Solar Senior Capital Ltd. (NASDAQ:SUNS) Q1 2019 Earnings Conference Call - Final Transcript

May 07, 2019 • 11:00 am ET


Solar Senior Capital Ltd. (NASDAQ:SUNS) Q1 2019 Earnings Conference Call - Final Transcript


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Michael Gross

loans is 99.8% performing at 3/31 on a fair value basis with only one loan on non-accrual status.

Middle market cash flow lending continues to be extremely competitive. The general market consensus is that we are late in the credit cycle, and we see some evidence that the margin is moderating earnings growth. Our defensive positioning in first lien loans and our niche ABL verticals should enable us to perform well either in today's strong economic environment or during a downturn.

During the first quarter, approximately 44% of SUNS comprehensive portfolio of gross originations came through our asset-based lending businesses, Gemino Healthcare and North Mill Capital, whose senior secured loans are backed by collateral and have strong structural protections. These specialty finance businesses have achieved double-digit asset-level IRRs and continue to originate investments that are highly attractive on both an absolute and relative-value basis. The remainder of our originations come from first lien senior secured cash flow loans to upper middle market sponsor-owned companies.

Our cash flow business continues to be focused on first lien senior secured loans with covenants to upper middle market companies operating primarily in defensive, non-cyclical industries that we believe are better resourced and positioned to navigate in economic downturn should one arise. Late last year, Solar Senior's investment adviser's, Solar Capital Partners announced the closing of private credit funds with total equity commitments of over $750 million, bringing the combined investment capital across all fund mandates to approximately $5.5 billion, including expected leverage. The increased scale across the platform strategically positions Solar Capital Partners to be a full solutions provider, with an ability to speak for up to $200 million in the given transaction, while maintaining diversified portfolios across each of the funds.

The greater hold capacity across the platform has already resulted in more attractive cash flow investment opportunities for SUNS. We are pleased with the progress we have made on the efforts to evolve SUNS into a diversified niche specialty finance company. The asset coverage modification approved late last year by our shareholders provides SUNS with additional flexibility and capacity to make controlled equity investments in specialty finance businesses, and we are actively evaluating portfolios of asset-based loans and specialty lending platforms to acquire.

At March 31, Solar Senior is in a strong liquidity position with net leverage or 0.78 times debt-to-equity, up from 0.63 times at 12/31/18. We intend to move closer to our target leverage of 1.25 times to 1.5 times debt-to-equity by growing our portfolio over time. When considering the combined credit facilities of SUNS' balance sheet and the North Mill and Gemino, there's approximately $225 million of available debt capacity across the platform subject of borrowing base limitations. We'll continue to be highly disciplined in deploying our available capital.

At this times, I'd like to turn the call back over to our Chief Financial Officer, Rich Peteka.

Richard Peteka

Thank you, Michael. Solar Senior Capital Ltd.'s net asset value at March 31, 2019, was $263.1 million or $16.40 per share. This