SLR Investment Corp. Q2 FY2026 earnings call

• Strategic Market Positioning

  • SLR is marking its 20th year of operations, and established its diversified specialty finance focus over 15 years ago to deliver consistent performance across economic cycles.
  • Following regional bank retrenchment from direct lending, SLR faces limited competition in its specialty finance strategies, allowing it to secure higher yields and better structural protection with liquid collateral coverage.
  • 98% of Q2 2026 originations were in specialty finance, and this trend continues in the Q3 2026 origination pipeline.
  • SLR maintains a defensive, collateral-backed, asset-heavy investment approach to address prolonged high interest rates, which have created stress for companies with flat/declining cash flows.
  • Management prioritizes long-term capital preservation, maintaining rigorous underwriting standards even amid increased competition for attractive opportunities.

• Q2 2026 Core Financial Results

  • Reported net investment income (NII) of $0.33 per share, and net income of $0.15 per share; NII was in line with the prior quarter.
  • Net asset value (NAV) per share as of June 30, 2026 was $18, a decline of less than 90 basis points from Q1 2026 driven by markdowns on two newly non-accrual loans.
  • Gross investment income for Q2 2026 was $48.8 million, with net expenses of $31.1 million, resulting in total NII of $17.8 million.
  • Net debt-to-equity ratio was 1.16x, within SLR's target range of 0.9x to 1.25x. SLR had over $900 million in total available capital to deploy at quarter end.
  • The Board of Directors declared a quarterly distribution of $0.31 per share, payable September 25, 2026.

• Portfolio Composition and Credit Quality

  • 98% of the portfolio (by fair value) consists of senior secured loans, 96% of which are first lien; 86% of the total portfolio is specialty finance investments. The weighted average asset level yield across the full portfolio is 11.1%, consistent with Q1 2026.
  • Two loans were moved to non-accrual status in Q2: a $26 million cash flow loan to RQM Corporation, impacted by regulatory changes delaying demand for its services, and a $34 million par value loan to OmniGuide Holdings, impacted by operational and supply chain issues. These two isolated loans account for the majority of SLR's 2.5% watch list exposure, and do not represent a systemic portfolio trend.
  • SLR has less than 1% exposure to the software industry (by fair value), and just 2% of gross income comes from restructured loan amendment interest, leaving the firm well-positioned amid the upcoming software loan maturity wall.

• Operational and Growth Initiatives

  • An internal AI committee assesses AI disruption risk for all new and existing investments; SLR uses AI internally to improve operational efficiency for collateral monitoring, but emphasizes that human underwriting judgment remains critical for specialty lending.
  • SLR established a new ABL sourcing partnership with a large U.S. commercial bank, and is in discussions for additional similar partnerships to expand origination reach.
  • SLR has expanded its life science investment team, and now offers combined financing solutions (traditional first lien term loans plus ABL working capital revolvers) to late-stage life science borrowers, with a 20% larger pipeline year-over-year.
  • Management is actively evaluating tuck-in acquisition opportunities for specialty finance platforms to expand regional and industry footprint, and continues to expand origination teams for ABL and life sciences.

As of June 30, 2026, SLR Investment Corp. held a total comprehensive portfolio of $3.2 billion, segmented into four core investment verticals:

1. Asset-Based Lending (ABL): Total portfolio value of $1.4 billion across 246 borrowers, accounting for 43% of the total comprehensive portfolio. Originated $280 million in new investments in Q2 2026, with $246 million in repayments, resulting in net positive originations. Weighted average asset level yield of 12%.
2. Equipment Finance: Total portfolio value of $1.1 billion across 580 borrowers, representing 34% of the total comprehensive portfolio. Originated $154 million in new assets in Q2 2026, with just under $140 million in repayments. Weighted average asset level yield of 10.7%.
3. Life Sciences: Total portfolio value of $190 million in senior secured investments across 6 borrowers, accounting for ~6% of the total comprehensive portfolio. Originated $24 million in new investments in Q2 2026, with $11 million in repayments.
4. Cash Flow Lending: Total portfolio value of $450 million across 26 borrowers. Originated $9 million in new first lien cash flow loans in Q2 2026, with $34 million in repayments. After a par-premium repayment of a software investment this quarter, software exposure accounts for less than 1% of the total portfolio. Weighted average asset level yield of 9.6%. The portfolio's weighted average loan-to-value is 39%, and average interest coverage is 2.25x.

• Management expects another solid quarter of originations in Q3 2026, with a similar 98% weighting toward specialty finance investments, and expects net portfolio growth for the ABL strategy in full-year 2026.
• Management expects to see growth in the life sciences loan portfolio over the coming quarters, driven by a favorable sector backdrop and expanded internal capabilities, which will also increase portfolio churn and fee income.
• Management is comfortable raising the firm's net debt-to-equity ratio to the higher end of its 0.9x to 1.25x target range to deploy capital into attractive specialty finance opportunities.
• Management expects its existing growth initiatives (team expansion, partnerships, potential acquisitions) will lift net investment income over the next 12 months.

• Prolonged high interest rates are eroding interest coverage and creating material stress for borrowers with flat or declining cash flows.
• The upcoming $224 billion software loan maturity wall may lead to widespread refinancing challenges across the private credit industry, though SLR has minimal exposure to this risk.
• New entrants to specialty lending (including AI-focused fintech platforms and new life science lenders) often enter with aggressive underwriting terms, creating short-term competition for attractive transactions, though many new entrants exit quickly after experiencing losses.
• The broader private credit industry currently faces a challenge of deploying capital into a shrinking set of attractive attractive investment opportunities.
• SLR has two isolated non-accrual investments in its portfolio, though management notes these do not represent broader systemic credit risk across the portfolio.

Q: What ROE targets does SLR have for incremental new investments, and will the shift to a specialty finance mix change SLR's target leverage range? / A: Management noted 11% is a reasonable target for asset-level returns across new specialty finance investments, with returns ranging from the 9% range for opportunistic cash flow loans up to 12% for some specialty finance assets. Management confirmed it is comfortable moving leverage to the higher end of its existing 0.9x to 1.25x target range for the new origination mix; leverage has remained stable near 1.15x due to the pace of repayments to date.

Q: Given the improving biotech/life science sector backdrop over the past year, what is SLR's outlook for growth, M&A opportunities, and pricing in this vertical? / A: Management noted SLR's life science team has a 20+ year track record of 16% asset-level returns with only one current non-accrual and zero historical losses, providing a strong foundation to expand amid the favorable sector backdrop. The biotech index is up 100% from its trough, M&A activity has doubled year-over-year, and FDA approvals are up 44%, creating a strong opportunity set. Management expects portfolio growth over the next year but will maintain rigorous underwriting standards, noting many new entrants exit quickly after mispricing risk.

Q: How has the volume of acquisition/team addition opportunities changed year-to-date, and where are most sourcing opportunities coming from? / A: Management noted the volume of acquisition opportunities for specialty finance (especially ABL) platforms has increased, as many firms want to enter ABL but building scale internally is too difficult. SLR is focused on tuck-in acquisitions to fill regional and industry white space in its existing footprint. Most new sourcing opportunities are coming from regional banks retrenching from ABL, as well as from private credit peers looking for ABL liquidity solutions for borrowers they have taken control of from prior cash flow loans.

Q: Can AI-powered fintech startups pose a structural competitive threat to SLR's ABL business? / A: Management explained AI is a tool to improve efficiency for SLR's existing collateral monitoring and underwriting processes, not a replacement for the human judgment that is core to ABL lending. ABL requires hands-on collateral evaluation, frequent monitoring, and experienced judgment to adjust advance rates as borrower conditions change, which cannot be fully replicated by AI. High barriers to entry mean new AI-focused entrants cannot easily replicate SLR's scale, experience, and existing platform, so they do not pose a material structural threat.