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Operator
Good day, everyone, and welcome to today's fourth 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 keys on your touchtone phone. Please note this call may be recorded and that I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Michael Gross, Chairman and Co-CEO. Sir, please begin.
Michael Gross
Thank you very much and good morning. Welcome to SLR Investment Corp's earnings call for the fiscal year end of December 31st, 2022. I'm joined today by Bruce Fuller, our Co-CEO, and Rich Bertica, our Chief Financial Officer. Rich, before we begin, would you please start by covering the webcast and forward-looking statements?
Bruce Fuller
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 call is being webcast from the events calendar in the investors section of our website at www.slrinvestmentcorp.com. Audio replays of this call will be made available later today as disclosed in our earnings press release. I would also like to call your attention to the customary disclosures in our press release regarding forward-looking information. Statements made in conference call and webcast may constitute forward-looking statements which relate to future events or our future performance or financial condition. These statements are not guarantees of our future performance, financial condition, or 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. As for our investment corp, it 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. With that said, I would like to turn the call back to our chairman and co-CEO, Michael Gross.
Michael Gross
Thank you very much, Rich, and good morning again, and thanks for joining us. We have a report that for the fourth quarter of 2022, SLRC earned net investment income of $0.41 per share, which fully covered our distributions. Due to the realization of synergies, portfolio growth, rising interest rates and stable portfolio credit quality, we were able to reach this net investment income target faster than we had projected at the time of the merger of SLRC and Suns. Additionally, as we continue to grow our portfolio from its COVID-19 lows, we expect further growth in net investment income per share during 2023. At December 31st, 2022, Our net asset value per share was $18.33 compared to $18.37 at September 30th. Overall, our portfolio is performing well, and credit quality is very stable. Enhanced by SLRC's acquisition of SONS, our portfolio is well diversified across cash flow loans and non-sickle industries and in asset-based loans. At December 31st, 98.6% of our comprehensive investment portfolio was comprised of first lien to be secured floating rate loans. Of the 1.2% of our portfolio, which is allocated to second lien loans, only 0.2% is invested in second lien cash flow loans, and 1% is invested in second lien asset-based loans with defined borrowing basis. Based on a recent comprehensive stress test of our portfolio, we are confident in its credit quality. Our longstanding investments on first lien loans has resulted in a portfolio that is better equipped to withstand a continued higher interest rate environment than portfolios with second lien loans or equity exposure. Additionally, with 78% of our comprehensive portfolio invested in specialty finance assets, which have long basis supporting the first lien loans and full covenant structures were a defense position for a volatile economic environment. The current market conditions for new investments are the most attractive we've seen in several years. For Q4, the company originated $430 million of new investments and had repayments of $409 million, inclusive of our commercial financial portfolio companies. Terms on sponsored finance loans have become more attractive, and especially finance businesses, which typically flourish during turbulent market conditions, are also seeing an attractive opportunity set and, importantly, have available capital to take advantage of this investment environment. All four of our lending strategies had a strong fourth quarter, and we expect their positive portfolio growth to continue throughout this year. But thanks on the sidelines to the volatility ESL market, lenders who can hold investments of $200 million or more, such as the SLR platform, are even more valued by borrowers, have greater pricing power, and influence over terms. During the second half of last year, our investment advisor, SLR Capital Partners, secured an aggregate of $3.8 billion of additional investment capital, inclusive of anticipated leverage. This incremental capital will invest alongside SLRC, which will benefit from the additional scale. This additional capital comes at a time when many other BDCs are already at full investment capacity, giving us a distinct competitive sourcing advantage. As a result of the reduced competition, we are seeing accretive investment opportunities with less leverage and higher yields in loans structured in the recent period of COVID-related government stimulus. The more recession-resilient sectors in which SLR specializes continues to perform extremely well, with financial sponsors focused on deploying their dry powder into existing portfolio companies via add-on acquisitions. During uncertain economic times, borrowers increasingly turn to asset-based lending strategies for working capital and liquidity management. We believe the structure and collateral supporting our loans provide our investors with greater downside protection across economic cycles. Our ABL businesses have historically outperformed during challenging market conditions when companies' access to traditional lending sources is constrained. and we have the flexibility to allocate more of our capital to these strategies to take advantage of their attractive risk-reward attributes. We have ample dry powder to capitalize on investment opportunities, which are terms that we believe are more favorable than were available to us a year ago. Our funding profile is in a strong position to weather a rising rate environment, with half of our $1.1 billion of funded debt comprised of senior, unsecured, fixed-rate notes at a weighted average annual interest rate of just 3.9%. At December 31st, SLRC's leverage was 1.6 times net debt to equity, up from our low during the COVID-19 pandemic of 0.56 times, and comfortably within our target leverage range of 0.9 to 1.25 times. On the repayment of our $75 million of senior unsecured notes in January, our next term debt maturity isn't until the end of 2024. we're in the fortunate position of not needing to refinance any of our term debt in the near term at current higher rates. December 31st, including available credit facility capital at our specialty finance portfolio companies and subject to borrowing-based limits, SLRC had over $650 million in available capital to take advantage of the current attractive investment environment. As a reminder, during the pandemic, our credit quality remained strong. However, We did lose earnings power through outside loan repayments as many of the borrowers paid down their debt with capital from government stimulus programs. This year, we expect to begin to grow our portfolio, what we expect to be a very attractive vintage for both cash flow and specialty finance loans, which should drive further increases in our earnings. In December, we began contributing portions of lower-yielding, first-lane cash flow loans originated by the Suns to a recently announced SLR Senior Lending Program, or SSLP. SLRC and our strategic investment partner have made equity commitments of $50 million. At December 31st, the SSLP held $18 million of first lien loans. We've continued to contribute sufficient additional loans to SSLP during Q1. The target size this portfolio once ramped is $300 million. Importantly, SSLP provides us with capacity for expanding our portfolio and earnings power. During the fourth quarter, we were active in our share repurchase program, resulting in approximately $3 million of shares we purchased by quarter end at an average price of $13.98. We intend to continue to utilize this program to repurchase shares at levels that are creative to shareholders. I now turn the call over to our CFO, Rich Petica, to take you through the fourth quarter financial highlights.
Bruce Fuller
Thank you, Michael. At Solar Investment Corp's net asset value at December 31st, 2022, was only $1 billion, or $18.33 per share, compared to $1.01 billion, or $18.37 per share at September 30th, 2022. At December 31st, 2022, SLRST's on-balance sheet investment portfolio had a fair market value of approximately $2.1 billion in 139 portfolio companies across 45 industries, compared to a fair market value of $2.2 billion in 135 portfolio companies across 44 industries at September 30th, 2022. At December 31st, the company had approximately $1.1 billion of debt outstanding with leverage of 1.08 times net debt to equity. When considering the available capacity from the company's combined credit facilities, together with the available capital company's significant subsidiaries, SLRI Investment Corp. has significant available capital to fund future comprehensive portfolio growth while remaining within its target leverage range of 0.9 times to 5 times net debt to equity. Moving to the P&L, for the three months ended December 31, 2022, gross investment income totaled $54.1 million versus $47.6 million for the three months ended September 30, 2022. Net expenses totaled $31.6 million for the three months ended December 31, 2022. This compares to $27.5 million for the three months ended September 30, 2022. Accordingly, the company's net investment income for the three months ended December 31, 2022, totaled $22.5 million, or $0.41 per average share, compared to $20.1 million, or $0.37 per average share, for the three months ended September 30, 2022. Below the line, the company in net realized and unrealized loss for the fourth fiscal quarter, totaling $3.5 million, versus realized and unrealized losses of $6.5 million for the third quarter of 2022. Ultimately, the company had a net increase in net assets resulting from operations of $19 million or 30 cents per average share for the three months ended December 31st, 2022. This compares to a net increase of $13.5 million or 25 cents per average share for the three months ended September 30th, 2022. Finally, the Board of Veselory has declared a monthly distribution of .136667 per share, payable on April 4th, 2023, to holders of record as of March 23rd, 2023. And with that, I'll turn the poll over to our co-chief executive officer, Bruce Bowler.
Michael
Thank you, Rich. Let me begin by providing an overview of polio. At year-end, on a fair value basis, the combined comprehensive portfolio consisted of approximately 2.9 billion of senior secured loans to approximately 800 distinct borrowers across over 120 industries, with an average investment exposure of 3.7 million. At quarter-end, measured at fair value, 99.8 percent of the comprehensive portfolio consisted of senior secured loans with 98.6 percent in first lien loans, including investments in the SSLP attributable to SLRC, and only 0.2 percent invested in second lien cash flow loans, with the remaining 1.2 percent invested in second lien asset-based loans with full borrowing-based governors. Our specialty finance investments account for approximately 78 percent of the comprehensive portfolio, with the remaining 22% invested in senior secured cash flow loans to upper mid-market sponsor-owned companies. We believe that this defensive portfolio construction and investment strategy diversification positions us extremely well for pending turbulence and provides a differentiated return profile for our shareholders. At year end, our weighted average asset level yield was 12.2%, up from 11.3 percent at the end of the third quarter. At year end, the weighted average investment risk rating of our 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. As a reminder, segmented the portfolio into four distinct asset classes. The first is cash flow loans to upper mid-market private equity-owned companies, which we refer to as sponsor finance. The second is asset-based loans. The third, life science loans, which are made to venture capital-backed late-stage drug and devices companies. And the fourth is equipment finance. Now I'll touch on each of these four investment verticals. We start with sponsor finance. In this segment, we originate first lien senior secured loans to upper mid-market companies in non-cyclical industries, with our largest industry exposure being healthcare provider services and diversified financials. Our sponsored finance segment is benefiting from banks' retrenchment from private financings, a slowdown in the CLO issuance market, and sponsors' and management teams' increasing preference to partner with direct lenders during a time when sponsors have record dry powder and a desire to put it to work in new platforms and add-on acquisitions, which are available at increasingly attractive valuations in this environment. The ongoing market turmoil caused by aggressive Fed tightening has resulted in a widening of yields in the syndicated bank loan market and a sharp reduction in banks' willingness to assume syndication risk. This has led to an increased opportunity set for direct lenders like us. As a result of the diminished supply of capital available to borrowers and the sell-off in the liquid credit markets, we have seen 100 to 300 basis point increase in yields on private loans issued relative to a year ago. Additionally, total leverage levels on new issuance has decreased, which translates into a lower risk profile for our investments. We expect 2023 to be a great vintage for sponsor finance, and for our pipeline to continue to build throughout this year. At year end, our sponsor finance portfolio was $643 million, including senior secured loans in the SSLP attributable to us. We're just under 22% of our total portfolio, and this was invested across 44 companies. The average EBITDA of our cash flow portfolio was $129 at year end, up from 113 million at the end of the third quarter. During the fourth quarter, we originated 58 million and experienced repayments and amortizations of 118 million. The weighted average yield on our cash flow portfolio was 11.2 percent, up from 9.6 percent in the prior quarter. With approximately 99 percent of our cash flow loan portfolio invested in first lien loans, and a weighted interest coverage ratio above 2.3 times, we believe that our investments are well positioned to withstand any pressures borrowers may be facing from rising interest payments. Now, let me turn to our ABL segment. Historically, our ABL business has outperformed during periods of market volatility and economic contraction. Borrowers which are asset rich but have cash flows pressured by rising rates and slowing demand are forced to raise capital backed by their liquid collateral. Our team's deep 20-plus average years of expertise in valuing this collateral gives us an advantage in underwriting deals that are backed by strict borrowing basis against the collateral of the borrowers. This business segment is currently seeing heightened demand towards capital, translating into increased deal volume that we believe will continue throughout this year. In particular, slowing consumer spending is a positive for our ABL business, which has extensive experience providing working capital loans to asset-rich retail companies. At year end, the Senior Secured Asset-Based Loan portfolio totaled $1 billion, representing 35% of our total portfolio. It was invested in over 170 borrowers. The average asset-level yield of the ABL portfolio was 14.1%, up from 12.3% in the third quarter. During the fourth quarter, we originated approximately $141 million of new ABL loans and had repayments of $71 million. Now let me turn to equipment finance. Our equipment finance segment provides customized equipment leasing solutions to businesses in North America with significant capital equipment needs. Our borrowers range from privately held, family-owned middle market businesses to large investment-grade companies. Our leasing capabilities span a broad spectrum of industries, including warehousing, manufacturing, transportation, information technology, and healthcare. The team has extensive experience in valuing fixed assets and structuring loans, allowing us to provide our customers with quick, creative solutions to their financing needs. which is especially valued during periods of market volatility. This segment's portfolio grew during the fourth quarter, and we're expecting that trend to continue this year. At year end, the equipment finance portfolio totaled $900 million, representing approximately 32% of our total portfolio, and it was invested across 500 borrowers. The weighted average asset level yield of the portfolio is 10.7%. During the fourth quarter, we originated $167 million of equipment finance loans and had repayments of $130 million. Finally, let me provide an overview of our life science segment. For life sciences, the current market volatility and economic uncertainty has not impacted the interest in and ultimate need for new drugs and medical devices. This has been bolstered by additional venture capital activity in recent years. and ultimately reinforces the need for the type of first lien senior secured loans that we offer. Record amounts of venture capital coupled with improved valuations are continuing to drive this opportunity set. We expect the recent trend of higher yields to continue. Additionally, the extremely low loan-to-values, which are typically less than 20%, provide significant downside protection for our investments. we continue to remain disciplined in our underwriting standards. At year end, this portfolio totaled $322 million across 14 borrowers. Over 85 percent of our life science portfolio is invested in loans to borrowers that have over 12 months of cash runway, an important metric in this segment. Life science loans represented approximately 11 percent of our portfolio and contributed 20% of our gross investment income for the fourth quarter. During the quarter, the team originated $110 million of new loans and had repayments of $90 million. At year end, $121 million of Life Science unfunded commitments exist, which may be drawn based on borrowers hitting certain milestones. Additionally, the life science team currently has a robust pipeline of new opportunities, which we expect to fuel portfolio growth over the next several quarters. At year end, the weighted average yield on this portfolio was 12.5 percent. However, that excludes success fees and warrants, which typically take our returns higher. In conclusion, we are optimistic about the performance of loans within each of our four investment strategies. as well as the prospects for additional portfolio growth this year, and what we anticipate will be an attractive vintage for each of our segments. At this time, let me turn the call back to Michael.
Michael Gross
Thank you, Bruce. In closing, we believe that our time-tested conservative underwriting approach, resulting in a defensively constructed portfolio comprised of both first-link cash flow loans to borrowers and non-cyclical industries, and asset-based loans with significant collateral coverage positioned us well for recession and any continued market volatility. All four of our asset classes are exhibiting overall strong quality and have attractive investment pipelines. We are anticipating further portfolio growth across the board in 2023, which should drive further increases in our net investment income per share. As I mentioned in my opening remarks, our fourth quarter net investment income fully covered our first quarter 2023 distributions, and based on current volatility pipelines, we expect to continue to build our earnings power this year as we deploy our available capital into higher yielding assets. However, please note that the amount and timing of past dividends and distributions are not a guarantee of any future dividends or distributions or the amount thereof, the payment timing and amount of which will be determined by the company's board of directors. Our investment advisor's alignment of interest with the company's shareholders continues to be one of our guiding principles. The SLR team owns approximately 8% of the company's stock, including have 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. We thank you for your time today. Operator, will you please open the line for questions?
Operator
Yes, sir. At this time, if you would like to ask a question, please press the star and 1 keys on your touchtone phone. If at any time you find your question has been addressed, you may remove yourself from the queue by pressing star 2. Once again, that is star 1 to ask a question. And our first question will come from Casey Alexander with Compass Point. Your line is open.
Casey Alexander
Hi. Thank you. My questions are centered around equipment finance, which used to be one of the most attractive yields in the portfolio. But because, as I recall, it's shorter-term loans that are fixed rate, kind of the yields on some of your other verticals have moved on past it. And so I'm kind of wondering, how long does it take for that portfolio to churn over, and what kind of onboarding yields are you getting now relative to the weighted average yield of 10.7%?
Michael
Good morning, Casey. Thanks. Great question. So, yes, as you know, it is a high-churn portfolio. As you look at the year chart, Equipment Finance had 476 originations and repays of 449. So, it is a high churn, but to your point, we are burdened by fixed rate loans. So, you know, I can't put a precise time, but yes, we are putting new assets on above that 10.7, or else we wouldn't be deploying capital to that segment by definition, given what we're seeing in other segments. So, we expect it to catch up over the next 12 to 18 months.
Casey Alexander
Okay, thank you. And one other question, just simply because it's become sort of relevant to the equipment financing universe. Does your equipment financing portfolio include any loans that are backed by crypto mining machines?
Eric Swick
No. Great question, but no.
Casey Alexander
All right, thank you. That's all my questions. I appreciate it.
Operator
Thanks. Thank you. Our next question will come from Eric Swick with Hooft Group. Your line is open.
Eric Swick
Thanks. Good morning, all. One, just wanted to say I appreciate all the commentary that Bruce gave, kind of breaking down some of the current characteristics and within the four distinct asset classes was helpful. And I guess I'm curious, as you look at the pipeline today, and I'm sure the next one to two quarters, the visibility is probably good. Beyond that, maybe not quite as But just curious, as you look at that and think about the relative attractiveness of the four sectors, it sounds like you're positive on growing all four of those. But is there one or two that look, you know, relatively more attractive or just based on the mix in the portfolio you would expect to be, you know, exhibit stronger originations here in maybe the first part of the year?
Michael
Yeah, I think, you know, if you could just look at 22 as a proxy, ABL for the year is was $400 million of the $1.2 billion that we originated last year. And I think we would expect that to continue to sort of out-originate the other segments. You know, as we just touched on with KT, equipment finance is kind of a steady drip of origins and a steady drip of repayments. But I think ABL in general, in addition to equipment finance, but ABL more broadly, is going to be more active in this environment. We're still seeing, you know, steady... originations in our sponsor finance and life science segments, but I think ABL will be a little bit heavier because, as we mentioned in our comments, in this environment, cash flow market is only open to certain borrowers in certain industries, such as health care, which is extremely defensive and recession resilient. And so, you know, if you are in capital-intensive businesses or cyclical businesses or your only access to capital is really using your assets since the cash flow market is in dislocation. So ABL will be heavier. We see that outdriving everything else this year. But a steady activity in the other segments, which is, you know, what we find very attractive. And to Casey's comments earlier, what you see is the yields – are very attractive across all segments and more consistent with each other than you see in periods of economic benign periods.
Eric Swick
That's helpful. Thank you. And then just another question on the comments about expecting further growth in hyper-share throughout 2023 and You mentioned there's opportunity for a portfolio growth, and certainly you have got some room there with leverage to take that higher. I assume a part of that expectation is also just the outlook for higher rates. I'm kind of curious if you could maybe kind of weigh out the benefits of the two of those and then just what you're expecting in terms of additional kind of Fed funds increases, which would likely take LIBOR and SOFR higher as well.
Michael
Yeah, I think we're, you know, far enough to predict the curve. We obviously, you know, are following what the Fed is saying, and so rates will be, you know, targeted upward, at least in the first half of this year. You know, we benefit from the fact, as Michael mentioned, that we've termed out our liabilities, have a nice 50-50 structure, and don't need to go back to the funding markets until the end of 2024, beginning of 2025. So we're going to be opportunistic on that side. And I think on the asset side, given the strength of our portfolio and the first lien dominance, we are very comfortable employing our over $650 million of available capital in this environment.
Eric Swick
Thanks for taking my questions today.
Michael
Thank you.
Operator
Thank you. As a reminder, that is star 1 to get into the questioning queue. Our next question will come from Mickey Schleen with Lattenberg. Your line is open.
Mickey Schleen
Good morning, everyone. First question is about the 2.3 times interest coverage ratio you mentioned. I just wanted to clarify, is that on a last 12-month basis, or is that the fourth quarter rate annualized?
Michael
That is the fourth quarter annualized.
Mickey Schleen
Okay, good to hear. And are you seeing signs of stress on average among borrowers and cash flow and their ability to service their debt given how much rates have increased?
Michael
That's a great question. And, you know, obviously why we did the recent stress test on, you know, not just interest coverage but fixed charge coverage. And for us, as you know, our cash flow book, while it's only 22% of the portfolio, it's It is bigger in our other portfolios that we manage than it is in the BDC. So all of our other portfolios co-invest with the BDC and own similar cash flow and securities. And as we look at those investments, because, Mickey, we're in high free cash flow in companies, defensive sectors, and large companies, we mentioned the average EBITDA, you know, being up above $110 million. We just find bigger and safer in environments like this and obviously first lien. There is not much in the way of junior capital beyond equity. We don't have big second lien structures that we've invested in. But if we look at it, you know, our companies just need to run in place from an earnings perspective in spite of the increased interest burden that they're facing because they don't have many other fixed charges because we don't go into capital-intensive businesses that have capex and big working capital investments. And so what we find is steady earnings, we can still generate substantial free cash flow, which is what we care about, and de-risk our credits. We are hearing from others, peers who are in, you know, more broad across the industries, cyclicals, et cetera, that there are starting to feel some pressures, and some people who own second liens are having to, you know, defer some cash interest. We're just not seeing it systemically in our book, given the sectors that we're invested in.
Mickey Schleen
That's good to hear and helpful, Bruce. On the $75 million repayment of the 4.5% of secured notes in January, could you clarify what was the source of the funds to make that repayment?
Michael
Sure. As you know, capital is fungible, but last year we had, before rates went up, we had pre-refinanced in January and December 21, maturities that we had last spring. And we also did a little bit extra. So we had $30 million more that we took on at 3.3% before rates went up. So you could argue that 30 of that went to this 75 repayment, and then the rest came from our revolving credit line.
Mickey Schleen
Okay. I was... Curious whether you've shrunk the balance sheet to make that payment. And lastly, I'm sorry.
Michael
The other thing I would highlight, Mickey, is, as you recall, when we merged with Sons, we got their $85 million of senior unsecured notes that were at 3.9%, and we also picked up their undrawn revolver. So we expanded our credit capacity, and Rich and the team have been very successful in actually adding to our credit facility. So we have ample, we can easily get to the 1.25 with our existing balance sheet.
Mickey Schleen
Yeah, I agree and understand. Just my last question regards the stock repurchase program. I was glad to see some repurchases during the quarter, if I'm not mistaken. That was the first quarter during the existing program, which would appear to be expiring this May. You know, given the stock price and how creative it would be, how does the board feel about extending that program beyond this May?
Michael Gross
We will likely extend it. And with our window period open, you know, at an appropriate price, we'll be back in the market. But we're going to definitely extend it so we have the flexibility to take advantage of it during volatility. Okay.
Mickey Schleen
Good to hear. And, Michael, it's a 10B51 plan, if I'm not mistaken. I know there's a lot of constraints in terms of your ability to make those repurchases, but is there scope to increase the quarterly amount that you're repurchasing?
Michael Gross
It depends on the price is the answer. So we'll see, and it depends kind of on the investment opportunities in front of us in terms of measuring the creativeness of new investments versus buying back stocks.
Michael
Last quarter, we would have bought the whole $50 million at that price. It just wasn't available to us yet.
Mickey Schleen
Yeah, yeah, okay. That's it for me this morning. Thank you for taking my questions.
Michael Gross
Thank you, Mickey.
Operator
Thank you. Our next question will come from Paul Johnson with KBW. Your line is open.
Casey Alexander
yeah, good morning. Thanks for taking my questions. Um, most of mine have been asked, um, but, um, kind of adding to Mickey's questions a little bit. I mean, obviously credit quality for you guys is pretty good and sounds like, you know, portfolios performing pretty well. Um, just, you know, I'm curious, you know, if you've, if you've observed any sort of pickup in amendment activity, either in your portfolio or amendment request activity, I should say, in your portfolio, or even just more broadly across anywhere else in the platform. And I'd also be curious just of your cash flow portfolio, what percent of loans, I guess, would you say that you're in a controlling position?
Michael
Yeah, so I would say So, first question around amendment trends. They have come down. You know, peak amendments were sort of during lockdown, Q2, Q3 of 2020, where we had, you know, five or six amendments. That has come down and sort of gotten back to the steady level of call it two to three. That's where we sit today. So, no change in trends over the last two years since lockdown. And I would say, as you mentioned,
Michael Gross
The second question, you know, given that the average EBITDA on our cash flow book is north of $100 million, we are not in a controlling position. We are part generally of clubs, but we do have and make sure where it's not happening to BSL, you know, there are sacred rights that cannot be amended without our consent. And generally speaking, in the clubs we're in, we are with lenders who are of a mindset of ours. And so we've never really been in a position where, the meds have been brought forward and we've had to, you know, fight amongst the lenders to get that one to get done. Yeah, we generally have a blocking position.
Casey Alexander
Got it. Thanks. That's very helpful. Just one more question. Just on the ABL portfolio, I know you've talked about this in the past, but just remind me, what's sort of like the average life of the assets in that portfolio? And what is sort of the typical credit rating of the underlying, or I guess the risk of the underlying borrower in that portfolio as well?
Michael
So the borrowers are no different from what we see in our cash flow business, which is typically you're talking about single B, weak double B, is what I would say. And remember, we're first lien and secured. So we tend to be strong single B, weak double B. Again, similar to where we are in the cash flow book. And the underlying collateral, you know, is long-lived because – Again, we're going to lend against and underwrite the liquidation value of that collateral, and we're not going to invest in commodities or short assets.
Michael Gross
But the average duration of our loan, the same maturity is typically five years. The average duration is closer to two.
Casey Alexander
Got it. Appreciate it. Again, very helpful. That's all for me.
Michael Gross
Thank you.
Operator
Thank you. As a reminder, that is star one to get into the queue. Our next question will come from Robert Dodd with Raymond James. Your line is open.
Robert Dodd
Hi, guys. A couple of themes first. I'll save the inflation one for a second. On the JV, you talked about you've made a $15 million equity commitment as a partner, max target or target size 300, which is just two to one leverage. Is that 300 the max? Obviously, it's the max based on the 50 that you've initially committed, but would you consider expanding that even further, given how attractive the environment is? And what kind of timeframe would you be expecting to get to that size, given, again, you talked about the cash flow pipeline and the 2023 vintage being extremely attractive?
Michael
Sure, great question. So first question, yes, that is the initial commitment. I would say that the JV partner has other capital committed to us across our platform in the form of SMAs, so we know that they have a desire to grow with us should the market opportunity continue. And then as it relates to the timing, we actually, because of the merger with Sun, really what was the catalyst for thinking about SMAs setting up an SSLP again because, as you know, we had them a few years ago. So we have those assets on balance sheet. We are cycling them down as we redeploy on balance sheet so that we can make sure that we're continuing to, you know, generate the appropriate earnings and grow the portfolio prudently. So I think what you'll see is a rotation of the on balance sheet cash flow loans that were acquired with SONS together with new originations direct into the SSLP. We're already doing that. And I can't pick the quarter, but our best guess, Robert, is that by the end of this year, you'll see that have been fully ramped to that $300 million target portfolio.
Robert Dodd
Got it. Got it. Thank you. And then when you look at ABL or equipment, I mean, in both cases, I mean, prices are rising, right? I mean, that's impressive. How is that? impacting a demand right because you know somebody might be inclined to buy a new piece of equipment before the manufacturer you know takes the price up um and b or how when you when you underwrite it um assessing are you taking into account that inflation when you're assessing collateral value or are you just assuming flatline collateral value and and not you know pricing equipment prices in terms of how you want to write currently?
Michael
Yep. So on the ABL, which we'll segment into ABL from advance. So on the ABL business, you know, as we discussed, those are short, they're long-lived assets, short-duration loans, and we are constantly monitoring and updating our borrowing base to the extent that the underlying collateral changes in value. We control that pen in terms of determining our advance rate. But if you're lending to a retailer and they sell jeans and T-shirts, there's not going to be a lot of volatility in the cost of those goods. If we lend against cost, liquidation value against cost, not against market or retail. So we have a tremendous amount of cushion built in there and not much in the way of volatility. from an inflation perspective, affecting the underlying cost of the goods that we're lending against. And it's finished goods or raw. We're not lending against work in process. And then on the equipment finance side, what we're seeing is a dynamic where, as you may recall from prior conversations, there was a pent-up pipeline of orders that had been placed, but because of supply chain disruption, goods had not arrived. So they weren't drawing down on our facilities. So we're benefiting from a funding of the past pipeline, almost as to a DDPL over in cash flow land. So we're funding that pipeline and supply chain has loosened up. So we're funding past investments. We are seeing, which is typical in periods of inflation, where the purchase versus lease decision is leaning towards leasing and and extending existing leases, which provides good income for us because it, you know, extends the maturity of those fixed rate leases that we had offered. And that's very often how they get the excess income into our portfolios. So as you can see from the results, it's a steady drip of originations and a steady drip of repayment, but albeit net portfolio growth. And we think that trend will continue. We've yet to see a dramatic down in new orders. But again, we do have a strong backlog that we're still funding.
Robert Dodd
Got it. Thank you for the call.
Operator
Thank you. At this time, there are no further questions in the queue, so I'd like to turn it back over to Michael Gross for any additional or closing remarks.
Michael Gross
Just thank you very much, and thank you all for your great questions. If you have anything else, please feel free to reach out to us, and otherwise we'll speak to you in
Operator
two months on our q1 call thank you thank you ladies and gentlemen this does conclude today's teleconference and we appreciate your participation you may disconnect at any time
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