10-Q 1 d26269d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended March 31, 2021

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 814-00754

 

 

SLR INVESTMENT CORP.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   26-1381340
(State of Incorporation)  

(I.R.S. Employer

Identification No.)

500 Park Avenue

New York, N.Y.

  10022
(Address of principal executive offices)   (Zip Code)

(212) 993-1670

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading

Symbol(s)

 

Name of Each Exchange

on Which Registered

Common Stock, par value $0.01 per share   SLRC   The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☐    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller Reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares of the registrant’s Common Stock, $.01 par value, outstanding as of April 30, 2021 was 42,260,826.

 

 

 


Table of Contents

SLR INVESTMENT CORP.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2021

TABLE OF CONTENTS

 

     PAGE  

PART I. FINANCIAL INFORMATION

  
Item 1.   

Financial Statements

  
  

Consolidated Statements of Assets and Liabilities as of March  31, 2021 (unaudited) and December 31, 2020

     1  
  

Consolidated Statements of Operations for the three months ended March 31, 2021 (unaudited) and the three months ended March 31, 2020 (unaudited)

     2  
  

Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2021 (unaudited) and the three months ended March 31, 2020 (unaudited)

     3  
  

Consolidated Statements of Cash Flows for the three months ended March 31, 2021 (unaudited) and the three months ended March 31, 2020 (unaudited)

     4  
  

Consolidated Schedule of Investments as of March  31, 2021 (unaudited)

     5  
  

Consolidated Schedule of Investments as of December 31, 2020

     10  
  

Notes to Consolidated Financial Statements (unaudited)

     15  
  

Report of Independent Registered Public Accounting Firm

     31  
Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     32  
Item 3.   

Quantitative and Qualitative Disclosures About Market Risk

     46  
Item 4.   

Controls and Procedures

     46  

PART II. OTHER INFORMATION

  
Item 1.   

Legal Proceedings

     47  
Item 1A.   

Risk Factors

     47  
Item 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

     48  
Item 3.   

Defaults Upon Senior Securities

     48  
Item 4.   

Mine Safety Disclosures

     48  
Item 5.   

Other Information

     48  
Item 6.   

Exhibits

     48  
  

Signatures

     49  


Table of Contents

PART I. FINANCIAL INFORMATION

In this Quarterly Report, “Company”, “we”, “us”, and “our” refer to SLR Investment Corp. unless the context states otherwise.

 

Item 1.

Financial Statements

SLR INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except share amounts)

 

     March 31, 2021
(unaudited)
    December 31,
2020
 

Assets

    

Investments at fair value:

    

Companies less than 5% owned (cost: $869,229 and $832,507, respectively)

   $ 865,066     $ 822,298  

Companies more than 25% owned (cost: $723,909 and $724,428, respectively)

     709,498       709,653  

Cash

     7,762       8,779  

Cash equivalents (cost: $350,000 and $379,997, respectively)

     350,000       379,997  

Dividends receivable

     9,508       7,927  

Interest receivable

     6,875       6,478  

Receivable for investments sold

     956       255  

Prepaid expenses and other assets

     752       571  
  

 

 

   

 

 

 

Total assets

   $ 1,950,417     $ 1,935,958  
  

 

 

   

 

 

 

Liabilities

    

Debt ($711,000 and $677,000 face amounts, respectively, reported net of unamortized debt issuance costs of $5,155 and $5,549, respectively. See notes 6 and 7)

   $ 705,845     $ 671,451  

Payable for investments and cash equivalents purchased

     350,041       380,038  

Distributions payable

     17,327       17,327  

Management fee payable (see note 3)

     6,810       6,535  

Performance-based incentive fee payable (see note 3)

     3,867       792  

Interest payable (see note 7)

     6,723       3,416  

Administrative services payable (see note 3)

     995       1,946  

Other liabilities and accrued expenses

     2,603       2,430  
  

 

 

   

 

 

 

Total liabilities

   $ 1,094,211     $ 1,083,935  
  

 

 

   

 

 

 

Commitments and contingencies (see note 10)

    

Net Assets

    

Common stock, par value $0.01 per share, 200,000,000 and 200,000,000 common shares authorized, respectively, and 42,260,826 and 42,260,826 shares issued and outstanding, respectively

   $ 423     $ 423  

Paid-in capital in excess of par

     962,481       962,481  

Accumulated distributable net loss

     (106,698     (110,881
  

 

 

   

 

 

 

Total net assets

   $ 856,206     $ 852,023  
  

 

 

   

 

 

 

Net Asset Value Per Share

   $ 20.26     $ 20.16  
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

1


Table of Contents

SLR INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except share amounts)

 

     Three months ended  
     March 31, 2021     March 31, 2020  

INVESTMENT INCOME:

    

Interest:

    

Companies less than 5% owned

   $ 20,832     $ 24,834  

Companies more than 25% owned

     2,885       1,356  

Dividends:

    

Companies less than 5% owned

     133       13  

Companies more than 25% owned

     9,575       6,468  

Other income:

    

Companies less than 5% owned

     2,462       228  

Companies more than 25% owned

     —         5  
  

 

 

   

 

 

 

Total investment income

     35,887       32,904  
  

 

 

   

 

 

 

EXPENSES:

    

Management fees (see note 3)

   $ 6,810     $ 6,269  

Performance-based incentive fees (see note 3)

     3,867       1,480  

Interest and other credit facility expenses (see note 7)

     7,229       7,040  

Administrative services expense (see note 3)

     1,360       1,147  

Other general and administrative expenses

     1,155       1,115  
  

 

 

   

 

 

 

Total expenses

     20,421       17,051  
  

 

 

   

 

 

 

Net investment income

   $ 15,466     $ 15,853  
  

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, CASH EQUIVALENTS, DEBT AND UNFUNDED COMMITMENTS:

    

Net realized gain (loss) on investments and cash equivalents (companies less than 5% owned)

   $ (366   $ 28  
  

 

 

   

 

 

 

Net change in unrealized gain (loss) on investments, cash equivalents and unfunded commitments and net change in unrealized (gain) loss on debt:

    

Companies less than 5% owned

     6,046       (47,415

Companies more than 25% owned

     364       (55,074

Debt

     —         11,500  

Unfunded commitments

     —         (361
  

 

 

   

 

 

 

Net change in unrealized gain (loss) on investments, cash equivalents, debt and unfunded commitments

     6,410       (91,350
  

 

 

   

 

 

 

Net realized and unrealized gain (loss) on investments, cash equivalents, debt and unfunded commitments

     6,044       (91,322
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

   $ 21,510     $ (75,469
  

 

 

   

 

 

 

EARNINGS (LOSS) PER SHARE (see note 5)

   $ 0.51     $ (1.79
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

2


Table of Contents

SLR INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)

(in thousands, except share amounts)

 

     Three months ended  
     March 31, 2021     March 31, 2020  

Increase (decrease) in net assets resulting from operations:

    

Net investment income

   $ 15,466     $ 15,853  

Net realized gain (loss)

     (366     28  

Net change in unrealized gain (loss)

     6,410       (91,350
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     21,510       (75,469
  

 

 

   

 

 

 

Distributions to stockholders:

    

From net investment income

     (17,327     (17,327
  

 

 

   

 

 

 

Capital transactions (see note 12):

    

Net increase in net assets resulting from capital transactions

     —         —    
  

 

 

   

 

 

 

Total increase (decrease) in net assets

     4,183       (92,796

Net assets at beginning of period

     852,023       905,880  
  

 

 

   

 

 

 

Net assets at end of period

   $ 856,206     $ 813,084  
  

 

 

   

 

 

 

Capital stock activity (see note 12):

    

Net increase from capital stock activity

     —         —    
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

3


Table of Contents

SLR INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

     Three months ended  
     March 31, 2021     March 31, 2020  

Cash Flows from Operating Activities:

    

Net increase (decrease) in net assets resulting from operations

   $ 21,510     $ (75,469

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:

    

Net realized (gain) loss on investments and cash equivalents

     366       (28

Net change in unrealized (gain) loss on investments

     (6,410     102,446  

Net change in unrealized loss on debt

     —         (11,500

(Increase) decrease in operating assets:

    

Purchase of investments

     (98,715     (79,642

Proceeds from disposition of investments

     65,514       197,548  

Net accretion of discount on investments

     (1,654     (1,554

Capitalization of payment-in-kind interest

     (1,737     (156

Collections of payment-in-kind interest

     23       123  

Receivable for investments sold

     (701     420  

Interest receivable

     (397     (511

Dividends receivable

     (1,581     4,231  

Prepaid expenses and other assets

     (181     (208

Increase (decrease) in operating liabilities:

    

Payable for investments and cash equivalents purchased

     (29,997     6,217  

Management fee payable

     275       (478

Performance-based incentive fee payable

     3,075       (2,801

Administrative services expense payable

     (951     (2,757

Interest payable

     3,307       2,881  

Other liabilities and accrued expenses

     173       459  
  

 

 

   

 

 

 

Net Cash Provided by (Used in) Operating Activities

     (48,081     139,221  
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Cash distributions paid

     (17,327     (17,327

Deferred financing costs

     394       185  

Proceeds from secured borrowings

     146,000       31,000  

Repayment of secured borrowings

     (112,000     (103,900
  

 

 

   

 

 

 

Net Cash Provided by (Used in) Financing Activities

     17,067       (90,042
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     (31,014     49,179  

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

     388,776       436,354  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 357,762     $ 485,533  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 3,922     $ 4,159  
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

4


Table of Contents

SLR INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited)

March 31, 2021

(in thousands, except share/unit amounts)

 

Description

 

Industry

  Spread
Above
Index(7)
    LIBOR Floor     Interest
Rate(1)
    Acquisition
Date
    Maturity
Date
    Par Amount     Cost     Fair
Value
 

Senior Secured Loans — 98.1%

                 

First Lien Bank Debt/Senior Secured Loans

               

Aegis Toxicology Sciences Corporation

  Health Care Providers & Services     L+550       1.00     6.50     5/7/2018       5/9/2025     $ 16,687     $ 16,495     $ 16,436  

Alteon Health, LLC

  Health Care Providers & Services     L+650       1.00     7.50     9/14/2018       9/1/2023       14,249       14,195       13,964  

American Teleconferencing Services, Ltd. (PGI)

  Communications Equipment     L+650       1.00     7.50     5/5/2016       6/8/2023       29,970       29,554       27,722  

Atria Wealth Solutions, Inc.

  Diversified Financial Services     L+600       1.00     7.00     9/14/2018       11/30/2022       6,393       6,364       6,393  

AviatorCap SII, LLC (2)

  Aerospace & Defense     L+700       —         7.22     3/19/2019       9/30/2021       2,929       2,929       2,929  

Basic Fun, Inc.

  Specialty Retail     L+675       1.00     7.75     10/30/2020       10/30/2023       2,150       2,121       2,128  

Enhanced Permanent Capital, LLC(3)

  Capital Markets     L+700       1.00     8.00     12/29/2020       12/29/2025       21,489       20,895       20,871  

Foundation Consumer Brands, LLC

  Personal Products     L+638       1.00     7.38     2/12/2021       2/12/2027       37,058       36,148       36,131  

High Street Insurance Partners, Inc.

  Insurance     L+650       1.00     7.50     3/3/2021       12/3/2025       1,406       1,385       1,392  

iCIMS, Inc.

  Software     L+650       1.00     7.50     9/7/2018       9/12/2024       19,341       19,067       19,341  

Kingsbridge Holdings, LLC(2)

  Multi-Sector Holdings     L+700       1.00     8.00     12/21/2018       12/21/2024       80,000       79,653       80,000  

KORE Wireless Group, Inc.

  Wireless Telecommunication Services     L+550       —         5.70     12/21/2018       12/21/2024       36,385       35,886       36,385  

Legility, LLC

  Commercial Services & Supplies     L+600       1.00     7.00     2/27/2020       12/17/2025       19,500       19,174       18,720  

Logix Holding Company, LLC

  Communications Equipment     L+575       1.00     6.75     9/14/2018       12/22/2024       7,008       6,966       6,868  

One Touch Direct, LLC

  Commercial Services & Supplies     P+75       —         4.00     4/3/2020       9/30/2022       252       252       252  

Pet Holdings ULC & Pet Supermarket, Inc. (3)

  Specialty Retail     L+550       1.00     6.50     9/14/2018       7/5/2022       28,670       28,560       28,670  

PhyNet Dermatology LLC

  Health Care Providers & Services     L+650(18)       1.00     7.50     9/5/2018       8/16/2024       14,644       14,568       14,132  

Pinnacle Treatment Centers, Inc.

  Health Care Providers & Services     L+575       1.00     6.75     1/22/2020       12/31/2022       11,770       11,696       11,770  

PPT Management Holdings, LLC

  Health Care Providers & Services     L+850(15)       1.00     9.50     9/14/2018       12/16/2022       20,907       20,848       19,130  

Sentry Data Systems, Inc.

  Software     L+675       1.00     7.75     9/27/2020       10/6/2025       15,726       15,437       15,726  

Smile Doctors LLC

  Personal Products     L+600       1.00     7.00     12/17/2020       10/6/2022       10,420       10,227       10,211  

The Children’s Place, Inc.(3)

  Specialty Retail     L+800       1.00     9.00     10/5/2020       5/9/2024       15,765       15,556       15,765  

USR Parent, Inc. (Staples)

  Specialty Retail     L+884       1.00     9.84     6/3/2020       9/12/2022       4,132       4,132       4,153  
               

 

 

   

 

 

 

Total First Lien Bank Debt/Senior Secured Loans

              $ 412,108     $ 409,089  
               

 

 

   

 

 

 

Second Lien Asset-Based Senior Secured Loans

               

Greystone Select Holdings LLC & Greystone & Co., Inc.

  Thrifts & Mortgage Finance     L+800       1.00     9.00     3/29/2017       4/17/2024       19,457     $ 19,357     $ 19,457  

Varilease Finance, Inc.

  Multi-Sector Holdings     L+750       1.00     8.50     8/22/2014       11/15/2025       36,438       36,312       36,438  
               

 

 

   

 

 

 

Total Second Lien Asset-Based Senior Secured Loans

              $ 55,669     $ 55,895  
               

 

 

   

 

 

 

Second Lien Bank Debt/Senior Secured Loans

               

PhyMed Management LLC

  Health Care Providers & Services     L+1200(17)       1.00     13.00     12/18/2015       9/30/2022       34,684     $ 34,560     $ 32,430  

Rug Doctor LLC (2)

  Diversified Consumer Services     L+975(11)       1.50     11.25     12/23/2013       5/16/2023       10,859       10,844       10,859  
               

 

 

   

 

 

 

Total Second Lien Bank Debt/Senior Secured Loans

              $ 45,404     $ 43,289  
               

 

 

   

 

 

 

First Lien Life Science Senior Secured Loans

               

Alimera Sciences, Inc.

  Pharmaceuticals     L+765       1.78     9.43     12/31/2019       7/1/2024     $ 20,074     $ 20,342     $ 20,325  

Apollo Endosurgery, Inc.

  Health Care Equipment & Supplies     L+750       1.36     8.86     3/15/2019       9/1/2024       20,492       20,932       20,901  

Ardelyx, Inc. (3)

  Pharmaceuticals     L+745       0.25     7.70     5/10/2018       11/1/2022       24,500       25,379       25,358  

Axcella Health Inc.

  Pharmaceuticals     L+850       0.20     8.70     1/9/2018       1/1/2023       26,000       27,166       27,040  

Centrexion Therapeutics, Inc.

  Pharmaceuticals     L+725       2.45     9.70     6/28/2019       1/1/2024       16,400       16,527       16,605  

Cerapedics, Inc.

  Health Care Equipment & Supplies     L+695       2.50     9.45     3/22/2019       3/1/2024       24,175       24,584       24,598  

Delphinus Medical Technologies, Inc.

  Health Care Equipment & Supplies     L+850       1.00     9.50     8/18/2017       6/1/2022       2,177       2,442       2,428  

GenMark Diagnostics, Inc. (3)

  Health Care Providers & Services     L+590       2.51     8.41     2/1/2019       2/1/2023       49,522       51,136       53,459  

Kindred Biosciences, Inc. (16)

  Pharmaceuticals     L+675       2.17     8.92     9/30/2019       9/30/2024       9,197       9,262       9,265  

Neuronetics, Inc. (3)

  Health Care Equipment & Supplies     L+765       1.66     9.31     3/2/2020       2/28/2025       15,613       15,734       15,730  

OmniGuide Holdings, Inc. (13)

  Health Care Equipment & Supplies     L+985       1.00     9.05     7/30/2018       9/1/2021       10,500       11,669       11,550  

PQ Bypass, Inc.

  Health Care Equipment & Supplies     L+795       1.00     8.95     12/20/2018       12/19/2022       10,000       10,244       10,725  

Rubius Therapeutics, Inc. (3)

  Pharmaceuticals     L+550       —         5.65     12/21/2018       12/21/2023       40,291       40,790       40,795  

scPharmaceuticals, Inc.

  Pharmaceuticals     L+795       2.23     10.18     9/17/2019       9/17/2023       4,684       4,729       4,730  

SI-BONE, Inc. (3)

  Health Care Equipment & Supplies     L+940       0.33     9.73     5/29/2020       6/1/2025       17,843       17,879       17,888  

SOC Telemed, Inc. (3)

  Health Care Providers & Services     L+747       0.13     7.60     3/26/2021       4/1/2026       30,247       30,100       30,096  
               

 

 

   

 

 

 

Total First Lien Life Science Senior Secured Loans

              $ 328,915     $ 331,493  
               

 

 

   

 

 

 

Total Senior Secured Loans

                $ 842,096     $ 839,766  
               

 

 

   

 

 

 

See notes to consolidated financial statements.

 

5


Table of Contents

SLR INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

March 31, 2021

(in thousands, except share/unit amounts)

 

Description

 

Industry

 

Interest Rate(1)

 

Acquisition
Date

 

Maturity

Date

  Par Amount     Cost     Fair
Value
 

Equipment Financing —33.4%

             

Aero Operating LLC (10)

  Commercial Services & Supplies   9.09-9.64%   2/12/2021   3/1/2025-4/1/2025   $ 3,397     $ 3,397     $ 3,397  

AmeraMex International, Inc. (10)

  Commercial Services & Supplies   10.00%   3/29/2019   3/28/2022     5,046       5,022       5,096  

Blackhawk Mining, LLC (14)

  Oil, Gas & Consumable Fuels   10.97-11.16%   2/16/2018   3/1/2022-11/1/2022     3,078       2,989       3,001  

Boart Longyear Company (14)

  Metals & Mining   9.77-10.44%   5/28/2020   7/1/2024-4/1/2025     4,716       4,716       4,716  

C&H Paving, Inc. (14)

  Construction & Engineering   9.94-11.66%   12/26/2018   1/1/2024-11/1/2024     3,288       3,325       3,283  

Capital City Jet Center, Inc. (10)

  Airlines   10.00%   4/4/2018   10/4/2023-6/22/26     3,694       3,694       3,630  

Central Freight Lines, Inc. (10)

  Road & Rail   7.16%   7/31/2017   1/14/2024     1,132       1,132       1,132  

Champion Air, LLC (10)

  Airlines   10.00%   3/19/2018   1/1/2023     2,117       2,117       2,117  

Dongwon Autopart Technology Inc. (10)

  Auto Components   7.96%   2/2/2021   1/1/2026     2,710       2,756       2,710  

Easton Sales and Rentals, LLC (10)

  Commercial Services & Supplies   10.00%   9/18/2018   10/1/2021     1,061       1,061       1,020  

EasyPak, LLC (10)

  Containers & Packaging   9.01%   1/6/2021   1/1/2024     852       852       852  

Environmental Protection & Improvement Company, LLC (10)

  Road & Rail   8.25%   9/30/2020   10/1/2027     6,375       6,420       6,375  

Equipment Operating Leases, LLC (2)(12)

  Multi-Sector Holdings   7.53-8.37%   4/27/2018   8/1/2022-4/27/2025     25,445       25,445       24,663  

EquipmentShare.com, Inc. (14)

  Commercial Services & Supplies   6.60%   1/8/2020   1/8/2025     7,413       7,033       7,413  

Family First Freight, LLC (10)

  Road & Rail   8.00-10.10%   7/31/2017   6/1/2022-5/1/2023     818       818       812  

Freightsol LLC (14)

  Road & Rail   12.51-12.89%   4/9/2019   11/1/2023     1,757       1,784       1,757  

Garda CL Technical Services, Inc. (14)

  Commercial Services & Supplies   8.30-8.77%   3/22/2018   6/5/2023-10/5/2023     1,784       1,784       1,781  

Georgia Jet, Inc. (10)

  Airlines   8.00%   12/4/2017   12/4/2021     923       923       904  

Globecomm Systems Inc. (14)

  Wireless Telecommunication Services   13.18%   5/10/2018   7/1/2021     240       240       240  

GMT Corporation (14)

  Machinery   12.55%   10/23/2018   10/23/2023     5,098       5,066       5,098  

Haljoe Coaches USA, LLC (14)

  Road & Rail   8.03-9.69%   7/31/2017   7/1/2022-7/1/2024     5,057       5,057       4,280  

HTI Logistics Corporation (10)

  Commercial Services & Supplies   9.69-9.94%   11/15/2018   5/1/2024-9/1/2025     500       500       488  

Hypro, Inc. (10)

  Machinery   11.53%   9/30/2019   10/1/2023     1,845       1,858       1,797  

Interstate NDT, Inc. (14)

  Road & Rail   10.91-14.11%   6/11/2018   7/1/2023-10/25/2023     1,721       1,721       1,633  

ISR Holdings, LLC (10)

  Commercial Services & Supplies   9.25%   8/27/2019   8/27/2022     2,686       2,686       2,686  

JP Motorsports, Inc. (14)

  Road & Rail   15.70%   8/17/2018   1/25/2022     61       61       60  

Kool Pak, LLC (14)

  Road & Rail   8.58%   2/5/2018   3/1/2024     451       451       451  

Loyer Capital LLC (2)(12)

  Multi-Sector Holdings   8.73-11.52%   5/16/2019   5/16/24-9/25/24     14,731       14,731       14,456  

Mountain Air Helicopters, Inc. (10)

  Commercial Services & Supplies   10.00%   7/31/2017   4/30/2022-2/28/2025     1,870       1,865       1,902  

Rane Light Metal Castings Inc. (14)

  Machinery   10.00%   6/1/2020   7/1/2024     318       318       318  

Rango, Inc. (10)(14)

  Commercial Services & Supplies   9.33-9.79%   9/24/2019   4/1/2023-11/1/2024     4,770       4,832       4,681  

Rossco Crane & Rigging, Inc. (14)

  Commercial Services & Supplies   11.13-11.53%   8/25/2017   4/1/2021-9/1/2022     266       266       264  

Royal Coach Lines, Inc.(14)

  Road & Rail   9.56%   11/21/2019   8/1/2025     1,159       1,159       1,035  

Royal Express Inc. (14)

  Road & Rail   9.53%   1/17/2019   2/1/2024     858       870       858  

Sidelines Tree Service LLC (14)

  Diversified Consumer Services   10.25%   7/31/2017   10/1/2022     71       71       69  

SLR Equipment Finance (2)

  Multi-Sector Holdings   8.50%   8/14/2020   8/14/2021     850       850       850  

South Texas Oilfield Solutions, LLC (14)

  Energy Equipment & Services   12.52-13.76%   3/29/2018   9/1/2022-7/1/2023     1,996       1,996       1,920  

ST Coaches, LLC (14)

  Road & Rail   8.21-8.58%   7/31/2017   10/1/2022-1/25/2025     4,857       4,857       4,410  

Stafford Logistics, Inc. (10)

  Commercial Services & Supplies   12.63-13.12%   9/11/2019   10/1/2024-10/1/2025     6,583       6,583       6,328  

Star Coaches Inc. (14)

  Road & Rail   8.42%   3/9/2018   4/1/2025     3,432       3,432       2,943  

Sturgeon Services International Inc. (10)

  Energy Equipment & Services   18.42%   7/31/2017   2/28/2022     644       644       608  

Sun-Tech Leasing of Texas, L.P. (14)

  Road & Rail   8.68%   7/31/2017   7/25/2021     18       18       18  

Superior Transportation, Inc. (14)

  Road & Rail   10.22-10.62%   7/31/2017   1/1/2026     5,367       5,367       5,367  

Tailwinds, LLC (10)

  Air Freight & Logistics   8.50-9.00%   7/26/2019   8/1/2024-10/16/2025     2,544       2,544       2,544  

The Smedley Company & Smedley Services, Inc. (10)

  Commercial Services & Supplies   10.03-14.97%   7/31/2017   10/29/2023-2/10/2024     3,958       3,960       3,685  

Thora Capital, LLC (10)

  Airlines   9.00%   7/3/2019   7/1/2025     5,441       5,441       5,436  

Trolleys, Inc. (14)

  Road & Rail   9.98%   7/18/2018   8/1/2022     1,964       1,964       1,886  

Up Trucking Services, LLC (14)

  Road & Rail   11.21-13.03%   3/23/2018   4/1/2022-8/1/2024     1,240       1,254       1,247  

Warrior Crane Services, LLC (10)

  Commercial Services & Supplies   8.95%   7/11/2019   8/1/2024-8/1/2026     2,962       2,962       2,906  

Wind River Environmental, LLC (10)

  Diversified Consumer Services   8.43-10.00%   7/31/2019   8/1/2024-10/5/25     1,053       1,059       1,053  

Womble Company, Inc. (14)

  Energy Equipment & Services   9.11%   12/27/2019   1/1/2025     659       659       646  
                    Shares/Units              

SLR Equipment Finance Equity Interests (2)(9)

  Multi-Sector Holdings     7/31/2017       200       145,000       129,102  
           

 

 

   

 

 

 

Total Equipment Financing

            $ 305,610     $ 285,924  
           

 

 

   

 

 

 

Preferred Equity – 0.7%

             

SOAGG LLC (2)(3)(4)

  Aerospace & Defense   8.00%   12/14/2010   6/30/2023     446     $ 446     $ 1,733  

SOINT, LLC (2)(3)(4)

  Aerospace & Defense   5.00%(11)   6/8/2012   6/30/2023     53,976       5,398       4,102  
           

 

 

   

 

 

 

Total Preferred Equity

            $ 5,844     $ 5,835  
           

 

 

   

 

 

 

See notes to consolidated financial statements.

 

6


Table of Contents

SLR INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

March 31, 2021

(in thousands, except share/unit amounts)

 

Description

 

Industry

 

Acquisition

Date

  Shares/Units     Cost     Fair
Value
 

Common Equity/Equity Interests/Warrants—51.7%

       

aTyr Pharma, Inc. Warrants *

  Pharmaceuticals   11/18/2016     6,347     $ 106     $ —    

CardioFocus, Inc. Warrants *

  Health Care Equipment & Supplies   3/31/2017     90       51       —    

Centrexion Therapeutics, Inc. Warrants *

  Pharmaceuticals   6/28/2019     289,102       136       95  

Conventus Orthopaedics, Inc. Warrants *

  Health Care Equipment & Supplies   6/15/2016     157,500       65       —    

Delphinus Medical Technologies, Inc. Warrants *

  Health Care Equipment & Supplies   8/18/2017     444,388       74       103  

Essence Group Holdings Corporation (Lumeris) Warrants *

  Health Care Technology   3/22/2017     208,000       63       287  

KBH Topco LLC (Kingsbridge) (2)(5)

  Multi-Sector Holdings   11/3/2020     73,500,000       136,596       136,596  

PQ Bypass, Inc. Warrants *

  Health Care Equipment & Supplies   12/20/2018     300,000       106       675  

RD Holdco Inc. (Rug Doctor) (2)*

  Diversified Consumer Services   12/23/2013     231,177       15,683       1,226  

RD Holdco Inc. (Rug Doctor) Class B (2)*

  Diversified Consumer Services   12/23/2013     522       5,216       5,216  

RD Holdco Inc. (Rug Doctor) Warrants (2)*

  Diversified Consumer Services   12/23/2013     30,370       381       —    

Scynexis, Inc. Warrants *

  Pharmaceuticals   9/30/2016     12,243       105       —    

Senseonics Holdings, Inc. (3)(8)*

  Health Care Equipment & Supplies   7/25/2019     406,923       117       1,074  

SLR Credit Solutions (2)(3)

  Diversified Financial Services   12/28/2012     280,303       280,737       297,766  

Venus Concept Ltd. Warrants* (f/k/a Restoration Robotics)

  Health Care Equipment & Supplies   5/10/2018     27,352       152       1  
       

 

 

   

 

 

 

Total Common Equity/Equity Interests/Warrants

        $ 439,588     $ 443,039  
       

 

 

   

 

 

 

Total Investments (6) — 183.9%

        $ 1,593,138     $ 1,574,564  
       

 

 

   

 

 

 

 

Description

 

Industry

  Acquisition
Date
    Maturity
Date
    Par Amount              

Cash Equivalents — 40.9%

           

U.S. Treasury Bill

  Government     3/31/2021       5/13/2021     $ 350,000     $ 350,000     $ 350,000  
         

 

 

   

 

 

 

Total Investments & Cash Equivalents —224.8%

          $ 1,943,138     $ 1,924,564  

Liabilities in Excess of Other Assets — (124.8%)

              (1,068,358
           

 

 

 

Net Assets — 100.0%

            $ 856,206  
           

 

 

 

 

(1)

Floating rate debt investments typically bear interest at a rate determined by reference to the London Interbank Offered Rate (“LIBOR”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current rate of interest, or in the case of leases the current implied yield, in effect as of March 31, 2021.

(2)

Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the Investment Company Act of 1940 (“1940 Act”), due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the three months ended March 31, 2021 in these controlled investments are as follows:

 

Name of Issuer

  Fair Value at
December 31, 2020
    Gross
Additions
    Gross
Reductions
    Realized
Gain
(Loss)
    Change in
Unrealized
Gain (Loss)
    Interest/Dividend
Income
    Fair Value at
March 31, 2021
 

AviatorCap SII, LLC

  $ 2,941     $ —       $ 12     $ —       $ —       $ 52     $ 2,929  

Equipment Operating Leases, LLC

    25,540       —         893       —         16       530       24,663  

Kingsbridge Holdings, LLC

    80,000       —         —         —         (19     1,619       80,000  

KBH Topco, LLC (Kingsbridge)

    136,596       —         —         —         —         2,750       136,596  

Loyer Capital LLC

    14,456       —         —         —         —         365       14,456  

RD Holdco Inc. (Rug Doctor, common equity)

    1,226       —         —         —         —         —         1,226  

RD Holdco Inc. (Rug Doctor, class B)

    5,216       —         —         —         —         —         5,216  

RD Holdco Inc. (Rug Doctor, warrants)

    —         —         —         —         —         —         —    

Rug Doctor LLC

    10,559       300       —         —         (1     301       10,859  

SLR Credit Solutions

    296,766       —         —         —         1,000       6,000       297,766  

SLR Equipment Finance (equity)

    129,102       —         —         —         —         —         129,102  

SLR Equipment Finance (debt)

    850       —         —         —         —         18       850  

SOAGG LLC

    2,300       —         —         —         (567     759       1,733  

SOINT, LLC

    4,101       66       —         —         (65     66       4,102  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 709,653     $ 366     $ 905     $ —       $ 364     $ 12,460     $ 709,498  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See notes to consolidated financial statements.

 

7


Table of Contents

SLR INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

March 31, 2021

(in thousands)

 

(3)

Indicates assets that the Company believes may not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 (“1940 Act”), as amended. If we fail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from making follow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the 1940 Act. As of March 31, 2021, on a fair value basis, non-qualifying assets in the portfolio represented 28.3% of the total assets of the Company.

(4)

The Company’s investments in SOAGG, LLC and SOINT, LLC include a two and one dollar investment in common shares, respectively.

(5)

Kingsbridge Holdings, LLC is held through KBH Topco LLC, a Delaware corporation.

(6)

Aggregate net unrealized appreciation for U.S. federal income tax purposes is $10,855; aggregate gross unrealized appreciation and depreciation for U.S. federal tax purposes is $56,198 and $45,343, respectively, based on a tax cost of $1,563,709. Unless otherwise noted, all of the Company’s investments are pledged as collateral against the borrowings outstanding on the senior secured credit facility. The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act. All investments are Level 3 unless otherwise indicated.

(7)

Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are often subject to a LIBOR or PRIME rate floor.

(8)

Denotes a Level 1 investment.

(9)

SLR Equipment Finance is held through NEFCORP LLC, a wholly-owned consolidated taxable subsidiary and NEFPASS LLC, a wholly-owned consolidated subsidiary.

(10)

Indicates an investment that is wholly held by the Company through NEFPASS LLC.

(11)

Interest is paid in kind (“PIK”).

(12)

Denotes a subsidiary of SLR Equipment Finance.

(13)

OmniGuide Holdings, Inc., Domain Surgical, Inc. and OmniGuide, Inc. are co-borrowers.

(14)

Indicates an investment that is held by the Company through its wholly-owned consolidated financing subsidiary NEFPASS SPV, LLC (the “NEFPASS SPV”). Such investments are pledged as collateral under the NEFPASS SPV, LLC Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of the Company.

(15)

Spread is 6.00% Cash / 2.50% PIK.

(16)

Kindred Biosciences, Inc., KindredBio Equine, Inc. and Centaur Biopharmaceutical Services, Inc. are co-borrowers.

(17)

Spread is 2.50% Cash / 9.50% PIK.

(18)

Spread is 5.50% Cash / 1.00% PIK.

*

Non-income producing security.

See notes to consolidated financial statements.

 

8


Table of Contents

SLR INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

March 31, 2021

(in thousands)

 

Industry Classification

   Percentage of Total
Investments (at fair value) as
of March 31, 2021
 

Multi-Sector Holdings (includes Kingsbridge Holdings, LLC, SLR Equipment Finance, Equipment Operating Leases, LLC and Loyer Capital LLC)

     26.8

Diversified Financial Services (includes SLR Credit Solutions)

     19.3

Health Care Providers & Services

     12.2

Pharmaceuticals

     9.2

Health Care Equipment & Supplies

     6.7

Commercial Services & Supplies

     3.8

Specialty Retail

     3.2

Personal Products

     2.9

Wireless Telecommunication Services

     2.3

Software

     2.2

Communications Equipment

     2.2

Road & Rail

     2.2

Capital Markets

     1.3

Thrifts & Mortgage Finance

     1.2

Diversified Consumer Services

     1.2

Airlines

     0.8

Aerospace & Defense

     0.6

Machinery

     0.5

Metals & Mining

     0.3

Construction & Engineering

     0.2

Energy Equipment & Services

     0.2

Oil, Gas & Consumable Fuels

     0.2

Auto Components

     0.2

Air Freight & Logistics

     0.2

Insurance

     0.1

Containers & Packaging

     0.0

Health Care Technology

     0.0
  

 

 

 

Total Investments

     100.0
  

 

 

 

See notes to consolidated financial statements.

 

9


Table of Contents

SLR INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS

DECEMBER 31, 2020

(in thousands)

 

Description

 

Industry

 

Spread
Above
Index(7)

  LIBOR Floor     Interest
Rate(1)
    Acquisition
Date
    Maturity
Date
    Par Amount     Cost     Fair
Value
 

Senior Secured Loans — 93.7%

 

First Lien Bank Debt/Senior Secured Loans

 

Aegis Toxicology Sciences Corporation

  Health Care Providers & Services   L+550     1.00     6.50     5/7/2018       5/9/2025     $ 16,869     $ 16,666     $ 16,531  

Alteon Health, LLC

  Health Care Providers & Services   L+650     1.00     7.50     9/14/2018       9/1/2023       14,293       14,233       14,007  

American Teleconferencing Services, Ltd. (PGI)

  Communications Equipment   L+650     1.00     7.50     5/5/2016       6/8/2023       29,984       29,520       27,735  

Atria Wealth Solutions, Inc

  Diversified Financial Services   L+600     1.00     7.00     9/14/2018       11/30/2022       5,841       5,808       5,841  

AviatorCap SII, LLC (2)

  Aerospace & Defense   L+700     —         7.23     3/19/2019       1/29/2021       2,941       2,941       2,941  

Basic Fun, Inc

  Specialty Retail   L+675     1.00     7.75     10/30/2020       10/30/2023       3,183       3,138       3,135  

Enhanced Permanent Capital, LLC(3)

  Capital Markets   L+700     1.00     8.00     12/29/2020       12/29/2025       18,288       17,763       17,763  

iCIMS, Inc.

  Software   L+650     1.00     7.50     9/7/2018       9/12/2024       19,341       19,050       18,955  

Kingsbridge Holdings, LLC(2)

  Multi-Sector Holdings   L+700     1.00     8.00     12/21/2018       12/21/2024       80,000       79,634       80,000  

KORE Wireless Group, Inc.

  Wireless Telecommunication Services   L+550     —         5.75     12/21/2018       12/21/2024       36,477       35,949       36,477  

Legility, LLC

  Commercial Services & Supplies   L+600     1.00     7.00     2/27/2020       12/17/2025       19,625       19,282       18,644  

Logix Holding Company, LLC

  Communications Equipment   L+575     1.00     6.75     9/14/2018       12/22/2024       7,027       6,983       6,887  

One Touch Direct, LLC

  Commercial Services & Supplies   P+100     —         6.50     4/3/2020       3/29/2021       2,458       2,458       2,458  

Pet Holdings ULC & Pet Supermarket, Inc. (3)

  Specialty Retail   L+550     1.00     6.50     9/14/2018       7/5/2022       28,745       28,614       28,457  

PhyNet Dermatology LLC

  Health Care Providers & Services   L+550     1.00     6.50     9/5/2018       8/16/2024       17,065       16,973       16,468  

Pinnacle Treatment Centers, Inc.

  Health Care Providers & Services   L+625     1.00     7.25     1/22/2020       12/31/2022       11,773       11,688       11,773  

PPT Management Holdings, LLC

  Health Care Providers & Services   L+850(15)     1.00     9.50     9/14/2018       12/16/2022       20,816       20,749       18,943  

Sentry Data Systems, Inc

  Software   L+675     1.00     7.75     9/27/2020       10/6/2025       15,765       15,462       15,450  

Smile Doctors LLC

  Personal Products   L+600     1.00     7.00     12/17/2020       10/6/2022       3,302       3,237       3,236  

Soleo Health Holdings, Inc

  Health Care Providers & Services   L+575     1.00     6.75     3/31/2020       12/29/2021       7,579       7,579       7,579  

The Children’s Place, Inc.(3)

  Specialty Retail   L+800     1.00     9.00     10/5/2020       5/9/2024       15,765       15,542       15,528  

USR Parent, Inc. (Staples)

  Specialty Retail   L+884     1.00     9.84     6/3/2020       9/12/2022       4,418       4,418       4,440  
               

 

 

   

 

 

 

Total First Lien Bank Debt/Senior Secured Loans

              $ 377,687     $ 373,248  
               

 

 

   

 

 

 

Second Lien Asset-Based Senior Secured Loans

 

Greystone Select Holdings LLC & Greystone & Co., Inc.

  Thrifts & Mortgage Finance   L+800     1.00     9.00     3/29/2017       4/17/2024       19,506     $ 19,398     $ 19,506  

Varilease Finance, Inc.

  Multi-Sector Holdings   L+750     1.00     8.50     8/22/2014       11/15/2025       36,438       36,307       36,438  
               

 

 

   

 

 

 

Total Second Lien Asset-Based Senior Secured Loans

              $ 55,705     $ 55,944  
               

 

 

   

 

 

 

Second Lien Bank Debt/Senior Secured Loans

 

PhyMed Management LLC

  Health Care Providers & Services   L+1100(17)     1.00     12.00     12/18/2015       9/30/2022       33,881     $ 33,736     $ 31,340  

Rug Doctor LLC (2)

  Diversified Consumer Services   L+975(11)     1.50     11.25     12/23/2013       5/16/2023       10,559       10,543       10,559  
               

 

 

   

 

 

 

Total Second Lien Bank Debt/Senior Secured Loans

              $ 44,279     $ 41,899  
               

 

 

   

 

 

 

First Lien Life Science Senior Secured Loans

 

Alimera Sciences, Inc.

  Pharmaceuticals   L+765     1.78     9.43     12/31/2019       7/1/2024     $ 20,074     $ 20,287     $ 20,275  

Apollo Endosurgery, Inc.

  Health Care Equipment & Supplies   L+750     1.36     8.86     3/15/2019       9/1/2024       20,492       20,860       20,799  

Ardelyx, Inc. (3)

  Pharmaceuticals   L+745     0.25     7.70     5/10/2018       11/1/2022       24,500       25,275       25,235  

Axcella Health Inc.

  Pharmaceuticals   L+850     0.20     8.70     1/9/2018       1/1/2023       26,000       27,070       26,910  

Cardiva Medical, Inc.

  Health Care Equipment & Supplies   L+795     1.76     9.71     9/24/2018       12/1/2023       27,667       28,596       29,327  

Centrexion Therapeutics, Inc.

  Pharmaceuticals   L+725     2.45     9.70     6/28/2019       1/1/2024       16,400       16,472       16,564  

Cerapedics, Inc.

  Health Care Equipment & Supplies   L+695     2.50     9.45     3/22/2019       3/1/2024       24,175       24,501       24,537  

Delphinus Medical Technologies, Inc.

  Health Care Equipment & Supplies   L+850     1.00     9.50     8/18/2017       6/1/2022       2,177       2,410       2,395  

GenMark Diagnostics, Inc. (3)

  Health Care Providers & Services   L+590     2.51     8.41     2/1/2019       2/1/2023       49,522       50,892       50,884  

Kindred Biosciences, Inc. (16)

  Pharmaceuticals   L+675     2.17     8.92     9/30/2019       9/30/2024       9,197       9,243       9,242  

Neuronetics, Inc.

  Health Care Equipment & Supplies   L+765     1.66     9.31     3/2/2020       2/28/2025       15,613       15,689       15,691  

OmniGuide Holdings, Inc. (13)

  Health Care Equipment & Supplies   L+805     1.00     9.05     7/30/2018       2/1/2021       10,500       11,532       11,287  

PQ Bypass, Inc.

  Health Care Equipment & Supplies   L+795     1.00     8.95     12/20/2018       12/19/2022       10,000       10,190       10,500  

Rubius Therapeutics, Inc. (3)

  Pharmaceuticals   L+550           5.65     12/21/2018       12/21/2023       40,291       40,692       40,747  

scPharmaceuticals, Inc.

  Pharmaceuticals   L+795     2.23     10.18     9/17/2019       9/17/2023       4,684       4,721       4,725  

SI-BONE, Inc. (3)

  Health Care Equipment & Supplies   L+940     0.33     9.73     5/29/2020       6/1/2025       17,843       17,856       17,843  
               

 

 

   

 

 

 

Total First Lien Life Science Senior Secured Loans

              $ 326,286     $ 326,961  
               

 

 

   

 

 

 

Total Senior Secured Loans

                $ 803,957     $ 798,052  
               

 

 

   

 

 

 

See notes to consolidated financial statements.

 

10


Table of Contents

SLR INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)

March 31, 2020

(in thousands, except share/unit amounts)

 

            Acquisition   Maturity               Fair  

Description

 

Industry

 

Interest Rate(1)

 

Date

  Date   Par Amount     Cost     Value  

Equipment Financing — 33.4%

             

AmeraMex International, Inc. (10)

  Commercial Services & Supplies   10.00%   3/29/2019   3/28/2022   $ 5,435     $ 5,397     $ 5,489  

Blackhawk Mining, LLC (14)

  Oil, Gas & Consumable Fuels   10.97-11.16%   2/16/2018   3/1/2022-11/1/2022     3,531       3,415       3,443  

Boart Longyear Company (14)

  Metals & Mining   10.44%   5/28/2020   7/1/2024     3,455       3,455       3,455  

C&H Paving, Inc. (14)

  Construction & Engineering   9.94-11.66%   12/26/2018   1/1/2024-11/1/2024     3,416       3,455       3,410  

Capital City Jet Center, Inc. (10)

  Airlines   10.00%   4/4/2018   10/4/2023-6/22/26     3,882       3,882       3,812  

Central Freight Lines, Inc. (10)

  Road & Rail   7.16%   7/31/2017   1/14/2024     1,212       1,212       1,212  

Champion Air, LLC (10)

  Airlines   10.00%   3/19/2018   1/1/2023     2,255       2,255       2,255  

Easton Sales and Rentals, LLC (10)

  Commercial Services & Supplies   10.00%   9/18/2018   10/1/2021     1,235       1,233       1,188  

Environmental Protection & Improvement Company, LLC (10)

  Road & Rail   8.25%   9/30/2020   10/1/2027     6,520       6,567       6,520  

Equipment Operating Leases, LLC (2)(12)

  Multi-Sector Holdings   7.53-8.37%   4/27/2018   8/1/2022-4/27/2025     26,338       26,338       25,540  

EquipmentShare.com, Inc. (14)

  Commercial Services & Supplies   6.60%   1/8/2020   1/8/2025     8,097       7,658       8,097  

Family First Freight, LLC (10)

  Road & Rail   8.00-10.33%   7/31/2017   2/1/2022-5/1/2023     1,022       1,021       1,014  

Freightsol LLC (14)

  Road & Rail   12.51-12.89%   4/9/2019   11/1/2023     1,880       1,910       1,880  

Garda CL Technical Services, Inc. (14)

  Commercial Services & Supplies   8.30-8.77%   3/22/2018   6/5/2023-10/5/2023     1,956       1,957       1,953  

Georgia Jet, Inc. (10)

  Airlines   8.00%   12/4/2017   12/4/2021     973       973       954  

Globecomm Systems Inc. (14)

  Wireless Telecommunication Services   13.18%   5/10/2018   7/1/2021     413       413       413  

GMT Corporation (14)

  Machinery   12.55%   10/23/2018   10/23/2023     5,446       5,409       5,446  

Haljoe Coaches USA, LLC (14)

  Road & Rail   8.03-9.69%   7/31/2017   7/1/2022-7/1/2024     4,883       4,883       4,132  

HTI Logistics Corporation (10)

  Commercial Services & Supplies   9.69-9.94%   11/15/2018   5/1/2024-9/1/2025     527       527       514  

Hypro, Inc. (10)

  Machinery   11.53%   9/30/2019   10/1/2023     1,925       1,940       1,875  

Interstate NDT, Inc. (14)

  Road & Rail   10.91-14.11%   6/11/2018   7/1/2023-10/25/2023     1,795       1,795       1,704  

ISR Holdings, LLC (10)

  Commercial Services & Supplies   9.25%   8/27/2019   8/27/2022     3,124       3,124       3,124  

JP Motorsports, Inc. (14)

  Road & Rail   16.06%   8/17/2018   1/25/2022     118       118       117  

Kool Pak, LLC (14)

  Road & Rail   8.58%   2/5/2018   3/1/2024     484       484       484  

Lineal Industries, Inc. (10)

  Construction & Engineering   8.00%   12/21/2018   12/21/2021     45       45       45  

Loyer Capital LLC (2)(12)

  Multi-Sector Holdings   8.73-11.52%   5/16/2019   5/16/24-9/25/24     14,731       14,731       14,456  

Mountain Air Helicopters, Inc. (10)

  Commercial Services & Supplies   10.00%   7/31/2017   4/30/2022-2/28/2025     1,870       1,865       1,902  

NEF Holdings, LLC (2)

  Multi-Sector Holdings   8.50%   8/14/2020   8/14/2021     850       850       850  

Rane Light Metal Castings Inc. (14)

  Machinery   10.00%   6/1/2020   7/1/2024     338       338       338  

Rango, Inc. (10)(14)

  Commercial Services & Supplies   9.33%-9.79%   9/24/2019   4/1/2023-11/1/2024     5,137       5,207       5,041  

Rossco Crane & Rigging, Inc. (14)

  Commercial Services & Supplies   11.13-11.53%   8/25/2017   4/1/2021-9/1/2022     332       332       330  

Royal Coach Lines, Inc.(14)

  Road & Rail   9.56%   11/21/2019   8/1/2025     1,215       1,215       1,085  

Royal Express Inc. (14)

  Road & Rail   9.53%   1/17/2019   2/1/2024     914       927       914  

Sidelines Tree Service LLC (14)

  Diversified Consumer Services   10.25%   7/31/2017   10/1/2022     79       79       76  

South Texas Oilfield Solutions, LLC (14)

  Energy Equipment & Services   12.52-13.76%   3/29/2018   9/1/2022-7/1/2023     2,194       2,194       2,110  

ST Coaches, LLC (14)

  Road & Rail   8.21-8.58%   7/31/2017   10/1/2022-1/25/2025     4,755       4,755       4,318  

Stafford Logistics, Inc. (10)

  Commercial Services & Supplies   12.63-13.12%   9/11/2019   10/1/2024-10/1/2025     6,870       6,870       6,604  

Star Coaches Inc. (14)

  Road & Rail   8.42%   3/9/2018   4/1/2025     3,385       3,385       2,902  

Sturgeon Services International Inc. (10)

  Energy Equipment & Services   18.42%   7/31/2017   2/28/2022     816       816       770  

Sun-Tech Leasing of Texas, L.P. (14)

  Road & Rail   8.68%   7/31/2017   7/25/2021     36       36       36  

Superior Transportation, Inc. (14)

  Road & Rail   9.40-12.26%   7/31/2017   4/1/2022-8/1/2024     5,524       5,511       5,142  

Tailwinds, LLC (10)

  Air Freight & Logistics   8.50%-9.00%   7/26/2019   8/1/2024-10/16/2025     2,633       2,633       2,633  

The Smedley Company & Smedley Services, Inc. (10)

  Commercial Services & Supplies   10.03-14.97%   7/31/2017   10/29/2023-2/10/2024     3,902       3,905       3,634  

Thora Capital, LLC (10)

  Airlines   9.00%   7/3/2019   7/1/2025     5,602       5,602       5,596  

Trinity Equipment Rentals, Inc. (14)

  Commercial Services & Supplies   11.23%   9/13/2018   10/1/2022     538       538       538  

Trolleys, Inc. (14)

  Road & Rail   9.98%   7/18/2018   8/1/2022     1,999       1,999       1,919  

Up Trucking Services, LLC (14)

  Road & Rail   11.21-12.53%   3/23/2018   4/1/2022-8/1/2024     1,638       1,657       1,651  

Warrior Crane Services, LLC (10)

  Commercial Services & Supplies   8.95%   7/11/2019   8/1/2024-8/1/2026     3,087       3,087       3,030  

Wind River Environmental, LLC (10)

  Diversified Consumer Services   8.43%-10.00%   7/31/2019   8/1/2024-10/5/25     1,112       1,118       1,112  

Womble Company, Inc. (14)

  Energy Equipment & Services   9.11%   12/27/2019   1/1/2025     694       694       681  
                    Shares/Units              

NEF Holdings, LLC Equity Interests (2)(9)

  Multi-Sector Holdings     7/31/2017       200       145,000       129,102  
           

 

 

   

 

 

 

Total Equipment Financing

            $ 304,810     $ 284,846  
           

 

 

   

 

 

 

Preferred Equity – 0.8%

             

SOAGG LLC (2)(3)(4)

  Aerospace & Defense   8.00%   12/14/2010   6/30/2023     446     $ 446     $ 2,300  

SOINT, LLC (2)(3)(4)

  Aerospace & Defense   5.00%(11)   6/8/2012   6/30/2023     53,321       5,332       4,101  
           

 

 

   

 

 

 

Total Preferred Equity

            $ 5,778     $ 6,401  
           

 

 

   

 

 

 

See notes to consolidated financial statements.

 

11


Table of Contents

SLR INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2020

(in thousands, except share/unit amounts)

 

          Acquisition                    Fair  

Description

  

Industry

   Date      Shares/Units      Cost      Value  

Common Equity/Equity Interests/Warrants—51.9%

              

aTyr Pharma, Inc. Warrants *

  

Pharmaceuticals

     11/18/2016        6,347      $ 106      $ —    

B Riley Financial Inc. (3)(8)

  

Research & Consulting Services

     3/16/2007        38,015        2,684        1,681  

CardioFocus, Inc. Warrants *

  

Health Care Equipment & Supplies

     3/31/2017        90        51        —    

Centrexion Therapeutics, Inc. Warrants *

  

Pharmaceuticals

     6/28/2019        289,102        136        71  

Conventus Orthopaedics, Inc. Warrants *

  

Health Care Equipment & Supplies

     6/15/2016        157,500        65        —    

Crystal Financial LLC (2)(3)

  

Diversified Financial Services

     12/28/2012        280,303        280,737        296,766  

Delphinus Medical Technologies, Inc. Warrants *

  

Health Care Equipment & Supplies

     8/18/2017        444,388        74        82  

Essence Group Holdings Corporation (Lumeris) Warrants *

  

Health Care Technology

     3/22/2017        208,000        63        258  

KBH Topco LLC (Kingsbridge) (2)(5)

  

Multi-Sector Holdings

     11/3/2020        73,500,000        136,596        136,596  

PQ Bypass, Inc. Warrants *

  

Health Care Equipment & Supplies

     12/20/2018        300,000        106        675  

RD Holdco Inc. (Rug Doctor) (2)*

  

Diversified Consumer Services

     12/23/2013        231,177        15,683        1,226  

RD Holdco Inc. (Rug Doctor) Class B (2)*

  

Diversified Consumer Services

     12/23/2013        522        5,216        5,216  

RD Holdco Inc. (Rug Doctor) Warrants (2)*

  

Diversified Consumer Services

     12/23/2013        30,370        381        —    

Scynexis, Inc. Warrants *

  

Pharmaceuticals

     9/30/2016        12,243        105        —    

Senseonics Holdings, Inc. Warrants *

  

Health Care Equipment & Supplies

     7/25/2019        526,901        117        81  

Sunesis Pharmaceuticals, Inc. Warrants *

  

Pharmaceuticals

     3/31/2016        10,400        118        —    

Venus Concept Ltd. Warrants* (f/k/a Restoration Robotics)

  

Health Care Equipment & Supplies

     5/10/2018        27,352        152        —    
           

 

 

    

 

 

 

Total Common Equity/Equity Interests/Warrants

 

   $ 442,390      $ 442,652  
           

 

 

    

 

 

 

Total Investments (6) — 179.8%

 

   $ 1,556,935      $ 1,531,951  
           

 

 

    

 

 

 

 

          Acquisition      Maturity                       

Description

  

Industry

   Date      Date      Par Amount                

Cash Equivalents — 44.6%

                 

U.S. Treasury Bill

  

Government

     12/31/2020        2/23/2021      $ 380,000      $ 379,997      $ 379,997  
              

 

 

    

 

 

 

Total Investments & Cash Equivalents —224.4%

            $ 1,936,932      $ 1,911,948  

Liabilities in Excess of Other Assets — (124.4%)

                 (1,059,925
                 

 

 

 

Net Assets — 100.0%

                  $ 852,023  
                 

 

 

 

 

(1)

Floating rate debt investments typically bear interest at a rate determined by reference to the London Interbank Offered Rate (“LIBOR”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current rate of interest, or in the case of leases the current implied yield, in effect as of December 31, 2020.

(2)

Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the Investment Company Act of 1940 (“1940 Act”), due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2020 in these controlled investments are as follows:

 

Name of Issuer

   Fair Value at
December 31, 2019
     Gross
Additions
     Gross
Reductions
     Realized
Gain
(Loss)
     Change in
Unrealized
Gain

(Loss)
    Interest/Dividend
/Other Income
     Fair Value at
December 31, 2020
 

AviatorCap SII, LLC

   $ 2,896      $ —        $ 2,896    $ —        $ —       $ 198      $ —    

AviatorCap SII, LLC

     2,713        1,105        877      —          —         260        2,941  

Crystal Financial LLC

     296,000        —          —          —          766       24,000        296,766  

Equipment Operating Leases, LLC

     29,739        —          3,401      —          (798     2,290        25,540  

Kingsbridge Holdings, LLC (debt)

     33,112        46,888        —          —          (71     3,481        80,000  

Kingsbridge Holdings, LLC (equity)

     —          136,596        —          —          —         1,925        136,596  

Loyer Capital LLC

     14,731        —          —          —          (275     1,488        14,456  

NEF Holdings, LLC (equity)

     145,000        —          —          —          (15,898     250        129,102  

NEF Holdings, LLC (debt)

     —          850        —          —          —         28        850  

RD Holdco Inc. (Rug Doctor, common equity)

     7,706        —          —          —          (6,480     —          1,226  

RD Holdco Inc. (Rug Doctor, class B)

     5,216        —          —          —          —         —          5,216  

RD Holdco Inc. (Rug Doctor, warrants)

     —          —          —          —          —         —          —    

Rug Doctor LLC

     9,111        1,448        —          —          (6     1,128        10,559  

SOAGG LLC

     4,952        —          1,095        —          (1,557     111        2,300  

SOINT, LLC

     5,939        319        380        —          (1,777     508        4,101  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   $ 557,115      $ 187,206      $ 8,649      $ —        $ (26,096   $ 35,667      $ 709,653  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

 

See notes to consolidated financial statements.

 

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Table of Contents

SLR INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

December 31, 2020

(in thousands)

 

(3)

Indicates assets that the Company believes may not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 (“1940 Act”), as amended. If we fail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from making follow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the 1940 Act. As of December 31, 2020, on a fair value basis, non-qualifying assets in the portfolio represented 25.9% of the total assets of the Company.

(4)

The Company’s investments in SOAGG, LLC and SOINT, LLC include a two and one dollar investment in common shares, respectively.

(5)

Kingsbridge Holdings, LLC is held through KBH Topco LLC, a Delaware corporation.

(6)

Aggregate net unrealized appreciation for U.S. federal income tax purposes is $4,446; aggregate gross unrealized appreciation and depreciation for U.S. federal tax purposes is $52,349 and $47,903, respectively, based on a tax cost of $1,527,505. Unless otherwise noted, all of the Company’s investments are pledged as collateral against the borrowings outstanding on the senior secured credit facility. The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act. All investments are Level 3 unless otherwise indicated.

(7)

Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are often subject to a LIBOR or PRIME rate floor.

(8)

Denotes a Level 1 investment.

(9)

NEF Holdings, LLC is held through NEFCORP LLC, a wholly-owned consolidated taxable subsidiary and NEFPASS LLC, a wholly-owned consolidated subsidiary.

(10)

Indicates an investment that is wholly held by the Company through NEFPASS LLC.

(11)

Interest is paid in kind (“PIK”).

(12)

Denotes a subsidiary of NEF Holdings, LLC.

(13)

OmniGuide Holdings, Inc., Domain Surgical, Inc. and OmniGuide, Inc. are co-borrowers.

(14)

Indicates an investment that is held by the Company through its wholly-owned consolidated financing subsidiary NEFPASS SPV, LLC (the “NEFPASS SPV”). Such investments are pledged as collateral under the NEFPASS SPV, LLC Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of the Company.

(15)

Spread is 6.00% Cash / 2.50% PIK.

(16)

Kindred Biosciences, Inc., KindredBio Equine, Inc. and Centaur Biopharmaceutical Services, Inc. are co-borrowers.

(17)

Spread is 2.50% Cash / 8.50% PIK.

*

Non-income producing security.

 

See notes to consolidated financial statements.

 

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Table of Contents

SLR INVESTMENT CORP.

CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)

Deember 31, 2020

(in thousands)

 

Industry Classification

   Percentage of Total
Investments (at fair value) as
of December 31, 2020
 

Multi-Sector Holdings (includes Kingsbridge Holdings, LLC, NEF Holdings, LLC, Equipment Operating Leases, LLC and Loyer Capital LLC)

     27.6

Diversified Financial Services (includes Crystal Financial LLC)

     19.8

Health Care Providers & Services

     10.9

Pharmaceuticals

     9.4

Health Care Equipment & Supplies

     8.7

Commercial Services & Supplies

     4.1

Specialty Retail

     3.4

Wireless Telecommunication Services

     2.4

Road & Rail

     2.3

Communications Equipment

     2.3

Software

     2.2

Thrifts & Mortgage Finance

     1.3

Diversified Consumer Services

     1.2

Capital Markets

     1.2

Airlines

     0.8

Aerospace & Defense

     0.6

Machinery

     0.5

Energy Equipment & Services

     0.2

Metals & Mining

     0.2

Construction & Engineering

     0.2

Oil, Gas & Consumable Fuels

     0.2

Personal Products

     0.2

Air Freight & Logistics

     0.2

Research & Consulting Services

     0.1

Health Care Technology

     0.0
  

 

 

 

Total Investments

     100.0
  

 

 

 

 

 

See notes to consolidated financial statements.

 

14


Table of Contents

SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

March 31, 2021

(in thousands, except share amounts)

Note 1. Organization

Solar Capital LLC, a Maryland limited liability company, was formed in February 2007 and commenced operations on March 13, 2007 with initial capital of $1,200,000 of which 47.04% was funded by affiliated parties.

Immediately prior to our initial public offering, through a series of transactions, SLR Investment Corp. (f/k/a Solar Capital Ltd.) (the “Company”, “we”, “us” or “our”), merged with Solar Capital LLC, leaving SLR Investment Corp. as the surviving entity (the “Merger”). SLR Investment Corp. issued an aggregate of approximately 26.65 million shares of common stock and $125,000 in senior unsecured notes to the existing Solar Capital LLC unit holders in connection with the Merger. SLR Investment Corp. had no assets or operations prior to completion of the Merger and as a result, the historical books and records of Solar Capital LLC have become the books and records of the surviving entity. The number of shares used to calculate weighted average shares for use in computations on a per share basis have been decreased retroactively by a factor of approximately 0.4022 for all periods prior to February 9, 2010. This factor represents the effective impact of the reduction in shares resulting from the Merger.

SLR Investment Corp., a Maryland corporation formed in November 2007, is a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). Furthermore, as the Company is an investment company, it continues to apply the guidance in FASB Accounting Standards Codification (“ASC”) Topic 946. In addition, for U.S. federal income tax purposes, the Company has elected to be treated, and intend to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

On February 9, 2010, the Company priced its initial public offering, selling 5.68 million shares of common stock, including the underwriters’ over-allotment, at a price of $18.50 per share. Concurrent with this offering, the Company’s senior management purchased an additional 600,000 shares through a private placement, also at $18.50 per share.

The Company’s investment objective is to maximize both current income and capital appreciation through debt and equity investments. The Company directly and indirectly invests primarily in leveraged middle market companies in the form of senior secured loans, stretch-senior loans, financing leases and to a lesser extent, unsecured loans and equity securities. From time to time, we may also invest in public companies that are thinly traded.

Note 2. Significant Accounting Policies

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”), and include the accounts of the Company and certain wholly-owned subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition for the periods presented. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts may have been reclassified to conform to the current period presentation.

Interim consolidated financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X, as appropriate. Accordingly, they may not include all of the information and notes required by GAAP for annual consolidated financial statements. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending on December 31, 2021.

In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements, have been included.

The significant accounting policies consistently followed by the Company are:     

 

  (a)                Investment

transactions are accounted for on the trade date;

 

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SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

  (b)

Under procedures established by our board of directors (the “Board”), we value investments, including certain senior secured debt, subordinated debt and other debt securities with maturities greater than 60 days, for which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a principal market maker or a primary market dealer or other independent pricing service). We utilize mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are deemed not to represent fair value, we may utilize independent third-party valuation firms to assist us in determining the fair value of material assets. Accordingly, such investments go through our multi-step valuation process as described below. In each such case, independent valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations. Debt investments with maturities of 60 days or less shall each be valued at cost plus accreted discount, or minus amortized premium, which is expected to approximate fair value, unless such valuation, in the judgment of SLR Capital Partners, LLC (f/k/a Solar Capital Partners, LLC) (the “Investment Adviser”), does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of our Board. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of our Board. Such determination of fair values involves subjective judgments and estimates.

With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board has approved a multi-step valuation process each quarter, as described below:

 

  (1)

our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Investment Adviser responsible for the portfolio investment;

 

  (2)

preliminary valuation conclusions are then documented and discussed with senior management of the Investment Adviser;

 

  (3)

independent valuation firms engaged by our Board conduct independent appraisals and review the Investment Adviser’s preliminary valuations and make their own independent assessment for all material assets;

 

  (4)

the audit committee of the Board reviews the preliminary valuation of the Investment Adviser and that of the independent valuation firm and responds to the valuation recommendation of the independent valuation firm, if any, to reflect any comments; and

 

  (5)

the Board discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm, if any, and the audit committee.

Investments in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. However, in accordance with ASC 820-10, certain investments that qualify as investment companies in accordance with ASC 946, may be valued using net asset value as a practical expedient for fair value. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation approaches to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market (as the reporting entity) and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process. For the three months ended March 31, 2021, there has been no change to the Company’s valuation approaches or techniques and the nature of the related inputs considered in the valuation process.

ASC Topic 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.

 

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SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable inputs for the asset or liability.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. The exercise of judgment is based in part on our knowledge of the asset class and our prior experience.

 

  (c)

Gains or losses on investments are calculated by using the specific identification method.

 

  (d)

The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized and we amortize such amounts into income using the effective interest method. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record call premiums received on loans repaid as interest income when we receive such amounts. Capital structuring fees, amendment fees, consent fees, and any other non-recurring fee income as well as management fee and other fee income for services rendered, if any, are recorded as other income when earned.

 

  (e)

The Company intends to comply with the applicable provisions of the Code pertaining to regulated investment companies to make distributions of taxable income sufficient to relieve it of substantially all U.S. federal income taxes. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excise tax on such estimated excess taxable income as appropriate.

 

  (f)

Book and tax basis differences relating to stockholder distributions and other permanent book and tax differences are typically reclassified among the Company’s capital accounts annually. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.

 

  (g)

Distributions to common stockholders are recorded as of the record date. The amount to be paid out as a distribution is determined by the Board. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually.

 

  (h)

In accordance with Regulation S-X and ASC Topic 810—Consolidation, the Company consolidates its interest in controlled investment company subsidiaries, financing subsidiaries and certain wholly-owned holding companies that serve to facilitate investment in portfolio companies. In addition, the Company may also consolidate any controlled operating companies substantially all of whose business consists of providing services to the Company.

 

  (i)

The accounting records of the Company are maintained in U.S. dollars. Any assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. The Company will not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations would be included with the net unrealized gain or loss from investments. The Company’s investments in foreign securities, if any, may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments in terms of U.S. dollars and therefore the earnings of the Company.

 

  (j)

The Company has made elections to apply the fair value option of accounting to the unsecured senior notes due 2022 (the “2022 Unsecured Notes”) (see notes 6 and 7), in accordance with ASC 825-10.

 

  (k)

In accordance with ASC 835-30, the Company reports origination and other expenses related to certain debt issuances as a direct deduction from the carrying amount of the debt liability. Applicable expenses are deferred and amortized using either the effective interest method or the straight-line method over the stated life. The straight-line method may be used on revolving facilities and/or when it approximates the effective yield method.

 

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Table of Contents

SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

  (l)

The Company may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. Realized gains or losses are recognized when contracts are settled.

 

  (m)

The Company records expenses related to shelf registration statements and applicable equity offering costs as prepaid assets. These expenses are typically charged as a reduction of capital upon utilization or expensed, in accordance with ASC 946-20-25.

 

  (n)

Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interest cash payments are past due 30 days or more (90 days or more for equipment financing) and/or when it is no longer probable that principal or interest cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on such investments may be recognized as income or applied to principal depending on management’s judgment.

 

  (o)

The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less would qualify, with limited exceptions. The Company believes that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents.

Recent Accounting Pronouncements

In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is evaluating the potential impact that the adoption of this guidance will have on the Company’s financial statements.

 

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Table of Contents

SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

Note 3. Agreements

The Company has an Advisory Agreement with the Investment Adviser, under which the Investment Adviser will manage the day-to-day operations of, and provide investment advisory services to the Company. For providing these services, the Investment Adviser receives a fee from the Company, consisting of two components—a base management fee and a performance-based incentive fee. The base management fee is determined by taking the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters calculated at an annual rate of 1.75% on gross assets up to 200% of the Company’s total net assets as of the immediately preceding quarter end and 1.00% on gross assets that exceed 200% of the Company’s total net assets as of the immediately preceding quarter end. For purposes of computing the base management fee, gross assets exclude temporary assets acquired at the end of each fiscal quarter for purposes of preserving investment flexibility in the next fiscal quarter. Temporary assets include, but are not limited to, U.S. treasury bills, other short-term U.S. government or government agency securities, repurchase agreements or cash borrowings.

The performance-based incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on the Company’s pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement, and any interest expense and distributions paid on any issued and outstanding preferred stock, but excluding the performance-based incentive fee). Pre-incentive fee net investment income does not include any realized capital gains or losses, or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, is compared to the hurdle rate of 1.75% per quarter (7% annualized). The Company pays the Investment Adviser a performance-based incentive fee with respect to the Company’s pre-incentive fee net investment income in each calendar quarter as follows: (1) no performance-based incentive fee in any calendar quarter in which the Company’s pre-incentive fee net investment income does not exceed the hurdle rate; (2) 100% of the Company’s pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter; and (3) 20% of the amount of the Company’s pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter. These calculations are appropriately pro-rated for any period of less than three months.

The second part of the performance-based incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Advisory Agreement, as of the termination date), and will equal 20% of the Company’s cumulative realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all net capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the Investment Adviser. For financial statement purposes, the second part of the performance-based incentive fee is accrued based upon 20% of cumulative net realized gains and net unrealized capital appreciation. No accrual was required for the three months ended March 31, 2021 and 2020.

For the three months ended March 31, 2021 and 2020, the Company recognized $6,810 and $6,269, respectively, in base management fees and $3,867 and $1,480, respectively, in performance-based incentive fees.

The Company has also entered into an Administration Agreement with SLR Capital Management, LLC (f/k/a Solar Capital Management, LLC) (the “Administrator”) under which the Administrator provides administrative services to the Company. For providing these services, facilities and personnel, the Company reimburses the Administrator for the Company’s allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including rent. The Administrator will also provide, on the Company’s behalf, managerial assistance to those portfolio companies to which the Company is required to provide such assistance. The Company typically reimburses the Administrator on a quarterly basis.

For the three months ended March 31, 2021 and 2020, the Company recognized expenses under the Administration Agreement of $1,360 and $1,147 respectively. No managerial assistance fees were accrued or collected for the three months ended March 31, 2021 and 2020.

 

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Table of Contents

SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

Note 4. Net Asset Value Per Share

At March 31, 2021, the Company’s total net assets and net asset value per share were $856,206 and $20.26, respectively. This compares to total net assets and net asset value per share at December 31, 2020 of $852,023 and $20.16, respectively.

Note 5. Earnings (Loss) Per Share

The following table sets forth the computation of basic and diluted net increase (decrease) in net assets per share resulting from operations, pursuant to ASC 260-10, for the three months ended March 31, 2021 and 2020:

 

     Three months ended March 31,  
     2021      2020  

Earnings (loss) per share (basic & diluted)

     

Numerator - net increase (decrease) in net assets resulting from operations:

   $ 21,510      $ (75,469

Denominator - weighted average shares:

     42,260,826        42,260,826  

Earnings (loss) per share:

   $ 0.51      ($ 1.79

Note 6. Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuations used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access.

Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

 

  a)

Quoted prices for similar assets or liabilities in active markets;

 

  b)

Quoted prices for identical or similar assets or liabilities in non-active markets;

 

  c)

Pricing models whose inputs are observable for substantially the full term of the asset or liability; and

 

  d)

Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s and, if applicable, an independent third-party valuation firm’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3).

Gains and losses for assets and liabilities categorized within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Such reclassifications involving Level 3 assets and liabilities are reported as transfers in/out of Level 3 as of the end of the quarter in which the reclassifications occur. Within the fair value hierarchy tables below, cash and cash equivalents are excluded but could be classified as Level 1.

 

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SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, as of March 31, 2021 and December 31, 2020:

Fair Value Measurements

As of March 31, 2021

 

     Level 1      Level 2      Level 3      Total  

Assets:

           

Senior Secured Loans

   $ —      $ —        $ 839,766      $ 839,766  

Equipment Financing

     —          —          285,924        285,924  

Preferred Equity

     —          —          5,835        5,835  

Common Equity/Equity Interests/Warrants

     1,074        —          441,965        443,039  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 1,074    $ —        $ 1,573,490      $ 1,574,564  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

2022 Unsecured Notes

   $ —      $ —      $ 150,000      $ 150,000  
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair Value Measurements

As of December 31, 2020

 

     Level 1      Level 2      Level 3      Total  

Assets:

           

Senior Secured Loans

   $ —      $ —        $ 798,052      $ 798,052  

Equipment Financing

     —          —          284,846        284,846  

Preferred Equity

     —          —          6,401        6,401  

Common Equity/Equity Interests/Warrants

     1,681        —          440,971        442,652  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 1,681    $ —        $ 1,530,270      $ 1,531,951  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

2022 Unsecured Notes

   $ —      $ —      $ 150,000      $ 150,000  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

21


Table of Contents

SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

The following tables provide a summary of the changes in fair value of Level 3 assets and liabilities for the three months ended March 31, 2021, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at March 31, 2021:

Fair Value Measurements Using Level 3 Inputs

 

     Senior Secured
Loans
    Equipment
Financing
    Preferred Equity     Common Equity/
Equity
Interests/
Warrants
    Total  

Fair value, December 31, 2020

   $ 798,052     $ 284,846     $ 6,401     $ 440,971     $ 1,530,270  

Total gains or losses included in earnings:

          

Net realized loss

     —         —         —         (118     (118

Net change in unrealized gain (loss)

     3,574       278       (632     1,229       4,449  

Purchase of investment securities

     86,822       15,218       66       —         102,106  

Proceeds from dispositions of investment securities.

     (48,682     (14,418     —         —         (63,100

Transfers in/out of Level 3(1)

     —         —         —         (117     (117
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair value, March 31, 2021

   $ 839,766     $ 285,924     $ 5,835     $ 441,965     $ 1,573,490  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized losses for the period relating to those Level 3 assets that were still held by the Company at the end of the period:

          

Net change in unrealized gain (loss)

   $ 4,304     $ 278     $ (632   $ 1,183     $ 5,133  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

On February 17, 2021, the Company exercised its warrants in Senseonics Holdings, Inc., receiving shares in the common stock of Senseonics Holdings, Inc. The common stock of Senseonics Holdings, Inc. is publicly traded, so this position is considered to be a Level 1 asset.

The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservable inputs (Level 3) for the three months ended March 31, 2021:

 

2022 Unsecured Notes and Unfunded Commitments

   For the three months ended
March 31, 2021
 

Beginning fair value

   $ 150,000  

Net realized (gain) loss

     —    

Net change in unrealized (gain) loss

     —    

Borrowings

     —    

Repayments

     —    

Transfers in/out of Level 3

     —    
  

 

 

 

Ending fair value

   $ 150,000  
  

 

 

 

The Company made an election to apply the fair value option of accounting to the 2022 Unsecured Notes, in accordance with ASC 825-10. On March 31, 2021, there were borrowings of $150,000 on the 2022 Unsecured Notes.

 

22


Table of Contents

SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

The following table provides a summary of the changes in fair value of Level 3 assets for the year ended December 31, 2020, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets still held at December 31, 2020:

Fair Value Measurements Using Level 3 Inputs

 

     Senior Secured
Loans
    Equipment
Financing
    Preferred Equity     Common Equity/
Equity
Interests/
Warrants
    Total  

Fair value, December 31, 2019

   $ 852,834     $ 320,630     $ 10,891     $ 309,512     $ 1,493,867  

Total gains or losses included in earnings:

          

Net realized loss

     (24,570     (123     —         (269     (24,962

Net change in unrealized gain (loss)

     10,426       (20,043     (3,334     (4,898     (17,849

Purchase of investment securities

     264,939       37,977       320       136,626       439,862  

Proceeds from dispositions of investment securities.

     (305,577     (53,595     (1,476     —         (360,648

Transfers in/out of Level 3

     —         —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair value, December 31, 2020

   $ 798,052     $ 284,846     $ 6,401     $ 440,971     $ 1,530,270  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period:

          

Net change in unrealized loss

   $ (5,084   $ (20,043   $ (3,334   $ (4,898   $ (33,359
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservable inputs (Level 3) for the year ended December 31, 2020:

 

2022 Unsecured Notes

   For the year ended
December 31, 2020
 

Beginning fair value

   $ 150,000  

Net realized (gain) loss

     —    

Net change in unrealized (gain) loss

     —    

Borrowings

     —    

Repayments

     —    

Transfers in/out of Level 3

     —    
  

 

 

 

Ending fair value

   $ 150,000  
  

 

 

 

The Company made elections to apply the fair value option of accounting to the 2022 Unsecured Notes, in accordance with ASC 825-10. On December 31, 2020, there were borrowings of $150,000 on the 2022 Unsecured Notes.

Quantitative Information about Level 3 Fair Value Measurements

The Company typically determines the fair value of its performing debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to current contractual interest rates, relative maturities and other key terms and risks associated with an investment. Among other factors, a significant determinant of risk is the amount of leverage used by the portfolio company relative to the total enterprise value of the company, and the rights and remedies of our investment within each portfolio company.

 

23


Table of Contents

SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

Significant unobservable quantitative inputs typically used in the fair value measurement of the Company’s Level 3 assets and liabilities primarily reflect current market yields, including indices, and readily available quotes from brokers, dealers, and pricing services as indicated by comparable assets and liabilities, as well as enterprise values, returns on equity and earnings before income taxes, depreciation and amortization (“EBITDA”) multiples of similar companies, and comparable market transactions for equity securities.

Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of March 31, 2021 is summarized in the table below:

 

     Asset or
Liability
     Fair Value at
March 31, 2021
    

Principal Valuation

Technique/Methodology

  

Unobservable Input

   Range (Weighted
Average)

Senior Secured Loans

     Asset      $ 839,766      Income Approach    Market Yield    5.8% – 15.4% (8.7%)

Equipment Financing

     Asset      $

$

156,822

129,102

 

 

  

Income Approach

Market Approach

  

Market Yield

Return on Equity

   6.6% – 20.3% (10.2%)

10.8%-10.8% (10.8%)

Preferred Equity

     Asset      $ 5,835      Income Approach    Market Yield    3.2% – 8.0% (4.6%)

Common Equity/Equity Interests/Warrants

     Asset      $

$

144,199

297,766

 

 

  

Market Multiple(1)

Market Approach

  

Comparable Multiple

Return on Equity

   5.8x – 6.3x (6.3x)

(1.5%) – 13.3% (8.8%)

2022 Unsecured Notes

     Liability      $ 150,000      Income Approach    Market Yield    1.5% – 4.6% (4.5%)

 

(1)

Includes $675 of investments valued using a weighted valuation approach, $486 of investments valued using a Black-Scholes model, $6,442 of investments valued using an EBITDA multiple and $136,596 of investments which, due to the relative proximity of the transaction relative to the measurement date, were valued using the cost of the investments.

Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of December 31, 2020 is summarized in the table below:

 

     Asset or
Liability
     Fair Value at
December 31, 2020
    

Principal Valuation

Technique/Methodology

  

Unobservable Input

   Range (Weighted
Average)

Senior Secured Loans

     Asset      $ 798,052      Income Approach    Market Yield    5.8% – 16.4% (8.9%)

Equipment Financing

     Asset      $

$

155,744

129,102

 

 

  

Income Approach

Market Approach

  

Market Yield

Return on Equity

   6.6% – 20.3% (10.3%)

10.9%-10.9% (10.9%)

Preferred Equity

     Asset      $ 6,401      Income Approach    Market Yield    3.3% – 8.0% (5.0%)

Common Equity/Equity Interests/Warrants

     Asset      $

$

144,205

296,766

 

 

  

Market Multiple(1)

Market Approach

  

Comparable Multiple

Return on Equity

   5.8x – 6.3x (6.3x)

(10.3%) – 13.7% (0.5%)

2022 Unsecured Notes

     Liability      $ 150,000      Income Approach    Market Yield    1.5% – 4.6% (4.5%)

 

(1)

Includes $675 of investments valued using a weighted valuation approach, $492 of investments valued using a Black-Scholes model, $6,442 of investments valued using an EBITDA multiple and $136,596 of investments which, due to the proximity of the transaction relative to the measurement date, were valued using the cost of the investments.

Significant increases or decreases in any of the above unobservable inputs in isolation, including unobservable inputs used in deriving bid-ask spreads, if applicable, could result in significantly lower or higher fair value measurements for such assets and liabilities. Generally, an increase in market yields or decrease in EBITDA multiples may result in a decrease in the fair value of certain of the Company’s investments.

 

24


Table of Contents

SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

Note 7. Debt

Our debt obligations consisted of the following as of March 31, 2021 and December 31, 2020:

 

     March 31, 2021     December 31, 2020  

Facility

   Face Amount      Carrying Value     Face Amount      Carrying Value  

Credit Facility

   $  235,000    $  232,916 (1)    $  201,000    $  198,766 (1) 

NEFPASS Facility

     30,000      29,433 (2)      30,000      29,377 (2) 

2022 Unsecured Notes

     150,000        150,000       150,000        150,000  

2022 Tranche C Notes

     21,000        20,938 (3)      21,000        20,930 (3) 

2023 Unsecured Notes

     75,000        74,314 (4)      75,000        74,225 (4) 

2024 Unsecured Notes

     125,000        123,942 (5)      125,000        123,877 (5) 

2026 Unsecured Notes

     75,000        74,302 (6)      75,000        74,276 (6) 
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 711,000      $ 705,845     $ 677,000      $ 671,451  
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1)

Carrying Value equals the Face Amount net of unamortized debt issuance costs of $2,084 and $2,234 as of March 31, 2021 and December 31, 2020, respectively.

(2)

Carrying Value equals the Face Amount net of unamortized debt issuance costs of $567 and $623 as of March 31, 2021 and December 31, 2020, respectively.

(3)

Carrying Value equals the Face Amount net of unamortized debt issuance costs of $62 and $70 as of March 31, 2021 and December 31, 2020, respectively.

(4)

Carrying Value equals the Face Amount net of unamortized debt issuance costs of $686 and $775 as of March 31, 2021 and December 31, 2020, respectively.

(5)

Carrying Value equals the Face Amount net of unamortized debt issuance costs of $1,058 and $1,123 as of March 31, 2021 and December 31, 2020, respectively.

(6)

Carrying Value equals the Face Amount net of unamortized debt issuance costs of $698 and $724 as of March 31, 2021 and December 31, 2020, respectively.

Unsecured Notes

On December 18, 2019, the Company closed a private offering of $125,000 of the 2024 Unsecured Notes with a fixed interest rate of 4.20% and a maturity date of December 15, 2024. Interest on the 2024 Unsecured Notes is due semi-annually on June 15 and December 15. The 2024 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

On December 18, 2019, the Company closed a private offering of $75,000 of the 2026 Unsecured Notes with a fixed interest rate of 4.375% and a maturity date of December 15, 2026. Interest on the 2026 Unsecured Notes is due semi-annually on June 15 and December 15. The 2026 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

On December 28, 2017, the Company closed a private offering of $21,000 of the 2022 Tranche C Notes with a fixed interest rate of 4.50% and a maturity date of December 28, 2022.    Interest on the 2022 Tranche C Notes is due semi-annually on June 28 and December 28. The 2022 Tranche C Notes were issued in a private placement only to qualified institutional buyers.

On November 22, 2017, we issued $75,000 in aggregate principal amount of publicly registered 2023 Unsecured Notes for net proceeds of $73,846. Interest on the 2023 Unsecured Notes is paid semi-annually on January 20 and July 20, at a fixed rate of 4.50% per year, commencing on January 20, 2018. The 2023 Unsecured Notes mature on January 20, 2023.    

On February 15, 2017, the Company closed a private offering of $100,000 of the 2022 Unsecured Notes with a fixed interest rate of 4.60% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

On November 8, 2016, the Company closed a private offering of $50,000 of the 2022 Unsecured Notes with a fixed interest rate of 4.40% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

 

25


Table of Contents

SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

Revolving and Term Loan Facilities

On August 28, 2019, the Company repaid its existing senior secured credit agreement due September 2021 and entered into the new senior secured credit agreement (the “Credit Facility”). The Credit Facility is composed of $470,000 of revolving credit and $75,000 of term loans. Borrowings generally bear interest at a rate per annum equal to the base rate plus a range of 2.00-2.25% or the alternate base rate plus 1.00%-1.25%. The Credit Facility has no LIBOR floor requirement. The Credit Facility matures in August 2024 and includes ratable amortization in the final year. The Credit Facility may be increased up to $800,000 with additional new lenders or an increase in commitments from current lenders. The Credit Facility contains certain customary affirmative and negative covenants and events of default. In addition, the Credit Facility contains certain financial covenants that among other things, requires the Company to maintain a minimum shareholder’s equity and a minimum asset coverage ratio. At March 31, 2021, outstanding USD equivalent borrowings under the Credit Facility totaled $235,000, composed of $160,000 of revolving credit and $75,000 of term loans.

On September 26, 2018, NEFPASS SPV LLC, a newly formed wholly-owned subsidiary of NEFPASS LLC, as borrower entered into a $50,000 senior secured revolving credit facility (the “NEFPASS Facility”) with Keybank acting as administrative agent. The Company acts as servicer under the NEFPASS Facility. The NEFPASS Facility is scheduled to mature on September 26, 2023.    The NEFPASS Facility generally bears interest at a rate of LIBOR plus 2.15%. NEFPASS and NEFPASS SPV LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The NEFPASS Facility also includes usual and customary events of default for credit facilities of this nature. There were $30,000 of borrowings outstanding as of March 31, 2021.

Certain covenants on our issued debt may restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code.

The Company has made an election to apply the fair value option of accounting to the 2022 Unsecured Notes, in accordance with ASC 825-10. We believe accounting for this facility at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate certain earnings volatility. ASC 825-10 requires entities to display the fair value of the selected assets and liabilities on the face of the Consolidated Statement of Assets and Liabilities and changes in fair value of the above facility are reported in the Consolidated Statement of Operations.

The average annualized interest cost for all borrowings for the three months ended March 31, 2021 and the year ended December 31, 2020 was 3.68% and 4.11%, respectively. These costs are exclusive of other credit facility expenses such as unused fees, agency fees and other prepaid expenses related to establishing and/or amending the Credit Facility, the 2022 Unsecured Notes, the 2022 Tranche C Notes, the NEFPASS Facility, the 2023 Unsecured Notes, the 2024 Unsecured Notes, and the 2026 Unsecured Notes (collectively the “Credit Facilities”), if any. The maximum amounts borrowed on the Credit Facilities during the three months ended March 31, 2021 and the year ended December 31, 2020 were $715,000 and $677,000, respectively.

 

26


Table of Contents

SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

Note 8. Financial Highlights

The following is a schedule of financial highlights for the three months ended March 31, 2021 and 2020:

 

     Three months ended
March 31, 2021
    Three months ended
March 31, 2020
 

Per Share Data: (a)

    

Net asset value, beginning of year

   $ 20.16     $ 21.44  
  

 

 

   

 

 

 

Net investment income

     0.37       0.38  

Net realized and unrealized gain (loss)

     0.14       (2.17
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     0.51       (1.79

Distributions to stockholders:

    

From net investment income

     (0.41     (0.41
  

 

 

   

 

 

 

Net asset value, end of period

   $ 20.26     $ 19.24  
  

 

 

   

 

 

 

Per share market value, end of period

   $ 17.76     $ 11.64  

Total Return (b)

     3.77     (41.56 %) 

Net assets, end of period

   $ 856,206     $ 813,084  

Shares outstanding, end of period

     42,260,826       42,260,826  

Ratios to average net assets (c):

    

Net investment income

     1.82     1.75
  

 

 

   

 

 

 

Operating expenses

     1.55     1.10

Interest and other credit facility expenses

     0.85     0.78
  

 

 

   

 

 

 

Total expenses

     2.40     1.88
  

 

 

   

 

 

 

Average debt outstanding

   $ 692,956     $ 559,460  

Portfolio turnover ratio

     4.3     5.6

 

(a)

Calculated using the average shares outstanding method.

(b)

Total return is based on the change in market price per share during the period and takes into account distributions, if any, reinvested in accordance with the dividend reinvestment plan. The market price per share as of December 31, 2020 and December 31, 2019 was $17.51 and $20.62, respectively. Total return does not include a sales load.

(c)

Not annualized for periods less than one year.

 

27


Table of Contents

SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

Note 9. SLR Credit Solutions

On December 28, 2012, we completed the acquisition of Crystal Capital Financial Holdings LLC (“Crystal Financial”), a commercial finance company focused on providing asset-based and other secured financing solutions (the “Crystal Acquisition”). We invested $275,000 in cash to effect the Crystal Acquisition. Crystal Financial owned approximately 98% of the outstanding ownership interest in SLR Credit Solutions (“SLR Credit”), f/k/a Crystal Financial LLC. The remaining financial interest was held by various employees of SLR Credit, through their investment in Crystal Management LP. SLR Credit had a diversified portfolio of 23 loans having a total par value of approximately $400,000 at November 30, 2012 and a $275,000 committed revolving credit facility. On July 28, 2016, the Company purchased Crystal Management LP’s approximately 2% equity interest in SLR Credit for approximately $5,737. Upon the closing of this transaction, the Company holds 100% of the equity interest in SLR Credit. On September 30, 2016, Crystal Capital Financial Holdings LLC was dissolved. As of March 11, 2021, total commitments to the revolving credit facility are $280,000.

As of March 31, 2021 SLR Credit had 30 funded commitments to 24 different issuers with a total par value of approximately $344,414 on total assets of $400,737. As of December 31, 2020, SLR Credit had 30 funded commitments to 24 different issuers with a total par value of approximately $404,115 on total assets of $433,914. As of March 31, 2021 and December 31, 2020, the largest loan outstanding totaled $32,782 and $45,000, respectively. For the same periods, the average exposure per issuer was $14,351 and $16,838, respectively. SLR Credit’s credit facility, which is non-recourse to the Company, had approximately $140,495 and $183,896 of borrowings outstanding at March 31, 2021 and December 31, 2020, respectively. For the three months ended March 31, 2021 and 2020, SLR Credit had net income of $4,953 and $1,901, respectively, on gross income of $9,676 and $11,505, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions.

Note 10. Commitments and Contingencies

The Company had unfunded debt and equity commitments to various revolving and delayed-draw term loans as well as to SLR Credit. The total amount of these unfunded commitments as of March 31, 2021 and December 31, 2020 is $122,259 and $126,180, respectively, comprised of the following:

 

     March 31,
2021
     December 31,
2020
 

SLR Credit Solutions*

   $ 44,263      $ 44,263  

Smile Doctors LLC

     19,614        26,740  

High Street Insurance Partners, Inc.

     10,679        —    

One Touch Direct, LLC

     7,248        5,042  

Kindred Biosciences, Inc

     6,897        6,897  

Neuronetics, Inc

     6,691        6,691  

SOC Telemed, Inc

     5,338        —    

PQ Bypass, Inc

     5,000        5,000  

SLR Equipment Finance

     4,150        4,150  

Atria Wealth Solutions, Inc

     3,747        3,529  

Foundation Consumer Brands, LLC

     2,269        —    

Basic Fun, Inc

     2,150        1,116  

Sentry Data Systems, Inc

     1,577        1,577  

Pinnacle Treatment Centers, Inc.

     1,386        1,386  

Delphinus Medical Technologies, Inc.

     1,250        1,250  

Soleo Health Holdings, Inc.

     —          7,421  

Cardiva Medical, Inc

     —          7,333  

Centrexion Therapeutics, Inc

     —          3,785  
  

 

 

    

 

 

 

Total Commitments

   $ 122,259      $ 126,180  
  

 

 

    

 

 

 

 

*

The Company controls the funding of the SLR Credit Solutions commitment and may cancel it at its discretion.    

 

28


Table of Contents

SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

The credit agreements of the above loan commitments contain customary lending provisions and/or are subject to the portfolio company’s achievement of certain milestones that allow relief to the Company from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company. Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for the Company. As of March 31, 2021 and December 31, 2020, the Company had sufficient cash available and/or liquid securities available to fund its commitments.

Note 11. SLR Equipment Finance

On July 31, 2017, we completed the acquisition of NEF Holdings, LLC, which conducts its business through its wholly-owned subsidiary Nations Equipment Finance, LLC. Effective February 25, 2021, Nations Equipment Finance, LLC and its related companies is now known as SLR Equipment Finance (“SLR Equipment”). SLR Equipment is an independent equipment finance company that provides senior secured loans and leases primarily to U.S. based companies. We invested $209,866 in cash to effect the transaction, of which $145,000 was invested in the equity of SLR Equipment through our wholly-owned consolidated taxable subsidiary NEFCORP LLC and our wholly-owned consolidated subsidiary NEFPASS LLC and $64,866 was used to purchase certain leases and loans held by SLR Equipment through NEFPASS LLC. Concurrent with the transaction, SLR Equipment refinanced its existing senior secured credit facility into a $150,000 non-recourse facility with an accordion feature to expand up to $250,000. In September 2019, SLR Equipment amended the facility, increasing commitments to $213,957 with an accordion feature to expand up to $313,957 and extended the maturity date of the facility to July 31, 2023. At July 31, 2017, SLR Equipment also had two securitizations outstanding, with an issued note balance of $94,587, which were later redeemed in 2018.

As of March 31, 2021, SLR Equipment had 132 funded equipment-backed leases and loans to 59 different customers with a total net investment in leases and loans of approximately $188,414 on total assets of $262,284. As of December 31, 2020, NEF had 138 funded equipment-backed leases and loans to 61 different customers with a total net investment in leases and loans of approximately $188,448 on total assets of $263,443. As of March 31, 2021 and December 31, 2020, the largest position outstanding totaled $19,121 and $25,103, respectively. For the same periods, the average exposure per customer was $3,193 and $3,089, respectively. SLR Equipment’s credit facility, which is non-recourse to the Company, had approximately $101,658 and $100,569 of borrowings outstanding at March 31, 2021 and December 31, 2020, respectively. For the three months ended March 31, 2021 and March 31, 2020, SLR Equipment had net income (loss) of ($318) and $427, respectively, on gross income of $4,894 and $5,914, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions.

Note 12. Capital Share Transactions

As of March 31, 2021 and March 31, 2020, 200,000,000 shares of $0.01 par value capital stock were authorized.

There were no transactions in capital stock during the three months ended March 31, 2021 and March 31, 2020.

Note 13. Kingsbridge Holdings, LLC

On November 3, 2020, the Company acquired 87.5% of Kingsbridge Holdings, LLC (“KBH”) through KBH Topco LLC (“KBHT”), a newly formed Delaware corporation. KBH is a residual focused independent mid-ticket lessor of equipment primarily to U.S. investment grade companies. The Company invested $216,596 to effect the transaction, of which $136,596 was invested to acquire 87.5% of KBHT’s equity and $80,000 in KBH’s debt. The existing management team of KBH committed to continue to lead KBH after the transaction. Post the transaction, the Company owns 87.5% of KBHT equity and the KBH management team owns the remaining 12.5% of KBHT’s equity.

As of March 31, 2021, KBH had total assets of $748,444. Recourse debt outstanding for KBH totaled $220,706 as of March 31, 2021. Non-recourse debt outstanding for KBH totaled $345,260 at March 31, 2021. As of December 31, 2020, KBH had total assets of $744,684. KBH also had recourse debt outstanding of $219,044 as well as non-recourse debt outstanding of $335,899 at December 31, 2020. For the three months ended March 31, 2021, KBH had net income of $2,267 on gross income of $58,146. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in KBH’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that KBH will be able to maintain consistent dividend payments to us.

 

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SLR INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(continued)

March 31, 2021

(in thousands, except share amounts)

 

Note

14. Subsequent Events

The Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the consolidated financial statements were issued.

On May 5, 2021, our Board declared a quarterly distribution of $0.41 per share payable on July 2, 2021 to holders of record as of June 23, 2021.

 

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

SLR Investment Corp.:

Results of Review of Interim Financial Information

We have reviewed the consolidated statement of assets and liabilities of SLR Investment Corp. (and subsidiaries) (the Company), formerly Solar Capital Ltd., including the consolidated schedule of investments, as of March 31, 2021, the related consolidated statements of operations, changes in net assets, and cash flows for the three-month periods ended March 31, 2021 and 2020, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of assets and liabilities, including the consolidated schedule of investments, of the Company as of December 31, 2020, and the related consolidated statements of operations, changes in net assets, and cash flows for the year then ended (not presented herein); and in our report dated February 24, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated statement of assets and liabilities, including the consolidated schedule of investments, from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ KPMG LLP

New York, New York

May 5, 2021

 

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information contained in this section should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

Some of the statements in this report constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained herein involve risks and uncertainties, including statements as to:

 

   

our future operating results, including our ability to achieve objectives as a result of the current COVID-19 pandemic;

 

   

our business prospects and the prospects of our portfolio companies;

 

   

the impact of investments that we expect to make;

 

   

our contractual arrangements and relationships with third parties;

 

   

the dependence of our future success on the general economy and its impact on the industries in which we invest and the impact of the COVID-19 pandemic thereon;

 

   

the impact of any protracted decline in the liquidity of credit markets on our business and the impact of the COVID-19 pandemic thereon;

 

   

the ability of our portfolio companies to achieve their objectives, including as a result of the current COVID-19 pandemic;

 

   

the valuation of our investments in portfolio companies, particularly those having no liquid trading market, and the impact of the COVID-19 pandemic thereon;

 

   

market conditions and our ability to access alternative debt markets and additional debt and equity capital, and the impact of the COVID-19 pandemic thereon;

 

   

our expected financings and investments;

 

   

the adequacy of our cash resources and working capital;

 

   

the timing of cash flows, if any, from the operations of our portfolio companies and the impact of the COVID-19 pandemic thereon; and

 

   

the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments and the impacts of the COVID-19 pandemic thereon.

These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

 

   

an economic downturn, including as a result of the current COVID-19 pandemic, could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;

 

   

a contraction of available credit and/or an inability to access the equity markets, including as a result of the current COVID-19 pandemic, could impair our lending and investment activities;

 

   

interest rate volatility could adversely affect our results, particularly because we use leverage as part of our investment strategy;

 

   

currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars; and

 

   

the risks, uncertainties and other factors we identify in Item 1A. — Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2020, elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC.

We generally use words such as “anticipates,” “believes,” “expects,” “intends” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including any factors set forth in “Risk Factors” and elsewhere in this report.

We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including any annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview

Solar Capital LLC, a Maryland limited liability company, was formed in February 2007 and commenced operations on March 13, 2007 with initial capital of $1.2 billion of which 47.04% was funded by affiliated parties.

SLR Investment Corp. f/k/a Solar Capital, Ltd., a Maryland corporation formed in November 2007, is a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a business development company

 

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(“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). Furthermore, as the Company is an investment company, it continues to apply the guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946. In addition, for U.S federal income tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

On February 9, 2010, we priced our initial public offering, selling 5.68 million shares of our common stock. Concurrent with our initial public offering, Michael S. Gross, our Chairman, Co-Chief Executive Officer and President, and Bruce Spohler, our Co-Chief Executive Officer and Chief Operating Officer, collectively purchased an additional 0.6 million shares of our common stock through a private placement transaction exempt from registration under the Securities Act.

We invest primarily in privately held U.S. middle-market companies, where we believe the supply of primary capital is limited and the investment opportunities are most attractive. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in leveraged middle-market companies in the form of senior secured loans, stretch-senior loans, financing leases and to a lesser extent, unsecured loans and equity securities. From time to time, we may also invest in public companies that are thinly traded. Our business is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Our investments generally range between $5 million and $100 million each, although we expect that this investment size will vary proportionately with the size of our capital base and/or with strategic initiatives. Our investment activities are managed by SLR Capital Partners, LLC (the “Investment Adviser”) and supervised by our board of directors, a majority of whom are non-interested, as such term is defined in the 1940 Act. SLR Capital Management, LLC (the “Administrator”) provides the administrative services necessary for us to operate.

In addition, we may invest a portion of our portfolio in other types of investments, which we refer to as opportunistic investments, which are not our primary focus but are intended to enhance our overall returns. These investments may include, but are not limited to, direct investments in public companies that are not thinly traded and securities of leveraged companies located in select countries outside of the United States.

As of March 31, 2021, the Investment Adviser has directly invested approximately $10.4 billion in more than 420 different portfolio companies since 2006. Over the same period, the Investment Adviser completed transactions with more than 200 different financial sponsors.

Recent Developments

On May 5, 2021, our Board declared a quarterly distribution of $0.41 per share payable on July 2, 2021 to holders of record as of June 23, 2021.

Investments

Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make. As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” The definition of “eligible portfolio company” includes certain public companies that do not have any securities listed on a national securities exchange and companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million.

Revenue

We generate revenue primarily in the form of interest and dividend income from the securities we hold and capital gains, if any, on investment securities that we may sell. Our debt investments generally have a stated term of three to seven years and typically bear interest at a floating rate usually determined on the basis of a benchmark London interbank offered rate (“LIBOR”), commercial paper rate, or the prime rate. Interest on our debt investments is generally payable monthly or quarterly but may be bi-monthly or semi-annually. In addition, our investments may provide payment-in-kind (“PIK”) interest. Such amounts of accrued PIK interest are added to the cost of the investment on the respective capitalization dates and generally become due at maturity of the investment or upon the investment being called by the issuer. We may also generate revenue in the form of commitment, origination, structuring fees, fees for providing managerial assistance and, if applicable, consulting fees, etc.

Expenses

All investment professionals of the investment adviser and their respective staffs, when and to the extent engaged in providing investment advisory and management services, and the compensation and routine overhead expenses of such personnel allocable to such services, are provided and paid for by SLR Capital Partners. We bear all other costs and expenses of our operations and transactions, including (without limitation):

 

   

the cost of our organization and public offerings;

 

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the cost of calculating our net asset value, including the cost of any third-party valuation services;

 

   

the cost of effecting sales and repurchases of our shares and other securities;

 

   

interest payable on debt, if any, to finance our investments;

 

   

fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments and advisory fees;

 

   

transfer agent and custodial fees;

 

   

fees and expenses associated with marketing efforts;

 

   

federal and state registration fees, any stock exchange listing fees;

 

   

federal, state and local taxes;

 

   

independent directors’ fees and expenses;

 

   

brokerage commissions;

 

   

fidelity bond, directors and officers errors and omissions liability insurance and other insurance premiums;

 

   

direct costs and expenses of administration, including printing, mailing, long distance telephone and staff;

 

   

fees and expenses associated with independent audits and outside legal costs;

 

   

costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws; and

 

   

all other expenses incurred by either SLR Capital Management or us in connection with administering our business, including payments under the Administration Agreement that will be based upon our allocable portion of overhead and other expenses incurred by SLR Capital Management in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and related expenses of our chief compliance officer and our chief financial officer and their respective staffs.

We expect our general and administrative operating expenses related to our ongoing operations to increase moderately in dollar terms. During periods of asset growth, we generally expect our general and administrative operating expenses to decline as a percentage of our total assets and increase during periods of asset declines. Incentive fees, interest expense and costs relating to future offerings of securities, among others, may also increase or reduce overall operating expenses based on portfolio performance, interest rate benchmarks, and offerings of our securities relative to comparative periods, among other factors.

Portfolio and Investment Activity

During the three months ended March 31, 2021, we invested approximately $98.7 million across 15 portfolio companies. This compares to investing approximately $79.6 million in 15 portfolio companies for the three months ended March 31, 2020. Investments sold, prepaid or repaid during the three months ended March 31, 2021 totaled approximately $67.0 million versus approximately $200.3 million for the three months ended March 31, 2020.

At March 31, 2021, our portfolio consisted of 105 portfolio companies and was invested 21.1% in cash flow senior secured loans, 25.8% in asset-based senior secured loans / SLR Credit Solutions (“SLR Credit”), 13.7% in Kingsbridge Holdings, LLC (“KBH”), 18.2% in equipment senior secured financings / SLR Equipment Finance (“SLR Equipment”), and 21.2% in life science senior secured loans, in each case, measured at fair value, versus 105 portfolio companies and was invested 23.3% in cash flow senior secured loans, 31.8% in asset-based senior secured loans / SLR Credit, 22.5% in equipment senior secured financings / SLR Equipment, and 22.4% in life science senior secured loans, in each case, measured at fair value, at March 31, 2020.

 

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At March 31, 2021, 72.8% or $1.14 billion of our income producing investment portfolio* is floating rate and 27.2% or $426.3 million is fixed rate, measured at fair value. At March 31, 2020, 76.5% or $969.7 million of our income producing investment portfolio* is floating rate and 23.5% or $298.1 million is fixed rate, measured at fair value. As of March 31, 2021 and 2020, we had zero and one issuer, respectively, on non-accrual status.

Since inception through March 31, 2021, the Company and its predecessor companies have invested approximately $6.8 billion in more than 300 portfolio companies. Over the same period, the Company has completed transactions with more than 150 different financial sponsors.

 

* 

We have included SLR Credit Solutions, SLR Equipment Finance and Kingsbridge Holdings, LLC within our income producing investment portfolio.

SLR Credit Solutions

On December 28, 2012, we completed the acquisition of Crystal Capital Financial Holdings LLC (“Crystal Financial”), a commercial finance company focused on providing asset-based and other secured financing solutions (the “Crystal Acquisition”). We invested $275 million in cash to effect the Crystal Acquisition. Crystal Financial owned approximately 98% of the outstanding ownership interest in SLR Credit Solutions (“SLR Credit”), f/k/a Crystal Financial LLC. The remaining financial interest was held by various employees of SLR Credit, through their investment in Crystal Management LP. SLR Credit had a diversified portfolio of 23 loans having a total par value of approximately $400 million at November 30, 2012 and a $275 million committed revolving credit facility. On July 28, 2016, the Company purchased Crystal Management LP’s approximately 2% equity interest in SLR Credit for approximately $5.7 million.    Upon the closing of this transaction, the Company holds 100% of the equity interest in SLR Credit. On September 30, 2016, Crystal Capital Financial Holdings LLC was dissolved. As of March 11, 2021, total commitments to the revolving credit facility are $280 million.

As of March 31, 2021, SLR Credit had 30 funded commitments to 24 different issuers with a total par value of approximately $344.4 million on total assets of $400.7 million. As of December 31, 2020, SLR Credit had 30 funded commitments to 24 different issuers with total funded loans of approximately $404.1 million on total assets of $433.9 million. As of March 31, 2021 and December 31, 2020, the largest loan outstanding totaled $32.8 million and $45.0 million, respectively. For the same periods, the average exposure per issuer was $14.4 million and $16.8 million, respectively. SLR Credit’s credit facility, which is non-recourse to the Company, had approximately $140.5 million and $183.9 million of borrowings outstanding at March 31, 2021 and December 31, 2020, respectively. For the three months ended March 31, 2021 and 2020, SLR Credit had net income of $5.0 million and $1.9 million, respectively, on gross income of $9.7 million and $11.5 million, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in SLR Credit’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that SLR Credit will be able to maintain consistent dividend payments to us.

SLR Equipment Finance

On July 31, 2017, we completed the acquisition of NEF Holdings, LLC, which conducts its business through its wholly-owned subsidiary Nations Equipment Finance, LLC. Effective February 25, 2021, Nations Equipment Finance, LLC and its related companies is now known as SLR Equipment Finance (“SLR Equipment”). SLR Equipment is an independent equipment finance company that provides senior secured loans and leases primarily to U.S. based companies. We invested $209.9 million in cash to effect the transaction, of which $145.0 million was invested in the equity of SLR Equipment through our wholly-owned consolidated taxable subsidiary NEFCORP LLC and our wholly-owned consolidated subsidiary NEFPASS LLC and $64.9 million was used to purchase certain leases and loans held by SLR Equipment through NEFPASS LLC. Concurrent with the transaction, SLR Equipment refinanced its existing senior secured credit facility into a $150.0 million non-recourse facility with an accordion feature to expand up to $250.0 million. In September 2019, SLR Equipment amended the facility, increasing commitments to $214.0 million with an accordion feature to expand up to $314.0 million and extended the maturity date of the facility to July 31, 2023. At July 31, 2017, SLR Equipment also had two securitizations outstanding, with an issued note balance of $94.6 million, which were later redeemed in 2018.

As of March 31, 2021, SLR Equipment had 132 funded equipment-backed leases and loans to 59 different customers with a total net investment in leases and loans of approximately $188.4 million on total assets of $262.3 million. As of December 31, 2020, SLR Equipment had 138 funded equipment-backed leases and loans to 61 different customers with a total net investment in leases and loans of approximately $188.4 million on total assets of $263.4 million. As of March 31, 2021 and December 31, 2020, the largest position outstanding totaled $19.1 million and $25.1 million, respectively. For the same periods, the average exposure per customer was $3.2 million and $3.1 million, respectively. SLR Equipment’s credit facility, which is non-recourse to the Company, had approximately $101.7 million and $100.6 million of borrowings outstanding at March 31, 2021 and December 31, 2020, respectively. For the three months ended March 31, 2021 and 2020, SLR Equipment had net income (loss) of ($0.3) million and $0.4 million, respectively, on gross income of $4.9 million and $5.9 million, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in SLR Equipment’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that SLR Equipment will be able to maintain consistent dividend payments to us.

 

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Kingsbridge Holdings, LLC

On November 3, 2020, the Company acquired 87.5% of Kingsbridge Holdings, LLC (“KBH”) through KBH Topco LLC (“KBHT”), a newly formed Delaware corporation. KBH is a residual focused independent mid-ticket lessor of equipment primarily to U.S. investment grade companies. The Company invested $216.6 million to effect the transaction, of which $136.6 million was invested to acquire 87.5% of KBHT’s equity and $80.0 million in KBH’s debt. The existing management team of KBH committed to continue to lead KBH after the transaction. Post the transaction, the Company owns 87.5% of KBHT equity and the KBH management team owns the remaining 12.5% of KBHT’s equity.

As of March 31, 2021, KBH had total assets of $748.4 million. Recourse debt outstanding for KBH totaled $220.7 million at March 31, 2021. Non-recourse debt outstanding for KBH totaled $345.3 million at March 31, 2021. As of December 31, 2020, KBH had total assets of $744.7 million. KBH also had recourse debt outstanding of $219.0 million as well as non-recourse debt outstanding of $335.9 million at December 31, 2020. For the three months ended March 31, 2021, KBH had net income of $2.3 million, on gross income of $58.1 million. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in KBH’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that KBH will be able to maintain consistent dividend payments to us.

Critical Accounting Policies

The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies. Within the context of these critical accounting policies and disclosed subsequent events herein, we are not currently aware of any other reasonably likely events or circumstances that would result in materially different amounts being reported.

Valuation of Portfolio Investments

We conduct the valuation of our assets, pursuant to which our net asset value is determined, at all times consistent with GAAP, and the 1940 Act. Our valuation procedures are set forth in more detail below:

Under procedures established by our board of directors (the “Board”), we value investments, including certain senior secured debt, subordinated debt and other debt securities with maturities greater than 60 days, for which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a principal market maker or a primary market dealer or other independent pricing service). We utilize mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are deemed not to represent fair value, we may utilize independent third-party valuation firms to assist us in determining the fair value of material assets. Accordingly, such investments go through our multi-step valuation process as described below. In each case, independent valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations. Debt investments with maturities of 60 days or less shall each be valued at cost plus accreted discount, or minus amortized premium, which is expected to approximate fair value, unless such valuation, in the judgment of the Investment Adviser, does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of our Board. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of our Board. Such determination of fair values involves subjective judgments and estimates.

With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board has approved a multi-step valuation process each quarter, as described below:

 

  (1)

our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Investment Adviser responsible for the portfolio investment;

 

  (2)

preliminary valuation conclusions are then documented and discussed with senior management of the Investment Adviser;

 

  (3)

independent valuation firms engaged by our Board conduct independent appraisals and review the Investment Adviser’s preliminary valuations and make their own independent assessment for all material assets;

 

  (4)

the audit committee of the Board reviews the preliminary valuation of the Investment Adviser and that of the independent valuation firm, if any, and responds to the valuation recommendation of the independent valuation firm to reflect any comments; and

 

  (5)

the Board discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm, if any, and the audit committee.

 

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Investments in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. However, in accordance with ASC 820-10, certain investments that qualify as investment companies in accordance with ASC 946, may be valued using net asset value as a practical expedient for fair value. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation approaches to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market (as the reporting entity) and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process. For the three months ended March 31, 2021, there has been no change to the Company’s valuation approaches or techniques and the nature of the related inputs considered in the valuation process.

Accounting Standards Codification (“ASC”) Topic 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable inputs for the asset or liability.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. The exercise of judgment is based in part on our knowledge of the asset class and our prior experience.

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements.

Valuation of 2022 Unsecured Notes

The Company has made an election to apply the fair value option of accounting to the 2022 Unsecured Notes, in accordance with ASC 825-10. We believe accounting for the 2022 Unsecured Notes at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate certain earnings volatility.

Revenue Recognition

The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Investments that are expected to pay regularly scheduled interest and/or dividends in cash are generally placed on non-accrual status when principal or interest/dividend cash payments are past due 30 days or more (90 days or more for equipment financing) and/or when it is no longer probable that principal or interest/dividend cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest or dividends are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining interest or dividend obligations. Interest or dividend cash payments received on investments may be recognized as income or applied to principal depending upon management’s judgment. Some of our investments may have contractual PIK interest or dividends. PIK interest and dividends computed at the contractual rate are accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes due at the maturity of the investment or upon the investment being called by the issuer. At the point the Company believes PIK is not expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends is reversed from the related receivable through interest or dividend income, respectively. The Company does not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if the Company again believes that PIK is expected to be realized. Loan origination fees, original issue discount, and market discounts are capitalized and amortized into income using the effective interest method. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and other investments as interest income when we receive such amounts. Capital structuring fees are recorded as other income when earned.

 

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The typically higher yields and interest rates on PIK securities, to the extent we invested, reflects the payment deferral and increased credit risk associated with such instruments and that such investments may represent a significantly higher credit risk than coupon loans. PIK securities may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. PIK interest has the effect of generating investment income and increasing the incentive fees payable at a compounding rate. In addition, the deferral of PIK interest also increases the loan-to-value ratio at a compounding rate. PIK securities create the risk that incentive fees will be paid to the Investment Adviser based on non-cash accruals that ultimately may not be realized, but the Investment Adviser will be under no obligation to reimburse the Company for these fees. For the three months ended March 31, 2021 and 2020, capitalized PIK income totaled $1.7 million and $0.2 million, respectively.

Net Realized Gain or Loss and Net Change in Unrealized Gain or Loss

We generally measure realized gain or loss by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized origination or commitment fees and prepayment penalties. The net change in unrealized gain or loss reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized gain or loss, when gains or losses are realized. Gains or losses on investments are calculated by using the specific identification method.

Income Taxes

SLR Investment Corp., a U.S. corporation, has elected to be treated, and intends to qualify annually, as a RIC under Subchapter M of the Code. In order to qualify for U.S. federal income taxation as a RIC, the Company is required, among other things, to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each year. Depending on the level of taxable income earned in a given tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues an estimated excise tax, if any, on estimated excess taxable income.

Recent Accounting Pronouncements

In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is evaluating the potential impact that the adoption of this guidance will have on the Company’s financial statements.

RESULTS OF OPERATIONS

Results comparisons are for the three months ended March 31, 2021 and March 31, 2020:

Investment Income

For the three months ended March 31, 2021 and 2020, gross investment income totaled $35.9 million and $32.9 million, respectively. The increase in gross investment income for the year over year three month periods was primarily due to growth in the income producing portfolio.

Expenses

Expenses totaled $20.4 million and $17.1 million, respectively, for the three months ended March 31, 2021 and 2020, of which $10.7 million and $7.8 million, respectively, were base management fees and performance-based incentive fees and $7.2 million and $7.0 million, respectively, were interest and other credit facility expenses. Administrative services and other general and administrative expenses totaled $2.5 million and $2.3 million, respectively, for the three months ended March 31, 2021 and 2020. Expenses generally consist of management and performance-based incentive fees, interest and other credit facility expenses, administrative services fees, insurance expenses, legal fees, directors’ fees, transfer agency fees, printing and proxy expenses, audit and tax services expenses, and other general and administrative expenses. Interest and other credit facility expenses generally consist of interest, unused fees, agency fees and loan origination fees, if any, among others. The increase in expenses for the three months ended March 31, 2021 versus the three months ended March 31, 2020 was primarily due to higher management and incentive fees resulting from a larger income producing investment portfolio on average.

 

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Net Investment Income

The Company’s net investment income totaled $15.5 million and $15.9 million, or $0.37 and $0.38, per average share, respectively, for the three months ended March 31, 2021 and 2020.

Net Realized Gain (Loss)

The Company had investment sales and prepayments totaling approximately $67 million and $200 million, respectively, for the three months ended March 31, 2021 and 2020. Net realized gains (losses) over the same periods were ($0.4) million and $0.03 million, respectively. Net realized losses for the three months ended March 31, 2021 were generally related to the sale of our legacy investment in B. Riley Financial, Inc. Net realized gains for the three months ended March 31, 2020 were immaterial.

Net Change in Unrealized Gain (Loss)

For the three months ended March 31, 2021 and 2020, net change in unrealized gain (loss) on the Company’s assets and liabilities totaled $6.4 million and ($91.4) million, respectively. Net unrealized gain for the three months ended March 31, 2021 is primarily due to the reversal of previously recognized depreciation in our investment in B. Riley Financial, Inc. as well as appreciation in the value of our investments in Genmark Diagnostics, Inc., SLR Credit Solutions and Senseonics Holdings, Inc., among others, partially offset by the reversal of previously recognized appreciation in our investment in Cardiva Medical, Inc. as well as depreciation in the value of our investment in SOAGG, LLC, among others. Net unrealized loss for the three months ended March 31, 2020 is primarily due to depreciation in the value of our investments in SLR Credit Solutions, SLR Equipment Finance, IHS Intermediate, Inc. and Rug Doctor, among others, partially offset by depreciation on our 2022 Unsecured Notes.

Net Increase (Decrease) in Net Assets From Operations

For the three months ended March 31, 2021 and 2020, the Company had a net increase (decrease) in net assets resulting from operations of $21.5 million and ($75.5) million, respectively. For the same periods, earnings (loss) per average share were $0.51 and ($1.79), respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s liquidity and capital resources are generated and generally available through its Credit Facility, the 2022 Unsecured Notes, the 2022 Tranche C Notes, the NEFPASS Facility, the 2023 Unsecured Notes, the 2024 Unsecured Notes and the 2026 Unsecured Notes (collectively the “Credit Facilities”), through cash flows from operations, investment sales, prepayments of senior and subordinated loans, income earned on investments and cash equivalents, and periodic follow-on equity and/or debt offerings. As of March 31, 2021, we had a total of $405.0 million of unused borrowing capacity under the Credit Facilities, subject to borrowing base limits.

We may from time to time issue equity and/or debt securities in either public or private offerings. The issuance of such securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful. The primary uses of existing funds and any funds raised in the future is expected to be for investments in portfolio companies, repayment of indebtedness, cash distributions to our stockholders, or for other general corporate purposes.

On February 12, 2020, a new lender to the Company executed a commitment increase to our Credit Facility providing for an additional $75.0 million of revolving credit, bringing our Credit Facility’s total revolving credit capacity to $545.0 million.

On December 18, 2019, the Company closed a private offering of $125 million of the 2024 Unsecured Notes with a fixed interest rate of 4.20% and a maturity date of December 15, 2024. Interest on the 2024 Unsecured Notes is due semi-annually on June 15 and December 15. The 2024 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

On December 18, 2019, the Company closed a private offering of $75 million of the 2026 Unsecured Notes with a fixed interest rate of 4.375% and a maturity date of December 15, 2026. Interest on the 2026 Unsecured Notes is due semi-annually on June 15 and December 15. The 2026 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

On August 28, 2019, the Company repaid its existing senior secured credit agreement due September 2021 and entered into the new senior secured credit agreement (the “Credit Facility”). The Credit Facility is composed of $470 million of revolving credit and $75 million of term loans. Borrowings generally bear interest at a rate per annum equal to the base rate plus a range of 2.00-2.25% or the alternate base rate plus 1.00%-1.25%. The Credit Facility has no LIBOR floor requirement. The Credit Facility matures in August 2024 and includes ratable amortization in the final year.

On December 28, 2017, the Company closed a private offering of $21 million of the 2022 Tranche C Notes with a fixed interest rate of 4.50% and a maturity date of December 28, 2022.    Interest on the 2022 Tranche C Notes is due semi-annually on June 28 and December 28. The 2022 Tranche C Notes were issued in a private placement only to qualified institutional buyers.

 

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On November 22, 2017, we issued $75 million in aggregate principal amount of publicly registered 2023 Unsecured Notes for net proceeds of $73.8 million. Interest on the 2023 Unsecured Notes is paid semi-annually on January 20 and July 20, at a fixed rate of 4.50% per year, commencing on January 20, 2018. The 2023 Unsecured Notes mature on January 20, 2023.    

On February 15, 2017, the Company closed a private offering of $100 million of the 2022 Unsecured Notes with a fixed interest rate of 4.60% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

On November 8, 2016, the Company closed a private offering of $50 million of the 2022 Unsecured Notes with a fixed interest rate of 4.40% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

On January 11, 2013, the Company closed its most recent follow-on public equity offering of 6.3 million shares of common stock raising approximately $146.9 million in net proceeds. The primary uses of the funds raised were for investments in portfolio companies, reductions in revolving debt outstanding and for other general corporate purposes.

Cash Equivalents

We deem certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities as cash equivalents. The Company makes purchases that are consistent with its purpose of making investments in securities described in paragraphs 1 through 3 of Section 55(a) of the 1940 Act. From time to time, including at or near the end of each fiscal quarter, we consider using various temporary investment strategies for our business. One strategy includes taking proactive steps by utilizing cash equivalents as temporary assets with the objective of enhancing our investment flexibility pursuant to Section 55 of the 1940 Act. More specifically, from time-to-time we may purchase U.S. Treasury bills or other high-quality, short-term debt securities at or near the end of the quarter and typically close out the position on a net cash basis subsequent to quarter end. We may also utilize repurchase agreements or other balance sheet transactions, including drawing down on our credit facilities, as deemed appropriate. The amount of these transactions or such drawn cash for this purpose is excluded from total assets for purposes of computing the asset base upon which the management fee is determined. We held approximately $350 million in cash equivalents as of March 31, 2021.

Debt

Unsecured Notes

On December 18, 2019, the Company closed a private offering of $125 million of the 2024 Unsecured Notes with a fixed interest rate of 4.20% and a maturity date of December 15, 2024. Interest on the 2024 Unsecured Notes is due semi-annually on June 15 and December 15. The 2024 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

On December 18, 2019, the Company closed a private offering of $75 million of the 2026 Unsecured Notes with a fixed interest rate of 4.375% and a maturity date of December 15, 2026. Interest on the 2026 Unsecured Notes is due semi-annually on June 15 and December 15. The 2026 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

On December 28, 2017, the Company closed a private offering of $21 million of the 2022 Tranche C Notes with a fixed interest rate of 4.50% and a maturity date of December 28, 2022.    Interest on the 2022 Tranche C Notes is due semi-annually on June 28 and December 28. The 2022 Tranche C Notes were issued in a private placement only to qualified institutional buyers.

On November 22, 2017, we issued $75 million in aggregate principal amount of publicly registered 2023 Unsecured Notes for net proceeds of $73.8 million. Interest on the 2023 Unsecured Notes is paid semi-annually on January 20 and July 20, at a fixed rate of 4.50% per year, commencing on January 20, 2018. The 2023 Unsecured Notes mature on January 20, 2023.    

On February 15, 2017, the Company closed a private offering of $100 million of the 2022 Unsecured Notes with a fixed interest rate of 4.60% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

On November 8, 2016, the Company closed a private offering of $50 million of the 2022 Unsecured Notes with a fixed interest rate of 4.40% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers.

Revolving & Term Loan Facilities

On August 28, 2019, the Company repaid its existing senior secured credit agreement due September 2021 and entered into the new Credit Facility. The Credit Facility was originally composed of $470 million of revolving credit and $75 million of term loans. On February 12, 2020, a new lender to the Company executed a commitment increase to our Credit Facility providing for an additional $75.0 million of revolving credit, bringing our Credit Facility’s total revolving credit capacity to $545.0 million. Borrowings generally bear interest at a rate per annum equal to the base rate plus a range of 2.00-2.25% or the alternate base rate plus 1.00%-1.25%. The Credit Facility has no LIBOR floor requirement. The Credit Facility matures in August 2024 and includes ratable amortization in the final year. The Credit Facility may be increased up to $800 million with additional new lenders or an increase in commitments from current lenders. The Credit Facility contains certain customary affirmative and negative covenants and events of

 

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default. In addition, the Credit Facility contains certain financial covenants that among other things, requires the Company to maintain a minimum shareholder’s equity and a minimum asset coverage ratio. At March 31, 2021, outstanding USD equivalent borrowings under the Credit Facility totaled $235.0 million, composed of $160.0 million of revolving credit and $75.0 million of term loans.

On September 26, 2018, NEFPASS SPV LLC, a newly formed wholly-owned subsidiary of NEFPASS LLC, as borrower entered into the NEFPASS Facility with Keybank acting as administrative agent. The Company acts as servicer under the NEFPASS Facility. The NEFPASS Facility is scheduled to mature on September 26, 2023. The NEFPASS Facility generally bears interest at a rate of LIBOR plus 2.15%. NEFPASS and NEFPASS SPV LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The NEFPASS Facility also includes usual and customary events of default for credit facilities of this nature. There were $30.0 million of borrowings outstanding as of March 31, 2021.

Certain covenants on our issued debt may restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code. At March 31, 2021, the Company was in compliance with all financial and operational covenants required by our Credit Facilities.

Contractual Obligations

A summary of our significant contractual payment obligations is as follows as of March 31, 2021:

Payments Due by Period (in millions)

 

     Total      Less than
1 Year
     1-3 Years      3-5 Years      More Than
5 Years
 

Revolving credit facilities(1)

   $ 190.0      $ —        $ 30.0      $ 160.0      $ —  

Unsecured senior notes

     446.0        —          246.0      125.0      75.0  

Term Loans

     75.0        —          —          75.0        —    

 

(1)

As of March 31, 2021, we had a total of $405.0 million of unused borrowing capacity under our revolving credit facilities, subject to borrowing base limits.

Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 150% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy the asset coverage test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss.

Senior Securities

Information about our senior securities is shown in the following table (in thousands) as of the quarter ended March 31, 2021 and each year ended December 31 for the past ten years, unless otherwise noted. The “—” indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities.

 

Class and Year

   Total Amount
Outstanding(1)
     Asset
Coverage
Per Unit(2)
     Involuntary
Liquidating
Preference
Per Unit(3)
     Average
Market Value
Per Unit(4)
 

Revolving Credit Facility

           

Fiscal 2021 (through March 31, 2021)

   $ 160,000      $ 496        —          N/A  

Fiscal 2020

     126,000        421        —          N/A  

Fiscal 2019

     42,900        182        —          N/A  

Fiscal 2018

     96,400        593        —          N/A  

Fiscal 2017

     245,600        1,225        —          N/A  

Fiscal 2016

     115,200        990        —          N/A  

Fiscal 2015

     207,900        1,459        —          N/A  

Fiscal 2014

     —          —          —          N/A  

Fiscal 2013

     —          —          —          N/A  

Fiscal 2012

     264,452        1,510        —          N/A  

Fiscal 2011

     201,355        3,757        —          N/A  

 

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Class and Year

   Total Amount
Outstanding(1)
     Asset
Coverage
Per Unit(2)
     Involuntary
Liquidating
Preference
Per Unit(3)
     Average
Market Value
Per Unit(4)
 

2022 Unsecured Notes

           

Fiscal 2021 (through March 31, 2021)

     150,000        465        —          N/A  

Fiscal 2020

     150,000        501        —          N/A  

Fiscal 2019

     150,000        638        —          N/A  

Fiscal 2018

     150,000        923        —          N/A  

Fiscal 2017

     150,000        748        —          N/A  

Fiscal 2016

     50,000        430        —          N/A  

2022 Tranche C Notes

           

Fiscal 2021 (through March 31, 2021)

     21,000        65        —          N/A  

Fiscal 2020

     21,000        70        —          N/A  

Fiscal 2019

     21,000        89        —          N/A  

Fiscal 2018

     21,000        129        —          N/A  

Fiscal 2017

     21,000        105        —          N/A  

2023 Unsecured Notes

           

Fiscal 2021 (through March 31, 2021)

     75,000        233        —          N/A  

Fiscal 2020

     75,000        250        —          N/A  

Fiscal 2019

     75,000        319        —          N/A  

Fiscal 2018

     75,000        461        —          N/A  

Fiscal 2017

     75,000        374        —          N/A  

2024 Unsecured Notes

           

Fiscal 2021 (through March 31, 2021)

     125,000        387        —          N/A  

Fiscal 2020

     125,000        417        —          N/A  

Fiscal 2019

     125,000        531        —          N/A  

2026 Unsecured Notes

           

Fiscal 2021 (through March 31, 2021)

     75,000        233        —          N/A  

Fiscal 2020

     75,000        250        —          N/A  

Fiscal 2019

     75,000        319        —          N/A  

2042 Unsecured Notes

           

Fiscal 2017

     —          —          —          N/A  

Fiscal 2016

     100,000        859        —        $ 1,002  

Fiscal 2015

     100,000        702        —          982  

Fiscal 2014

     100,000        2,294        —          943  

Fiscal 2013

     100,000        2,411        —          934  

Fiscal 2012

     100,000        571        —          923  

Senior Secured Notes

           

Fiscal 2017

     —          —          —          N/A  

Fiscal 2016

     75,000        645        —          N/A  

Fiscal 2015

     75,000        527        —          N/A  

Fiscal 2014

     75,000        1,721        —          N/A  

Fiscal 2013

     75,000        1,808        —          N/A  

Fiscal 2012

     75,000        428        —          N/A  

Term Loans

           

Fiscal 2021 (through March 31, 2021)

     75,000        232        —        N/A  

Fiscal 2020

     75,000        250        —        N/A  

Fiscal 2019

     75,000        319        —        N/A  

Fiscal 2018

     50,000        308        —        N/A  

Fiscal 2017

     50,000        250        —        N/A  

Fiscal 2016

     50,000        430        —        N/A  

Fiscal 2015

     50,000        351        —        N/A  

Fiscal 2014

     50,000        1,147        —        N/A  

Fiscal 2013

     50,000        1,206        —        N/A  

Fiscal 2012

     50,000        285        —        N/A  

Fiscal 2011

     35,000        653        —        N/A  

NEFPASS Facility

           

Fiscal 2021 (through March 31, 2021)

     30,000        93        —        N/A  

Fiscal 2020

     30,000        100        —        N/A  

Fiscal 2019

     30,000        128        —        N/A  

Fiscal 2018

     30,000        185        —        N/A  

SSLP Facility

           

Fiscal 2019

     —          —          —        N/A  

Fiscal 2018

     53,785        331        —        N/A  

Total Senior Securities

           

Fiscal 2021 (through March 31, 2021)

   $ 711,000      $ 2,204        —          N/A  

Fiscal 2020

     677,000        2,259        —          N/A  

Fiscal 2019

     593,900        2,525        —          N/A  

Fiscal 2018

     476,185        2,930        —          N/A  

Fiscal 2017

     541,600        2,702        —          N/A  

Fiscal 2016

     390,200        3,354        —          N/A  

Fiscal 2015

     432,900        3,039        —          N/A  

Fiscal 2014

     225,000        5,162        —          N/A  

Fiscal 2013

     225,000        5,425        —          N/A  

Fiscal 2012

     489,452        2,794        —          N/A  

Fiscal 2011

     236,355        4,410        —          N/A  

 

(1)

Total amount of each class of senior securities outstanding (in thousands) at the end of the period presented.

 

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(2)

The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by all senior securities representing indebtedness. This asset coverage ratio is multiplied by one thousand to determine the Asset Coverage Per Unit. In order to determine the specific Asset Coverage Per Unit for each class of debt, the total Asset Coverage Per Unit is allocated based on the amount outstanding in each class of debt at the end of the period. As of March 31, 2021, asset coverage was 220.4%.

(3)

The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it.

(4)

Not applicable except for the 2042 Unsecured Notes which were publicly traded. The Average Market Value Per Unit is calculated by taking the daily average closing price during the period and dividing it by twenty-five dollars per share and multiplying the result by one thousand to determine a unit price per thousand consistent with Asset Coverage Per Unit. The average market value for the fiscal 2016, 2015, 2014, 2013 and 2012 periods was $100,175, $98,196, $94,301, $93,392, and $92,302, respectively.

We have also entered into two contracts under which we have future commitments: the Advisory Agreement, pursuant to which SLR Capital Partners, LLC has agreed to serve as our investment adviser, and the Administration Agreement, pursuant to which the Administrator has agreed to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations and provide on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance. Payments under the Advisory Agreement are equal to (1) a percentage of the value of our average gross assets and (2) a two-part incentive fee. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of the Administrator’s overhead in performing its obligations under the Administration Agreement, including rent, technology systems, insurance and our allocable portion of the costs of our chief financial officer and chief compliance officer and their respective staffs. Either party may terminate each of the Advisory Agreement and administration agreement without penalty upon 60 days’ written notice to the other. See note 3 to our Consolidated Financial Statements.

On July 31, 2017, the Company, NEFPASS LLC and NEFCORP LLC entered into a servicing agreement. NEFCORP LLC was engaged to provide NEFPASS LLC with administrative services related to the loans and capital leases held by NEFPASS LLC. NEFPASS LLC may terminate this agreement upon 30 days’ written notice to NEFCORP LLC.

Off-Balance Sheet Arrangements

From time-to-time and in the normal course of business, the Company may make unfunded capital commitments to current or prospective portfolio companies. Typically, the Company may agree to provide delayed-draw term loans or, to a lesser extent, revolving loan or equity commitments. These unfunded capital commitments always take into account the Company’s liquidity and cash available for investment, portfolio and issuer diversification, and other considerations. Accordingly, the Company had the following unfunded capital commitments at March 31, 2021 and December 31, 2020, respectively:

 

(in millions)    March 31,
2021
     December 31,
2020
 

SLR Credit Solutions*

   $ 44.3      $ 44.3  

Smile Doctors LLC

     19.6        26.7  

High Street Insurance Partners, Inc

     10.7        —    

One Touch Direct, LLC

     7.2        5.0  

Kindred Biosciences, Inc

     6.9        6.9  

Neuronetics, Inc

     6.7        6.7  

SOC Telemed, Inc

     5.3        —    

PQ Bypass, Inc

     5.0        5.0  

SLR Equipment Finance

     4.2        4.2  

Atria Wealth Solutions, Inc

     3.7        3.5  

Foundation Consumer Brands, LLC

     2.3        —    

Basic Fun, Inc

     2.1        1.1  

Sentry Data Systems, Inc

     1.6        1.6  

Pinnacle Treatment Centers, Inc

     1.4        1.4  

Delphinus Medical Technologies, Inc

     1.3        1.3  

Soleo Health Holdings, Inc

     —          7.4  

Cardiva Medical, Inc

     —          7.3  

Centrexion Therapeutics, Inc

     —          3.8  
  

 

 

    

 

 

 

Total Commitments

   $ 122.3      $ 126.2  
  

 

 

    

 

 

 

 

*

The Company controls the funding of the SLR Credit Solutions commitment and may cancel it at its discretion.

 

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The credit agreements of the above loan commitments contain customary lending provisions and/or are subject to the portfolio company’s achievement of certain milestones that allow relief to the Company from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company. Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for the Company. As of March 31, 2021 and December 31, 2020, the Company had sufficient cash available and/or liquid securities available to fund its commitments.

In the normal course of its business, we invest or trade in various financial instruments and may enter into various investment activities with off-balance sheet risk, which may include forward foreign currency contracts. Generally, these financial instruments represent future commitments to purchase or sell other financial instruments at specific terms at future dates. These financial instruments contain varying degrees of off-balance sheet risk whereby changes in the market value or our satisfaction of the obligations may exceed the amount recognized in our Consolidated Statements of Assets and Liabilities.

Distributions

The following table reflects the cash distributions per share on our common stock for the two most recent fiscal years and the current fiscal year to date:

 

Date Declared

   Record Date      Payment Date      Amount  

Fiscal 2021

        

May 5, 2021

     June 23, 2021        July 2, 2021      $ 0.41  

February 24, 2021

     March 18, 2021        April 2, 2021        0.41  
        

 

 

 

Total 2021

         $ 0.82  
        

 

 

 

Fiscal 2020

        

November 5, 2020

     December 17, 2020        January 5, 2021      $ 0.41  

August 4, 2020

     September 17, 2020        October 2, 2020        0.41  

May 7, 2020

     June 18, 2020        July 2, 2020        0.41  

February 20, 2020

     March 19, 2020        April 3, 2020        0.41  
        

 

 

 

Total 2020

         $ 1.64  
        

 

 

 

Fiscal 2019

        

November 4, 2019

     December 19, 2019        January 3, 2020      $ 0.41  

August 5, 2019

     September 19, 2019        October 2, 2019        0.41  

May 6, 2019

     June 20, 2019        July 2, 2019        0.41  

February 21, 2019

     March 21, 2019        April 3, 2019        0.41  
        

 

 

 

Total 2019

         $ 1.64  
        

 

 

 

Tax characteristics of all distributions will be reported to stockholders on Form 1099 after the end of the calendar year. Future quarterly distributions, if any, will be determined by our Board. We expect that our distributions to stockholders will generally be from accumulated net investment income, from net realized capital gains or non-taxable return of capital, if any, as applicable.

We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC tax treatment, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment.

 

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We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a business development company, we may in the future be limited in our ability to make distributions. Also, our revolving credit facility may limit our ability to declare distributions if we default under certain provisions. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of the tax benefits available to us as a regulated investment company. In addition, in accordance with GAAP and tax regulations, we include in income certain amounts that we have not yet received in cash, such as contractual payment-in-kind interest, which represents contractual interest added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a regulated investment company.

With respect to the distributions to stockholders, income from origination, structuring, closing and certain other upfront fees associated with investments in portfolio companies are treated as taxable income and accordingly, distributed to stockholders.

Related Parties

We have entered into a number of business relationships with affiliated or related parties, including the following:

 

   

We have entered into the Advisory Agreement with SLR Capital Partners. Mr. Gross, our Chairman, Co-Chief Executive Officer and President and Mr. Spohler, our Co-Chief Executive Officer, Chief Operating Officer and board member, are managing members and senior investment professionals of, and have financial and controlling interests in, the Investment Adviser. In addition, Mr. Peteka, our Chief Financial Officer, Treasurer and Secretary serves as the Chief Financial Officer for SLR Capital Partners.

 

   

The Administrator provides us with the office facilities and administrative services necessary to conduct day-to-day operations pursuant to our Administration Agreement. We reimburse the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and the compensation of our chief compliance officer, our chief financial officer and their respective staffs.

 

   

We have entered into a license agreement with the Investment Adviser, pursuant to which the Investment Adviser has granted us a non-exclusive, royalty-free license to use the licensed marks “Solar” and “SLR”.

The Investment Adviser may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours. For example, the Investment Adviser presently serves as investment adviser to SLR Senior Investment Corp., a publicly traded BDC, which focuses on investing in senior secured loans, including first lien and second lien debt instruments, as well as SCP Private Credit Income BDC LLC, an unlisted BDC that focuses on investing primarily in senior secured loans, including non-traditional asset-based loans and first lien loans and SLR HC BDC LLC, an unlisted BDC whose principal focus is to invest directly and indirectly in senior secured loans and other debt instruments typically to middle market companies within the healthcare industry. In addition, Michael S. Gross, our Chairman, Co-Chief Executive Officer and President, Bruce Spohler, our Co-Chief Executive Officer and Chief Operating Officer, and Richard L. Peteka, our Chief Financial Officer, serve in similar capacities for SLR Senior Investment Corp., SCP Private Credit Income BDC LLC and SLR HC BDC LLC. The Investment Adviser and certain investment advisory affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with the Investment Adviser’s allocation procedures. On June 13, 2017, the Adviser received an exemptive order that permits the Company to participate in negotiated co-investment transactions with certain affiliates, in a manner consistent with the Company’s investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, and pursuant to various conditions (the “Order”). If the Company is unable to rely on the Order for a particular opportunity, such opportunity will be allocated first to the entity whose investment strategy is the most consistent with the opportunity being allocated, and second, if the terms of the opportunity are consistent with more than one entity’s investment strategy, on an alternating basis. Although the Adviser’s investment professionals will endeavor to allocate investment opportunities in a fair and equitable manner, the Company and its stockholders could be adversely affected to the extent investment opportunities are allocated among us and other investment vehicles managed or sponsored by, or affiliated with, our executive officers, directors and members of the Adviser.

Related party transactions may occur among SLR Investment Corp., SLR Credit Solutions, Equipment Operating Leases LLC, Kingsbridge Holdings, LLC, Loyer Capital LLC, SLR Business Credit, SLR Healthcare ABL and SLR Equipment Finance. These

 

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transactions may occur in the normal course of business. No administrative or other fees are paid to SLR Capital Partners by SLR Credit Solutions, Equipment Operating Leases LLC, Kingsbridge Holdings, LLC, Loyer Capital LLC, SLR Business Credit, SLR Healthcare ABL or SLR Equipment Finance.

In addition, we have adopted a formal code of ethics that governs the conduct of our officers and directors. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Maryland General Corporation Law.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. In addition, U.S. and global capital markets and credit markets have experienced a higher level of stress due to the global COVID-19 pandemic, which has resulted in an increase in the level of volatility across such markets and a general decline in value of the securities that we hold. Because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In connection with the COVID-19 pandemic, the U.S. Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased. In a prolonged low interest rate environment, including a reduction of LIBOR to zero, the difference between the total interest income earned on interest earning assets and the total interest expense incurred on interest bearing liabilities may be compressed, reducing our net interest income and potentially adversely affecting our operating results. During the three months ended March 31, 2021, certain investments in our comprehensive investment portfolio had floating interest rates. These floating rate investments were primarily based on floating LIBOR and typically have durations of one to three months after which they reset to current market interest rates. Additionally, some of these investments have LIBOR floors. The Company also has revolving credit facilities that are generally based on floating LIBOR. Assuming no changes to our balance sheet as of March 31, 2021 and no new defaults by portfolio companies, a hypothetical one percent decrease in LIBOR on our comprehensive floating rate assets and liabilities would increase our net investment income by two cents per average share over the next twelve months. Assuming no changes to our balance sheet as of March 31, 2021 and no new defaults by portfolio companies, a hypothetical one percent increase in LIBOR on our comprehensive floating rate assets and liabilities would decrease our net investment income by approximately five cents per average share over the next twelve months. However, we may hedge against interest rate fluctuations from time-to-time by using standard hedging instruments such as futures, options, swaps and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in any benefits of certain changes in interest rates with respect to our portfolio of investments. At March 31, 2021, we have no interest rate hedging instruments outstanding on our balance sheet.

 

Increase (Decrease) in LIBOR

     (1.00 %)          1.00

Increase in Net Investment Income Per Share Per Year

     0.02     $ (0.05

We may also have exposure to foreign currencies through various investments. These investments are converted into U.S. dollars at the balance sheet date, exposing us to movements in foreign exchange rates. In order to reduce our exposure to fluctuations in foreign exchange rates, we may borrow from time-to-time in such currencies under our multi-currency revolving credit facility or enter into forward currency or similar contracts.

 

Item 4.

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As of March 31, 2021 (the end of the period covered by this report), we, including our Co-Chief Executive Officers and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based on that evaluation, our management, including the Co-Chief Executive Officers and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.

(b) Changes in Internal Controls Over Financial Reporting

Management has not identified any change in the Company’s internal control over financial reporting that occurred during the first quarter of 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

We, SLR Capital Management, LLC and SLR Capital Partners, LLC are not currently subject to any material pending legal proceedings threatened against us. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our business, financial condition or results of operations beyond what has been disclosed within these financial statements.

 

Item 1A.

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” in the February 24, 2021 filing of our Annual Report on Form 10-K, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. Other than the risk factors set forth below, there have been no material changes during the period ended March 31, 2021 to the risk factors discussed in “Risk Factors” in the February 24, 2021 filing of our Annual Report on Form 10-K.

The interest rates of our term loans to our portfolio companies that extend beyond 2021 might be subject to change based on recent regulatory changes.

LIBOR, the London Interbank Offered Rate, is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally. We typically use LIBOR as a reference rate in term loans we extend to portfolio companies such that the interest due to us pursuant to a term loan extended to a partner company is calculated using LIBOR. The terms of our debt investments generally include minimum interest rate floors which are calculated based on LIBOR.

On March 5, 2021, the United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that (i) 24 LIBOR settings would cease to exist immediately after December 31, 2021 (all seven euro LIBOR settings; all seven Swiss franc LIBOR settings; the Spot Next, 1-week, 2-month, and 12-month Japanese yen LIBOR settings; the overnight, 1-week, 2-month, and 12-month sterling LIBOR settings; and the 1-week and 2-month US dollar LIBOR settings); (ii) the overnight and 12-month US LIBOR settings would cease to exist after June 30, 2023; and (iii) the FCA would consult on whether the remaining nine LIBOR settings should continue to be published on a synthetic basis for a certain period using the FCA’s proposed new powers that the UK government is legislating to grant to them. Central banks and regulators in a number of major jurisdictions (for example, United States, United Kingdom, European Union, Switzerland and Japan) have convened working groups to find, and implement the transition to, suitable replacements for interbank offered rates. To identify a successor rate for U.S. dollar LIBOR, the Alternative Reference Rates Committee (“ARRC”), a U.S.-based group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, was formed. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. Although SOFR appears to be the preferred replacement rate for U.S. dollar LIBOR, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or other reforms to LIBOR that may be enacted in the United States, United Kingdom or elsewhere or, whether the COVID-19 pandemic will have further effect on LIBOR transition plans.

The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations. In addition, if LIBOR ceases to exist, we may need to renegotiate the credit agreements extending beyond 2021 with our portfolio companies that utilize LIBOR as a factor in determining the interest rate, in order to replace LIBOR with the new standard that is established, which may have an adverse effect on our overall financial condition or results of operations. Following the replacement of LIBOR, some or all of these credit agreements may bear interest a lower interest rate, which could have an adverse impact on our results of operations. Moreover, if LIBOR ceases to exist, we may need to renegotiate certain terms of our credit facilities. If we are unable to do so, amounts drawn under our credit facilities may bear interest at a higher rate, which would increase the cost of our borrowings and, in turn, affect our results of operations.

We are subject to risks related to corporate social responsibility.

Our business faces increasing public scrutiny related to environmental, social and governance (“ESG”) activities. We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as environmental stewardship, corporate governance and transparency and considering ESG factors in our investment processes. Adverse incidents with respect to ESG activities could impact the value of our brand, the cost of our operations and relationships with investors, all of which could adversely affect our business and results of operations. Additionally, new regulatory initiatives related to ESG could adversely affect our business.

 

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Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

We did not engage in unregistered sales of securities during the quarter ended March 31, 2021.

 

Item 3.

Defaults Upon Senior Securities

None.

 

Item 4.

Mine Safety Disclosures

Not applicable.

 

Item 5.

Other Information

None.

 

Item 6.

Exhibits

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:

 

Exhibit

Number

  

Description

  3.1    Articles of Amendment and Restatement(1)
  3.2    Amended and Restated Bylaws(1)
  4.1    Form of Common Stock Certificate(2)
  4.2    Indenture, dated as of November 16, 2012, between the Registrant and U.S. Bank National Association as trustee(3)
  4.3    Second Supplemental Indenture, dated November  22, 2017, relating to the 4.50% Notes due 2023, between the Registrant and U.S. Bank National Association as trustee, including the Form of 4.50% Notes due 2023(4)
31.1    Certification of Co-Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*
31.2    Certification of Co-Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*
31.3    Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*
32.1    Certification of Co-Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*
32.2    Certification of Co-Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*
32.3    Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*

 

 

(1)

Previously filed in connection with SLR Investment Corp.’s registration statement on Form N-2 Pre-Effective Amendment No. 7 (File No. 333-148734) filed on January 7, 2010.

(2)

Previously filed in connection with SLR Investment Corp.’s registration statement on Form N-2 (File No 333-148734) filed on February 9, 2010.

(3)

Previously filed in connection with SLR Investment Corp.’s registration statement on Form N-2 Post-Effective Amendment No. 6 (File No. 333-172968) filed on November 16, 2012.

(4)

Previously filed in connection with SLR Investment Corp.’s registration statement on Form N-2 Post-Effective Amendment No. 5 (File No. 333-194870) filed on November 22, 2017.

*

Filed herewith.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May 5, 2021.

 

SLR INVESTMENT CORP.
By:  

/S/ MICHAEL S. GROSS

 

Michael S. Gross

Co-Chief Executive Officer

(Principal Executive Officer)

By:  

/S/ BRUCE J. SPOHLER

 

Bruce J. Spohler

Co-Chief Executive Officer

(Principal Executive Officer)

By:  

/S/ RICHARD L. PETEKA

 

Richard L. Peteka

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

49