SLR Investment Corp.SLRCNASDAQ
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Operator: Thank you for your continued patience. The meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. If you need assistance at any time, press 0, and a member of our team will be happy to help you. Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, press 0, and a member of our team will be happy to help you. Good morning, everyone. Welcome to today's SLR Investment Corp. fourth quarter 2025 earnings conference call. At this time, participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note this call is being recorded. It is now my pleasure to turn the meeting over to Michael Gross, Chairman and Co-CEO. Please go ahead, sir.
Michael Gross: Thank you very much, and good morning. Welcome to SLR Investment Corp.'s earnings call for the quarter and year ended 12/31/2025. I am 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 Investment Corp. Investor Relations team. Shiraz, before we begin, would you please start by covering the webcast and forward-looking statements?
Shiraz Kajee: Thank you, Michael. Good morning, everyone. I would like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of SLR Investment Corp., and that any unauthorized broadcast in any form is strictly prohibited. This conference call is also being webcast on the events calendar in the Investors section on our website at slrinvestmentcorp.com. Audio replays of this call will be made available later today as disclosed in our February 24 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 to our Chairman and CEO, Michael Gross.
Michael Gross: Thank you, Shiraz, and thank you to everyone for joining our earnings call this morning. We are pleased to report that SLR Investment Corp.'s fourth quarter results solidified a strong year for the company, showcasing another quarter of broad stability in our portfolio, slow but steady portfolio growth, and a shift to asset-based lending investments with primarily liquid current assets as collateral that are supported by actively monitored borrowing bases. For those who have been following us for the last two years, we have shared a cautious view with our stakeholders about the increasingly fierce conditions within sponsor finance from the oversupply of capital. The broader investor community and media are now signaling concern of these conditions, the potential risk to forward returns, and ultimately an expectation of a wide dispersion in manager performance. While 2025 can be characterized by a surprisingly resilient U.S. economy that withstood tariff uncertainty, geopolitical tensions, and a government shutdown, the year in hindsight can also be marked as the beginning of a sea change in the maturing private credit industry. Sitting here today, with investor concerns and skepticism running high, we feel relatively insulated from many of the risks facing many of our peers because of our deliberate decision to hold the line with our underwriting standards, particularly in the overcrowded sponsor finance market, to safeguard SLR Investment Corp.'s performance and capital. We attribute the stability in our fourth quarter and full-year results to our multi-strategy approach to private credit investing, discipline, and our tactical asset allocation framework, which enables us to maintain investment and diversification across asset classes. Importantly, we are able to say no and pass on investment opportunities that do not meet our conservative lending standards. As credit investors, we are obsessively focused on downside protection. Turning to our fourth quarter results, SLR Investment Corp. reported net investment income, or NII, of $0.40 per share and net income of $0.46 per share. Net investment income per share was flat quarter-over-quarter, and net asset value per share of $18.26 as of December 31 increased both quarter-over-quarter and year-over-year from both unrealized and realized gains. Our net income for the quarter equated to a 10.1% annualized return on average equity. For the full year 2025, we generated net income of $1.70 per share, representing a 9.3% return on average equity, which we anticipate should compare favorably to publicly traded BDC and non-listed BDC peers as well as the broadly syndicated loan markets. During the fourth quarter, we originated $462 million of new investments across a comprehensive portfolio and received repayments of $445 million for net funding of $70 million, resulting in a year-end comprehensive portfolio of $3.3 billion and annual growth of 7.2%. New originations were the second-highest level achieved on record, increasing 36% year-over-year and 3% quarter-over-quarter, continuing the strong origination momentum we have delivered throughout this year. Originations for the year totaled $1.84 billion. The primary driver of new originations continued to be led by our commercial finance strategies, which we believe currently offer more attractive risk-adjusted returns. The company's strong commercial finance originations furthered our portfolio mix shift to asset-based specialty finance strategies over the last couple of years, which we believe provide greater downside protection from strong credit agreements, borrowing bases, and underlying collateral. As of 12/31/2025, more than 83% of our portfolio investments were in senior secured specialty finance loans, which represents the highest percentage in our 20-year history. Our direct industry exposure to the software industry remains low. So low, in fact, that the approximate 2% exposure as of December 31 is among the lowest industry exposures among publicly traded BDCs. For investors concerned about the uncertainty of technology obsolescence risk, enterprise value destruction for the software industry, and the burgeoning threat of artificial intelligence, SLR Investment Corp.'s portfolio, with its lack of software exposure, can be viewed as a safe haven. Overall, we remain pleased with the steady expansion and further diversification of the portfolio, which has produced an annualized growth rate of 10.1% since 2020 and a risk profile that is highly differentiated from other middle market lenders. Direct corporate asset-based lending, or ABL, a strategy we have been in since 2012, contains high barriers to entry due to the complexity of both underwriting and collateral monitoring. This makes it difficult for private credit managers who are latecomers to the strategy to build a book of asset-based loans that can withstand the pressures of changing economic and borrower conditions. We believe this difficult-to-replicate expertise in our 20 offices spread across the country makes us the first call for both sponsors and non-sponsors who are seeking corporate financings for ABL solutions. For the fourth quarter, asset-based lending originations of $247 million were almost double the originations in the prior-year period. Our originations for the full year of $1.1 billion were close to double the originations in all of 2024. SLR Investment Corp.'s ABL strategies continue to offer all-in returns of SOFR plus 600. As a reminder, early in Q4, we hired a well-known, respected industry veteran as President of Asset Based Lending at SLR Investment Corp.'s investment advisor. Mac Fowl is focused on expanding SLR Investment Corp.'s asset-based lending capabilities beyond the platform of the existing ABL franchise. We believe our investment in people and infrastructure over the last couple of years has contributed to our expansion in investment opportunities and a greater recognition of SLR Investment Corp.'s leadership in the ABL marketplace. SLR Investment Corp.'s ABL platform provides the infrastructure and strategic growth capital to further grow our comprehensive investment portfolio, including through potential portfolio and business acquisitions as well as geographic and industry expansion. With sponsor finance conditions competitive and illiquidity premiums tight, we passed on the refinancings of several cash flow investments in our incumbent portfolio, allowing our sponsor finance portfolio to further shrink. With cash flow loans representing just 14.5% of the comprehensive portfolio, the allocation of cash flow loans remains at the lower bounds of our historical mix. We will, however, continue to approach the investments in cash flow lending opportunistically. Our deep industry expertise in the healthcare sector, along with trends in private equity fundraising at dedicated healthcare-focused sponsors and deal activity, should continue to present selective opportunities for us to be active in attractive cash flow lending during 2026. Moreover, our healthcare industry expertise in cash flow lending serves an important information resource and referral source for SLR Investment Corp.'s life science and healthcare ABL investment teams. Overall, we remain pleased with the composition, quality, and performance of our portfolio, a direct result of SLR Investment Corp.'s multi-strategy approach to private credit investing. At year-end, approximately 95% of our comprehensive investment portfolio was comprised of first lien senior secured loans, 100% of our investments at cost were performing with zero investments on non-accrual, and PIK income continued to comprise a de minimis percentage of total income. We believe these credit quality metrics compare very favorably to peer public BDCs. At December 31, including credit facility capacity at SSLP, and our specialty finance portfolio companies, we had over $850 million of available capital to deploy. Our liquidity profile puts us in position to take advantage of either stable economic conditions or a softening of the economy. I will now turn the call back over to Shiraz, our CFO, to take you through the fourth quarter highlights.
Shiraz Kajee: Thank you, Michael. SLR Investment Corp.'s net asset value at 12/31/2025 was $996 million, or $18.26 per share, compared to $18.21 per share at 09/30/2025, and $18.20 per share at 12/31/2024. At year-end, SLR Investment Corp.'s on-balance-sheet investment portfolio had a fair value of approximately $2.1 billion in 100 portfolio companies across 31 industries, compared to a fair value of $2.1 billion in 109 portfolio companies across 31 industries at September 30. SLR Investment Corp.'s investment portfolio is funded by a combination of revolving credit facilities and the issuance of term debt in the unsecured debt markets to institutional investors. The company is investment grade rated by Fitch, Moody's, and DBRS, and more than 40% of the company's debt capital is comprised of unsecured debt at December 31. During the quarter, the company was active in the management of various credit facilities with multiple banks, including the closing of a new credit facility at the SSLP that enhanced the joint venture's borrowing flexibility and reduced the spread by 75 basis points. These actions, combined with others taken during the year, have improved borrowing flexibility via better advance rates, expanded the unsecured investor base, and extended maturities. The company does not have any near-term refinancing obligations, with the next unsecured note maturity occurring in December 2026. We expect to continue to prudently access the debt capital markets and issue unsecured debt as and when needed. At December 31, the company had approximately $1.2 billion of debt outstanding with a net debt-to-equity ratio of 1.14 times, which was within our target range. We believe we have ample liquidity to support our unfunded commitments. Moving to the P&L, for the three months ended December 31, gross investment income totaled $54.5 million versus $57.0 million for the three months ended September 30. Net expenses totaled $32.9 million for the three months ended December 31. This compares to $35.4 million for the prior quarter. Accordingly, the company's net investment income for the three months ended 12/31/2025 totaled $21.6 million, or $0.40 per average share, the same as the prior quarter. Below the line, the company had a net realized and unrealized gain for the fourth quarter totaling $3.5 million versus a net realized and unrealized gain of $1.7 million for the third quarter of 2025. As a result, the company had a net increase in net assets resulting from operations of $25.1 million for the three months ended December 31, compared to a net increase of $23.3 million for the three months ended September 30. On February 24, the Board of SLR Investment Corp. declared a Q1 2026 quarterly base distribution of $0.41 per share, payable on 03/27/2026 to holders of record as of 03/13/2026. I will now turn the call over to our Co-CEO, Bruce Spohler.
Bruce Spohler: Thank you, Shiraz. As Michael shared, we have continued to shift the portfolio toward our specialty finance strategies throughout 2025 due to their more attractive risk-adjusted returns. Our pipeline also reflects this continued momentum. Our specialty finance strategies currently offer higher pricing than sponsor finance loans, and greater downside protection through their underlying collateral support and tight documentation. We view these more favorable terms as a complexity premium that we earn through investing in structures that require significant expertise and infrastructure that most private credit firms do not have. Turning to the portfolio, at year-end, the comprehensive investment portfolio consisted of approximately $3.3 billion with an average exposure per borrower of $3.8 million. Measured at fair value, approximately 98% of the portfolio consisted of senior secured loans, with 95% invested in first lien loans. The 3% of our portfolio invested in second lien loans consists entirely of asset-based loans with underlying borrowing bases and no second lien cash flow loans. At year-end, our weighted average yield on the portfolio was 11.6%, which was down from 12.2% in the third quarter and 12.1% at the end of 2024. The sequential decline in yield was primarily due to two factors: the decline in base rates in the fourth quarter that began to impact results as well as timing due to the funding of our new investments towards the end of the December month and receipt of repayments earlier in the 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, made possible through our current focus on the less competitive specialty finance investment sectors. Based on our quantitative risk assessment scale, our portfolio continues to perform well. At year-end, the weighted average investment risk rating was under two based on our one-to-four risk rating scale, with one representing the least amount of risk. Just under 98% of our portfolio is rated two or higher at year-end. Importantly, 100% of the portfolio was performing with no investments on non-accrual. Now let me touch on each of our four investment verticals. Starting with our Specialty Finance segments, as a reminder, we dynamically allocate across our strategies based on market and economic conditions, which allows us to source attractive investments across market cycles. Let me first discuss asset-based lending. Given current market volatility as well as investor sentiment, I would like to take a moment to review the investor protections inherent in our ABL asset class that serves as the bedrock of our conservative investment philosophy. In old-school ABL lending, which we define as bilateral corporate lending by teams with significant infrastructure support as well as experience in evaluating and monitoring collateral, we are able to structure credit agreements and borrowing bases with terms that have not integrated in lockstep with the ballooning of private credit cash-flow-focused AUM. We are also able to maintain greater visibility and influence during the life of our investment. Simplistically, with cash flow lending, we are viewing portfolio companies through a quarterly rearview mirror, whereas in asset-based facilities with borrowing base requirements, we are essentially using binoculars. We can get to the table at the first sign of a problem. Our teams have decades of experience structuring our investments to ensure that the value in loan-to-value sufficiently covers our principal, even in severe downside scenarios. Old-school ABL requires significant investment in both people and infrastructure. We began this buildout in 2012 with our first control stake acquisition, which was then followed by eight additional tuck-in acquisitions. Our collaborative ABL and equipment finance strategies provide a moat that newer entrants cannot easily create. At year-end, our ABL portfolio totaled just under $1.5 billion across 252 issuers, representing approximately 45% of our comprehensive portfolio. For the fourth quarter, we originated approximately $250 million of new ABL investments and had repayments of approximately $235 million. In the fourth quarter, the weighted average asset-level yield of the ABL portfolio was 12.6%. Now let me touch on equipment finance. At quarter-end, this portfolio totaled just under $1.1 billion, representing approximately a third of our comprehensive portfolio. It was highly diversified across 585 borrowers. The credit profile was unchanged quarter-over-quarter. During the fourth quarter, we originated just over $150 million of assets, with the majority of them coming from our business that provides leases predominantly to investment grade corporate borrowers for their mission-critical equipment, and had repayments of just over $120 million. The weighted average asset-level yield for this asset class was just under 11%. We remain encouraged by some of the trends we are seeing in our equipment finance business. Our investment pipeline has expanded, and we are seeing demand from our borrowers and sponsors to extend existing leases on equipment rather than buy new equipment at higher tariff-adjusted prices. Now let me turn to Life Sciences. Over the last few years, the life sciences venture debt market has been characterized by fierce competition as asset managers look to make a splash in perceived adjacencies. As we see it, this influx of capital into life science lending has led to the prevalence of stretch deals where some market participants prioritize enterprise value methodology over credit discipline. Throughout this time, we have chosen to maintain a strict late-stage investment approach, with a focus on drug discovery and medical device companies that are in or approaching commercialization and that possess structural protections that have historically mitigated risk throughout market cycles and FDA risks. The broader life science industry has seen a surge in healthcare services IT transactions, which are predominantly software company loans to healthcare borrowers. We have intentionally avoided this segment. In contrast to the high FDA barriers that are present in drug discovery and medical devices, which entail several-year-long FDA approval processes, the barriers to entry in software are lower and IP protections are more limited. As a result, the reliance on software IP as collateral presents elevated risks of technological obsolescence and valuation volatility in life sciences that we have avoided. Given those market dynamics, we have consciously allowed our life science portfolio to shrink across the SLR platform. In 2025, we made first lien term loan commitments of approximately $500 million and partnered in the origination of $60 million of ABL facilities for life science borrowers issued by our healthcare ABL team. During that same period, we had over $400 million in repayments. Looking ahead, our pipeline of opportunities is notably larger than it was at the beginning of last year. We think the drug discovery pipeline is poised for reacceleration after a period of relative sluggishness in public market valuations. Despite ongoing uncertainty regarding the FDA's direction, a recent wave of high-profile acquisitions has significantly bolstered public market valuations for bioscience companies. Furthermore, the integration of AI technology holds the promise of shortening drug development timelines and creating a more dynamic investment opportunity set, although we acknowledge that this will take time to evolve. We will remain disciplined, leveraging our 25-year track record to identify late-stage development companies with robust clinical data and a clear path to commercialization. At year-end, our life science portfolio totaled approximately $180 million across seven borrowers. Importantly, 100% of these portfolio companies are revenue generating with at least one product in the commercialization stage, which significantly de-risks our investment. During the fourth quarter, the team funded $26 million to a new borrower and had just under $60 million of repayments. At quarter-end, the weighted average yield on our first lien life science portfolio, including success fees but excluding warrants, was 12.3%, consistent with the prior quarter. Now, finally, let me turn to our cash flow lending business. Middle market sponsor activity improved modestly in the fourth quarter, and the momentum appears to be carrying over into 2026. Yet competition for quality assets remains intense, and the looming 2026–2027 maturity wall continues to shape borrower behavior. In cash flow lending, all eyes are currently on software exposure. Michael has already provided specifics on our underweighting to that sector. I will touch on the why and how we avoided this sector. As the software sector was experiencing its heyday in the COVID economy era, and private credit leaned into the massive capital deployment opportunity, we, too, evaluated the potential for developing a core expertise in the software sector. However, we determined that loans to SaaS businesses do not offer the same downside protection as our existing investment strategies. For example, unlike in our life science strategy, where loans are backed by IP that takes typically 10 to 15 years to create and hundreds of millions of dollars of investment, the technology backing IP software faces a far greater risk of obsolescence. The risk-reward profile of software loans is less attractive also to our asset-based lending strategies, which are typically backed by accounts receivable or liquid inventory. Additionally, we viewed our existing healthcare expertise across cash flow lending, healthcare asset-based lending, and late-stage life sciences as a means of capitalizing on an investing edge that we possess in an essential sector. In short, our existing strategies have enabled us to avoid the software industry, while still delivering portfolio growth and steady income. If software leads to broader cash flow dislocation, we, too, will be opportunistic investors once again in the cash flow market. At quarter-end, our sponsor finance portfolio was just over $475 million across 27 borrowers, including the loans held in our SSLP, or just 15% of the total portfolio. With 100% of our cash flow loans invested in first lien loans, we believe that we are well positioned to withstand tariff or economic headwinds. Our borrowers have a weighted average EBITDA of just over $100 million and carry low LTVs of approximately 40%. Our borrower fundamentals are trending positive, with portfolio company average EBITDA and revenue growth in the mid-single digits year-over-year. Overall, our portfolio companies have successfully managed the transition to an environment with higher cost of capital as well as input prices. Weighted average interest coverage on our sponsor portfolio was 2.3 times, up from the prior quarter. Additionally, 1.1% of our fourth quarter gross investment income is in the form of capitalized PIK from our cash flow borrowers, resulting from amendments. During the quarter, we made new investments of $37 million in cash flow loans and experienced repayments of approximately $30 million. At quarter-end, the weighted average yield on the cash flow portfolio was just under 10% compared to just over 10% the prior quarter. Lastly, let me touch on our SSLP. During the quarter, the SSLP revolving credit facility was refinanced, lowering our interest rate from SOFR plus 2.90% to SOFR plus 2.15%. Adjusted for one-time credit facility charges associated with this refinancing, the company would have earned $1.5 million in the fourth quarter, representing an annualized yield of 12.6%. During the quarter, SSLP invested $13 million and had $19 million of repayments. Net leverage was just under 0.9 times. We expect to continue to rebuild this portfolio this year. At quarter-end, we had roughly $55 million of undrawn debt capacity. Now let me turn the call back to Michael.
Michael Gross: Thank you, Bruce. With hindsight, we think 2025 has the appearance of being marked as a consequential year for the private credit industry and for the value proposition of SLR Investment Corp. Over the last couple of years, we have been vocal about how the seemingly limitless access to private credit for investors can lead to the unsatisfactory achievement of marketed outcomes, especially given that the two key drivers of outperformance in private credit investing come from avoiding and minimizing credit losses and the use of leverage. As we see it today, the markets are clearly demonstrating an understanding of the private credit market’s maturation and recalibrating expectations to a more normalized default loss experience. While the private credit landscape has shifted dramatically, our core philosophy remains unchanged. Stakeholder alignment drives every decision at both SLR Capital Partners and SLR Investment Corp. Last year, SLR Investment Corp. surpassed its 15-year history as a publicly traded company, and this year SLR Capital Partners will surpass 20 years of operating history. As co-founders of SLR and co-CEOs of SLR Investment Corp., Bruce and I continue to lead a team that has largely worked with us since the start and are now responsible for more than 300 employees, including professionals at the five specialty finance affiliates within SLR Investment Corp. Our platform's value proposition has attracted very high-quality senior talents such as Mac Fowl from JPMorgan and others. Based on our team’s investment experience through multiple cycles over the past 30-plus years and our multi-strategy approach to private credit investing, we believe we are well equipped to continue outperforming across shifting private credit markets. SLR Investment Corp. achieved a net income ROE of 9.3% in 2025 and a total economic return of 8.1% over the last three years, which we expect to be at least 200 basis points wide of the public BDC peer group average when results for year-end 2025 are fully released. We believe that the discipline we have exercised through SLR Investment Corp.'s history can be seen through the backward-looking lens of performance as well as a forward-looking lens of portfolio quality. With credit quality top of mind today, we remain pleased with our portfolio, which sits at the midpoint of our target leverage, is 100% performing, has exposure to software of approximately 2%, and has restructured PIK income of approximately 2% of total investment income. Moreover, our portfolio companies continue to experience both top-line and EBITDA growth and should benefit from recent reductions in SOFR. We continue to acknowledge that our results are not fully immune to the impact of recent reductions in base rates by the Federal Reserve in Q4, but we believe SLR Investment Corp.'s earnings sensitivity to changes in base rates is one, if not the lowest, amongst our peers. Fourth quarter 2025 originations and our pipeline in 2026 continue to reflect new investment opportunities at spreads that exceed our cost of capital. Our North Star continues to be protecting capital, avoiding losses, and not chasing higher spreads at the expense of structural protections. While maintaining dividend coverage is important as many of our investors rely on distribution of our income, we believe it must be done in a way that does not compromise credit quality. We have made significant investments and resources across the platform and continue to see some levers to pull at SLR Investment Corp. that can help offset base rate declines. Importantly, we have the available capital to be opportunistic in market dislocations. In closing, SLR Investment Corp. trades at approximately an 11.2% dividend yield as of yesterday's market close, which we believe presents an attractive investment for both income-seeking and value investors and offers a more diversified investment portfolio compared to direct-lending-only private credit strategies. Our investment advisor's alignment of interest with SLR Investment Corp. shareholders continues to be a hallmark principle. The SLR team owns over 8% of the company’s stock and has a significant portion of their annual incentive compensation invested in SLR Investment Corp. stock each year. The team's investment alongside fellow institutional and private wealth investors demonstrates our confidence in the company's profile, portfolio, stable funding, and earnings outlook. Thank you again for all your time today, and we hope to see you in person at a conference in 2026. Operator, will you please open the line for questions?
Operator: Certainly, Mr. Gross. We will now open for questions. Once again, that is star one for questions. We will go first this morning to Erik Edward Zwick of Lucid Capital Markets.
Erik Edward Zwick: Thanks. Good morning, all. Thank you for all the detailed comments on the individual lending verticals and outlooks there. A bit of a follow-up in terms of the pipeline within the ABL and equipment finance and more from the inorganic perspective. I know sometimes you review opportunities to acquire portfolios and/or lending teams. I am wondering if you could just update us on any recent activity or outlook for 2026 there.
Bruce Spohler: Yes, great question. We have been very active. We do not win them all, because we are as disciplined in our acquisitions as we are in our individual investments. But I will say that the quality of potential opportunities is high, and as you may recall, one of the strategies that we have is to lend into some of these potential platforms as a way to get to know each other and see if there is an opportunity to bring them onto the SLR platform, rather than just lend them capital. So we have a number of those in the pipeline that are currently in portfolio that we have an active dialogue with. Those take time to germinate. So I would say that we do not see anything imminent, but we are very actively engaged in potential acquisitions.
Erik Edward Zwick: Thanks for the update there. And then I am just curious, in terms of the tight spreads that are being witnessed in the public debt markets, are those impacting the spreads in the ABL and equipment finance opportunities you are seeing today, or because of some of the structural defense mechanisms you have in place, have you been able to maintain new spreads relative to the existing portfolio?
Bruce Spohler: Yes. As Michael mentioned, the overall return has come down a little bit across all the strategies, but we still believe 11.5% or so compares extremely favorably to the market more broadly, and specifically the cash flow market. So we still like the opportunities. The structural protections help us on the risk side. Really, as we touched on, the lack of capital flows coming into these markets allows us to maintain our competitive position. Plus, the peer group here is smaller, but also extremely disciplined. Our peers share the same decades-long experience in asset-backed lending and appreciate that discipline is critical for their performance. So we find people to be very disciplined and not many new entrants.
Erik Edward Zwick: And the last one for me, just your portfolio remains very clean from a credit perspective from almost any metric you would choose to look at it. I am curious, are you seeing anything that might be an early signal in terms of greater amendment requests or increased revolver usage, or anything noteworthy from that perspective?
Bruce Spohler: The short answer is no. Private credit is a business of not sleeping at night, worrying about every name in your portfolio. As we mentioned, we do have a watch list; it is roughly 2%, and that is a constant. But what I would say is in our ABL strategies, and we touched on this in the comments, you have metrics that allow you to see more real-time the underlying performance of your borrowers and get a window into the broader economy domestically. Specifically, we get to see inventory turns, we get to see receivable collections, because we are monitoring those underlying pieces of collateral on a weekly and monthly basis. I would tell you that we are not seeing any themes coming out of that. It is very idiosyncratic—a one-off borrower here or there—but nothing that we can call a theme.
Erik Edward Zwick: That is great to hear. Thanks for taking my question today.
Bruce Spohler: Thank you.
Operator: We will go next now to Rick Shane of JPMorgan.
Rick Shane: Hey, guys, thanks for taking my questions. Look, one of the advantages that you guys have is that your leverage is relatively low and you have capacity to flex that as you choose. You also talked about being opportunistic during market dislocations. If we sort of stay in this environment right now, should we expect you to be opportunistic, or should we expect the portfolio and leverage to be roughly flat, and you would be waiting for a more severe environment to take advantage of that liquidity?
Bruce Spohler: I am going to answer it two ways. Part of what we are doing, to Erik’s questioning, is we always try to have a little bit of dry powder for potential acquisitions, and so that does inform how we look at the leverage ratio at any moment in time based on what we are seeing out there on the acquisition front as well as individual investment opportunities. We are blessed that we have multiple strategies. We are seeing good opportunities in the specialty finance strategies, particularly ABL, although we did mention that we are seeing life science pick up, and we also could see, as we get deeper into 2026, cash flow dislocation create opportunity for us, as we took advantage of back in 2023 when there was a dislocation in the cash flow market. So we are happy to take leverage up either through acquisitions or individual investments throughout 2026 to the high end of our target range, which is 1.25 times. Whether that will happen or not, we will see, because the other side of that equation is obviously repayments. As a lender, we celebrate repayment—that generates a memo internally. We are not so focused on deployment; we are more focused on getting repaid. As you can see, we have had an elevated level of repayments, and that has been very intentional where we have the ability to make that decision—do we stay or do we get repaid. By and large, we have been choosing to get repaid because either terms or structures or pricing have been less attractive than we would like. So that is the unknown for this year, although our crystal ball says we probably will see less repayments because I do see less capital coming into the market and a bit more discipline. So, long-winded way of saying we would like to see that leverage ratio come up in this environment because of the very attractive opportunities.
Rick Shane: Got it. Okay. Not long-winded—fine. I have asked a few long-winded questions in my time, so appreciate the answer.
Bruce Spohler: Thanks, Rick.
Operator: Thank you. We go next now to Heli Sheth at Raymond James.
Heli Sheth: Good morning. Thanks for the question. You mentioned M&A opportunities in the ABL business remain high. Any sort of shift in sentiment or outlook there? Does it seem more or less likely that some players may be willing to sell with all of the recent market noise?
Michael Gross: Dislocation always forces people to rethink their business and access to capital. So if we go through a period of time like this for quite some time, I think we will see more opportunities and at better pricing. We have a team that is actively looking at many situations all the time. So we are hopeful something happens in the relatively near term.
Heli Sheth: Got it. Thank you. And then could you quantify how much spillover you have as of year-end?
Michael Gross: We do not have any to speak of.
Heli Sheth: Okay. Thank you.
Operator: Thank you. And gentlemen, it appears we have no further questions today. Mr. Gross, I would like to turn things back to you, sir, for any closing comments.
Michael Gross: No closing comments at this time other than to thank you for all your time today. We realize it is a busy earnings season, and with all the turmoil in private credit, it is quite busy. If anyone has any questions, or people who are listening to this call after the fact, please feel free to reach out to any of us to continue the dialogue. Thank you.
Operator: Thank you, Mr. Gross. Again, ladies and gentlemen, that will conclude today's SLR Investment Corp. fourth quarter earnings conference call. Thanks so much for joining us, and we wish you all a great day. Goodbye.