UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarter Ended September 30, 2023
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 814-00754
(Exact name of registrant as specified in its charter)
(State of Incorporation) |
(I.R.S. Employer Identification No.) | |
| |
||
(Address of principal executive offices) |
(Zip Code) | |
(212 ) 993-1670
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 Yes
days.
☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Yes
Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act. | ☒ | Accelerated filer | ☐ | ||||
| Non-accelerated filer | ☐ | Smaller Reporting company | ||||
| Emerging growth company | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule ☒
12b-2
of the Exchange Act). Yes ☐ No
The number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of November 3, 2023 was 54,554,634 .
SLR INVESTMENT CORP.
FORM
10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2023 TABLE
OF
CONTENTS PAGE |
||||||
| Item 1. |
3 | |||||
| 4 | ||||||
| 5 | ||||||
| 6 | ||||||
| 7 | ||||||
| Consolidated Schedule of Investments as of December 31, 2022 | 12 | |||||
| Notes to Consolidated Financial Statements (unaudited) | 17 | |||||
| Report of Independent Registered Public Accounting Firm | 38 | |||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 39 | ||||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 58 | ||||
| Item 4. |
Controls and Procedures | 58 | ||||
| Item 1. |
Legal Proceedings | 59 | ||||
| Item 1A. |
Risk Factors | 59 | ||||
| Item 2. |
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities | 61 | ||||
| Item 3. |
Defaults Upon Senior Securities | 61 | ||||
| Item 4. |
Mine Safety Disclosures | 61 | ||||
| Item 5. |
Other Information | 61 | ||||
| Item 6. |
Exhibits | 61 | ||||
| Signatures | 63 | |||||
PART I. FINANCIAL INFORMATION
In this Quarterly Report, “Company”, “we”, “us”, and “our” refer to SLR Investment Corp. unless the context states otherwise.
Item 1. |
Financial Statements |
SLR INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share amounts)
September 30, 2023 (unaudited) |
December 31, 2022 |
|||||||
| Assets |
||||||||
| Investments at fair value: |
||||||||
| Companies less than 5% owned (cost: $ |
$ | $ | ||||||
| Companies 5% to 25% owned (cost: $ |
||||||||
| Companies more than 25% owned (cost: $ |
||||||||
| Cash |
||||||||
| Cash equivalents (cost: $ |
||||||||
| Dividends receivable |
||||||||
| Interest receivable |
||||||||
| Receivable for investments sold |
||||||||
| Prepaid expenses and other assets |
||||||||
| |
|
|
|
|||||
| Total assets |
$ | $ | ||||||
| |
|
|
|
|||||
| Liabilities |
||||||||
| Debt ($ |
$ | $ | ||||||
| Payable for investments and cash equivalents purchased |
||||||||
| Distributions payable |
||||||||
| Management fee payable (see note 3) |
||||||||
| Performance-based incentive fee payable (see note 3) |
||||||||
| Interest payable (see note 7) |
||||||||
| Administrative services payable (see note 3) |
||||||||
| Other liabilities and accrued expenses |
||||||||
| |
|
|
|
|||||
| Total liabilities |
$ | $ | ||||||
| |
|
|
|
|||||
| Commitments and contingencies (see note 14) |
||||||||
| Net Assets |
||||||||
| Common stock, par value $ |
$ | $ | ||||||
| Paid-in capital in excess of par |
||||||||
| Accumulated distributable net loss |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Total net assets |
$ | $ | ||||||
| |
|
|
|
|||||
| Net Asset Value Per Share |
$ | $ | ||||||
| |
|
|
|
|||||
See notes to consolidated financial statements.
3
SLR INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except share amounts)
Three months ended |
Nine months ended |
|||||||||||||||
September 30, 2023 |
September 30, 2022 |
September 30, 2023 |
September 30, 2022 |
|||||||||||||
INVESTMENT INCOME: |
||||||||||||||||
Interest: |
||||||||||||||||
Companies less than 5% owned |
$ | $ | $ | $ | ||||||||||||
Companies 5% to 25% owned |
||||||||||||||||
Companies more than 25% owned |
||||||||||||||||
Dividends: |
||||||||||||||||
Companies more than 25% owned |
||||||||||||||||
Other income: |
||||||||||||||||
Companies less than 5% owned |
||||||||||||||||
Companies more than 25% owned |
||||||||||||||||
Total investment income |
||||||||||||||||
EXPENSES: |
||||||||||||||||
Management fees (see note 3) |
$ | $ | $ | $ | ||||||||||||
Performance-based incentive fees (see note 3) |
||||||||||||||||
Interest and other credit facility expenses (see note 7) |
||||||||||||||||
Administrative services expense (see note 3) |
||||||||||||||||
Other general and administrative expenses |
||||||||||||||||
Total expenses |
||||||||||||||||
Performance-based incentive fees waived (see note 3) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net expenses |
||||||||||||||||
Net investment income |
$ | $ | $ | $ | ||||||||||||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND CASH EQUIVALENTS: |
||||||||||||||||
Net realized loss on investments and cash equivalents (companies less than 5% owned) |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Net change in unrealized gain (loss) on investments and cash equivalents: |
||||||||||||||||
Companies less than 5% owned |
||||||||||||||||
Companies 5% to 25% owned |
( |
) | ||||||||||||||
Companies more than 25% owned |
( |
) | ( |
) | ||||||||||||
Net change in unrealized gain (loss) on investments and cash equivalents |
( |
) | ||||||||||||||
Net realized and unrealized gain (loss) on investments and cash equivalents |
( |
) | ( |
) | ( |
) | ||||||||||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | $ | $ | $ | ( |
) | ||||||||||
EARNINGS (LOSS) PER SHARE (see note 5) |
$ | $ | $ | $ | ( |
) | ||||||||||
See notes to consolidated financial statements.
4
SLR INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)
(in thousands, except share amounts)
Three months ended |
Nine months ended |
|||||||||||||||
September 30, 2023 |
September 30, 2022 |
September 30, 2023 |
September 30, 2022 |
|||||||||||||
| Increase (decrease) in net assets resulting from operations: |
||||||||||||||||
| Net investment income |
$ | $ | $ | $ | ||||||||||||
| Net realized loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net change in unrealized gain (loss) |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net increase (decrease) in net assets resulting from operations |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Distributions to stockholders: |
||||||||||||||||
| From net investment income |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| From return of capital |
( |
) | ( |
) | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net distributions to stockholders |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Capital transactions : |
||||||||||||||||
| Issuance of common stock |
||||||||||||||||
| Repurchases of common stock |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net capital transactions |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total increase (decrease) in net assets |
( |
) | ( |
) | ||||||||||||
| Net assets at beginning of period |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net assets at end of period |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Capital stock activity : |
||||||||||||||||
| Issuance of common stock |
||||||||||||||||
| Repurchases of common stock |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net capital stock activity |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
See notes to consolidated financial statements.
5
SLR INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
Nine months ended |
||||||||
September 30, 2023 |
September 30, 2022 |
|||||||
Cash Flows from Operating Activities: |
||||||||
Net increase (decrease) in net assets resulting from operations |
$ | $ | ( |
) | ||||
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities: |
||||||||
Net realized loss on investments and cash equivalents |
||||||||
Net change in unrealized (gain) loss on investments |
( |
) | ||||||
Deferred financing costs/market discount |
||||||||
(Increase) decrease in operating assets: |
||||||||
Purchase of investments |
( |
) | ( |
) | ||||
Proceeds from disposition of investments |
||||||||
Net accretion of discount on investments |
( |
) | ( |
) | ||||
Capitalization of payment-in-kind |
( |
) | ( |
) | ||||
Collections of payment-in-kind |
||||||||
Receivable for investments sold |
( |
) | ||||||
Interest receivable |
( |
) | ( |
) | ||||
Dividends receivable |
( |
) | ||||||
Prepaid expenses and other assets |
( |
) | ( |
) | ||||
Cash acquired in the Mergers |
||||||||
Increase (decrease) in operating liabilities: |
||||||||
Payable for investments and cash equivalents purchased |
( |
) | ( |
) | ||||
Management fee payable |
||||||||
Performance-based incentive fee payable |
||||||||
Administrative services expense payable |
( |
) | ||||||
Interest payable |
( |
) | ||||||
Other liabilities and accrued expenses |
||||||||
Net Cash Used in Operating Activities |
( |
) | ( |
) | ||||
Cash Flows from Financing Activities: |
||||||||
Cash distributions paid |
( |
) | ( |
) | ||||
Proceeds from unsecured borrowings |
||||||||
Repayment of unsecured borrowings |
( |
) | ( |
) | ||||
Proceeds from secured borrowings |
||||||||
Repayment of secured borrowings |
( |
) | ( |
) | ||||
Repurchase of common stock |
( |
) | ||||||
Net Cash Provided by Financing Activities |
||||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
( |
) | ( |
) | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | $ | ||||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for interest |
$ | $ | ||||||
Issuance of shares in connection with the Mergers (1) |
||||||||
| (1) | On April 1, 2022, in connection with the Mergers (as defined in Note 1 “Organization”), the Company acquired net assets of $ |
See notes to consolidated financial statements.
6
SLR INVESTMENT CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited)
September 30, 2023
(in thousands, except share/unit amounts)
Description |
Industry |
Spread Above Index (7) |
Floor |
Interest Rate (1) |
Acquisition Date |
Maturity Date |
Par Amount |
Cost |
Fair Value |
|||||||||||||||||||||||||||
Senior Secured Loans — |
||||||||||||||||||||||||||||||||||||
First Lien Bank Debt/Senior Secured Loans |
||||||||||||||||||||||||||||||||||||
Accession Risk Management Group, Inc. (f/k/a RSC Acquisition, Inc.) (16) |
S+ |
% | % | $ | $ | $ | ||||||||||||||||||||||||||||||
Aegis Toxicology Sciences Corporation(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Alkeme Intermediary Holdings, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
All States Ag Parts, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Apex Services Partners, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Atria Wealth Solutions, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Basic Fun, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
BayMark Health Services, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Bayside Opco, LLC(27) |
S+ |
(15) |
% | % | ||||||||||||||||||||||||||||||||
Bayside Opco, LLC(27) |
S+ |
(11) |
% | % | ||||||||||||||||||||||||||||||||
Bayside Parent, LLC(27) |
S+ |
(11) |
% | % | ||||||||||||||||||||||||||||||||
BDG Media, Inc. |
P+ |
% | % | |||||||||||||||||||||||||||||||||
CC SAG Holdings Corp. (Spectrum Automotive)(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Composite Technology Acquisition Corp.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
CVAUSA Management, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Enhanced Permanent Capital, LLC(3) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
ENS Holdings III Corp. & ES Opco USA LLC (Bluefin)(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Enverus Holdings, Inc. (fka Drilling Info Holdings)(16) |
S+ |
% | ||||||||||||||||||||||||||||||||||
Erie Construction Mid-west, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Fertility (ITC) Investment Holdco, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Foundation Consumer Brands, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
GSM Acquisition Corp.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Higginbotham Insurance Agency, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
High Street Buyer, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Human Interest Inc. |
S+ |
% | % | |||||||||||||||||||||||||||||||||
iCIMS, Inc. |
S+ |
% | % (26) |
|||||||||||||||||||||||||||||||||
Kaseya, Inc.(16) |
S+ |
% | % (29) |
|||||||||||||||||||||||||||||||||
Kid Distro Holdings, LLC (Distro Kid)(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Kingsbridge Holdings, LLC(2) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
KORE Wireless Group, Inc.(16) |
S+ |
% | ||||||||||||||||||||||||||||||||||
Logix Holding Company, LLC(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
Luxury Asset Capital, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Maurices, Incorporated(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Maxor Acquisition, Inc. |
S+ |
% | % | |||||||||||||||||||||||||||||||||
NSPC Intermediate Corp. (National Spine) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Oldco AI, LLC(f/k/a Amerimark)(14)(27) |
P+ |
% | % | |||||||||||||||||||||||||||||||||
Oldco AI, LLC (f/k/a Amerimark)(14)(27)** |
S+ |
% | ||||||||||||||||||||||||||||||||||
ONS MSO, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Orthopedic Care Partners Management, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Pediatric Home Respiratory Services, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Peter C. Foy & Associates Insurance Services, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
PhyNet Dermatology LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Pinnacle Treatment Centers, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Plastics Management, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
RQM+ Corp.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
RxSense Holdings LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
SCP Eye Care, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
SHO Holding I Corporation (Shoes for Crews)(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Southern Orthodontic Partners Management, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Stryten Resources LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
SunMed Group Holdings, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
TAUC Management, LLC(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
The Townsend Company, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Tilley Distribution, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Ultimate Baked Goods Midco LLC (Rise Baking)(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
United Digestive MSO Parent, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Urology Management Holdings, Inc. |
S+ |
% | % | |||||||||||||||||||||||||||||||||
UVP Management, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Vessco Midco Holdings, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
West-NR Parent, Inc. |
S+ |
% | % | |||||||||||||||||||||||||||||||||
World Insurance Associates, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
Total First Lien Bank Debt/Senior Secured Loans |
$ | $ | ||||||||||||||||||||||||||||||||||
Second Lien Asset-Based Senior Secured Loans |
||||||||||||||||||||||||||||||||||||
ACRES Commercial Mortgage, LLC |
S+ |
% | % | $ | $ | |||||||||||||||||||||||||||||||
FGI Worldwide LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||||||||||||
Second Lien Bank Debt/Senior Secured Loans |
||||||||||||||||||||||||||||||||||||
RD Holdco, Inc.** (2) |
S+ |
(11) |
% | $ | $ | |||||||||||||||||||||||||||||||
See notes to consolidated financial statements. |
||||||||||||||||||||||||||||||||||||
7
SLR INVESTMENT CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)
September 30, 2023
(in thousands, except share/unit amounts)
Description |
Industry |
Spread Above Index (7) |
Floor |
Interest Rate (1) |
Acquisition Date |
Maturity Date |
Par Amount |
Cost |
Fair Value |
|||||||||||||||||||||||||
Senior Secured Loans (continued) — |
||||||||||||||||||||||||||||||||||
First Lien Life Science Senior Secured Loans |
||||||||||||||||||||||||||||||||||
Alimera Sciences, Inc.(16) |
S+ |
% | % | $ | |
$ | $ | |||||||||||||||||||||||||||
Apeel Technology, Inc |
S+ |
% | % | |||||||||||||||||||||||||||||||
Arcutis Biotherapeutics, Inc.(3) |
S+ |
% | % | |||||||||||||||||||||||||||||||
Ardelyx, Inc.(3) |
S+ |
% | % | |||||||||||||||||||||||||||||||
BridgeBio Pharma, Inc.(3) |
% (22) |
|||||||||||||||||||||||||||||||||
Cerapedics, Inc. |
S+ |
% | % | |||||||||||||||||||||||||||||||
Glooko, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||
Meditrina, Inc. |
S+ |
% | % | |||||||||||||||||||||||||||||||
Neuronetics, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||
OmniGuide Holdings, Inc. (13) |
S+ |
% | % | |||||||||||||||||||||||||||||||
Outset Medical, Inc.(3)(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||
Vapotherm, Inc. |
S+ |
% | % (24) |
|||||||||||||||||||||||||||||||
Vertos Medical, Inc. |
S+ |
% | % | |||||||||||||||||||||||||||||||
Total First Lien Life Science Senior Secured Loans |
$ | $ | ||||||||||||||||||||||||||||||||
Total Senior Secured Loans |
$ |
$ |
||||||||||||||||||||||||||||||||
Description |
Industry |
Interest Rate (1) |
Acquisition Date |
Maturity Date |
Par Amount |
Cost |
Fair Value |
|||||||||||||
Equipment Financing — |
||||||||||||||||||||
A&A Crane and Rigging, LLC (10) |
$ | $ | $ | |||||||||||||||||
Aero Operating LLC (10) |
||||||||||||||||||||
AFG Dallas III, LLC (10) |
||||||||||||||||||||
Air Methods Corporation (10) |
||||||||||||||||||||
AmeraMex International, Inc. (10) |
||||||||||||||||||||
Bazzini, LLC (10) |
||||||||||||||||||||
Boart Longyear Company (10) |
||||||||||||||||||||
Bowman Energy Solutions, LLC (10) |
||||||||||||||||||||
C-Port/Stone LLC (10) |
||||||||||||||||||||
Capital City Jet Center, Inc. (10) |
||||||||||||||||||||
Carolina’s Contracting, LLC (10) |
||||||||||||||||||||
CKD Holdings, Inc. (10) |
||||||||||||||||||||
Clubcorp Holdings, Inc. (10) |
||||||||||||||||||||
Complete Equipment Rentals, LLC (10) |
||||||||||||||||||||
Dongwon Autopart Technology Inc. (10) |
||||||||||||||||||||
Double S Industrial Contractors, Inc. (10) |
||||||||||||||||||||
Drillers Choice, Inc. (10) |
||||||||||||||||||||
Energy Drilling Services, LLC (10) |
||||||||||||||||||||
Environmental Protection & Improvement Company, LLC (10) |
||||||||||||||||||||
Equipment Operating Leases, LLC (2)(12) |
||||||||||||||||||||
Extreme Steel Crane & Rigging, LLC (10) |
||||||||||||||||||||
First American Commercial Bancorp, Inc. (10) |
||||||||||||||||||||
First National Capital, LLC (10) |
||||||||||||||||||||
Freightsol LLC (10) |
||||||||||||||||||||
Georgia Jet, Inc. (10) |
||||||||||||||||||||
GMT Corporation (10) |
||||||||||||||||||||
Hawkeye Contracting Company, LLC (10) |
||||||||||||||||||||
HTI Logistics Corporation (10) |
||||||||||||||||||||
International Automotive Components Group, North America, Inc. (10) |
||||||||||||||||||||
Kool Pak, LLC (10) |
||||||||||||||||||||
Loc Performance Products, LLC (10) |
||||||||||||||||||||
Loyer Capital LLC (2)(12) |
||||||||||||||||||||
Lux Credit Consultants, LLC (10) |
||||||||||||||||||||
Lux Vending, LLC (10) |
||||||||||||||||||||
Miranda Logistics Enterprise, Inc. (10) |
||||||||||||||||||||
Mountain Air Helicopters, Inc. (10) |
||||||||||||||||||||
Nimble Crane LLC (10) |
||||||||||||||||||||
No Limit Construction Services, LLC (10) |
||||||||||||||||||||
Ozzies, Inc. (10) |
||||||||||||||||||||
PCX Aerostructures LLC (10) |
||||||||||||||||||||
Rane Light Metal Castings Inc. (10) |
||||||||||||||||||||
Rango, Inc. (10) |
||||||||||||||||||||
Rayzor’s Edge LLC (10) |
||||||||||||||||||||
RH Land Construction, LLC & Harbor Dredging LA, Inc. (10) |
||||||||||||||||||||
Royal Express Inc. (10) |
||||||||||||||||||||
Rotten Rock Hardscaping & Tree Service (10) |
||||||||||||||||||||
Rutt Services, LLC (10) |
||||||||||||||||||||
Signet Marine Corporation (10) |
||||||||||||||||||||
SLR Equipment Finance(2) |
||||||||||||||||||||
Smiley Lifting Solutions, LLC(10) |
||||||||||||||||||||
ST Coaches, LLC (10) |
||||||||||||||||||||
Star Coaches Inc. (10) |
||||||||||||||||||||
Superior Transportation, Inc. (10) |
||||||||||||||||||||
The Smedley Company & Smedley Services, Inc. (10) |
||||||||||||||||||||
Trinity Equipment, Inc. (10) |
||||||||||||||||||||
Trinity Equipment Rentals, Inc. (10) |
||||||||||||||||||||
U.S. Crane & Rigging, LLC (10) |
||||||||||||||||||||
Up Trucking Services, LLC (10) |
||||||||||||||||||||
Waste Pro of Florida, Inc. & Waste Pro USA, Inc. (10) |
||||||||||||||||||||
Wind River Environmental, LLC (10) |
||||||||||||||||||||
Womble Company, Inc. (10) |
||||||||||||||||||||
Worldwide Flight Services, Inc. (10) |
||||||||||||||||||||
Zamborelli Enterprises Pacific Souther Foundation (10) |
||||||||||||||||||||
See notes to consolidated financial statements.
8
SLR INVESTMENT CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)
September 30, 2023
(in thousands, except share/unit amounts)
Description |
Industry |
Acquisition Date |
Shares/Units |
Cost |
Fair Value |
|||||||||||||||
Equipment Financing (continued) — |
||||||||||||||||||||
SLR Equipment Finance Equity Interests (2)(9)(17)* |
Multi-Sector Holdings |
|||||||||||||||||||
Total Equipment Financing |
$ |
$ |
||||||||||||||||||
Description |
Industry |
Interest Rate (1) |
Acquisition Date |
Maturity Date |
Par Amount |
Cost |
Fair Value |
|||||||||||||||||||||
Preferred Equity – |
||||||||||||||||||||||||||||
SOINT, LLC (2)(3)(4) |
Defense |
|
% (11) |
$ | $ | |||||||||||||||||||||||
Description |
Industry |
Acquisition Date |
Shares/ Units |
Cost |
Fair Value |
|||||||||||||
Common Equity/Equity Interests/Warrants— |
||||||||||||||||||
Assertio Holdings, Inc. (8)* |
$ | $ | ||||||||||||||||
aTyr Pharma, Inc. Warrants * |
||||||||||||||||||
Bayside Parent, LLC (27)* |
||||||||||||||||||
CardioFocus, Inc. Warrants * |
||||||||||||||||||
Centrexion Therapeutics, Inc. Warrants * |
||||||||||||||||||
Conventus Orthopaedics, Inc. Warrants * |
||||||||||||||||||
Delphinus Medical Technologies, Inc. Warrants * |
||||||||||||||||||
Essence Group Holdings Corporation (Lumeris) Warrants * |
||||||||||||||||||
KBH Topco LLC (Kingsbridge) (2)(5)(18) |
||||||||||||||||||
Meditrina, Inc. Warrants * |
||||||||||||||||||
NSPC Holdings, LLC (National Spine) * |
||||||||||||||||||
RD Holdco, Inc. (Rug Doctor) (2)* |
||||||||||||||||||
RD Holdco, Inc. (Rug Doctor) Class B (2)* |
||||||||||||||||||
RD Holdco, Inc. (Rug Doctor) Warrants (2)* |
||||||||||||||||||
Senseonics Holdings, Inc. (3)(8)* |
||||||||||||||||||
SLR-AMI Topco Blocker, LLC (27)(28)* |
||||||||||||||||||
SLR Business Credit (2)(3)(19) |
||||||||||||||||||
SLR Credit Solutions (2)(3)(20) |
||||||||||||||||||
SLR Healthcare ABL (2)(3)(21) |
||||||||||||||||||
SLR Senior Lending Program LLC (2)(3)(25) |
||||||||||||||||||
Vapotherm, Inc. Warrants* |
||||||||||||||||||
Venus Concept Ltd. Warrants* (f/k/a Restoration Robotics) |
||||||||||||||||||
Vertos Medical, Inc. Warrants* |
||||||||||||||||||
Total Common Equity/Equity Interests/Warrants |
$ |
$ |
||||||||||||||||
Total Investments (6) — |
$ |
$ |
||||||||||||||||
Description |
Industry |
Acquisition Date |
Maturity Date |
Par Amount |
||||||||||||||||||||
Cash Equivalents — |
||||||||||||||||||||||||
U.S. Treasury Bill |
$ | $ | $ | |||||||||||||||||||||
Total Investments & Cash Equivalents — |
$ |
$ |
||||||||||||||||||||||
Liabilities in Excess of Other Assets — ( |
( |
) | ||||||||||||||||||||||
Net Assets — |
$ |
|||||||||||||||||||||||
| (1) | Floating rate debt investments typically bear interest at a rate determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”), the Secured Overnight Financing Rate (“SOFR” or “S”) or the prime index rate (“PRIME” or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current rate of interest, or in the case of leases the current implied yield, in effect as of September 30, 2023. |
| (2) | Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the Investment Company Act of 1940, as amended (the “1940 Act”), due to beneficially owning, either directly or through one or more controlled companies, more than |
Name of Issuer |
Fair Value at December 31, 2022 |
Gross Additions |
Gross Reductions |
Realized Gain (Loss) |
Change in Unrealized Gain (Loss) |
Fair Value at September 30, 2023 |
Interest/ Dividend/Misc Income |
|||||||||||||||||||||
Equipment Operating Leases, LLC |
$ | $ | $ | ( |
) | $ | $ | $ | $ | |||||||||||||||||||
Kingsbridge Holdings, LLC |
( |
) | ||||||||||||||||||||||||||
KBH Topco, LLC (Kingsbridge) |
( |
) | ||||||||||||||||||||||||||
Loyer Capital LLC |
||||||||||||||||||||||||||||
RD Holdco, Inc. (Rug Doctor, common equity) |
||||||||||||||||||||||||||||
RD Holdco, Inc. (Rug Doctor, class B) |
||||||||||||||||||||||||||||
RD Holdco, Inc. (Rug Doctor, warrants) |
||||||||||||||||||||||||||||
RD Holdco, Inc. (debt) |
||||||||||||||||||||||||||||
SLR Business Credit |
||||||||||||||||||||||||||||
SLR Credit Solutions |
( |
) | ||||||||||||||||||||||||||
SLR Equipment Finance (equity) |
||||||||||||||||||||||||||||
SLR Equipment Finance (debt) |
( |
) | ||||||||||||||||||||||||||
SLR Healthcare ABL |
||||||||||||||||||||||||||||
SLR Senior Lending Program LLC |
||||||||||||||||||||||||||||
SOINT, LLC |
( |
) | ||||||||||||||||||||||||||
| $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ||||||||||||||||||
See notes to consolidated financial statements.
9
SLR INVESTMENT CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)
September 30, 2023
(in thousands)
| (3) | Indicates assets that the Company believes may not represent “qualifying assets” under Section 55(a) of the 1940 Act. If we fail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from making follow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the 1940 Act. As of September 30, 2023, on a fair value basis, non-qualifying assets in the portfolio represented |
| (4) | The Company’s investment in SOINT, LLC includes a one dollar investment in common shares. |
| (5) | Kingsbridge Holdings, LLC is held through KBH Topco LLC, a Delaware corporation. |
| (6) | Aggregate net unrealized appreciation for U.S. federal income tax purposes is $ |
| (7) | Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR, SOFR or PRIME rate. These instruments are often subject to a LIBOR, SOFR or PRIME rate floor. |
| (8) | Denotes a Level 1 investment. |
| (9) | SLR Equipment Finance is held through NEFCORP LLC, a wholly-owned consolidated taxable subsidiary and NEFPASS LLC, a wholly-owned consolidated subsidiary. |
| (10) | Indicates an investment that is wholly held by the Company through NEFPASS LLC. |
| (11) | Interest is paid in kind (“PIK”). |
| (12) | Denotes a subsidiary of SLR Equipment Finance. |
| (13) | OmniGuide Holdings, Inc., Domain Surgical, Inc. and OmniGuide, Inc. are co-borrowers. |
| (14) | AmeriMark Interactive, LLC, AmeriMark Direct LLC, AmeriMark Intermediate Sub, Inc., L.T.D. Commodities LLC, Dr. Leonard’s Healthcare Corp. and Amerimark Intermediate Holdings, LLC are each co-Borrowers. |
| (15) | Spread is |
| (16) | Indicates an investment that is wholly or partially held by the Company through its wholly-owned financing subsidiary SUNS SPV LLC (the “SUNS SPV”). Such investments are pledged as collateral under the Senior Secured Revolving SPV Credit Facility (the “SPV Credit Facility”) (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of the Company. |
| (17) | See note 10 to the consolidated financial statements. |
| (18) | See note 11 to the consolidated financial statements. |
| (19) | See note 13 to the consolidated financial statements. |
| (20) | See note 9 to the consolidated financial statements. |
| (21) | See note 12 to the consolidated financial statements. |
| (22) | BridgeBio Pharma, Inc. may elect to defer up to |
| (23) | The Company became an Affiliated Person to Bayside Opco, LLC and Bayside Parent, LLC on May 31, 2023 and to Amerimark Intermediate Holdings, LLC and SLR- AMI Topco Blocker, LLC on June 16, 2023. |
| (24) | Vapotherm, Inc. may elect to defer up to |
| (25) | See note 17 to the consolidated financial statements. |
| (26) | iCIMS, Inc. may elect to defer up to |
| (27) | Denotes investments in which we are an “Affiliated Person” but do not exercise a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the nine months ended September 30, 2023 (beginning with the date at which the Company became an Affiliated Person) in these affiliated investments are as follows: |
Name of Issuer |
Fair Value at Date of Affiliation(23) |
Gross Additions |
Gross Reductions |
Realized Gain (Loss) |
Change in Unrealized Gain (Loss) |
Fair Value at September 30, 2023 |
Interest Income |
|||||||||||||||||||||
Oldco AI, LLC (f/k/a AmeriMark) |
$ | $ | $ | ( |
) | $ | $ | $ | $ | |||||||||||||||||||
Oldco AI, LLC (f/k/a AmeriMark) |
( |
) | ||||||||||||||||||||||||||
Bayside Opco, LLC |
( |
) | ||||||||||||||||||||||||||
Bayside Opco, LLC |
||||||||||||||||||||||||||||
Bayside Parent, LLC (loan) |
||||||||||||||||||||||||||||
Bayside Parent, LLC (equity) |
( |
) | ||||||||||||||||||||||||||
SLR-AMI Topco Blocker, LLC |
( |
) | ||||||||||||||||||||||||||
| $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ||||||||||||||||||
| (28) | Through this entity and other intermediate entities, the Company owns approximately |
| (29) | Kaseya, Inc. may elect to defer up to |
| * | Non-income producing security. |
| ** | Investment is on non-accrual status. |
See notes to consolidated financial statements.
10
SLR INVESTMENT CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)
September 30, 2023
(in thousands)
Industry Classification |
Percentage of Total Investments (at fair value) as of September 30, 2023 |
|||
Diversified Financial Services (includes SLR Credit Solutions, SLR Business Credit and SLR Healthcare ABL) |
% | |||
Multi-Sector Holdings (includes Kingsbridge Holdings, LLC, SLR Equipment Finance, Equipment Operating Leases, LLC and Loyer Capital LLC) |
% | |||
Health Care Providers & Services |
% | |||
Health Care Equipment & Supplies |
% | |||
Insurance |
% | |||
Pharmaceuticals |
% | |||
Software |
% | |||
Diversified Consumer Services |
% | |||
Biotechnology |
% | |||
Capital Markets |
% | |||
Commercial Services & Supplies |
% | |||
Thrifts & Mortgage Finance |
% | |||
Asset Management |
% | |||
Road & Rail |
% | |||
Personal Products |
% | |||
Life Sciences Tools & Services |
% | |||
Wireless Telecommunication Services |
% | |||
Internet Software & Services |
% | |||
Building Products |
% | |||
Transportation Infrastructure |
% | |||
Internet & Catalog Retail |
% | |||
Packaged Foods & Meats |
% | |||
Communications Equipment |
% | |||
Health Care Technology |
% | |||
IT Services |
% | |||
Leisure Equipment & Products |
% | |||
Trading Companies & Distributors |
% | |||
Auto Parts & Equipment |
% | |||
Specialty Retail |
% | |||
Hotels, Restaurants & Leisure |
% | |||
Aerospace & Defense |
% | |||
Oil, Gas & Consumable Fuels |
% | |||
Auto Components |
% | |||
Footwear |
% | |||
Media |
% | |||
Airlines |
% | |||
Machinery |
% | |||
Metals & Mining |
% | |||
Water Utilities |
% | |||
Food & Staples Retailing |
% | |||
Construction & Engineering |
% | |||
Consumer Finance |
% | |||
Energy Equipment & Services |
% | |||
Total Investments |
% | |||
See notes
to
consolidated financial statements. 11
SLR INVESTMENT CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2022
(in thousands, except share/unit amounts)
| Description |
Industry |
Spread Above Index (7) |
Floor |
Interest Rate (1) |
Acquisition Date |
Maturity Date |
Par Amount |
Cost |
Fair Value |
|||||||||||||||||||||||||||
| Senior Secured Loans — |
||||||||||||||||||||||||||||||||||||
| First Lien Bank Debt/Senior Secured Loans |
||||||||||||||||||||||||||||||||||||
| Aegis Toxicology Sciences Corporation(16) |
L+ |
% | % | $ | $ | $ | ||||||||||||||||||||||||||||||
| All States Ag Parts, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| American Teleconferencing Services, Ltd** |
L+ |
% | ||||||||||||||||||||||||||||||||||
| American Teleconferencing Services, Ltd** |
L+ |
% | ||||||||||||||||||||||||||||||||||
| AmeriMark Intermediate Holdings, LLC(14) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| Apex Services Partners, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| Atria Wealth Solutions, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| Basic Fun, Inc.(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| BayMark Health Services, Inc.(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| BDG Media, Inc. |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| CC SAG Holdings Corp. (Spectrum Automotive)(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| Composite Technology Acquisition Corp.(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| Copper River Seafoods, Inc. |
P+ |
% | ||||||||||||||||||||||||||||||||||
| DeepIntent, Inc. |
P+ |
% | ||||||||||||||||||||||||||||||||||
| Enhanced Permanent Capital, LLC(3) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| ENS Holdings III Corp. & ES Opco USA LLC (Bluefin)(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| Enverus Holdings, Inc. (fka Drilling Info Holdings)(16) |
L+ |
% | ||||||||||||||||||||||||||||||||||
| Erie Construction Mid-west, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| Foundation Consumer Brands, LLC(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| GSM Acquisition Corp.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| Higginbotham Insurance Agency, Inc.(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| High Street Buyer, Inc.(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| Human Interest Inc. |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| iCIMS, Inc. |
S+ |
% | % (26) |
|||||||||||||||||||||||||||||||||
| Ivy Fertility Services, LLC |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| Kaseya, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| Kid Distro Holdings, LLC (Distro Kid)(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| Kingsbridge Holdings, LLC(2) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| KORE Wireless Group, Inc.(16) |
S+ |
% | ||||||||||||||||||||||||||||||||||
| Logix Holding Company, LLC(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| Luxury Asset Capital, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| Maurices, Incorporated(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| Montefiore Nyack Hospital |
L+ |
% | ||||||||||||||||||||||||||||||||||
| NAC Holdings Corporation (Jaguar)(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| National Spine and Pain Centers, LLC |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| One Touch Direct, LLC |
P+ |
% | ||||||||||||||||||||||||||||||||||
| Orthopedic Care Partners Management, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| Pediatric Home Respiratory Services, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| Peter C. Foy & Associates Insurance Services, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| PhyNet Dermatology LLC |
S+ |
(15) |
% | % | ||||||||||||||||||||||||||||||||
| Pinnacle Treatment Centers, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| Plastics Management, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| PPT Management Holdings, LLC(16) |
L+ |
(11) |
% | % | ||||||||||||||||||||||||||||||||
| RQM+ Corp.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| RSC Acquisition, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| RxSense Holdings LLC(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| SCP Eye Care, LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| SHO Holding I Corporation (Shoes for Crews)(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| Southern Orthodontic Partners Management, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| SPAR Marketing Force, Inc. |
P+ |
% | ||||||||||||||||||||||||||||||||||
| Stryten Resources LLC |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| SunMed Group Holdings, LLC(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| TAUC Management, LLC(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| Tilley Distribution, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| Ultimate Baked Goods Midco LLC (Rise Baking)(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| Vessco Midco Holdings, LLC(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||||
| World Insurance Associates, LLC(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||||||||||||||
| Total First Lien Bank Debt/Senior Secured Loans |
|
$ | $ | |||||||||||||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||||||||||||||
| Second Lien Asset-Based Senior Secured Loans |
||||||||||||||||||||||||||||||||||||
| ACRES Commercial Mortgage, LLC |
S+ |
% | % | $ | $ | |||||||||||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||||||||||||||
| Second Lien Bank Debt/Senior Secured Loans |
||||||||||||||||||||||||||||||||||||
| RD Holdco, Inc.** (2) |
S+ |
(11) |
% | $ | $ | |||||||||||||||||||||||||||||||
| |
|
|
|
|||||||||||||||||||||||||||||||||
See notes to consolidated financial statements.
12
SLR INVESTMENT CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)
December 31, 2022
(in thousands, except share/unit amounts)
Description |
Industry |
Spread Above Index (7) |
Floor |
Interest Rate (1) |
Acquisition Date |
Maturity Date |
Par Amount |
Cost |
Fair Value |
|||||||||||||||||||||||||
Senior Secured Loans (continued) — |
||||||||||||||||||||||||||||||||||
First Lien Life Science Senior Secured Loans |
||||||||||||||||||||||||||||||||||
Alimera Sciences, Inc.(16) |
L+ |
% | % | $ | $ | $ | ||||||||||||||||||||||||||||
Apeel Technology, Inc |
S+ |
% | % | |||||||||||||||||||||||||||||||
Arcutis Biotherapeutics, Inc.(3) |
L+ |
% | % | |||||||||||||||||||||||||||||||
Ardelyx, Inc.(3) |
L+ |
% | % | |||||||||||||||||||||||||||||||
BridgeBio Pharma, Inc.(3) |
% (22) |
|||||||||||||||||||||||||||||||||
Centrexion Therapeutics, Inc. |
L+ |
% | % | |||||||||||||||||||||||||||||||
Cerapedics, Inc. |
S+ |
% | % | |||||||||||||||||||||||||||||||
Glooko, Inc.(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||
Meditrina, Inc. |
S+ |
% | % | |||||||||||||||||||||||||||||||
Neuronetics, Inc.(16) |
L+ |
% | % | |||||||||||||||||||||||||||||||
OmniGuide Holdings, Inc. (13) |
L+ |
% | % (23) |
|||||||||||||||||||||||||||||||
Outset Medical, Inc.(3) |
S+ |
% | % | |||||||||||||||||||||||||||||||
Spectrum Pharmaceuticals, Inc.(16) |
S+ |
% | % | |||||||||||||||||||||||||||||||
Vapotherm, Inc. |
S+ |
% | % (24) |
|||||||||||||||||||||||||||||||
Total First Lien Life Science Senior Secured Loans |
$ | $ | ||||||||||||||||||||||||||||||||
Total Senior Secured Loans |
$ |
$ |
||||||||||||||||||||||||||||||||
Description |
Industry |
Interest Rate (1) |
Acquisition Date |
Maturity Date |
Par Amount |
Cost |
Fair Value |
|||||||||||||||||||
Equipment Financing — |
||||||||||||||||||||||||||
Aero Operating LLC (10) |
$ | $ | $ | |||||||||||||||||||||||
AFG Dallas III, LLC (10) |
||||||||||||||||||||||||||
Air Methods Corporation (10) |
||||||||||||||||||||||||||
AmeraMex International, Inc. (10) |
||||||||||||||||||||||||||
Bazzini, LLC (10) |
||||||||||||||||||||||||||
Boart Longyear Company (10) |
||||||||||||||||||||||||||
Bowman Energy Solutions, LLC (10) |
||||||||||||||||||||||||||
C-Port/Stone LLC (10) |
||||||||||||||||||||||||||
Capital City Jet Center, Inc. (10) |
||||||||||||||||||||||||||
Champion Air, LLC (10) |
||||||||||||||||||||||||||
CKD Holdings, Inc. (10) |
||||||||||||||||||||||||||
Clubcorp Holdings, Inc. (10) |
||||||||||||||||||||||||||
Dongwon Autopart Technology Inc. (10) |
||||||||||||||||||||||||||
Drillers Choice, Inc. (10) |
||||||||||||||||||||||||||
EasyPak, LLC (10) |
||||||||||||||||||||||||||
Energy Drilling Services, LLC (10) |
||||||||||||||||||||||||||
Environmental Protection & Improvement Company, LLC (10) |
||||||||||||||||||||||||||
Equipment Operating Leases, LLC (2)(12) |
||||||||||||||||||||||||||
First American Commercial Bancorp, Inc. (10) |
||||||||||||||||||||||||||
First National Capital, LLC (10) |
||||||||||||||||||||||||||
Freightsol LLC (10) |
||||||||||||||||||||||||||
Garda CL Technical Services, Inc. (10) |
||||||||||||||||||||||||||
Georgia Jet, Inc. (10) |
||||||||||||||||||||||||||
GMT Corporation (10) |
||||||||||||||||||||||||||
Hawkeye Contracting Company, LLC (10) |
||||||||||||||||||||||||||
HTI Logistics Corporation (10) |
||||||||||||||||||||||||||
International Automotive Components Group, North America, Inc. (10) |
||||||||||||||||||||||||||
Kool Pak, LLC (10) |
||||||||||||||||||||||||||
Loc Performance Products, LLC (10) |
||||||||||||||||||||||||||
Loyer Capital LLC (2)(12) |
||||||||||||||||||||||||||
Lux Credit Consultants, LLC (10) |
||||||||||||||||||||||||||
Lux Vending, LLC (10) |
||||||||||||||||||||||||||
Mountain Air Helicopters, Inc. (10) |
||||||||||||||||||||||||||
Ozzies, Inc. (10) |
||||||||||||||||||||||||||
PCX Aerostructures LLC (10) |
||||||||||||||||||||||||||
Rane Light Metal Castings Inc. (10) |
||||||||||||||||||||||||||
Rango, Inc. (10) |
||||||||||||||||||||||||||
Royal Coach Lines, Inc.(10) |
||||||||||||||||||||||||||
Royal Express Inc. (10) |
||||||||||||||||||||||||||
Rotten Rock Hardscaping & Tree Service (10) |
||||||||||||||||||||||||||
Signet Marine Corporation (10) |
||||||||||||||||||||||||||
SLR Equipment Finance(2) |
||||||||||||||||||||||||||
Smiley Lifting Solutions, LLC(10) |
||||||||||||||||||||||||||
ST Coaches, LLC (10) |
||||||||||||||||||||||||||
Star Coaches Inc. (10) |
||||||||||||||||||||||||||
Superior Transportation, Inc. (10) |
||||||||||||||||||||||||||
The Smedley Company & Smedley Services, Inc. (10) |
||||||||||||||||||||||||||
Trinity Equipment Rentals, Inc. (10) |
||||||||||||||||||||||||||
U.S. Crane & Rigging, LLC (10) |
||||||||||||||||||||||||||
Up Trucking Services, LLC (10) |
||||||||||||||||||||||||||
Wind River Environmental, LLC (10) |
||||||||||||||||||||||||||
Womble Company, Inc. (10) |
||||||||||||||||||||||||||
Worldwide Flight Services, Inc. (10) |
||||||||||||||||||||||||||
Zamborelli Enterprises Pacific Souther Foundation (10) |
||||||||||||||||||||||||||
Shares/Units |
||||||||||||||||||||||||||
SLR Equipment Finance Equity Interests (2)(9)(17)* |
||||||||||||||||||||||||||
Total Equipment Financing |
$ |
$ |
||||||||||||||||||||||||
See notes to consolidated financial statements.
13
SLR INVESTMENT CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)
December 31, 2022
(in thousands, except share/unit amounts)
Description |
Industry |
Interest Rate (1) |
Acquisition Date |
Maturity Date |
Par Amount |
Cost |
Fair Value |
|||||||||||||||||||
Preferred Equity – |
||||||||||||||||||||||||||
SOINT, LLC (2)(3)(4) |
% (11) |
$ | $ | |||||||||||||||||||||||
Description |
Industry |
Acquisition Date |
Shares/Units |
Cost |
Fair Value |
|||||||||||||
Common Equity/Equity Interests/Warrants— |
||||||||||||||||||
aTyr Pharma, Inc. Warrants * |
$ | $ | ||||||||||||||||
CardioFocus, Inc. Warrants * |
||||||||||||||||||
Centrexion Therapeutics, Inc. Warrants * |
||||||||||||||||||
Conventus Orthopaedics, Inc. Warrants * |
||||||||||||||||||
Delphinus Medical Technologies, Inc. Warrants * |
||||||||||||||||||
Essence Group Holdings Corporation (Lumeris) Warrants * |
||||||||||||||||||
KBH Topco LLC (Kingsbridge) (2)(5)(18) |
||||||||||||||||||
Meditrina, Inc. Warrants * |
||||||||||||||||||
RD Holdco, Inc. (Rug Doctor) (2)* |
||||||||||||||||||
RD Holdco, Inc. (Rug Doctor) Class B (2)* |
||||||||||||||||||
RD Holdco, Inc. (Rug Doctor) Warrants (2)* |
||||||||||||||||||
Senseonics Holdings, Inc. (3)(8)* |
||||||||||||||||||
SLR Business Credit (2)(3)(19) |
||||||||||||||||||
SLR Credit Solutions (2)(3)(20) |
||||||||||||||||||
SLR Healthcare ABL (2)(3)(21) |
||||||||||||||||||
SLR Senior Lending Program LLC (2)(3)(25) |
||||||||||||||||||
Spectrum Pharmaceuticals, Inc. Warrants * |
||||||||||||||||||
Vapotherm, Inc. Warrants* |
||||||||||||||||||
Venus Concept Ltd. Warrants* (f/k/a Restoration Robotics) |
||||||||||||||||||
Total Common Equity/Equity Interests/Warrants |
$ |
$ |
||||||||||||||||
Total Investments (6) — |
$ |
$ |
||||||||||||||||
Description |
Industry |
Acquisition Date |
Maturity Date |
Par Amount |
||||||||||||||||||||
Cash Equivalents — |
||||||||||||||||||||||||
U.S. Treasury Bill |
$ | $ | $ | |||||||||||||||||||||
Total Investments & Cash Equivalents — |
$ |
$ |
||||||||||||||||||||||
Liabilities in Excess of Other Assets — ( |
( |
) | ||||||||||||||||||||||
Net Assets — |
$ |
|||||||||||||||||||||||
| (1) | Floating rate debt investments typically bear interest at a rate determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”), the Secured Overnight Financing Rate (“SOFR” or “S”) or the prime index rate (“PRIME” or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current rate of interest, or in the case of leases the current implied yield, in effect as of December 31, 2022. |
| (2) | Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the Investment Company Act of 1940, as amended (“1940 Act”), due to beneficially owning, either directly or through one or more controlled companies, more than |
Name of Issuer |
Fair Value at December 31, 2021 |
Gross Additions |
Gross Reductions |
Realized Gain (Loss) |
Change in Unrealized Gain (Loss) |
Fair Value at December 31, 2022 |
Interest/ Dividend Income |
|||||||||||||||||||||
Equipment Operating Leases, LLC |
$ | $ | $ | ( |
) | $ | $ | $ | $ | |||||||||||||||||||
Kingsbridge Holdings, LLC |
( |
) | ||||||||||||||||||||||||||
KBH Topco, LLC (Kingsbridge) |
||||||||||||||||||||||||||||
Loyer Capital LLC |
( |
) | ||||||||||||||||||||||||||
RD Holdco, Inc. (Rug Doctor, common equity) |
||||||||||||||||||||||||||||
RD Holdco, Inc. (Rug Doctor, class B) |
( |
) | ||||||||||||||||||||||||||
RD Holdco, Inc. (Rug Doctor, warrants) |
||||||||||||||||||||||||||||
RD Holdco, Inc. (debt) |
( |
) | ( |
) | ||||||||||||||||||||||||
SLR Business Credit |
||||||||||||||||||||||||||||
SLR Credit Solutions |
( |
) | ||||||||||||||||||||||||||
SLR Equipment Finance (equity) |
( |
) | ||||||||||||||||||||||||||
SLR Equipment Finance (debt) |
||||||||||||||||||||||||||||
SLR Healthcare ABL |
||||||||||||||||||||||||||||
SLR Senior Lending Program LLC |
( |
) | ||||||||||||||||||||||||||
SOAGG LLC |
( |
) | ( |
) | ||||||||||||||||||||||||
SOINT, LLC |
( |
) | ( |
) | ||||||||||||||||||||||||
| $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ||||||||||||||||||
See notes to consolidated financial statements.
14
SLR INVESTMENT CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)
December 31, 2022
(in thousands)
| (3) | Indicates assets that the Company believes may not represent “qualifying assets” under Section 55(a) of the 1940 Act. If we fail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from making follow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the 1940 Act. As of December 31, 2022, on a fair value basis, non-qualifying assets in the portfolio represented |
| (4) | The Company’s investment in SOINT, LLC includes a one dollar investment in common shares. |
| (5) | Kingsbridge Holdings, LLC is held through KBH Topco LLC, a Delaware corporation. |
| (6) | Aggregate net unrealized appreciation for U.S. federal income tax purposes is $ |
| (7) | Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR, SOFR or PRIME rate. These instruments are often subject to a LIBOR, SOFR or PRIME rate floor. |
| (8) | Denotes a Level 1 investment. |
| (9) | SLR Equipment Finance is held through NEFCORP LLC, a wholly-owned consolidated taxable subsidiary and NEFPASS LLC, a wholly-owned consolidated subsidiary. |
| (10) | Indicates an investment that is wholly held by the Company through NEFPASS LLC. |
| (11) | Interest is paid in kind (“PIK”). |
| (12) | Denotes a subsidiary of SLR Equipment Finance. |
| (13) | OmniGuide Holdings, Inc., Domain Surgical, Inc. and OmniGuide, Inc. are co-borrowers. |
| (14) | AmeriMark Interactive, LLC, AmeriMark Direct LLC, AmeriMark Intermediate Sub, Inc., L.T.D. Commodities LLC, Dr. Leonard’s Healthcare Corp. and Amerimark Intermediate Holdings, LLC are each co-Borrowers. Amerimark may elect to defer up to |
| (15) | Spread is |
| (16) | Indicates an investment that is wholly or partially held by the Company through its wholly-owned financing subsidiary SUNS SPV LLC (the “SUNS SPV”). Such investments are pledged as collateral under the Senior Secured Revolving SPV Credit Facility (the “SPV Credit Facility”) (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of the Company. |
| (17) | See note 10 to the consolidated financial statements. |
| (18) | See note 11 to the consolidated financial statements. |
| (19) | See note 13 to the consolidated financial statements. |
| (20) | See note 9 to the consolidated financial statements. |
| (21) | See note 12 to the consolidated financial statements. |
| (22) | BridgeBio Pharma, Inc. may elect to defer up to |
| (23) | OmniGuide Holdings, Inc. may elect to defer up to |
| (24) | Vapotherm, Inc. may elect to defer up to |
| (25) | See note 17 to the consolidated financial statements. |
| (26) | iCIMS, Inc. may elect to defer up to |
| * | Non-income producing security. |
| ** | Investment is on non-accrual status. |
See notes to consolidated financial statements.
15
SLR INVESTMENT CORP.
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)
December 31, 2022
(in thousands)
Industry Classification |
Percentage of Total Investments (at fair value) as of December 31, 2022 |
|||
Diversified Financial Services (includes SLR Credit Solutions, SLR Business Credit and SLR Healthcare ABL) |
% | |||
Multi-Sector Holdings (includes Kingsbridge Holdings, LLC, SLR Equipment Finance, Equipment Operating Leases, LLC and Loyer Capital LLC) |
% | |||
Health Care Providers & Services |
% | |||
Health Care Equipment & Supplies |
% | |||
Pharmaceuticals |
% | |||
Software |
% | |||
Insurance |
% | |||
Biotechnology |
% | |||
Diversified Consumer Services |
% | |||
Media |
% | |||
Road & Rail |
% | |||
Personal Products |
% | |||
Capital Markets |
% | |||
Thrifts & Mortgage Finance |
% | |||
Life Sciences Tools & Services |
% | |||
Auto Parts & Equipment |
% | |||
Packaged Foods & Meats |
% | |||
Wireless Telecommunication Services |
% | |||
Commercial Services & Supplies |
% | |||
Internet & Catalog Retail |
% | |||
Internet Software & Services |
% | |||
Building Products |
% | |||
Trading Companies & Distributors |
% | |||
Health Care Technology |
% | |||
Transportation Infrastructure |
% | |||
Communications Equipment |
% | |||
IT Services |
% | |||
Leisure Equipment & Products |
% | |||
Specialty Retail |
% | |||
Asset Management |
% | |||
Food Products |
% | |||
Auto Components |
% | |||
Airlines |
% | |||
Hotels, Restaurants & Leisure |
% | |||
Oil, Gas & Consumable Fuels |
% | |||
Aerospace & Defense |
% | |||
Machinery |
% | |||
Footwear |
% | |||
Metals & Mining |
% | |||
Food & Staples Retailing |
% | |||
Water Utilities |
% | |||
Consumer Finance |
% | |||
Construction & Engineering |
% | |||
Energy Equipment & Services |
% | |||
Containers & Packaging |
% | |||
Total Investments |
% | |||
See notes to consolidated financial statements.
16
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 2023
(in thousands, except share amounts)
Note 1. Organization
SLR Investment Corp. (the “Company”, “SLRC”, “we”, “us” or “our”), a Maryland corporation formed in November 2007, is a
closed-end,
externally managed, non-diversified
management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). Furthermore, as the Company is an investment company, it continues to apply the guidance in FASB Accounting Standards Codification (“ASC”) Topic 946. In addition, for U.S. federal income tax purposes, the Company has elected to be treated, and intends to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). On February 9, 2010, the Company priced its initial public offering, selling 5.68 million shares of common stock, including the underwriters’ over-allotment, at a price of $18.50 per share. Concurrent with this offering, the Company’s senior management purchased an additional 600,000 shares through a private placement, also at $18.50 per share.
The Company’s investment objective is to maximize both current income and capital appreciation through debt and equity investments. The Company directly and indirectly invests primarily in leveraged middle market companies in the form of senior secured loans, financing leases and to a lesser extent, unsecured loans and equity securities. From time to time, we may also invest in public companies that are thinly traded.
On April 1, 2022, we acquired SLR Senior Investment Corp., a Maryland corporation (“SUNS”) pursuant to that certain Agreement and Plan of Merger (the “Merger Agreement”), dated as of December 1, 2021, by and among us, SUNS, Solstice Merger Sub, Inc., a Maryland corporation and our wholly-owned subsidiary (“Merger Sub”), and, solely for the limited purposes set forth therein, SLR Capital Partners, LLC (the “Investment Adviser”). Pursuant to the Merger Agreement, Merger Sub merged with and into SUNS, with SUNS continuing as the surviving company and as SUNS’s wholly-owned subsidiary (the “Merger”) and, immediately thereafter, SUNS merged with and into us, with us continuing as the surviving company (together with the Merger, the “Mergers”). In accordance with the terms of the Merger Agreement, at the effective time of the Merger, each outstanding share of SUNS’s common stock was converted into the right to receive 0.7796 shares of our common stock (with SUNS’s stockholders receiving cash in lieu of fractional shares of our common stock). As a result of the Mergers, we issued an aggregate of 12,511,825 shares of our common stock to former SUNS stockholders.
Note 2. Significant Accounting Policies
The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and certain wholly-owned subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition for the periods presented. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts may have been reclassified to conform to the current period presentation.
Interim consolidated financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form
10-Q
and Regulation S-X,
as appropriate. Accordingly, they may not include all of the information and notes required by GAAP for annual consolidated financial statements. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending on December 31, 2023. 17
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements, have been included.
The significant accounting policies consistently followed by the Company are:
| (a) | Investment transactions are accounted for on the trade date; |
| (b) | Under procedures established by the board of directors (the “Board”), we value investments, including certain senior secured debt, subordinated debt and other debt securities with maturities greater than mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are deemed not to represent fair value, we may utilize independent third-party valuation firms to assist us in determining the fair value of material assets. Accordingly, such investments go through our multi-step valuation process as described below. In each such case, independent valuation firms, that may from time to time be engaged by the Board, consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations. Debt investments with maturities of |
With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value under GAAP, the Board has approved a multi-step valuation process each quarter, as described below:
| (1) | our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Investment Adviser responsible for the portfolio investment; |
| (2) | preliminary valuation conclusions are then documented and discussed with senior management of the Investment Adviser; |
| (3) | independent valuation firms engaged by the Board conduct independent appraisals and review the Investment Adviser’s preliminary valuations and make their own independent assessment for all material assets; |
| (4) | the audit committee of the Board reviews the preliminary valuation of the Investment Adviser and that of the independent valuation firm and responds to the valuation recommendation of the independent valuation firm, if any, to reflect any comments; and |
| (5) | the Board discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm, if any, and the audit committee. |
The valuation principles set forth above may be modified from time to time, in whole or in part, as determined by the Board in its sole discretion. The Board will also (1) periodically assess and manage valuation risks; (2) establish and apply fair value methodologies; (3) test fair value methodologies; (4) oversee and evaluate third-party pricing services, as applicable; (5) oversee the reporting required by Rule
2a-5
under the 1940 Act; and (6) maintain recordkeeping requirements under Rule 2a-5.
18
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
Investments in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. However, in accordance with ASC
820-10,
certain investments that qualify as investment companies in accordance with ASC 946 may be valued using net asset value as a practical expedient for fair value. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation approaches to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market (as the reporting entity) and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process. For the nine months ended September 30, 2023, there has been no change to the Company’s valuation approaches or techniques and the nature of the related inputs considered in the valuation process. ASC Topic 820 classifies the inputs used to measure these fair values into the following hierarchy:
Level
1
: Unadjusted quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date. Level
2
: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices. Level
3
: Unobservable inputs for the asset or liability. In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. The exercise of judgment is based in part on our knowledge of the asset class and our prior experience.
| (c) | Gains or losses on investments are calculated by using the specific identification method. |
| (d) | The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized and we amortize such amounts into income using the effective interest method. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record call premiums received on loans repaid as interest income when we receive such amounts. Capital structuring fees, amendment fees, consent fees, and any other non-recurring fee income as well as a management fee and other fee income for services rendered, if any, are recorded as other income when earned. |
| (e) | The Company intends to comply with the applicable provisions of the Code pertaining to RICs to make distributions of taxable income sufficient to relieve it of substantially all U.S. federal income taxes. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a |
| (f) | Book and tax basis differences relating to stockholder distributions and other permanent book and tax differences are typically reclassified among the Company’s capital accounts annually. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP. |
| (g) | Distributions to common stockholders are recorded as of the record date. The amount to be paid out as a distribution is determined by the Board. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually. |
| (h) | In accordance with Regulation S-X and ASC Topic 810—Consolidation |
19
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
| (i) | The accounting records of the Company are maintained in U.S. dollars. Any assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. The Company will not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations would be included with the net unrealized gain or loss from investments. The Company’s investments in foreign securities, if any, may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments in terms of U.S. dollars and therefore the earnings of the Company. |
| (j) | In accordance with ASC 835-30, the Company reports origination and other expenses related to certain debt issuances as a direct deduction from the carrying amount of the debt liability. Applicable expenses are deferred and amortized using either the effective interest method or the straight-line method over the stated life. The straight-line method may be used on revolving facilities and/or when it approximates the effective yield method. |
| (k) | The Company may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked-to-market |
| (l) | The Company records expenses related to shelf registration statements and applicable equity offering costs as prepaid assets. These expenses are typically charged as a reduction of capital upon the sale of shares or expensed, in accordance with ASC 946-20-25. |
| (m) | Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interest cash payments are past due non-accrual investments are restored to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on such investments may be recognized as income or applied to principal depending on management’s judgment. |
| (n) | The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less would qualify, with limited exceptions. The Company believes that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents. |
20
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
Note 3. Agreements
The Company has an investment advisory and management agreement (the “Advisory Agreement”) with the Investment Adviser, under which the Investment Adviser manages the operations of, and provides investment advisory services to the Company. For providing these services, the Investment Adviser receives a fee from the Company, consisting of two components—a base management fee and a performance-based incentive fee. The base management fee is determined by taking the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters calculated at an annual rate of 1.50 % on gross assets up to 200 % of the Company’s total net assets as of the immediately preceding quarter end and 1.00 % on gross assets that exceed 200 % of the Company’s total net assets as of the immediately preceding quarter end. For purposes of computing the base management fee, gross assets exclude temporary assets acquired at the end of each fiscal quarter for purposes of preserving investment flexibility in the next fiscal quarter. Temporary assets include, but are not limited to, U.S. treasury bills, other short-term U.S. government or government agency securities, repurchase agreements or cash borrowings.
day-to-day
The performance-based incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on the Company’s 1.75 % per quarter (7 % annualized). The Company pays the Investment Adviser a performance-based incentive fee with respect to the Company’s 100 % of the Company’s 20 % of the amount of the Company’s
pre-incentive
fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive
fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement, and any interest expense and distributions paid on any issued and outstanding preferred stock, but excluding the performance-based incentive fee). Pre-incentive
fee net investment income does not include any realized capital gains or losses, or unrealized capital appreciation or depreciation. Pre-incentive
fee net investment income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, is compared to the hurdle rate of pre-incentive
fee net investment income in each calendar quarter as follows: (1) no performance-based incentive fee in any calendar quarter in which the Company’s pre-incentive
fee net investment income does not exceed the hurdle rate; (2) pre-incentive
fee net investment income with respect to that portion of such pre-incentive
fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter; and (3) pre-incentive
fee net investment income, if any, that exceeds 2.1875% in any calendar quarter. These calculations are appropriately pro-rated
for any period of less than three months. The second part of the performance-based incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Advisory Agreement, as of the termination date), and will equal 20 % of the Company’s cumulative realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross basis at the end of each calendar year) and all net capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the Investment Adviser. For financial statement purposes, the second part of the performance-based incentive fee is accrued based upon 20 % of cumulative net realized gains and net unrealized capital appreciation. No accrual was required for the three and nine months ended September 30, 2023 and 2022.
investment-by-investment
For the three and nine months ended September 30, 2023, the Company recognized $8,051 and $23,635 , respectively, in base management fees and $5,796 and $16,943 , respectively, in performance-based incentive fees. For the three and nine months ended September 30, 2023, $175 and $410 , respectively, of such performance-based incentive fees were waived. For the three and nine months ended September 30, 2022, the Company recognized $7,890 and $22,019 , respectively, in base management fees and $4,965 and $9,699 , respectively, in gross performance-based incentive fees. For the three and nine months ended September 30, 2022, $194 and $1,552 of such performance-based incentive fees were waived. The Investment Adviser has agreed to waive incentive fees resulting from income earned due to the accretion of purchase discount allocated to investments acquired as a result of the Mergers. Fees waived pursuant to the above are not subject to recoupment by the Investment
Adviser.
The Company has also entered into an Administration Agreement with SLR Capital Management, LLC (the “Administrator”) under which the Administrator provides administrative services to the Company. For providing these services, facilities and personnel, the Company reimburses the Administrator for the Company’s allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including rent. The Administrator will also provide, on the Company’s behalf, managerial assistance to those portfolio companies to which the Company is required to provide such assistance. The Company typically reimburses the Administrator on a quarterly basis.
For the three and nine months ended September 30, 2023, the Company recognized expenses under the Administration Agreement of $1,575 and $4,563 respectively. For the three and nine months ended September 30, 2022, the Company recognized expenses under the Administration Agreement of $1,132 and $3,684 respectively. No managerial assistance fees were accrued or collected for the three and nine months ended September 30, 2023 and 2022.
21
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
Note 4. Net Asset Value Per Share
At September 30, 2023, the Company’s total net assets and net asset value per share were $985,385 and $18.06 , respectively. This compares to total net assets and net asset value per share at December 31, 2022 of $999,731 and $18.33 , respectively.
Note 5. Earnings Per Share
The following table sets forth the computation of basic and diluted net increase in net assets per share resulting from operations, pursuant to ASC
260-10,
for the three and nine months ended September 30, 2023 and 2022: Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Earnings (loss) per share (basic & diluted) |
||||||||||||||||
Numerator—net increase (decrease) in net assets resulting from operations: |
$ | $ | $ | $ | ( |
) | ||||||||||
Denominator – weighted average shares: |
||||||||||||||||
Earnings (loss) per share: |
$ | $ | $ | ($ | ) | |||||||||||
Note 6. Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuations used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:
Level
1.
Level
2.
| a) | Quoted prices for similar assets or liabilities in active markets; |
| b) | Quoted prices for identical or similar assets or liabilities in non-active markets; |
| c) | Pricing models whose inputs are observable for substantially the full term of the asset or liability; and |
| d) | Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability. |
Level
3.
When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3).
Gains and losses for assets and liabilities categorized within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Such reclassifications involving Level 3 assets and liabilities are reported as transfers in/out of Level 3 as of the end of the quarter in which the reclassifications occur. Within the fair value hierarchy tables below, cash and cash equivalents are excluded but could be classified as Level 1.
22
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
The following tables present the balances of assets measured at fair value on a recurring basis, as of September 30, 2023 and December 31, 2022:
Fair Value Measurements
As of September 30, 2023
Level 1 |
Level 2 |
Level 3 |
Measured at Net Asset Value* |
Total |
||||||||||||||||
Assets: |
||||||||||||||||||||
Senior Secured Loans |
$ | $ | $ | $ | $ | |||||||||||||||
Equipment Financing |
||||||||||||||||||||
Preferred Equity |
||||||||||||||||||||
Common Equity/Equity Interests/Warrants |
||||||||||||||||||||
Total Investments |
$ | $ | $ | $ | $ | |||||||||||||||
Fair Value Measurements
As of December 31, 2022
Level 1 |
Level 2 |
Level 3 |
Measured at Net Asset Value* |
Total |
||||||||||||||||
Assets: |
||||||||||||||||||||
Senior Secured Loans |
$ | $ | $ | $ | $ | |||||||||||||||
Equipment Financing |
||||||||||||||||||||
Preferred Equity |
||||||||||||||||||||
Common Equity/Equity Interests/Warrants |
||||||||||||||||||||
Total Investments |
$ | $ | $ | $ | $ | |||||||||||||||
| * | In accordance with ASC 820-10, certain investments that are measured using the net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities. The portfolio investment in this category is SSLP. See Note 17 for more information on this investment, including its investment strategy and the Company’s unfunded equity commitment to SSLP. This investment is not redeemable by the Company absent an election by the members of the entity to liquidate all investments and distribute the proceeds to the members. |
23
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
The following tables provide a summary of the changes in fair value of Level 3 assets for the three and nine months ended September 30, 2023, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets still held at September 30, 2023:
Fair Value Measurements Using Level 3 Inputs
Senior Secured Loans |
Equipment Financing |
Preferred Equity |
Common Equity/ Equity Interests/ Warrants |
Total |
||||||||||||||||
Fair value, June 30, 2023 |
$ | $ | $ | $ | $ | |||||||||||||||
Total gains or losses included in earnings: |
||||||||||||||||||||
Net realized loss |
( |
) | ( |
) | ||||||||||||||||
Net change in unrealized gain (loss) |
( |
) | ( |
) | ||||||||||||||||
Purchase of investment securities * |
||||||||||||||||||||
Proceeds from dispositions of investment securities |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Transfers in/out of Level 3 |
||||||||||||||||||||
Fair value, September 30, 2023 |
$ | $ | $ | $ | $ | |||||||||||||||
Unrealized losses for the period relating to those Level 3 assets that were still held by the Company at the end of the period: |
||||||||||||||||||||
Net change in unrealized gain (loss) |
$ | $ | $ | ( |
$ | ( |
) | $ | ||||||||||||
Senior Secured Loans |
Equipment Financing |
Preferred Equity |
Common Equity/ Equity Interests/ Warrants |
Total |
||||||||||||||||
Fair value, December 31, 2022 |
$ | $ | $ | $ | $ | |||||||||||||||
Total gains or losses included in earnings: |
||||||||||||||||||||
Net realized loss |
( |
) | ( |
) | ||||||||||||||||
Net change in unrealized gain (loss) |
( |
) | ( |
) | ||||||||||||||||
Purchase of investment securities * |
||||||||||||||||||||
Proceeds from dispositions of investment securities |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Transfers in/out of Level 3 |
||||||||||||||||||||
Fair value, September 30, 2023 |
$ | $ | $ | $ | $ | |||||||||||||||
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period: |
||||||||||||||||||||
Net change in unrealized gain (loss) |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||
* |
Includes PIK capitalization and accretion of discount |
While the Company has not made an election to apply the fair value option of accounting to any of its current debt obligations, if the Company’s debt obligations were carried at fair value at September 30, 2023, the fair value of the Credit Facility, SPV Credit Facility, 2024 Unsecured Notes, 2025 Unsecured Notes, 2026 Unsecured Notes, 2027 Unsecured Notes and 2027 Series F Unsecured Notes would be $521,500 , $206,250 , $120,313 , $80,750 , $68,438 , $43,375 and $119,138 , respectively.
24
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
The following table provides a summary of the changes in fair value of Level 3 assets for the year ended December 31, 2022, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets still held at December 31, 2022:
Fair Value Measurements Using Level 3 Inputs
Senior Secured Loans |
Equipment Financing |
Preferred Equity |
Common Equity/ Equity Interests/ Warrants |
Total |
||||||||||||||||
| Fair value, December 31, 2021 |
$ | $ | $ | $ | $ | |||||||||||||||
| Total gains or losses included in earnings: |
||||||||||||||||||||
| Net realized gain (loss) |
( |
) | ( |
) | ||||||||||||||||
| change in unrealized loss |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||
| Purchase of investment securities(1) |
||||||||||||||||||||
| Proceeds from dispositions of investment securities |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||
| Transfers in/out of Level 3 |
||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Fair value, December 31, 2022 |
$ | $ | $ | $ | $ | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Unrealized losses for the period relating to those Level 3 assets that were still held by the Company at the end of the period: |
||||||||||||||||||||
| change in unrealized loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| (1) | Includes positions acquired from SUNS as a result of the Mergers. |
The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservable inputs (Level 3) for the year ended December 31, 2022:
| 2022 Unsecured Notes |
For the year ended December 31, 2022 |
|||
| Beginning fair value |
$ | |||
| Net realized (gain) loss |
||||
| Net change in unrealized (gain) loss |
||||
| Borrowings |
||||
| Repayments |
( |
) | ||
| Transfers in/out of Level 3 |
||||
| |
|
|||
| Ending fair value |
$ | |||
| |
|
|||
The Company made an election to apply the fair value option of accounting to the 2022 Unsecured Notes, in accordance with ASC 393,000 , $155,200 , $75,000 , $118,750 , $79,688 , $68,250 , $42,875 and $118,125 , respectively.
825-10.
On May 8, 2022, the borrowings were repaid in full. While the Company has not made an election to apply the fair value option of accounting to any of its other debt obligations, if the Company’s debt obligations were carried at fair value at December 31, 2022, the fair value of the Credit Facility, SPV Credit Facility, 2023 Unsecured Notes, 2024 Unsecured Notes, 2025 Unsecured Notes, 2026 Unsecured Notes, 2027 Unsecured Notes and 2027 Series F Unsecured Notes would be $25
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
Quantitative Information about Level 3 Fair Value Measurements
The Company typically determines the fair value of its performing debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to current contractual interest rates, relative maturities and other key terms and risks associated with an investment. Among other factors, a significant determinant of risk is the amount of leverage used by the portfolio company relative to the total enterprise value of the company, and the rights and remedies of our investment within each portfolio company.
Significant unobservable quantitative inputs typically used in the fair value measurement of the Company’s Level 3 assets and liabilities primarily reflect current market yields, including indices, and readily available quotes from brokers, dealers, and pricing services as indicated by comparable assets and liabilities, as well as enterprise values, returns on equity and earnings before income taxes, depreciation and amortization (“EBITDA”) multiples of similar companies, and comparable market transactions for equity securities.
Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of September 30, 2023 is summarized in the table below:
Asset or Liability |
Fair Value at September 30, 2023 |
Principal Valuation Technique/Methodology |
Unobservable Input |
Range (Weighted Average) | ||||||||||
| Senior Secured Loans |
Asset | $ $ |
|
N/A | ||||||||||
| Equipment Financing |
Asset | $ $ |
|
(1) |
||||||||||
| Preferred Equity |
Asset | $ | ||||||||||||
| Common Equity/Equity Interests/Warrants |
Asset | $ $ |
|
(2) |
||||||||||
| (1) | Includes $ |
| (2) | Includes $ |
Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of December 31, 2022 is summarized in the table below:
Asset or Liability |
Fair Value at December 31, 2022 |
Principal Valuation Technique/Methodology |
Unobservable Input |
Range (Weighted Average) | ||||||||||
| Senior Secured Loans |
Asset | $ $ |
|
(1) |
||||||||||
| Equipment Financing |
Asset | $ $ |
|
ncome Approach (2) |
||||||||||
| Preferred Equity |
Asset | $ | ncome Approach |
|||||||||||
| Common Equity/Equity Interests/Warrants |
Asset | $ $ |
|
(3) |
||||||||||
| (1) | Investments are valued using a sum-of-the |
| (2) | Includes $ |
| (3) | Includes $ |
Significan
t increases or decreases in any of the above unobservable inputs in isolation, including unobservable inputs used in deriving bid-ask
spreads, if applicable, could result in significantly lower or higher fair value measurements for such assets and liabilities. Generally, an increase in market yields or decrease in EBITDA multiples may result in a decrease in the fair value of certain of the Company’s investments. 26
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
Note 7. Debt
Our debt obligations consisted of the following as of September 30, 2023 and December 31, 2022:
September 30, 2023 |
December 31, 2022 |
|||||||||||||||
Facility |
Face Amount |
Carrying Value |
Face Amount |
Carrying Value |
||||||||||||
Credit Facility |
$ | $ | (1) |
$ | $ | (1) | ||||||||||
SPV Credit Facility |
(2) |
(2) | ||||||||||||||
2023 Unsecured Notes |
(3) | |||||||||||||||
2024 Unsecured Notes |
(4) |
(4) | ||||||||||||||
2025 Unsecured Notes |
(5) |
(5) | ||||||||||||||
2026 Unsecured Notes |
(6) |
(6) | ||||||||||||||
2027 Unsecured Notes |
(7) |
(7) | ||||||||||||||
2027 Series F Unsecured Notes |
(8) |
(8) | ||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| (1) | Carrying Value equals the Face Amount net of unamortized debt issuance costs of $ |
| (2) | Carrying Value equals the Face Amount net of unamortized market discount of $ |
| (3) | Carrying Value equals the Face Amount net of unamortized debt issuance costs of $ |
| (4) | Carrying Value equals the Face Amount net of unamortized debt issuance costs of $ |
| (5) | Carrying Value equals the Face Amount net of unamortized market discount of $ |
| (6) | Carrying Value equals the Face Amount net of unamortized debt issuance costs of $ |
| (7) | Carrying Value equals the Face Amount net of unamortized debt issuance costs of $ |
| (8) | Carrying Value equals the Face Amount net of unamortized debt issuance costs of $ |
Unsecured Notes
On April 1, 2022, the Company entered into an assumption agreement (the “Note Assumption Agreement”), effective as of the closing of the Mergers. The Note Assumption Agreement relates to the Company’s assumption of $85,000 five-year , 3.90 % senior unsecured notes, due March 31, 2025 (the “2025 Unsecured Notes”) and other obligations of SUNS under the Note Purchase Agreement, dated as of March 31, 2020 (the “Note Purchase Agreement”), among SUNS and certain institutional investors. Interest on the 2025 Unsecured Notes is due semi-annually on March 31 and September 30 . Pursuant to the Note Assumption Agreement, the Company expressly assumed on behalf of SUNS the due and punctual payment of the principal of (and premium, if any) and interest on all the 2025 Unsecured Notes outstanding, and the due and punctual performance and observance of every covenant and every condition of the Note Purchase Agreement, to be performed or observed by SUNS.
On January 6, 2022, the Company closed a private offering of $135,000 3.33 % and a maturity date of January 6, 2027 . Interest on the 2027 Series F Unsecured Notes is due semi-annually on January 6 and July 6 . The 2027 Series F Unsecured Notes were issued in a private placement only to qualified institutional buyers.
On September 14, 2021, the Company closed a private offering of $50,000 2.95
On December 18, 2019, the Company closed a private offering of $125,000 4.20 % and a maturity date of December 15, 2024 . Interest on the 2024 Unsecured Notes is due semi-annually on June 15 and December 15 . The 2024 Unsecured Notes were issued in a private placement only to qualified institutional buyers.
27
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
On December 18, 2019, the Company closed a private offering of $75,000 4.375 December 15, 2026 . Interest on the 2026 Unsecured Notes is due semi-annually on June 15 and December 15. The 2026 Unsecured Notes were issued in a private placement only to qualified institutional buyers.
On November 22, 2017, we issued $75,000 73,846 . Interest on the 2023 Unsecured Notes is paid semi-annually on January 20 and July 20 , at a fixed rate of 4.50 January 20, 2023
.
Revolving and Term Loan Facilities
On April 1, 2022, the Company entered into an assumption agreement (the “CF Assumption Agreement”), effective as of the closing of the Mergers. The CF Assumption Agreement relates to the Company’s assumption of the Revolving Credit Facility, originally entered into on August 26, 2011 (as amended from time to time, the “SPV Credit Facility”), by and among SUNS SPV LLC (the “SUNS SPV”), a wholly-owned subsidiary of SUNS, acting as borrower, Citibank, N.A., acting as administrative agent and collateral agent, and the other parties thereto. Currently, subsequent to an August 29, 2023 amendment, the commitment under the SPV Credit Facility is $275,000 ; however, the commitment can also be expanded up to $600,000 . The stated interest rate on the SPV Credit Facility is SOFR plus 2.00 %-2.50 % with no SOFR floor requirement and the current final maturity date is June 1, 2026 . The SPV Credit Facility is secured by all of the assets held by SUNS SPV. Under the terms of the SPV Credit Facility and related transaction documents, the Company as successor to SUNS, and SUNS SPV, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The SPV Credit Facility also includes usual and customary events of default for credit facilities of this nature. At September 30, 2023, outstanding USD equivalent borrowings under the SPV Credit Facility totaled $206,250 .
On December 28, 2021, the Company closed on Amendment No. 1 to its August 28, 2019 senior secured credit agreement (the “Credit Facility”). Following the amendment, a 585,000 of revolving credit and $100,000 of term loans. Borrowings generally bear interest at a rate per annum equal to the base rate plus a range of 1.75 %-2.00 % or the alternate base rate plus 0.75 %-1.00 %. The Credit Facility has a 0% floor and matures in December 2026 and includes ratable amortization in the final year. The Credit Facility may be increased up to $800,000 with additional new lenders or an increase in commitments from current lenders. The Credit Facility contains certain customary affirmative and negative covenants and events of default. In addition, the Credit Facility contains certain financial covenants that among other things, requires the Company to maintain a minimum shareholder’s equity and a minimum asset coverage ratio. At September 30, 2023, outstanding USD equivalent borrowings under the Credit Facility totaled $521,500 , composed of $421,500 of revolving credit and $100,000 of term loans.
$25,000
November 2022 upsizing and a $40,000
August 2023 commitment expiration, the Credit Facility is composed of $Certain covenants on our issued debt may restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code.
The average annualized interest cost for all borrowings for the nine months ended September 30, 2023 and the year ended December 31, 2022 was 5.79 % and 4.09 %, respectively. These costs are exclusive of other credit facility expenses such as unused fees, agency fees and other prepaid expenses related to establishing and/or amending the Credit Facility, the SPV Credit Facility, the 2023 Unsecured Notes, the 2024 Unsecured Notes, the 2025 Unsecured Notes, the 2026 Unsecured Notes, the 2027 Unsecured Notes and the 2027 Series F Unsecured Notes (collectively the “Debt Instruments”), if any. The maximum amounts borrowed on the Debt Instruments during the nine months ended September 30, 2023 and the year ended December 31, 2022 were $1,273,200 and $1,164,200 , respectively.
28
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
Note 8. Financial Highlights
The following is a schedule of financial highlights for the nine months ended September 30, 2023 and 2022:
Nine months ended September 30, 2023 |
Nine months ended September 30, 2022 |
|||||||
Per Share Data: (a) |
||||||||
Net asset value, beginning of year |
$ | $ | ||||||
Net investment income |
||||||||
Net realized and unrealized loss |
( |
) | ( |
)* | ||||
Net increase (decrease) in net assets resulting from operations |
( |
) | ||||||
Issuance of common stock in connection with the Mergers |
— | ( |
) | |||||
Distributions to stockholders: |
||||||||
From distributable earnings |
( |
) | ( |
) | ||||
From return of capital |
( |
) | ||||||
Net asset value, end of period |
$ | $ | ||||||
Per share market value, end of period |
$ | $ | ||||||
Total Return (b)(c) |
% | ( |
%) | |||||
Net assets, end of period |
$ | $ | ||||||
Shares outstanding, end of period |
||||||||
Ratios to average net assets (c): |
||||||||
Net investment income |
% | % | ||||||
Operating expenses |
%** | %** | ||||||
Interest and other credit facility expenses |
% | % | ||||||
Total expenses |
%** | %** | ||||||
Average debt outstanding |
$ | $ | ||||||
Portfolio turnover ratio |
% | % | ||||||
| (a) | Calculated using the average shares outstanding method, except for the issuance of common stock in connection with the Mergers, which reflects the actual amount per share for the applicable period. |
| (b) | Total return is based on the change in market price per share during the period and takes into account distributions, if any, reinvested in accordance with the dividend reinvestment plan. The market price per share as of December 31, 2022 and December 31, 2021 was $ |
| (c) | Not annualized for periods less than one year. |
| * | The amount shown may not correspond with the aggregate amount for the period as it includes the effect of the timing of the Mergers. |
| ** | The ratio of operating expenses to average net assets and the ratio of total expenses to average net assets is shown net of the performance-based incentive fee waiver (see note 3). For the nine months ended September 30, 2023, the ratios of operating expenses to average net assets and total expenses to average net assets would be |
Note 9. SLR Credit Solutions
On December 28, 2012, we acquired an equity interest in Crystal Capital Financial Holdings LLC (“Crystal Financial”) for $275,000 in cash. Crystal Financial owned approximately 98 % of the outstanding ownership interest in SLR Credit Solutions (“SLR Credit”), f/k/a Crystal Financial LLC. The remaining financial interest was held by various employees of SLR Credit, through their investment in Crystal Management LP. SLR Credit had a diversified portfolio of 23 loans having a total par value of approximately $400,000 at November 30, 2012 and a $275,000 committed revolving credit facility. On July 28, 2016, the Company purchased Crystal Management LP’s approximately 2 % equity interest in SLR Credit for approximately $5,737 . Upon the closing of this transaction, the Company holds 100 % of the equity interest in SLR Credit. On September 30, 2016, Crystal Capital Financial Holdings LLC was dissolved. As of September 30, 2023, total commitments to the revolving credit facility are $300,000 .
As of September 30, 2023 SLR Credit had 32 funded commitments to 28 different issuers with total funded loans of approximately $469,495 on total assets of $506,081 . As of December 31, 2022 SLR Credit had 29 funded commitments to 25 different issuers with total funded loans of approximately $439,484 on total assets of $460,683 . As of September 30, 2023 and December 31, 2022, the largest loan outstanding totaled $40,725 and $33,420 , respectively. For the same periods, the average exposure per issuer was $16,768 and $17,579 , respectively. SLR Credit’s credit facility, which is 284,472 and $224,325 of borrowings outstanding at September 30, 2023 and December 31, 2022, respectively. For the three months ended September 30, 2023 and 2022, SLR Credit had net income of $4,315 and $3,897 , respectively, on gross income of $13,897 and $8,596 , respectively. For the nine months ended September 30, 2023 and 2022, SLR Credit had net income of $1,411 and $8,557 , respectively, on gross income of $42,350 and $22,171 , respectively. Due to timing and
non-recourse
to the Company, had approximately $non-cash
items, there may be material differences between GAAP net income and cash available for distributions. 29
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
Note 10. SLR Equipment Finance
On July 31, 2017, we acquired a 100 % equity interest in NEF Holdings, LLC, which conducts its business through its wholly-owned subsidiary Nations Equipment Finance, LLC. Effective February 25, 2021, Nations Equipment Finance, LLC and its related companies are doing business as SLR Equipment Finance (“SLR Equipment”). SLR Equipment is an independent equipment finance company that provides senior secured loans and leases primarily to U.S. based companies. We invested $209,866 in cash to effect the transaction, of which $145,000 was invested in the equity of SLR Equipment through our wholly-owned consolidated taxable subsidiary NEFCORP LLC and our wholly-owned consolidated subsidiary NEFPASS LLC and $64,866 was used to purchase certain leases and loans held by SLR Equipment through NEFPASS LLC. Concurrent with the transaction, SLR Equipment refinanced its existing senior secured credit facility into a $150,000 250,000 . In September 2019, SLR Equipment amended the facility, increasing commitments to $213,957 with an accordion feature to expand up to $313,957 and extended the maturity date of the facility to July 31, 2023. In June 2023, the facility was amended to extend the maturity date to January 31, 2024 , with updated commitments totaling $152,147 , effective August 1, 2023 .
non-recourse
facility with an accordion feature to expand up to $As of September 30, 2023, SLR Equipment had 141 funded equipment-backed leases and loans to 56 different customers with a total net investment in leases and loans of approximately $199,831 on total assets of $251,031 . As of December 31, 2022, SLR Equipment had 131 funded equipment-backed leases and loans to 59 different customers with a total net investment in leases and loans of approximately $190,830 on total assets of $241,813 . As of September 30, 2023 and December 31, 2022, the largest position outstanding totaled $18,319 and $19,259 , respectively. For the same periods, the average exposure per customer was $3,568 and $3,234 , respectively. SLR Equipment’s credit facility, which is 130,557 and $114,977 of borrowings outstanding at September 30, 2023 and December 31, 2022, respectively. For the three months ended September 30, 2023 and September 30, 2022, SLR Equipment had net income (loss) of ($1,176 ) and $1,034 , respectively, on gross income of $4,783 and $6,486 , respectively. For the nine months ended September 30, 2023 and September 30, 2022, SLR Equipment had net loss of $2,193 and $125 , respectively, on gross income of $15,174 and $15,704 , respectively. Due to timing and
non-recourse
to the Company, had approximately $non-cash
items, there may be material differences between GAAP net income and cash available for distributions. Note 11. Kingsbridge Holdings, LLC
On November 3, 2020, the Company acquired 87.5 % of the equity securities of Kingsbridge Holdings, LLC (“KBH”) through KBH Topco LLC (“KBHT”), a Delaware corporation. KBH is a residual focused independent 216,596 to effect the transaction, of which $136,596 was invested to acquire 87.5 % of KBHT’s equity and $80,000 in KBH’s debt. The existing management team of KBH committed to continuing to lead KBH after the transaction. Following the transaction, the Company owns 87.5 % of KBHT equity and the KBH management team owns the remaining 12.5 % of KBHT’s equity.
mid-ticket
lessor of equipment primarily to U.S. investment grade companies. The Company invested $As of September 30, 2023 and December 31, 2022, KBHT had total assets of $783,089 and $777,151 , respectively. For the same periods, debt recourse to KBHT totaled $239,505 and $222,094 , respectively, and 353,415 and $353,128 , respectively. None of the debt is recourse to the Company. For the three months ended September 30, 2023 and 2022, KBHT had net income of $2,129 and $3,327 , respectively, on gross income of $85,544 and $71,332 , respectively. For the nine months ended September 30, 2023 and 2022, KBHT had net income of $7,151 and $10,393 , respectively, on gross income of $229,051 and $215,074 , respectively. Due to timing and
non-recourse
debt totaled $non-cash
items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in KBHT’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that KBHT will be able to maintain consistent dividend payments to us. Note 12. SLR Healthcare ABL
SUNS acquired an equity interest in SLR Healthcare ABL, f/k/a Gemino Healthcare Finance, LLC (“SLR Healthcare”) on September 30, 2013. SLR Healthcare is a commercial finance company that originates, underwrites, and manages primarily secured, asset-based loans for small and 32,839 . The management team of SLR Healthcare 7 % and 93 % of the equity in SLR Healthcare, respectively. SLRC acquired SLR Healthcare in connection with the Mergers on April 1, 2022. Effective with an amendment dated August 24, 2023, SLR Healthcare has a $150,000 200,000 under its accordion facility. The maturity date of this facility is March 31, 2026 .
mid-sized
companies operating in the healthcare industry. SUNS initial investment in SLR Healthcare ABL was $co-invested
in the transaction and continues to lead SLR Healthcare. As of September 30, 2023, SLR Healthcare’s management team and the Company own approximately non-recourse
credit facility, which is expandable to $SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
SLR Healthcare currently manages a highly diverse portfolio of directly-originated and underwritten senior-secured commitments. As of September 30, 2023, the portfolio totaled approximately $237,000 of commitments with a total net investment in loans of $106,484 on total assets of $113,832 . As of December 31, 2022, the portfolio totaled approximately $242,106 of commitments with a total net investment in loans of $92,383 on total assets of $108,705 . At September 30, 2023, the portfolio consisted of 38 issuers with an average balance of approximately $2,802 versus 41 issuers with an average balance of approximately $2,253 at December 31, 2022. All of the commitments in SLR Healthcare’s portfolio are floating-rate, senior-secured, 81,000 and $77,000 of borrowings outstanding at September 30, 2023 and December 31, 2022, respectively. For the three months ended September 30, 2023 and 2022, SLR Healthcare had net income of $1,532 and $822 , respectively, on gross income of $4,833 and $3,020 , respectively. For the nine months ended September 30, 2023 and 2022, SLR Healthcare had net income of $3,925 and $2,543 , respectively, on gross income of $13,109 and $7,898 , respectively. Due to timing and
cash-pay
loans. SLR Healthcare’s credit facility, which is non-recourse
to us, had approximately $non-cash
items, there may be material differences between GAAP net income and cash available for distributions. Note 13. SLR Business Credit
SUNS acquired 100 % of the equity interests of North Mill Capital LLC (“NMC”) on October 20, 2017. NMC is a leading asset-backed lending commercial finance company that provides senior secured asset-backed financings to U.S. based businesses primarily in the manufacturing, services and distribution industries. SUNS invested approximately $51,000 to effect the transaction. Subsequently, SUNS contributed 1 % of its equity interest in NMC to ESP SSC Corporation. Immediately thereafter, SUNS and ESP SSC Corporation contributed their equity interests to NorthMill LLC (“North Mill”). On May 1, 2018, North Mill merged with and into NMC, with NMC being the surviving company. SUNS and ESP SSC Corporation then owned 99 % and 1 % of the equity interests of NMC, respectively. The management team of NMC continues to lead NMC. On June 28, 2019, North Mill Holdco LLC (“NM Holdco”), a newly formed entity and ESP SSC Corporation acquired 100 % of Summit Financial Resources, a Salt Lake City-based provider of asset-backed financing to small and 99 % interest in the equity of NMC was contributed to NM Holdco. This approximately $15,500 transaction was financed with borrowings on NMC’s credit facility. Effective February 25, 2021, NMC and its related companies are doing business as SLR Business Credit. On June 3, 2021, NMC acquired 100 % of Fast Pay Partners LLC, a Los Angeles-based provider of asset-backed financing to digital media companies. The transaction purchase price of $66,671 was financed with equity from SUNS of $19,000 and borrowings on NMC’s credit facility of $47,671 .
small-to-medium-sized
medium-sized
businesses. As part of this transaction, SUNS SLR Business Credit currently manages a highly diverse portfolio of directly-originated and underwritten senior-secured commitments. As of September 30, 2023, the portfolio totaled approximately $612,399 of commitments, of which $257,818 were funded, on total assets of $302,912 . As of December 31, 2022, the portfolio totaled approximately $603,432 of commitments, of which $286,006 were funded, on total assets of $332,247 . At September 30, 2023, the portfolio consisted of 98 issuers with an average balance of approximately $2,631 versus 108 issuers with an average balance of approximately $2,648 at December 31, 2022. NMC has a senior credit facility with a bank lending group for $285,307 which expires on November 13, 2025 . Borrowings are secured by substantially all of NMC’s assets. NMC’s credit facility, which is 199,449 and $214,425 of borrowings outstanding at September 30, 2023 and December 31, 2022, respectively. For the three months ended September 30, 2023 and 2022, SLR Business Credit had net income of $1,779 and $1,977 respectively, on gross income of $9,709 and $7,607 , respectively. For the nine months ended September 30, 2023 and 2022, SLR Business Credit had net income of $5,211 and $5,703 respectively, on gross income of $27,868 and $20,378 , respectively. Due to timing and
non-recourse
to us, had approximately $non-cash
items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in SLR Business Credit’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that SLR Business Credit will be able to maintain consistent dividend payments to us. 31
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
Note 14. Commitments and Contingencies
Off-Balance
Sheet Arrangements The Company had unfunded debt and equity commitments to various revolving and delayed-draw term loans as well as to SLR Credit and SLR Healthcare. The total amount of these unfunded commitments as of September 30, 2023 and December 31, 2022 is $367,295 and $364,163 , respectively, comprised of the following:
September 30, 2023 |
December 31, 2022 |
|||||||
| SLR Credit Solutions* |
$ | $ | ||||||
| Outset Medical, Inc. |
||||||||
| Apeel Technology, Inc. |
||||||||
| Southern Orthodontic Partners Management, LLC |
||||||||
| SLR Senior Lending Program LLC* |
||||||||
| Orthopedic Care Partners Management, LLC |
||||||||
| Human Interest, Inc. |
||||||||
| CVAUSA Management, LLC |
||||||||
| BDG Media, Inc. |
||||||||
| Neuronetics, Inc. |
||||||||
| ONS MSO, LLC |
||||||||
| iCIMS, Inc. |
||||||||
| Cerapedics, Inc. |
||||||||
| Alkeme Intermediate Holdings, LLC |
||||||||
| Arcutis Biotherapeutics, Inc. |
||||||||
| Ardelyx, Inc. |
||||||||
| West-NR Parent, Inc. |
||||||||
| United Digestive MSO Parent, LLC |
||||||||
| Peter C. Foy & Associates Insurance Services, LLC |
||||||||
| Luxury Asset Capital, LLC |
||||||||
| UVP Management, LLC |
||||||||
| Kaseya, Inc. |
||||||||
| Urology Management Holdings, Inc. |
||||||||
| The Townsend Company, LLC |
||||||||
| SLR Equipment Finance |
||||||||
| Vertos Medical, Inc. |
||||||||
| Foundation Consumer Brands, LLC |
||||||||
| Kid Distro Holdings, LLC |
||||||||
| Maurices, Incorporated |
||||||||
| Erie Construction Mid-west, LLC |
||||||||
| Ultimate Baked Goods Midco LLC |
||||||||
| Basic Fun, Inc. |
||||||||
| Bayside Opco, LLC |
||||||||
| SunMed Group Holdings, LLC |
||||||||
| SCP Eye Care, LLC |
||||||||
| SLR Healthcare ABL* |
||||||||
| RxSense Holdings LLC |
||||||||
| Enverus Holdings, Inc. |
||||||||
| Tilley Distribution, Inc. |
||||||||
| GSM Acquisition Corp. |
||||||||
| Composite Technology Acquisition Corp |
||||||||
| High Street Buyer, Inc. |
||||||||
| CC SAG Holdings Corp. (Spectrum Automotive) |
||||||||
| ENS Holdings III Corp, LLC |
||||||||
| Pinnacle Treatment Centers, Inc. |
||||||||
| Vessco Midco Holdings, LLC |
||||||||
| TAUC Management, LLC |
||||||||
| All States Ag Parts, LLC |
||||||||
| Glooko, Inc. |
||||||||
| World Insurance Associates, LLC |
||||||||
| Spectrum Pharmaceuticals, Inc. |
||||||||
| Atria Wealth Solutions, Inc. |
||||||||
| Accession Risk Management Group, Inc. |
||||||||
| Copper River Seafoods, Inc. |
||||||||
| Meditrina, Inc. |
||||||||
| One Touch Direct, LLC |
||||||||
| DeepIntent, Inc. |
||||||||
| Plastics Management, LLC |
||||||||
| Pediatric Home Respiratory Services, LLC |
||||||||
| Ivy Fertility Services, LLC |
||||||||
| NAC Holdings Corporation |
||||||||
| SPAR Marketing Force, Inc. |
||||||||
| Montefiore Nyack Hospital |
||||||||
| American Teleconferencing Services, Ltd |
||||||||
| BayMark Health Services, Inc. |
||||||||
| |
|
|
|
|||||
| Total Commitments |
$ | $ | ||||||
| |
|
|
|
|||||
| * | |
32
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
The credit agreements of the above loan commitments contain customary lending provisions and/or are subject to the respective portfolio company’s achievement of certain milestones that allow relief to the Company from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company. Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for the Company. As of September 30, 2023 and December 31, 2022, the Company had sufficient cash available and/or liquid securities available to fund its commitments and had reviewed them for any appropriate fair value adjustment.
Note 15. Capital Share Transactions
As of September 30, 2023 and September 30, 2022, 200,000,000 0.01
Transactions in capital stock were as follows:
Shares |
Amount |
|||||||||||||||
Three months ended September 30, 2023 |
Three months ended September 30, 2022 |
Three months ended September 30, 2023 |
Three months ended September 30, 2022 |
|||||||||||||
Shares issued in connection with the Mergers |
$ | $ | ||||||||||||||
Net increase |
$ | $ | ||||||||||||||
Shares |
Amount |
|||||||||||||||
Nine months ended September 30, 2023 |
Nine months ended September 30, 2022 |
Nine months ended September 30, 2023 |
Nine months ended September 30, 2022 |
|||||||||||||
Shares issued in connection with the Mergers |
$ | $ | ||||||||||||||
Shares repurchased |
( |
) | $ | ( |
) | $ | ||||||||||
Net increase |
( |
) | $ | ( |
) | $ | ||||||||||
Note 16. Stock Repurchase Program
On May 9, 2023, our Board authorized an extension of a program for the purpose of repurchasing up to $50,000 of our outstanding shares of common stock. Under the repurchase program, we may, but are not obligated to, repurchase shares of our outstanding common stock in the open market from time to time provided that we comply with our code of ethics and the guidelines specified in Rule May 10, 2024 or until $50,000 of our outstanding shares of common stock have been repurchased. The timing and number of additional shares to be repurchased will depend on a number of factors, including market conditions. There are no assurances that we will engage in any repurchases beyond what is reported herein. For the nine months ended September 30, 2023, the Company repurchased 746 shares at an average price of approximately $14.02 per share, inclusive of commissions. The total dollar amount of shares repurchased for the nine months ended September 30, 2023 was $10 . During the fiscal year ended December 31, 2022, the Company repurchased 217,271 shares at an average price of approximately $13.98 per share, inclusive of commissions. The total dollar amount of shares repurchased for the fiscal year ended December 31, 2022 was $3,038 .
10b-18
of the Exchange Act, including certain price, market volume and timing constraints. In addition, any repurchases will be conducted in accordance with the 1940 Act. Unless further amended or extended by our Board, we expect the repurchase program to be in place until the earlier of 33
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
Note 17. SLR Senior Lending Program LLC
On October 12, 2022, the Company entered into an amended and restated limited liability company agreement with Sunstone Senior Credit L.P. (the “Investor”) to create a joint venture vehicle, SLR Senior Lending Program LLC (“SSLP”). SSLP is expected to invest primarily in senior secured cash flow loans. The Company and the Investor each have made initial equity commitments of $50,000 100,000 . Investment decisions and all material decisions in respect of SSLP must be approved by representatives of the Company and the Investor.
On December 1, 2022, SSLP commenced operations. On December 12, 2022, SSLP as servicer and SLR Senior Lending Program SPV LLC (“SSLP SPV”), a newly formed wholly owned subsidiary of SSLP, as borrower entered into a $100,000 senior secured revolving credit facility (the “SSLP Facility”) with Goldman Sachs Bank USA acting as administrative agent. The SSLP Facility is scheduled to mature on December 12, 2027 . The SSLP Facility generally bears interest at a rate of SOFR plus 3.25 %. SSLP and SSLP SPV, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The SSLP Facility also includes usual and customary events of default for credit facilities of this nature. At September 30, 2023, there were $79,200 of borrowings outstanding on the SSLP Facility.
As of September 30, 2023, the Company and the Investor had contributed combined equity capital in the amount of $57,500 . As of September 30, 2023, the Company and the Investors’ remaining commitments to SSLP totaled $21,250 and $21,250 , respectively. The Company, along with the Investor, controls the funding of SSLP and SSLP may not call the unfunded commitments of the Company or the Investor without the approval of both the Company and the Investor.
As of September 30, 2023 and December 31, 2022, SSLP had total assets of $137,447 and $19,105 , respectively. For the same periods, SSLP’s portfolio consisted of floating rate senior secured loans to 27 and 7 different borrowers, respectively. For the three months ended September 30, 2023, SSLP invested $57,456 in 16 portfolio companies. Investments prepaid totaled $1,658 for the three months ended September 30, 2023. For the period December 1, 2022 (commencement of operations) through December 31, 2022, SSLP invested $18,100 in 7 portfolio companies. Investments prepaid totaled $68 for the period December 1, 2022 (commencement of operations) through December 31, 2022.
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
SSLP Portfolio as of September 30, 2023
Description |
Industry |
Spread Above Index (1) |
Floor |
Interest Rate (2) |
Maturity Date |
Par Amount |
Cost |
Fair Value (3) |
||||||||||||||||||||||
Accession Risk Management Group, Inc. (4) |
Insurance | % | % | $ | $ | $ | ||||||||||||||||||||||||
Aegis Toxicology Sciences Corporation (4) |
Health Care Providers & Services | % | % | |||||||||||||||||||||||||||
Alkeme Intermediary Holdings, LLC (4) |
Insurance | % | % | |||||||||||||||||||||||||||
All States Ag Parts, LLC (4) |
Trading Companies & Distributors | % | % | |||||||||||||||||||||||||||
Atria Wealth Solutions, Inc. (4) |
Diversified Financial Services | % | % | |||||||||||||||||||||||||||
BayMark Health Services, Inc. (4) |
Health Care Providers & Services | % | % | |||||||||||||||||||||||||||
CC SAG Holdings Corp. (4) |
Diversified Consumer Services | % | % | |||||||||||||||||||||||||||
ENS Holdings III Corp. & ES Opco USA LLC (4) |
Trading Companies & Distributors | % | % | |||||||||||||||||||||||||||
Fertility (ITC) Investment Holdco, LLC (4) |
Health Care Providers & Services | % | % | |||||||||||||||||||||||||||
Foundation Consumer Brands, LLC (4) |
Personal Products | % | % | |||||||||||||||||||||||||||
High Street Buyer, Inc. (4) |
Insurance | % | % | |||||||||||||||||||||||||||
iCIMS, Inc. (4) |
Software | % | % | |||||||||||||||||||||||||||
Kaseya, Inc. (4) |
Software | % | % | |||||||||||||||||||||||||||
Kid Distro Holdings, LLC (4) |
Software | % | % | |||||||||||||||||||||||||||
ONS MSO, LLC (4) |
Health Care Providers & Services | % | % | |||||||||||||||||||||||||||
PhyNet Dermatology LLC (4) |
Health Care Providers & Services | % | % | |||||||||||||||||||||||||||
Pinnacle Treatment Centers, Inc. (4) |
Health Care Providers & Services | % | % | |||||||||||||||||||||||||||
Plastics Management, LLC (4) |
Health Care Providers & Services | % | % | |||||||||||||||||||||||||||
RQM+ Corp. (4) |
Life Sciences Tools & Services | % | % | |||||||||||||||||||||||||||
RxSense Holdings LLC (4) |
Diversified Consumer Services | % | % | |||||||||||||||||||||||||||
SunMed Group Holdings, LLC (4) |
Health Care Equipment & Supplies | % | % | |||||||||||||||||||||||||||
The Townsend Company, LLC (4) |
Commercial Services & Supplies | % | % | |||||||||||||||||||||||||||
Tilley Distribution, Inc. (4) |
Trading Companies & Distributors | % | % | |||||||||||||||||||||||||||
Ultimate Baked Goods Midco LLC (4) |
Packaged Foods & Meats | % | % | |||||||||||||||||||||||||||
Urology Management Holdings, Inc. (4) |
Health Care Providers & Services | % | % | |||||||||||||||||||||||||||
Vessco Midco Holdings, LLC (4) |
Water Utilities | % | % | |||||||||||||||||||||||||||
West-NR Parent, Inc.(4) |
Insurance | % | % | |||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||||||
| (1) | Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the SOFR. These instruments are typically subject to a SOFR floor. |
| (2) | Floating rate debt investments typically bear interest at a rate determined by reference to the SOFR (“S”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of September 30, 2023. |
| (3) | Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board’s valuation process described elsewhere herein. |
| (4) | The Company also holds this security on its Consolidated Statements of Assets and Liabilities. |
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
SSLP Portfolio as of December 31, 2022
Description |
Industry |
Spread Above Index (1) |
Floor |
Interest Rate (2) |
Maturity Date |
Par Amount |
Cost |
Fair Value (3) |
||||||||||||||||||||||
Atria Wealth Solutions, Inc. (4) |
Diversified Financial Services | % | % | $ | $ | $ | ||||||||||||||||||||||||
BayMark Health Services, Inc. (4) |
Health Care Providers & Services | % | % | |||||||||||||||||||||||||||
ENS Holdings III Corp. & ES Opco USA LLC (4) |
Trading Companies & Distributors | % | % | |||||||||||||||||||||||||||
Foundation Consumer Brands, LLC (4) |
Personal Products | % | % | |||||||||||||||||||||||||||
High Street Buyer, Inc. (4) |
Insurance | % | % | |||||||||||||||||||||||||||
Ivy Fertility Services, LLC (4) |
Health Care Providers & Services | % | % | |||||||||||||||||||||||||||
Kid Distro Holdings, LLC (4) |
Software | % | % | |||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||||||
| (1) | Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or SOFR. These instruments are typically subject to a LIBOR or SOFR floor. |
| (2) | Floating rate debt investments typically bear interest at a rate determined by reference to either the LIBOR (“L”) or SOFR (“S”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of December 31, 2022. |
| (3) | Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board’s valuation process described elsewhere herein. |
| (4) | The Company also holds this security on its Consolidated Statements of Assets and Liabilities. |
Below is certain summarized financial information for SSLP as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and for the period December 1, 2022 (commencement of operations) through December 31, 2022:
September 30, 2023 |
December 31, 2022 |
|||||||
Selected Balance Sheet Information for SSLP: |
||||||||
Investments at fair value (cost $ |
$ | $ | ||||||
Cash and other assets |
||||||||
Total assets |
$ | $ | ||||||
Debt outstanding |
$ | $ | ||||||
Distributions payable |
||||||||
Interest payable and other credit facility related expenses |
||||||||
Accrued expenses and other payables |
||||||||
Total liabilities |
$ | $ | ||||||
Members’ equity |
$ | $ | ||||||
Total liabilities and members’ equity |
$ | $ | ||||||
SLR INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)
September 30, 2023
(in thousands, except share amounts)
For the three months ended September 30, 2023 |
For the nine months ended September 30, 2023 |
For the period December 1, 2022 (commencement of operations) to December 31, 2022 |
||||||||||
Selected Income Statement Information for SSLP: |
||||||||||||
Interest income |
$ | $ | $ | |||||||||
Service fees* |
$ | |||||||||||
Interest and other credit facility expenses |
||||||||||||
Organizational costs |
||||||||||||
Other general and administrative expenses |
||||||||||||
Total expenses |
||||||||||||
Net investment income (loss) |
$ | $ | $ | ( |
) | |||||||
Realized gain on investments |
||||||||||||
Net change in unrealized gain on investments |
||||||||||||
Net realized and unrealized gain on investments |
$ | $ | ||||||||||
Net income (loss) |
$ | $ | $ | ( |
) | |||||||
| * | Service fees are included within the Company’s Consolidated Statements of Operations as other income. |
Note 18. Subsequent Events
The Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the consolidated financial statements were issued.
On November 7, 2023, the Board declared a quarterly distribution of $0.41 per share payable on December 28, 2023 to holders of record as of December 14, 2023.
37
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
SLR Investment Corp.:
Results of Review of Interim Financial Information
We have reviewed the consolidated statement of assets and liabilities of SLR Investment Corp. (and subsidiaries) (the Company), including the consolidated schedule of investments, as of September 30, 2023, the related consolidated statements of operations and changes in net assets, for the three-month and nine-month periods ended September 30, 2023 and 2022, the related consolidated statements of cash flows for the nine-month periods ended September 30, 2023 and 2022, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of assets and liabilities, including the consolidated schedule of investments, of the Company as of December 31, 2022, and the related consolidated statements of operations, changes in net assets, and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, as of December 31, 2022, is fairly stated, in all material respects, in relation to the consolidated statement of assets and liabilities, including the consolidated schedule of investments, from which it has been derived.
Basis for Review Results
This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
| /s/ KPMG LLP |
New York, New York
November 7, 2023
38
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The information contained in this section should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.
Some of the statements in this report constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained herein involve risks and uncertainties, including statements as to:
• |
our future operating results, including our ability to achieve objectives; |
• |
our business prospects and the prospects of our portfolio companies; |
• |
the impact of investments that we expect to make; |
• |
our contractual arrangements and relationships with third parties; |
• |
the dependence of our future success on the general economy and its impact on the industries in which we invest; |
• |
the impact of any protracted decline in the liquidity of credit markets on our business; |
• |
the ability of our portfolio companies to achieve their objectives; |
• |
the valuation of our investments in portfolio companies, particularly those having no liquid trading market; |
• |
market conditions and our ability to access alternative debt markets and additional debt and equity capital; |
• |
our expected financings and investments; |
• |
the adequacy of our cash resources and working capital; |
• |
the timing of cash flows, if any, from the operations of our portfolio companies; |
• |
the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments; |
• |
the ability of the Investment Adviser to attract and retain highly talented professionals; |
• |
the ability of the Investment Adviser to adequately allocate investment opportunities among the Company and its other advisory clients; |
• |
any conflicts of interest posed by the structure of the management fee and incentive fee to be paid to the Investment Adviser; |
• |
changes in political, economic or industry conditions, relations between the United States, Russia, Ukraine and other nations, the interest rate environment or conditions affecting the financial and capital markets; |
• |
the escalating conflict in the Middle East; |
• |
changes in the general economy, slowing economy, rising inflation, risk of recession and risks in respect of a failure to increase the U.S. debt ceiling; and |
• |
our ability to anticipate and identify evolving market expectations with respect to environmental, social and governance matters, including the environmental impacts of our portfolio companies’ supply chains and operations. |
These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
• |
an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; |
• |
a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities; |
• |
interest rate volatility could adversely affect our results, particularly because we use leverage as part of our investment strategy; |
• |
currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars; |
• |
the risks, uncertainties and other factors we identify in Item 1A. — Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2022, elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC. |
We generally use words such as “anticipates,” “believes,” “expects,” “intends” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including any factors set forth in “Risk Factors” and elsewhere in this report.
We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including any annual reports on Form
10-K,
quarterly reports on Form 10-Q
and current reports on Form 8-K.
39
Overview
SLR Investment Corp. (the “Company”, “SLRC”, “we” or “our”), a Maryland corporation formed in November 2007, is a
closed-end,
externally managed, non-diversified
management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). Furthermore, as the Company is an investment company, it continues to apply the guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946. In addition, for U.S federal income tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). On February 9, 2010, we priced our initial public offering, selling 5.68 million shares of our common stock. Concurrent with our initial public offering, Michael S. Gross, our Chairman,
Co-Chief
Executive Officer and President, and Bruce Spohler, our Co-Chief
Executive Officer and Chief Operating Officer, collectively purchased an additional 0.6 million shares of our common stock through a private placement transaction exempt from registration under the Securities Act of 1933, as amended. We invest primarily in privately held U.S. middle-market companies, where we believe the supply of primary capital is limited and the investment opportunities are most attractive. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in leveraged middle-market companies in the form of senior secured loans, financing leases and to a lesser extent, unsecured loans and equity securities. From time to time, we may also invest in public companies that are thinly traded. Our business is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Our investments generally range between $5 million and $100 million each, although we expect that this investment size will vary proportionately with the size of our capital base and/or with strategic initiatives. Our investment activities are managed by SLR Capital Partners, LLC (the “Investment Adviser”) and supervised by the board of directors (the “Board)”, a majority of whom are
non-interested,
as such term is defined in the 1940 Act. SLR Capital Management, LLC (the “Administrator”) provides the administrative services necessary for us to operate. In addition, we may invest a portion of our portfolio in other types of investments, which we refer to as opportunistic investments, which are not our primary focus but are intended to enhance our overall returns. These investments may include, but are not limited to, direct investments in public companies that are not thinly traded and securities of leveraged companies located in select countries outside of the United States.
Recent Developments
On November 7, 2023, the Board declared a quarterly distribution of $0.41 per share payable on December 28, 2023 to holders of record as of December 14, 2023.
Investments
Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make. As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” The definition of “eligible portfolio company” includes certain public companies that do not have any securities listed on a national securities exchange and companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million.
Revenue
We generate revenue primarily in the form of interest and dividend income from the securities we hold and capital gains, if any, on investment securities that we may sell. Our debt investments generally have a stated term of three to seven years and typically bear interest at a floating rate usually determined on the basis of a benchmark London interbank offered rate (“LIBOR”), the Secured Overnight Financing Rate (“SOFR”), commercial paper rate, or the prime rate. Interest on our debt investments is generally payable monthly or quarterly but may be (“PIK”) income. Such amounts of accrued PIK income are added to the cost of the investment on the respective capitalization dates and generally become due at maturity of the investment or upon the investment being called by the issuer. We may also generate revenue in the form of commitment, origination, structuring fees, fees for providing managerial assistance and, if applicable, consulting fees, etc.
bi-monthly
or semi-annually. In addition, our investments may provide payment-in-kind
40
Expenses
All investment professionals of the investment adviser and their respective staffs, when and to the extent engaged in providing investment advisory and management services, and the compensation and routine overhead expenses of such personnel allocable to such services, are provided and paid for by the Investment Adviser. We bear all other costs and expenses of our operations and transactions, including (without limitation):
| • | the cost of our organization and public offerings; |
| • | the cost of calculating our net asset value, including the cost of any third-party valuation services; |
| • | the cost of effecting sales and repurchases of our shares and other securities; |
| • | interest payable on debt, if any, to finance our investments; |
| • | fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments and advisory fees; |
| • | transfer agent and custodial fees; |
| • | fees and expenses associated with marketing efforts; |
| • | federal and state registration fees, any stock exchange listing fees; |
| • | federal, state and local taxes; |
| • | independent directors’ fees and expenses; |
| • | brokerage commissions; |
| • | fidelity bond, directors and officers errors and omissions liability insurance and other insurance premiums; |
| • | direct costs and expenses of administration, including printing, mailing, long distance telephone and staff; |
| • | fees and expenses associated with independent audits and outside legal costs; |
| • | costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws; and |
| • | all other expenses incurred by either SLR Capital Management or us in connection with administering our business, including payments under the Administration Agreement that will be based upon our allocable portion of overhead and other expenses incurred by SLR Capital Management in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and related expenses of our chief compliance officer and our chief financial officer and their respective staffs. |
We expect our general and administrative operating expenses related to our ongoing operations to increase moderately in dollar terms. During periods of asset growth, we generally expect our general and administrative operating expenses to decline as a percentage of our total assets and increase during periods of asset declines. Incentive fees, interest expense and costs relating to future offerings of securities, among others, may also increase or reduce overall operating expenses based on portfolio performance, interest rate benchmarks, and offerings of our securities relative to comparative periods, among other factors.
Portfolio and Investment Activity
During the three months ended September 30, 2023, we invested approximately $187.4 million across 35 portfolio companies. This compares to investing approximately $245.4 million in 44 portfolio companies for the three months ended September 30, 2022. Investments sold, prepaid or repaid during the three months ended September 30, 2023 totaled approximately $205.6 million versus approximately $81.1 million for the three months ended September 30, 2022.
41
At September 30, 2023, our portfolio consisted of 154 portfolio companies and was invested 37.1% in cash flow senior secured loans, 25.2% in asset-based senior secured loans / SLR Credit Solutions (“SLR Credit”) / SLR Healthcare ABL / SLR Business Credit, 22.6% in equipment senior secured financings / SLR Equipment Finance (“SLR Equipment”) / Kingsbridge Holdings, LLC (“KBH”) and 15.1% in life science senior secured loans, in each case, measured at fair value, versus 135 portfolio companies invested 30.2% in cash flow senior secured loans, 31.9% in asset-based senior secured loans / SLR Credit, 21.6% in equipment senior secured financings / SLR Equipment / KBH, and 16.3% in life science senior secured loans, in each case, measured at fair value, at September 30, 2022.
At September 30, 2023, 78.4% or $1.68 billion of our income producing investment portfolio
*
is floating rate and 21.6% or $462.1 million is fixed rate, measured at fair value. At September 30, 2022, 79.7% or $1.71 billion of our income producing investment portfolio*
is floating rate and 20.3% or $434.9 million is fixed rate, measured at fair value. As of September 30, 2023 and 2022, we had two and two issuers, respectively, on non-accrual
status. * |
We have included SLR Credit Solutions, SLR Equipment Finance, SLR Healthcare ABL, SLR Business Credit and Kingsbridge Holdings, LLC within our income producing investment portfolio. |
SLR Credit Solutions
On December 28, 2012, we acquired an equity interest in Crystal Capital Financial Holdings LLC (“Crystal Financial”) for $275 million in cash. Crystal Financial owned approximately 98% of the outstanding ownership interest in SLR Credit Solutions (“SLR Credit”), f/k/a Crystal Financial LLC. The remaining financial interest was held by various employees of SLR Credit, through their investment in Crystal Management LP. SLR Credit had a diversified portfolio of 23 loans having a total par value of approximately $400 million at November 30, 2012 and a $275 million committed revolving credit facility. On July 28, 2016, the Company purchased Crystal Management LP’s approximately 2% equity interest in SLR Credit for approximately $5.7 million. Upon the closing of this transaction, the Company holds 100% of the equity interest in SLR Credit. On September 30, 2016, Crystal Capital Financial Holdings LLC was dissolved. As of September 30, 2023, total commitments to the revolving credit facility are $300 million.
As of September 30, 2023, SLR Credit had 32 funded commitments to 28 different issuers with total funded loans of approximately $469.5 million on total assets of $506.1 million. As of December 31, 2022, SLR Credit had 29 funded commitments to 25 different issuers with total funded loans of approximately $439.5 million on total assets of $460.7 million. As of September 30, 2023 and December 31, 2022, the largest loan outstanding totaled $40.7 million and $33.4 million, respectively. For the same periods, the average exposure per issuer was $16.8 million and $17.6 million, respectively. SLR Credit’s credit facility, which is
non-recourse
to the Company, had approximately $284.5 million and $224.3 million of borrowings outstanding at September 30, 2023 and December 31, 2022, respectively. For the three months ended September 30, 2023 and 2022, SLR Credit had net income of $4.3 million and $3.9 million, respectively, on gross income of $13.9 million and $8.6 million, respectively. For the nine months ended September 30, 2023 and 2022, SLR Credit had net income of $1.4 million and $8.6 million, respectively, on gross income of $42.4 million and $22.2 million, respectively. Due to timing and non-cash
items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in SLR Credit’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that SLR Credit will be able to maintain consistent dividend payments to us. SLR Equipment Finance
On July 31, 2017, we acquired a 100% equity interest in NEF Holdings, LLC, which conducts its business through its wholly-owned subsidiary Nations Equipment Finance, LLC. Effective February 25, 2021, Nations Equipment Finance, LLC and its related companies are doing business as SLR Equipment Finance (“SLR Equipment”). SLR Equipment is an independent equipment finance company that provides senior secured loans and leases primarily to U.S. based companies. We invested $209.9 million in cash to effect the transaction, of which $145.0 million was invested in the equity of SLR Equipment through our wholly-owned consolidated taxable subsidiary NEFCORP LLC and our wholly-owned consolidated subsidiary NEFPASS LLC and $64.9 million was used to purchase certain leases and loans held by SLR Equipment through NEFPASS LLC. Concurrent with the transaction, SLR Equipment refinanced its existing senior secured credit facility into a $150.0 million
non-recourse
facility with an accordion feature to expand up to $250.0 million. In September 2019, SLR Equipment amended the facility, increasing commitments to $214.0 million with an accordion feature to expand up to $314.0, million and extended the maturity date of the facility to July 31, 2023. In June 2023, the facility was amended to extend the maturity date to January 31, 2024, with updated commitments totaling $152.1 million, effective August 1, 2023. As of September 30, 2023, SLR Equipment had 141 funded equipment-backed leases and loans to 56 different customers with a total net investment in leases and loans of approximately $199.8 million on total assets of $251.0 million. As of December 31, 2022, SLR Equipment had 131 funded equipment-backed leases and loans to 59 different customers with a total net investment in leases and loans of approximately $190.8 million on total assets of $241.8 million. As of September 30, 2023 and December 31, 2022, the largest position outstanding totaled $18.3 million and $19.3 million, respectively. For the same periods, the average exposure per customer was $3.6 million and $3.2 million, respectively. SLR Equipment’s credit facility, which is
non-recourse
to the Company, had approximately $130.6 million and $115.0 million of borrowings outstanding at September 30, 2023 and December 31, 2022, 42
respectively. For the three months ended September 30, 2023 and 2022, SLR Equipment had net income (loss) of ($1.2) million and $1.0 million, respectively, on gross income of $4.8 million and $6.5 million, respectively. For the nine months ended September 30, 2023 and 2022, SLR Equipment had net loss of $2.2 million and $0.1 million, respectively, on gross income of $15.2 million and $15.7 million, respectively. Due to timing and
non-cash
items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in SLR Equipment’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that SLR Equipment will be able to maintain consistent dividend payments to us. Kingsbridge Holdings, LLC
On November 3, 2020, the Company acquired 87.5% of the equity securities of Kingsbridge Holdings, LLC (“KBH”) through KBH Topco LLC (“KBHT”), a Delaware corporation. KBH is a residual focused independent
mid-ticket
lessor of equipment primarily to U.S. investment grade companies. The Company invested $216.6 million to effect the transaction, of which $136.6 million was invested to acquire 87.5% of KBHT’s equity and $80.0 million in KBH’s debt. The existing management team of KBH committed to continuing to lead KBH after the transaction. Following the transaction, the Company owns 87.5% of KBHT equity and the KBH management team owns the remaining 12.5% of KBHT’s equity.As of September 30, 2023 and December 31, 2022, KBHT had total assets of $783.1 million and $777.2 million, respectively. For the same periods, debt recourse to KBHT totaled $239.5 million and $222.1 million, respectively, and
non-recourse
debt totaled $353.4 million and $353.1 million, respectively. None of the debt is recourse to the Company. For the three months ended September 30, 2023 and 2022, KBHT had net income of $2.1 million and $3.3 million, respectively, on gross income of $85.5 million and $71.3 million, respectively. For the nine months ended September 30, 2023 and 2022, KBHT had net income of $7.2 million and $10.4 million, respectively, on gross income of $229.1 million and $215.1 million, respectively. Due to timing and non-cash
items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in KBHT’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that KBHT will be able to maintain consistent dividend payments to us. SLR Healthcare ABL
SUNS acquired an equity interest in SLR Healthcare ABL, f/k/a Gemino Healthcare Finance, LLC (“SLR Healthcare”) on September 30, 2013. SLR Healthcare is a commercial finance company that originates, underwrites, and manages primarily secured, asset-based loans for small and
mid-sized
companies operating in the healthcare industry. SUNS initial investment in SLR Healthcare ABL was $32.8 million. The management team of SLR Healthcare co-invested
in the transaction and continues to lead SLR Healthcare. As of September 30, 2023, SLR Healthcare’s management team and the Company own approximately 7% and 93% of the equity in SLR Healthcare, respectively. SLRC acquired SLR Healthcare in connection with the Mergers on April 1, 2022. Effective with an amendment dated August 24, 2023, SLR Healthcare has a $150 million non-recourse
credit facility, which is expandable to $200 million under its accordion facility. The maturity date of this facility is March 31, 2026. SLR Healthcare currently manages a highly diverse portfolio of directly-originated and underwritten senior-secured commitments. As of September 30, 2023, the portfolio totaled approximately $237.0 million of commitments with a total net investment in loans of $106.5 million on total assets of $113.8 million. As of December 31, 2022, the portfolio totaled approximately $242.1 million of commitments with a total net investment in loans of $92.4 million on total assets of $108.7 million. At September 30, 2023, the portfolio consisted of 38 issuers with an average balance of approximately $2.8 million versus 41 issuers with an average balance of approximately $2.3 million at December 31, 2022. All of the commitments in SLR Healthcare’s portfolio are floating-rate, senior-secured,
cash-pay
loans. SLR Healthcare’s credit facility, which is non-recourse
to us, had approximately $81.0 million and $77.0 million of borrowings outstanding at September 30, 2023 and December 31, 2022, respectively. For the three months ended September 30, 2023 and 2022, SLR Healthcare had net income of $1.5 million and $0.8 million, respectively, on gross income of $4.8 million and $3.0 million, respectively. For the nine months ended September 30, 2023 and 2022, SLR Healthcare had net income of $3.9 million and $2.5 million, respectively, on gross income of $13.1 million and $7.9 million, respectively. Due to timing and non-cash
items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in SLR Healthcare’s funded commitments, the timing of originations, and the repayment of financings, the Company cannot guarantee that SLR Healthcare will be able to maintain consistent dividend payments to us. SLR Business Credit
SUNS acquired 100% of the equity interests of North Mill Capital LLC (“NMC”) on October 20, 2017. NMC is a leading asset-backed lending commercial finance company that provides senior secured asset-backed financings to U.S. based small-to-medium-sized businesses primarily in the manufacturing, services and distribution industries. SUNS invested approximately $51.0 million to effect the transaction. Subsequently, SUNS contributed 1% of its equity interest in NMC to ESP SSC Corporation.
43
Immediately thereafter, SUNS and ESP SSC Corporation contributed their equity interests to NorthMill LLC (“North Mill”). On May 1, 2018, North Mill merged with and into NMC, with NMC being the surviving company. SUNS and ESP SSC Corporation then owned 99% and 1% of the equity interests of NMC, respectively. The management team of NMC continues to lead NMC. On June 28, 2019, North Mill Holdco LLC (“NM Holdco”), a newly formed entity and ESP SSC Corporation acquired 100% of Summit Financial Resources, a Salt Lake City-based provider of asset-backed financing to small and
medium-sized
businesses. As part of this transaction, SUNS 99% interest in the equity of NMC was contributed to NM Holdco. This approximately $15.5 million transaction was financed with borrowings on NMC’s credit facility. Effective February 25, 2021, NMC and its related companies are doing business as SLR Business Credit. On June 3, 2021, NMC acquired 100% of Fast Pay Partners LLC, a Los Angeles-based provider of asset-backed financing to digital media companies. The transaction purchase price of $66.7 million was financed with equity from SUNS of $19.0 million and borrowings on NMC’s credit facility of $47.7 million.SLR Business Credit currently manages a highly diverse portfolio of directly-originated and underwritten senior-secured commitments. As of September 30, 2023, the portfolio totaled approximately $612.4 million of commitments, of which $257.8 million were funded, on total assets of $302.9 million. As of December 31, 2022, the portfolio totaled approximately $603.4 million of commitments, of which $286.0 million were funded, on total assets of $332.2 million. At September 30, 2023, the portfolio consisted of 98 issuers with an average balance of approximately $2.6 million versus 108 issuers with an average balance of approximately $2.6 million at December 31, 2022. NMC has a senior credit facility with a bank lending group for $285.3 million, which expires on November 13, 2025. Borrowings are secured by substantially all of NMC’s assets. NMC’s credit facility, which is
non-recourse
to us, had approximately $199.4 million and $214.4 million of borrowings outstanding at September 30, 2023 and December 31, 2022, respectively. For the three months ended September 30, 2023 and 2022, SLR Business Credit had net income of $1.8 million and $2.0 million, respectively, on gross income of $9.7 million and $7.6 million, respectively. For the nine months ended September 30, 2023 and 2022, SLR Business Credit had net income of $5.2 million and $5.7 million, respectively, on gross income of $27.9 million and $20.4 million, respectively. Due to timing and non-cash
items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in SLR Business Credit’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that SLR Business Credit will be able to maintain consistent dividend payments to us. Stock Repurchase Program
On May 9, 2023, our Board authorized an extension of a program for the purpose of repurchasing up to $50 million of our outstanding shares of common stock. Under the repurchase program, we may, but are not obligated to, repurchase shares of our outstanding common stock in the open market from time to time provided that we comply with our code of ethics and the guidelines specified in Rule
10b-18
of the Exchange Act, including certain price, market volume and timing constraints. In addition, any repurchases will be conducted in accordance with the 1940 Act. Unless further amended or extended by our Board, we expect the repurchase program to be in place until the earlier of May 10, 2024 or until $50 million of our outstanding shares of common stock have been repurchased. The timing and number of additional shares to be repurchased will depend on a number of factors, including market conditions. There are no assurances that we will engage in any repurchases beyond what is reported herein. For the nine months ended September 30, 2023, the Company repurchased 746 shares at an average price of approximately $14.02 per share, inclusive of commissions. The total dollar amount of shares repurchased for the nine months ended September 30, 2023 was $0.01 million. During the fiscal year ended December 31, 2022, the Company repurchased 217,271 shares at an average price of approximately $13.98 per share, inclusive of commissions. The total dollar amount of shares repurchased for the fiscal year ended December 31, 2022 was $3.0 million. SLR Senior Lending Program LLC
On October 12, 2022, the Company entered into an amended and restated limited liability company agreement with Sunstone Senior Credit L.P. (the “Investor”) to create a joint venture vehicle, SLR Senior Lending Program LLC (“SSLP”). SSLP is expected to invest primarily in senior secured cash flow loans. The Company and the Investor each have made initial equity commitments of $50 million, resulting in a total equity commitment of $100 million. Investment decisions and all material decisions in respect of SSLP must be approved by representatives of the Company and the Investor.
On December 1, 2022, SSLP commenced operations. On December 12, 2022, SSLP as servicer and SLR Senior Lending Program SPV LLC (“SSLP SPV”), a newly formed wholly owned subsidiary of SSLP, as borrower entered into a $100 million senior secured revolving credit facility (the “SSLP Facility”) with Goldman Sachs Bank USA acting as administrative agent. The SSLP Facility is scheduled to mature on December 12, 2027. The SSLP Facility generally bears interest at a rate of SOFR plus 3.25%. SSLP and SSLP SPV, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The SSLP Facility also includes usual and customary events of default for credit facilities of this nature. At September 30, 2023, there were $79.2 million of borrowings outstanding on the SSLP Facility.
44
As of September 30, 2023 the Company and the Investor had contributed combined equity capital in the amount of $57.5 million. As of September 30, 2023, the Company and the Investor’s remaining commitments to SSLP totaled $21.25 million and $21.25 million, respectively. The Company, along with the Investor, controls the funding of SSLP, and SSLP may not call the unfunded commitments of the Company or the Investor without approval of both the Company and the Investor.
As of September 30, 2023 and December 31, 2022, SSLP had total assets of $137.4 million and $19.1 million, respectively. For the same periods, SSLP’s portfolio consisted of floating rate senior secured loans to 27 and 7 different borrowers, respectively. For the three months ended September 30, 2023, SSLP invested $57.5 million in 16 portfolio companies. Investments prepaid totaled $1.7 million for the three months ended September 30, 2023. For the period December 1, 2022 (commencement of operations) through December 31, 2022, SSLP invested $18.1 million in 7 portfolio companies. Investments prepaid totaled $0.1 million for the period December 1, 2022 (commencement of operations) through December 31, 2022.
SSLP Portfolio as of September 30, 2023 (dollar amounts in thousands)
Description |
Industry |
Spread Above Index (1) |
Floor |
Interest Rate (2) |
Maturity Date |
Par Amount |
Cost |
Fair Value (3) |
||||||||||||||||||||||
Accession Risk Management Group, Inc. (4) |
Insurance | S+550 | 0.75 | % | 11.02 | % | 11/1/26 | $ | 9,078 | $ | 9,078 | $ | 9,078 | |||||||||||||||||
Aegis Toxicology Sciences Corporation (4) |
Health Care Providers & Services | S+550 | 1.00 | % | 11.13 | % | 5/9/25 | 2,960 | 2,960 | 2,960 | ||||||||||||||||||||
Alkeme Intermediary Holdings, LLC (4) |
Insurance | S+650 | 1.00 | % | 11.92 | % | 10/28/26 | 3,021 | 2,931 | 2,930 | ||||||||||||||||||||
All States Ag Parts, LLC (4) |
Trading Companies & Distributors | S+600 | 1.00 | % | 11.60 | % | 9/1/26 | 2,138 | 2,138 | 2,138 | ||||||||||||||||||||
Atria Wealth Solutions, Inc. (4) |
Diversified Financial Services | S+650 | 1.00 | % | 12.15 | % | 2/29/24 | 2,475 | 2,475 | 2,475 | ||||||||||||||||||||
BayMark Health Services, Inc. (4) |
Health Care Providers & Services | S+500 | 1.00 | % | 10.65 | % | 6/11/27 | 4,043 | 4,043 | 4,043 | ||||||||||||||||||||
CC SAG Holdings Corp. (4) |
Diversified Consumer Services | S+575 | 0.75 | % | 11.18 | % | 6/29/28 | 2,992 | 2,992 | 2,992 | ||||||||||||||||||||
ENS Holdings III Corp. & ES Opco USA LLC (4) |
Trading Companies & Distributors | S+475 | 1.00 | % | 10.24 | % | 12/31/25 | 1,089 | 1,089 | 1,089 | ||||||||||||||||||||
Fertility (ITC) Investment Holdco, LLC (4) |
Health Care Providers & Services | S+650 | 1.00 | % | 11.63 | % | 1/3/29 | 5,970 | 5,799 | 5,970 | ||||||||||||||||||||
Foundation Consumer Brands, LLC (4) |
Personal Products | S+625 | 1.00 | % | 11.77 | % | 2/12/27 | 8,911 | 8,911 | 8,911 | ||||||||||||||||||||
High Street Buyer, Inc. (4) |
Insurance | S+600 | 0.75 | % | 11.54 | % | 4/16/28 | 4,433 | 4,433 | 4,433 | ||||||||||||||||||||
iCIMS, Inc. (4) |
Software | S+725 | 0.75 | % | 12.14 | % | 8/18/28 | 3,059 | 3,028 | 3,059 | ||||||||||||||||||||
Kaseya, Inc. (4) |
Software | S+625 | 0.75 | % | 11.58 | % | 6/23/29 | 9,000 | 9,000 | 9,000 | ||||||||||||||||||||
Kid Distro Holdings, LLC (4) |
Software | S+550 | 1.00 | % | 11.04 | % | 10/1/27 | 8,962 | 8,962 | 8,962 | ||||||||||||||||||||
ONS MSO, LLC (4) |
Health Care Providers & Services | S+625 | 1.00 | % | 11.62 | % | 7/8/25 | 5,936 | 5,779 | 5,936 | ||||||||||||||||||||
PhyNet Dermatology LLC (4) |
Health Care Providers & Services | S+625 | 1.00 | % | 11.45 | % | 8/16/24 | 5,964 | 5,964 | 5,964 | ||||||||||||||||||||
Pinnacle Treatment Centers, Inc. (4) |
Health Care Providers & Services | S+675 | 1.00 | % | 12.10 | % | 1/2/26 | 4,725 | 4,725 | 4,725 | ||||||||||||||||||||
Plastics Management, LLC (4) |
Health Care Providers & Services | S+500 | 1.00 | % | 10.44 | % | 8/18/27 | 5,651 | 5,476 | 5,651 | ||||||||||||||||||||
RQM+ Corp. (4) |
Life Sciences Tools & Services | S+575 | 1.00 | % | 11.40 | % | 8/12/26 | 5,970 | 5,970 | 5,970 | ||||||||||||||||||||
RxSense Holdings LLC (4) |
Diversified Consumer Services | S+500 | 1.00 | % | 10.47 | % | 3/13/26 | 2,977 | 2,977 | 2,977 | ||||||||||||||||||||
SunMed Group Holdings, LLC (4) |
Health Care Equipment & Supplies |
S+550 | 0.75 | % | 10.99 | % | 6/16/28 | 8,971 | 8,971 | 8,971 | ||||||||||||||||||||
The Townsend Company, LLC (4) |
Commercial Services & Supplies | S+625 | 1.00 | % | 11.57 | % | 8/15/29 | 3,570 | 3,482 | 3,481 | ||||||||||||||||||||
Tilley Distribution, Inc. (4) |
Trading Companies & Distributors | S+600 | 1.00 | % | 11.54 | % | 12/31/26 | 5,963 | 5,963 | 5,963 | ||||||||||||||||||||
Ultimate Baked Goods Midco LLC (4) |
Packaged Foods & Meats | S+625 | 1.00 | % | 11.67 | % | 8/13/27 | 8,977 | 8,977 | 8,977 | ||||||||||||||||||||
Urology Management Holdings, Inc. (4) |
Health Care Providers & Services | S+625 | 1.00 | % | 11.79 | % | 6/15/26 | 2,465 | 2,403 | 2,440 | ||||||||||||||||||||
Vessco Midco Holdings, LLC (4) |
Water Utilities | S+450 | 1.00 | % | 9.92 | % | 11/2/26 | 1,845 | 1,845 | 1,845 | ||||||||||||||||||||
West-NR Parent, Inc.(4) |
Insurance | S+625 | 1.00 | % | 11.72 | % | 12/27/27 | 2,674 | 2,622 | 2,621 | ||||||||||||||||||||
| (1) | Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the SOFR. These instruments are typically subject to a SOFR floor. |
| (2) | Floating rate debt investments typically bear interest at a rate determined by reference to the SOFR (“S”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of September 30, 2023. |
| (3) | Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board’s valuation process described elsewhere herein. |
| (4) | The Company also holds this security on its Consolidated Statements of Assets and Liabilities. |
45
SSLP Portfolio as of December 31, 2022 (dollar amounts in thousands)
Description |
Industry |
Spread Above Index (1) |
Floor |
Interest Rate (2) |
Maturity Date |
Par Amount |
Cost |
Fair Value (3) |
||||||||||||||||||||||||
Atria Wealth Solutions, Inc. (4) |
Diversified Financial Services | S+600 | 1.00 | % | 10.84 | % | 2/29/24 | $ | 2,494 | $ | 2,494 | $ | 2,494 | |||||||||||||||||||
BayMark Health Services, Inc. (4) |
Health Care Providers & Services | L+500 | 1.00 | % | 9.73 | % | 6/11/27 | 2,992 | 2,992 | 2,992 | ||||||||||||||||||||||
ENS Holdings III Corp. & ES Opco USA LLC (4) |
|
Trading Companies & Distributors |
|
L+475 | 1.00 | % | 9.43 | % | 12/31/25 | 1,097 | 1,097 | 1,097 | ||||||||||||||||||||
Foundation Consumer Brands, LLC (4) |
Personal Products | L+550 | 1.00 | % | 10.15 | % | 2/12/27 | 2,963 | 2,963 | 2,963 | ||||||||||||||||||||||
High Street Buyer, Inc. (4) |
Insurance | L+600 | 0.75 | % | 10.73 | % | 4/16/28 | 2,494 | 2,494 | 2,494 | ||||||||||||||||||||||
Ivy Fertility Services, LLC (4) |
Health Care Providers & Services | L+625 | 1.00 | % | 10.39 | % | 2/25/26 | 3,000 | 3,000 | 3,030 | ||||||||||||||||||||||
Kid Distro Holdings, LLC (4) |
Software | L+575 | 1.00 | % | 10.48 | % | 10/1/27 | 2,992 | 2,992 | 2,992 | ||||||||||||||||||||||
| $ | 18,032 | $ | 18,062 | |||||||||||||||||||||||||||||
| (1) | Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or SOFR. These instruments are typically subject to a LIBOR or SOFR floor. |
| (2) | Floating rate debt investments typically bear interest at a rate determined by reference to either the LIBOR (“L”) or SOFR (“S”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of December 31, 2022. |
| (3) | Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board’s valuation process described elsewhere herein. |
| (4) | The Company also holds this security on its Consolidated Statements of Assets and Liabilities. |
Below is certain summarized financial information for SSLP as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and for the period December 1, 2022 (commencement of operations) through December 31, 2022:
September 30, 2023 |
December 31, 2022 |
|||||||
Selected Balance Sheet Information for SSLP (in thousands): |
||||||||
Investments at fair value (cost $132,993 and $18,032, respectively) |
$ | 133,561 | $ | 18,062 | ||||
Cash and other assets |
3,886 | 1,043 | ||||||
Total assets |
$ | 137,447 | $ | 19,105 | ||||
Debt outstanding |
$ | 77,826 | $ | — | ||||
Distributions payable |
500 | — | ||||||
Interest payable and other credit facility related expenses |
358 | 165 | ||||||
Accrued expenses and other payables |
209 | 89 | ||||||
Total liabilities |
$ | 78,893 | $ | 254 | ||||
Members’ equity |
$ | 58,554 | $ | 18,851 | ||||
Total liabilities and members’ equity |
$ | 137,447 | $ | 19,105 | ||||
46
For the three months ended September 30, 2023 |
For the nine months ended September 30, 2023 |
For the period December 1, 2022 (commencement of operations) to December 31, 2022 |
||||||||||
Selected Income Statement Information for SSLP (in thousands): |
||||||||||||
Interest income |
$ | 2,757 | $ | 5,371 | $ | 152 | ||||||
Service fees* |
66 | 123 | $ | 4 | ||||||||
Interest and other credit facility expenses |
1,773 | 4,025 | 166 | |||||||||
Organizational costs |
— | — | 73 | |||||||||
Other general and administrative expenses |
32 | 89 | 88 | |||||||||
Total expenses |
1,871 | 4,237 | 331 | |||||||||
Net investment income (loss) |
$ | 886 | $ | 1,134 | $ | (179 | ) | |||||
Realized gain on investments |
— | 30 | — | |||||||||
Net change in unrealized gain on investments |
177 | 538 | 30 | |||||||||
Net realized and unrealized gain on investments |
$ | 177 | $ | 568 | 30 | |||||||
Net income (loss) |
$ | 1,063 | $ | 1,702 | $ | (149 | ) | |||||
| * | Service fees are included within the Company’s Consolidated Statements of Operations as other income. |
Critical Accounting Policies
The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies. Within the context of these critical accounting policies and disclosed subsequent events herein, we are not currently aware of any other reasonably likely events or circumstances that would result in materially different amounts being reported.
Valuation of Portfolio Investments
In December 2020, the SEC adopted new Rule
2a-5
under the 1940 Act addressing fair valuation of fund investments. The new rule sets forth requirements for good faith determinations of fair value, as well as for the performance of fair value determinations, including related oversight and reporting obligations. The new rule also defines “readily available market quotations” for purposes of the definition of “value” under the 1940 Act, and the SEC noted that this definition will apply in all contexts under the 1940 Act. The Company complies with Rule 2a-5’s
valuation requirements. We conduct the valuation of our assets, pursuant to which our net asset value is determined, at all times consistent with GAAP, and the 1940 Act. The Board will (1) periodically assess and manage valuation risks; (2) establish and apply fair value methodologies; (3) test fair value methodologies; (4) oversee and evaluate third-party pricing services, as applicable; (5) oversee the reporting required by Rule
2a-5
under the 1940 Act; and (6) maintain recordkeeping requirements under Rule 2a-5.
It is anticipated that in respect of many of the Company’s assets, readily available market quotations will not be obtainable and that such assets will be valued at fair value. A market quotation is readily available for a security only when that quotation is a quoted price (unadjusted) in active markets for identical investments that the Company can access at the measurement date, provided that a quotation will not be readily available if it is not reliable. If the Company anticipates using a market quotation for a security, it will also monitor for circumstances that may necessitate the use of fair value, such as significant events that may cause concern over the reliability of a market quotation.
Our valuation procedures are set forth in more detail in Note 2(b) to the Company’s Consolidated Financial Statements. Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements.
47
Revenue Recognition
The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Investments that are expected to pay regularly scheduled interest and/or dividends in cash are generally placed on
non-accrual
status when principal or interest/dividend cash payments are past due 30 days or more (90 days or more for equipment financing) and/or when it is no longer probable that principal or interest/dividend cash payments will be collected. Such non-accrual
investments are restored to accrual status if past due principal and interest or dividends are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining interest or dividend obligations. Interest or dividend cash payments received on investments may be recognized as income or applied to principal depending upon management’s judgment. Some of our investments may have contractual PIK income. PIK income computed at the contractual rate, as applicable, is accrued and reflected as a receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes due at the maturity of the investment or upon the investment being called by the issuer. At the point the Company believes PIK is not expected to be realized, the PIK investment will be placed on non-accrual
status. When a PIK investment is placed on non-accrual
status, the accrued, uncapitalized interest or dividends is reversed from the related receivable through interest or dividend income, respectively. The Company does not reverse previously capitalized PIK income. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual
status are restored to accrual status if the Company again believes that PIK is expected to be realized. Loan origination fees, original issue discount, and market discounts are capitalized and amortized into income using the effective interest method. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and other investments as interest income when we receive such amounts. Capital structuring fees are recorded as other income when earned. The typically higher yields and interest rates on PIK securities, to the extent we invested, reflects the payment deferral and increased credit risk associated with such instruments and that such investments may represent a significantly higher credit risk than coupon loans. PIK securities may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. PIK income has the effect of generating investment income and increasing the incentive fees payable at a compounding rate. In addition, the deferral of PIK income also increases the ratio at a compounding rate. PIK securities create the risk that incentive fees will be paid to the Investment Adviser based on
loan-to-value
non-cash
accruals that ultimately may not be realized, but the Investment Adviser will be under no obligation to reimburse the Company for these fees. For the three and nine months ended September 30, 2023, capitalized PIK income totaled $2.7 million and $8.9 million, respectively. For the three and nine months ended September 30, 2022, capitalized PIK income totaled $0.7 million and $1.7 million, respectively. Net Realized Gain or Loss and Net Change in Unrealized Gain or Loss
We generally measure realized gain or loss by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized origination or commitment fees and prepayment penalties. The net change in unrealized gain or loss reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized gain or loss, when gains or losses are realized. Gains or losses on investments are calculated by using the specific identification method.
Income Taxes
SLRC, a U.S. corporation, has elected to be treated, and intends to qualify annually, as a RIC under Subchapter M of the Code. In order to qualify for U.S. federal income taxation as a RIC, the Company is required, among other things, to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each year. Depending on the level of taxable income earned in a given tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues an estimated excise tax, if any, on estimated excess taxable income.
Recent Accounting Pronouncements
None.
RESULTS OF OPERATIONS
Results comparisons are for the three and nine months ended September 30, 2023 and September 30, 2022:
48
Investment Income
For the three and nine months ended September 30, 2023, gross investment income totaled $59.6 million and $169.5 million, respectively. For the three and nine months ended September 30, 2022, gross investment income totaled $47.6 million and $123.4 million, respectively. The increase in gross investment income for the year over year three month periods was primarily due to net growth of the income producing portfolio as well as an increase in index rates.
Expenses
Net expenses totaled $36.3 million and $101.3 million, respectively, for the three and nine months ended September 30, 2023, of which $13.8 million and $40.6 million, respectively, were base management fees and performance-based incentive fees and $19.9 million and $53.0 million, respectively, were interest and other credit facility expenses. Over the same periods, $0.2 million and $0.4 million of performance-based incentive fees were waived. Administrative services and other general and administrative expenses totaled $2.7 million and $8.2 million, respectively, for the three and nine months ended September 30, 2023. Net expenses totaled $27.5 million and $69.5 million, respectively, for the three and nine months ended September 30, 2022, of which $12.9 million and $31.7 million, respectively, were base management fees and gross performance-based incentive fees and $12.8 million and $31.5 million, respectively, were interest and other credit facility expenses. Over the same periods, $0.2 million and $1.6 million, respectively, of performance-based incentive fees were waived. Administrative services and other general and administrative expenses totaled $2.1 million and $7.9 million, respectively, for the three and nine months ended September 30, 2022. Expenses generally consist of management and performance-based incentive fees, interest and other credit facility expenses, administrative services fees, insurance expenses, legal fees, directors’ fees, transfer agency fees, printing and proxy expenses, audit and tax services expenses, and other general and administrative expenses. Interest and other credit facility expenses generally consist of interest, unused fees, agency fees and loan origination fees, if any, among others. The increase in expenses for the three and nine months ended September 30, 2023 versus the three and nine months ended September 30, 2022 was primarily due to higher management fees, incentive fees and interest expense on a larger portfolio. Additionally, there was an increase in index rates on borrowings.
Net Investment Income
The Company’s net investment income totaled $23.4 million and $68.2 million, or $0.43 and $1.25, per average share, respectively, for the three and nine months ended September 30, 2023. The Company’s net investment income totaled $20.1 million and $53.8 million, or $0.37 and $1.06, per average share, respectively, for the three and nine months ended September 30, 2022.
Net Realized Loss
The Company had investment sales and prepayments totaling approximately $206 million and $473 million, respectively, for the three and nine months ended September 30, 2023. Net realized losses over the same periods were $31.0 million and $29.8 million, respectively. The Company had investment sales and prepayments totaling approximately $81 million and $261 million, respectively, for the three and nine months ended September 30, 2022. Net realized losses over the same periods were $37.3 million and $37.4 million, respectively. Net realized losses for the three and nine months ended September 30, 2023 were primarily related to our investment in American Teleconferencing Services, Ltd. Net realized losses for the three and nine months ended September 30, 2022 were primarily related to our investment in PhyMed Management, LLC.
Net Change in Unrealized Gain (Loss)
For the three and nine months ended September 30, 2023, net change in unrealized gain on the Company’s assets totaled $34.5 million and $14.4 million, respectively. Net unrealized gain for the three months ended September 30, 2023 is primarily due to the reversal of previously recognized unrealized depreciation on our investment in American Teleconferencing Services, Ltd. as well as appreciation in the value of our investments in Alimera Sciences, Inc. and SLR Credit Solutions, among others, partially offset by depreciation in the value of our investments in KBH Topco, LLC, among others. Net unrealized gain for the nine months ended September 30, 2023 is primarily due to the reversal of previously recognized unrealized depreciation on our investment in American Teleconferencing Services, Ltd. as well as appreciation in the value of our investments in Alimera Sciences, Inc., among others, partially offset by depreciation in the value of our investments in Oldco AI, LLC (f/k/a AmeriMark), SLR Credit Solutions and KBT Topco, LLC, among others. For the three and nine months ended September 30, 2022, net change in unrealized gain (loss) on the Company’s assets and liabilities totaled $30.8 million and ($17.1) million, respectively. Net unrealized gain for the three months ended September 30, 2022 is primarily due to the reversal of previously recognized unrealized depreciation on our investment in PhyMed Management LLC, as well as appreciation in the value of our investments in SLR Business Credit, Alimera Sciences, Inc. and Kingsbridge Holdings, LLC, among others, partially offset by depreciation in the value of our investments in SLR Equipment Finance, PPT Management Holdings, LLC, KBH Topco, LLC, SLR Healthcare ABL and SLR Credit Solutions, among others. Net unrealized loss for the nine months ended September 30, 2022 is primarily due to depreciation in the value of our investments in RD Holdco, Inc., American Teleconferencing Services, Ltd., SLR Credit Solutions and SLR Equipment Finance, among others, partially offset by the reversal of previously recognized unrealized depreciation on our investment in PhyMed Management LLC as well as appreciation on the value of our investments in SLR Business Credit and Alimera Sciences, Inc. in addition to unrealized appreciation on assets acquired in the Mergers due to the accounting treatment of the purchase discount.
49
Net Increase (Decrease) in Net Assets From Operations
For the three and nine months ended September 30, 2023, the Company had a net increase in net assets resulting from operations of $26.9 million and $52.8 million, respectively. For the same periods, earnings per average share were $0.49 and $0.97, respectively. For the three and nine months ended September 30, 2022, the Company had a net increase (decrease) in net assets resulting from operations of $13.5 million and ($0.7) million, respectively. For the same periods, earnings (losses) per average share were $0.25 and ($0.01), respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s liquidity and capital resources are generated and generally available through its Credit Facility and SPV Credit Facility (as defined below), the 2024 Unsecured Notes, the 2025 Unsecured Notes, the 2026 Unsecured Notes, the 2027 Unsecured Notes and the 2027 Series F Unsecured Notes (collectively the “Debt Instruments”), through cash flows from operations, investment sales, prepayments of senior and subordinated loans, income earned on investments and cash equivalents, and periodic
follow-on
equity and/or debt offerings. As of September 30, 2023, we had a total of $200.8 million of unused borrowing capacity under the Credit Facility and SPV Credit Facility, subject to borrowing base limits. We may from time to time issue equity and/or debt securities in either public or private offerings. The issuance of such securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful. The primary uses of existing funds and any funds raised in the future is expected to be for investments in portfolio companies, repayment of indebtedness, cash distributions to our stockholders, or for other general corporate purposes.
Debt
On April 1, 2022, we entered into an assumption agreement (the “CF Assumption Agreement”), effective as of the closing of the Mergers. The CF Assumption Agreement relates to our assumption of the Revolving Credit Facility, originally entered into on August 26, 2011 (as amended from time to time, the “SPV Credit Facility”), by and among SUNS SPV LLC (the “SUNS SPV”), a wholly-owned subsidiary of SUNS, acting as borrower, Citibank, N.A., acting as administrative agent and collateral agent, and the other parties thereto. Currently, subsequent to an August 29, 2023 amendment, the commitment under the SPV Credit Facility is $275 million; however, the commitment can also be expanded up to $600 million. The stated interest rate on the SPV Credit Facility is SOFR plus
2.00%-2.50%
with no SOFR floor requirement and the current final maturity date is June 1, 2026. The SPV Credit Facility is secured by all of the assets held by SUNS SPV. Under the terms of the SPV Credit Facility and related transaction documents, we as successor to SUNS, and SUNS SPV, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The SPV Credit Facility also includes usual and customary events of default for credit facilities of this nature. At September 30, 2023, outstanding USD equivalent borrowings under the SPV Credit Facility totaled $206.3 million. On April 1, 2022, we entered into an assumption agreement (the “Note Assumption Agreement”), effective as of the closing of the Mergers. The Note Assumption Agreement relates to our assumption of $85 million in aggregate principal amount of five-year, 3.90% senior unsecured notes, due March 31, 2025 (the “2025 Unsecured Notes”) and other obligations of SUNS under the Note Purchase Agreement, dated as of March 31, 2020 (the “Note Purchase Agreement”), among SUNS and certain institutional investors. Interest on the 2025 Unsecured Notes is due semi-annually on March 31 and September 30. Pursuant to the Note Assumption Agreement, we expressly assumed on behalf of SUNS the due and punctual payment of the principal of (and premium, if any) and interest on all the 2025 Unsecured Notes outstanding, and the due and punctual performance and observance of every covenant and every condition of the Note Purchase Agreement, to be performed or observed by SUNS.
On January 6, 2022, the Company closed a private offering of $135 million of the 2027 Series F Unsecured Notes with a fixed interest rate of 3.33% and a maturity date of January 6, 2027. Interest on the 2027 Series F Unsecured Notes is due semi-annually on January 6 and July 6. The 2027 Series F Unsecured Notes were issued in a private placement only to qualified institutional buyers.
On December 28, 2021, the Company closed on Amendment No. 1 to its August 28, 2019 senior secured credit agreement (the “Credit Facility”). Following the amendment, a $25 million November 2022 upsizing and a $40 million August 2023 commitment expiration, the Credit Facility is composed of $585 million of revolving credit and $100 million of term loans. Borrowings generally bear interest at a rate per annum equal to the base rate plus a range of
1.75%-2.00%
or the alternate base rate plus 0.75%-1.00%. The
Credit Facility has a 0% floor and matures in December 2026 and includes ratable amortization in the final year. The Credit Facility may be increased up to $800 million with additional new lenders or an increase in commitments from current lenders. The Credit Facility contains certain customary affirmative and negative covenants and events of default. In addition, the Credit Facility contains certain financial covenants that among other things, require the Company to maintain a minimum shareholder’s equity and a minimum asset coverage ratio. At September 30, 2023, outstanding USD equivalent borrowings under the Credit Facility totaled $521.5 million, composed of $421.5 million of revolving credit and $100.0 million of term loans. 50
On September 14, 2021, the Company closed a private offering of $50 million of the 2027 Unsecured Notes with a fixed interest rate of 2.95% and a maturity date of March 14, 2027. Interest on the 2027 Unsecured Notes is due semi-annually on March 14 and September 14. The 2027 Unsecured Notes were issued in a private placement only to qualified institutional buyers.
On December 18, 2019, the Company closed a private offering of $125 million of the 2024 Unsecured Notes with a fixed interest rate of 4.20% and a maturity date of December 15, 2024. Interest on the 2024 Unsecured Notes is due semi-annually on June 15 and December 15. The 2024 Unsecured Notes were issued in a private placement only to qualified institutional buyers.
On December 18, 2019, the Company closed a private offering of $75 million of the 2026 Unsecured Notes with a fixed interest rate of 4.375% and a maturity date of December 15, 2026. Interest on the 2026 Unsecured Notes is due semi-annually on June 15 and December 15. The 2026 Unsecured Notes were issued in a private placement only to qualified institutional buyers.
On November 22, 2017, we issued $75 million in aggregate principal amount of publicly registered 2023 Unsecured Notes for net proceeds of $73.8 million. Interest on the 2023 Unsecured Notes is paid semi-annually on January 20 and July 20, at a fixed rate of 4.50% per year, commencing on January 20, 2018. The 2023 Unsecured Notes were repaid in full at maturity on January 20, 2023.
Certain covenants on our issued debt may restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code. At September 30, 2023, the Company was in compliance with all financial and operational covenants required by the Debt Instruments.
Cash Equivalents
We deem certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities as cash equivalents. The Company makes purchases that are consistent with its purpose of making investments in securities described in paragraphs 1 through 3 of Section 55(a) of the 1940 Act. From time to time, including at or near the end of each fiscal quarter, we consider using various temporary investment strategies for our business. One strategy includes taking proactive steps by utilizing cash equivalents as temporary assets with the objective of enhancing our investment flexibility pursuant to Section 55 of the 1940 Act. More specifically, from time to time we may purchase U.S. Treasury bills or other high-quality, short-term debt securities at or near the end of the quarter and typically close out the position on a net cash basis subsequent to quarter end. We may also utilize repurchase agreements or other balance sheet transactions, including drawing down on the Credit Facility, as deemed appropriate. The amount of these transactions or such drawn cash for this purpose is excluded from total assets for purposes of computing the asset base upon which the management fee is determined. We held a face amount of $335 million in cash equivalents as of September 30, 2023.
Contractual Obligations
A summary of our significant contractual payment obligations is as follows as of September 30, 2023:
Payments Due by Period (in millions)
Total |
Less than 1 Year |
1-3 Years |
3-5 Years |
More Than 5 Years |
||||||||||||||||
Revolving credit facilities (1) |
$ | 627.8 | $ | — | $ | 206.3 | $ | 421.5 | $ | — | ||||||||||
Unsecured senior notes |
470.0 | — | 210.0 | 260.0 | — | |||||||||||||||
Term loans |
100.0 | — | — | 100.0 | — | |||||||||||||||
| (1) | As of September 30, 2023, we had a total of $232.3 million of unused borrowing capacity under our revolving credit facilities, subject to borrowing base limits. |
Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 150% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy the asset coverage test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss.
We have also entered into two contracts under which we have future commitments: the Advisory Agreement, pursuant to which the Investment Adviser has agreed to serve as our investment adviser, and the Administration Agreement, pursuant to which the Administrator has agreed to furnish us with the facilities and administrative services necessary to conduct our operations and provide on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance. Payments under the Advisory Agreement are equal to (1) a percentage of the value of our average gross assets and (2) a
day-to-day
two-part
incentive fee. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of the Administrator’s overhead in performing its obligations under the Administration Agreement, including rent, technology systems, insurance and our allocable portion of the costs of our chief financial officer and chief compliance officer and their respective staffs. Either party may terminate each of the Advisory Agreement and administration agreement without penalty upon 60 days written notice to the other. See note 3 to our Consolidated Financial Statements. 51
On July 31, 2017, the Company, NEFPASS LLC and NEFCORP LLC entered into a servicing agreement. NEFCORP LLC was engaged to provide NEFPASS LLC with administrative services related to the loans and capital leases held by NEFPASS LLC. NEFPASS LLC may terminate this agreement upon 30 days written notice to NEFCORP LLC.
On October 7, 2022, the Company committed $50 million to SSLP and entered into a servicing agreement. SSLP engaged and retained the Company to provide certain administrative services relating to the facilities, supplies and necessary ongoing overhead support services for the operation of SSLP’s ongoing business affairs in exchange for a fee.
Senior Securities
Information about our senior securities is shown in the following table (in thousands) as of the quarter ended September 30, 2023 and each year ended December 31 for the past ten years, unless otherwise noted. The “—” indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities.
Class and Year |
Total Amount Outstanding(1) |
Asset Coverage Per Unit(2) |
Involuntary Liquidating Preference Per Unit(3) |
Average Market Value Per Unit(4) |
||||||||||||
Credit Facility |
||||||||||||||||
Fiscal 2023 (through September 30, 2023) |
$ | $ | N/A | |||||||||||||
Fiscal 2022 |
N/A | |||||||||||||||
Fiscal 2021 |
N/A | |||||||||||||||
Fiscal 2020 |
N/A | |||||||||||||||
Fiscal 2019 |
N/A | |||||||||||||||
Fiscal 2018 |
N/A | |||||||||||||||
Fiscal 2017 |
N/A | |||||||||||||||
Fiscal 2016 |
N/A | |||||||||||||||
Fiscal 2015 |
N/A | |||||||||||||||
Fiscal 2014 |
N/A | |||||||||||||||
Fiscal 2013 |
N/A | |||||||||||||||
SPV Credit Facility |
||||||||||||||||
Fiscal 2023 (through September 30, 2023) |
N/A | |||||||||||||||
Fiscal 2022 |
N/A | |||||||||||||||
2022 Unsecured Notes |
||||||||||||||||
Fiscal 2022 |
N/A | |||||||||||||||
Fiscal 2021 |
N/A | |||||||||||||||
Fiscal 2020 |
N/A | |||||||||||||||
Fiscal 2019 |
N/A | |||||||||||||||
Fiscal 2018 |
N/A | |||||||||||||||
Fiscal 2017 |
N/A | |||||||||||||||
Fiscal 2016 |
N/A | |||||||||||||||
2022 Tranche C Notes |
||||||||||||||||
Fiscal 2022 |
N/A | |||||||||||||||
Fiscal 2021 |
N/A | |||||||||||||||
Fiscal 2020 |
N/A | |||||||||||||||
Fiscal 2019 |
N/A | |||||||||||||||
Fiscal 2018 |
N/A | |||||||||||||||
Fiscal 2017 |
N/A | |||||||||||||||
2023 Unsecured Notes |
||||||||||||||||
Fiscal 2023 (through September 30, 2023) |
N/A | |||||||||||||||
Fiscal 2022 |
N/A | |||||||||||||||
Fiscal 2021 |
N/A | |||||||||||||||
Fiscal 2020 |
N/A | |||||||||||||||
Fiscal 2019 |
N/A | |||||||||||||||
Fiscal 2018 |
N/A | |||||||||||||||
Fiscal 2017 |
N/A | |||||||||||||||
52
Class and Year |
Total Amount Outstanding(1) |
Asset Coverage Per Unit(2) |
Involuntary Liquidating Preference Per Unit(3) |
Average Market Value Per Unit(4) |
||||||||||||
2024 Unsecured Notes |
||||||||||||||||
Fiscal 2023 (through September 30, 2023) |
N/A | |||||||||||||||
Fiscal 2022 |
N/A | |||||||||||||||
Fiscal 2021 |
N/A | |||||||||||||||
Fiscal 2020 |
N/A | |||||||||||||||
Fiscal 2019 |
N/A | |||||||||||||||
2025 Unsecured Notes |
||||||||||||||||
Fiscal 2023 (through September 30, 2023) |
N/A | |||||||||||||||
Fiscal 2022 |
N/A | |||||||||||||||
2026 Unsecured Notes |
||||||||||||||||
Fiscal 2023 (through September 30, 2023) |
N/A | |||||||||||||||
Fiscal 2022 |
N/A | |||||||||||||||
Fiscal 2021 |
N/A | |||||||||||||||
Fiscal 2020 |
N/A | |||||||||||||||
Fiscal 2019 |
N/A | |||||||||||||||
2027 Unsecured Notes |
||||||||||||||||
Fiscal 2023 (through September 30, 2023) |
N/A | |||||||||||||||
Fiscal 2022 |
N/A | |||||||||||||||
Fiscal 2021 |
N/A | |||||||||||||||
2027 Series F Unsecured Notes |
||||||||||||||||
Fiscal 2023 (through September 30, 2023) |
N/A | |||||||||||||||
Fiscal 2022 |
N/A | |||||||||||||||
2042 Unsecured Notes |
||||||||||||||||
Fiscal 2017 |
N/A | |||||||||||||||
Fiscal 2016 |
$ | |||||||||||||||
Fiscal 2015 |
||||||||||||||||
Fiscal 2014 |
||||||||||||||||
Fiscal 2013 |
||||||||||||||||
Senior Secured Notes |
||||||||||||||||
Fiscal 2017 |
N/A | |||||||||||||||
Fiscal 2016 |
N/A | |||||||||||||||
Fiscal 2015 |
N/A | |||||||||||||||
Fiscal 2014 |
N/A | |||||||||||||||
Fiscal 2013 |
N/A | |||||||||||||||
Term Loans |
||||||||||||||||
Fiscal 2023 (through September 30, 2023) |
N/A | |||||||||||||||
Fiscal 2022 |
N/A | |||||||||||||||
Fiscal 2021 |
N/A | |||||||||||||||
Fiscal 2020 |
N/A | |||||||||||||||
Fiscal 2019 |
N/A | |||||||||||||||
Fiscal 2018 |
N/A | |||||||||||||||
Fiscal 2017 |
N/A | |||||||||||||||
Fiscal 2016 |
N/A | |||||||||||||||
Fiscal 2015 |
N/A | |||||||||||||||
Fiscal 2014 |
N/A | |||||||||||||||
Fiscal 2013 |
N/A | |||||||||||||||
NEFPASS Facility |
||||||||||||||||
Fiscal 2021 |
N/A | |||||||||||||||
Fiscal 2020 |
N/A | |||||||||||||||
Fiscal 2019 |
N/A | |||||||||||||||
Fiscal 2018 |
N/A | |||||||||||||||
53
| SSLP Facility |
||||||||||||||||
| Fiscal 2019 |
N/A | |||||||||||||||
| Fiscal 2018 |
N/A | |||||||||||||||
| Total Senior Securities |
||||||||||||||||
| Fiscal 2023 (through September 30, 2023) |
$ | $ | N/A | |||||||||||||
| Fiscal 2022 |
N/A | |||||||||||||||
| Fiscal 2021 |
N/A | |||||||||||||||
| Fiscal 2020 |
N/A | |||||||||||||||
| Fiscal 2019 |
N/A | |||||||||||||||
| Fiscal 2018 |
N/A | |||||||||||||||
| Fiscal 2017 |
N/A | |||||||||||||||
| Fiscal 2016 |
N/A | |||||||||||||||
| Fiscal 2015 |
N/A | |||||||||||||||
| Fiscal 2014 |
N/A | |||||||||||||||
| Fiscal 2013 |
N/A |
| (1) | Total amount of each class of senior securities outstanding (in thousands) at the end of the period presented. |
| (2) | The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by all senior securities representing indebtedness. This asset coverage ratio is multiplied by one thousand to determine the Asset Coverage Per Unit. In order to determine the specific Asset Coverage Per Unit for each class of debt, the total Asset Coverage Per Unit is allocated based on the amount outstanding in each class of debt at the end of the period. As of September 30, 2023, asset coverage was 182.3%. |
| (3) | The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it. |
| (4) | Not applicable except for the 2042 Unsecured Notes which were publicly traded. The Average Market Value Per Unit is calculated by taking the daily average closing price during the period and dividing it by twenty-five dollars per share and multiplying the result by one thousand to determine a unit price per thousand consistent with Asset Coverage Per Unit. The average market value for the fiscal 2016, 2015, 2014 and 2013 periods was $100,175, $98,196, $94,301 and $93,392, respectively. |
Off-Balance
Sheet Arrangements From time to time and in the normal course of business, the Company may make unfunded capital commitments to current or prospective portfolio companies. Typically, the Company may agree to provide delayed-draw term loans or, to a lesser extent, revolving loan or equity commitments. These unfunded capital commitments always take into account the Company’s liquidity and cash available for investment, portfolio and issuer diversification, and other considerations. Accordingly, the Company had the following unfunded capital commitments at September 30, 2023 and December 31, 2022, respectively:
54
September 30, 2023 |
December 31, 2022 |
|||||||
| (in millions) |
||||||||
| SLR Credit Solutions* |
$ | 44.3 | $ | 44.3 | ||||
| Outset Medical, Inc. |
35.1 | 35.1 | ||||||
| Apeel Technology, Inc. |
32.8 | 32.8 | ||||||
| Southern Orthodontic Partners Management, LLC |
21.9 | 1.9 | ||||||
| SLR Senior Lending Program LLC* |
21.3 | 40.5 | ||||||
| Orthopedic Care Partners Management, LLC |
20.8 | 1.6 | ||||||
| Human Interest, Inc. |
20.1 | 20.1 | ||||||
| CVAUSA Management, LLC |
18.2 | — | ||||||
| BDG Media, Inc. |
12.6 | 3.5 | ||||||
| Neuronetics, Inc. |
11.6 | — | ||||||
| ONS MSO, LLC |
11.0 | — | ||||||
| iCIMS, Inc. |
10.5 | 11.4 | ||||||
| Cerapedics, Inc. |
9.2 | 6.7 | ||||||
| Alkeme Intermediate Holdings, LLC |
8.5 | — | ||||||
| Arcutis Biotherapeutics, Inc. |
8.4 | 8.4 | ||||||
| Ardelyx, Inc. |
7.8 | 7.8 | ||||||
| West-NR Parent, Inc. |
6.8 | — | ||||||
| United Digestive MSO Parent, LLC |
5.2 | — | ||||||
| Peter C. Foy & Associates Insurance Services, LLC |
5.1 | 1.1 | ||||||
| Luxury Asset Capital, LLC |
4.5 | 7.5 | ||||||
| UVP Management, LLC |
4.4 | — | ||||||
| Kaseya, Inc. |
3.8 | 3.9 | ||||||
| Urology Management Holdings, Inc. |
3.6 | — | ||||||
| The Townsend Company, LLC |
3.5 | — | ||||||
| SLR Equipment Finance |
3.5 | 1.0 | ||||||
| Vertos Medical, Inc. |
3.3 | — | ||||||
| Foundation Consumer Brands, LLC |
3.0 | 3.0 | ||||||
| Kid Distro Holdings, LLC |
2.7 | 2.7 | ||||||
| Maurices, Incorporated |
2.6 | 4.3 | ||||||
| Erie Construction Mid-west, LLC |
2.4 | 1.3 | ||||||
| Ultimate Baked Goods Midco LLC |
2.4 | 1.6 | ||||||
| Basic Fun, Inc. |
2.1 | 2.7 | ||||||
| Bayside Opco, LLC |
1.7 | — | ||||||
| SunMed Group Holdings, LLC |
1.6 | 0.8 | ||||||
| SCP Eye Care, LLC |
1.5 | 2.8 | ||||||
| SLR Healthcare ABL* |
1.4 | 1.4 | ||||||
| RxSense Holdings LLC |
1.3 | 1.3 | ||||||
| Enverus Holdings, Inc. |
1.2 | 1.0 | ||||||
| Tilley Distribution, Inc. |
1.1 | 0.5 | ||||||
| GSM Acquisition Corp. |
0.9 | 0.8 | ||||||
| Composite Technology Acquisition Corp. |
0.8 | 1.5 | ||||||
| High Street Buyer, Inc. |
0.6 | 0.3 | ||||||
| CC SAG Holdings Corp. (Spectrum Automotive) |
0.5 | 20.7 | ||||||
| ENS Holdings III Corp, LLC |
0.5 | 0.1 | ||||||
| Pinnacle Treatment Centers, Inc. |
0.4 | 1.7 | ||||||
| Vessco Midco Holdings, LLC |
0.3 | 3.9 | ||||||
| TAUC Management, LLC |
0.3 | 0.3 | ||||||
| All States Ag Parts, LLC |
0.2 | 0.1 | ||||||
| Glooko, Inc. |
— | 17.9 | ||||||
| World Insurance Associates, LLC |
— | 17.1 | ||||||
| Spectrum Pharmaceuticals, Inc. |
— | 8.8 | ||||||
| Atria Wealth Solutions, Inc. |
— | 8.2 | ||||||
| Accession Risk Management Group, Inc. |
— | 7.5 | ||||||
| Copper River Seafoods, Inc. |
— | 3.6 | ||||||
| Meditrina, Inc. |
— | 3.4 | ||||||
| One Touch Direct, LLC |
— | 3.1 | ||||||
| DeepIntent, Inc. |
— | 3.1 | ||||||
| Plastics Management, LLC |
— | 2.4 | ||||||
| Pediatric Home Respiratory Services, LLC |
— | 1.8 | ||||||
| Ivy Fertility Services, LLC |
— | 1.6 | ||||||
| NAC Holdings Corporation |
— | 1.5 | ||||||
| SPAR Marketing Force, Inc. |
— | 1.3 | ||||||
| Montefiore Nyack Hospital |
— | 1.0 | ||||||
| American Teleconferencing Services, Ltd. |
— | 1.1 | ||||||
| BayMark Health Services, Inc. |
— | 0.4 | ||||||
| |
|
|
|
|||||
| Total Commitments |
$ | 367.3 | $ | 364.2 | ||||
| |
|
|
|
|||||
| * | The Company controls the funding of these commitments and may cancel them at its discretion. |
The credit agreements of the above loan commitments contain customary lending provisions and/or are subject to the respective portfolio company’s achievement of certain milestones that allow relief to the Company from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company. Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for the Company. As of September 30, 2023 and December 31, 2022, the Company had sufficient cash available and/or liquid securities available to fund its commitments and had reviewed them for any appropriate fair value adjustment.
In the normal course of business, we invest or trade in various financial instruments and may enter into various investment activities with
off-balance
sheet risk, which may include forward foreign currency contracts. Generally, these financial instruments represent future commitments to purchase or sell other financial instruments at specific terms at future dates. These financial instruments contain varying degrees of off-balance
sheet risk whereby changes in the market value or our satisfaction of the obligations may exceed the amount recognized in our Consolidated Statements of Assets and Liabilities. 55
Distributions
The following table reflects the cash distributions per share on our common stock for the two most recent fiscal years and the current fiscal year to date:
| Date Declared |
Record Date |
Payment Date |
Amount |
|||||||||
| Fiscal 2023 |
||||||||||||
| November 7, 2023 |
December 14, 2023 | December 28, 2023 | $ | 0.41 | ||||||||
| September 5, 2023 |
September 20, 2023 | September 28, 2023 | 0.136667 | |||||||||
| August 8, 2023 |
August 18, 2023 | August 30, 2023 | 0.136667 | |||||||||
| July 5, 2023 |
July 20, 2023 | August 1, 2023 | 0.136667 | |||||||||
| June 1, 2023 |
June 20, 2023 | June 29, 2023 | 0.136667 | |||||||||
| May 10, 2023 |
May 24, 2023 | June 1, 2023 | 0.136667 | |||||||||
| April 4, 2023 |
April 20, 2023 | May 2, 2023 | 0.136667 | |||||||||
| February 28, 2023 |
March 23, 2023 | April 4, 2023 | 0.136667 | |||||||||
| February 2, 2023 |
February 16, 2023 | March 1, 2023 | 0.136667 | |||||||||
| January 10, 2023. |
January 26, 2023 | February 2, 2023 | 0.136667 | |||||||||
| |
|
|||||||||||
| Total 2023 |
$ | 1.64 | ||||||||||
| |
|
|||||||||||
| Fiscal 2022 |
||||||||||||
| December 6, 2022 |
December 22, 2022 | January 5, 2023 | $ | 0.136667 | ||||||||
| November 2, 2022 |
November 17, 2022 | December 1, 2022 | 0.136667 | |||||||||
| October 5, 2022 |
October 20, 2022 | November 2, 2022 | 0.136667 | |||||||||
| September 2, 2022 |
September 20, 2022 | October 4, 2022 | 0.136667 | |||||||||
| August 2, 2022 |
August 18, 2022 | September 1, 2022 | 0.136667 | |||||||||
| July 6, 2022 |
July 21, 2022 | August 2, 2022 | 0.136667 | |||||||||
| June 3, 2022 |
June 23, 2022 | July 5, 2022 | 0.136667 | |||||||||
| May 3, 2022 |
May 19, 2022 | June 2, 2022 | 0.136667 | |||||||||
| April 4, 2022 |
April 21, 2022 | May 3, 2022 | 0.136667 | |||||||||
| March 1, 2022 |
March 18, 2022 | April 1, 2022 | 0.41 | |||||||||
| |
|
|||||||||||
| Total 2022 |
$ | 1.64 | ||||||||||
| |
|
|||||||||||
| Fiscal 2021 |
||||||||||||
| November 3, 2021 |
December 16, 2021 | January 5, 2022 | $ | 0.41 | ||||||||
| August 3, 2021 |
September 23, 2021 | October 5, 2021 | 0.41 | |||||||||
| May 5, 2021 |
June 23, 2021 | July 2, 2021 | 0.41 | |||||||||
| February 24, 2021. |
March 18, 2021 | April 2, 2021 | 0.41 | |||||||||
| |
|
|||||||||||
| Total 2021 |
$ | 1.64 | ||||||||||
| |
|
|||||||||||
Tax characteristics of all distributions will be reported to stockholders on Form 1099 after the end of the calendar year. Future monthly distributions, if any, will be determined by the Board. We expect that our distributions to stockholders will generally be from accumulated net investment income, from net realized capital gains or
non-taxable
return of capital, if any, as applicable. We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC tax treatment, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, although we currently intend to distribute realized net capital gains (, net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment.
i.e.
We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions.
We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a business development company, we may in the future be limited in our ability to make distributions. Also, the Credit Facility may limit our ability to declare distributions if we default under certain provisions. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of the tax benefits available to us as a RIC. In addition, in accordance with GAAP and tax regulations, we include in income certain amounts that we have not yet received in cash, such as contractual income, which represents contractual income added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a RIC.
payment-in-kind
56
With respect to the distributions to stockholders, income from origination, structuring, closing and certain other upfront fees associated with investments in portfolio companies are treated as taxable income and accordingly, distributed to stockholders.
Related Parties
We have entered into a number of business relationships with affiliated or related parties, including the following:
• |
We have entered into the Advisory Agreement with the Investment Adviser. Mr. Gross, our Chairman, Co-Chief Executive Officer and President and Mr. Spohler, our Co-Chief Executive Officer, Chief Operating Officer and board member, are managing members and senior investment professionals of, and have financial and controlling interests in, the Investment Adviser. In addition, Mr. Kajee, our Chief Financial Officer and Treasurer serves as the Chief Financial Officer for the Investment Adviser. |
• |
The Administrator provides us with the office facilities and administrative services necessary to conduct day-to-day |
• |
We have entered into a license agreement with the Investment Adviser, pursuant to which the Investment Adviser has granted us a non-exclusive, royalty-free license to use the licensed marks “SOLAR” and “SLR”. |
The Investment Adviser may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours. For example, the Investment Adviser presently serves as investment adviser to SCP Private Credit Income BDC LLC, an unlisted BDC that focuses on investing primarily in senior secured loans, including with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with the Investment Adviser’s allocation procedures. On June 13, 2017, the Investment Adviser received an exemptive order that permits the Company to participate in
non-traditional
asset-based loans and first lien loans, SLR HC BDC LLC, an unlisted BDC whose principal focus is to invest directly and indirectly in senior secured loans and other debt instruments typically to middle market companies within the healthcare industry, and SLR Private Credit BDC II LLC, an unlisted BDC focused on first lien senior secured floating rate loans. In addition, Michael S. Gross, our Chairman, Co-Chief
Executive Officer and President, Bruce Spohler, our Co-Chief
Executive Officer and Chief Operating Officer, and Shiraz Kajee, our Chief Financial Officer and Treasurer, serve in similar capacities for SCP Private Credit Income BDC LLC, SLR HC BDC LLC and SLR Private Credit BDC II LLC. The Investment Adviser and certain investment advisory affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that we should invest side-by-side
negotiated co-investment transactions
with certain affiliates, in a manner consistent with the Company’s investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, and pursuant to various conditions (the “Order”). If the Company is unable to rely on the Order for a particular opportunity, such opportunity will be allocated first to the entity whose investment strategy is the most consistent with the opportunity being allocated, and second, if the terms of the opportunity are consistent with more than one entity’s investment strategy, on an alternating basis. Although the Investment Adviser’s investment professionals will endeavor to allocate investment opportunities in a fair and equitable manner, the Company and its stockholders could be adversely affected to the extent investment opportunities are allocated among us and other investment vehicles managed or sponsored by, or affiliated with, our executive officers, directors and members of the Investment Adviser. Related party transactions may occur among us, SLR Senior Lending Program LLC, SLR Senior Lending Program SPV LLC, SLR Credit, Equipment Operating Leases LLC, KBH, Loyer Capital LLC, SLR Business Credit, SLR Healthcare ABL and SLR Equipment. These transactions may occur in the normal course of business. No administrative or other fees are paid to the Investment Adviser by SLR Senior Lending Program LLC, SLR Senior Lending Program SPV LLC, SLR Credit, Equipment Operating Leases LLC, KBH, Loyer Capital LLC, SLR Business Credit, SLR Healthcare ABL or SLR Equipment.
In addition, we have adopted a formal code of ethics that governs the conduct of our officers and directors. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Maryland General Corporation Law.
57
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including changes in interest rates. Uncertainty with respect to rising interest rates, inflationary pressures, risks in respect of a failure to increase the U.S. debt ceiling or a downgrade in the U.S. credit rating, the wars between Ukraine and Russia and health epidemics and pandemics introduced significant volatility in the financial markets, and the effects of this volatility have materially impacted and could continue to materially impact our market risks. Because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In a low interest rate environment, including a reduction of LIBOR and SOFR to zero, the difference between the total interest income earned on interest earning assets and the total interest expense incurred on interest bearing liabilities may be compressed, reducing our net interest income and potentially adversely affecting our operating results. Conversely, in a rising interest rate environment, such as the current economic environment, such difference could potentially increase thereby increasing our net investment income. During the nine months ended September 30, 2023, certain investments in our comprehensive investment portfolio had floating interest rates. These floating rate investments were primarily based on floating LIBOR or SOFR and typically have durations of one to three months after which they reset to current market interest rates. Additionally, some of these investments have floors. The Company also has revolving credit facilities that are generally based on floating SOFR. Assuming no changes to our balance sheet as of September 30, 2023 and no new defaults by portfolio companies, a hypothetical one percent decrease in LIBOR and SOFR on our comprehensive floating rate assets and liabilities would decrease our net investment income by seven cents per average share over the next twelve months. Assuming no changes to our balance sheet as of September 30, 2023 and no new defaults by portfolio companies, a hypothetical one percent increase in LIBOR and SOFR on our comprehensive floating rate assets and liabilities would increase our net investment income by approximately eight cents per average share over the next twelve months. However, we may hedge against interest rate fluctuations from time to time by using standard hedging instruments such as futures, options, swaps and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in any benefits of certain changes in interest rates with respect to our portfolio of investments. At September 30, 2023, we had no interest rate hedging instruments outstanding on our balance sheet.
| Increase (Decrease) in LIBOR and SOFR |
(1.00 |
%) |
1.00 |
% | ||||
| Increase (Decrease) in Net Investment Income Per Share Per Year |
$ |
(0.07 |
) |
$ |
0.08 |
We may also have exposure to foreign currencies through various investments. These investments are converted into U.S. dollars at the balance sheet date, exposing us to movements in foreign exchange rates. In order to reduce our exposure to fluctuations in foreign exchange rates, we may borrow from time to time in such currencies under our multi-currency revolving credit facility or enter into forward currency or similar contracts.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of September 30, 2023 (the end of the period covered by this report), we, including our
Co-Chief
Executive Officers and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)
of the Securities Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our management, including the Co-Chief
Executive Officers and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures. (b) Changes in Internal Controls Over Financial Reporting
Management has not identified any change in the Company’s internal control over financial reporting that occurred during the third quarter of 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
58
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We and our consolidated subsidiaries are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us or our consolidated subsidiaries. From time to time, we and our consolidated subsidiaries may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” in the February 28, 2023 filing of our Annual Report on
Form 10-K, which
could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. Other than the risk factors set forth below, there have been no material changes during the period ended September 30, 2023 to the risk factors discussed in “Risk Factors” in the February 28, 2023 filing of our Annual Report on Form 10-K.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or
non-performance
by financial institutions or transactional counterparties could have a material adverse effect on us, the Investment Adviser and our portfolio companies. Cash not held in custody accounts and held by us, our Investment Adviser and by our portfolio companies in
non-interest-bearing
and interest-bearing operating accounts could, at times, exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. If such banking institutions were to fail, we, our Investment Adviser, or our portfolio companies could lose all or a portion of those amounts held in excess of such insurance limits. In addition, actual events involving limited liquidity, defaults, non-performance
or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems, which could adversely affect our, our Investment Adviser’s and our portfolio companies’ business, financial condition, results of operations, or prospects. Although we and our Investment Adviser assess our and our portfolio companies’ banking and financing relationships as we believe necessary or appropriate, our and our portfolio companies’ access to funding sources and other credit arrangements in amounts adequate to finance or capitalize current and projected future business operations could be significantly impaired by factors that affect the financial institutions with which we, our Investment Adviser or our portfolio companies have arrangements directly or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which we, our Investment Adviser or our portfolio companies have financial or business relationships, but could also include factors involving financial markets or the financial services industry generally.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us, our Investment Adviser, or our portfolio companies to acquire financing on acceptable terms or at all.
Our stock repurchase program could affect the price of our common stock and increase volatility and may be suspended or terminated at any time, which may result in a decrease in the trading price of our common stock.
On May 9, 2023, the Board most recently extended our share repurchase program (the “Program”), under which we can repurchase up to $50 million of our outstanding common stock. Under the Program, purchases can be made at management’s discretion from time to time in open-market transactions, in accordance with all applicable securities laws and regulations, at prices below the Company’s NAV as reported in its most recently published consolidated financial statements. We have in the past, and could in the future, enter into a plan to repurchase shares of our common stock pursuant to the Program in a manner intended to comply with the requirements of Rule
10b5-1
under the Exchange Act. 59
The Program is discretionary and whether purchases will be made under the Program and how much will be purchased at any time is uncertain and dependent on prevailing market prices and trading volumes, all of which we cannot predict. These activities could have the effect of maintaining the market price of our common stock or retarding a decline in the market price of the common stock, and, as a result, the price of our common stock could be higher than the price that otherwise might exist in the open market. Repurchases pursuant to the Program could affect the price of our common stock and increase its volatility. The existence of the Program could also cause the price of our common stock to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our common stock. There can be no assurance that any stock repurchases will enhance stockholder value because the market price of our common stock could decline below the levels at which we repurchased such shares. Any failure to repurchase shares after we have announced our intention to do so could negatively impact our reputation and investor confidence in us and could negatively impact our stock price. Although the Program is intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the Program’s effectiveness.
The alternative reference rates that have replaced LIBOR in our credit arrangements and other financial instruments may not yield the same or similar economic results as LIBOR over the life of such transactions.
The London Interbank Offered Rate (“LIBOR”) is an index rate that historically was widely used in lending transactions and was a common reference rate for setting the floating interest rate on private loans. LIBOR was typically the reference rate used in floating-rate loans extended to our portfolio companies.
The ICE Benchmark Administration (“IBA”) (the entity that is responsible for calculating LIBOR) ceased providing overnight, one, three, six and twelve months USD LIBOR tenors on June 30, 2023. In addition, the United Kingdom’s Financial Conduct Authority (“FCA”), which oversees the IBA, now prohibits entities supervised by the FCA from using LIBORs, including USD LIBOR, except in very limited circumstances.
In the United States, SOFR is the preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. SOFR is published by the Federal Reserve Bank of New York each U.S. Government Securities Business Day, for transactions made on the immediately preceding U.S. Government Securities Business Day. Alternative reference rates that may replace LIBOR, including SOFR for USD transactions, may not yield the same or similar economic results as LIBOR over the lives of such transactions.
As of the filing date of this Quarterly Report on Form SOFR Overnight Indexed Swaps as an indicator of CME Term SOFR reference rate values. CME Term SOFR and the inputs on which it is based are derived from SOFR. Since CME Term SOFR is a relatively new market rate, there will likely be no established trading market for credit agreements or other financial instruments when they are issued, and an established market may never develop or may not be liquid. Market terms for instruments referencing CME Term SOFR rates may be lower than those of later-issued CME Term SOFR indexed instruments. Similarly, if CME Term SOFR does not prove to be widely used, the trading price of instruments referencing CME Term SOFR may be lower than those of instruments indexed to indices that are more widely used. Further, the composition and characteristics of SOFR and CME Term SOFR are not the same as those of LIBOR. Even with the application of a fixed spread adjustment, LIBOR and CME Term SOFR will not have the same composition and characteristics, and there can be no assurance that the replacement rate, as so adjusted, will be a direct substitute for LIBOR.
10-Q,
many of our loans that referenced LIBOR have been amended to reference the forward-looking term rate published by CME Group Benchmark Administration Limited based on SOFR (“CME Term SOFR”) or CME Term SOFR plus a fixed spread adjustment. CME Term SOFR rates are forward-looking rates that are derived by compounding projected overnight SOFR rates over one, three, and six months taking into account the values of multiple consecutive, executed, one-month
and three-month CME Group traded SOFR futures contracts and, in some cases, over-the-counter
There can be no guarantee that SOFR will not be discontinued or fundamentally altered in a manner that is materially adverse to the interests of investors in loans referencing SOFR. If the manner in which SOFR or CME Term SOFR is calculated is changed, that change may result in a reduction of the amount of interest payable on such loans and the trading prices of the SOFR Loans. In addition, there can be no guarantee that loans referencing SOFR or CME Term SOFR will continue to reference those rates until maturity or that, in the future, our loans will reference benchmark rates other than CME Term SOFR. Should any of these events occur, our loans, and the yield generated thereby, could be affected. Specifically, the anticipated yield on our loans may not be fully realized and our loans may be subject to increased pricing volatility and market risk.
60
Item 2. |
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities |
We did not engage in unregistered sales of securities during the quarter ended September 30, 2023.
Item 3. |
Defaults Upon Senior Securities |
None.
Item 4. |
Mine Safety Disclosures |
Not applicable.
Item 5. |
Other Information |
Rule
10b5-1
Trading Plans During the fiscal quarter ended September 30, 2023, none
16a-1(f)
under the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities to satisfy the affirmative defense conditions of Rule 10b5-1(c)
under the Exchange Act or any “non-Rule
10b5-1
trading arrangement” as defined in Item 408(c) of Regulation S-K.
Item 6. |
Exhibits |
The following exhibits are filed as part of this report or hereby incorporated by reference
to
exhibits previously filed with the SEC: Exhibit Number |
Description | |
2.1 |
||
3.1 |
||
3.2 |
||
4.1 |
||
4.2 |
||
23.1 |
||
31.1 |
||
31.2 |
||
31.3 |
||
32.1 |
||
32.2 |
||
32.3 |
||
101.INS |
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.* | |
101.SCH |
Inline XBRL Taxonomy Extension Schema Document* | |
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document* | |
61
Exhibit Number |
Description | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |
| 104 | Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
| (1) | Previously filed in connection with SLR Investment Corp.’s registration statement on Form N-2 Pre-Effective Amendment No. 7 (File No. 333-148734) filed on January 7, 2010. |
| (2) | Previously filed in connection with SLR Investment Corp.’s registration statement on Form N-2 (File No 333-148734) filed on February 9, 2010. |
| (3) | Previously filed in connection with SLR Investment Corp.’s registration statement on Form N-2 Post-Effective Amendment No. 6 (File No. 333-172968) filed on November 16, 2012. |
| (4) | Previously filed in connection with SLR Investment Corp.’s report on Form 8-K filed on December 1, 2021. |
| * | Filed herewith. |
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 7, 2023.
| SLR INVESTMENT CORP. | ||
| By: | /s/ M ICHAEL S. GROSS | |
Michael S. Gross Co-Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ B RUCE J. SPOHLER | |
Bruce J. Spohler Co-Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ S HIRAZ Y. KAJEE | |
Shiraz Y. Kajee Chief Financial Officer (Principal Financial and Accounting Officer) | ||
63
Exhibit 23.1
November 7, 2023
SLR Investment Corp.
New York, New York
Re: Registration Statement No. 333-255662
With respect to the subject registration statement, we acknowledge our awareness of the use therein of our report dated November 7, 2023 related to our review of interim financial information.
Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act.
| /s/ KPMG LLP |
| New York, New York |
EXHIBIT 31.1
CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael S. Gross, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SLR Investment Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated this 7th day of November, 2023
| /s/ MICHAEL S. GROSS | ||
| Michael S. Gross | ||
EXHIBIT 31.2
CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bruce J. Spohler, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SLR Investment Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated this 7th day of November, 2023
| /s/ BRUCE J. SPOHLER | ||
| Bruce J. Spohler |
EXHIBIT 31.3
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Shiraz Y. Kajee, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SLR Investment Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated this 7th day of November, 2023
| /s/ SHIRAZ Y. KAJEE | ||
| Shiraz Y. Kajee |
EXHIBIT 32.1
CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2023 (the “Report”) of SLR Investment Corp. (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, MICHAEL S. GROSS, the Co-Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| /s/ MICHAEL S. GROSS | ||
| Name: | Michael S. Gross | |
| Date: | November 7, 2023 | |
EXHIBIT 32.2
CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2023 (the “Report”) of SLR Investment Corp. (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, BRUCE J. SPOHLER, the Co-Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| /s/ BRUCE J. SPOHLER | ||
| Name: | Bruce J. Spohler | |
| Date: | November 7, 2023 | |
EXHIBIT 32.3
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2023 (the “Report”) of SLR Investment Corp. (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, SHIRAZ Y. KAJEE, the Chief Financial Officer of the Registrant, hereby certify, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| /s/ SHIRAZ Y. KAJEE | ||
| Name: | Shiraz Y. Kajee | |
| Date: | November 7, 2023 | |