SLR Investment (US:SLRC)2020-02-21 21:04Financial Data and Key Metrics Changes - For Q4 2019, the company reported net investment income of $0.41 per share, leading to a full-year net investment income of $1.71 per share, which exceeded the annual distribution of $1.64 per share [7][23] - The net asset value (NAV) at December 31, 2019, was $21.44 per share, down approximately 1.4% from the year-end 2018 [8][18] - Gross investment income for Q4 2019 totaled $37.1 million, down from $39.7 million in Q3 2019, while expenses decreased to $19.9 million from $21.3 million [20] Business Line Data and Key Metrics Changes - In 2019, over 72% of gross investment income was generated from commercial finance businesses, with commercial finance assets representing 75% of the total $1.8 billion portfolio [8][11] - The cash flow portfolio was valued at $450 million, approximately 25% of the comprehensive portfolio, with a weighted average yield of 8.7% [31][33] - The equipment finance segment had a portfolio of approximately $396 million, representing 22% of the total portfolio, with a weighted average yield of about 10% [34] - The asset-based portfolio totaled approximately $644 million, representing 36% of the total portfolio, with a weighted average yield of 12.7% [35] - The life science portfolio was just under $290 million, accounting for 16% of the total portfolio and over 26% of gross investment income for 2019 [37] Market Data and Key Metrics Changes - The company originated $736 million in new senior secured investments in 2019, with nearly 90% in commercial finance assets [11][30] - The weighted average asset yield of the comprehensive portfolio was 10.7% at year-end [11][29] - The company’s net leverage was 0.64x with approximately $450 million of unused borrowing capacity under its credit facilities [15][19] Company Strategy and Development Direction - The company is focused on enhancing its platform scale and diversifying funding sources, having raised approximately $1.2 billion in incremental capital through institutional private credit funds [12][14] - The strategy includes reducing exposure to second lien cash flow investments, with a target to bring this exposure below 1% by midyear 2020 [29] - The company aims to move closer to a target leverage range of 0.9 to 1.25x as market opportunities arise, while maintaining a conservative approach to risk [16][96] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment over the NAV decline, attributing it primarily to a write-down of an investment in IHS, but noted the overall financial health of the portfolio remains sound [26][27] - The company believes it is well-positioned to navigate the current environment and capitalize on market dislocations, with a focus on maintaining a diversified and defensive portfolio [45][49] Other Important Information - The company received an additional $75 million commitment under its credit facility, increasing total commitments to $620 million [22] - The investment-grade corporate rating was affirmed by Fitch Ratings, reflecting the company's conservative investment philosophy and strong underwriting track record [23] Q&A Session Summary Question: Discussion on portfolio rotation and sustainability of dividends - Management indicated that the focus is on taking larger positions across various pools of capital to enhance diversification and reduce concentration risk [54][55] Question: Inquiry about the decline in gross investment income - The decline was attributed to a one-time reversal related to a warrant gain and a decrease in LIBOR impacting floating rate investments [59][60][89] Question: Clarification on the fraud loss at Crystal - The fraud loss has been fully reflected in the NAV, and the company is pursuing remedies [62][63] Question: Concerns about the Life Science segment and its growth - The Life Science portfolio has grown to just under $300 million, but it is a short-duration asset class with high repayment velocity [119] Question: Questions regarding the institutional fund and its impact on Crystal - The institutional fund allows for co-investment alongside SLRC, increasing the opportunity set for larger, lower-risk transactions [82][84]