Hello, and welcome everyone joining today's Q3 2026 SLR Investment Corp. earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. To register to ask a question at any time, please press star one on your telephone keypad. Please note, this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Michael Gross, Chairman and Co-CEO. Please go ahead.
Thank you very much, and good morning. Welcome to SLR Investment Corp.'s earnings call for the quarter ended September 30th, 2026. I am joined today by my long-term partner, Bruce Spohler, our Co-Chief Executive Officer, as well as Chief Financial Officer Shiraz Kajee, and members of the SLR Investor Relations team. Shiraz, before we begin, would you please start by covering the webcast and forward-looking statements?
Thank you, Michael. Good morning, everyone. I would like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of SLR Investment Corp. and that any unauthorized broadcast in any form is strictly prohibited. This conference call is also being webcast on the events calendar in the investors section on our website at www.slrinvestmentcorp.com. Audio replays of this call will be made available later today, as disclosed in our November 3rd earnings press release. I would also like to call your attention to the customary disclosures in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections. These statements are not guarantees of our future performance or financial results and involve a number of risks and uncertainties. Past performance is not indicative of future results.
Actual results may differ materially as a result of a number of factors, including those described from time to time in our filings with the SEC. We do not undertake to update any forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website or call us at 212-993-1670. At this time, I would like to turn the call back over to our Chairman and Co-CEO, Michael Gross.
Thank you, Shiraz, and thank you to everyone for joining our earnings call this morning. Markets firmly expect risk-free rates to remain higher for longer. AI and the new economy build-out dramatically impact capital flows, commerce, and ultimately risk. As a result, questions about where we are on the credit cycle have grown louder throughout the year. Expectations for interest coverage and direct lending facilities are moderating. We first expressed a more cautious view about the potential for rising private credit losses in the last year. That view rested on our 20+ history of managing private credit vehicles and recognizing that the industry was approaching the middle stages of a credit cycle. We believe these signs can no longer be dismissed. They are clearly visible through the lens of rising defaults and realized losses.
The simple average net asset value per share has declined more than 5% for public BDCs year to date, and Fitch Ratings recently indicated that the trailing 12-month default rate is the highest on record as of the end of the third quarter. With this backdrop, we continue to believe investors are looking for private credit portfolios that are less exposed to areas of private credit exuberance during the past five years. We believe our comprehensive portfolio of largely commercial finance assets positions us to provide durable current income and total return. We think the strength of our portfolio today reflects how we structure and select investments, not where we sit in the current cycle or the amount of capital we need to deploy.
Much of today's market participants have never underwritten through a true downturn, and rapid capital formation loosened cash flow underwriting as non-listed BDCs grew into tens of billions of dollars under management in a very short period. The stress was concentrated in the 2021 and 2022 vintages, underwritten at high leverage in the low-interest-rate environment, and are now facing a large wave of cyclicals and software loan maturities. Importantly, less than 15% of our comprehensive portfolio is invested in these vintages. Floating rate direct lending would normally benefit from an increase in base rates, but higher financing costs, margin compression, and rising credit losses are thus far offsetting this tailwind. Continued lackluster M&A activity and excess supply of capital further widen the supply-demand imbalance and extend a highly competitive environment for good cash flow assets. As a result, sourcing good risk return in sponsor finance remains challenging.
We expect defaults and liability management exercises to rise throughout the next year. This is a typical credit cycle downturn, not a crisis comp of 2008. However, we believe that defaults will be higher than many expect. Weaker documentation and unitranche structures that sit deeper in the capital structure leave less cushion beneath lenders, so loss-given default rates could run higher than many assume. The current environment favors experienced collateral-based lenders as sponsors of capital structures that cannot refinance in the traditional market need liquidity and working capital solutions. Our portfolio is built for this environment. It primarily consists of first-lien loans against collateral that we can monitor and liquidate, selective cash flow exposure, and a small watch list. Our ABL teams are a countercyclical sourcing engine when liquidity and capital are scarce.
In this market phase, credit dispersion is expected to widen, and manager and asset selection will matter more. We will stay disciplined and are prepared for either a typical downturn or a more benign outcome. Nearly all of our originations in the third quarter were in specialty finance, and we expect that focus to continue for the foreseeable future. Turning to our Q3 results. For the third quarter, SLRC reported net investment income, or NII, of $0.33 per share against a distribution of $0.31 per share. At September 30th, the company had a net asset value per share of $17.83, down approximately 90 basis points in the prior quarter and down only 2.1% year -over -year, which is less than half the industry experience. The NAV decline in Q3 was driven by the decline in fair value of one loan on non-accrual.
Bruce will provide more detail on this investment. Importantly, this investment's challenges are idiosyncratic and not reflective of our broader portfolio's health. In fact, our watch list declined this quarter, with only 2% of our portfolio at fair value in that category. We continue to have strong conviction in the credit quality of our portfolio. Consistent with the prior quarter, our exposure to the software industry, consisting of only two borrowers, stands at less than 1% of fair value. Furthermore, only 2% of our gross income is derived from restructured PIK. Both portfolio metrics remain well below private credit portfolio averages. With our conservatively positioned portfolio, we are focused on attractive investment opportunities in asset-based lending. During the third quarter, SLRC originated $575 million of new investments across the comprehensive portfolio.
This volume, weighted 95% to specialty finance, represents a record for SLRC and highlights our ability to originate attractive investments during periods of muted activity in the traditional direct lending market. During the third quarter, we received repayments of $429 million for net originations of approximately $146 million. We view this level of portfolio churn favorably, as the repayments represented successful realizations at par or better, and the associated prepayment exit fees add a further source of income. We continue to have a robust specialty finance pipeline fueled by our ABL team's broad geographic footprint, resulting in strong traction in local markets and increasing sponsor interest in ABL solutions. With our strategic focus on specialty finance, we are executing growth strategies to expand our footprint through new hires, acquisitions, and investment sourcing partnerships. A recently finalized partnership with a super regional bank has begun to produce referral opportunities.
As the partnership progresses, we will share more details. We remain active in the cash flow market in our core industry, healthcare, and are ready to pivot to this asset class if it becomes more attractive. As of September 30th, including available credit facility capacity at SSLP and our specialty finance portfolio companies, SLRC had over $850 million available capital to deploy, subject to borrowing base limits. Our liquidity portfolio and minimal watch list position us to deploy capital as the cycle turns, whether that means stepping in as banks pull back or meeting sponsors' needs for liquidity. Now I'll turn the call back over to Shiraz, our CFO, to take you through third quarter financial highlights.
Thank you, Michael. SLR Investment Corp.'s net asset value at September 30, 2026, was $972.8 million, or $17.83 per share, compared to $18 per share at June 30, 2026. At quarter end, SLRC's on-balance sheet investment portfolio had a fair value of approximately $2 billion in 77 portfolio companies, compared to a fair value of $2.1 billion in 79 portfolio companies at June 30. Our investment portfolio continues to be funded by a combination of our multi-lender revolving credit facilities and the issuance of term debt in the unsecured debt markets to institutional investors. The company is investment grade rated by Fitch, Moody's, and DBRS, and more than 43% of the company's debt capital is comprised of unsecured debt as of September 30.
At September 30, the company had approximately $1.1 billion of debt outstanding, with a net debt-to-equity ratio of 1.1 x, within our target range of 0.9x-1.25 x. We have ample liquidity to fund our unfunded commitments and for future portfolio growth. Looking forward, the company has unsecured debt maturities of $75 million in December 2026, $135 million in January 2027, and $50 million in March 2027. On October 28, the company committed to a private offering of $135 million of unsecured notes with a fixed interest rate of 6.76% and a maturity date of June 10, 2030. This issuance is anticipated to close and fund on December 10, 2026. We expect to continue to prudently access the debt capital markets and issue unsecured debt as and when needed. Moving to the P&L.
For the three months ended September 30, gross investment income totaled $49.3 million versus $48.8 million for the three months ended June 30. Net expenses totaled $31.5 million for the three months ended September 30. This compares to $31.1 million for the June quarter. Accordingly, the company's net investment income for the three months ended September 30, 2026, totaled $17.8 million, or $0.33 per average share, in line with the prior quarter. Below the line, the company had net realized and unrealized losses of $10.2 million in the third quarter versus net realized and unrealized losses of $9.5 million for the second quarter of 2026.
As a result, the company had a net increase in net assets resulting from operations of $7.6 million for the three months ended September 30, compared to a net increase of $8.3 million for the three months ended June 30. Post-quarter end, the company purchased over 884,000 shares of SLRC at an average price of $11.31, inclusive of commissions. These purchases totaled $10 million and were executed through our 10b5-1 stock repurchase plan previously authorized by our board of directors. We expect these purchases to be accretive to NAV per share in the fourth quarter. On November 3, 2026, the board of directors declared a quarterly distribution of $0.31 per share, payable on December 28, 2026, to holders of record as of December 14, 2026. With that, I'll turn the call over to our Co-Chief Executive Officer, Bruce Spohler.
Thank you, Shiraz. Before discussing our portfolio, let me comment on our specialty finance strategies. Because we are typically the sole lender in our specialty finance strategies, the majority of our exposure is unique to SLRC. Consequently, our investment portfolio overlap with other public BDC portfolios is one of the lowest in the industry. According to a Q2 2026 research report, our shared investment exposure with other BDCs represents less than 20% of our portfolio. This compares to a weighted average overlap of over 50% for many of our peers. This provides our investors with greater diversification across their holdings. Both the low correlation to other managers, as well as to asset classes, as well as the strong downside protection through our collateral coverage, make our specialty finance strategies an attractive value proposition.
Our investment strategies are extremely high-touch, with deep expertise and experience a prerequisite for both the underwriting as well as the active monitoring of collateral throughout our loan's life. These strategies are not conducive to manager tourism and take, in our view, at least a decade to build from the ground up. Because of this, competition remains limited, which preserves our ability to generate alpha at the time that mainstream direct lending is evolving into a beta asset class. Now let me turn to the portfolio. At quarter end, the comprehensive portfolio was approximately $3.4 billion, with an average exposure of $4 million. At fair value, approximately 97.5% of our portfolio consisted of senior secured loans, with over 96% invested in first-lien loans. The 1% of our portfolio in second lien investments consists entirely of asset-based loans, which contain borrowing bases, and no second lien cash flow loans.
At quarter end, over 86% of the portfolio is comprised of specialty finance investments. At quarter end, the weighted average asset level yield on the portfolio was 11.2%, up slightly from last quarter and consistent with the past year's performance. Overall, we believe the portfolio has been less impacted by changes in base rates and spread compression compared to the BDC peer group due to our higher allocation to specialty finance loans. We continue to have just two loans on non-accrual, with one of those accounting for the decline in our NAV of 90 basis points this quarter. This investment is OmniGuide. Our workout team is actively focused on maximizing our recovery for both OmniGuide and our other non-performing loan. Outside of these two investments, which account for the majority of our watch list, our portfolio continues to perform well.
At quarter end, the weighted average investment risk rating was under two based on our one to four risk rating scale, with one representing the least amount of risk. Approximately 98% of the portfolio is rated one or two at quarter end. Outside of our two non-accruals, which represent 1.2% of the portfolio at fair value and 2.9% at cost, our portfolio companies continue to exhibit healthy business fundamentals and perform at or above expectation. In addition, only 2% of our gross income is derived from PIK interest that resulted from amendments. Now let me touch on each of our four investment verticals, starting with our specialty finance segments. Asset-based lending. Our teams are extremely active with an expanded opportunity set consisting of their traditional borrowing base, as well as increasing interest from our sponsor finance clients who are seeking incremental liquidity through ABL solutions for their portfolio companies.
Private equity firms are increasingly using ABL structures to supplement the financing of LBOs, strategic acquisitions, as well as turnaround asset purchases. In particular, we are seeing traction with healthcare sponsors, given our understanding of complex healthcare accounts receivable. The SLR team has been financing healthcare receivables for over 30 years and understands the reimbursement nuances of healthcare accounts receivable. This asset level diligence is often what separates a lender capable of structuring around complexity from one that simply lacks the decades of experience with healthcare accounts receivable collectability. Our priority remains a first-lien position on liquid current assets, predominantly accounts receivable and inventory, which has historically minimized our risk exposure. At quarter end, our ABL platform totaled $1.5 billion across 241 issuers, representing over 43% of the total portfolio. For the third quarter, we originated $277 million of new ABL investments and had repayments of $238 million.
Weighted average asset level yield on the ABL portfolio was 12.6%, up from 12% the prior quarter. We are continuing to advance partnership opportunities as well as evaluate strategic transactions such as portfolio and business acquisitions. Additionally, we are continuing to expand the origination team across our ABL verticals. Let me touch on equipment finance. We are pleased with the progress across our equipment finance businesses and have seen an increase in demand for equipment financings more broadly, which resulted in portfolio growth this quarter, as well as a larger pipeline as we head into year-end. The opportunity set includes equipment leasing opportunities related to the infrastructure build-out of the digital economy, as well as the greater need for financings for companies in traditional industries, as many of our peer lenders turn their focus solely to data center financings.
At quarter-end, the equipment finance portfolio totaled $1.2 billion, representing 35% of our total portfolio. It was highly diversified across 570 borrowers. Credit profile of this portfolio was stable quarter-over-quarter. During the third quarter, we originated $263 million of new investments and had repayments of approximately $176 million. Weighted average asset level yield for this portfolio was 10.2%. Our investment pipeline has expanded in equipment finance. Additionally, we are continuing to see demand from existing borrowers seeking to extend their existing leases on equipment rather than buying new equipment at higher tariff-adjusted prices. Also achieved during the quarter was an important marker for our SLR Equipment Finance team. They were able to finance the portfolio with a $250 million asset-backed securitization. This facility lowered the company's cost of debt capital, pricing at a fixed rate of 5.6%. Let me turn to life sciences.
Our life science team continues to evaluate new opportunities. In response to the challenging conditions in this segment, our team is focused on larger companies that can benefit from comprehensive solutions involving not only life science loans, but also ABL revolvers and royalty structures. Our platform has a unique competitive advantage in its ability to offer this full suite of products, which is bolstering our pipeline. During the third quarter, we had originations of $5 million and no repayments in life sciences. At quarter-end, the portfolio was $176 million across six different borrowers, representing 5% of the total portfolio. Activity has increased, and we are optimistic about our pipeline heading into next year. Cash flow lending. With muted M&A activity and large capital inflows for the largest private credit managers, cash flow lending has remained a competitive market where the risk premium has narrowed.
SLRC currently takes an opportunistic approach to this asset class. Our broad platform expertise in healthcare enables us to continue to serve as a valuable cash flow loan provider to companies in this industry during periods of overheated market conditions. Sponsors have been focused on troubled portfolio companies and amend and extend executions with the looming 2027 and 2030 maturity wall approaching. At quarter-end, our sponsor finance cash flow portfolio totaled $463 million across 25 borrowers, or just under 14% of the total portfolio. Our software exposure accounts for less than 1%. The weighted average EBITDA of the portfolio was approximately $117 million. 100% of this portfolio are first-lien investments, and we had a weighted average LTV of just under 40%. Our borrower fundamentals remain strong, with single-digit growth in average year-over-year revenue and EBITDA.
Weighted average interest coverage on our cash flow portfolio was 2.2x , consistent over the past year. During the quarter, we made investments of $30 million and experienced repayments of $15 million. At quarter-end, our weighted average cash flow yield was just under 10%, compared to 9.6% last quarter. Now let me touch on our SSLP. During the quarter, we invested $7 million and had approximately $10 million of repayments. Our net leverage is just around 0.9x . The company earned $1.3 million from its investment in the SSLP during the quarter, which represented an annualized yield of 11%, compared to 11.8% in Q2. At quarter-end, it had $62 million of undrawn debt capacity, and we expect to grow this portfolio opportunistically as conditions in the sponsor finance market warrant. Now let me turn the call back to Michael.
Thank you, Bruce. In conclusion, at this stage of the credit cycle, with risk not being rewarded as it once was in the direct lending market, we are staying focused on our specialty finance strategies. These collateral-based loans, which make up the vast majority of our recent originations, provide the underpinnings to the stability and solid credit quality of our portfolio. We feel confident in the health of our overall performance and believe we are well-positioned to weather this higher-for-longer interest rate environment. While we are comfortable with our portfolio's current earnings power, given our conservative investment approach, particularly in today's market, we are pleased with our specialty finance team's traction. As issuers facing liquidity challenges seek alternative sources of capital, our broad range of solutions are being well received.
Our teams thrive in challenging markets, and our portfolio's stable credit quality enable them to remain focused on the opportunity set. The SLR team owns over 9% of the company stock today, and has a significant percentage of their annual incentive compensation invested in SLR stock each year, including purchases that took place in the first quarter. We thank you again for your time today, especially on a busy day of BDC earnings releases. Operator, will you please open the line for questions?
Thank you. If you would like to ask a question, please press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star and one to ask a question. We will take our first question from Erik Zwick with Lucid Capital Markets. Please go ahead. Your line is open.
Thank you. Good morning, everyone. Understanding that your portfolio structure makes you, the yield less sensitive to changes in interest rates, is there anything else that could lead to any changes in the portfolio yield going forward? Anything in terms of changes in spreads or portfolio mix shift that we could see any changes over the next, say, quarter or two?
I think while we are not highly correlated to base rates, in the near term, we do benefit, even or especially in finance strategies, from the pickup in base rates. So at some point, it gets too high, and so we won't see that pass through to our returns. But I think in the next quarter or two, you will see the pickup just as you would in a cash flow deal in terms of that additional increase in base rate yield.
Thanks. Then kind of transitioning to the asset-based lending strategies, we've seen a little bit of tick up in inflation in some of the measures. Whether that's going to be sustained, I think, is still out for debate. But can you just talk about the considerations that you need to kind of monitor and take into account as you continue to both monitor the existing ABL portfolio as well as new originations, and how a higher inflationary environment could impact that management style?
That's a great question. The good news is we've got several hundred investments across borrowers throughout the U.S. in a variety of industries. We have a very good lens into the underlying performance of the U.S. economy. What we would say is, because we have such insight, we do get, as you may know, information around receivable turns, inventory turns on a weekly and monthly basis. We have a lot of inputs. I think the thing that we are most focused on in the ABL portfolio, because we benefit from underlying collateral, we're really looking for liquidity and a sense of a company's liquidity. How is inflation and increased borrowing costs impacting their liquidity profile? That's the first thing that we are very, very focused on. Make sure that they have a long runway to support the business during this inflationary period.
We benefit from very quick and deep insights into those impacts on a weekly to monthly basis.
That's helpful. Thank you. Last one for me. With regards to the end of October private offering, $135 million, that's more than enough to cover your upcoming maturity of $75 million. Should we read that as a kind of optimistic offering raise in terms of your ability to execute on the pipeline and continue to grow the portfolio?
Yeah, I think we will, as we have been for the last 20 years, been opportunistic as we go to the private placement market, to Shiraz's comments. We like to be able to go when it's appropriate rather than at a position of need. But we are, yes, to your question, resetting the cap stack. You've seen us over time increase the size of our revolver as well to take advantage of what we see to be a continued strong pipeline in specialty finance investments.
Thank you for taking my questions.
Thank you. We will move next with Jason Stewart with Compass Point. Please go ahead.
Hey, good morning. Thanks for taking my question. Dylan Ritter filling in for Jason here. Our question is, how did you determine the appropriate level of share repurchases in October? What made that level attractive from a capital allocation standpoint? Looking ahead, is there a specific price level or metric where you would favor repurchases over deploying capital into new investments?
Look, I think we kind of always view the $50 million plan we put in place as opportunistic. It was meant to last a year, so we have a long time left on it. We will continue to look at it opportunistically. In the low 11s, it seemed very attractive. In the mid-12s, less attractive given kind of where our investment opportunities stood. So we will continue to watch it opportunistically, and we will see what happens.
Got it. Thank you.
Thank you. If you would like to ask a question, please press star one on your keypad now. We will move next with Heli Sheth with Raymond James. Please go ahead.
Good morning. Thanks for the question. So kind of following up with asset-based financing, we have kind of seen a rise in the space in ABS and just more opportunities there. How landscape-changing is this for the space?
If what you are alluding to is the fact that there has been a lot of talk and activity in kind of ABS and ABF and a lot of the larger fund complexes kind of entering the space, what we are seeing is they are going after parts of the market that are dramatically different from what we do. For the most part, where you are seeing activity is in consumer-based products, whether it is portfolios of student loans, car loans, credit card receivables, mortgages, where you can put large packs together and repackage them and distribute them. It is very different from what we do. Everything we do in the asset-based lending world is truly about direct lending, where we are directly originating to a counterparty, we are directly underwriting it, and we are directly monitoring it.
So, the activity we are seeing from these bigger players really has had little or no impact on what we do, and the competitive landscape of what we do really hasn't changed at all.
Got it. That's helpful. Being that you guys have been in the ABF space for so much longer and are kind of the leaders and the experts in the area, we've kind of seen in other areas, such as venture lending, new entrants with poor execution can still cause years of disruption to a space. Is there any cause for concern about new entrants into the space, and how much of that is a negative prospect to deploying capital for you?
That is a great question. For example, we actually saw that in our life science strategy. We saw some new entrants come in who thought they had the expertise, and they bid on a bunch of deals, they got them, and they didn't work out so well. The big difference, though, is that to go into the receivable financing facilities or credit card receivable inventory facilities, you can't just raise your hand and say you want to be in it. You have to have the infrastructure in place to put a facility in place and manage it. So, it's very difficult for tourists to come in and out of the business. Bruce alluded to it earlier, you have to have spent the 15 years building out the infrastructure to do it.
No borrower is going to take money from an asset-based lender who doesn't have the ability to kind of execute.
Just to put a finer point on that, we have over 200 people in 20 offices around the country focused on sourcing and then monitoring collateral. That is, to Michael's point, a huge barrier to entry.
Got it. Thanks for the call. I appreciate it.
Thank you. At this time, I will turn the meeting back to Michael Gross for closing comments.
Thank you. At this time, we do not have any more comments other than to thank you for your participation today and to reiterate that if any of you or anyone else has any questions, please feel free to reach out to any of us. We will be happy to talk. Have a great day.
Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.