Operator
And our next question comes from the line of Robert Dodd with Raymond James.
Robert Dodd - Raymond James & Associates, Inc., Research Division; Research Analyst
I mean first, a housekeeping one, if I can. Based on the valuations of where these things I mean, theyre basically on top of each other. But some
slightly below book, the merger would generate some merger discount accretion income. Would that income, if it closes with multiples where would that income be excluded from the calculation, the incentive fee on a combined basis or included?
Michael Gross - SLR Investment Corp. and SLR Senior Investment Corp.;
Co-CEO
Rich, do you want to answer that, Rich?
Richard Peteka - SLR Investment Corp. and SLR Senior Investment Corp. - CFO
Sure. If you wouldnt mind, please repeat the accretion, the discount accretion, thats still sort of NAV?
Robert Dodd - Raymond James & Associates, Inc., Research Division; Research Analyst
Well, yes, NAV wont move in a NAV for NAV swap, but acquiring an asset pool below book or create or has done in every other BDC, this dont
feel like this. Created either merger discount accretion income or the reverse, obviously, negative if its above book. Would that income in the top line that flows through the P&L, would that be excluded or included in the calculation of
the income incentive fee? I mean, as the income incentive fee is written, it would be included. So it would be up to you as to whether you, the Board, whether that were to be excluded or not? Do you have a position on that?
Richard Peteka - SLR Investment Corp. and SLR Senior Investment Corp.; CFO
Sure. What I could share with you is, as noted in our prepared remarks, we plan on making sure that both BDCs are distributing their quarterly NII or to the
extent they have it accrued. So there will be and theres also a net asset value exchange. So the NAV so any discount accretion is accrued to NAV less any distribution. So if you want to think about it as gross revenues, including
discount accretion on loans regardless of when they were purchased the day before or whether it was purchased 3 years ago, all those are accruing into NAV, its accruing into NII less the distributions paid. So if we were earning exactly dollar
for dollar, our net investment income and our dividends, it will be fully distributed. And if its not, it would be an adjustment to your NAV, which would be incorporated into exchange ratio.
Robert Dodd - Raymond James & Associates, Inc., Research Division; Research Analyst
Ill follow up with you on that because that yes, Ill follow up on that. Anyway, if I can move on to the other question. I mean, kind of
following up on Caseys question. I mean on a combined basis, as you said, I mean, 26%, I think, of income comes from current cash flow lending. Thats probably going to go up in the near term, given youve originated a lot so far
from what I can tell. But would you say is that kind of the target level? Like, youd like cash flow to be, call 1/4 of total income average over time? Or you also mentioned, obviously, the potential for this larger combined business to
make additional acquisitions in other commercial finance businesses? So any color you can give us on how much would be cash flow kind of long term?
Bruce Spohler - SLR Investment Corp. and SLR Senior Investment Corp.;
Co-CEO
Yes. Look, I think, as you know, Robert, its moved between 20% and 30%. And I think
thats probably a good place to bracket it. As you know, our cash flow business is really a derivative of our specialty finance strategies. In that, as you know, a big focus of our specialty finance is in a variety of a small variety of
industries, such as financial services, health care. We have our health care ABL business. We have our life science business. So our cash flow book is really driven off of that expertise. I think weve shared in the past that roughly 80% of our
cash flow book is focused on the sectors being health care, financial services and recurring software.
So weve seen, to your point, a lot of growth
this year because those sectors proved to be incredibly resilient during the pandemic, performed very well for us and others. And so theres obviously going to attract a lot of equity capital now coming through the pandemic, looking to be
paired up with debt capital from people like ourselves. So thats been driving that buildup in our cash flow book this year. But I dont see it expanding much beyond 30% because the other strategies are also growing. So the mix is staying
pretty constant.