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spk01: Good day, everyone, and welcome to today's second quarter 2022 SLR Investment Corp earnings call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your touchtone phone. Please note, this call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the program over to Mr. Michael Gross, Chairman and Co-CEO.
spk03: Thank you very much, and good morning. Welcome to SLR Investment Corp's earnings call for the second fiscal quarter in June 30th, 2022. I'm joined here today by Bruce Stiller, our Co-Chief Executive Officer, and Richard Pitica, our Chief Financial Officer. Richard, before we begin, would you please start by covering the webcast and forward-looking statements?
spk06: Sure. Thanks, Michael. 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 are strictly prohibited. This conference call is being webcast from the Investors tab on our website at www.slrinvestmentcorp.com. Audio replays of this call will be made available later today as disclosed on our earnings press release. I would also like to call your attention to the customer disclosures in our press release regarding forward-looking information. Statements made in today's conference call and webcast may constitute forward-looking statements which relate to future events or our future performance or financial conditions. These statements are not guarantees of our future performance, financial condition, or results and involve a number of risks and uncertainties, including impacts from COVID-19. 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. SLR Investment Corp. undertakes no duty 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 212-993-1600. Comments on today's call include follow-up statements reflecting our current views with respect to SORC's acquisition of SONS, any expected synergies and savings associated with the merger, the ability to realize the anticipated benefits of the merger, our future operating results and financial performance, and the payment of dividends going forward. please specifically note that the amount and timing of past dividends and distributions are not a guarantee of any future dividends or distributions for the amount thereof, the payment, timing, and amount of which will be determined by S4 Investment Corp's Board of Directors. With that, I'd like to turn the call back to our Chairman and Co-CEO, Michael Gross.
spk03: Thank you, Rich. Good morning, and thank you for joining us. We're pleased to share that on today's call, we will be reporting the second quarter of 2022 combined operating and financial results of SLRC and Suns. As a reminder, on April 1st, SLRC completed its acquisition of SLR Senior Investment Corp or Suns. We thank our investors for the support of the merger. The integration has been smooth and our efforts to realize synergies and the benefits of a larger, more diversified company are well underway. Last night, SLRC reported net investment income of $0.30 per share in the second quarter of 2022 up from $0.35 per share the prior quarter. Net asset value at June 30th, 2022 was $18.53 per share. Approximately one-third of the reduction in net asset value for the quarter is a result of merger accounting of the purchase price discount. The remainder of the decline was largely attributed to unrealized losses due to the impact of mark-to-market change in the portfolio and write-downs related to three borrowers, two of which represent our remaining two second lien cash flow loans originated several years ago prior to our shift to investing solely in first lien senior secured loans. Outside of these investments, our portfolio is performing extremely well. With the closing of the funds acquisition in the second quarter, our comprehensive portfolio has grown by $700 million to approximately $2.7 billion, and now includes five specialty finance companies, resulting in a more broadly diversified portfolio with the potential for greater synergies and opportunities across our lending strategies. Additionally, our increased scale enabled us to pursue additional commercial finance investments, including platform acquisitions and asset purchases. Against the volatile market backdrop during the second quarter, the company originated $273 million of new investments and had repayments of $199 million, excluding SLRC's acquisition of the Sun's portfolio. Terms on sponsored finance loans have become more attractive, and especially finance businesses, which flourished during turbulent market conditions, are also seeing an attractive opportunity set and have the available capital to take advantage of the investing climate. The unfolding geopolitical events, continued supply chain issues and labor shortages, and a far more aggressive tone from the Fed in reaction to accelerating inflation has injected a dose of uncertainty and volatility into the global equity and credit markets. Economic concerns have dislocated the syndicated loan in high-yield markets and led banks to retreat from leveraged lending. Pricing volatility and deep trade discounts these markets reflect the increased credit risk from tight pricing, compromised structures, and loose documentation of broadly syndicated loans underwritten prior to the second quarter of 2020-2022. However, private direct lending deals continue to be heavily negotiated with tight structures and access to deep-dive private equity-style due diligence. With the recession potentially looming and continued rising rates, middle market private credit is a source of relative stability and potentially high returns. SLRC is uniquely positioned to capitalize on this opportunity. As a result of our defensive portfolios and conservative underwriting, we have successfully navigated the COVID-19 pandemic. Now we believe our combined business is well-positioned to not only weather the forthcoming economic challenges, but to capitalize on the more attractive investment environment for several reasons. First, enhanced by SLRC's acquisition of funds, our portfolio is highly diversified across cash flow loans and non-civil industries and asset-based loans. At June 30th, 97.2% of our comprehensive debt portfolio was invested in first lien senior secured loans, which provide greater balance of protection during recession. Secondly, we have ample dry powder to take advantage of investment opportunities with terms more attractive than available a year ago. At June 30th, our leverage was 0.96 times net debt to equity, near the low end of our target leverage range of 0.9 to one and a quarter times. At June 30th, including available credit facility capacity at our specialty finance company, and subject to bond-based limits, SLC had ample available capital to take advantage of the current attractive investment environment. We are seeing investment opportunities with less leverage and higher yields in the loan structure during the recent period of COVID-19-related government stimulus. Recession resilience sectors in which we specialize continue to perform well, with financial sponsors focused on deploying their dry powder into new platform buyouts as well as existing portfolio companies via add-on acquisitions. During uncertain economic times, borrowers increasingly turn to asset-based lending strategies, which provide our investors with greater downside protection across economic cycles. In particular, our credit solutions business has historically outperformed during challenging market conditions when asset-rich companies ask the traditional lending sources is constrained. Thirdly, our funding profile is in a strong position to weather a rising rate environment. With $506 million of our $1 billion of funded debt comprised of senior unsecured fixed rate notes at a weighted average annual interest rate of 3.9%. During the second quarter, we were paid, at par, $150 million of maturing senior unsecured notes, which had a weighted average annual interest rate of 4.5%. We pre-financed the approaching maturity of these notes at an average rate of 3.2%. Additionally, we are currently working with a strategic partner to structure an off-balance sheet joint venture to optimize the financing of lower yielding, first lien, senior secured cash flow loans, initially those that we acquired from SONS. We expect to be utilizing this financing facility before year end. Four, we plan to further reduce our overall cost of capital from share repurchases under our $50 million share repurchase program authorized for adoption by our board of directors. Due to the threat of further deteriorating market and economic conditions as the Fed works to tame inflation, we have not yet been active with this buyback program. However, we are committed to utilizing the program and believe that our patients will translate into the ability to invest in our own portfolio at attractive discounts. The current share price is an attractive entry point, significantly more so than when we first announced the buyback plan. We intend to put in place a 10B51 program to facilitate the ability to buy our shares at attractive levels. As outlined in the merger proposal, our planned expense reductions already underway should create shareholder value that will benefit the company throughout market cycles. In conjunction with the merger, SLR Capital Partners, the investment advisor to SLRC, permanently reduced the annual base manager fee by 25 basis points from 1.75% to 1.5% on gross assets. The contractual stepped out of the base manager fee to 1% on gross assets above one-to-one leverage still remains in place. We've also eliminated duplicative administrative expenses. Altered by acquisition of funds, we are well-positioned to not only weather the economic challenges ahead, but also take advantage of the most favorable investing environment that accompanies market disruptions. This time, I'll turn the call back over to our CFO, Rich Patika, to take you to the second quarter financial highlights.
spk06: Thank you, Michael. S4 Investment Corp's net asset value is June 30, 2022. was $1.02 billion, or $18.53 per share, compared to $826.4 million, or $19.56 per share, at March 31st, 2022, prior to the closing of the merger with SLR Senior Investment Corp. At June 30th, 2022, SLRC's on-balance sheet investment portfolio had a fair market value of approximately $2.0 billion, in 127 portfolio companies across 40 industries, compared to a fair market value of $1.63 billion in 101 portfolio companies across 33 industries at March 31st, 2022. At June 30th, 2022, we had investments in three portfolio companies on non-accrual, representing 4% of the portfolio at cost, and 0.6% at fair market value. At June 30th, the company had approximately $1 billion of debt outstanding with leverage of 0.96 times net debt to equity. When taking into consideration the available capital from the company's combined credit facilities, together with available capital from the non-recourse credit facilities at SLR Credit Solutions, SLR Equipment Finance, King's Bridge, S4 Business Credit, and S4 Healthcare ABL, S4 Investment Corp has significant available capital to fund future comprehensive portfolio growth. Moving to the P&L, for the three months ended June 30th, 2022, gross investment income totaled 42.8 million versus 33.0 million for the three months ended March 31st, 2022. Net expenses totaled $22.5 million for the three months ended June 30th, 2022. This compares to $19.5 million for the three months ended March 31st, 2022. As previously stated, the investment managers did not include in its incentive fee calculation the purchase discount accretion created by the company's asset acquisition accounting under ASC 80550. Accordingly, the company's net investment income for the three months ended June 30th, 2022 totaled 20.3 million or 37 cents per average share compared to 13.5 million or 32 cents per average share for the three months ended March 31st, 2022. Below the line, the company had net realized and unrealized losses for the second fiscal quarter totaled 35.9 million versus realized and unrealized losses of 12 million for the first quarter of 2022. Ultimately, the company had a net decrease in net assets resulting from operations of $15.6 million, or $0.29 per average share for the three months ended June 30th, 2022. This compares to a net increase of $1.5 million, or $0.04 per average share for the three months ended June 31st, 2022. Finally, on August 2nd, 2022, the Board of Directors declared a monthly distribution of 0.136667 per share payable on September 1st, 2022 to holders of record as of August 18th, 2022. During the second quarter, SOIC made three monthly distributions totaling 41 cents per share. With that, I'll turn the call over to our co-CEO, Bruce Fuller. Thank you, Rich. With this being our first quarterly report following the acquisition of Sun, I'd like to begin by providing an overview of the combined portfolio. At June 30th, the combined comprehensive portfolio consisted of approximately $2.7 billion of senior secured loans across 780 distinct issuers in over 100 industries. The average exposure was $3.5 million, or 0.1% of the total portfolio. At quarter end, 99.8% of the portfolio consisted of senior secured loans, with 97.2% being in first lien loans, and only 0.4% in second lien cash flow loans, with the remaining 2.2% in second lien asset-based loans. Portfolio now includes all five of our specialty finance businesses. which account for 76 percent of the fair value of the comprehensive portfolio, with the remaining 24 percent committed to senior secured cash flow loans. At quarter end, our weighted average asset level yield was 9.6 percent. At quarter end, the weighted average investment risk rating of the portfolio was under two, based on our one to four risk rating scale, with one representing the least amount of risk. Now let me turn to our investment strategies, which we now categorize in four distinct asset classes. The first is cash flow loans to upper mid-market sponsor-backed companies. The second is asset-based loans, which includes the underlying portfolios of credit solutions, healthcare ABL, and business credit. The third segment is life-size loans, which are made to venture capital-backed late-stage drug and medical device companies. And the fourth is our equipment finance strategy, which includes both Kingsbridge and equipment finance. Now let me provide a brief update on each of these verticals. In our cash flow business, we originate firstly in senior secured loans to upper mid-market companies in non-cyclical industries, with our largest industry exposure being healthcare, diversified financials, life sciences, and recurring software. In response to deteriorating market conditions, sponsors have begun price discovery conversations with us and other lenders for new finances. We are seeing 200 basis points widening of returns in the first quarter level, subject to the level of risk of the individual credit. This increase in yield is through a combination of both spread and original issue discounts. Sponsors also recognize that leverage levels for new financings will likely be coming down by at least a half to a full turn of leverage. Lenders are requiring borrowers to have an adequate cushion in a downside scenario to meet their fixed charge and debt service requirements. We expect our second half 22 cash flow investments to have higher yields and lower levels, even in the defensive sectors that we invest in. At quarter end, our cash flow portfolio was $646 million, or just under 24% of the total portfolio, and was invested across 45 companies. The average EBITDA for this portfolio quarter end was $108 million. The weighted average interest coverage was above three times, at 3.1 times. During the quarter, we originated $72 million of new investments and experienced repayments of $10 million. The weighted average yield for this cash flow portfolio was just over 8%. However, today it is higher, given the increase in rates in the interim period. Now let me touch on our ABL segment. Again, this consists of three underlying asset-based verticals. Credit Solutions provides collateral-backed loans to asset-rich companies in transition. This asset class requires expertise in valuing and monitoring collateral. Historically, the strategy is outperformed during periods when traditional lenders, such as banks, retreat. Credit Solutions, therefore, provides some counter-cyclicality to our platform. The team has seen an increase in their pipeline, which should continue to build if market conditions continue to be volatile. We are extremely optimistic about this activity over the coming quarters. Business Credit provides asset-based loans collateralized predominantly by receivables as well as factoring facilities. Similar to the credit solutions team, they have longstanding experience in valuing and monitoring the underlying collateral that they lend against. Last year, they acquired FastPay, which is a factoring business dedicated to the digital media industry. This acquisition has outperformed our expectations and has contributed to the growth of business credits portfolios. which is currently at an all-time high. Healthcare ABL is similar to business credit, but solely focuses on the healthcare sector. Portfolio remained healthy during COVID pandemic of 2020. However, the government's massive capital infusion into that sector caused many of healthcare's borrowers to pay down their credit lines temporarily. This dynamic is beginning to reverse itself, and we're starting to see continued growth in the portfolio and expect so during the rest of this year. And finally, our lender finance business also makes asset-based loans, however, to other commercial finance companies, with their collateral being underlying commercial finance loans. We've begun to see improvement in terms in this market as banks continue to be less active. At quarter end, the total asset-based portfolio was 857 million, representing just under 32% of our total portfolio, and was invested across 176 borrowers. The weighted average asset-level yield in this portfolio was 10.4%. For the quarter, we originated just under 100 million of new asset-based loans and had repayments of just over 50 million. Moving to equipment finance. This segment consists of both our equipment finance business and our Kingsbridge business. Kingsbridge provides leases for essential use equipment to a diverse set of primarily investment-grade borrowers. Supply chain constraints that somewhat dampen the size of their investment pipeline has begun to loosen. Recently, they're seeing increased pipeline and expect to see increased growth in their portfolio over the next couple of quarters. Equipment finance provides financing for mission-critical equipment across a variety of industries. This business slowed during the height of COVID, with some of the industries, such as tour buses, impacted severely by lockdowns. We have focused over the last couple of years on reducing risk in that portfolio, and the business is extremely well positioned now to weather a potential recession. Additionally, the portfolio is benefiting from rising asset values during inflation-vary periods. Earlier this year, we announced the appointment of a new CEO for this division. He brings over 30 years of experience in the equipment finance industry, and that includes over 25 years of vendor finance focus expertise. He is currently positioned in the business for growth, and we expect to see continued earnings momentum into year end. At quarter end, the senior security equipment finance portfolio totaled just under $900 million, representing 33% of our total portfolio, and it was invested across 542 borrowers. the weighted average asset level yield for this portfolio was just under 10%. For the quarter, we originated over $100 million of new loans and had repayments of $90 million. Finally, let me touch on our life science finance business. At June 30th, our portfolio totaled just under $300 million, consisted of 14 borrowers, and over 96% of the portfolio has over 12 months of cash runaway. the critical metric for these investments. Life Science loans represent 11 percent of our total portfolio, yet contributes 25 percent of the gross investment income for the quarter. For the second quarter, the Life Science team committed $36 million of new investments and funded $3.5 million of those. We also had repayments and amortization totaling $46 million. At quarter end, we had undrawn commitments in the life science segment of $138 million. Forty-seven of the million of those have already been funded during the quarter to date. Additionally, the life science finance team currently has a robust pipeline, which we expect to fuel additional life science growth during the rest of 2020. At quarter end, the weighted average yield on this portfolio is just under 10.5%, including additional success fees and warrants, which contribute significantly to these returns historically. In conclusion, we see a continuation of the investment themes that have been driving our portfolio over the last few years. Focusing our new origination activity on first lien cash flow loans to portfolio companies that operate in defensive sectors and increasing our investments in specialty finance assets where we are able to get tighter structures and more attractive risk-adjusted returns. Across all of our asset classes, we see improved investment opportunities and expect current negative market sentiment to continue to translate into better terms across all of our asset classes. Given the current uncertainties in market volatility, it is important that we remain disciplined, opportunistic, and highly selective in our investments. Now I'll turn the call back to Michael.
spk03: Thank you, Bruce. In closing, we believe that SLRC, bolstered by its acquisition of Suns, is well-positioned for the looming recession and continued market disruption. Our conservative underwriting approach focused on first lien, senior secured cash flow loans, and non-sickle sectors and NASA-based loans with significant collateral coverage benefited us during the COVID-19 pandemic and should likewise enable us to weather future economic challenges. With our increased scale advantage in cash flow, life science, and our ABL verticals, as well as our expertise in underwriting asset-based loans during periods of market turmoil, we currently have a sizable investment pipeline and intend to be opportunistic if market conditions decline further. Additionally, we believe the merger and resulting scale potentially makes the better acquirer and strategic buyer of specialty finance businesses. Through a combination of cost synergies, Optimize your special grants companies. More attractive terms are new investments that were available a year ago. The $50 million share repurchase program and the impact of rising rates in our portfolio yields, we are expecting to fully cover our distribution within a couple of quarters. This revised forecast is an acceleration of our NII projections at the time of our merger announcement last December. Separately, if interest rates were to move another 100 basis points or 200 basis points, The portfolio at June 30, 2022 would generate $0.08 per share and $0.18 per share of incremental net investment income, respectively, on an annualized basis. Our investment advisors' alignment of interest with the company's shareholders continues to be one of our guiding principles. The SLR team owns approximately 8% of the combined entity and has a significant percentage of their annual incentive compensation invested in SLRC stock. The team's investment alongside fellow SLRC shareholders demonstrates our confidence in the company's defensive portfolio, stable funding, and favorable position to reap the expected benefits of the merger. We thank you for your time today. Operator, will you please open up the line for questions?
spk01: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Once again, that is star and 1 if you would like to ask a question. And we will pause for just a moment to allow questions to queue. And we will take our first question from Robert Dodd with Raymond James. Your line is open.
spk02: Hi, guys, and congrats on getting the merger closed, et cetera. So two quick questions, if I can. First, you mentioned formation of a JV to potentially shift the Sun's asset and some of the lower yielding Sun's assets into. Can you give us – so by year end, can you give us any more – I mean, is it intended to be a temporary measure to house those assets or a permanent addition to the portfolio allocation going forward? And if permanent, I mean, what type, what rough scale would you be targeting there?
spk06: Sure. So as you may recall, we have had vehicles like this in the past at SLR and at Suns in its prior incarnation. So it is something we expect to open before year-end. We will ramp it over time, but we do have, as you know, with the acquisition of Suns portfolio, some of the lower, I wouldn't say low, but lower-yielding cash flow assets, which are very efficiently financed in these JV vehicles. And so that is something that we're seeking to set up. I would say we expect it to be a long-term part of the business model, given the combined portfolios of SLR and Sun. Because, as you know, we do get to that 10% plus type of return on the portfolio by barbelling some of these lower return cash flow assets with the higher return specialty finance. which today, you know, on a blended basis will be higher. But we do expect this to be something that we'll be legging into starting second half of this year. Got it. Thank you.
spk02: On life sciences, I mean, obviously, you know, you've deployed a significant amount on delayed draws in after quarter end. I presume, you know, In Q2, there were limited success fees. Can you give us any framework to think about? When do you think the success fees could start flowing back into income? Obviously, they have historically been quite meaningful contributors occasionally. In a really choppy market where people are borrowing instead of refining, give us any thoughts on that.
spk06: Yeah, I mean, I think that's a great point. The portfolio, you know, is now up to close to $300 million. As we mentioned, there are still undrawn commitments to be drawn in addition to those that were drawn post-quarter end. But that headwind of repayment, which is, to your point, what generates those repayment fees, has definitely slowed down a little bit given the volatility in the public equity markets, which, you know, very often... can be very attractive capital for these companies. Today they're borrowing a little bit more. So it's a double-edged sword. The good news is we're going to be growing this portfolio, and we'll keep the good assets a little bit longer. The way they are structured is it's not like a typical cash flow loan where your back-end fees and warrants – tend to decline in value over time. They're still out there. This is not just call protection. These are exit fees upon repayment, regardless of when that is. So we'll get a little bit more duration. Those fees are still embedded in the portfolio. And we will continue to come into NII episodically. But I would say, you know, given the volatility, a little slower, but good news is we'll get nice yield out of a growing portfolio.
spk02: Got it. Got it. Thank you. And if I can, just one quick, I mean, you talked about on, you know, pipelines, a building and robust and a couple of things. On the equipment side, particularly either the leasing or the larger equipment, you know, with the building interest there, is the supply chain functioning well enough that you can actually Is the supply chain functioning enough that that pipeline build can actually be onboarded?
spk06: That's a great question. I would say if you had our team leaders on this call, they would say early days, but it's starting to. You know, they still think it's going to take a good 12 months to work through the system so that they can actually fund the purchases of this equipment, but it is definitely starting to.
spk02: Got it. Appreciate it. Thank you.
spk06: Thank you.
spk01: And we will take our next question from Melissa Patel with JP Morgan. Your line is open.
spk00: Good morning. Thanks for taking my questions today. You made a comment in the press release about reaching dividend coverage sooner than anticipated. And I think there's another comment just now on the call about achieving that within the next couple of quarters. I'm wondering if you can help us bridge the gap from where we are now at 37 cents a share in 2Q to what are the key drivers? Is it interest rates? Is it leveraging the portfolio, synergies, things like that? Can you walk us through that a little bit more granularly?
spk06: Sure. The answer is it's a collection of items. I think clearly there's a little bit more synergies that we expect from the SolarSuns merger. You know, the immediate one obviously came right through with the reduction in the management fee. The additional opportunities here is clearly not only increased rates on the existing portfolio and yields, but new assets that we've been putting on. We did have an active... quarter, but a lot of the activity came in late in the quarter. So you're not seeing that even though we ended the quarter at 0.96 times leverage, you didn't see the full earnings power of those additions. So that's part of the bridge. The other part of the bridge is we're obviously sitting at 0.96, which is the low end of our leverage range. So we see a little bit, based on our pipeline, we see a little bit of increase in the leverage, not material, but that will give some portfolio expansion. The additional lever that we just touched on is a more efficient vehicle for financing the lower-yielding cash flow assets, which you know in the past has been very accretive. People, including ourselves, have abused that structure. Additionally, as Michael mentioned, our commitment to the buyback will add a couple of cents there as well. So we do have a number of levers, and I think we like that. It's not just one thing that we're going to hit a button and we're going to get there, but we have multiple levers that we think will, in aggregate, exceed the dividend in terms of the earnings power of the platform.
spk00: Okay. I appreciate that. On the share repurchase, I think you've made a reference to interest in putting into place a 10B51 plan. When we think about that, that tends to be, that can be fairly small bite size from quarter to quarter, which can be, I think, quite well below the authorization that you guys have in place of $50 million, even over multiple quarters. Are you thinking of the pace of sharing repurchases in that context, or are you thinking of combining that with more active repurchases? Thank you.
spk03: The answer is when our window period is open, we will be actively buying. The point of the 10B5 plan is when the window period is about to close, which tends to be three to four weeks before the end of the quarter until the next earnings release, which puts you out of the market for seven or eight weeks, we put a 10B5 plan in place so that we can continue to be actively buying during that window period being closed. We can set the sizing of that so that we can be fairly aggressive during that time period. And frankly, you know, at these current levels, we intend to be.
spk01: Thank you. We will take our next question from Mickey Sluden with Aladdinburg. Your line is open.
spk05: Yes, good morning, everyone. Perhaps my question is for Rich. If we look at the funds balance sheet, the last one that we saw, which I believe was for December, about three quarters of the unbalanced sheet portfolio was in individual credits and about a quarter was in portfolio company investments at fair value. Can we expect the purchase, was the purchase discount applied more or less at those levels? And does that imply that a great deal of that purchase discount will unwind as those individual credits pay off? Or am I misunderstanding something?
spk06: No, Mickey, you're spot on. You know, there's a $17 million purchase discount. Probably $5 million was allocated to the portfolio companies that So that left around $12 million to be allocated for the debt portfolio that would come back into income over their lives.
spk05: So you booked it to cost and that affected fair value. And the average life of these investments is what, three years or so?
spk06: Right. I mean, obviously, in this environment, people aren't refinancing for 25 deaths anymore, but they probably get a little bit more duration. But, yeah, the cost is accreted into discount income, you know, over the remaining lives of those loans.
spk05: Okay. I appreciate that.
spk06: We're not taking any incentive fee on that accretion of that discount, just to be clear.
spk05: I understand. That's my only question for this quarter. Thank you. Thank you, Maggie.
spk01: And once again, that is start and one if you would like to ask a question. We will take our next question from Ryan Lynch with KBW. Your line is open.
spk04: Hey, good morning. Just following up on Mickey's last question, was any discount accretion for the purchase price, was any of that accreted in Q2, and what amount, if so?
spk06: Great question, Ryan. Yes, the answer is it begins on April 1st, the effective date, and was picked up, and I would say between two and three times. Two to three times. I'm recalling 2.4. Yeah, the shares are a little wonky with the merger. Okay.
spk04: Okay. And then regarding kind of the JV you talked about forming sometime this year, later this year, You talked about lower yielding loans from Suns potentially going in that JV. Can you give us a sense of what you all would consider like a lower yielding loan or lower spread loan in your portfolio today? And have you guys sort of penciled any sort of, as you guys have performed that exercise, have you sort of penciled any sort of targeted size of loans, an amount that could potentially go into that JV later this year if
spk06: I think lower yielding for us means generally our cash flow book relative to the specialty finance book. The cash flow book at June 30th was around 8%, 8.1, and the specialty finance book was generally above 10 to get us close to that 9.6 blended. Again, that's at June 30th. Today it would be higher, as you know. So it's really meant to finance the cash flow book. book that came over from Suns, you know, and whatever those yields are, those are our lower yielding assets across the portfolios relative to the specialty finance and life science and ABL.
spk04: Okay. So just to be clear, you're talking about financing the entire cash flow book from Suns, which would potentially be dropped down into this JV?
spk06: No, I think we're going to grow it over time, and we'll see, you know, depending on the activity level, how large we grow it. I don't think it will be all of them, and we will do this over time.
spk04: Okay. That's all for me. I appreciate the time today. Thank you. Thanks, Brian.
spk01: And once again, that is star and one. If you would like to ask a question, we'll pause for a moment to allow additional questions to queue. It appears we have no further questions online at this time. I will turn the program back over to Mr. Gross for any additional or closing remarks.
spk03: No more remarks at this point. I'll just thank you for your time and support and to reiterate that if anyone has any follow-up questions, please feel free to give us a call. Take care, everybody.
spk01: This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful day.
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