Earnings Call Transcript - SLRC Q2 2022

Operator, Operator

Good day, everyone and welcome to the Second Quarter 2022 SLR Investment Corp. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. Please note, this call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the call over to Mr. Michael Gross, Chairman and Co-CEO.

Michael Gross, Chairman and Co-CEO

Thank you very much, and good morning. Welcome to SLR Investment Corp.'s Earnings Call Second Fiscal Quarter ended June 30, 2022. I'm joined here today by Bruce Spohler, our Co-Chief Executive Officer; and Richard Peteka, our Chief Financial Officer. Rich, before we begin, would you please start by covering the webcast and forward-looking statements.

Richard Peteka, CFO

Sure. Thanks, Michael. I would like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of SLR Investment Corp and that any unauthorized broadcast in any form is expressly prohibited. This conference call is being webcast from the Investors tab on our website at slrinvestmentcorp.com. For your replays of this call will be made available later today as disclosed in our earnings press release. I would also like to call your attention to the customary disclosures in our press release regarding forward-looking information. Statements made in today's conference call and webcast may constitute forward-looking statements, which relate to future events or our future performance or financial condition. These statements are not guarantees of our future performance, financial condition or results and involve a number of risks and uncertainties, including impacts from COVID-19. Past performance is not indicative of future results. Actual results may differ materially as a result of a number of factors, including those described from time to time in our filings with the SEC. So Investment Corp. undertakes no duty to update any forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website or call it at (212) 993-1670. Comments on today's call include forward-looking statements reflecting our current views with respect to SLRC's acquisition of SUNS, any expected synergies and savings associated with the merger, the ability to realize the anticipated benefits of the merger, our future operating results and financial performance and the payment of dividends going forward. Please specifically note that the amount and timing of past dividends and distributions are not a guarantee of any future dividends or distributions for the amount thereof, the payment, timing and amount of which will be determined by SLR Investors Corp. Board of Directors. With that, I'd like to turn the call back to our Chairman and Co-CEO, Michael Gross.

Michael Gross, Chairman and Co-CEO

Thank you, Rich. Good morning and thank you for joining us. We are pleased to share that on today's call, we will be reporting the second quarter 2022 combined operating and financial results of SLRC and SUNS. As a reminder, on April 1, SLRC completed its acquisition of SLR Senior Investment Corp., or SUNS. We thank our investors for the support of the merger. Integration has been smooth and our efforts to realize synergies and the benefits of a larger, more diversified company are well underway. Last night, SLRC reported net investment income of $0.30 per share for the second quarter of 2022, up from $0.35 per share in the prior quarter. Net asset value at June 30, 2022 was $18.53 per share. Approximately 1/3 of the reduction in net asset value for the quarter is a result of merger accounting from the purchase price discount. The remainder of the decline was largely attributed to unrealized losses due to the impact of mark-to-market changes in the portfolio and write-down delays to three borrowers, two of which represent our remaining two second lien cash flow loans originated several years ago prior to our shift to investing solely in first lien senior secured loans. Outside of these investments, our portfolio is performing extremely well. With the close of the SUNS acquisition in the second quarter, our comprehensive portfolio has grown by $700 million to approximately $2.7 billion and now includes five specialty finance companies, resulting in a more broadly diversified portfolio with the potential for greater synergies and opportunities across our lending strategies. Additionally, our increased scale enabled us to pursue additional commercial finance investments, including platform acquisitions and asset purchases. Against the volatile market backdrop during the second quarter, the Company originated $275 million of new investments and had repayments of $199 million, excluding SLRC's acquisition of the SUNS portfolio. Terms on sponsored finance loans have become more attractive and our specialty finance businesses, which flourished during turbulent market conditions are also seeing an attractive opportunity set and have the available capital to take advantage of the investment climate. The unfolding geopolitical events, continued supply chain issues and labor shortages and a far more aggressive tone from the Fed in reaction to accelerating inflation has injected a dose of uncertainty and volatility in the global equity and credit markets. Economic concerns have dislocated the syndicated loan and high-yield markets and led banks to retreat from leveraged lending. Pricing volatility and deep trade discounts in these markets reflect the increased credit risk from tight pricing, compromised structures and loose documentation of broadly syndicated loans underwritten prior to the second quarter of 2022. However, private direct lending deals continue to be heavily negotiated with tight structures and access to deep dive private equity sale diligence. With the recession potentially looming and continued rising rates, middle market private credit is a source of relative stability and potentially high returns. SLRC is uniquely positioned to capitalize on this opportunity. As a result of our defensive portfolio and conservative underwriting, we have successfully navigated the COVID-19 pandemic. Now we believe our combined business is well positioned to not only weather the forthcoming economic challenges, but to capitalize on the more attractive investment environment for several reasons. First, enhanced by SLRC's acquisition of SUNS, our portfolio is highly diversified across cash flow loans and non-cyclic industries, and asset-based loans. At June 30th, 97.2% of our comprehensive portfolio was invested in first lien senior secured loans, which provide greater downside protection during a recession. Secondly, we have ample dry powder to take advantage of investment opportunities with terms more attractive than available a year ago. At June 30th, our leverage was 0.96x net debt to equity near the low end of our target leverage range of 0.9x to 1.25x. At June 30th, including available credit facility capacity at our specialty finance company and subject to borrowing base limits, SLRC had ample available capital to take advantage of the current attractive investment environment. We are seeing investment opportunities with less leverage and higher yields than loan structured during the recent period of COVID-19-related government stimulus. Recession-resilient sectors in which we specialize continue to perform well, with financial sponsors focused on deploying their dry powder into new platform buyouts as well as existing portfolio companies via add-on acquisitions. During uncertain economic times, borrowers increasingly turn to asset-based lending strategies with provider invested with greater debtor protection across economic cycles. In particular, our Credit Solutions business has historically outperformed during challenging market conditions when asset which companies as the traditional lending sources are constrained. Thirdly, our funding profile is in a strong position to weather a rising rate environment with $506 million to $1 billion of funded debt comprised of senior unsecured fixed rate notes at a weighted average annual interest rate of 3.9%. During the second quarter, we repaid at par the $150 million of maturing senior unsecured notes, which had a weighted average annual interest rate of 4.5%. We pre-financed the approaching maturity of these notes at an average rate of 3.2%. Additionally, we are currently working with a strategic partner to structure an off-balance sheet joint venture to optimize the financing of lower-yielding first lien senior secured cash flow loans, initially those that we acquired from SUNS, expecting to utilize the financing facility before year-end. Fourth, we plan to further reduce our overall cost of capital through share repurchases under our $50 million share repurchase program authorized for adoption by our Board of Directors. Due to the threat of further deteriorating market and economic conditions as the Fed works to tame inflation, we have not yet been active with this buyback program. However, we are committed to utilizing the program and believe that our patience will translate into the ability to invest in our own portfolio at attractive discounts. The current share price is an attractive entry point, significantly more than we first announced the buyback plan. We intend to put in place a 10b5-1 program to facilitate the ability to buy our shares at attractive levels. As outlined in our merger proposal, our plan expense reductions already underway should create shareholder value and benefit the Company throughout market cycles. In conjunction with the merger of SLR Capital Partners, the investment buyer, SLRC permanently reduced the annual base management fee by 25 basis points from 1.75% to 1.5% on gross assets. The contractual step out of base management that came at 1% on gross assets above 1:1 leverage still remains in place. We've also eliminated duplicative administrative expenses. Bolstered by the acquisition of SUNS, we are well positioned to not only endure the economic challenges ahead but also take advantage of the more favorable investment environment that accompanies market disruptions. At this time, I'll turn the call back over to our CFO, Rich Peteka to take you into second quarter financial highlights.

Richard Peteka, CFO

Thank you, Michael. SLR Investment Corp.'s net asset value at June 30, 2022, was $1.02 billion or $18.53 per share compared to $826.4 million or $19.56 per share at March 31, 2022, prior to the closing of the merger with SLRC Investment Corp. At June 30, 2022, SLRC's on-balance sheet investment portfolio had a fair market value of approximately $2.0 billion in 127 portfolio companies across 40 industries compared to a fair market value of $1.63 billion in 101 portfolio companies across 33 industries at March 31, 2022. At June 30, 2022, we had investments in three portfolio companies on nonaccrual, representing 4% of the portfolio like cost and 0.6% at fair market value. At June 30, the Company had approximately $1 billion of debt outstanding with leverage of 0.96x net debt to equity. When taking into consideration the available capital from the Company's combined credit facilities, together with available capital from the non-recourse facilities at SLR Credit Solutions, SLR Equipment Finance, Kingsbridge, SLR Business Credit and SLR Healthcare ABL, SLR Investment Corp. has significant available capital to fund future comprehensive portfolio growth. Moving to the P&L. For the three months ended June 30, 2022, gross investment income totaled $42.8 million versus $33.0 million for the three months ended March 31, 2022. Net expenses totaled $22.5 million for the three months ended June 30, 2022. This compares to $19.5 million for the three months ended March 31, 2022. As previously stated, the investment manager did not include an incentive calculation to purchase discount accretion created by the Company's asset acquisition accounting under ASC 805-50. Accordingly, the Company's net estimated income for the three months ended June 30, 2022, totaled $20.3 million or $0.37 per average share compared to $13.5 million or $0.32 per average share for the three months ended March 31, 2022. Below the line, the Company had net realized and unrealized losses for the second fiscal quarter totaling $35.9 million versus realized and unrealized losses of $12 million for the first quarter of 2022. Ultimately, the Company had a net decrease in net assets resulting from operations of $15.6 million or $0.29 per average share for the three months ended June 30, 2022. This compares to a net increase of $1.5 million or $0.04 per average share for the three months ended March 31, 2022. Finally, on August 2, 2022, the Board of Directors declared a monthly distribution of $0.13667 per share payable on September 1, 2022, to holders of record as of August 18, 2022. During the second quarter, SLRC made three monthly distributions totaling $0.41 per share. With that, I'll turn the call over to our Co-CEO, Bruce Spohler.

Bruce Spohler, Co-CEO

Thank you, Rich. With this being our first quarterly report following the acquisition of SUN, I'd like to begin by providing an overview of the combined portfolio. At June 30, the combined comprehensive portfolio consisted of approximately $2.7 billion of senior secured loans. Across 780 distinct issuers over 100 industries, the average exposure was $3.5 million or 0.1% of the total portfolio. At quarter end, 99.8% of the portfolio consisted of senior secured loans with 97.2% being in first lien loans and only 0.4% in second lien cash flow loans with the remaining 2.2% in second lien asset-based loans. The portfolio now includes all five of our specialty finance businesses, which account for 76% of the fair value of the comprehensive portfolio, with the remaining 24% committed to senior secured cash flow loans. At quarter end, our weighted average asset level yield was 9.6%. At quarter end, the weighted average investment risk rating of the portfolio was under two based on our one to four risk rating scale, with one representing the least amount of risk. Now let me turn to our investment strategies, which we now categorize in four distinct asset classes. The first is cash flow loans to upper mid-market sponsor-backed companies. The second is asset-based loans, which includes the underlying portfolios of Credit Solutions, Healthcare ABL and Business Credit. The third segment is life science loans, which are made to venture capital-backed late-stage drug and medical device companies. And the fourth is our equipment finance strategy, which includes both Kingsbridge and equipment finance. Now let me provide a brief update on each of these verticals. In our cash flow business, we originated first-lien senior secured loans to upper mid-market companies in noncyclical industries, with our largest industry exposure being health care, diversified financials, life sciences and recurring software. In response to deteriorating market conditions, sponsorship began price discovery conversations with us and other lenders for new financings. We are seeing a 200 basis point widening of returns from the first quarter level, subject to the level of risk of the individual credit. This increase in yield is through a combination of both spread and original issue discount. Sponsors also recognize that leverage levels for new financings will likely be coming down by at least half to a full turn of leverage. Lenders are requiring borrowers to have an adequate cushion in the downside scenario to meet their fixed charge and debt service requirements. We expect our second half '22 cash flow investment to have higher yields at lower levels, even in the defensive sectors that we invest. At quarter end, our cash flow portfolio was $646 million or just under 24% of the total portfolio and was invested across 45 companies. The average EBITDA for this portfolio at quarter end was $108 million. The weighted average interest coverage was above 3x at 3.1x. During the quarter, we originated $72 million of new investments and experienced repayments of $10 million. The weighted average yield for this cash flow portfolio was just over 8%. However, today, it is higher given the increase in rates in the interim period. Now let me touch on our ABL segment. Again, this consists of three underlying asset-based verticals. Credit Solutions provides collateral-backed loans to asset-rich companies in transition. This asset class requires expertise in valuing and monitoring collateral. Historically, the strategy has outperformed during periods when traditional lenders such as banks retreat. Credit Solutions, therefore, provides some counter-cyclicality to our platform. The team has seen an increase in their pipeline, which should continue to build if market conditions continue to be volatile. We are extremely optimistic about this activity over the coming quarters. Business Credit provides asset-based loans collateralized predominantly by receivables, as well as factoring facilities. Similar to the Credit Solutions team, they have long-standing experience in valuing and monitoring the underlying collateral that they lend against. Last year, they acquired Fast Pay, which is a factoring business dedicated to the digital media industry. This acquisition has outperformed our expectations and has contributed to the growth in the business credit portfolio, which is currently at an all-time high. Healthcare ABL is similar to Business Credit but solely focuses on the healthcare sector. The portfolio remained healthy during the COVID pandemic of 2020. However, the government's massive capital infusion into that sector caused many of healthcare's borrowers to pay down their credit lines temporarily. This dynamic is beginning to reverse itself, and we're starting to see continued growth in the portfolio and expect so during the rest of this year. And finally, our lender finance business also makes asset-based loans, however, to other commercial finance companies, with their collateral being underlying commercial finance loans. We've begun to see improvement in terms in this market as banks continue to be less active. At quarter end, the total asset-based portfolio was $857 million, representing just under 32% of our total portfolio and was invested across 176 borrowers. The weighted average asset level yield in this portfolio was 10.4%. For the quarter, we originated just under $100 million of new asset-based loans and had repayments of just over $50 million. Moving to Equipment Finance, this segment consists of both our Equipment Finance business and our Kingsbridge business. Kingsbridge provides leases for essential-use equipment to a diverse set of primarily investment-grade borrowers. Supply chain constraints have somewhat dampened the size of their investment pipeline but began to increase recently, and we're seeing increased pipeline and expect to see continued growth in their portfolio over the next couple of quarters. Equipment Finance provides financing for mission-critical equipment across a variety of industries. This business slowed during the height of COVID with some of the industries such as tour buses impacted severely by lockdowns. We have focused over the last couple of years on reducing risk in our portfolio and the business is extremely well positioned now to weather a potential recession. Additionally, the portfolio is benefiting from rising asset values during inflationary periods. Earlier this year, we announced the appointment of a new CEO for this division. He brings over 30 years of experience in the equipment finance industry, and that includes over 25 years of vendor financial focus expertise. He is currently positioning the business for growth, and we expect to see continued earnings momentum into year-end. At quarter end, the senior secured equipment finance portfolio totaled just under $900 million, representing 33% of our total portfolio and was invested across 542 borrowers. The weighted average asset level yield for this portfolio was just under 10%. For the quarter, we originated over $100 million of new loans and had repayments of $90 million. Finally, let me touch on our Life Science finance business. At June 30, our portfolio totaled just under $300 million, consisting of 14 borrowers and over 96% of the portfolio has over 12 months of cash runway, a critical metric for these investments. Life Science loans represent 11% of our total portfolio yet contribute 25% of the gross investment income for the quarter. For the second quarter, the Life Science team committed $36 million of new investments and funded $3.5 million of those. We also had repayments and amortization totaling $46 million. At quarter end, we had undrawn commitments in the Life Science segment of $138 million. $47 million of those have already been funded during the quarter to date. Additionally, the Life Science finance team currently has a robust pipeline, which we expect to fuel additional life science growth during the rest of '22. At quarter end, the weighted average yield on this portfolio was just under 10.5%, excluding additional success fees and warrants, which have contributed significantly to these returns historically. In conclusion, we see a continuation of the investment themes that have been driving our portfolio over the last few years, focusing our new origination activity on first lien cash flow loans to portfolio companies that operate in defensive sectors and increasing our investments in specialty finance assets, where we can achieve tighter structures and more attractive risk-adjusted returns. Across all of our asset classes, we see improved investment opportunities and expect current negative market sentiment to continue translating into better terms across all of our asset classes. Given the current uncertainties and market volatility, it is important that we remain disciplined, opportunistic and highly selective in our investments. Now I'll turn the call back to Michael.

Michael Gross, Chairman and Co-CEO

Thank you, Bruce. In closing, we believe that SLRC, bolstered by its acquisition of SUN, is well positioned in a potential recession and continued market disruption. Our conservative underwriting approach focused on first lien senior secured cash loans and non-cyclic sectors as well as asset-based loans with significant collateral coverage that helped us during the COVID-19 pandemic should likewise enable us to weather future economic challenges. With our increased scale and managing cash flow, life science and our ABL verticals as well as our expertise in underwriting asset-based loans during periods of market turmoil, we currently have a sizable investment pipeline and intend to be opportunistic if market conditions decline further. Additionally, we believe the merger and resulting scale potentially makes us a better acquirer and strategic buyer of specialty finance businesses. Through a combination of cost synergies, optimizing our specialty finance companies, more attractive terms on our new investments are available than a year ago, the $50 million share repurchase program and the impact of rising rates on our portfolio yields; we are expecting to fully cover our distribution within a couple of quarters. This revised forecast is an acceleration of our net investment income projections at the time of our merger announcement last December. Separately, if interest rates were to move another 100 basis points or 200 basis points, the portfolio at June 30, 2022, would generate $0.08 per share and $0.18 per share of incremental net investment income, respectively, on an annualized basis. Our investment advisers' alignment of interest with the Company's shareholders continues to be one of our guiding principles. The SLR team owns approximately 8% of the combined entity and has a significant percentage of their annual incentive compensation invested in SLRC stock. The team's investment alongside SLRC shareholders demonstrates our confidence in the Company's defensive portfolio, capable funding, and favorable position to recap the expected benefits of the merger. We thank you for your time today. Operator, would you please open the line for questions?

Operator, Operator

And we will take our first question from Robert Dodd with Raymond James. Your line is open.

Robert Dodd, Analyst

Hi, guys, and congrats on getting the merger closed, et cetera. So two quick questions, if I can. First, you mentioned the formation of a joint venture to potentially shift some of the SUNS' assets and some of the lower-yielding fund assets into. Can you give us by year-end, can you give us any more color there? I mean, is it intended to be a temporary measure to house those assets or a permanent addition to the portfolio allocation going forward and what rough scale would you be targeting there?

Bruce Spohler, Co-CEO

Sure. As you may recall, we have had vehicles like this in the past as SLR at SUNS in its prior incarnation. So it is something we expect to open before year-end. We will ramp it over time, but we do have, as you know, with the acquisition of SUNS portfolio, some of the lower, I wouldn't say low, but lower yielding cash flow assets, which are very efficiently financed in these joint venture vehicles. And so that is something that we're seeking to set up. I would say we expect it to be a long-term part of the business model, given the combined portfolios of SLR and SUNS. Because, as you know, we do get to that 10%-plus type of return on the portfolio by barbelling some of these lower-return cash flow assets with the higher return specialty finance, which today on a blended basis will be higher. But we do expect this to be something that we'll be lagging into starting in the second half of this year.

Robert Dodd, Analyst

Got it. On Life Sciences, I mean, obviously, you've deployed a significant amount on the late growth after quarter end. I presume in Q2, there were limited success fees. Can you give us any framework to think about when do you think the success fees could start flowing back into income? Obviously, they have historically been quite meaningful contributors occasionally, in a really choppy market where people are borrowing instead of refinancing. Give us any thoughts on that.

Bruce Spohler, Co-CEO

Yes. I mean, I think that's a great point. The portfolio is now up to close to $300 million. As we mentioned, there are still undrawn commitments to be drawn in addition to those that were drawn post quarter-end. But that headwind of repayment, which is, to your point, what generates those repayment fees has definitely slowed down a little bit given the volatility in the public equity markets, which very often can be very attractive capital for these companies. Today, they're borrowing a little bit more. So it's a double-edged sword. The good news is we're going to be growing this portfolio, and we'll keep the good assets a little bit longer. The way they are structured is it's not like a typical cash flow loan where your back-end fees and warrants tend to decline in value over time. They're still out there. This is not just the call protection. These are exit fees on repayment regardless of when that is. So we'll get a little bit more duration. Those fees are still embedded in the portfolio, and we will continue to come into net investment income episodically. But I would say given the volatility, it's a little slower, but the good news is we'll get a nice yield out of a growing portfolio.

Robert Dodd, Analyst

Thank you. I have a quick question. You mentioned that the pipelines are strong and growing. Regarding the larger equipment, particularly the leasing aspect, is the supply chain in good enough shape to ensure that this pipeline can actually be onboarded?

Bruce Spohler, Co-CEO

That's a great question. I would say if you had our team leaders on this call, they would say early days, but it's starting to. They still think it's going to take a good 12 months to work through the system so that they can actually fund the purchases of this equipment, but it is definitely starting to.

Operator, Operator

We will take our next question from Melissa Wedel with JPMorgan. Your line is open.

Melissa Wedel, Analyst

Good morning. Thank you for taking my question today. You mentioned in the press release about reaching dividend coverage sooner than expected, and you just mentioned on the call about achieving this in the next couple of quarters. I would like to understand how we can transition from the current $0.37 per share in Q2 to that goal. What are the main factors driving this change? Are they related to interest rates, leveraging the portfolio, synergies, or something else? Could you elaborate on that in more detail?

Bruce Spohler, Co-CEO

Sure. It's a collection of items. We anticipate some additional synergies from the SLR SUNS merger, with the most immediate benefit being the reduction in the management date. There are further opportunities, including increased rates on our existing portfolio and new assets we've been acquiring. We had an active quarter, especially toward the end, so while we finished the quarter at a leverage of 0.96x, the full earnings potential of those additions isn't fully reflected yet. Also, our leverage currently sits at 0.96, which is on the lower end of our range, and we expect a slight increase based on our pipeline. This increase won't be significant, but it will enable some portfolio expansion. Additionally, we're using a more efficient financing structure for our lower-yielding cash flow assets, which has proven beneficial in the past. Our commitment to a buyback will also contribute positively. We have several strategies in place, and we believe that collectively, these will enhance our earnings power beyond just the dividend.

Melissa Wedel, Analyst

I appreciate that. Regarding the share repurchase, you mentioned interest in implementing a 10b5-1 plan. When considering that, it usually involves relatively small repurchases each quarter, which might fall well below the $50 million authorization you have over several quarters. Are you planning the pace of share repurchases with that in mind, or are you considering combining it with more active repurchases? Thank you.

Richard Peteka, CFO

The answer is when our window period is open, we will be actively buying. The point of the 10b5 plan is when the window appears about to close, which tends to be three to four weeks before the end of the quarter until the next earnings release would put you out of the market for seven weeks. We put a 10b5 plan in place so that we can continue to be active during that window period being closed. We can set the sizing of that so that we can be fairly aggressive during that time period. And frankly, at these current levels, we intend to be.

Operator, Operator

We will take our next question from Mickey Schleien with Ladenburg. Your line is open.

Mickey Schleien, Analyst

Good morning, everyone. I have a question for Rich. Looking at the SUNS balance sheet from December, approximately three-quarters of the on-balance sheet portfolio consisted of individual credits, while about one-quarter was made up of portfolio company investments at fair value. Can we expect the purchase discount to apply at similar levels? Does this suggest that a substantial portion of that purchase discount will unwind as the individual credits are paid off? Or am I misunderstanding this?

Richard Peteka, CFO

No. Mickey, you're spot on. There's a $17 million purchase discount, approximately $5 million was allocated to the portfolio companies that only occurred. So that left around $12 million is supposed to be allocated plus the debt portfolio that would come back into income over their lives.

Mickey Schleien, Analyst

So that you booked at the cost, and that affected fair value and the average life of these investments is what, three years or so?

Richard Peteka, CFO

Right. I mean, obviously, in this environment, people want refinancing for 25 bps anymore, but probably a little more duration. But yes, the cost is accreted into discount income over the remaining lives of those loans.

Mickey Schleien, Analyst

Okay. I appreciate that.

Operator, Operator

We will take our next question from Ryan Lynch with KBW. Your line is open.

Ryan Lynch, Analyst

Hey, good morning. Just following up on Mickey's last question. Was any discount accretion from the purchase price, any of that accretive in Q2? And what amount if so?

Richard Peteka, CFO

Great question, Ryan. Yes, it begins on April 1, the effective date and was picked up. And I would say, between two and three times. I am recalling $2.4 million. Yes, the shares were a little late this quarter with the merger when you talk about that.

Ryan Lynch, Analyst

Okay. Regarding the joint venture, you mentioned there would be performance later this year. You also noted that lower yielding loans from SUNS might be included in that venture. Could you share what you define as a lower-yielding or lower spread loan in your current portfolio? Additionally, as you have worked on this, do you have a targeted size or amount of loans that could potentially be included in the joint venture later this year?

Michael Gross, Chairman and Co-CEO

Yes. I think lower yielding for us means generally, our cash flow book relative to the specialty finance book. The cash flow book at June 30 was around 8%, 8.1%, and the specialty finance book was generally above 10% to get us close to that 9.6% blended. Again, that's at June 30; today would be higher, as you know. So it's really meant to finance the cash flow book that came over from SUNS and whatever those yields are. Those are lower-yielding assets across the portfolios relative to the specialty finance and Life Science and ABL. No. I think we're going to grow it over time, and we'll see, depending on the activity level, how large we grow it. I don't think it will be all of them, and we will do this over time.

Operator, Operator

We'll pause for a moment to allow additional questions to queue. It appears we have no further questions on the line at this time. I will turn the program back over to Mr. Gross for any additional or closing remarks.

Michael Gross, Chairman and Co-CEO

No more remarks at this point. I'll just thank you for your time and support and reiterate that if anyone has any follow-up questions, please feel free to give us a call. Take care, everybody.

Operator, Operator

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.