Solar Senior Capital Ltd. (NASDAQ: SUNS) (the “Company” “Solar Senior” or “SUNS”) today reported net investment income of $4.8 million, or $0.30 per average share, for the quarter ended September 30, 2020.

At September 30, 2020, net asset value (NAV) was $15.79 per share, an increase of $0.24 per share or 2% from June 30, 2020, driven primarily by unrealized mark-to-market appreciation. At September 30, 2020, 100% of Solar Senior’s portfolio was performing.

The Company’s Board of Directors declared a monthly distribution for November 2020 of $0.10 per share payable on December 2, 2020 to stockholders of record on November 19, 2020. Tax characteristics of all distributions will be reported to shareholders on Form 1099 after the end of the calendar year.

HIGHLIGHTS:

At September 30, 2020:

Comprehensive Investment portfolio* fair value: $521.6 million

Number of portfolio companies*: 206        

Net assets: $253.4 million        

Net asset value per share: $15.79

Net Debt to Equity: 0.52x

Available Capital**: Over $250 million, subject to borrowing base availability

Comprehensive Portfolio Activity*** for the Quarter Ended September 30, 2020

Investments made during the quarter: $40.3 million

Investments repaid or sold during the quarter: $55.8 million

Operating Results for the Quarter Ended September 30, 2020

Net investment income: $4.8 million

Net investment income per share: $0.30

Net realized and unrealized gain: $3.8 million

Net increase in net assets from operations: $8.6 million

Earnings per share: $0.54

* The Comprehensive Investment Portfolio is comprised of Solar Senior Capital Ltd.’s investment portfolio, Gemino Healthcare Finance’s (“Gemino”) full portfolio and North Mill Holdco LLC’s (“North Mill”) full portfolio, and excludes the Company’s fair value of its equity interest in Gemino and North Mill.

** See Liquidity and Capital Resources

*** Comprehensive Portfolio Activity includes gross originations/repayments through Gemino and North Mill.

“SUNS portfolio continued to perform extremely well in Q3 reflecting our focus on first lien senior secured cash flow loans and asset-based loans in our niche specialty finance verticals,” said Michael Gross, Co-CEO of SUNS. “At September 30, 2020, 100% of our investments were performing and their improved valuations drove a 2% increase in our Net Asset Value per share over the prior quarter. Our portfolio companies have resilient business models and access to liquidity that have enabled them to weather a challenging period.”

“The conservative management of SUNS assets and liabilities through an extended period of frothy credit markets has positioned the company with a solid portfolio foundation, a stable funding profile, low leverage, strong liquidity, and favorable positioning to make new investments,” said Bruce Spohler, Co-CEO of SUNS. “We are encouraged by the pickup in M&A activity during Q3 and the sponsor-led momentum leading into 2021. We expect portfolio growth in the coming quarters from a growing pipeline of first lien cash flow and asset-based loan investments.”

Conference Call and Webcast The Company will host an earnings conference call and audio webcast at 11:30 a.m. (Eastern Time) on Friday, November 6, 2020. All interested parties may participate in the conference call by dialing (844) 889-7785 approximately 5-10 minutes prior to the call, international callers should dial (661) 378-9929. Participants should reference Solar Senior Capital Ltd. and the participant passcode of 6735445 when prompted. A telephone replay will be available until November 20, 2020 and can be accessed by dialing (855) 859-2056 and using the passcode 6735445. International callers should dial (404) 537-3406. This conference call will also be broadcast live over the Internet and can be accessed by all interested parties through Solar Senior Capital’s website, www.solarseniorcap.com. To listen to the webcast, please go to the Company's website prior to the start of the call to register and download any necessary audio software. For those who are not able to listen to the live broadcast, a replay of the webcast will be available soon after the call. Comprehensive Investment Portfolio Investment Activity

During the quarter ended September 30, 2020, Solar Senior Capital had total originations of $40.3 million and repayments of $55.8 million across the Company’s core businesses comprised of senior secured cash flow, traditional asset-based lending and healthcare asset-based lending, resulting in a net portfolio reduction of $15.5 million to the comprehensive portfolio.

The investment activity of our Comprehensive Investment Portfolio for the quarter ended September 30, 2020 was as follows:

Comprehensive Investment Portfolio Activity(1) Q3 2020 (in millions)
Asset Classes Cash Flow Loans Asset-Based Loans North Mill Asset-BasedHealthcareLoans Gemino Life Science Total Portfolio Activity
Originations $7.0 $32.2 $0.9 $0.2 $40.3
Repayments / Amortization $38.7 $11.9 $5.2 $0.0 $55.8
Net Portfolio Activity $(31.7) $20.3 $(4.3) $0.2 $(15.5)

(1) Portfolio activity includes gross originations/repayments across each business unit.

Portfolio Composition

Our Comprehensive Investment Portfolio composition by business unit at September 30, 2020 was as follows:

Comprehensive Investment Portfolio Composition (at fair value) Amount WeightedAverage Asset-level Yield
($mm) %
First Lien Senior Secured Loans      
Cash Flow 1st Lien Senior Secured Loans $259.8 49.8% 6.5%5
Traditional Asset-Based 1st Lien Senior Secured Loans(1) (North Mill) $154.9 29.7% 12.9%6
Healthcare Asset-Based 1st Lien Senior Secured Loans(2) (Gemino) $71.1 13.6% 12.5%6
Life Science 1st Lien Senior Secured Loans $27.7 5.3% 9.3%7
Total First Lien Senior Secured Loans $513.5 98.4%  
Cash Flow 2nd Lien Senior Secured Loans $8.0 1.5% 7.5%5
Total Senior Secured Loans $521.5 >99.9% 9.4%
Equity and Equity-like Securities(3) $0.1 <0.1%  
Total Comprehensive Investment Portfolio $521.6 100.0%  
Floating Rate Investments(4) $501.6 96.2%  
  1. Includes North Mill’s full portfolio, all of which are 1st lien senior secured loans.
  2. Includes Gemino’s full portfolio, all of which are 1st lien senior secured loans.
  3. Excludes the Company’s equity investments in North Mill and Gemino, which distribute quarterly dividends to the Company.
  4. Floating rate investments calculated as a percent of the Company’s income-producing Comprehensive Investment Portfolio.
  5. Represents the yield to maturity based on fair market value at September 30, 2020.
  6. Represents total interest and fee income for the three month period ending on September 30, 2020 against the average portfolio over the same fiscal period, annualized.
  7. Represents the weighted average of each individual loan’s yield to maturity based on fair value at September 30, 2020 (excluding exit fees or warrants).

The Comprehensive Investment Portfolio is diversified across approximately 206 unique borrowers in over 120 industries. The average issuer exposure is $2.5 million, or <0.5% of the comprehensive portfolio.

As of September 30, 2020, 98.4% of the Comprehensive Portfolio was invested in first lien senior secured cash flow and asset-based loans and 1.5% in second lien senior secured cash flow loans, and less than 0.1% is in equity.

The weighted average yield at fair value of all income-producing investments in the Comprehensive Portfolio was 9.4% at September 30, 2020.

Solar Senior Capital Ltd. Portfolio

Asset Quality

At September 30, 2020, 100% of the Company’s portfolio was performing with no investments on non-accrual.

The Company puts its greatest emphasis on risk mitigation and credit performance. On a quarterly basis, or more frequently if deemed necessary, the Company formally rates each portfolio investment on a scale of one to four, with one representing the least amount of risk.

As of September 30, 2020, the composition of our portfolio, on a risk ratings basis, was as follows:

Internal Investment Rating Investments at Fair Value ($mm) % of SUNS Portfolio
1 $51.2 13.2%
2 $319.9 82.1%
3 $18.4 4.7%
4 $0.0 0.0%

Investment Income Contribution by Business Unit

Business Unit Contribution to Gross Investment Income Q3 2020(1) (in millions)
For the Quarter Ended: Cash Flow Lending Asset-based Lending (North Mill) Asset-basedHealthcareLending (Gemino) Life Science Total
September 30, 2020 $5.0 $1.3 $0.9 $0.7 $7.9
% Contribution 63.3% 16.4% 11.4% 8.9% 100.0%

(1) Investment Income Contribution by Business Unit includes interest income/fees from cash flow and life science loans on balance sheet and distributions from North Mill and Gemino.

Solar Senior Capital Ltd.’s Results of Operations for the Quarter Ended September 30, 2020 compared to the Quarter Ended September 30, 2019:

Investment Income

For the quarters ended September 30, 2020 and 2019, gross investment income totaled $7.9 million and $10.4 million, respectively. The decrease in quarterly gross investment income year over year was primarily due to a reduction in portfolio yield, mainly as a result of the decrease in LIBOR, on a relatively smaller income producing investment portfolio on average.

Expenses

Net expenses totaled $3.1 million and $4.7 million, respectively, for the quarters ended September 30, 2020 and 2019. For the quarters ended September 30, 2020 and September 30, 2019, $0.7 million and $0.6 million, respectively, of management and performance-based incentive fees were voluntarily waived by the Company’s investment manager. The decrease in net expenses year over year is primarily due to lower interest expense due to reductions in LIBOR and an increase in the waiver of fees.

Net Investment Income

The Company’s net investment income totaled $4.8 million and $5.7 million, or $0.30 and $0.35 per average share, respectively, for the quarters ended September 30, 2020 and 2019.

Net Realized and Unrealized Gain (Loss)

Net realized and unrealized gain (loss) for the quarters ended September 30, 2020 and 2019 totaled $3.8 million and $(0.5) million, respectively.

Net Increase in Net Assets Resulting from Operations

For the quarters ended September 30, 2020 and 2019, the Company had a net increase in net assets resulting from operations of $8.6 million and $5.2 million, respectively. For the quarters ended September 30, 2020 and 2019, earnings per average share were $0.54 and $0.32, respectively.

Liquidity and Capital Resources

Unsecured Debt At September 30, 2020, approximately 61% of the Company’s funded debt, or $85 million, was comprised of unsecured notes.

Credit Facilities and Available Capital At September 30, 2020, the Company had $54.3 million of borrowings under its $300 million of revolving credit facilities, resulting in a total of $139.3 million of funded debt and over $250 million of available capital, subject to borrowing base limits.

Leverage As of September 30, 2020, the Company’s net debt to equity ratio was 0.52x. The Company’s low leverage provides a significant cushion to its regulatory asset coverage limit of 2.0x debt-to-equity as well as its target leverage ratio of 1.25–1.50x debt-to-equity.

Unfunded Revolver Commitments As of September 30, 2020, Solar Senior had unfunded revolver commitments of approximately $4.1 million that can be fully drawn by the borrowers.

Financial Statements

SOLAR SENIOR CAPITAL LTD. CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (in thousands, except share amounts)

  September 30, 2020 (unaudited) December 31, 2019
Assets    
Investments at fair value:    
Companies less than 5% owned (cost: $301,805 and $363,947, respectively) $ 295,613   $ 361,665  
Companies more than 25% owned (cost: $98,439 and $98,439, respectively)   93,867     98,600  
Cash   6,306     7,054  
Cash equivalents (cost: $164,987 and $99,898, respectively)   164,987     99,898  
Interest receivable   1,319     1,933  
Dividends receivable   1,753     1,893  
Receivable for investments sold   36     6,667  
Prepaid expenses and other assets   253     248  
     
     
Total assets $ 564,134   $ 577,958  
     
     
Liabilities    
Debt ($139,303 and $211,202 face amounts, respectively, reported net of unamortized debt issuance costs of $2,105 and $1,901, respectively.) $ 137,198   $ 209,301  
Payable for investments and cash equivalents purchased   170,028     101,811  
Distributions payable   1,605     1,885  
Management fee payable   314     426  
Interest payable   524     1,172  
Administrative services payable   566     826  
Other liabilities and accrued expenses   537     723  
     
     
Total liabilities $ 310,772   $ 316,144  
     
     
     
     
Net Assets    
Common stock, par value $0.01 per share, 200,000,000 and 200,000,000 common shares authorized, respectively, and 16,049,034 and 16,046,214 issued and outstanding, respectively $ 160   $ 160  
Paid-in capital in excess of par   282,229     282,181  
Accumulated distributable net loss   (29,027 )   (20,527 )
     
     
Total net assets $ 253,362   $ 261,814  
     
     
Net Asset Value Per Share $ 15.79   $ 16.32  
     
     

SOLAR SENIOR CAPITAL LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except share amounts)

  Three months ended
  September 30, 2020   September 30, 2019
INVESTMENT INCOME:        
Interest:    
Companies less than 5% owned $ 5,428   $ 7,829
Companies 5% to 25% owned 281
Dividends:    
Companies more than 25% owned 2,125 2,265
Other income:    
Companies less than 5% owned 315 21
Companies 5% to 25% owned    
     
Total investment income 7,868     10,396
     
EXPENSES:    
Management fees $ 1,036   $ 1,223
Performance-based incentive fees 535
Interest and other credit facility expenses 1,927 2,764
Administrative services expense 370 405
Other general and administrative expenses 442     416
     
Total expenses 3,775     5,343
       
Management fees waived (722) (67)  
Performance-based incentive fees waived     (535)  
       
Net expenses 3,053     4,741  
       
Net investment income $ 4,815   $ 5,655  
     
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND CASH EQUIVALENTS:    
Net realized gain (loss) on investments and cash equivalents:    
Companies less than 5% owned $ 37   $ (6,973)
Companies 5% to 25% owned     1,979
       
Net realized gain (loss) on investments and cash equivalents. 37     (4,994)  
       
Net change in unrealized gain (loss) on investments and cash equivalents:      
Companies less than 5% owned 3,794 7,603
Companies 5% to 25% owned (1,046)
Companies more than 25% owned     (2,050)
     
Net change in unrealized gain (loss) on Investments and cash equivalents 3,794     4,507  
     
Net realized and unrealized gain (loss) on investments and cash equivalents 3,831     (487)
     
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,646   $ 5,168
     
EARNINGS PER SHARE $ 0.54   $ 0.32
     

About Solar Senior Capital Ltd.

Solar Senior Capital Ltd. is a closed-end investment company that has elected to be treated as a business development company under the Investment Company Act of 1940. A specialty finance company with expertise in several niche markets, the Company primarily invests directly and indirectly in leveraged, U. S. middle market companies primarily in the form of cash flow first lien senior secured debt instruments and asset-based loans including senior secured loans collateralized on a first lien basis primarily by current assets.

Forward-Looking Statements

Statements included herein 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 the impact of COVID-19 and related changes in base interest rates and significant market volatility on our business, our portfolio companies and the global economy. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in our filings with the Securities and Exchange Commission. Solar Senior Capital Ltd. undertakes no duty to update any forward-looking statements made herein.

Contact Investor Relations (646) 308-8770

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