SLR Investment (SLRC) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents SLR Investment Corp.'s unaudited consolidated financial statements, showing increased total assets and Net Asset Value per share Consolidated Statements of Assets and Liabilities Total assets increased to $1.98 billion and Net Asset Value per share rose to $20.29 as of June 30, 2021 Consolidated Assets and Liabilities (in thousands, except per share data) | Metric | June 30, 2021 (unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $1,983,075 | $1,935,958 | | Total Liabilities | $1,125,629 | $1,083,935 | | Total Net Assets | $857,446 | $852,023 | | Net Asset Value Per Share | $20.29 | $20.16 | Consolidated Statements of Operations Net increase in net assets from operations was $40.1 million, a significant turnaround from a $21.4 million decrease in prior year Statement of Operations Highlights (in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Total investment income | $71,459 | $61,529 | | Total expenses | $40,474 | $31,475 | | Net investment income | $30,985 | $30,054 | | Net realized and unrealized gain (loss) | $9,092 | $(51,477) | | Net increase (decrease) in net assets | $40,077 | $(21,423) | | Earnings (loss) per share | $0.95 | $(0.51) | Consolidated Statements of Changes in Net Assets Net assets increased by $5.4 million due to operations, partially offset by distributions, contrasting with a prior year decrease Changes in Net Assets (in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net assets at beginning of period | $852,023 | $905,880 | | Net increase (decrease) from operations | $40,077 | $(21,423) | | Distributions to stockholders | $(34,654) | $(34,654) | | Total increase (decrease) in net assets | $5,423 | $(56,077) | | Net assets at end of period | $857,446 | $849,803 | Consolidated Statements of Cash Flows Net cash provided by operating activities was $119.8 million, leading to a $79.0 million net increase in cash and equivalents Cash Flow Summary (in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $119,807 | $238,711 | | Net Cash Used in Financing Activities | $(40,857) | $(106,991) | | Net Increase in Cash and Cash Equivalents | $78,950 | $131,720 | | Cash and Cash Equivalents at End of Period | $467,726 | $568,074 | Consolidated Schedule of Investments Total investments reached $1.50 billion, diversified across senior secured loans, equipment financing, and equity interests Portfolio Composition by Investment Type (June 30, 2021) | Investment Type | Fair Value (in thousands) | | :--- | :--- | | Senior Secured Loans | $769,089 | | Equipment Financing | $280,489 | | Common Equity/Equity Interests/Warrants | $444,133 | | Preferred Equity | $5,249 | | Total Investments | $1,498,960 | Top 5 Industry Classifications (June 30, 2021) | Industry Classification | Percentage of Total Investments | | :--- | :--- | | Multi-Sector Holdings | 28.1% | | Diversified Financial Services | 20.3% | | Pharmaceuticals | 9.7% | | Health Care Providers & Services | 9.2% | | Health Care Equipment & Supplies | 7.6% | Notes to Consolidated Financial Statements Notes detail the company's BDC/RIC status, fee structure, debt facilities, controlled investments, and a subsequent dividend declaration - The company is a closed-end, externally managed, non-diversified management investment company regulated as a Business Development Company (BDC) and has elected to be treated as a Regulated Investment Company (RIC) for U.S. federal income tax purposes[53] Fees Paid to Investment Adviser (in thousands) | Fee Type | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Base Management Fees | $6,890 | $13,700 | | Performance-based Incentive Fees | $3,879 | $7,746 | Debt Obligations Summary (June 30, 2021) | Facility | Face Amount (in thousands) | Carrying Value (in thousands) | | :--- | :--- | :--- | | Credit Facility | $194,000 | $192,068 | | NEFPASS Facility | $30,000 | $29,490 | | 2022 Unsecured Notes | $150,000 | $150,000 | | 2023 Unsecured Notes | $75,000 | $74,406 | | 2024 Unsecured Notes | $125,000 | $124,008 | | 2026 Unsecured Notes | $75,000 | $74,329 | | Total | $670,000 | $665,248 | - As of June 30, 2021, the company had total unfunded commitments of $130.8 million to various portfolio companies, including a $44.3 million commitment to SLR Credit Solutions which the company controls and may cancel at its discretion[129][231] - Subsequent to the quarter end, on August 3, 2021, the Board of Directors declared a quarterly distribution of $0.41 per share[140] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, portfolio activity, and capital resources, highlighting key financial metrics and liquidity Portfolio and Investment Activity During Q2 2021, $69.0 million was invested, with $149.7 million in dispositions, focusing on senior secured loans and floating rate assets Investment Activity (in millions) | Activity | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :--- | :--- | :--- | | Investments Made | $69.0 | $61.2 | | Investments Sold/Repaid | $149.7 | $28.9 | - As of June 30, 2021, the investment portfolio was valued at fair value and comprised 23.0% in cash flow senior secured loans, 25.5% in asset-based senior secured loans (SLR Credit), 14.6% in Kingsbridge Holdings, LLC (KBH), 18.7% in equipment senior secured financings (SLR Equipment), and 18.2% in life science senior secured loans[165] - At June 30, 2021, 71.6% of the income-producing investment portfolio was floating rate, while 28.4% was fixed rate[166] Results of Operations Gross investment income rose to $71.5 million, leading to $31.0 million net investment income and a $40.1 million net increase in net assets Results of Operations Summary (in millions, except per share data) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Gross Investment Income | $71.5 | $61.5 | | Total Expenses | $40.5 | $31.5 | | Net Investment Income | $31.0 | $30.1 | | Net Investment Income Per Share | $0.73 | $0.71 | | Net Change in Unrealized Gain (Loss) | $8.9 | $(26.7) | | Net Increase (Decrease) in Net Assets | $40.1 | $(21.4) | Liquidity and Capital Resources Liquidity is supported by credit facilities and cash flows, with $446.0 million unused borrowing capacity and strong asset coverage - As of June 30, 2021, the company had a total of $446.0 million of unused borrowing capacity under its various credit facilities, subject to borrowing base limits[198] Contractual Obligations as of June 30, 2021 (in millions) | Obligation | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Revolving credit facilities | $149.0 | $— | $30.0 | $119.0 | $— | | Unsecured senior notes | $446.0 | $150.0 | $96.0 | $125.0 | $75.0 | | Term Loans | $75.0 | $— | $— | $75.0 | $— | - The company's asset coverage ratio was 228.0% as of June 30, 2021, above the 150% minimum required for a BDC[221][225] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk, with a 1% LIBOR decrease increasing net investment income by $0.01 per share Interest Rate Sensitivity Analysis (per share per year) | Change in LIBOR | Impact on Net Investment Income Per Share | | :--- | :--- | | (1.00%) | $0.01 | | +1.00% | $(0.04) | - The company faces market risk from the global COVID-19 pandemic, which has increased volatility and may impact the value of its securities[244] Item 4. Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting - Management concluded that as of June 30, 2021, the company's disclosure controls and procedures were effective[247] - No material changes to the company's internal control over financial reporting occurred during the second quarter of 2021[248] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently subject to any material pending legal proceedings - The company is not currently subject to any material pending legal proceedings[249] Item 1A. Risk Factors Key risks include the LIBOR transition and ESG scrutiny, with potential adverse impacts on financial results and reputation - The company faces risks from the planned cessation of LIBOR, which is used as a reference rate for its term loans. This could require renegotiating credit agreements and may adversely affect financial results[251][253] - The company is subject to increasing public scrutiny related to environmental, social, and governance (ESG) activities, and failure to act responsibly could damage its brand and reputation[254] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the quarter ended June 30, 2021 - There were no unregistered sales of equity securities during the quarter ended June 30, 2021[255] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None[256] Item 4. Mine Safety Disclosures This section is not applicable to the company - Not applicable[257] Item 5. Other Information There is no other information to report for the period - None[258] Item 6. Exhibits This section lists exhibits filed, including corporate governance documents, debt indentures, and officer certifications - The exhibits filed with this report include the Articles of Amendment, Bylaws, Form of Common Stock Certificate, Indentures, and CEO/CFO certifications pursuant to the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002[260]