestmentcorp.com. Audio replays of this call will be made available later today as disclosed in our May 5 earnings 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 of our future performance or financial results and involve a number of risks and uncertainties. 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. We do not undertake 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 over to our Chairman and Co-CEO, Michael Gross.

Thank you, Shiraz, and thank you to everyone for joining our earnings call this morning. Following a year of relative outperformance and strong portfolio credit quality metrics, we are pleased to report a solid start to 2026 for SLR Investment Corp. This despite the confluence of events in the first quarter that created challenges for our industry. These include rising geopolitical uncertainty, elevated concerns about the disruptive impacts of artificial intelligence on the economy and to a greater extent, the private credit asset class. These dynamics have triggered a speculative and often negative global conversation about the industry, unlike anything we've seen in our 20 years of operating SLR Capital Partners and decades of experience managing BDCs that were designed to match the ownership of illiquid private credit assets with permanent equity.

While we expect an elevated focus on private credit and BDC to persist through 2026, we think it's important to remind investors that we've been positioning the portfolio for this moment of recalibration of risk in direct lending for a long time. We believe SLRC's conservatism and focus on collateral-based specialty finance strategies should enable our portfolio to weather uncertain economic conditions while allowing our origination teams to be opportunistic in an improving investment climate.

Additionally, we continue to embark on growth initiatives across our specialty finance investment strategies. We also believe that both [institutions] are increasingly recognizing SLR's value proposition in place in a portfolio's allocation of private credit that provides differentiated exposure. For the first quarter of 2026, we reported net investment income or NII of $0.33 per share and net income of $0.31 per share. NII was down sequentially primarily due to three factors: First, the lagged impact of our floating rate loans from the Fed's 50 basis points cut in the fourth quarter of 2025; second, a contraction of the comprehensive portfolio as deal activity slowed meaningfully in what is already a seasonally light quarter from rising economic uncertainty; and lastly, a decline in fee income.

As of March 31, the company's net asset value per share was $18.16, down one half of 1% sequentially but flat year-over-year. SLRC's net income for the quarter equates to an approximate 7% annualized return on equity. While we recognize that the company's net investment income ROE did decline sequentially, we continue to expect that our net income ROE or total return will remain above the public and private BDC industry average in the first quarter and continue to compare favorably on both a one-year and three-year basis. During the first quarter, SLRC originated $242 million of new investments across the comprehensive portfolio and received repayments of $360 million for net repayment of $118 million, resulting in a quarter end comprehensive portfolio of $3.2 billion.

The primary driver of new originations continues to be our commercial finance strategies, which we believe offer more attractive risk-adjusted returns in today's competitive private credit markets. As of March 31, 2026, approximately 85% of our investment -- our portfolio investments were in senior secured specialty finance loans, which remains at the highest percentage of record and offers a risk profile that is highly differentiated from other BDC portfolios available to investors.

We continue to believe that SLRC's investment portfolio mix shift over the last couple of years to asset-based specialty finance strategies provides greater downside protection than cash flow loans through our strong credit agreements, actively managed borrowing bases and underlying collateral support. We expect to continue to approach new investments and cash flow lending opportunistically, especially in signs of widening spreads and improved terms endure.

For investors concerned about the uncertainty of technology obsolescence risk and enterprise value destruction for the software industry from the burgeoning threat of artificial intelligence, we believe that SLRC's portfolio with its lack of software exposure offers a safe haven for investors. Our direct industry exposure to the software industry remains at approximately 2% of our portfolio's fair value as of March 31, 2026, and is one of the lowest amongst publicly traded BDCs.

During the first quarter, we established an artificial intelligence investment committee responsible for assisting investment teams with evaluating both new opportunities as well as existing portfolio as it relates to the risk of AI to both companies and industries. Despite our de minimis exposure to software, we believe that AI will have an impact either positively or negatively on nearly all industries and are assessing every portfolio company and new investment opportunity accordingly. The underlying analysis assessment includes evaluating the impact to business model, customer base and competitive moat from AI as well as incorporating company and sector-specific evaluation categories.

We will apply this process during underwriting of new investments and we will reevaluate all portfolio companies at least once per quarter. In addition, we are implementing AI in our specialty finance businesses to assist in analyzing borrower bases and covenants, streamlining routine workflows and improving legal document reviews. Overall, we remain pleased with the composition, quality and performance of our portfolio, a direct result of SLR's multi-strategy approach to private credit investing.

At quarter end, 94.5% of our comprehensive investment portfolio was comprised of first lien senior secured loans. 100% of investments at cost of performing with 0 investments on nonaccrual and our watch list investments represented only 2.2%, which we note is unchanged from the first quarter in 2021. We believe these credit quality metrics compare favorably to peer public BDCs. At March 31, including available credit facility capacity at SSLP and our specialty finance portfolio companies, we had over $900 million of available capital to deploy.

Our liquidity profile puts us in a position to take advantage of either stable economic conditions or softening of the economy. At this point, I'll turn the call back over to Shiraz to take you through our first quarter financial highlights.

Thank you, Michael. SLR Investment Corp's net asset value at March 31, 2026, was $990.8 million or $18.16 per share compared to $18.26 per share at December 31, 2025. At quarter end, SLRC's on-balance sheet investment portfolio had a fair value of approximately $2.1 billion in 99 portfolio companies across 28 industries compared to a fair value of $2.1 billion in 100 portfolio companies across 31 industries at December 31. SLRC's investment portfolio continues to be funded by a combination of our multi-lender revolving credit facilities and the issuance of term debt in the unsecured debt markets to [indiscernible] institutional investors.

The company is investment-grade rated by Fitch, Moody's and DBRS, and more than 40% of the company's debt capital is comprised of unsecured debt as of March 31. At March 31, the company had approximately $1.1 billion of debt outstanding with a net debt-to-equity ratio of 1.14x within our target range of 0.9 to 1.25x. We have ample liquidity to fund our unfunded commitments and for future portfolio growth. Looking forward, the company has one debt maturity in 2026 with $75 million of unsecured notes maturing in December.

We expect to continue to prudently access the debt capital markets and issue unsecured debt as and when needed. Subsequent to quarter end, the company increased its revolving capacity by $25 million with the addition of a new lender. Total revolving commitments now totaled $720 million, up from $695 million as of quarter end. Furthermore, in May, the board authorized a one-year extension of our $50 million stock repurchase program.

Moving to the P&L. For the three months ended March 31, gross investment income totaled $49.3 million versus $54.5 million for the three months ended December 31. Net expenses totaled $31.4 million for the three months ended March 31. This compares to $32.9 million for the December quarter. Accordingly, the company's net investment income for the three months ended March 31, 2026, totaled $17.9 million or $0.33 per average share compared with $21.6 million or $0.40 per average share for the prior quarter. Below the line, the company had net realized and unrealized losses of only $0.7 million in the first quarter versus a net realized and unrealized gain of $3.5 million for the fourth quarter of 2025.

As a result, the company had a net increase in net assets resulting from operations of $17.1 million for the three months ended March 31, 2026, compared to a net increase of $25.1 million for the three months ended December 31, 2025. On May 5, 2026, the board declared a quarterly distribution of $0.31 per share payable on June 26, 2026, to holders of record as of June 12, 2026. The board also approved a voluntary and permanent change in the company's advisory agreement with the investment adviser, SLR Capital Partners, reducing the performance-based incentive fee payable to 17.5% from 20%.

This further aligns the adviser with our shareholders. With that, I'll turn the call over to our Co-CEO, Bruce Spohler.

Thank you, Shiraz. As Michael shared, we believe that the private credit industry continues to exhibit signs of the middle stages of a credit cycle, characterized by rising defaults and growing credit dispersion in direct lending. With uncertainty percolating, today's environment requires highly disciplined underwriting and a heightened focus on capital preservation. Our specialty finance strategies offer higher returns than cash flow loans and greater downside protection through their underlying collateral support and tight documentation.

We view these more favorable terms as a complexity premium earned through investing in structures that require significant expertise as well as infrastructure that many private credit firms don't have. Turning to the portfolio. At quarter end, the comprehensive investment portfolio consisted of approximately $3.2 billion with average exposure of $3.7 million. Measured at fair value, approximately 98% of the portfolio consisted of senior secured loans with 94.5% in first lien loans.

The 3.2% of our portfolio held in second lien loans consists entirely of asset-based loans with borrowing bases and no second lien cash flow loans. At quarter end, our weighted average asset level yield was 11.1%, which was down from 11.6% in the prior quarter. The sequential decline was primarily due to the lagged impact from the 50 basis points decline in base rates in the fourth quarter and reduced onetime income that had occurred in the fourth quarter.

Overall, we believe our portfolio has been less impacted by changes in base rates and spread compression compared to the BDC peer group because of our lower allocation to cash flow loans. Based on our quantitative risk assessment scale, our portfolio continues to perform well. At quarter 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.

Just under 98% of our portfolio is rated 2 or higher. Importantly, 100% of the portfolio was performing with no investments on nonaccrual. While our credit quality remains strong, in light of market concerns of increasing defaults in private credit portfolios, we believe it's important to take a moment to note that SLR has a strong track record of successfully navigating workouts.

When a portfolio company's performance deteriorates, we work closely with our co-lenders, owners and management teams to arrive at a value-maximizing path forward. In the event owners are no longer willing to support a portfolio company with additional equity, we're comfortable stepping into an ownership role when we believe that, that will be the path to best drive the maximum return. We have a dedicated senior team that works closely with our investment teams when the situation first becomes noisy.

They work hand-in-hand with our senior leadership team at SLR on all workouts. In addition, our asset-based lending teams are led by industry veterans with over 30 years of liquidation and workout experience, and they provide additional restructuring support when needed. Now let me touch on each of our four investment verticals, starting with our specialty finance segments. As a reminder, we dynamically allocate to our strategies based on market and economic conditions, which allows us to source what we believe to be attractive investments across market cycles.

Let me start with asset-based lending. Our direct corporate ABL business remains a highly fragmented industry and contains high barriers to entry through the complexity of underwriting, collateral monitoring and active borrowing base management. This strategy requires significant investment in experienced human capital as well as infrastructure. Our priority remains a first lien position on liquid current account assets, which has historically minimized our downside risk exposure.

At quarter end, our ABL portfolio totaled just under $1.4 billion across 250 issuers, representing approximately 43% of our total portfolio. During the first quarter, we originated $77 million of new ABL investments and had repayments of $194 million. The weighted average asset level yield on this portfolio was 12.3% compared to 12.6% in the prior quarter. Our ABL portfolio contraction in the first quarter was predominantly due to temporary paydowns of existing revolving credit facilities and our proactive management of borrower exposures, consistent with our hands-on ABL credit discipline as opposed to repayments of loans that would have generated repayment fees.

In our ABL business, a meaningful contributor to the returns that we generate are derived from portfolio churn in the form of early repayment fees and the acceleration of upfront fees. We had close to 70% of this portfolio churn last year across our ABL businesses. Over time, we expect this churn to revert to its historical level, which we expect will drive incremental fee income.

We are seeing increased activity across our ABL platform. In particular, we're seeing an uptick post a quiet first quarter from our sponsor finance clients who are increasingly seeking incremental liquidity through ABL solutions for their portfolio companies. We expect to produce net portfolio growth in our ABL strategy through the remainder of this year.

Turning to ABL strategic initiatives. Our adviser recently established a sourcing arrangement for ABL investments with a large U.S. commercial bank that spans many of our ABL strategies. This partnership expands our origination reach. We're optimistic that this initiative will enhance our investment sourcing funnel and support portfolio growth in specialty finance ABL investments. We are currently in discussions for other partnership opportunities similar to this.

In addition, we are continuing to evaluate strategic transactions such as portfolio and ABL business acquisitions. We also continue to expand our ABL origination team. Now let me touch on equipment finance. At quarter end, the equipment finance portfolio totaled just under $1.1 billion, representing approximately 1/3 of the total portfolio and was highly diversified across 580 borrowers. Credit profile of this portfolio was unchanged quarter-over-quarter.

During Q1, we originated $122 million of new assets with the majority of these investments coming from our business that provides leases to investment-grade corporate borrowers. We had repayments of approximately $126 million. The weighted average asset level yield for this 10.2% compared to 10.9% the prior quarter. We remain encouraged by the current trends we're seeing in our equipment finance business. Our investment pipeline has expanded, and we're seeing demand from our borrowers to extend leases on equipment rather than buy new equipment at higher tariff-adjusted prices.

Now let me turn to life sciences. At quarter end, the portfolio had just over $180 million of senior [indiscernible] close to 6% of the total portfolio, which is down from a peak of 15%. Over the past couple of years, we have been reporting on the origination challenges in this strategy. The debt market for venture-backed private and public late-stage life science companies has seen an influx of capital and a corresponding degradation in credit discipline.

Our life science finance team has been in this business for over 25 years. The 0 loss track record has been predicated on underwriting and structuring standards that new entrants are often not adhering to. This trend has impacted our portfolio growth. For context, life sciences has historically accounted for an average of 22% of our quarterly gross comprehensive income since 2020. However, in the first quarter, it was only 13.5%. Onetime life science fees have historically contributed an average of 3.5% to our gross investment income, whereas they represented approximately 1% during Q1.

Similar to asset-based lending, churn is critical in our life science portfolio and has been a significant contributor to our earnings. The pipeline of new opportunities has picked up materially in 2026. Capitalize on the expected growing opportunity set in life sciences, our adviser has expanded the team through the hiring of three highly experienced professionals.

We expect that these efforts to broaden our origination reach and product offering should generate strong portfolio growth over the coming quarters, which will eventually both increase portfolio churn as well as fee income.

Finally, let me turn to cash flow lending. As a reminder, in cash flow lending, we position SLR not as a generalist capital provider across all industries, but rather as a specialized industry-focused partner to private equity firms with portfolio companies in the middle -- upper mid-market. This is most evident in the health care sector, where we intentionally curate our sponsor base, partnering exclusively with dedicated health care private equity firms with long-standing successful track records of investing in the health care industry.

These sponsors prioritize knowledge over terms, recognizing that the health care industry's ongoing regulatory and reimbursement evolution requires a lender with deep domain expertise. By leveraging SLR's three health care investment pillars: health care ABL, life sciences and health care sponsor finance, we evaluate sponsor-backed investments with a level of granularity that generalist lenders cannot replicate. Beyond our focus on health care, we selectively deploy capital into business and financial services, which mirror these same defensive characteristics, target market leaders with high recurring revenue, sustainable business models and low capital intensity.

By focusing on companies that share the resilient noncyclical profiles of our health care portfolio, we maintain rigorous underwriting standards while providing prudent diversification across our cash flow finance strategy. At quarter end, this portfolio was $480 million across 28 borrowers, including the senior secured loans. Approximately 2% of the portfolio is allocated to software investments. Weighted average EBITDA was approximately $110 million. 100% of our cash flow investments are in first lien investments, and the portfolio carried a weighted average LTV of 38%.

Our borrower fundamentals are trending positively with year-over-year growth in both EBITDA and revenue at our portfolio companies. Weighted average interest coverage on this portfolio was 2.2x at quarter end, up from 2x in the prior quarter. During Q1, we made investments of $43 million in first lien cash flow loans and had repayments of approximately $40 million. Only one of these 12 investments was to a new borrower. At quarter end, the weighted average cash flow yield was approximately 10% compared to 9.8% in the prior quarter.

Now let me turn to our SSLP. During the quarter, we invested $9.8 million and had $3.4 million repayments. Net leverage was just under 1x. In the first quarter, we earned income of $1.5 million, representing an annualized yield of roughly 12.25% compared to 9.25% in the fourth quarter. At quarter end, we had approximately $54 million of undrawn debt capacity. We expect to grow this portfolio opportunistically over the remainder of 2026.

Now let me turn the call back to Michael.

Thank you, Bruce. Over the last seven months, we think both the public and private markets have come to terms with private credit's maturation as a core asset class with a corresponding recalibration of forward return expectations to reflect a tighter spread environment and more normalized default/loss experience.

With less than 10 basis points of annual losses at SLRC since the company's IPO 16 years ago, resulting in an IRR above 9%, our North Star at SLR continues to be protecting capital, avoiding losses and not chasing higher spreads at the expense of structural protections. We believe this approach provides our investors with absolute returns designed to consistently exceed the liquid corporate credit markets yet with lower volatility. It is with this view that the private credit market has matured and correspondingly carries tighter illiquidity premiums that our board of directors took action this quarter to adjust the second quarter dividend distribution up to a level we view to be sufficiently covered from earnings while simultaneously preserving capital while we grow our earnings and to adjust our performance-based incentive fees to 17.5% from 20%.

These are actions that we don't take lightly as leaders and significant shareholders of SLRC since its founding more than 15 years ago. However, we believe that we have struck the right balance and that we are acting in the best long-term interest of shareholders. As a reminder, we have taken action previously at SLRC to adjust the dividend during transitioning investment climates to make way for growth. The SLR team owns over 8% of the company's stock and has a significant percentage of their annual incentive compensation invested in SLR stock each year, including purchase that took place in the first quarter.

The team's investment alongside fellow institutional and private wealth investors should demonstrate our confidence in the company's portfolio, stable capital structure and earnings outlook. We've made significant investments and resources across the SLR platform over the last couple of years and year-to-date, that should fuel growth in the investment portfolio that will support net investment income growth. Importantly, we have the available capital to be opportunistic in market dislocations and to evaluate strategic transactions. Thank you all again for your time today with a busy day of BDC earnings releases. Operator, will you please open up the line for questions.

[Operator Instructions] Our first question today comes from Eric Zwick with Lucid Capital Markets.

I thought you made some interesting points in the prepared comments describing how kind of lower churn in some of the portfolios has led to lower fees and how this is hopefully kind of more temporary market-related impact, but that has driven down the investment income here in the most recent quarter. And I suspect that's kind of what's driving the action in the stock price today. But you also highlighted some initiatives you've taken to grow these specialty finance strategies and how those should help kind of rebuild that income through additional churn. I'm just kind of curious from -- to what degree, and I realize there's no definite kind of time frame, but the benefits of those initiatives that you've taken and outlined.

I think that it will take a few quarters. If you step back for a moment, the churn commentary goes specifically to both our asset-based lending and life science portfolios. Historically, those assets have had a contractual duration of five or six years, but an actual duration of about two years. And so it's a combination of bringing more of those assets into the portfolio, which we expect to do this year and then let those mature and start to repay over the next 12 to 24 months.

So that's the typical life cycle of that churn that we will get back to a more normalized nonrecurring yet recurring fee income portion of our gross investment income. And then I think additionally, some of the strategic initiatives go to, as we mentioned, strategic sourcing arrangements, particularly on the asset-based lending side, additional origination members on the -- both the ABL and life science teams and then less predictable from a timing perspective is we continue to see some attractive opportunities in potential portfolio and team acquisitions in specialty finance.

But again, a little bit less able to predict that.

I appreciate the color there. And then just more importantly, from kind of my research and investigating credit performance is ultimately one of the biggest predictors of long-term ROE and performance for BDCs. And you've outlined your very limited loss history and the portfolio remains very clean from a nonaccrual perspective. And also just comparing your internal risk ratings from last quarter to this quarter, there's even been an improvement there, but we're seeing kind of the opposite at other BDCs. So I wonder if you could just kind of talk about the improvement that was kind of -- that I noticed here in the most recent quarter from your internal risk rating perspective.

I think it's -- we don't -- as you know, judge, it's sort of quarter-to-quarter. There are always some names coming in and names coming out underneath those risks. I think what we'd like to point to is the watch list is about 2.2%. If you go back over the last five years, that it's been a little higher, a little bit lower, but 2.2% is actually the average going back to 2020. So it's for us, to your commentary, we're looking for more consistency across the credit performance. And that's what we're happy about and comfortable with.

And look, I think it's also an example how we've talked for a long time that the specialty finance assets, the ABL assets are much less volatile than cash flow-oriented loans. And that's why the list is so low, and we expect it to stay that way.

Our next question comes from Rick Shane with JPMorgan.

Look, ROE on your new dividend based on current book is about 6.8%, which is roughly SOFR plus 2%. That seems like a relatively low margin given the return -- the risk profile of the company. And again, I realize great track record on credit, but this is a levered portfolio. There is inherently credit risk in it. How do we think about this going forward? Are you saying that the return profile for the company is likely to be altered -- for the industry is likely to be altered sort of long term because of some of the dynamics we're seeing in terms of the broader flows to private credit? Or how should we think about the dividend in the context of your long-term return objectives?

I think, look, we set at a level that we want to have confidence we're going to exceed in the near term. I think in the long term, as Bruce alluded to in his commentary, we have several levers and initiatives that give us comfort that over the medium to long term, we should see our earnings move back towards the $0.40 level that we've experienced in the past and get to the higher ROE and ROI that we expect and have experienced in the past. I think the other thing is our focus continues to be on total return. Obviously -- and that takes into account losses. And I think we feel very good about where we are because of the credit quality, and that's something that's sustainable.

Got it. And when you think about those levers to get back to the $0.40 of core earnings, what is like [fine] -- recasting the portfolio is a gradual process. Is the most immediate opportunity, a modest degree of enhanced leverage? I mean, again, I'm trying to figure out not only what the destination is, but what the path looks like a little bit as well?

Yes, fair question.

Yes. So look, I think -- and we touched on this a little bit earlier in terms of timing, right? So potential portfolio acquisitions, particularly around the asset-based industry, which we have done in the past, given the fragmented nature, we'd see more opportunities there. That would be more difficult to predict, but more immediate should they come to pass as we bring portfolios in.

The most recent, as you may recall, was fourth quarter of '24. We brought in the Webster factoring portfolio. So those are difficult to predict, but are immediately accretive and also strategic in terms of expanding our ABL footprint either geographically or by industry. I think the levers that you heard in terms of -- generally go around expanding our sourcing across specialty finance, in particular, ABL and life sciences. And it's a combination of additional originators. It's also the strategic sourcing arrangements that we're starting to create partnerships with existing ABL players.

So as we -- as you know, we are incredibly conservative. And so it helps to have a broader pipeline and expand that origination opportunity set, which allows us to start to bring more of these short duration ABL and life science loans into the portfolio and unfortunately, know that they're going to churn out pretty quickly with a 24-month average duration. And so you'll start to see that. Obviously, some are six months, some are 26 months, but you'll start to see that work through the portfolio in terms of coming into the portfolio this year and starting to exit as early as next year. And it's really that velocity in those two asset classes that will contribute additional nonrecurring recurring fee-based income.

Got it. And then, look, philosophically -- a lot of people talk about being conservative. You guys have demonstrated. Your credit results are evidence of conservatism. As a lender, for some types of lenders, if you're a credit card lender, there's an efficient frontier. You're not -- it's not a zero defect business by definition. And if your loss rates are too low, you're leaving too much opportunity on the table. I would argue that BDC lending is, in fact, a zero defect business. One of your most thoughtful competitors years ago said to me, there's no spread that makes up for a bad loan. And that's always stuck with me. But I do ask -- I do wonder if even within a zero defect construct that is there a concern that you guys are too far from that line of zero defect and that there's a little bit of widening that you can do and still maintain a zero defect objective?

So I think that is a phenomenal point. The way that we address our, let's call it, maybe ultraconservative approach to this requirement to be zero defect in private credit is by moving increasingly into these specialty finance strategies, the reason that we have zero defects is definitely in large part because of the leadership of our life science and ABL teams, period full stop. But secondarily, they come with collateral, they come with tight documentation, borrowing bases.

There's been no degradation in the [indiscernible]. So the fact that the performance of these asset classes, in addition to, obviously, the leadership of those teams over decades and multiple cycles allows us to take on more risk in those strategies than we would perhaps as a team focused exclusively on cash flow lending because you do have that downside protection of underlying collateral, be it cash and IP in life sciences and working capital assets in asset-based lending. And so we are extremely cognizant of the point you're making. And therefore, it further aligns our conservative culture by doing more in the specialty finance collateral-based strategies.

I'd say the other thing on that also is in terms of where we are and others are in the risk spectrum is that the jury is still out, right? I mean we've been -- we've had a 17-year run without a real credit cycle. And so what we're seeing this quarter and last quarter is we're seeing public BDCs and private BDCs had significant NAV degradation with the storyline behind it being that it's temporary, it's mark-to-market. Well, the jury is out whether that is truly mark-to-market and is recoverable. You know people – when you think of [people's software] exposure, that mark-to-market may be permanent and can actually become worse. So I think we're very comfortable where we've been to Bruce's point on documentation and not pushing the envelope on traditional direct lending because it's your early point about spread.

It's not just spread that you can't make up for. It's bad documentation that you can't get to the table early enough to kind of protect your interest. And so I think we feel very good about where we are. In the past, are there deals that we've done that we passed on because we're too conservative and worked out just fine? Yes. But have we applied that same mentality as a portfolio approach, we'd be sitting on a lot of loans today that we'd be really worry about and not be able to sleep at night. And to the earlier comment about being able to kind of focus on to rebuilding our NII, the good news is the team given how low our watch list is and they have no defaults, the team is not focused on restructurings or worrying about the portfolio too much.

They're focused on growth and how to rebuild in a way that we can be profitable for the long term.

I realize they're pretty philosophical type questions, and I appreciate the thoughtful answers.

[Operator Instructions] We'll go next to Robert Dodd with Raymond James.

I've got a first question. The second question, basically, Rick already asked it, but I've got a slightly different way of looking at it. On the first one, on the comprehensive portfolio, paybacks, right? You'd always rather get your money back than lose it. On that, I mean, it just surprised me a little bit that it was so strong and the portfolio shrank so much relatively speaking, in this quarter when there is all these -- the banks, I think the sense is they're not looking to go heavily risk on right now. They're one of your primary competitors on ABL lending, it's a fragmented market. I mean what was the real driver of that payoff? It seems like a market where I would have expected repayments on ABL or taking your competitive takeaways or whatever to be more muted. Yet it was -- you were very successful on getting a lot of capital back. That's a good thing and a bad thing. So any thoughts on like what drove that dynamic?

Yes. So underneath the hood there, asset-based lending, there's three primary sources of repayments. There's the traditional you get refinanced out to another ABL lender or maybe to a cash flow loan. And then there's the, what I would call, temporary repayment because most ABL facilities have a large revolver, maybe seasonal draws. So in our $194 million seasonal repayments. And as I mentioned in my prepared remarks, most of it was because of seasonal repayments rather than a borrower exiting the platform and canceling their facility per se.

The third dynamic, which we didn't have in Q1, but just to touch on your question more broadly is sometimes in asset-based lending when we feel the fundamental performance of the business is not going in the direction that we're comfortable with. The beauty of ABL because we have strong documentation is we can start to turn up the pressure on that borrower to create alternative sources of liquidity because we can wind down our exposure with that borrowing base by increasing reserves in eligibles such that our advance rates continue to contract in our favor, and that will drive an exit or repayment, not necessarily because we got refinanced or there was a temporary paydown, but just because we've kind of applied some pressure and said, look, we think you should be looking elsewhere and refinance us with somebody else. And so -- and that is a dynamic selectively that our life science team has done from time to time.

So it's a key of our specialty finance strategies is that you have that ability to try to wind down your exposure and take down your advance rates given how tight the documentation is and your underlying collateral support. But specifically to your question in Q1, Robert, it was really temporary repayments of facilities rather than any of the other two alternatives, which is a true refinancing or I'll call an agreed-upon exit.

Got it. And then the second one, it's basically related to Rick's question. I mean I agree that zero defect is the goal. But when you look at the portfolio, I mean, some kind of thing, have you been -- is your pipeline construction with the in-house teams, et cetera, so strict that the result is, yes, you have really high-quality assets, but there's not enough there's only great assets that's not good assets. So when a great asset repays, you don't have a flow of acceptable, probably zero defect. But so you can't moderate the size of the portfolio more when things are great, you edge a little bit that are still in the zero defect bound.

I like that term.

Thanks, Rick. But allows more moderation of which deals you agree to do. And is that kind of one of the strategic components of expanding the distribution, you signed a deal with the bank to see more ABL deals. What's the thought on that on moderating the flow?

So obviously, when you're saying yes to 5% of the opportunity flow, the way to expand the actual funded investments is to just expand that funnel so that 5% becomes a much bigger number. So there's that element. And the quality of the deals that we generally see from asset-based loans coming out of asset-based banks is a higher quality. It might not be their quality because they're being measured based upon the risk rating of the borrower rather than the collateral where we can look at the collateral and say, this is phenomenal collateral.

We -- Michael touched on the AI initiative. There are a number of businesses that we lend to that may be impacted by AI, but we have collateral. Unfortunately, they may not survive, but we will probably liquidate ourselves out and be just fine. And so I think to your specific question, there's no such thing as a great private credit deal, period full stop. You're taking on the ability to potentially lose money. And so everything we do is looking for good. And I think the more deal flow we have with underlying collateral, that checks the SLR box for good if we have high-quality collateral.

And then expanding that pipeline by getting more and more out of that also increases the level of the operating performance of those fundamental borrowers. And so really the combination of having a much larger pipeline and having high-quality collateral, both in ABL and life sciences that we believe if things go sideways, we always assume they will go sideways. And so when they go sideways, we're going to be just fine because of the additional collateral support beyond just the traditional ownership support that you look to in a borrower.

And our next question comes from Finian O'Shea with Wells Fargo.

Can you hit on the fee change, the break to 17.5% on the incentive fee, appreciating that. Can you hit on how you and the board came to that number?

It wasn't a long discussion. I think it was initiated by us, not the board and it was just kind of we looked around where people were doing it and thought it was the right thing to do.

Okay. That's helpful. And then did the concept of the hurdle rate come up given the sort of story here now is growing earnings, which is tough for a BDC to do. You've been working at that for a long time. It's not the easiest thing, I appreciate to deliver on. But do you think a higher hurdle rate would motivate the team, align the team better to achieve that higher earnings?

No, actually, a lower hurdle would have done that. So that wasn't something we're going to consider. No, look, I think the team, frankly, the way we manage our business has never focused on a hurdle rate. That's not their job. That's not how they're motivated or compensated. And the hurdle rates we've had since inception and rates go up, rates go down, it's been the right place to be.

But maybe they would think about it if it was higher. Why do you say it would be better if it was lower?

Then they'd be more into the money on incentive fees.

Well, and just from the BDC investors vantage point.

You asked the question relative to our team.

And at this time, there are no further questions in queue. I will now turn the meeting back to our presenters for any additional or closing remarks.

No further comments other than to thank you all for your participation today. I recognize it's a very busy period of time and a lot going on within the private credit space, both in the public and private BDCs. And as always, the entire team is available for any questions that you may have to follow up with. Thank you.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning, everyone. Welcome to today's SLR Investment Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. It is now my pleasure to turn the meeting over to Mr. Michael Gross, Chairman and Co-CEO. Please go ahead, sir.

Thank you very much, and good morning. Welcome to SLR Investment Corp.'s earnings call for the quarter and year ended December 31, 2025. And I'm joined today by my long-term partner, Bruce Spohler, our Co-Chief Executive Officer as well as our Chief Financial Officer, Shiraz Kajee, and members of the SLR 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 would like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of SLR Investment and that any unauthorized broadcast in any form is strictly prohibited. This conference call is also being webcast on the Events Calender in the Investors section on our website at www.slrinvestmentcor.com. Audio replays of this call will be made available later today as disclosed in our February 24th earnings 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 of our 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 do not undertake to update any forward-looking statements unless required to do so by law. To obtain copies of our latest SEC fines, 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 Co-CEO, Michael Gross.

Thank you, Shiraz, and thank you to everyone for joining our earnings call this morning. We are pleased to report that SLRC's fourth quarter results solidified a strong year for the company, showcasing another quarter of broad stability in our portfolio, slow but steady portfolio growth and a shift to asset-based lending investments with primarily liquid current assets as collateral that are supported by actively monitored borrowing basis.

For those who've been following us for the last 2 years, we have showed a cautious view with our stakeholders about the increasingly fierce conditions within sponsor finance from an oversupply of capital. The broader investor community and media are now signaling their concern of these conditions. The potential risk to forward returns and ultimately an expectation of a wide dispersion in [indiscernible] performance. While 2025 can be characterized by a surprisingly resilient U.S. economy that withstood tariff uncertainty, geopolitical tensions and the government shutdown, the year in [ high-side ] can also be marked as beginning of sea change for the maturing private credit industry. Sitting here today, with investor concerns and skepticism running high, we feel relatively insulated from many of the risks facing many of our peers because of our deliberate decision to hold the line with their underwriting standards, particularly in the overcrowded sponsor finance market to safeguard SLRC's performance and capital.

We attribute the stability in our fourth quarter and full year results for multi-strategy approach to private credit investing and our tactical asset allocation framework, which enables us to maintain investment discipline and diversification across asset classes. Importantly, we're able to say no, and pass an investment opportunities that do not meet our conservative lending standards as credit investors, we are obsessively focused on downside protection.

Turning to our fourth quarter results. SLRC reported net investment income, or NII, of $0.40 per share and net income of $0.46 per share. Net investment income per share was flat quarter-over-quarter and net adds of value per share of $18.26 as of December 31 increased both quarter-over-quarter and year-over-year from both unrealized and realized gains. Our net income for quarter equated to a 10.1% annualized return on average equity. For the full year 2025, we generated net income of $1.70 per share, representing a 9.3% return on average equity, which we anticipate should compare favorably to publicly traded BDC and non-listed BDC peers as well as the broadly syndicated loan markets.

During the fourth quarter, we originated $462 million of new investments across the comprehensive portfolio and received repayments of $445 million for net fundings of $17 million, resulting in a year-end comprehensive portfolio of $3.2 billion and annual growth of 7.2%. New originations were the second highest level achieved on record, increasing 36% year-over-year and 3% quarter-over-quarter, continuing the strong origination momentum we have delivered throughout this year.

Originations for the year totaled $1.84 billion. The primary driver of new originations continued to be led by our commercial finance strategies, which we believe currently offer more attractive risk-adjusted returns. The company's strong commercial finance originations furthered our portfolio mix shift to asset-based specialty finance strategies over the last couple of years, which we believe provide greater downside protection from strong credit agreements, borrowing bases and underlying collateral. As of December 31, 2025, more than 83% of our portfolio investments were in senior secured specialty finance loans which represents the highest percentage in our 20-year history.

Our direct industry exposure to the software industry remains low, so low, in fact, that the approximate 2% exposure as of December 31 [ there is ] among publicly traded BDCs. For investors concerned about the uncertainty of technology obsolescence risk and enterprise value destruction for the software industry, the burgeoning threat of artificial intelligence, SLRC's portfolio with its lack of software exposure can be viewed as a safe haven. Overall, we remain pleased with the steady expansion and further diversification of the portfolio which has produced an annualized growth rate of 10.1% since 2020 and a risk profile that is highly differentiated from other middle market lenders.

Direct corporate asset-based lending or ABL, our strategy we've been in since 2012 contains high barriers to entry to the complexity of both underwriting and collateral monitoring. This makes it difficult for private credit managers who are latecomers to the strategy to build a book of asset-based loans that can withstand the pressures of changing economic and borrower conditions. We believe it is difficult to replicate expertise in our 20 offices spread across the country makes us the first call for both sponsors and non-sponsors who are seeking corporate financings for ABL solutions.

For the fourth quarter, asset-based lending originations of $247 million were almost double the originations in the prior year period, while originations for the full year of $1.1 billion were close to double the originations in all of 2024. SLR's ABL strategy continued to offer all-in returns of SOFR plus 600. As a reminder, early in Q4, we hired a well-known respected industry veteran as President of Asset-based lending at SLRC's Investment Adviser. Mac Fowle is focused on expanding SLR's asset-based lending capability beyond the platform's existing ABL franchise. We believe our investment in people and infrastructure over the last couple of years have contributed to our expansion and investment opportunities and a greater recognition of SLR's leadership in the ABL marketplace.

SLRC's ABL platform provides the infrastructure and strategic growth capital to further grow our comprehensive investment portfolio, including through potential portfolio and business acquisitions as well as geographic and industry expansion. With sponsor [indiscernible] conditions competitive and illiquidity premium is tight, we passed on the refinancings of several cash flow investments in our incumbent portfolio, allowing our [ sponsored ] portfolio to further shrink. With cash alone representing just 14.5% of the comprehensive portfolio, the allocation of cash for loans remains at the lower balance of our historical mix. We will, however, continue to approach to investments in cash flow lending opportunistically.

Our deep industry expertise in the health care sector, along with trends in private equity fundraising at dedicated health care focused sponsors and deal activity should continue to present selective opportunities for us to be active and attractive cash flow lending during 2026. Moreover, our healthcare industry expertise and cash flow lending serves an important information resource and referral source for SLRs Life Science and Healthcare ABL investment teams. Overall, we remain pleased with the composition, quality and performance of our portfolio and direct results of SLR's multi-strategy approach to private credit investing.

At year-end, approximately 95% of our comprehensive investment portfolios was comprised of first lien senior secured loans, 100% of our investments are cost performing with zero investments on nonaccrual and PIK income continue to comprise a de minimis percentage of total income. We believe these credit quality metrics compare very favorably to peer public BDCs. At December 31, including credit facility capacity at SSLP and our specialty finance portfolio companies, we have over $850 million of available capital to deploy. Our liquidity profile puts us in a position to take advantage of either stable economic conditions or softening of the economy. I'll now turn the call back over to Shiraz, our CFO, to take you through the fourth quarter highlights.

Thank you, Michael. SLR Investment Corp's net asset value at December 31, 2025, was $996 million or $18.26 per share compared to $18.21 per share at September 30, 2025, and $18.20 per share at December 31, 2024. At year-end, SLRC's on-balance sheet investment portfolio had a fair value of approximately $2.1 billion in 100 portfolio companies across 31 industries, compared to a fair value of $2.1 billion and 109 portfolio companies across 31 industries at September 30. SLRC's investment portfolio is funded by a combination of revolving credit facilities and the issuance of term debt in the unsecured debt markets to institutional investors. The company is investment-grade rated by Fitch, Moody's and DBRS and more than 40% of the company's debt capital is comprised of unsecured debt at December 31.

During the quarter, the company was active in the management of various credit facilities with multiple banks, including the closing of a new credit facility at the SSLP that enhanced the joint venture's borrowing flexibility and reduce the spread to 75 basis points. These actions, combined with others taken during the year have improved borrowing flexibility via better advance rates, expanded the unsecured investor base and extended maturities. The company does not have any near-term refinancing obligations, the next unsecured note maturity occurring in December 2026. We expect to continue to prudently access the debt capital markets and issue unsecured debt as and when needed.

At December 31, the company had approximately $1.2 billion of debt outstanding with a net debt-to-equity ratio of 1.14x which was within our target range. We believe we have ample liquidity to support our unfunded commitments. Moving to the P&L. For the 3 months ended December 31, gross investment income totaled $54.5 million versus $57 million for the 3 months ended September 30. Net expenses totaled $32.9 million for the 3 months ended December 31, this compares to $35.4 million for the prior quarter. Accordingly, the company's net investment income for the 3 months ended December 31, 2025, totaled $21.6 million or $0.40 per average share, the same as the prior quarter.

Below the line, the company had net realized and unrealized gain for the fourth quarter totaling $3.5 million versus a net realized and unrealized gain of $1.7 million for the third quarter of 2025. As a result, the company had a net increase in net assets resulting from operations of $25.1 million for the 3 months ended December 31 compared to a net increase of $23.3 million for the 3 months ended September 30.

On February 24, the Board of SLRC declared a Q1 2026 quarterly base distribution of $0.41 per share, payable on March 27, 2026, to holders of record as of March 13, 2026.

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

Thank you, Shiraz. As Michael shared, we've continued to shift the portfolio toward our Specialty Finance strategies throughout 2025 due to their more attractive risk-adjusted returns. Our pipeline also reflects this continued momentum. Our Specialty Finance strategies currently offer higher pricing than sponsor finance loans and greater downside protection through their underlying collateral support and tight documentation. We view these more favorable terms as a complexity premium that we earn through investing in structures that require significant expertise and infrastructure that most private credit firms don't have.

Turning to the portfolio. At year-end, the comprehensive investment portfolio consisted of approximately $3.3 billion with an average exposure per borrower of $3.8 million. Measured at fair value, approximately 98% of the portfolio consisted of senior secured loans, with 95% invested in first lien loans. The 3% of our portfolio invested in second lien loans consist entirely of asset-based loans with underlying borrowing bases and no second lien cash flow loans. At year-end, our weighted average yield on the portfolio was 11.6%, which was down from 12.2% in the third quarter and 12.1% at the end of 2024. Sequential decline in yield was primarily due to two factors: the decline in base rates in the fourth quarter that began to impact results, as well as timing due to the funding of our new investments towards the end of the December month and receipt of repayments earlier in the quarter.

Overall, we believe our portfolio has been less impacted by changes in base rates and spread compression compared to the BDC peer group because of our lower allocation to cash flow loans made possible through our current focus on the less competitive specialty finance investment sectors. Based on our quantitative risk assessment scale, our portfolio continues to perform well.

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. Just under 98% of our portfolio is rated 2 or higher at year-end. Importantly, 100% of the portfolio was performing with no investments on nonaccrual. Now let me touch on each of our 4 investment verticals, starting with our Specialty Finance segments.

As a reminder, we dynamically allocate across our strategies based on market and economic conditions, which allows us to source attractive investments across market cycles. Let me first discuss Asset-based Lending. Given current market volatility as well as investor sentiment, I'd like to take a moment to review the investor protections inherent in our ABL asset class that serves as the bedrock of our conservative investment philosophy. In old school ABL lending, which we define as bilateral corporate lending by teams with significant infrastructure support as well as experience in evaluating and monitoring collateral. We're able to structure credit agreements and borrowing bases with terms that have integrated in lockstep with the ballooning of private credit cash flow-focused AUM.

We're also able to maintain greater visibility and influence during the life of our investments. Simplistically, with cash flow lending, we are viewing portfolio companies through a quarterly rearview mirror, whereas in asset-based facilities with borrowing base requirements, we are essentially using binoculars. We can get to the table at the first sign of a problem, and our teams have decades of experience in structuring our investments to ensure that the V or value in loan-to-value sufficiently covers our principal, even in severe downside scenarios. Old school ABL requires significant in both people and infrastructure. We began this build-out in 2012 with our first control stake acquisition, which then followed by 8 additional tuck-in acquisitions. Our collaborative ABL and Equipment Finance strategies provide a moat that newer entrants cannot easily create.

At year-end, our ABL portfolio totaled just under $1.5 billion across 252 issuers, representing approximately 45% of our comprehensive portfolio. For the fourth quarter, we originated approximately $250 million of new ABL investments and had repayments of approximately $235 million. In the fourth quarter, the weighted average asset level yield of the ABL portfolio was 12.6%.

Now let me touch on Equipment Finance. Quarter end, this portfolio totaled just under $1.1 billion, representing approximately 1/3 of our comprehensive portfolio and was highly diversified across 585 borrowers. The credit profile was unchanged quarter-over-quarter. During the fourth quarter, we originated just over $150 million of assets with the majority of them coming from our business that provides leases predominantly to investment-grade corporate borrowers for their mission-critical equipment. We had repayments of just over $120 million. The weighted average asset level yield for this asset class was just under 11%. We remain encouraged by some of the trends we're seeing in our Equipment Finance business. Our investment pipeline has expanded, and we're seeing demand from our borrowers and sponsors to extend existing leases on equipment rather than buying new equipment at higher tariff-adjusted prices.

Now let me turn to Life Sciences. Over the last few years, Life Sciences venture debt market has been characterized by fierce competition as asset managers look to make a splash in perceived adjacencies. As we see it, this influx capital into Life Science lending has led to the prevalence stretch deals where some market participants prioritize enterprise value methodology over credit discipline. Throughout this time, we've chosen to maintain a strict late-stage investment approach with a focus on drug discovery that are in or approaching commercialization and that posses structural protections that have historically mitigated risk throughout market cycles and FDA risks. The broader life science industry has seen a surge in healthcare services/IT transactions, which are predominantly software company loans to health care borrowers. We have intentionally avoided this segment. In contrast to the high FDA barriers that are present in drug discovery and medical devices, which entails several year-long FDA approval process. The barriers to entry in software are lower and IP protections are more limited.

As a result, the reliance on software IP is [indiscernible] presents elevated risks of technological obsolescence and valuation volatility in Life Sciences that we have avoided. Given those market dynamics, we have consciously allowed our Life Science portfolio to shrink across the SLR platform. In 2025, we made first lien term loan commitments approximately $500 million and partnered in the origination of $60 million of ABL facilities for Life Science borrowers issued by our Healthcare ABL team. During that same period, we had over $400 million in repayments.

Looking ahead, our pipeline of opportunities is notably larger than it was at the beginning of last year. We think the drug discovery pipeline is poised for a re-acceleration after a period of relevant sluggishness in public market valuations ongoing uncertainty regarding the FDA's direction, a recent wave of high-profile acquisitions has significantly bolstered public market valuations for bioscience companies. Furthermore, the integration of AI technology holds the promise of shortening the drug development time line and create a more dynamic investment opportunity set, although we acknowledge that this will take time to evolve.

We will remain disciplined, leveraging our 25-year track record to identify late-stage development companies with robust clinical data and clear path to commercialization. At year end, our Life Science portfolio totaled approximately $180 million across 7 borrowers. Importantly, 100% of these portfolio companies are revenue generating, with at least one product in the commercialization stage, which significantly de-risks our investment. During the fourth quarter, the team funded $26 million, one to a new borrower and had just under $60 million of repayments. At quarter end, the weighted average yield on our first lien Life Science portfolio, including success fees, but excluding warrants, was 12.3%, consistent with the prior quarter.

Now finally, let me turn to our Cash Flow Lending business. Middle market sponsor activity improved modestly in the fourth quarter and the momentum appears to be carrying over into 2026. Yet competition for quality assets remains intense, and the looming '26, '27 maturity wall continues to shape borrower behavior. In casual lending, all eyes are currently on software exposure. Michael has already provided specifics on our under-weighting to that sector. I'll touch on the why and how we avoided this sector.

As the software sector was experiencing its heydays in the COVID economy era, and private credit leaned into the massive capital deployment opportunity. We, too, evaluated the potential for developing a core expertise in the software sector. However, we determined that loans to SaaS businesses do not offer the same downside protection as our existing investment strategies. For example, unlike in our Life Science strategy where loans are backed by IP that takes typically 10 to 15 years to create and hundreds of million dollars of investment. The technology backing IP software faces a far greater risk of obsolescence. The risk/reward profile of software loans is less attractive also to our asset-based lending strategies, which are typically backed by accounts receivable or liquid inventory. Additionally, we viewed our existing health care expertise across Cash Flow Lending, Healthcare Asset-based Lending and Late-stage Life Sciences, as a means of a capitalizing on an investing edge that we possess in an essential sector.

In short, our existing strategies have enabled us to avoid the soft industry while still delivering portfolio growth and steady income. If software leads to broader cash flow dislocation, we too will be opportunistic investors, once again in the cash flow market. At quarter end, our sponsor finance portfolio is just over $475 million across 27 borrowers, including the loans held in our SSLP or just 15% of the total portfolio.

With 100% of our cash flow loan invested in first lien loans, we believe that we are well positioned to withstand tariff or economic headwinds. Our borrowers have a weighted average EBITDA of just over $100 million and carry low LTVs of approximately 40%. Our borrower fundamentals are trending positively with portfolio company average EBITDA and revenue growth in the middle-single-digits year-over-year. Overall, our portfolio of companies have successfully managed the transition to an environment with higher cost of capital as well as input prices. Weighted average interest coverage on our sponsor portfolio was 2.3x, up from the prior quarter. Additionally, only 1.1% of our fourth quarter gross investment income is in the form of capitalized PIK from our cash flow borrowers, resulting from amendments. During the quarter, we made new investments of $37 million in cash flow loans and experienced repayments of approximately $30 million. Quarter end, the weighted average yield on the cash Flow Portfolio was just under 10% compared to just over 10%, the prior quarter.

Lastly, let me touch on our SSLP. During the quarter, the SSLP revolving credit facility was refinanced, lowering our interest rate from SOFR plus 290 to SOFR plus 215. Adjusted for onetime credit facility charges associated with this refinancing, the company would have earned $1.5 million in the fourth quarter, representing an annualized yield of 12.6%. During the quarter, SSLP invested $13 million and had $19 million of repayments. Net leverage was just under 0.9x. We expect to continue to rebuild this portfolio this year. And at quarter end, we had roughly $55 million of undrawn debt capacity. Now let me turn the call back to Michael.

Thank you, Bruce. With hindsight, we think 2025 has the appearance of being marked as a consequential year for the private credit industry and for the value proposition of SLRC. Over the last couple of years, we've been vocal about how the seemingly limitless access to private credit for investors, could lead to the unsatisfactory achievement of marketed outcomes, especially given the two key drivers of outperformance in private credit investing comes from avoiding and minimizing credit losses and the use of leverage.

As we see it today, the markets are clearly demonstrating and understanding of the private credit markets maturation and the recalibrating expectations to a more normalized default loss experience. While the private credit landscape has shifted dramatically, our core philosophy remains unchanged. Stakeholder alignment drives every decision at both the SLR Capital Partners and SLRC. Last year, SLRC surpassed its 15-year history as a publicly traded company, and this year, SLR Capital Partners will surpass 20 years of operating history. As co-founders of SLR and co-CEOs of SLRC, Brice and I continue to lead a team that has largely worked with us since the start and are now responsible for more than 300 employees, including professionals at the 5 Specialty Finance affiliates within SLRC. Our platform's value proposition has attracted very high-quality senior talent, such as Mac Fowle from JPMorgan and others.

Based on our team's investment experience through multiple cycles over the past 30-plus years and our multi-strategy approach to private credit investing, we believe we are well equipped to continue outperforming across shifting private credit markets. SLRC achieved a net income ROE of 9.3% in 2025 and a total economic return of 8.1% over the last 3 years, which we expect to be at least 200 basis points wide of the public BDC peer group average when results for year-end 2025 are fully released. We believe that the disciplined we've exercised to SLRC's history, can be seen to the backward-looking lens of performance as well as the forward-looking lens of portfolio quality.

With credit quality top of mind today, we remain pleased with our portfolio, which sits to the midpoint of our target leverage, is 100% performing and its exposure to software of approximately 2% and restructured PIK income of approximately 2% of total investment income. Moreover, our portfolio companies continue to experience both top line and EBITDA growth and should benefit from recent reductions in SOFR. We continue to acknowledge that our results are not fully immune to the impact of recent reductions in base rates by the Federal Reserve in Q4, but we believe SLRC's earnings sensitivity to changes in base rates is one, if not the lowest amongst our peers. Fourth quarter 2025 originations and our pipeline in 2026 continue to reflect new investment opportunities at spreads that exceed our cost to capital. Our North Star continues to be protecting capital, avoiding losses and not chasing higher spreads at the expense of structural protections.

While maintaining dividend coverage is important as many of our investors align the distribution of our income, we believe it must be done in a way that does not compromise credit quality. We've made significant investments in resources across the platform and continue to see some levers to pull at SLRC that can help offset base rate declines. Importantly, we have the available capital to be opportunistic in market dislocations.

In closing, SLRC trades at approximately an 11.2% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income-seeking and value investors and offers a more diversified investment portfolio compared to direct lending-only private credit strategies. Our investment adviser's alignment of interest with SLRC shareholders continues to be a hallmark principle. The SLR team owns over 8% of the company's stock and has a significant portion of their annual incentive compensation invested in SLRC stock each year. The team's investment alongside fellow institutional and private wealth investors demonstrates our confidence in the company's profile, portfolio, stable funding and earnings outlook. Thank you again, for all your time today as we hope to see you in person at a conference in 2026. Operator, will you please open the line for questions.

[Operator Instructions] We'll go first this morning to Eric Zwick of Lucid Capital Markets.

One, thank you for all the detailed comments on the individual lending vertical and kind of outlook there. A bit of a follow-up maybe in terms of the pipeline within the ABL and Equipment Finance and more from the inorganic perspective. I know sometimes you review opportunities to acquire portfolios and/or [indiscernible] teams. I wondering if you could just update us on any recent activity or outlook for 2026 there?

Yes. Great question. We have been very active -- we don't win them all because we're as disciplined in our acquisitions as we are in our individual investments. But I will say that the quality of potential opportunities is high. And as you may recall, one of the strategies that we have is to lend into some of these potential platforms as a way to get to know each other and see if there's an opportunity to bring them on to the SLR platform. rather than just lend them capital. So we have a number of those in the pipeline that are currently in portfolio that we have an active dialogue. Those take time to germinate. So I would say that we don't see anything imminent but we are very actively engaged in potential acquisitions.

And then I'm just curious in terms of the tight spreads that are being witnessed in the public debt markets, are those impacting spreads in the ABL and Equipment Finance opportunity you're seeing today? Or because it's about structural defense mechanisms you have in place have you been able to kind of maintain new spreads relative to the existing portfolio?

Yes. As Michael mentioned, the overall return has come down a little bit across all the strategies, but we still believe 11.5% or so compares extremely favorably to the market more broadly and specifically the cash flow market. So we still like the opportunities. It's -- the structural protections help us on the risk side. It's really the -- as we touched on, the lack of capital flows coming into these markets that allows us to maintain our competitive position. Plus our peer group here is smaller, but also extremely disciplined. Our peers share the same decades-long experience in asset-backed lending and appreciate that discipline is critical for their performance. So we find people to be very disciplined and not many new entrants.

And last one for me, just your portfolio remains very clean from a credit perspective from almost any metric you would choose to look at it. I'm curious, are you seeing anything that might be kind of an early sign of concern in terms of greater [indiscernible] request or increased revolver usage or anything noteworthy from that perspective?

So the short answer is no. We -- private credit is a business of not sleeping at night and worrying about every name in your portfolio. So as we mentioned, we do have a watch list. It's roughly 2%. And that's a constant. But what I would say is in our ABL strategies, and we touched on this in the comments, you have metrics that allow you to see more real time, the underlying performance of your borrowers and get a window into the broader economy domestically. And specifically, we get to see inventory turns, we get to see receivable collections because we're monitoring those underlying pieces of collateral on a weekly, monthly basis. And I would tell you that we're not seeing any themes coming out of that. It's very idiosyncratic, one-off borrower here or there, but nothing that we can call a theme.

We'll go next now to Rick Shane of JPMorgan.

Look, one of the advantages that you guys have is that your leverage is relatively low and you have capacity to flex that as you choose. You also talked about being opportunistic during market dislocations. If we sort of stay in this environment right now, would we -- should we expect you to be opportunistic? Or should we expect the portfolio leverage to be roughly flat and you would be sort of waiting for a more severe environment to take advantage of that liquidity?

So I'm going to answer it two ways. Part of what we're doing to Eric's questioning, is we always try to have a little bit of dry powder for potential acquisitions. And so that does inform how we look at the leverage ratio at any moment in time, based on what we're seeing out there on the acquisition front as well as individual investment opportunities. We're blessed that we have multiple strategies. We're seeing good opportunities in the Specialty Finance strategies, particularly ABL, although we did mention that we're seeing Life Science pick up. And we also could see, as we get deeper into 2026, cash flow dislocation create opportunity for us as we took advantage of back in 2023, when there was a dislocation in the cash flow market. So we're happy to take leverage up either through acquisitions or individual investments throughout 2026, the high end of our target range, which is 1.25x. So whether that will happen or not we'll see because the other side of that equation is obviously repayments.

As a lender, we celebrate repayment, that generates a memo internally, not so focused on deployment. We're more focused on getting repaid, and as you can see, we've had an elevated level of repayments and that's been very intentional where we have the ability to make that decision. Do we stay or do we get repaid? By and large, we've been choosing to get repaid because either terms or structures or pricing has been less attractive than we like. So that's the unknown for this year, although our crystal ball says we probably will see less repayments because I do see less capital coming into the market and a bit more discipline. So long-winded way of saying we would like to see that leverage ratio come up in this environment because of the very attractive opportunities.

Okay. No long-winded is fine. I've asked a few long-winded questions in my time. So I appreciate the answer.

[Operator Instructions] We go next now to Heli Sheth at Raymond James.

You mentioned M&A opportunities in the ABL business remain high. Any sort of shift in sentiment or outlook there? Does it seem more or less likely that some players may be willing to sell with all of the recent market [indiscernible]?

Dislocation always kind of force people to kind of rethink their business and access to capital. So I would -- if we go through a period of time for quite some time like this, I think we will see more opportunities at better pricing. And we have a team that's actively looking at many situations all the time. So we're hopeful something happens in the relatively near term.

And then could you quantify how much spillover you have as of year-end?

We don't have any to speak of.

And gentlemen, it appears we have no further questions today. Mr. Gross. I'd like to turn things back to you, sir, for any closing comments.

No closing comments at the time other than thank you for all your time today. We realize it's a big earnings season and with all the turmoil in private credit its been quite busy. But if everyone has any questions or people who are listening to this call after the fact, please feel free to reach out to any of us to continue to dial. Thank you.

Thank you, Mr. Gross. Again, ladies and gentlemen, that will conclude today's SLR Investment Corporation fourth quarter earnings conference call. Again, thanks much for joining us, everyone, and we wish you all a great day. Goodbye.

"

"

"

"

" Lucid Capital Markets, LLC, Research Division

" JPMorgan Chase & Co, Research Division

" Raymond James & Associates, Inc., Research Division

" Wells Fargo Securities, LLC, Research DivisionGood morning, everyone. Welcome to today's Third Quarter 2025 SLR Investment Corporation Earnings Call.

[Operator Instructions] Also, today's call is being recorded. [Operator Instructions]

Now at this time, I'd like to turn things over to Mr. Michael Gross, Chairman and Co-CEO. Please go ahead, sir.

Thank you very much, and good morning. Welcome to SLR Investment Corp's earnings call for the quarter ended September 30, 2025.

I'm joined today by my long-term partner, Bruce Spohler, Co-Chief Executive Officer; as well as our Chief Financial Officer, Shiraz Kajee, and the SLR 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 would like to remind everyone that today's call and webcast are being recorded.

Please note that they are the property of SLR Investment Corp and that any unauthorized broadcast 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.slrinvestmentcorp.com. Audio replays of this call will be made available later today as disclosed in our November 4 earnings 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 of our future performance or financial results and involve a number of risks and uncertainties. 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. We do not undertake 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 Co-CEO, Michael Gross.

Thank you, Shiraz, and thank you to everyone for the earnings season. We're pleased to report that our third quarter results continue to reflect broad stability in our portfolio, which we attribute to both our multi-strategy approach to private credit investing and our conservatism.

Summarizing our results, SLRC reported net investment income of $0.40 per share and net income of $0.43 per share in the third quarter. Net asset value per share of $18.21 as of September 30 increased slightly quarter-over-quarter and was approximately flat year-over-year. Our net income for the quarter equates to a 9.4% annualized return on equity. Net investment per share was $0.01 below our base dividend of $0.41 per share in the third quarter.

We believe the stability demonstrated in our net asset value per share and the resilience of our earnings since the peak of private credit's golden age compares favorably to peer publicly traded BDCs, which on average have been exhibiting gradual declines in portfolio yields, rising credit losses and increasing balance sheet leverage.

During the third quarter, SLRC originated $447 million of new investments across the comprehensive portfolio and received repayments of $419 million.

Year-over-year new originations were up 12.7%. During what is typically a seasonally slow quarter, our commercial finance strategies experienced significant deal activity, resulting in the second highest quarter of originations in the company's history and a high degree of churn in the portfolio from elevated repayments.

Overall, we remain pleased with the steady expansion of our comprehensive portfolio, which has produced an annualized growth rate of 17.1% since 2020. We are aware of the elevated concerns about the growth in the private credit industry and underlying credit quality, which have garnered significant investor attention and headlines lately.

For investors that have followed our story and appreciate SLR's ability to tactically allocate in a multi-strategy approach to private credit investing, it should come as no surprise that we too share this concern. We believe our deliberate decision to be more discerning in cash flow lending has safeguarded SLRC's performance through the prolonged high interest rate environment and positions the company favorably to withstand the potential softening in the economy.

Conditions in the sponsor-backed cash flow market remains fiercely competitive, resulting in elevated credit risk, deteriorating lender protections and shrinking illiquidity premiums. Alternatively, we continue to find more attractive opportunities to deploy capital across SLR's ABL strategies, which typically offer all-in spreads of SOFR plus 600.

Direct corporate ABL, a strategy we've been in since 2012, contains high barriers to entry through underwriting complexity and the labor intensity of collateral monitoring. This makes it difficult for private credit managers who enter the strategy to build a book of asset-based loans that can withstand the pressures of changing economic conditions.

We believe this difficult to replicate expertise, specialization allows us to deliver more consistent returns and true portfolio differentiation for BDC investors.

Year-to-date, SLR has originated close to $840 million of asset-based loans, which is almost double our volume during the comparable period in 2024. Today's asset-based lending market has successfully evolved from lending to distressed borrowers to today serving creditworthy companies and flexibility for their portfolio companies. Demand for our corporate asset-based lending solutions from both sponsor-backed and non-sponsor-backed borrowers remain strong as companies seek liquidity solutions to navigate uncertain economic conditions and challenging exit conditions for private equity.

The broad-based demand we've experienced for ABL financing solutions spurred us to hire a well-known and respected industry veteran as President of Asset-Based Lending at SLRC's investment adviser.

[ Mac Fowle ] will focus on expanding SLR's asset-based lending capabilities across the platform's existing ABL franchise. His arrival comes on the heel of over 100 new hires across the SLR platform over the last two years. We think Mac's decision to join from JPMorgan, where he was Global Head of Asset-Based Lending, underscores the growing theme of opportunity for private credit in the direct asset-backed market due to bank retrenchment. We believe SLR's investments in people and infrastructure have contributed to our expansion in deal flow and a greater recognition of SLR's leadership in the ABL marketplace.

As a reminder, SLRC's ABL platform provides the infrastructure to further grow our comprehensive investment portfolio, including through potential portfolio and business acquisitions.

The company's strong quarter of ABL originations furthered our portfolio mix to asset-based specialty finance strategies over the last couple of years, which we believe provide greater downside protection from strong credit documentation integrity and underlying collateral with a lender retaining permitted discretions.

Approximately 93% of our third quarter originations were in specialty finance due to the more attractive risk-adjusted return profiles and favorable conditions in those markets. During the quarter, we passed on the refinancings of several cash flow investments within our incumbent portfolio, allowing our sponsor finance portfolio to further shrink.

As a result, approximately 83% of our loan portfolio consists of specialty finance investments as of September 30, with the remainder of the portfolio comprised of cash flow, sponsor-backed loans to companies in defensive noncyclical sectors such as healthcare and insurance brokerage services. With cash flow loans representing 15.3% of our comprehensive portfolio, the allocation of cash flow loans remains at the lower balance of our historical mix. We will, however, continue to approach new investments in cash flow lending opportunistically and believe our deep industry expertise in the health care sector presents selective attractive opportunities for us to be active in cash flow lending today.

Overall, we remain pleased with the composition, quality and performance of our portfolio and the portfolio constructed afforded by SLR's multi-strategy approach.

At quarter end, 94.8% of our comprehensive investment portfolio was comprised of first lien senior secured loans, 99.5% of our debt investments at cost are performing, and PIK income continues to comprise a de minimis percentage of total income.

We believe these key credit quality metrics, along with the de minimis total trailing 12-month loss rate compared favorably to public peer BDCs. At September 30, including available credit facility capacity at SSLP and our specialty finance portfolio companies, SLRC had over $850 million of available capital to deploy. Our liquidity profile puts us in a position to take advantage of either stable economic conditions or softening of the economy.

At this point, I'll turn the call back over to Shiraz to take you through the third quarter financial highlights.

Thank you, Michael. SLR Investment Corp.'s net asset value at September 30, 2025, $993.3 million or $18.21 per share compared to $18.19 per share at June 30. At quarter end, SLRC's on-balance sheet investment portfolio had a fair market value of approximately $2.1 billion and 109 portfolio companies across 31 industries compared to a fair market value of $2.1 billion in 115 portfolio companies across 32 industries at June 30. SLRC's investment portfolio is funded by a combination of our revolving credit facilities and the issuance of term debt in the unsecured debt markets. Company is investment-grade rated by Fitch, Moody's and DBRS.

During the quarter, the company was active in the management of various credit facilities across multiple banks and the issuance of unsecured debt in the private markets with institutional investors. In regard to secured debt activity in the quarter, the company increased its total revolving commitments to just under $1 billion.

In the unsecured market, the company issued $50 million of 3-year unsecured notes at a fixed interest rate of 5.96% in July and issued $75 million of 3-year unsecured notes in August at 5.95%. We believe the issuance of these notes reflects an attractive and flexible cost of debt capital for shareholders and enhances the mix and diversity of the capital base. The company does not have any near-term refinancing obligations with the next unsecured note maturity occurring in December 2026. We expect to continue to prudently issue unsecured debt in the future.

At September 30, the company had approximately $1.1 billion of debt outstanding with a net debt-to-equity ratio of 1.13x. We believe we have ample liquidity to support unfunded commitments.

Moving to the P&L. For the 3 months ended September 30, gross investment income totaled $57 million versus $53.9 million for the 3 months ended June 30. Net expenses totaled $35.4 million for the 3 months ended September 30. This compares to $32.3 million for the prior quarter. Accordingly, the company's net investment income for the 3 months ended September 30, 2025, totaled $21.6 million or $0.40 per average share compared with $21.6 million or $0.40 per average share for the prior quarter.

Below the line, the company had a net realized and unrealized gain for the third quarter totaled $1.7 million versus a net realized and unrealized gain of $2.6 million for the second quarter of 2025.

As a result, the company had a net increase in net assets resulting from operations of $23.3 million for the 3 months ended September 30, 2025, compared to a net increase of $24.2 million for the 3 months ended June 30.

November 4, the Board of SLRC declared a Q4 2025 quarterly base distribution of $0.41 per share payable on December 26 to holders of record as of December 12.

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

Thank you, Shiraz. As Michael indicated, we've continued to shift the portfolio towards our specialty finance strategies due to their more attractive risk-adjusted returns in today's market. Our specialty finance strategies offer higher pricing than sponsor finance and greater downside protection through their underlying collateral support. We view these more favorable terms as a complexity premium earned through investing in complex structures that require significant expertise and infrastructure that most private credit firms don't have.

Before delving into our portfolio, I'll touch on the recent headlines concerning ABL.

Recent events have brought the asset-backed finance market under sharper regulatory and investor scrutiny. The high-profile bankruptcies of both First Brands and Tricolor revealed alleged instances of fraudulent collateral reporting, over pledged receivables and falsified data. While preliminary investigations suggest that these were idiosyncratic failures tied to misconduct and inadequate third-party oversight, they have nonetheless raised questions about collateral verification practices and information integrity in syndicated asset-backed securities.

Our own due diligence during several opportunities to invest in First Brands identified a series of red flags that led us to decline the investment, including prior fraudulent conduct, a questionable track record and a history of very difficult to decipher financial statements.

The lack of management alignment also provided a further element of elevated risk. These examples underscore the critical importance of rigorous underwriting and serve as a warning to the broader ABS market. While First Brands and Tricolor have cast a temporary shadow over the ABS sector, they serve as a powerful endorsement of our model that is built on direct bilateral lines of credit with active monitoring, verification, scale and experienced ABL infrastructure. With our focus on direct asset-based lending, we underwrite management teams and companies supported by strong assets that collateralize our loans, not pools of assets as in asset-backed securities. We believe ABL remains the most compelling risk-adjusted opportunity in private credit heading into 2026, particularly as the existing middle market maturity wall drives borrowers to asset-based refinancing solutions.

Now let me turn to the portfolio. At quarter end, the comprehensive portfolio consisted of approximately $3.3 billion with an average exposure of $3.6 million. Measured at fair value, 98.2% of the portfolio consisted of senior secured loans with approximately 95% in first lien loans, including those investments attributable to our SSLP and only 0.2% was invested in second lien cash flow loans, with the remaining 3.2% invested in second lien asset-based loans.

At quarter end, our weighted average yield on the portfolio was 12.2%, consistent with the prior quarter. Our portfolio has largely been insulated from spread compression in the cash flow market due to our focus on less competitive specialty finance sectors.

Based on our quantitative risk assessment, our portfolio continues to perform well. At quarter 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. Just under 98% of the portfolio is rated 2 or higher.

Moreover, 99.5% of the portfolio on a cost basis and 99.7% on a fair value basis was performing with only one investment on nonaccrual.

Now let me touch on each of our 4 investment verticals, starting with our Specialty Finance segments. As a reminder, we actively allocate to our strategies based on market and economic conditions, which allows us to source attractive investment on both a relative and absolute basis across market cycles.

Let me first touch on asset-based lending. Two areas of private credit illustrate the balance between opportunity and vigilance more clearly than ABL lending. ABL has been the clear beneficiary of bank retrenchment and elevated funding costs as borrowers seek liquidity solutions backed by working capital assets.

Direct corporate ABL opportunity set that we focus on includes 3 primary types of transactions. First, providing working capital and liquidity to businesses with abundant assets but volatile cash flows due to rapid growth, seasonality or restructuring.

Second, we provide incremental liquidity to sponsor-owned companies whose access to the incremental term loan market is limited and where an ABL facility can leverage unencumbered working capital assets alongside an existing term debt facility.

And lastly, we provide M&A financing in which working capital assets support an ABL facility and are used to finance a portion of the purchase price, thereby reducing the amount of equity or high-yield bonds required to fund the acquisition.

SLR's focus on corporate versus consumer ABL relies on old-school fundamental credit analysis of both the borrower and the collateral, requiring heavy hands-on due diligence and bespoke loan structures, which typically include cash Dominion. Most importantly, we leverage our experienced middle office infrastructure and resources for intensive collateral monitoring and control of that collateral during the life of our investment.

At quarter end, our ABL portfolio totaled over $1.4 billion across 265 borrowers, representing 44% of our total portfolio.

For the third quarter, we originated just over $300 million of new investments and had repayments of approximately $244 million.

In the third quarter, our weighted average asset level yield on the ABL portfolio was 13.4%, consistent with the prior quarter.

Now turning to Equipment Finance. At quarter end, the portfolio totaled just over $1 billion, representing 32% of our total portfolio across 590 borrowers. The credit profile of this portfolio was unchanged versus the prior quarter.

During the third quarter, we originated $112 million of new assets and had repayments of $133 million. The weighted average asset level yield was 11.4%, down 20 basis points from the prior quarter.

Our investment pipeline has recently expanded, and we are seeing demand from our borrowers to extend existing leases on our equipment rather than buying new equipment at higher tariff-adjusted prices.

Now let me turn to Life Sciences. Strong public and private equity markets for life science companies during COVID resulted in lofty valuations and led to a trend in the life science debt market of new entrants with looser underwriting and structure standards.

Since then, life science valuations have begun to moderate as interest rates increased and equity was harder to come by. That moderation has continued, including during much of this year as the market digests some of the more recent regulatory uncertainty.

Also, while recent industry investment activity has focused on life science, health care, IT and services and earlier-stage development companies, our focus continues to be on late development and early commercial stage drug and medical device companies.

Competition amongst lenders has increased in select situations, and we are seeing occasional signs of structural give from newer entrants seeking to deploy capital. These are market conditions that reward disciplined and experienced life science teams such as ours.

Our team possesses a deep understanding of the unique and often nonlinear value creation inherent in life science companies. We know that progress is rarely a straight line and requires experience to properly assess the deployment of significant investments and the potential value of intellectual property.

With over $5 billion in life science committed investments over the past 25 years, our advisers' life science finance team has significant experience navigating these cycles and the ongoing evolution of regulatory and policy changes, including possessing extensive expertise with the complex FDA and CMS processes.

The market is beginning to turn more positive as FDA concerns have softened a bit. Although uncertainties still exist, they are not as concerning, and we are seeing more momentum and better pipeline opportunities for both drugs and medical devices.

Our current pipeline is the highest that it's been in over 2 years and is triple the size of where it stood just a year ago. The late-stage venture debt environment remains selective but constructive for specialist lenders such as ourselves.

With IPOs still scarce and equity capital more discriminating, nondilutive senior debt has become a strategic bridge to milestones, expansions, IPOs when viable or strategic exits.

Our focus remains on first lien senior secured by all assets, including cash and control over a company's IP to companies with products at or near FDA approval and generation of commercialization revenue. We underwrite to specific value realization events rather than to open-ended runway extensions.

Across our platform, we've had 3 investments totaling just under $350 million pay off year-to-date, while adding over $360 million of new life science commitments.

In an uncertain and valuation challenged environment, we view getting repaid on certain investments and generating attractive mid-double-digit returns is a very good outcome for SLRC.

At quarter end, our life science portfolio totaled approximately $218 million across 9 borrowers. 88% of this portfolio is invested in companies that have over 12 months of cash runway.

Additionally, the vast majority of our portfolio companies have revenues with at least one product in the commercialization stage, which significantly derisks our investments.

During the third quarter, the team funded approximately $2 million to an existing borrower and had just under $1 million of contractual amortization repayments. It was a quiet quarter on the origination front and our portfolio benefited from the continued duration on our existing portfolio, while the industry continues to grapple with the headwinds of recent cuts at the FDA and NIH involving public policy as well as continuing valuation challenges. At quarter end the weighted average yield on this portfolio, including success fees but excluding warrants, was 12.3%.

Now finally, let me touch on our sponsor finance cash flow business. Middle market sponsor activity improved modestly in the third quarter, and the momentum appears to be carrying over into the fourth quarter, yet competition for quality assets remains intense and the looming '26-'27 maturity wall continues to shape borrower behavior.

In this highly selective market, we believe discipline is the differentiator. We remain focused on lending to sponsor-backed businesses with predictable recurring revenue in sectors where we have deep domain expertise, including health care services, business services, and financial services.

At quarter end, our cash flow portfolio was just under $500 million across 31 borrowers, including our senior secured loans into the SSLP or just over 15% of the total portfolio.

With approximately 99% of this portfolio invested in first lien loans, we believe that we are well positioned to withstand tariff and economic headwinds.

Our borrowers have a weighted average EBITDA of approximately $90 million and carry low LTVs of 44%. Our borrower fundamentals are trending positive with portfolio company average EBITDA and revenue growth in the mid-single digits year-over-year.

Overall, our portfolio companies have successfully managed the transition to an environment with higher cost of capital and input prices.

The weighted average interest coverage on this portfolio was 1.9 at quarter end, up from the prior quarter's 1.8. Additionally, less than 2% of our gross investment income is in the form of capitalized PIK from cash flow borrowers resulting from amendments.

During the quarter, we made investments of $31 million in new first lien cash flow loans and had repayments of $41 million. The average yield on this portfolio was 10.2%, down from 10.3% in the prior quarter.

Lastly, let me touch on our SSLP. During the quarter, we earned total income of approximately $1.5 million, representing a 12.7% annualized yield. During the quarter, we made $18.5 million new investments in 4 portfolio companies and had $15 million of repayments.

Net leverage totaled 0.9 at quarter end. We expect to continue to rebuild this portfolio opportunistically. At quarter end, we had approximately $40 million of undrawn debt capacity. Worth noting that we are active in the repricing of various credit facilities in the quarter with our banks at our ABL platforms as well as at the SSLP credit facility. We expect these adjustments will be accretive to our cost of debt going forward. Now let me turn the call back to Michael.

Thank you, Bruce. With the maturation of private credit into a more mainstream asset class over the past 5 years, investors now have numerous ways to access private credit beta products. We continue to believe that SLR's multi-strategy approach to private credit investing, our emphasis on preservation of capital, and our portfolio construction with the specialty finance emphasis differentiates us from the majority of our BDC peers and provides an investment portfolio that contains very limited issue overlap with other private credit managers.

The combination of a diversified momentum across our investment strategies and a growing investment pipeline tilted heavily towards specialty finance positions the company favorably to navigate the current climate. We will continue to be opportunistic and prudent as we deploy capital.

We think that recent volatility in BDC share prices over the last 6 weeks stems from burgeoning investor anxiety about corporate and private conditions regarding the realization of the potential impact of base rate cuts on floating rate index investments, fears of deteriorating credit quality among corporate borrowers relative to very tight risk premium.

While we think SLRC's earnings sensitivity to change in base rates is one of the one, if not the lowest amongst our peers, we acknowledge that we are not fully immune to the impact of recent reductions in base rates by the Fed.

Our North Star continues to be protecting capital, avoiding losses, and not chasing higher spreads at the expense of structural protections. While maintaining dividend coverage is important as many of our investors rely on the distribution of our income, we believe it must be done in a way that doesn't compromise credit quality.

We made significant investments in resources across the SLR platform, and we have some levers to pull at SLRC that can help offset base rate declines, including expanding our portfolio leverage from 1.13x to 1.25x. While it's hard to predict the timing of market changes, we think investors should take comfort in the quality of our investment portfolio today with our nonaccruals, PIK income, watch list percent of fair value and leverage all below the averages for our peer group.

Bruce and I have been in this business long enough to appreciate the nuances of rate cycles. It is natural for the BDC industry's earnings collectively to decline with declining base rates. A decline in base rates oftentimes could accompany wider spreads and higher volume as offsets.

The dispersion performance may continue, we expect top-tier private credit portfolios to continue to provide an attractive yield premium to other liquid fixed income alternatives and serve as a portfolio balance for both wealth and institutional investors.

In closing, SLRC currently trades at an approximately 10.7% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income-seeking and value investors and also offers a more diversified investment portfolio compared to cash flow on private credit strategies.

Our investment adviser alignment of interest with SLRC shareholders continues to be one of our significant hallmark principles. The SLR team owns over 8% of the company's stock and has a significant percentage of the annual incentive compensation invested in the 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.

We thank you again for your time today as we know it's a very busy time for those that follow the listed BDC marketplace closely.

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

Certainly, Mr. Gross. [Operator Instructions]

We'll go first this morning to Erik Zwick of Lucid Capital Markets.

I wanted to first just make sure I heard something correctly. Did you mention that you'd hired 100 new people over the past few years?

We have, and primarily in our asset-based and special lending strategies.

Got you. So I guess kind of safe to assume there that with the banks retrenching in addition to having augmented lending opportunities, I guess, some of the individuals coming from the banks as well, have you had opportunities to kind of pull teams out as, I guess, as they maybe become disenfranchised with their prior employer?

Yes, it's a combination of that. And as you know, we've also made some tuck-in acquisitions. And with that selectively added people that we're managing portfolios that we acquired to expand our footprint further.

Got it. And then I appreciate the commentary you provided in terms of underwriting discipline and some of the specifics that you have to go through with ABL, there's certainly been questions in the market regarding that. So that was helpful. A bit of a follow-up there. I was reading about another BDC recently, and they mentioned that some of their ABL investments did not meet the criteria to be qualified assets, kind of in the BDC structure. So just curious, from your perspective, is there something specific that you guys do? And I guess I don't know if 100% of yours are qualified assets. But curious if you could just kind of maybe talk around that topic a little bit to provide a little better understanding.

Nothing on qualified assets. That said, we have not been limited in being able to grow our specialty finance and asset funding strategies by that 30% issue. We have plenty of room. Some of our lender finance are the companies that would not qualify. But again, we have plenty of capacity to take advantage of it. But in the direct ABL market, they are all qualifying assets where we're lending direct to asset-backed borrowers against their working capital assets.

We go next now to Melissa Wedel of JPMorgan.

I wanted to make sure I'm understanding what's driving this really elevated churn in both. Obviously, you're finding good opportunities in ABL, but there is a lot of churn. And then also on the equipment finance side, can you dig in a little bit there?

Yes. On the asset-based churn, but you're very often working with companies that are in transition. An asset-based structure is very often a 2- to 3-year duration. And so you will see a churn if they can tap into a covenant-light, more flexible cash flow structure. So that will drive that elevation asset class. Sometimes there's a subset where you're just providing the working capital facility longer term. But very often, these are short-duration facilities.

And then on the equipment finance side, you talked about borrowers looking to extend existing leases on equipment rather than going out and purchasing new. I'm curious, as you do that, it sounds like that's an area of opportunity that you're investing in. How do you adjust the underwriting to account for depreciating equipment and things that may be getting closer tend to replace?

Sure. It's not so much that it's a new opportunity, Melissa, it's more that we retain our existing leases longer and they'll come back and rather than at renewal, take us out and buy new equipment, they'll extend our existing lease on the existing equipment, which we have already amortized out and have a de minimis, if any, residual remaining. So any extension is effectively profit to the bottom line for us.

We'll go next now to Robert Dodd with Raymond James.

I think, Bruce, in your remarks, you said you think the ABL side is going to be the most attractive of all the areas going into 2026. I mean, what do you think that because you expect a pullback in the marketplace, with all the other noise and banks often retreating when this happens? I mean, what's the risk of incremental capital, if you will, coming out of the woodwork, right? I mean, in COVID, to your point on the Life Sciences side, a lot of things look quite attractive, and a lot of things got somewhat out of hand, and so you were cautious.

What's the risk that incremental capital comes out and kind of distorts the ABL market? Or is that -- it's already distorted and we're undistorting it at the moment with all the noise around these problems.

So great question. I'm just going to hit the life science first. I think the barriers to enter are lower for life sciences than ABL, which we'll touch on in a moment. But as we have seen in the marketplace, it's easy to get into life sciences. It's not so easy to succeed in life sciences. So people get in and stub their toe rather quickly and exit. But they first have to enter and realize that it requires a substantial amount of expertise.

On the ABL side, we view it more as a manufacturing business than a service business, service being the cash flow business where it's easy to enter. To get into the ABL business, it's not just capital. You need this infrastructure that we have created organically and inorganically over the last 15-plus years. And that makes it difficult for new entrants to come in because it is, as these recent examples have highlighted in the market, you do need that infrastructure not only to source, but to monitor your collateral, which is what's so imperative in structuring your investments.

And that's a challenge. I think new capital, if it were to come in, would be regional banks coming back in, but they would have to rebuild what they have exited also. I mean the example, as you may recall, last fall, we bought the business, the factoring business out of Webster Bank. So they are out of that business. If they want to come back in, they would need to rebuild that infrastructure in order to issue asset-based loans and monitor them.

Because if you look at what's happened to the traditional cash flow lending market over the last few years, the biggest driver of the deterioration of yields and structures is how much capital formation has taken place.

And it's primarily been driven through these non-listed BDCs that have exploded, but not one of them that I know of is focused on asset-based lending because, to Bruce's point, you have to have the existing infrastructure in place to take advantage of that. And so we have not seen new capital inflows into the space, nor do we really expect it from kind of traditional private credit.

Got it. Just one more, if I can. On the dividend, obviously, you mentioned you do have levers to pull, taking up leverage a little bit, growing some of the specialty vehicles, et cetera. What's your confidence level that you have enough levers given what the forward curve looks like? I mean, where is the calculus on? Is this dividend sustainable? Can you catch back up to it?

Last several quarters, we've been plus or minus up or down $0.01 or $0.02 from our dividend. And it's kind of too early for us to kind of call the ball, if you will, about where this is going to go. I think we're going to obviously watch our portfolio performance closely, and we're going to align our dividend to what we think our earnings potential is.

We'll go next now to Finian O'Shea with Wells Fargo.

Just continuing on the dividend discussion there and tying into Michael, a couple of your closing remarks mentioned SOFR. For one, the sensitivity tables that you disclosed in the Q, I know those could probably be rigid or quirky as opposed to how BDCs really work. But the SOFR-based NOI downside has been creeping up or worsening. I think it's $0.07 for 100 bps in NOI now.

So seeing if there's any nuance there in the say, composition of the FinCos that make you more interest rate sensitive recently. But also given it's sort of clearly going down, you've already been paying a return of capital for a couple of quarters. There's a little bit of leverage headroom, but not too much. So seeing why you're still declaring the $0.41. And to what extent would you continue to pay out a return of capital?

First of all, just to clarify, the last 2 quarters that we underearn by $0.01, our NAV actually increased in those quarters. And so we did not return capital. We grew our net asset value. So that's...

But your disclosure says, well, the dividend from a taxable perspective, the payout constitution entailed a return.

Capital from a NAV perspective, we did not. And again, look, I'll stick on the answer before. We're obviously aware of what these theoretical hypothetical curves that were required to put in the 10-K today. We are among larger shareholders. So our interests are completely aligned with the rest of our investors. And as the portfolio develops, we'll decide how to adjust our dividend if necessary.

Okay. That's helpful. A follow-up on the ABL franchises. So I think it's North Mill and Kingsbridge are continuing to appreciate. Can you remind us the context of that? Is it a retained earnings driver or a valuation expansion this quarter and in recent quarters?

Yes. So those are valued externally, and they're looking at a combination of the growth in the portfolio, to your point, the return on the portfolio as well as market comps as inputs in their valuation. So obviously, the businesses have continued to perform extremely well in this environment. But an overlay is also the market comps for the asset class ABL lending.

Okay. So more multiple than retained earnings?

Both.

We'll go next now to [ Dylan Hynes ] with B. Riley.

[p id="A00" name="Unknown Analyst" type="A" /> I was just wondering, so with common reports of increasing private equity M&A activity, are you seeing more quality cash flow opportunities? If so, would you be looking to start investing more in your sponsor finance originations? Or is ABL just more advantageous?

Great question. We are opportunistically seeing better investments in cash flow. As you know, we're very tight in our industry focus there where we think we can get a complexity premium without taking on additional risk and predominantly in health care. And what we like to do is rather than go to new platforms exclusively, we tend to skew towards add-on financings for existing issuers who are getting bigger. That's a very good time as those companies are seasoned and their credit facilities are seasoned. So we'd like to come in. And you saw us do a lot of that in 2023.

I'm not expecting that same volume given, to your point, our opportunity set in ABL and elsewhere, but we are seeing some selective opportunities in cash flow as well. And the last thing I would add on that is our cash flow sponsor origination team is spending a lot of time out there with the sponsor community trying to originate ABL assets. And as we mentioned, increasingly, you're seeing sponsors use ABL facilities rather than cash flow for acquisitions, for liquidity lines. And so we view that as a strategic advantage being able to offer both cash flow and ABL solutions to the sponsor community.

[Operator Instructions] We'll take a follow-up question now from Lisa with JP Morgan.

Just one follow-up for me. I noticed that on a sequential basis, there was a little bit of a tick up, I think, maybe almost by $1 million on sort of G&A expense. I was wondering if there was anything onetime in nature? Or is that related to sort of building out the team and the platform and maybe that's more of a run rate going forward?

Yes. I think that was a onetime true-up on some expense accruals. I think if you look at our sort of track record the last 2 years, the sort of quarterly average should be $1.1 million, $1.2 million. So we'd expect that to be the run rate going forward.

And gentlemen, it appears we have no further questions at this time. Mr. Gross. I'll hand things back to you, sir, for any closing comments.

Again, we thank you for your time and attention during this busy time. And as always, if anyone has any questions, feel free to contact any of us. Have a great day.

Thank you, gentlemen. And again, ladies and gentlemen, that will conclude today's third quarter 2025 SLRC Earnings Call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.