Thank you very much and good morning. Welcome to SLR Investment Corp.'

s earnings call for the quarter ended March 31st, 2026. I'm joined today by my long-term partner, Bruce Spohler, our Co-Chief Executive Officer, as well as our Chief Financial Officer, Shiraz Kajee, and members of the SLR investor relations team.

Shiraz, before we begin, would you please start off by covering the webcast and forward-looking statements?

Thank you, Michael. Good morning, everyone.

I would like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of SLR Investment Corp.

and that any unauthorized broadcast in any form is strictly prohibited. This conference call is also being webcast from the Events Calendar in the Investors section on our website at www.slrinvestmentcorp.com.

Audio replays of this call will be made available later today, as disclosed in our May 5th earnings press release. I would also like to call your attention to the customary disclosures in our press release regarding forward-looking statements.

Today's conference call and webcast may include forward-looking statements and projections. These statements are not guarantees of our future performance or financial results and involve a number of risks and uncertainties.

Past performance is not indicative of future results. Actual results may differ materially as a result of a number of factors, including those described from time to time in our filings with the SEC.

We do not undertake to update any forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website or call us at 212-993-1670.

At this time, I would like to turn the call back over to our Chairman and Co-CEO, Michael Gross.

Thank you, Shiraz, and thank you to everyone for joining our earnings call this morning. Following a year of relative outperformance and strong portfolio credit quality metrics, we're pleased to report a solid start to 2026 for SLR Investment Corp.

This despite the confluence of events in the first quarter that created challenges for our industry. These include rising geopolitical uncertainty, elevated concerns about the disruptive impacts of artificial intelligence on the economy and to a greater extent, the private credit asset class.

These dynamics have triggered a speculative and often negative global conversation about the industry unlike anything we've seen in our 20 years of operating SLR Capital Partners and decades of experience managing BDCs that were designed to match the ownership of illiquid private credit assets with permanent equity. While we expect an elevated focus on private credit and BDCs to persist through 2026, we think it's important to remind investors that we've been positioning the portfolio for this moment of recalibration of risk in direct lending for a long time.

We believe SLRC's conservatism and focus on collateral-based specialty finance strategies should enable our portfolio to weather uncertain economic conditions while allowing our origination teams to be opportunistic in an improving investment climate. Additionally, we continue to embark on growth initiatives across our specialty finance investment strategies.

We also believe that both institutional and private wealth investors are increasingly recognizing SLR's value proposition and place in a portfolio's allocation to private credit that provides differentiated exposure. For the first quarter of 2026, we reported net investment income, or NII, of 33 cents per share and net income of 31 cents per share.

NII was down sequentially primarily due to three factors: first, the lagged impact on our floating-rate loans from the Fed's 50 basis points cut in the fourth quarter of 2025; second, a contraction of the comprehensive portfolio as deal activity slowed meaningfully in what is already a seasonally light quarter from rising economic uncertainty; and lastly, a decline in fee income. As of March 31st, the company's net asset value per share was $18.16, down 1/2 of 1% sequentially, but flat year-over-year.

SLRC's net income for the quarter equates to an approximate 7% annualized return on equity. While we recognize that the company's net investment income ROE did decline sequentially, we continue to expect that our net income ROE, or total return, will remain above the public and private BDC industry average in the first quarter and continue to compare favorably on both a one-year and three-year basis.

During the first quarter, SLRC originated $242 million of new investments across the comprehensive portfolio and received repayments of $360 million, for net repayments of $118 million, resulting in a quarter-end comprehensive portfolio of $3.2 billion. The primary driver of new originations continues to be our commercial finance strategies, which we believe offer more attractive risk-adjusted returns in today's competitive private credit markets.

As of March 31st, 2026, approximately 85% of our portfolio investments were in senior secured specialty finance loans, which remains near the highest percentage on record and offers a risk profile that is highly differentiated from other BDC portfolios available to investors. We continue to believe that SLRC's investment portfolio mix shift over the last couple of years to asset-based specialty finance strategies provides greater downside protection than cash flow loans through our strong credit agreements, actively managed borrowing bases, and underlying collateral support.

We expect to continue to approach new investments in cash flow lending opportunistically, especially if signs of widening spreads and improved terms endure. For investors concerned about the uncertainty of technology obsolescence risk and enterprise value destruction for the software industry from the burgeoning threat of artificial intelligence, we believe that SLRC's portfolio, with its lack of software exposure, offers a safe haven for investors.

Our direct industry exposure to the software industry remains at approximately 2% of our portfolio's fair value as of March 31st, 2026, and is one of the lowest amongst publicly traded BDCs. During the first quarter, we established an Artificial Intelligence Investment Committee responsible for assisting investment teams with evaluating both new opportunities as well as the existing portfolio as it relates to the risk of AI to both companies and industries.

Despite our de minimis exposure to software, we believe that AI will have an impact, either positively or negatively, on nearly all industries and are assessing every portfolio company and new investment opportunity accordingly. The underlying analysis for this assessment includes evaluating the impact to business model, customer base, and competitive moat from AI, as well as incorporating company and sector-specific evaluation categories.

We will apply this process during underwriting of new investments, and we'll reevaluate all portfolio companies at least once per quarter. In addition, we are implementing AI in our specialty finance businesses to assist in analyzing borrowing bases and covenants, streamlining routine workflows, and improving legal document reviews.

Overall, we were pleased with the composition, quality, and performance of our portfolio, a direct result of SLR's multi-strategy approach to private credit investing. At quarter-end, 94.5% of our comprehensive investment portfolio was comprised of first-lien senior secured loans.

100% of investments at cost were performing, with zero investments on non-accrual, and our watch list investments represented only 2.2%, which we note is unchanged from the first quarter in 2021. We believe these credit quality metrics compare favorably to peer public BDCs.

At March 31st, including available credit facility capacity at SSLP and our specialty finance portfolio companies, we had over $900 million of available capital to deploy. Our liquidity profile puts us in a position to take advantage of either stable economic conditions or softening of the economy.

At this point, I'll turn the call back over to Shiraz to take you through our first quarter financial highlights.

Thank you, Michael. SLR Investment Corp.'

s net asset value at March 31st, 2026, was $990.8 million, or $18.16 per share, compared to $18.26 per share at December 31st, 2025. At quarter-end, SLRC's on-balance sheet investment portfolio had a fair value of approximately $2.1 billion in 99 portfolio companies across 28 industries, compared to a fair value of $2.1 billion in 100 portfolio companies across 31 industries at December 31st.

SLRC's investment portfolio continues to be funded by a combination of our multi-lender revolving credit facilities and the issuance of term debt in the unsecured debt markets to institutional investors. Company is investment grade rated by Fitch, Moody's, and DBRS, and more than 40% of the company's debt capital is comprised of unsecured debt as of March 31st.

At March 31st, the company had approximately $1.1 billion of debt outstanding, with a net debt-to-equity ratio of 1.14 times, within our target range of 0.9 to 1.25 times. We have ample liquidity to fund our unfunded commitments and for future portfolio growth.

Looking forward, the company has one debt maturity in 2026, with $75 million of unsecured notes maturing in December. We expect to continue to prudently access the debt capital markets and issue unsecured debt as and when needed.

Subsequent to quarter-end, the company increased its revolving capacity by $25 million with the addition of a new lender. Total revolving commitments now total $720 million, up from $695 million as of quarter-end.

Furthermore, in May, the board authorized a one-year extension of our $50 million stock repurchase program. Moving to the P&L.

For the three months ended March 31st, gross investment income totaled $49.3 million, versus $54.5 million for the three months ended December 31st. Net expenses totaled $31.4 million for the three months ended March 31st.

This compares to $32.9 million for the December quarter. Accordingly, the company's net investment income for the three months ended March 31st, 2026, totaled $17.9 million, or 33 cents per average share, compared with $21.6 million, or 40 cents per average share, for the prior quarter.

Below the line, the company had net realized and unrealized losses of only $0.7 million in the first quarter, versus a net realized and unrealized gain of $3.5 million for the fourth quarter of 2025. As a result, the company had a net increase in net assets resulting from operations of $17.1 million for the three months ended March 31st, 2026, compared to a net increase of $25.1 million for the three months ended December 31st, 2025.

On May 5th, 2026, the board declared a quarterly distribution of 31 cents per share, payable on June 26th, 2026, to holders of record as of June 12th, 2026. The board also approved a voluntary and permanent change in the company's advisory agreement with the investment adviser, SLR Capital Partners, reducing the performance-based incentive fee payable to 17.5% from 20%.

This further aligns the adviser with our shareholders. With that, I'll turn the call over to our Co-CEO, Bruce Spohler.

Thank you, Shiraz. As Michael shared, we believe that the private credit industry continues to exhibit signs of the middle stages of a credit cycle, characterized by rising defaults and growing credit dispersion in direct lending.

With uncertainty percolating, today's environment requires highly disciplined underwriting and a heightened focus on capital preservation. Our specialty finance strategies offer higher returns than cash flow loans and greater downside protection through their underlying collateral support and tight documentation.

We view these more favorable terms as a complexity premium earned through investing in structures that require significant expertise as well as infrastructure that many private credit firms don't have. Turning to the portfolio.

At quarter-end, the comprehensive investment portfolio consisted of approximately $3.2 billion, with average exposure of $3.7 million. Measured at fair value, approximately 98% of the portfolio consisted of senior secured loans, with 94.5% in first-lien loans.

The 3.2% of our portfolio held in second-lien loans consists entirely of asset-based loans with borrowing bases, and no second-lien cash flow loans. At quarter-end, our weighted average asset-level yield was 11.1%, which was down from 11.6% in the prior quarter.

The sequential decline was primarily due to the lagged impact from the 50 basis points decline in base rates in the fourth quarter and reduced one-time income that had occurred in fourth quarter. Overall, we believe our portfolio has been less impacted by changes in base rates and spread compression compared to the BDC peer group because of our lower allocation to cash flow loans.

Based on our quantitative risk assessment scale, our portfolio continues to perform well. At quarter-end, the weighted average investment risk rating was under 2, based on our 1 to 4 risk rating scale, with 1 representing the least amount of risk.

Just under 98% of our portfolio is rated 2 or higher. Importantly, 100% of the portfolio was performing, with no investments on non-accrual.

While our credit quality remains strong, in light of market concerns of increasing defaults in private credit portfolios, we believe it's important to take a moment to note that SLR has a strong track record of successfully navigating workouts. When a portfolio company's performance deteriorates, we work closely with our co-lenders, owners, and management teams to arrive at a value-maximizing path forward.

In the event owners are no longer willing to support a portfolio company with additional equity, we're comfortable stepping into an ownership role when we believe that that will be the path to best drive the maximum return. We have a dedicated senior team that works closely with our investment teams when a situation first becomes noisy.

They work hand-in-hand with our senior leadership team at SLR on all workouts. In addition, our asset-based lending teams are led by industry veterans with over 30 years of liquidation and workout experience, and they provide additional restructuring support when needed.

Now let me touch on each of our four investment verticals, starting with our specialty finance segments. As a reminder, we dynamically allocate to our strategies based on market and economic conditions, which allows us to source what we believe to be attractive investments across market cycles.

Let me start with asset-based lending. Our direct corporate ABL business remains a highly fragmented industry and contains high barriers to entry through the complexity of underwriting, collateral monitoring, and active borrowing base management.

This strategy requires significant investment in experienced human capital as well as infrastructure. Our priority remains first-lien position on liquid, current account assets, which has historically minimized our downside risk exposure.

At quarter-end, our ABL portfolio totaled just under $1.4 billion across 250 issuers, representing approximately 43% of our total portfolio. During the first quarter, we originated $77 million of new ABL investments and had repayments of $194 million.

The weighted average asset-level yield on this portfolio was 12.3%, compared to 12.6% the prior quarter. Our ABL portfolio contraction in the first quarter was predominantly due to temporary paydowns of existing revolving credit facilities and our proactive management of borrower exposures, consistent with our hands-on ABL credit discipline, as opposed to repayments of loans that would have generated repayment fees.

In our ABL business, a meaningful contributor to the returns that we generate are derived from portfolio churn in the form of early repayment fees and the acceleration of upfront fees. We had close to 70% of this portfolio churn last year across our ABL businesses.

Over time, we expect this churn to revert to its historical level, which we expect will drive incremental fee income. We are seeing increased activity across our ABL platform.

In particular, we're seeing an uptick post a quiet first quarter from our sponsor finance clients, who are increasingly seeking incremental liquidity through ABL solutions for their portfolio companies. We expect to produce net portfolio growth in our ABL strategy through the remainder of this year.

Turning to ABL strategic initiatives. Our adviser recently established a sourcing arrangement for ABL investments with a large US commercial bank that spans many of our ABL strategies.

This partnership expands our origination reach. We're optimistic that this initiative will enhance our investment sourcing funnel and support portfolio growth in specialty finance ABL investments.

We are currently in discussions for other partnership opportunities similar to this. In addition, we are continuing to evaluate strategic transactions such as portfolio and ABL business acquisitions.

We also continue to expand our ABL origination team. Now let me touch on equipment finance.

At quarter-end, the equipment finance portfolio totaled just under $1.1 billion, representing approximately a third of the total portfolio, and was highly diversified across 580 borrowers. The credit profile of this portfolio was unchanged quarter-over-quarter.

During Q1, we originated $122 million of new assets, with the majority of these investments coming from our business that provides leases to investment-grade corporate borrowers. We had repayments of approximately $126 million.

The weighted average asset-level yield for this asset class was 10.2%, compared to 10.9% the prior quarter. We remain encouraged by the current trends we're seeing in our equipment finance business.

Our investment pipeline has expanded, and we're seeing demand from our borrowers to extend leases on equipment rather than buy new equipment at higher, tariff-adjusted prices. Now let me turn to life sciences.

At quarter-end, the portfolio had just over $180 million of senior secured investments, representing close to 6% of the total portfolio, which is down from a peak of 15%. Over the past couple of years, we have been reporting on the origination challenges in this strategy.

The debt market for venture-backed private and public late-stage life science companies has seen an influx of capital and a corresponding degradation in credit discipline. Our life science finance team has been in this business for over 25 years.

Their zero-loss track record has been predicated on underwriting and structuring standards that new entrants are often not adhering to. This trend has impacted our portfolio growth.

For context, life sciences has historically accounted for an average of 22% of our quarterly gross comprehensive income since 2020. However, in the first quarter, it was only 13.5%.

One-time life science fees have historically contributed an average of 3.5% to our gross investment income, whereas they represented approximately 1% during Q1. Similar to asset-based lending, churn is critical in our life science portfolio and has been a significant contributor to our earnings.

The pipeline of new opportunities has picked up materially in 2026. To capitalize on the expected growing opportunity set in life sciences, our adviser has expanded the team through the hiring of three highly experienced professionals.

We expect that these efforts to broaden our origination reach and product offering should generate strong portfolio growth over the coming quarters, which will eventually both increase portfolio churn as well as fee income. Finally, let me turn to cash flow lending.

As a reminder, in cash flow lending, we position SLR not as a generalist capital provider across all industries, but rather as a specialized industry-focused partner to private equity firms with portfolio companies in the upper middle market. This is most evident in the healthcare sector, where we intentionally curate our sponsor base, partnering exclusively with dedicated healthcare private equity firms with longstanding, successful track records of investing in the healthcare industry.

These sponsors prioritize knowledge over terms, recognizing that the healthcare industry's ongoing regulatory and reimbursement evolution requires a lender with deep domain expertise. By leveraging SLR's three healthcare investment pillars—healthcare ABL, life sciences, and healthcare sponsor finance—we evaluate sponsor-backed investments with a level of granularity that generalist lenders cannot replicate.

Beyond our focus on healthcare, we selectively deploy capital into business and financial services, which mirror these same defensive characteristics. We target market leaders with high recurring revenue, sustainable business models, and low capital intensity.

By focusing on companies that share the resilient, non-cyclical profiles of our healthcare portfolio, we maintain rigorous underwriting standards while providing prudent diversification across our cash flow finance strategy. At quarter-end, this portfolio was $480 million across 28 borrowers, including the senior secured loans in our SSLP.

Approximately 2% of the portfolio is allocated to software investments. Weighted average EBITDA was approximately $110 million.

100% of our cash flow investments are in first-lien investments, and the portfolio carried a weighted average LTV of 38%. Our borrower fundamentals are trending positively, with year-over-year growth in both EBITDA and revenue at our portfolio companies.

Weighted average interest coverage on this portfolio was 2.2 times at quarter-end, up from 2 times in the prior quarter. During Q1, we made investments of $43 million in first-lien cash flow loans and had repayments of approximately $40 million.

Only one of these 12 investments was to a new borrower. At quarter-end, the weighted average cash flow yield was approximately 10%, compared to 9.8% the prior quarter.

Now let me turn to our SSLP. During the quarter, we invested $9.8 million and had $3.4 million of repayments.

Net leverage was just under 1 times. In the first quarter, we earned income of $1.5 million, representing an annualized yield of roughly 12.25%, compared to 9.25% in the fourth quarter.

At quarter-end, we had approximately $54 million of undrawn debt capacity. We expect to grow this portfolio opportunistically over the remainder of 2026.

Now let me turn the call back to Michael.

Thank you, Bruce. Over the last seven months, we think both the public and private markets have come to terms with private credit's maturation as a core asset class, with a corresponding recalibration of forward return expectations to reflect a tighter spread environment and more normalized default/loss experience.

With less than 10 basis points of annual losses at SLRC since the company's IPO 16 years ago, resulting in an IRR above 9%, our North Star at SLR continues to be protecting capital, avoiding losses, and not chasing higher spreads at the expense of structural protections. We believe this approach provides our investors with absolute returns designed to consistently exceed the liquid corporate credit markets, yet with lower volatility.

It is with this view that the private credit market has matured and correspondingly carries tighter illiquidity premiums that our board of directors took action this quarter to adjust the second quarter dividend distribution to a level we view to be sufficiently covered from earnings while simultaneously preserving capital while we grow our earnings, and to adjust our performance-based incentive fees to 17.5% from 20%. These are actions that we don't take lightly as leaders and significant shareholders of SLRC since its founding more than 15 years ago.

However, we believe that we have struck the right balance and that we are acting in the best long-term interests of shareholders. As a reminder, we have taken action previously at SLRC to adjust the dividend during transitioning investment climates to make way for growth.

The SLR team owns over 8% of the company's stock and has a significant percentage of their annual incentive compensation invested in SLRC stock each year, including purchases that took place in the first quarter. The team's investment alongside fellow institutional and private wealth investors should demonstrate our confidence in the company's portfolio, stable capital structure, and earnings outlook.

We've made significant investments in resources across the SLR platform over the last couple of years and year-to-date that should fuel growth in the investment portfolio that will support net investment income growth. Importantly, we have the available capital to be opportunistic in market dislocations and to evaluate strategic transactions.

Thank you all again for your time today with a busy day of BDC earnings releases. Operator, will you please open the line for questions?

thanks. Good morning, everyone.

I thought you made some interesting points in the prepared comments describing how kind of lower churn in some of the portfolios has led to lower fees and how this is, hopefully kind of more temporary, market-related impact, but that has driven down the investment income here in the most recent quarter, and I suspect that's kind of what's driving the action in the stock price today. You also highlighted some initiatives you've taken to grow the specialty finance strategies and how those should help kind of rebuild that income through additional churn.

I'm just kind of curious to what degree, and I realize there's no definite kind of timeframe, but how soon should we start to see the benefits of those initiatives that you've taken and outlined?

I think that it will take a few quarters. If you step back for a moment, the churn commentary goes specifically to both our asset-based lending and life science portfolios.

Historically, those assets have had a contractual duration of five or six years, but an actual duration of about two years. It's a combination of bringing more of those assets into the portfolio, which we expect to do this year, and then let those mature and start to repay over the next 12 to 24 months.

That's the typical lifecycle of that churn that will get back to a more normalized non-recurring yet recurring fee income portion of our gross investment income. Then I think additionally, some of the strategic initiatives go to, as we've mentioned, strategic sourcing arrangements, particularly on the asset-based lending side, additional origination members on both the ABL and life science teams, and then less predictable from a timing perspective is we continue to see some attractive opportunities in potential portfolio and team acquisitions in specialty finance, but again, a little bit less able to predict that.

Thank you. Appreciate the color there.

Then just more importantly from kind of my research and investigating, credit performance is ultimately one of the biggest predictors of long-term ROE and performance for BDCs, and you've outlined your very limited loss history and that the portfolio remains very clean from a non-accrual perspective, and also just comparing your internal risk ratings from last quarter to this quarter, there's even been an improvement there when we're seeing kind of the opposite at other BDCs. Wonder if you could just kind of talk about the improvement that I noticed here in the most recent quarter from your internal risk rating perspective.

I think we don't, as judge it sort of quarter-to-quarter. There are always some names coming in and names coming out underneath those risk ratings.

I think what we'd like to point to is the watch list is about 2.2%. If you go back over the last five years, it's been a little higher, a little bit lower, but 2.2% was actually the average going back to 2020.

For us to your commentary, we're looking for more consistency across the credit performance, and that's what we're happy about and comfortable with.

Look, I think it's also an example how we've talked for a long time that the specialty finance assets, the ABL assets are much less volatile than cash flow-oriented loans, and that's why the list is so low and we expect it to stay that way.

Thank you for taking my questions this morning.

Thank you.

Thank you.

Hey, guys. Thanks for taking my question.

Look, the implied ROE on your new dividend based on current book is about 6.8%, which is roughly SOFR plus 2. That seems like a relatively low margin given the risk profile of the company.

Again, I realize great track record on credit, but this is a levered portfolio. There is inherently credit risk in it.

How do we think about this going forward? Are you saying that the return profile for the company is likely to be altered, or for the industry is likely to be altered sort of long term because of some of the dynamics we're seeing in terms of the broader flows to private credit, or how should we think about the dividend in the context of your long-term return objectives?

I think, look, we set it at a level that we want to have confidence we're going to exceed in the near term. I think in the long term, as Bruce alluded to in his commentary, we have several levers and initiatives that give us comfort that over the medium to long term, we should see our earnings move back toward the 40 cent level that we've experienced in the past and get to the higher ROE and ROI that we expect and have experienced in the past.

I think the other thing is, our focus continues to be on total return. Obviously, that takes into account losses.

I think we feel very good about where we are because of the credit quality, and that's something that's sustainable.

Got it. When you think about those levers to get back to the 40 cents of core earnings, recasting the portfolio is a gradual process.

Is the most immediate opportunity a modest degree of enhanced leverage? Again, I'm trying to figure out not only what the destination is, but what the path looks like a little bit as well.

Fair question. Yeah.

Look, I think and

we touched on this a little bit earlier in terms of timing, right? Potential portfolio acquisitions, particularly around the asset-based industry, which we have done in the past given the fragmented nature, we've seen more opportunities there.

That would be more difficult to predict, but more immediate, should they come to pass, as we bring portfolios in. The most recent, as you may recall, was fourth quarter of '24, we brought in the Webster factoring portfolio.

Those are difficult to predict, but are immediately accretive, and also strategic in terms of expanding our ABL footprint, either geographically or by industry. I think the levers that you heard generally go around expanding our sourcing across specialty finance, in particular ABL and life sciences.

It's a combination of additional originators, it's also these strategic sourcing arrangements that we're starting to create partnerships with existing ABL players. As we are incredibly conservative.

It helps to have a broader pipeline and expand that origination opportunity set, which allows us to start to bring more of these short-duration ABL and life science loans into the portfolio, and unfortunately, know that they're going to churn out pretty quickly with a 24-month average duration. You'll start to see that, obviously, some are six months, some are 26 months, but you'll start to see that work through the portfolio in terms of coming into the portfolio this year and starting to exit as early as next year.

It's really that velocity in those two asset classes that will contribute additional recurring fee-based income.

Got it. Then, look, philosophically, a lot of people talk about being conservative.

You guys have demonstrated your credit results are evidence of conservatism. As a lender, for some types of lenders, if you're a credit card lender, there's an efficient frontier.

It's not a zero-defect business by definition, and if your loss rates are too low, you're leaving too much opportunity on the table. I would argue that BDC lending is, in fact, a zero-defect business.

One of your most thoughtful competitors years ago said to me, there's no spread that makes up for a bad loan, and that's always stuck with me. I do wonder if even within a zero-defect construct that is there a concern that you guys are too far from that line of zero defect and that there's a little bit of widening that you can do and still maintain a zero-defect objective?

I think that is a phenomenal point. The way that we address our, let's call it, maybe ultra-conservative approach to this requirement to be zero defect in private credit is by moving increasingly into these specialty finance strategies.

The reason that we have zero defects is definitely, in large part, because of the leadership of our life science and ABL teams, period, full stop. Secondarily, they come with collateral.

They come with tight documentation, borrowing bases. There's been no degradation in the documentation in life sciences and ABL.

The fact that the performance of these asset classes, in addition to obviously the leadership of those teams over decades and multiple cycles, allows us to take on more risk in those strategies than we would perhaps as a team focused exclusively on cash flow lending, because you do have that downside protection of underlying collateral, be it cash and IP in life sciences and working capital assets in asset-based lending. We are extremely cognizant of the point you're making, and therefore, it further aligns our conservative culture by doing more in these specialty finance collateral-based strategies.

I'd say the other thing on that also is in terms of where we are and others are in the risk spectrum is that the jury is still out, right? We had a 17-year run without a real credit cycle.

What we're seeing this quarter and last quarter, we're seeing public BDCs and private BDCs have significant NAV degradation, with the storyline behind it being that it's temporary, it's mark-to-market. The jury's out whether that is truly mark-to-market and is recoverable.

When you think of people software exposure, that mark-to-market may be permanent and can actually become worse. I think we're very comfortable where we've been to Bruce's point on documentation and not pushing the envelope on traditional direct lending, because it's your earlier point about spread.

It's not just spread that you can't make up for, it's bad documentation that you can't get to the table early enough to kind of protect your interest. I think we feel very good about where we are.

In the past, are there deals that we passed on because we're too conservative and worked out just fine? Yes.

Have we applied that same mentality as a portfolio approach, we'd be sitting on a lot of loans today that we'd be really worrying about and not be able to sleep at night. To the earlier comment about being able to kind of focus on to rebuilding our NII, the good news is the team, given how low our watch list is and they have no defaults, the team is not focused on restructurings or worrying about the portfolio too much.

They're focused on growth and how to rebuild in a way that we can be profitable for the long term.

Guys, thank you very much. I appreciate it.

I realize they're pretty philosophical-type questions, and I appreciate the thoughtful answers.

Thanks, Rick. Appreciate the questions.

Hi, guys. I've got a first question, the second question basically Rick already asked it, but I've got a slightly different way of looking at it.

On the first one, on the comprehensive portfolio paybacks, right, you'd always rather get your money back than lose it, but on that it just surprised me a little bit that it was so strong and the portfolio shrunk so much, relatively speaking, in this quarter when The banks, I think the sense is they're not looking to go heavily risk-on right now. They're one of your primary competitors on ABL lending.

It's a fragmented market. What was the real driver of that payoff?

It seems like a market where I would have expected repayments on ABL or competitive takeaways or whatever to be more muted. Yet you were very successful on getting a lot of capital back.

That's a good thing and a bad thing. Any thoughts on what drove that dynamic?

Yep. Underneath the hood there, in asset-based lending, there's three primary sources of repayments.

There's the traditional, you get refinanced out with another ABL lender or maybe to a cash flow loan, and then there's the what I would call temporary repayment, because most ABL facilities have a large revolver, maybe seasonal draws. In our $194 million, some of that is because of seasonal repayments.

As I mentioned in my prepared remarks, most of it was because of seasonal repayments rather than a borrower exiting the platform and canceling their facility per se. The third dynamic, which we didn't have in Q1, but just to touch on your question more broadly, is sometimes in asset-based lending, when we feel the fundamental performance of the business is not going in the direction that we're comfortable with, the beauty of ABL, because we have strong documentation, is we can start to turn up the pressure on that borrower to create alternative sources of liquidity, because we can wind down our exposure with that borrowing base by increasing reserves, ineligibles, such that our advance rates continue to contract in our favor, and that will drive a repayment, not necessarily because we got refinanced or there was a temporary paydown, but just because we've kind of applied some pressure and said, "Look, we think you should be looking elsewhere and refinance this with somebody else."

That is a dynamic selectively that our life science team has done from time to time. It's a key element of our specialty finance strategies is that you have that ability to try to wind down your exposure and take down your advance rates given how tight the documentation is and your underlying collateral support.

Specifically to your question in Q1, Robert, it was really temporary repayments of facilities rather than any of the other two alternatives, which is a true refinancing or, I'll call, an agreed-upon exit.

Got it. Thank you.

Then the second one, it's basically related to Rick's question. I agree that zero defect is the goal, but when you look at the portfolio, is your pipeline construction with the in-house teams, etc., strict that the result is, yes, you have really high-quality assets, but there's not enough, there's only great assets, there's not good assets?

When a great asset repays, you don't have a flow of acceptable, probably zero defect, but you can't moderate the size of the portfolio more, when things are great, you just do the great ones, when the great ones are repaying, you edge a little bit that is still in the zero-defect bound,

I like that term,

thanks Rick, but allows more moderation of which deals you agree to do. Is that kind of one of the strategic components of expanding the distribution, you signed a deal with a bank to see more ABL deals?

What's the thought on moderating the flow?

Obviously, when you're saying yes to 5% of the opportunity flow, the way to expand the actual funded investments is to just expand that funnel so that 5% becomes a much bigger number. There's that element.

The quality of the deals that we generally see from asset-based loans coming out of asset-based banks is a higher quality. It might not be their quality, because they're being measured based upon the risk rating of the borrower rather than the collateral, whereas we can look at the collateral and say, "Oh, this is phenomenal collateral."

Michael touched on the AI initiative. There are a number of businesses that we lend to that may be impacted by AI, but if we have collateral, unfortunately, they may not survive, but we will probably liquidate ourselves out and be just fine.

I think, to your specific question, there's no such thing as a great private credit deal, period, full stop. You're taking on the ability to potentially lose money.

Everything we do is looking for good. I think the more deal flow we have with underlying collateral, that checks the SLR box for good if we have high-quality collateral.

Then expanding that pipeline by getting more and more out of ABL banks, that also increases the level of the operating performance of those fundamental borrowers. It's really the combination of having a much larger pipeline and having high-quality collateral both in ABL and life sciences that we believe if things go sideways—we always assume they will go sideways, and so when they go sideways, we're going to be just fine because of the additional collateral support beyond just the traditional ownership support that you'd look to in a borrower.

Got it. Thank you.

Thank you.

Hey, everyone. Good morning.

Thanks for having me on. Can you hit on the fee change, the break to 17.5% on the incentive fee, appreciating that.

Can you hit on how you and the board came to that number?

It wasn't a long discussion. I think, and it was initiated by us, not the board.

It was just kind of we looked around where people were doing it and thought it was the right thing to do.

Okay. That's helpful.

Then did the concept of the hurdle rate come up given the sort of story here now is growing earnings, which is tough for a BDC to do? You've been working at that for a long time.

It's not the easiest thing, I appreciate, to deliver on. Do you think a higher hurdle rate would motivate the team, align the team better to achieve that higher earnings?

No, actually, a lower hurdle rate would have done that, so that wasn't something we were going to consider. No, I look, I think the team, frankly, the way we manage our business, has never focused on our hurdle rate.

That's not their job. That's not how they're motivated or compensated.

The hurdle rate we've had since inception, and rates go up, rates go down, it's been the right place to be.

Maybe they would think about it if it was higher, right? Why do you say it would be better if it was lower?

Then they'd be more into the money on incentive fees.

Just from the BDC investors' vantage point.

You asked the question relative to our team.

Okay. I appreciate that.

All for me. Thanks so much.

Thank you.

No further comments other than to thank you all for your participation today, recognizing it's a very busy period of time and a lot going on within the private credit space, both in the public and private BDCs, and as always, that the entire team is available for any questions that you may have to follow up with. Thank you.