SLR Investment - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered stable results: Net investment income (NII) of $21.6M ($0.40/share) and EPS of $0.44, with NAV inching up to $18.19; leverage rose to 1.17x as management accelerated deployment into higher-yield specialty finance assets.
• Record ABL originations of $373.3M drove a strong portfolio mix shift; investment income composition tilted toward ABL (43% of income), while sponsor finance contracted (27%).
• Versus consensus, revenue modestly beat ($53.9M vs $53.2M*), while EPS was essentially in line ($0.40 vs $0.403*); management noted late-quarter fundings limited NII uplift in Q2, but full-quarter contribution would have covered the dividend.
• Catalyst: Specialty finance expansion amid regional bank retrenchment, strong credit quality (99.7% performing FV; non-accruals 0.3% FV), and consistent ~12.2% weighted average asset yields position SLRC to sustain earnings even if base rates decline.

What Went Well and What Went Wrong

What Went Well

• Record quarterly ABL originations ($373.3M) and net comprehensive portfolio growth (+$180.1M), driving higher ABL income share and an 11.8% average yield on new originations vs ~10% on exits.
• Portfolio quality remains strong: 99.7% performing on FV/99.5% on cost; weighted average investment risk rating under 2; first-lien concentration at ~95.9%.
• Management strategically pivoted away from competitive sponsor finance refinancings, emphasizing collateral-backed specialty finance; “approximately 96% of Q2 originations were in specialty finance”.

What Went Wrong

• NII per share ($0.40) was slightly below the $0.41 base dividend due to timing of originations (late-quarter fundings limited Q2 earnings).
• SSLP income ($1.1M) was lower vs 2024/Q1 as the vehicle de-levered; management expects rebuilding, but distributions will “ebb and flow”.
• Equipment finance on-balance-sheet portfolio fair value-to-cost declined over the past year as SLRC intentionally shrank that risk bucket before pivoting to investment-grade leasing; near-term growth slated in the sister platform (Kingsbridge).

Transcript

Speaker 4

Morning, ladies and gentlemen. Welcome to today's SLR Investment Corp. second quarter 2025 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. You may register to ask a question at any time by pressing star one on your telephone. Also, today's call is being recorded, and if you should need any operator assistance during the call today, please press star zero. Now, at this time, I'd like to turn things over to Mr. Michael Gross, Chairman and Co-CEO. Please go ahead, sir.

Speaker 2

Thank you very much and good morning. Welcome to SLR Investment Corp.'s earnings call for the quarter ended June 30, 2025. I'm joined today by my long-term partner, Bruce Spohler, Co-Chief Executive Officer, as well as our Chief Manager Officer, Shiraz Kajee, and the SLR Investor Relations team. Shiraz, before we begin, would you please start by covering the webcast and forward-looking statements?

Speaker 1

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 from the events calendar in the Investor section on our website at www.slrinvestmentcorp.com. Audio replays of this call will be made available later today, as disclosed in our August 5 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.

Past 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.

Speaker 2

Thank you, Shiraz, and thank you, everyone, for joining our earnings call this morning. We are pleased to report that SLR Investment Corp.'s second quarter results continue to reflect broad stability and highlight the benefits of our multi-strategy investment approach to private credit. Summarizing results, SLR Investment Corp. reported net investment income of $0.40 per share and net income of $0.44 per share in the second quarter. NAV per share of $18.19 as of June 30th increased slightly quarter over quarter and was approximately flat year over year. We believe this compares quite favorably to peer publicly traded BDCs. SLR Investment Corp.'s annualized net investment income returned 10% in equity in the quarter.

While net investment income per share was a penny below SLR Investment Corp.'s base dividend of $0.41 per share in the second quarter, we note that the investment portfolio began the quarter levered at 1.04 times and ended the quarter levered at 1.17 times as the company was able to source attractive new investments that led to a quarterly record of new originations. Many of the new investments funded towards the end of the quarter and therefore had a limited impact on second quarter results. We originated $567 million in new investments across the comprehensive portfolio and received repayments of $387 million in the second quarter, resulting in comprehensive portfolio growth of $180 million to $3.2 billion. Quarter originations for Q2 included the largest asset-based lending commitments in SLR Investment Corp.'s history. These are partially offset by a slightly higher than usual volume of exits.

Our portfolio has achieved an annualized growth rate of 15.5% over the past five years. While conditions in the sponsor-backed cash flow market remain fiercely competitive, we have experienced more attractive conditions across SLR Investment Corp.'s broad asset-based lending strategies. With the supply-demand imbalance in the sponsor finance market, there's been a decline of private credit alpha. However, thanks to higher barriers to entry in traditional asset-based lending, a strategy we have been in since 2012, we believe the alpha today resides in our ability to extract complexity premiums. SLR Investment Corp. originated a record quarter of new asset-based lending originations in the quarter at $373 million. Today, asset-based lending lenders serve a broad universe of borrowers, including healthy companies facing temporary dislocation, corporate carve-outs, or even traditional cash flow borrowers looking for incremental liquidity.

ABL can be used as a proactive tool to unlock liquidity from borrowers' unpledged liquid assets, and it's used by companies across the spectrum from transitional credits to private equity-backed platforms to family-owned small businesses and even companies in the Fortune 500. Over the last two years, we have expanded the origination funnel and adjacencies and broadened sourcing relationships and channels to investments made across the SLR platform. SLR has made over 100 new hires across the platform spread across 20 regional offices during this period of time. We believe this broad coverage model and the investments in people and infrastructure have contributed to the expansion in deal flow and a greater recognition of our leadership. With ownership of five commercial finance affiliates that provide in-house servicing and collateral monitoring capabilities, the company has the infrastructure and capital to further grow the comprehensive investment portfolio, including through potential portfolio acquisitions.

This infrastructure allows us to capitalize on the current trend of continued regional bank retrenchment. Our strong quarter of ABL originations furthered our portfolio mix shift to asset-based specialty finance strategies over the last couple of years, which we believe provide greater downside protection of principal for underlying collateral. Approximately 96% of our Q2 originations were in specialty finance due to the more favorable conditions in those markets that we believe present us with greater risk-adjusted returns. Alternatively, we passed on the refinancings of several cash flow loan investments within our incumbent portfolio, allowing our sponsor finance portfolio to further shrink. As a result, approximately 83% of our portfolio was derived from specialty finance investments as of June 30, with the remainder of the portfolio comprised of cash flow sponsor-backed loans to companies in defensive, non-cyclical sectors such as healthcare and insurance brokerage services.

With cash flow loans representing 16.9% of the comprehensive portfolio, the allocation of cash flow is at the lowest bounds of the company's historical mix. We will, however, continue to approach new investments in cash flow lending opportunistically. Overall, we remain pleased with the composition, quality, and performance of our portfolio. The tactical allocation afforded by SLR's multi-strategy approach and decision to be more discerning in cash flow loans has safeguarded our performance through the prolonged high interest rate and inflationary environment. At quarter end, 95.9% of our comprehensive investment portfolio was comprised of first lien senior secured loans. 99.5% of our debt investments are performing, and PIC income continues to make up a de minimis percentage of total income. We believe these key credit quality metrics, along with a de minimis trailing 12-month loss rate, compare favorably to peer public BDCs.

At June 30, including available credit facility capacity at SFLP and our specialty finance portfolio companies, SLR Investment Corp. had over $650 million available capital to deploy. This puts the company in the position to take advantage of either stable economic conditions or softening of the economy. I'll now turn over the call to Shiraz Kajee to take you through the Q2 financial highlights.

Speaker 1

Thank you, Michael. SLR Investment Corp.'s net asset value at June 30, 2025, was $992.3 million, or $18.19 per share, compared to $18.16 per share at March 31. At quarter end, SLR Investment Corp.'s on-balance sheet investment portfolio had a fair market value of approximately $2.1 billion in 115 portfolio companies across 32 industries, compared to a fair market value of $2 billion in 118 portfolio companies across 32 industries at March 31. SLR Investment Corp.'s investment portfolio is funded by a combination of our revolving credit facilities and the issuance of term debt in the unsecured debt markets. The company is investment-grade rated by Fitch, Moody’s, and DBRS. As of June 30, 2025, SLR Investment Corp. had $359 million of unsecured debt. Subsequent to quarter end, the company privately placed with institutional investors $50 million of three-year unsecured notes at a fixed interest rate of 5.96%.

Inclusive of the $50 million unsecured notes issued on July 30, the company has $409 million of unsecured notes outstanding. We believe our issuance of these notes reflects an attractive and flexible cost of debt capital for shareholders. We expect to continue to opportunistically issue unsecured debt in the future. The company does not have any near-term refinancing obligations, with the next unsecured note maturing in December 2026. At June 30, the company had approximately $1.2 billion of debt outstanding, with a net debt-to-equity ratio of 1.17 times. We believe we have ample liquidity of cash and borrowing capacity to support our unfunded commitments. Moving to the P&L for the three months ended June 30, gross investment income totaled $53.9 million versus $53.2 million for the three months ended March 31. Net expenses totaled $32.3 million for the three months ended June 30.

This compares to $31.1 million for the prior quarter. Accordingly, the company's net investment income for the three months ended June 30, 2025, totaled $21.6 million, or $0.40 per average share, compared to $22.1 million or $0.41 per average share for the prior quarter. Below the line, the company had net realized and unrealized gains for the second quarter, totaling $2.6 million versus a net realized and unrealized loss of $2.2 million for the first quarter of 2025. As a result, the company had a net increase in net assets resulting from operations of $24.2 million for the three months ended June 30, 2025, compared to a net increase of $19.9 million for the three months ended March 31. On August 5, the board of SLR Investment Corp.

declared a Q3 2025 quarterly base distribution of $0.41 per share, payable on September 26, 2025, to holders of record as of September 12, 2025. With that, I'll turn the call over to our Co-CEO, Bruce Spohler.

Speaker 5

Thank you, Shiraz. As Michael indicated, we've continued to shift our portfolio towards specialty finance strategies because of their more attractive risk-adjusted returns in today's market. Our specialty finance strategies offer higher pricing than sponsor finance loans and greater downside protection through their underlying collateral, which includes accounts receivable, finished goods inventory, commercial loan portfolios, essential use equipment, as well as intellectual property. In most cases, the assets are governed by dynamic borrowing-based frameworks, which enable real-time monitoring of the underlying asset performance. Moreover, they provide levers for us to manage our exposure, including eligibility tightening, advance rate adjustments, and cash dominion. This downside protection is critical in periods of economic uncertainty like today. Importantly, we are fortunate to have the infrastructure across our investment strategies that enables us to capitalize on this attractive opportunity set in collateral-based lending strategies. Now let me turn to the portfolio.

At quarter end, and on a fair value basis, the comprehensive investment portfolio consisted of approximately $3.2 billion, with an average exposure of $3.5 million. Measured at fair value, 98.3% of the comprehensive portfolio consisted of senior secured loans, with approximately 96% invested in first lien loans, including our investment in the SSLP, and only 0.2% was invested in second lien cash flow loans, with the remaining 2.2% invested in second lien asset-based loans. At quarter end, our weighted average yield on the comprehensive portfolio was 12.2%, consistent with the first quarter. We attribute this consistency to the heavy weighting towards specialty finance in our first half of 2025 originations. Based on our quantitative risk assessment scale, the portfolio currently has one of the strongest credit profiles in SLR Investment Corp.'s history.

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. Just under 98% of the portfolio is rated two or higher. Moreover, 99.5% of the portfolio on a cost basis and 99.7% on a fair value basis was performing, with only one investment on non-accrual. Now let me touch on each of our four investment verticals. I'll start with asset-based lending. At quarter end, the ABL portfolio totaled over $1.3 billion across 259 borrowers, representing approximately 42% of our comprehensive portfolio. Regional domestic banks have continued to adjust their business models and are retreating from the ABL market, creating an attractive opportunity for SLR's ABL team.

Under tighter credit regulations, regional banks' asset-based loans to non-rated companies are bumping into higher risk capital charges, which makes these business lines economically less attractive to the banks. SLR is positioned to collaborate with these banks who are shifting their ABL strategies in reaction to these capital challenges. For the second quarter, we originated $373 million of new ABL investments and had repayments of just under $150 million. To give you a flavor of a couple of transactions in the quarter, we closed on a $125 million first lien ABL borrowing base driven credit facility to a manufacturer and supplier of products for the North American agricultural and food system. Proceeds from the loan will be used to refinance. The structured ABL facility provides an advance against liquidation value of both the company's receivables and inventory.

In another ABL investment, we arranged a working capital solution via a $35 million commitment to a senior secured ABL credit facility for a leading regional jewelry retailer. Our investment repaid an existing credit facility and is structured with a first-priority security interest in all assets, including the jewelry. In the second quarter, the weighted average asset level yield of our ABL portfolio was 13.4% compared to 13.8% in the first quarter. We continue to see opportunities to provide ABL facilities to traditional cash flow borrowers who are experiencing liquidity pressures. This capability allows us to continue to be a value-added partner to our sponsor's clients during times when the cash flow opportunity set carries a less favorable risk-reward profile. These are highly structured ABL facilities which can achieve higher advance rates while maintaining traditional ABL risk parameters and fundamentally expanding the liquidity options for their middle-market borrowers.

A good example of this is the recent $75 million investment by our platform in an ABL facility to a sponsor-owned premium pet food manufacturer against the liquidation value of their receivables and finished goods inventory. The facility was used to repay their existing loan and provide liquidity for ongoing working capital needs. With the increased demand for our ABL solutions, we've continued to add personnel and evaluate further ways to expand and support our ABL franchise. It's important to note that this increased demand for ABL solutions is very different than the ever-present headlines of an increasing supply of asset-based finance strategies among some of our peer alternative investment managers.

The recent headlines reflect more of an expansion of the opportunity set in asset-based finance or asset-based securitizations, which includes the financing of pools of consumer assets such as credit card receivables, student loans, and residential mortgages, just to name a few. While these pools of financial assets are large and present scaled opportunities for diversified asset managers to distribute in size, it remains an area very different than SLR Investment Corp.'s focus on direct lending to individual companies backed by their working capital assets, including receivables and inventory. We continue to focus on the commercial borrower and believe that our specialized focus in ABL has meaningful barriers to entry. Now let me touch on equipment finance. At quarter end, this portfolio totaled just over $1 billion, representing just under 33% of our comprehensive portfolio and was diversified across 630 borrowers.

The credit profile was unchanged and stable quarter over quarter. During the second quarter, we originated just over $140 million of new assets, with the majority of this coming from our business that provides leases to investment-grade corporate borrowers. We had repayments of approximately $170 million. The weighted average asset level yield for this asset class was 11.6%, consistent with the first quarter. Our investment pipeline has expanded, and we're seeing demand from our borrowers to extend their existing leases on equipment rather than buy new equipment at higher tariff-adjusted prices. Now let me turn to life sciences. Our life science portfolio totaled approximately $215 million across nine borrowers. 75% of the portfolio is invested in companies that have over 12 months of cash runway. Additionally, eight out of nine of these companies have revenues with at least one product in commercialization stage, which significantly de-risked our life science investments.

Life science debt investments represented just under 7% of the comprehensive portfolio and contributed 12% of our gross investment income for the quarter. During the second quarter, the team funded approximately $30 million of new investments, including two incremental investments to existing borrowers, and had just $1 million of contractual amortization repayments. Leading the originations for life sciences in the second quarter was a partial funding associated with a new $400 million debt facility for Cogen, a publicly traded biotech company that includes tranches subject to clinical and operating milestones for future draws under our facility. We believe our life science team's longstanding relationships and expertise in the sector ultimately led to SLR Investment Corp. winning this business for a groundbreaking company at one of the largest commitments for life sciences in SLR's history.

At quarter end, the weighted average yield on the first lien portfolio was 13.1%, inclusive of potential success fees but excluding warrants. We are seeing signs of recovery in the life science sector. However, the recent cuts at the FDA and NIH, evolving public policy, and continuing valuation challenges remain headwinds for the sector. Now more than ever, extensive industry expertise is required to successfully navigate the investment opportunity set. We are fortunate to have one of the most seasoned teams in life science lending, and while they continue to remain extremely cautious, the pipeline of opportunities is increasing. Finally, let me touch on sponsor finance. In our sponsor finance business, we originate first lien senior secured loans to middle-market companies in non-cyclical industries such as healthcare, business services, and financial services. This has helped us mitigate the impact on our portfolio from cyclical factors as well as tariffs.

At quarter end, the sponsor cash portfolio was just under $550 million across 33 borrowers, including loans in our SSLP. With approximately 99% of the cash flow portfolio invested in first lien loans, we believe we are well positioned to withstand either tariff or economic headwinds. Our borrowers have a weighted average EBITDA of approximately $90 million and carry low LTVs of under 44%. In sponsor finance, the average EBITDA and revenue growth continues to be in the mid-single digits year over year for our portfolio companies. Overall, they have successfully managed the transition to an environment with higher costs of capital as well as input prices. Weighted average interest coverage on our sponsor finance book is 1.8 times. Additionally, approximately $500,000 of our second quarter gross investment income is in the form of capitalized PIK from cash flow borrowers resulting from MMX.

During the quarter, we made investments of $24 million in first lien cash flow loans and experienced repayments of just under $70 million. As Michael mentioned, sponsor finance deal flow continues to be muted due to the lower M&A volume, and we are selectively letting investments go in connection with refinancings if their new risk return profiles do not meet our investment criteria. Our specialty finance strategies enable us to be more selective in cash flow lending during periods of increased competition. At quarter end, the weighted average yield on our cash flow portfolio was 10.3%, down from 10.4% in the first quarter. Lastly, let me touch on our SSLP. During the second quarter, we earned a total income of $1.1 million from the SSLP, representing a 9.3% annualized yield. During the quarter, we made $32 million of new investments and had repayments of $14 million.

The investment portfolio began the quarter at just under one times levered and ended at 1.15 times levered. We expect to continue to rebuild this portfolio opportunistically. At quarter end, the SSLP had capacity of approximately $70 million. Now let me turn back to Michael.

Speaker 2

Thank you, Bruce. While the path ahead is fraught with looming economic uncertainty from the ultimate impact of tariffs, the level of interest rates, and an overhang in the supply-demand imbalance in sponsor finance conditions, we believe that our diversified and predominantly asset-backed portfolio sits in a position of relative strength to deliver attractive results for shareholders across economic cycles. We are pleased with the growth of SLR Investment Corp. over the last couple of years, creating a diversified commercial finance company with broad investment capabilities and deep experience through a 320-person team across the SLR platform. These investments across the platform can be evaluated through the lens of record quarter originations, which was led by SLR's asset-based lending strategies and strong credit performance.

SLR's multi-strategy approach to private credit investing, our emphasis on preservation of capital, and our portfolio construction with a specialty finance emphasis differentiates us from the majority of our BDC peers and provides an investment portfolio that contains very limited investment overlap with other private credit managers. The combination of a diversified portfolio with strong credit metrics, momentum across our investment strategies, and a growing investment pipeline tilted heavily towards specialty finance investments positions the company favorably to navigate the current climate. Heading to the second half of the year, we will remain opportunistic and prudent as we deploy capital with discipline and conviction. In closing, SLR Investment Corp. trades at an approximate 10.3% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income-seeking and value investors and also offers a more diversified investment portfolio compared to cash flow-only private credit strategies.

Our investment advisors' alignment of interest with our shareholders continues to be one of our significant hallmark principles. The SLR team owns over 8% of the company's stock and has a significant percentage of their annual incentive compensation reinvested in SLR Investment Corp. stock every year. The team's investment alongside fellow institutional and private wealth investors demonstrates our confidence in the company's portfolio, stable funding, and earnings outlook. We thank you all again for your time today as we recognize that it's a busy day for those that follow the list of BDCs marketplace closely. Operator, will you please open up the line for questions?

Speaker 4

Certainly, Mr. Gross, thank you. Ladies and gentlemen, at this time, if you do have any questions, please press star one, and you can remove yourself from the queue if your questions have been answered by pressing star two. Once again, star one, please, for questions. We'll go first this morning to Erik Zwick of Lucid Capital Markets.

Speaker 3

Thanks. Good morning, guys. First, congratulations on such a strong quarter of originations. That's an impressive feat by the originations team. You noted that the new originations didn't have much of an impact on Q2 results due to the timing of when they hit the balance sheet. In order just to think about that impact going forward, are you able to provide any, what was the average yield on the new originations? I'm curious how that compared to either the exits during the quarter or just relative to the average yield on the existing portfolio?

Speaker 5

The investments and the repayments did sort of on a weighted average dollar basis happen more toward the end of May. You really saw that net growth of $180 million impact the portfolio in June. Predominantly, the exits were just over 10% on average, and the new investments were at about 11.8% on average.

Speaker 3

Okay, thanks. That's a nice pickup on that swap. Given the strong originations in the quarter, I'm curious, the level of the pipeline entering the third quarter relative to, say, maybe three months ago, how does that stand and what does it look like in terms of new versus add-on opportunities?

Speaker 5

It is definitely geared towards new opportunities. I would say it's fair to assume that it's not going to be as robust as Q2 was, but still should be in line with our traditional activity levels. As you know, the summer can be a little bit seasonally slow just in terms of getting things closed, but you know, we feel like we have a steady cadence.

Speaker 3

Okay. It's been several years now that you've talked about the opportunity in asset-based lending with the bank rates, and you've been in a great position to take advantage of that. That continues to be an opportunity for you. I'm curious, is that bringing any new entrants, any other specialty lenders or any non-banks into that arena, and are you seeing any increased competition there at this point?

Speaker 5

Not really. Look, I think we've talked a lot about, you know, we've been doing this since 2012. We've added 100 people. These are not businesses that you can wake up one day and say, "I'm going to go be in them." You have to have built out the infrastructure because of how complex they are. We have not seen new entrants because it takes a significant investment to do it a long time. There's been a lot of talk about people in private credit investing in, you know, asset-based lending. The predominance of it and the vast, vast majority is in more of ABS, you know, buying portfolios of consumer loans, whether it's credit card receivables, car loans, et cetera. We don't see new entrants into the space that we compete in today.

Speaker 3

It's a great position for you to be in. One last one for me, and I'll step aside. Your portfolio from a credit perspective continues to be very clean, and you pointed out the low risk weighting today and just one credit on non-accrual. As you look out at the economy and potentially into your pipeline and deals that you turn down, are you seeing any concerning developments in any sectors or any parts of the economy at this point?

Speaker 5

No. First of all, as you know, we're burdened by and benefit from the fact that we are generally focused on non-cyclical sectors. When we do look at cyclical opportunities, it will be on an asset-based basis where we're really just looking to the liquidity and liquidation value of the working capital assets. That protects us. Across the cash flow book, as you know, it's centered on recession-resilient sectors such as healthcare. We really don't have a great window into it. I will say that as we look across our ABL portfolio, which does lend to some cyclical sectors, we are seeing some stress, but I would not call it significant.

Speaker 3

I appreciate the color. Thanks for taking my questions.

Speaker 5

Thank you.

Speaker 4

Thank you. We go next now to Melissa Wedel of JPMorgan Chase & Co.

Speaker 0

Good morning. Thanks for taking my questions. Appreciate all the color that you offered on the asset-based lending strategies. A quick follow-up on that. You mentioned that some of the changing capital rules have led regional banks to sort of pull away from that market, creating some opportunity for you. I'm just wondering, with those capital rules or some capital rules being revisited, is there any chance that some relief might be brought to those regional banks that might bring them back into the market?

Speaker 5

That's always a possibility, but we're not seeing signs of that. Similar to Michael's commentary around the barriers to entry for private credit managers, the banks face those same barriers once they pull out. It's not something that you can dip your toe in and out of. You need the investment and infrastructure, and you can't create that quickly. This is not the first place they're going to be looking to redeploy capital. As you think back to the acquisition we made in the second half of last year at Webster Bank, we bought the infrastructure, we bought the portfolio, we brought the team. It's very difficult to then turn that back on quickly.

Speaker 0

Okay, understood. I think there was a reference to the timing of the strong net originations sort of benefiting maybe one month out of the quarter. If you were to analyze or estimate the NII impact, if you had had the benefit of a full quarter of that deployment, would there have been full dividend coverage?

Speaker 5

Yes.

Speaker 0

Okay. I guess, last question for me right now would just be around the leverage levels within the portfolio. There's not a ton of dry powder, just given the strong deployment. Is there, given the forward curve implying future rate cuts, can you talk about how you're thinking about the sustainability of the earnings power of the portfolio going forward if we were to get those rate cuts that are currently embedded in forward expectations? Thanks.

Speaker 5

Sure. We do have some dry powder, as you mentioned, over $600 million to deploy. We are going to be very focused on continuing this rotation from low-yielding to higher-yielding assets. As I think you know, we've talked about in the past, the added benefit of the specialty finance assets is not just that they carry borrowing bases and collateral and we think better risk management tools for the lender, but they also carry higher returns, as you can see, across the portfolio and are less geared towards and correlated with changes in base rates. We think that gives us a little bit of push in there in terms of potential spread compression because what we find is it's an all-in return asset. As base rates or spreads come down, we can compensate and with fees and other levers still keep those returns rather healthy.

Obviously, if we went back to a zero-rate environment, that would have some impact. We generally find that there is much less correlation with rates across the specialty finance assets.

Speaker 0

Thank you.

Speaker 3

Thank you.

Speaker 4

Just a quick reminder, ladies and gentlemen, star one, please, for questions today. We go next now to Heli Sheth of Raymond James & Associates.

Speaker 0

Morning. Thanks for the question. You mentioned you earned a total of $1.1 million from the SSLP this quarter, and that's lower than what we've seen in 2024 and also last quarter in 1Q. Can you provide any additional color there? Was this quarter a one-off, or was there an overdistribution the previous quarters, and this is the new normalized dividend distribution run rate?

Speaker 5

Sure. Just to step back for a moment, if you look back, the SSLP had been in ramp mode and got to full deployment, which is where you saw that more elevated distribution level closer to the $1.8 million level. There's a lag effect. We had let some of those assets repay, consistent with what we did on balance sheet as we were getting repriced to rates that we thought were not acceptable. That's trickled through in Q2. Even though you saw the portfolio come down in Q1, we had some built-up income over the last year that we distributed. As we mentioned, the portfolio did rebuild a little bit in Q2, and we hope to continue to do that. It will ebb and flow, but I don't see the $1.1 million as a constant.

We expect to continue to rebuild that and already did in Q2, and the dividend distribution will grow accordingly.

Speaker 0

Got it. Thanks for the call. I appreciate it.

Speaker 5

Thank you.

Speaker 4

Thank you. Just a quick reminder, ladies and gentlemen, any further questions today, star one at this time. We'll take a follow-up question now from Melissa at JPMorgan Chase & Co.

Speaker 0

Thanks. Just one more question from me. When we look at the schedule of investments within equipment finance, it looks like the business that you have there on balance sheet, which is the majority of that portfolio there, the multi-sector holding SLR Equipment Finance, it looks like the fair value to cost of that has sort of declined pretty steadily over the last year or so. Can you talk about what's driving that mark and what's happening within that portfolio? Thanks.

Speaker 5

We have been shrinking that portfolio, which has been what's driving that valuation. We are starting to rebuild the portfolio, but we had pulled back on that risk over the last year and a half and pivoted more towards our investment-grade leasing portfolio.

Speaker 3

At Kingsbridge?

Speaker 5

The Kingsbridge sister that grow over the next couple of quarters here.

Speaker 4

Thank you. Mr. Gross, it appears we have no further questions today. I'd like to turn the conference back to you for any closing comments.

Speaker 2

Once again, we thank you all for your attention today. We recognize it is quite a busy time of week in the BDC space. As always, if you have any follow-up questions, please feel free to call any of us at any time. Have a great day.

Speaker 4

Thank you, Mr. Gross. Ladies and gentlemen, that will conclude the SLR Investment Corp. second quarter earnings call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.