SLR Investment Corp. Common Stock 2026 Q2 Earnings Call

Good morning. Welcome to SLR Investment Corp's earnings call for the quarter ended June 30th, 2026. I'm joined today by my long-term partner, Bruce Spohler, Co-Chief Executive Officer, as well as our Chief Financial Officer, Shiraz Kajee, and members of the SLR investor relations team. Shiraz, before we begin, would you please start by covering the webcast and forward-looking statements?

Thank you, Michael. Good morning, everyone. I would like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of SLR Investment Corp, that any unauthorized broadcast in any form is strictly prohibited. This conference call is also being webcast on the events calendar in the investor section on our website at www.slrinvestmentcorp.com. Audio replays of this call will be made available later today, as disclosed in our August fourth earnings press release. I would also like to call your attention to the customary disclosures in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections. These statements are not guarantees of our future performance or financial results and involve a number of risks and uncertainties. Past performance is not indicative of future results.

Actual results may differ materially as a result of a number of factors, including those described from time to time in our filings with the SEC. We do not undertake to update any forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website or call us at 212-993-1670. At this time, I would like to turn the call back to our Chairman and Co-Chief Executive Officer, Michael Gross.

Thanks, Shiraz, and again, thank you to everyone for joining our earnings call this morning. Before we discuss our Q2 results, I'd like to spend a moment on our approach to navigating what has become a more challenging environment for direct lending. My partner Bruce and I, as well as our partners, have been in private credit for a long time. This summer marks our 20th year managing SLRC. Over those years, we've seen time and again that patience and discipline pay off in the long run. Importantly, over 15 years ago, we also saw the need to diversify our investment focus towards specialty lending strategies with higher barriers to entry and consistent performance across economic cycles. Against the backdrop of a market rife with risk-taking, we view our specialty finance platform as a differentiator that enables us to successfully navigate this environment.

With the retrenchment of regional banks and the experience and skill set needed to underwrite and monitor collateral, we are not seeing the level of competition in our specialty finance strategies that has gripped the sponsor cash flow market. As a result, we are securing higher yields in the market levels for cash flow loans with better structural protection and importantly, liquid collateral coverage, which we actively monitor and adjust. Nearly all of originations last quarter were in specialty finance, and this trend is continuing in our third quarter pipeline. Turning to our second quarter results. For the second quarter of 2026, SLRC reported net investment income or NII of $0.33 per share and net income of $0.15 per share. As of June 30th, the company had a net asset value per share of $18, down less than 90 basis points from the prior quarter.

The decline was primarily driven by a markdown on two loans which we placed on non-accrual during the quarter, a move from zero non-accruals. Bruce provide more detail on these. Importantly, these are isolated situations and do not represent a systemic trend in our portfolio. At June 30th, our watch list accounts for only 2.5%, and we continue to have strong conviction in the credit quality of our portfolio companies. Moreover, our de minimis exposure to the software industry puts us in a position of strength as a software maturity wall draws closer. We are concerned that many of the software loans currently outstanding, which according to KBRA represent $224 billion or 22% of total private debt exposure, may be challenging to refinance. This dynamic provides us with the ability to be opportunistic in other areas as a software maturity wall approaches.

Meanwhile, after having been repaid at a premium to par on a software investment during Q2, our exposure to the software industry now stands at less than 1% of fair value. Furthermore, only 2% of our gross income is derived from restructured PIK resulting from amendments. With a conservatively positioned portfolio, we are focused on attractive investment opportunities and asset-based lending. During the second quarter, we originated $471 million of new investments across the comprehensive portfolio. This volume weighted 98% of specialty finance was 60% higher than our average gross originations since 2018. During the second quarter, we received repayments of $431 million for net originations of approximately $40 million, resulting in a quarter-end comprehensive portfolio of $3.2 billion. We view this level of portfolio churn favorably as repayments typically represent success realizations at par or better, and the associated prepayment and exit fees add a further source of income.

Based on our current pipeline, we're expecting another solid quarter of originations with a similar weighting towards specialty finance investments. With our strategic focus on specialty finance, we are executing growth strategies to expand our footprint through new hires, acquisitions, and sourcing partnerships. We remain active in the cash flow market in our core industry, healthcare, and are ready to pivot to this asset class more broadly, should market dislocation improve the opportunity set. At June 30th, including available credit facility capacity at SSLP and our specialty finance portfolio companies, SLRC had over $900 million of available capital to deploy. Our liquidity profile and minimal watchlist puts us in a position to take advantage of either stable economic conditions or a softening of the economy. I'll now turn the call over back to Shiraz, our CFO, to take you through second quarter financial highlights.

Thank you, Mike. SLR Investment Corp's net asset value at June 30th, 2026 was $982 million, or $18 per share, compared to $18.16 per share at March 31st, 2026. At quarter end, SLRC's on-balance sheet investment portfolio had a fair value of approximately $2.1 billion and 79 portfolio companies across 24 industries, compared to a fair value of $2.1 billion in 99 portfolio companies across 28 industries at March 31st. SLRC's investment portfolio continues to be funded by a combination of our multi-lender revolving credit facilities and the issuance of term debt in the unsecured debt markets to institutional investors. Company's investment-graded by Fitch, Moody's, and DBRS, and more than 40% of the company's debt capital is comprised of unsecured debt as of June 30th.

At June 30th, the company had approximately $1.16 billion of debt outstanding, with a net debt-to-equity ratio of 1.16 times, within our target range of 0.9-1.25 times. We have ample liquidity to fund our unfunded commitments and for future portfolio growth. Looking forward, the company has three unsecured debt maturities of $75 million in December 2026, $135 million in January 2027, and $50 million in March 2027. We expect to continue to prudently access the debt capital markets and issue unsecured debt as and when needed. During Q2, the company increased its revolving facility capacity by $25 million, with the addition of a new lender. Total revolving commitments across our two credit facilities now totals $995 million. Moving to the P&L. For the three months ended June 30th, gross investment income totaled $48.8 million, versus $49.3 million for the three months ended March 31st.

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

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

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