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 as a result of the current COVID-19 pandemic;
• 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 and the impact of the COVID-19 pandemic thereon; • the impact of any protracted decline in the liquidity of credit markets on our business and the impact of the COVID-19 pandemic thereon;
• the ability of the companies in our portfolio to achieve their objectives,
including as a result of the current COVID-19 pandemic;
• the valuation of our holdings in portfolio companies, in particular
those having no liquid trading market, and the impact of the COVID-19 pandemic thereon; • market conditions and our ability to access alternative debt markets and additional debt and equity capital, and the impact of the COVID-19 pandemic thereon; • 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 and the impact of the COVID-19 pandemic thereon; and
• the ability of our investment advisor to locate suitable investments
for us and to monitor and administer our investments and the impacts of the COVID-19 pandemic thereon.
• changes in political conditions and relations between the United States
States,Russia ,Ukraine and other nations. 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 slowdown, including due to the current crisis
COVID-19 pandemic, 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, including as a result of the current COVID-19 pandemic, 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 thanU.S. dollars; • the ability to realize the anticipated benefits of the Mergers; • the effects of disruption on our business from the Mergers;
• the plans, expectations, objectives and intentions of the combined company
as a result of the Mergers; • 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 endedDecember 31, 2021 , elsewhere in this Quarterly Report on Form 10-Q and in our other filings with theSEC . 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 theSEC , including any annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. 39
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Insight
SLR Investment Corp. (the "Company", "SLRC", "we" or "our"), aMaryland corporation formed inNovember 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 theFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 946. In addition, forU.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"). OnFebruary 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, andBruce 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. We invest primarily in privately heldU.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 bySLR 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 ofthe United States .
Merger Agreement
OnDecember 1, 2021 , we entered into an Agreement and Plan of Merger, or the Merger Agreement, withSLR Senior Investment Corp. , aMaryland corporation ("SUNS"),Solstice Merger Sub, Inc. , aMaryland corporation and our wholly-owned subsidiary ("Merger Sub"), and, solely for the limited purposes set forth therein, the Investment Adviser. The Merger Agreement provides that, subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into SUNS, with SUNS continuing as the surviving company and as SUNS's wholly-owned subsidiary (the "Merger,") and, immediately thereafter, SUNS will merge with and into us, with us continuing as the surviving company (together with the Merger, the "Mergers"). Both the Board and SUNS's board of directors, including all of the respective independent directors, in each case, on the recommendation of a special committee comprised solely of the independent directors of us and SUNS, as applicable, have approved the Merger Agreement and the transactions contemplated thereby. The Merger Agreement contains customary representations and warranties by each of us, SUNS and the Investment Adviser. The Merger Agreement also contains customary covenants, including, among others, covenants relating to the operation of each of our and SUNS's businesses during the period prior to the closing of the Mergers.
Completion of the Mergers, which took place on
OnApril 1, 2022 , we completed our previously announced acquisition of SUNS. Pursuant to the Merger Agreement, Merger Sub was first merged with and into SUNS, with SUNS as the surviving corporation, and, immediately following the Merger, SUNS was then merged with and into us, with us as the surviving company. 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. The Merger is accounted for as an asset acquisition ofSLR Senior Investment Corp. by the Company in accordance with the asset acquisition method of accounting as detailed in ASC 805-50, Business Combinations - Related Issues, with the fair value of total 40
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consideration paid in conjunction with the Merger allocated to the assets acquired and liabilities assumed based on their relative fair values as of the date of the Merger. Generally, under asset acquisition accounting, acquiring assets in groups not only requires ascertaining the cost of the asset (or net assets), but also allocating that cost to the individual assets (or individual assets and liabilities) that make up the group. The cost of the group of assets acquired in an asset acquisition is allocated to the individual assets acquired or liabilities assumed based on their relative fair values of net identifiable assets acquired other than certain "non-qualifying" assets (for example cash) and does not give rise to goodwill. The Company is the accounting survivor of the Merger. The Merger was considered a tax-free reorganization and the historical cost basis of the acquired SUNS investments are carried forward for tax purposes.
letter of agreement
OnApril 1, 2022 , in connection with the consummation of the Mergers, we entered into a letter agreement (the "Letter Agreement") pursuant to which the Investment Adviser voluntarily agreed to a permanent 25 basis point reduction of the annual base management fee rate payable by us to the Investment Adviser pursuant to the Advisory Agreement, resulting in an annual base management fee rate payable by us to the Investment Adviser of 1.50% on gross assets up to 200% of our total net assets. We retained the annual base management fee rate payable by us to the Investment Adviser of 1.00% on gross assets that exceed 200% of our total net assets. Recent Developments
On
On
The global outbreak of the COVID-19 pandemic, and the related effect on theU.S. and global economies, has continued to have adverse consequences for the business operations of some of the Company's portfolio companies and, as a result, has had adverse effects on the Company's operations. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, including the Company, remain uncertain. The operational and financial performance of the issuers of securities in which the Company invests depends on future developments, including the duration and spread of the outbreak, and such uncertainty may in turn adversely affect the value and liquidity of the Company's investments and negatively impact the Company's performance.
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 benchmarkLondon interbank offered rate ("LIBOR"), commercial paper rate, or the prime rate. Interest on our debt investments is generally payable monthly or quarterly but may be bi-monthly or semi-annually. In addition, our investments may provide payment-in-kind ("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. Expenses
All of the Investment Adviser’s investment professionals and their respective personnel, when engaged in the provision of investment advice and management services, and the remuneration and ongoing overhead costs of such personnel attributable to
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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 the execution
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, liability in the event of errors and omissions of directors and managers
insurance and other insurance premiums;
• direct administration costs and expenses, including printing, mailing,
long distance telephone and staff;
• fees and expenses associated with independent audits and external legal services
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
in connection with the administration of our business, including payments under the
administration agreement which will be based on our attributable share of
overhead and other costs incurred by
perform its obligations under the Administration Agreement, including
rent, fees and expenses associated with compliance
duties, and our attributable share of compensation costs and
related expenses of our Chief Compliance Officer and Chief Financial Officer
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 endedJune 30, 2022 , exclusive of the assets acquired through the Merger, we invested approximately$94.7 million across 29 portfolio companies. This compares to investing approximately$69.0 million in 12 portfolio companies for the three months endedJune 30, 2021 . Investments sold, prepaid or repaid during the three months endedJune 30, 2022 totaled approximately$78.5 million versus approximately$149.7 million for the three months endedJune 30, 2021 . AtJune 30, 2022 , our portfolio consisted of 127 portfolio companies and was invested 30.0% in cash flow senior secured loans, 30.9% in asset-based senior secured loans / SLR Credit Solutions ("SLR Credit") / SLR Healthcare ABL / SLR Business Credit, 14.1% inKingsbridge Holdings, LLC ("KBH"), 24.3% in equipment senior secured financings / SLR Equipment Finance ("SLR Equipment") /Kingsbridge Holdings, LLC ("KBH") and 14.8% in life science senior secured loans, in each case, measured at fair value, versus 101 portfolio companies and was invested 23.0% in cash flow senior secured loans, 25.5% in asset-based senior secured loans / SLR Credit, 33.3% in equipment senior secured financings / SLR Equipment / KBH, and 18.2% in life science senior secured loans, in each case, measured at fair value, atJune 30, 2021 . 42
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AtJune 30, 2022 , 77.1% or$1.53 billion of our income producing investment portfolio * is floating rate and 22.9% or$453.7 million is fixed rate, measured at fair value. AtJune 30, 2021 , 71.6% or$1.07 billion of our income producing investment portfolio * is floating rate and 28.4% or$422.6 million is fixed rate, measured at fair value. As ofJune 30, 2022 and 2021, we had two and zero issuers, respectively, on non-accrual status.
* We have included SLR Credit Solutions, SLR Equipment Finance,
ABL,
produce an investment portfolio.
SLR Credit Solutions
OnDecember 28, 2012 , we acquired an equity interest inCrystal Capital Financial Holdings LLC ("Crystal Financial") for$275 million in cash. Crystal Financial owned approximately 98% of the outstanding ownership interest in SLRCredit Solutions ("SLR Credit"), f/k/aCrystal Financial LLC . The remaining financial interest was held by various employees of SLR Credit, through their investment inCrystal Management LP . SLR Credit had a diversified portfolio of 23 loans having a total par value of approximately$400 million atNovember 30, 2012 and a$275 million committed revolving credit facility. OnJuly 28, 2016 , the Company purchasedCrystal 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. OnSeptember 30, 2016 ,Crystal Capital Financial Holdings LLC was dissolved. As ofJune 30, 2022 , total commitments to the revolving credit facility are$250 million . As ofJune 30, 2022 , SLR Credit had 25 funded commitments to 20 different issuers with total funded loans of approximately$326.7 million on total assets of$357.1 million . As ofDecember 31, 2021 , SLR Credit had 22 funded commitments to 19 different issuers with total funded loans of approximately$287.4 million on total assets of$347.8 million . As ofJune 30, 2022 andDecember 31, 2021 , the largest loan outstanding totaled$34.6 million and$35.0 million , respectively. For the same periods, the average exposure per issuer was$16.3 million and$15.1 million , respectively. SLR Credit's credit facility, which is non-recourse to the Company, had approximately$125.6 million and$100.7 million of borrowings outstanding atJune 30, 2022 andDecember 31, 2021 , respectively. For the three months endedJune 30, 2022 and 2021, SLR Credit had net income of$1.9 million and$2.1 million , respectively, on gross income of$6.9 million and$8.1 million , respectively. For the six months endedJune 30, 2022 and 2021, SLR Credit had net income of$4.7 million and$7.1 million , respectively, on gross income of$13.6 million and$17.7 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 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 Financing
OnJuly 31, 2017 , we acquired a 100% equity interest inNEF Holdings, LLC , which conducts its business through its wholly-owned subsidiaryNations Equipment Finance, LLC . EffectiveFebruary 25, 2021 ,Nations Equipment Finance, LLC and its related companies is doing business as SLR Equipment Finance ("SLR Equipment"). SLR Equipment is an independent equipment finance company that provides senior secured loans and leases primarily toU.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 subsidiaryNEFCORP LLC and our wholly-owned consolidated subsidiaryNEFPASS LLC and$64.9 million was used to purchase certain leases and loans held by SLR Equipment throughNEFPASS 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 . InSeptember 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 toJuly 31, 2023 . As ofJune 30, 2022 , SLR Equipment had 130 funded equipment-backed leases and loans to 56 different customers with a total net investment in leases and loans of approximately$187.5 million on total assets of$242.0 million . As ofDecember 31, 2021 , SLR Equipment had 135 funded equipment-backed leases and loans to 61 different customers with a total net investment in leases and loans of approximately$211.0 million on total assets of$264.0 million . As ofJune 30, 2022 andDecember 31, 2021 , the largest position outstanding totaled$19.3 million and$19.2 million , respectively. For the same periods, the average exposure per customer was$3.3 million and$3.5 million , respectively. SLR Equipment's credit facility, which is non-recourse to the Company, had approximately$102.2 million and$118.0 million of borrowings outstanding atJune 30, 2022 andDecember 31, 2021 , respectively. For the three months endedJune 30, 2022 and 2021, SLR Equipment had net loss of$1.8 million and$1.7 million , respectively, on gross income of$4.0 million and$5.7 million , respectively. For the six months endedJune 30, 2022 and 2021, SLR Equipment had net loss of$1.2 million and$2.0 million , respectively, on gross income of$9.2 million and$10.6 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. 43
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OnNovember 3, 2020 , the Company acquired 87.5% ofKingsbridge Holdings, LLC ("KBH") throughKBH Topco LLC ("KBHT"), a newly formedDelaware corporation. KBH is a residual focused independent mid-ticket lessor of equipment primarily toU.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 continue 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 ofJune 30, 2022 andDecember 31, 2021 , KBHT had total assets of$754.8 million and$738.4 million , respectively. For the same periods, debt recourse to KBHT totaled$243.2 million and$216.9 million , respectively, and non-recourse debt totaled$323.0 million and$323.8 million , respectively. None of the debt is recourse to the Company. For the three months endedJune 30, 2022 and 2021, KBHT had net income of$3.7 million and$2.3 million , respectively, on gross income of$77.3 million and$58.1 million , respectively. For the six months endedJune 30, 2022 and 2021, KBHT had net income of$7.1 million and$6.0 million , respectively, on gross income of$143.7 million and$119.6 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 Health ABL
SUNS acquired an equity interest in SLR Healthcare ABL, f/k/aGemino Healthcare Finance, LLC ("SLR Healthcare ") onSeptember 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 ofSLR Healthcare co-invested in the transaction and continues to leadSLR Healthcare . As ofJune 30, 2022 ,SLR Healthcare's management team and the Company own approximately 7% and 93% of the equity inSLR Healthcare , respectively. SLRC acquiredSLR Healthcare in connection with the Merger onApril 1, 2022 . Concurrent with the closing of the transaction,SLR Healthcare entered into a new, four-year, non-recourse,$100 million credit facility with non-affiliates, which was expandable to$150 million under its accordion feature. EffectiveMarch 31, 2014 , the credit facility was expanded to$105 million and again onJune 27, 2014 to$110 million . OnMay 27, 2016 ,SLR Healthcare entered into a new$125 million credit facility which replaced the previously existing facility. The new facility has similar terms as compared to the previous facility and includes an accordion feature increase to$200 million and had a maturity date ofMay 27, 2020 . OnJune 28, 2019 , this$125 million facility was amended, extending the maturity date toJune 28, 2023 .SLR Healthcare currently manages a highly diverse portfolio of directly-originated and underwritten senior-secured commitments. As ofJune 30, 2022 , the portfolio totaled approximately$179.8 million of commitments with a total net investment in loans of$77.5 million on total assets of$89.7 million . As ofDecember 31, 2021 , the portfolio totaled approximately$183.5 million of commitments with a total net investment in loans of$81.6 million on total assets of$91.3 million . AtJune 30, 2022 , the portfolio consisted of 38 issuers with an average balance of approximately$2.0 million versus 36 issuers with an average balance of approximately$2.3 million atDecember 31, 2021 . All of the commitments inSLR Healthcare's portfolio are floating-rate, senior-secured, cash-pay loans.SLR Healthcare's credit facility, which is non-recourse to us, had approximately$59 million and$60 million of borrowings outstanding atJune 30, 2022 andDecember 31, 2021 , respectively. For the three months endedJune 30, 2022 and 2021,SLR Healthcare had net income (loss) of$0.8 million and($0.1) million , respectively, on gross income of$2.5 million and$2.0 million , respectively. For the six months endedJune 30, 2022 and 2021,SLR Healthcare had net income of$1.7 million and$0.5 million , respectively, on gross income of$4.9 million and$4.4 million , respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions.
SLR Company Credit
SUNS acquired 100% of the equity interests ofNorth Mill Capital LLC ("NMC") onOctober 20, 2017 . NMC is a leading asset-backed lending commercial finance company that provides senior secured asset-backed financings toU.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 toESP SSC Corporation . Immediately thereafter,SUNS and ESP SSC Corporation contributed their equity interests toNorthMill LLC ("North Mill"). OnMay 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. OnJune 28, 2019 ,North Mill Holdco LLC ("NM Holdco"), a newly formed entity andESP SSC Corporation acquired 100% of Summit Financial Resources, aSalt 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 toNM Holdco . This approximately$15.5 million transaction 44
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was financed with borrowings on NMC's credit facility. EffectiveFebruary 25, 2021 , NMC and its related companies are doing business as SLR Business Credit. OnJune 3, 2021 , NMC acquired 100% ofFast Pay Partners LLC , aLos 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 . SLRC acquired SLR Business Credit in connection with the Merger onApril 1, 2022 . SLR Business Credit currently manages a highly diverse portfolio of directly-originated and underwritten senior-secured commitments. As ofJune 30, 2022 , the portfolio totaled approximately$566.0 million of commitments, of which$278.2 million were funded, on total assets of$318.7 million . As ofDecember 31, 2021 , the portfolio totaled approximately$513.9 million of commitments, of which$248.7 million were funded, on total assets of$290.8 million . AtJune 30, 2022 , the portfolio consisted of 116 issuers with an average balance of approximately$2.4 million versus 125 issuers with an average balance of approximately$2.0 million atDecember 31, 2021 . NMC has a senior credit facility with a bank lending group for$240 million which expires onNovember 13, 2024 . Borrowings are secured by substantially all of NMC's assets. NMC's credit facility, which is non-recourse to us, had approximately$210.9 million and$183.3 million of borrowings outstanding atJune 30, 2022 andDecember 31, 2021 , respectively. For the three months endedJune 30, 2022 and 2021, SLR Business Credit had net income of$1.9 million and$1.3 million , respectively, on gross income of$6.6 million and$5.5 million , respectively. For the six months endedJune 30, 2022 and 2021, SLR Business Credit had net income of$3.7 million and$2.2 million , respectively, on gross income of$12.8 million and$9.8 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.
Share buyback program
OnMay 3, 2022 , our Board authorized 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 amended or extended by our Board, we expect the repurchase program to be in place until the earlier ofMay 1, 2023 or until$50 million of our outstanding shares of common stock have been repurchased. The timing and number of 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. As ofJune 30, 2022 no repurchases have taken place.
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
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. Our valuation procedures are set forth in more detail in Note 2(b) to the Company's Consolidated Financial Statements.
The determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements express uncertainty as to the possible effect of such assessments, and any changes in such assessments, on our consolidated financial statements.
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 45
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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 loan-to-value ratio at a compounding rate. PIK securities create the risk that incentive fees will be paid to the Investment Adviser based on 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 six months endedJune 30, 2022 , capitalized PIK income totaled$0.7 million and$1.0 million , respectively. For the three and six months endedJune 30, 2021 , capitalized PIK income totaled$1.6 million and$3.3 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, aU.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 forU.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
InMarch 2020 , the FASB issued Accounting Standards Update No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The guidance provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform. ASU 2020-04 is effective for all entities as ofMarch 12, 2020 throughDecember 31, 2022 . The Company has determined that the adoption of this guidance has not had a material impact on the Company's consolidated financial statements and disclosures.
RESULTS OF OPERATIONS
The comparisons of results are for the three and six months ended
Investment Income For the three and six months endedJune 30, 2022 , gross investment income totaled$42.8 million and$75.8 million , respectively. For the three and six months endedJune 30, 2021 , gross investment income totaled$35.6 million and$71.5 million , respectively. The increase in gross investment income for the year over year three and six month periods was primarily due to a larger portfolio size as a result of the Merger, as well as due to an increase in LIBOR and SOFR. 46
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Expenses
Net expenses totaled$22.5 million and$42.0 million , respectively, for the three and six months endedJune 30, 2022 , of which$11.6 million and$18.9 million , respectively, were base management fees and gross performance-based incentive fees and$10.4 million and$18.7 million , respectively, were interest and other credit facility expenses. Over the same periods,$1.4 million and$1.4 million , respectively, of performance-based incentive fees were waived. Administrative services and other general and administrative expenses totaled$1.9 million and$5.8 million , respectively, for the three and six months endedJune 30, 2022 . Expenses totaled$20.1 million and$40.5 million , respectively, for the three and six months endedJune 30, 2021 , of which$10.8 million and$21.4 million , respectively, were base management fees and performance-based incentive fees and$7.2 million and$14.4 million , respectively, were interest and other credit facility expenses. Administrative services and other general and administrative expenses totaled$2.1 million and$4.7 million , respectively, for the three and six months endedJune 30, 2021 . 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 year over year three and six month periods was primarily due to higher interest expense associated with the increase in LIBOR and SOFR. Net Investment Income The Company's net investment income totaled$20.3 million and$33.8 million , or$0.37 and$0.70 , per average share, respectively, for the three and six months endedJune 30, 2022 . The Company's net investment income totaled$15.5 million and$31.0 million , or$0.37 and$0.73 , per average share, respectively, for the three and six months endedJune 30, 2021 .
Net realized gain (loss)
The Company had investment sales and prepayments totaling approximately$79 million and$180 million , respectively, for the three and six months endedJune 30, 2022 . Net realized losses over the same periods were$0.1 million and$0.08 million , respectively. The Company had investment sales and prepayments totaling approximately$150 million and$214 million , respectively, for the three and six months endedJune 30, 2021 . Net realized gains over the same periods were$0.6 million and$0.2 million , respectively. Net realized losses for the three and six months endedJune 30, 2022 were de minimis. Net realized gains for the three months endedJune 30, 2021 were generally related to the exit of our warrant position inPQ Bypass, Inc. Net realized gains for the six months endedJune 30, 2021 were generally related to the exit of our warrant position inPQ Bypass, Inc. , partially offset by losses from the sale of our legacy investment in B. Riley Financial, Inc.
Net change in unrealized gains (losses)
For the three and six months endedJune 30, 2022 , net change in unrealized loss on the Company's assets and liabilities totaled$35.8 million and$47.9 million , respectively. For the three and six months endedJune 30, 2021 , net change in unrealized gain on the Company's assets and liabilities totaled$2.5 million and$8.9 million , respectively. Net unrealized loss for the three and six months endedJune 30, 2022 is primarily due to depreciation in the value of our investments inPhyMed Management LLC ,Rug Doctor LLC ,American Teleconferencing Services, Ltd. , SLR Credit Solutions and SLR Equipment Finance, among others, partially offset by unrealized appreciation on assets acquired in the Merger due to the accounting treatment of the purchase discount. Net unrealized gain for the three months endedJune 30, 2021 is primarily due to appreciation in the value of our investments inPhyMed Management LLC ,KBH Topco, LLC andFoundation Brands, LLC , among others, partially offset by the reversal of previously recognized appreciation in our investment in Genmark Diagnostics, Inc., as well as depreciation in the value of our investment inAmerican Teleconferencing Services, Ltd. andSOAGG, LLC , among others. Net unrealized gain for the six months endedJune 30, 2021 was primarily due to appreciation in the value our investments inPhyMed Management LLC , Senseonics Holdings, Inc. andKBH Topco, LLC , among others, partially offset by the reversal of previously recognized appreciation in our investment in Genmark Diagnostics, Inc., as well as depreciation in the value of our investment inAmerican Teleconferencing Services, Ltd. andSOAGG, LLC , among others.
Net increase (decrease) in net assets from operations
For the three and six months endedJune 30, 2022 , the Company had a net decrease in net assets resulting from operations of$15.6 million and$14.2 million , respectively. For the same periods, losses per average share were$0.29 and$0.29 , respectively. For the three and six months endedJune 30, 2021 , the Company had a net increase in net assets resulting from operations of$18.6 million and$40.1 million , respectively. For the same periods, earnings per average share were$0.44 and$0.95 , respectively. 47
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CASH 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 2022 Tranche C Notes, 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, 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 ofJune 30, 2022 , we had a total of$484.4 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. OnApril 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 onAugust 26, 2011 (as amended from time to time, the "SPV Credit Facility"), by and amongSUNS 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, the commitment under the SPV Credit Facility is$225 million ; however, the commitment can also be expanded up to$600 million . The stated interest rate on the SPV Credit Facility is LIBOR plus 2.00%-2.50% with no LIBOR floor requirement and the current final maturity date isJune 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. OnApril 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, dueMarch 31, 2025 (the "2025 Unsecured Notes") and other obligations of SUNS under the Note Purchase Agreement, dated as ofMarch 31, 2020 (the "Note Purchase Agreement"), among SUNS and certain institutional investors. Interest on the 2025 Unsecured Notes is due semi-annually onMarch 31 andSeptember 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. OnJanuary 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 ofJanuary 6, 2027 . Interest on the 2027 Series F Unsecured Notes is due semi-annually onJanuary 6 andJuly 6 . The 2027 Series F Unsecured Notes were issued in a private placement only to qualified institutional buyers. OnDecember 28, 2021 , the Company closed on Amendment No. 1 to itsAugust 28, 2019 senior secured credit agreement (the "Credit Facility"). Following the amendment, the Credit Facility is composed of$600 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 inDecember 2026 and includes ratable amortization in the final year. OnSeptember 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 ofMarch 14, 2027 . Interest on the 2027 Unsecured Notes is due semi-annually onMarch 14 andSeptember 14 . The 2027 Unsecured Notes were issued in a private placement only to qualified institutional buyers. OnDecember 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 ofDecember 15, 2024 . Interest on the 2024 Unsecured Notes is due semi-annually onJune 15 andDecember 15 . The 2024 Unsecured Notes were issued in a private placement only to qualified institutional buyers. OnDecember 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 ofDecember 15, 2026 . Interest on the 2026 Unsecured Notes is due semi-annually onJune 15 andDecember 15 . The 2026 Unsecured Notes were issued in a private placement only to qualified institutional buyers. OnDecember 28, 2017 , the Company closed a private offering of$21 million of the 2022 Tranche C Notes with a fixed interest rate of 4.50% and a maturity date ofDecember 28, 2022 . Interest on the 2022 Tranche C Notes is due semi-annually onJune 28 andDecember 28 . The 2022 Tranche C Notes were issued in a private placement only to qualified institutional buyers. OnNovember 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 onJanuary 20 andJuly 20 , at a fixed rate of 4.50% per year, commencing onJanuary 20, 2018 . The 2023 Unsecured Notes mature onJanuary 20, 2023 . 48
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OnFebruary 15, 2017 , the Company closed a private offering of$100 million of the 2022 Unsecured Notes with a fixed interest rate of 4.60% and a maturity date ofMay 8, 2022 . Interest on the 2022 Unsecured Notes is due semi-annually onMay 8 andNovember 8 . The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers. OnNovember 8, 2016 , the Company closed a private offering of$50 million of the 2022 Unsecured Notes with a fixed interest rate of 4.40% and a maturity date ofMay 8, 2022 . Interest on the 2022 Unsecured Notes is due semi-annually onMay 8 andNovember 8 . The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers. The 2022 Unsecured Notes were repaid in full at maturity. OnJanuary 11, 2013 , the Company closed its most recent follow-on public equity offering of 6.3 million shares of common stock raising approximately$146.9 million in net proceeds. The primary uses of the funds raised were for investments in portfolio companies, reductions in revolving debt outstanding and for other general corporate purposes.
Cash equivalents
We deem certainU.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 purchaseU.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 approximately$350 million in cash equivalents as ofJune 30, 2022 . Debt Unsecured Notes OnApril 1, 2022 , we entered into the Note Assumption Agreement, effective as of the closing of the Mergers. The Note Assumption Agreement relates to our assumption of$85 million of the 2025 Unsecured Notes and other obligations of SUNS under the Note Purchase Agreement, among SUNS and certain institutional investors. Interest on the 2025 Unsecured Notes is due semi-annually onMarch 31 andSeptember 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. OnJanuary 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 ofJanuary 6, 2027 . Interest on the 2027 Series F Unsecured Notes is due semi-annually onJanuary 6 andJuly 6 . The 2027 Series F Unsecured Notes were issued in a private placement only to qualified institutional buyers. OnSeptember 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 ofMarch 14, 2027 . Interest on the 2027 Unsecured Notes is due semi-annually onMarch 14 andSeptember 14 . The 2027 Unsecured Notes were issued in a private placement only to qualified institutional buyers. OnDecember 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 ofDecember 15, 2024 . Interest on the 2024 Unsecured Notes is due semi-annually onJune 15 andDecember 15 . The 2024 Unsecured Notes were issued in a private placement only to qualified institutional buyers. OnDecember 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 ofDecember 15, 2026 . Interest on the 2026 Unsecured Notes is due semi-annually onJune 15 andDecember 15 . The 2026 Unsecured Notes were issued in a private placement only to qualified institutional buyers. OnDecember 28, 2017 , the Company closed a private offering of$21 million of the 2022 Tranche C Notes with a fixed interest rate of 4.50% and a maturity date ofDecember 28, 2022 . Interest on the 2022 Tranche C Notes is due semi-annually onJune 28 andDecember 28 . The 2022 Tranche C Notes were issued in a private placement only to qualified institutional buyers. OnNovember 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 onJanuary 20 andJuly 20 , at a fixed rate of 4.50% per year, commencing onJanuary 20, 2018 . The 2023 Unsecured Notes mature onJanuary 20, 2023 . OnFebruary 15, 2017 , the Company closed a private offering of$100 million of the 2022 Unsecured Notes with a fixed interest rate of 4.60% and a maturity date ofMay 8, 2022 . Interest on the 2022 Unsecured Notes is due semi-annually onMay 8 andNovember 8 . The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers. OnNovember 8, 2016 , the Company closed a private offering of$50 million of the 2022 Unsecured Notes with a fixed interest rate of 4.40% and a maturity date ofMay 8, 2022 . Interest on the 2022 Unsecured Notes is due semi-annually onMay 8 and 49
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November 8 . The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers. The 2022 Unsecured Notes were repaid in full at maturity.
Revolving and term loan facilities
OnApril 1, 2022 , we entered into the CF Assumption Agreement, effective as of the closing of the Mergers. The CF Assumption Agreement relates to our assumption of the SPV Credit Facility, by and among 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, the commitment under the SPV Credit Facility is$225 million ; however, the commitment can also be expanded up to$600 million . The stated interest rate on the SPV Credit Facility is LIBOR plus 2.00%-2.50% with no LIBOR floor requirement and the current final maturity date isJune 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. AtJune 30, 2022 , outstanding USD equivalent borrowings under the SPV Credit Facility totaled$128.6 million . OnDecember 28, 2021 , the Company closed on Amendment No. 1 to the Credit Facility. Following the amendment, the Credit Facility is composed of$600 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 inDecember 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, requires the Company to maintain a minimum shareholder's equity and a minimum asset coverage ratio. AtJune 30, 2022 , outstanding USD equivalent borrowings under the Credit Facility totaled$312.0 million , composed of$212.0 million of revolving credit and$100.0 million of term loans. Certain covenants on our issued debt may restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code. AtJune 30, 2022 , the Company was in compliance with all financial and operational covenants required by the Debt Instruments. Contractual Obligations A summary of our significant contractual payment obligations is as follows as ofJune 30, 2022 : Payments Due by Period (in millions) Less than More Than Total 1 Year 1-3 Years 3-5 Years 5 Years Revolving credit facilities (1)$ 340.6 $ - $ -$ 340.6 $ - Unsecured senior notes 566.0 96.0 210.0 260.0 - Term loans 100.0 - - 100.0 -
(1) From
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 day-to-day 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 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. 50
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OnJuly 31, 2017 , theCompany, NEFPASS LLC andNEFCORP LLC entered into a servicing agreement.NEFCORP LLC was engaged to provideNEFPASS LLC with administrative services related to the loans and capital leases held byNEFPASS LLC .NEFPASS LLC may terminate this agreement upon 30 days' written notice toNEFCORP LLC .Senior Securities Information about our senior securities is shown in the following table (in thousands) as of the quarter endedJune 30, 2022 and each year endedDecember 31 for the past ten years, unless otherwise noted. The "-" indicates information which theSEC expressly does not require to be disclosed for certain types of senior securities. Involuntary Asset Liquidating Average Total Amount Coverage Preference Market Value Class and Year Outstanding(1) Per Unit(2) Per Unit(3) Per Unit(4) Credit Facility Fiscal 2022 (through June 30, 2022)$ 212,000 $ 423 - N/A Fiscal 2021 222,500 552 - N/A Fiscal 2020 126,000 421 - N/A Fiscal 2019 42,900 182 - N/A Fiscal 2018 96,400 593 - N/A Fiscal 2017 245,600 1,225 - N/A Fiscal 2016 115,200 990 - N/A Fiscal 2015 207,900 1,459 - N/A Fiscal 2014 - - - N/A Fiscal 2013 - - - N/A Fiscal 2012 264,452 1,510 - N/A SPV Credit Facility Fiscal 2022 (through June 30, 2022) 128,600 256 - N/A 2022 Unsecured Notes Fiscal 2022 (through June 30, 2022) - - - N/A Fiscal 2021 150,000 372 - N/A Fiscal 2020 150,000 501 - N/A Fiscal 2019 150,000 638 - N/A Fiscal 2018 150,000 923 - N/A Fiscal 2017 150,000 748 - N/A Fiscal 2016 50,000 430 - N/A 2022 Tranche C Notes Fiscal 2022 (through June 30, 2022) 21,000 42 - N/A Fiscal 2021 21,000 52 - N/A Fiscal 2020 21,000 70 - N/A Fiscal 2019 21,000 89 - N/A Fiscal 2018 21,000 129 - N/A Fiscal 2017 21,000 105 - N/A 2023 Unsecured Notes Fiscal 2022 (through June 30, 2022) 75,000 150 - N/A Fiscal 2021 75,000 186 - N/A Fiscal 2020 75,000 250 - N/A Fiscal 2019 75,000 319 - N/A Fiscal 2018 75,000 461 - N/A Fiscal 2017 75,000 374 - N/A 2024 Unsecured Notes Fiscal 2022 (through June 30, 2022) 125,000 249 - N/A Fiscal 2021 125,000 309 - N/A Fiscal 2020 125,000 417 - N/A Fiscal 2019 125,000 531 - N/A 2025 Unsecured Notes Fiscal 2022 (through June 30, 2022) 85,000 170 - N/A 2026 Unsecured Notes 51
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Table of Contents Involuntary Asset Liquidating Average Total Amount Coverage Preference Market Value Class and Year Outstanding(1) Per Unit(2) Per Unit(3) Per Unit(4) Fiscal 2022 (through June 30, 2022) 75,000 150 - N/A Fiscal 2021 75,000 186 - N/A Fiscal 2020 75,000 250 - N/A Fiscal 2019 75,000 319 - N/A 2027 Unsecured Notes Fiscal 2022 (through June 30, 2022) 50,000 100 - N/A Fiscal 2021 50,000 124 - N/A 2027 Series F Unsecured Notes Fiscal 2022 (through June 30, 2022) 135,000 269 - N/A 2042 Unsecured Notes Fiscal 2017 - - - N/A Fiscal 2016 100,000 859 -$ 1,002 Fiscal 2015 100,000 702 - 982 Fiscal 2014 100,000 2,294 - 943 Fiscal 2013 100,000 2,411 - 934 Fiscal 2012 100,000 571 - 923 Senior Secured Notes Fiscal 2017 - - - N/A Fiscal 2016 75,000 645 - N/A Fiscal 2015 75,000 527 - N/A Fiscal 2014 75,000 1,721 - N/A Fiscal 2013 75,000 1,808 - N/A Fiscal 2012 75,000 428 - N/A Term Loans Fiscal 2022 (through June 30, 2022) 100,000 199 - N/A Fiscal 2021 100,000 248 - N/A Fiscal 2020 75,000 250 - N/A Fiscal 2019 75,000 319 - N/A Fiscal 2018 50,000 308 - N/A Fiscal 2017 50,000 250 - N/A Fiscal 2016 50,000 430 - N/A Fiscal 2015 50,000 351 - N/A Fiscal 2014 50,000 1,147 - N/A Fiscal 2013 50,000 1,206 - N/A Fiscal 2012 50,000 285 - N/A NEFPASS Facility Fiscal 2021 - - - N/A Fiscal 2020 30,000 100 - N/A Fiscal 2019 30,000 128 - N/A Fiscal 2018 30,000 185 - N/A SSLP Facility Fiscal 2019 - - - N/A Fiscal 2018 53,785 331 - N/ATotal Senior Securities Fiscal 2022 (through June 30, 2022)$ 1,006,600 $ 2,008 - N/A Fiscal 2021 818,500 2,029 - N/A Fiscal 2020 677,000 2,259 - N/A Fiscal 2019 593,900 2,525 - N/A Fiscal 2018 476,185 2,930 - N/A Fiscal 2017 541,600 2,702 - N/A Fiscal 2016 390,200 3,354 - N/A Fiscal 2015 432,900 3,039 - N/A Fiscal 2014 225,000 5,162 - N/A Fiscal 2013 225,000 5,425 - N/A Fiscal 2012 489,452 2,794 - N/A
(1) Total amount of each class of senior securities outstanding (in thousands) at
the end of the period presented. 52
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(2) The asset coverage ratio for a class of senior securities representing
Indebtedness is our total consolidated assets less any
liabilities and debts not represented by senior securities, divided by
all senior debt securities. 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 category of debt, the
total asset coverage per unit is assigned based on the amount outstanding
each category of debt at the end of the period. From
coverage was 200.8%.
(3) The amount to which such class of Senior Securities would be entitled to
involuntary liquidation of the issuer in preference to any security below
this.
(4) Not applicable except for 2042 Unsecured Notes which have been publicly
negotiated. The average market value per unit is calculated by taking the
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
the market value for the financial years 2016, 2015, 2014, 2013 and 2012 was
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 atJune 30, 2022 andDecember 31, 2021 , respectively: June 30, December 31, 2022 2021 (in millions) Arcutis Biotherapeutics, Inc$ 50.1 $ 43.5 SLR Credit Solutions* 44.3 44.3 World Insurance Associates, LLC 33.3 - Apeel Technology, Inc 32.8 - Glooko, Inc 29.8 25.1 CC SAG Holdings Corp. (Spectrum Automotive).. 24.3 18.8 Human Interest, Inc 20.1 - Atria Wealth Solutions, Inc 11.6 3.7 RSC Acquisition, Inc 10.6 - BridgeBio Pharma, Inc 9.0 23.0 Vapotherm, Inc 8.6 - Peter C. Foy & Associates Insurance Services, LLC 8.6 - Inszone Mid, LLC 7.9 12.5 Ardelyx, Inc 7.8 - Maurices, Incorporated 6.0 5.7 RQM+ Corp 5.1 3.8 Ivy Fertility Services, LLC 4.9 4.5 Vessco Midco Holdings, LLC 4.4 - NAC Holdings Corporation 4.3 4.8 OIS Management Services, LLC 4.0 - One Touch Direct, LLC 4.0 7.2 Kaseya, Inc 3.9 - Foundation Consumer Brands, LLC 3.0
2.3
Plastics Management, LLC 2.8
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Southern Orthodontic Partners Management, LLC 2.8 - Kid Distro Holdings, LLC 2.7 2.7 MMIT Holdings, LLC 2.3 2.0 Basic Fun, Inc 2.3 1.9 Enverus Holdings, Inc 1.4 - SLR Healthcare ABL* 1.4 - RxSense Holdings LLC 1.2 -Erie Construction Mid-west, LLC 1.2 - SLR Equipment Finance 1.0 5.0 All State Ag Parts, LLC 0.9 - American Teleconferencing Services, Ltd 0.9
0.6
Ultimate Baked Goods Midco LLC 0.8
0.8
SunMed Group Holdings, LLC 0.8
0.8
Composite Technology Acquisition Corp 0.6
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Pinnacle Treatment Centers, Inc 0.5 1.4 GSM Acquisition Corp 0.5 - BayMark Health Services, Inc 0.5 - High Street Buyer, Inc 0.3 - Tilley Distribution, Inc 0.3 - TAUC Management, LLC 0.3 - Rezolute, Inc - 5.7 SOC Telemed, Inc - 4.4 Neuronetics, Inc - 2.2 Total Commitments$ 363.9 $ 226.7 53
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* The Company controls the financing of
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 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 ofJune 30, 2022 andDecember 31, 2021 , 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 its 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. 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 2022 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$ 1.093335 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 Fiscal 2020 November 5, 2020 December 17, 2020 January 5, 2021$ 0.41 August 4, 2020 September 17, 2020 October 2, 2020 0.41 May 7, 2020 June 18, 2020 July 2, 2020 0.41 February 20, 2020 March 19, 2020 April 3, 2020 0.41 Total 2020$ 1.64 Tax characteristics of all distributions will be reported to stockholders on Form 1099 after the end of the calendar year. Future quarterly 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 ( i.e. , 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. 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. 54
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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 regulated investment company. 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 payment-in-kind 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 regulated investment company.
With respect to distributions to shareholders, income from origination, structuring, closing and certain other up-front costs associated with holding company investments is treated as taxable income and therefore distributed to shareholders.
Related parties
We have established a number of business relationships with affiliated or related parties, including the following:
• We have entered into the Advisory Agreement with the Investment Advisor.
Mr. Gross , our Chairman, Co-Chief Executive Officer and President andMr. Spohler , our Co-Chief
Executive Officer, Chief Operating Officer and member of the Board of Directors, manage
members and senior investment professionals of, and have finance and
controlling interests in, the Investment Adviser. In addition,Mr. Peteka , our Chief Financial Officer, Treasurer and Secretary 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 operations pursuant to our Administration Agreement. We reimburse the
Administrator for the attributable portion of overhead and other expenses
incurred by him in the performance of his obligations under the Administration
Agreement, including rent, fees and expenses associated with
performing compliance functions, and the compensation of our head
compliance officer, our chief financial officer and their
staffs. • 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 toSCP Private Credit Income BDC LLC , an unlisted BDC that focuses on investing primarily in senior secured loans, including non-traditional asset-based loans and first lien loans and 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. In addition,Michael S. Gross , our Chairman, Co-Chief Executive Officer and President,Bruce Spohler , our Co-Chief Executive Officer and Chief Operating Officer, andRichard L. Peteka , our Chief Financial Officer, serve in similar capacities forSCP Private Credit Income BDC LLC and SLR HC BDC 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 with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of theSEC and its staff, and consistent with the Investment Adviser's allocation procedures. OnJune 13, 2017 , the Adviser received an exemptive order that permits the Company to participate in 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 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 Adviser. Related party transactions may occur among us, 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 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 theMaryland General Corporation Law. 55
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