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Solar Senior Capital Ltd (SUNS)
Q1Â 2020 Earnings Call
May 8, 2020, 1:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by and welcome to the First Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference to your speaker today, Mr. Michael Gross, Chairman and Co-CEO of Solar Senior Capital Limited. Please go ahead, sir.
Michael Gross -- Co-Chief Executive Officer, Chairman of the Board, President
Thank you very much and good morning. Welcome to Solar Senior Capital Limited's earnings call for the fiscal quarter ended March 31st, 2020. I'm joined here today by Bruce Spohler, our Co-CEO and Richard Peteka, our Chief Financial Officer. Rich, before we start, can you please cover the webcast and forward-looking statements.
Richard Peteka -- Chief Financial Officer & Treasurer
Sure, thank you, Michael. I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of Solar Senior Capital Limited and that any unauthorized broadcasts in any form are strictly prohibited. This conference call is being webcast on our website at www.solarseniorcap.com. Audio replays of this call will be made available later today as disclosed in our 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 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.
Additionally, 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. Solar Senior Capital Limited 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 us at 212-993-1670. At this time, I'd like to turn the call back to our Co-Chief Executive Officer, Michael Gross.
Michael Gross -- Co-Chief Executive Officer, Chairman of the Board, President
Thank you, Rich. Good morning everyone and thank you for joining us today. First and foremost, we hope you and your family, friends, and colleagues remain healthy and safe during this pandemic. Our thoughts are with all of our stakeholders including the dedicated employees across Solar Senior Capital and the company's investment advisor, Solar Capital Partners, who continue to work from home with full business continuity. Also, we would like to express our heartfelt gratitude to all the healthcare and other frontline workers and our sincere condolences to those families who have lost loved ones.
The global spread of COVID-19 in Q1 led to nearly unprecedented levels of market volatility and dislocation in March. The shutdown response plunged the world into recession and financial markets into a broad-based and deep sell-off. The resulting Fed rate cuts, a steep drop in inflation expectations, and a flight to safety drove the 10-year U.S. treasury yields to below 1% for the first time in their more than 150-year history. Near-term liquidity issues have been partially mitigated by a rapid and expansive U.S. monetary and fiscal policy response, but uncertainty and volatility are expected to remain for the foreseeable future given the lack of clarity and timing of getting our economy back to work.
To best serve all of our stakeholders during this evolving crisis, we are providing detail on our first quarter results as well as an update as of April 30th. As we outlined in our April 1st shareholder letter, our conservative approach to the management of both our assets and liabilities has resulted in a defensive portfolio, stable funding, low leverage, strong liquidity, and favorable positioning to make new investments. At March 31st, Solar Senior's net asset value per share was $14.59, a 10.6% decline from year-end. Unrealized depreciation represented the vast majority of the decline and was primarily driven by unrealized mark-to-market losses related to the impact of spread widening on the valuation of our portfolio.
While our portfolio as a whole has not been immune to the severe economic disruption caused by the COVID pandemic, we do expect to recoup a significant portion of unrealized depreciation as the secondary market technicals and economy improves. Overall, our portfolio companies are proving to have resilient business models and access to liquidity that will enable them to successfully withstand this crisis. We attribute this solid position of our portfolio to our long-term investment discipline centered in the philosophy that we invest as if we are always late in the credit cycle. In addition, we took a undertook a multi-year initiative to build and acquire niche specialty finance and asset-based lending businesses, which have historically exhibited lower default and loss rates throughout business cycles compared to traditional cash flow lending.
Importantly, the ABL and life science teams have resilient business models and highly experienced teams, each of which have managed through multiple cycles of a career spanning to 20 years to over 30 years. The specialty finance loan portfolios are diversified and defensive in composition. The teams are skilled at working through problems and are well-positioned to be secured liquidity providers to borrowers under more favorable terms in the current environment.
Our comprehensive portfolio is comprised of approximately 99% first lien senior secured loans with a small exposure to one second lien cash flow investment. Importantly, we have remained patient and intentionally under-levered in order to preserve liquidity for a market dislocation when risk-adjusted returns are generally more attractive. At March 31st, 2020, 99% of our $625 million comprehensive investment portfolio at fair value was comprised of first lien cash flow loans and approximately 55% of those loans were in our specialty finance niches. $20 million of the contraction in our portfolio fair value quarter-over-quarter resulted from net portfolio repayments. During Q1, we had $88 million of repayments, all of which were at or above par and fundings of $68 million. As of March 31st, all of our borrowers made their interest payments and at April 30th as well. As of March 31st, only one loan had a PIK component with interest rate and cash interest and dividends represented over 99.9% of our Q1 2020 gross investment income. Solar Senior's NII per share for the quarter totaled $0.3525.
While we are confident that SUNS entered the current economic slowdown from a position of relative strength, the sustainability of our dividend is facing certain headwinds. At March 31st, Solar Senior's portfolio was underlevered relative to our target range of 1.25 times to 1.5 times. In addition, the Fed's recent commitment to set base rates to zero for the foreseeable future is placing downward pressure on yields in a predominantly floating rate portfolio. In response to SUNS' low leverage and expectation of low base rates for an extended period of time, the Board approved a reduced cash distribution of $0.10 per share per month for the month of May in the foreseeable future. In addition, the investment advisor is agreeing to waive management incentive fees to the extent necessary for net investment income to cover this rate of monthly distributions throughout 2020.
We believe that a reduction in our distribution is prudent. By realigning SUNS' distribution with our near-term expectations for net investment income, we're establishing a foundation from which to grow. Importantly, as we invest a portion of our available liquidity, we expect SUNS' net investment income to cover its distributions without the support of fee waivers by the manager. As we approach the target leverage of 1.5 times, we expect net investment income to exceed the current distributions. With the market now dislocated, we expect the next 12 to 18 months to present an abundance of compelling investment opportunities at higher expected returns with better structural protections is an ideal time for us to grow our income-producing portfolio.
Each of our investment verticals is led by experienced professionals who have invested through multiple cycles and understand the benefits of having capital to deploy into a recovery. Our diversified investment platform spanning cash flow lending, multiple ABL strategies, and life science venture lending positions SUNS as a solutions provider to borrowers. It also enables us to originate attractive risk that is unavailable to firms which are only able to underwrite cash flow loans. We expect portfolio growth in the coming quarters to come in the form of higher-yielding assets with more lender-friendly terms, which will ultimately drive our net investment income higher in future quarters.
During the first quarter, SUNS significantly improved its funding and liquidity profile. On March 31st, Solar took advantage of its investment grade rating and issued $85 million of 3.9% senior unsecured notes in a private placement with institutional investors. As a result of this issuance, at March 31st, approximately 50% of the company's funded debt was comprised of unsecured term notes, which gives SUNS significant unencumbered assets and provides meaningful over-collateralization of its combined $300 million credit facilities, which are over 70% undrawn. We have significant capital available to play offense. At March 31st, 2020, our net leverage was 0.69 times and as of April 30th, our estimated leverage was similarly low at 0.71 times.
Importantly, SUNS has no near-term debt maturities, having termed out both its primary $225 million credit facility and its secondary, $75 million credit facility to 2023 and 2024 respectively. In addition, we have a March 31, 2025 maturity of our newly issued senior unsecured fixed rate notes. With a weighted average maturity on the company's funded portfolio loans of July 2022, we are substantially asset liability match funded. Importantly, we believe that these weighted average maturities over two years from now provides Solar Senior with runway to manage through the current economic contraction.
Combined with available capital at Solar's sister, BDC, Solar Capital and the other private funds with Solar Capital Partners manages, the platform has over $6.5 billion of available capital including over $3 billion currently available to make new investments, support existing companies, and provide structured liquidity and capital solutions to U.S. middle-market companies with sustainable business models. As our long-term investors know, we have managed this company in anticipation of an economic downturn. Now that the dislocation has arrived, unfortunately, in a tragic fashion, we are fortunate to have a solid foundation and are poised to deploy capital to support our valued sponsors and management teams.
Earlier this week, we announced the addition of four highly experienced professionals to the Solar Capital Partners team. The expansion of our investment and business development team speaks to our confidence and the strength of the platform and conviction in the investment opportunity set. As a final note, our investment advisors' alignment of interest with the company's stakeholders has been one of our guiding principles. Through significant SUNS share purchases since inception, our senior management team now owns approximately 6% of our outstanding common stock. Additionally, all members of the team have a significant percentage of their annual compensation invested in SUNS stock. Senior management investment alongside fellow shareholders demonstrates our confidence in the company's defensive portfolio, stable funding, strong liquidity, and fair position to make new investments. At this time, I'll turn the call over to our CFO, Rich Peteka, to take you through the financial highlights with specific emphasis on the liquidity and funding profile.
Richard Peteka -- Chief Financial Officer & Treasurer
Thank you, Michael. Solar Senior Capital Ltd.'s net asset value at March 31st was $234.1 million or $14.59 per share. This compares to a net asset value of $261.8 million or $16.32 per share at December 31st, 2019. Solar Senior's balance sheet investment portfolio at March 31st, 2020, at a fair market value of $395.8 million in 45 portfolio companies operating in 21 industries compared to a fair market value of $460.3 million in 48 portfolio companies operating in 21 industries at December 31st.
Turning to our funding profile and leverage. In our opinion, SUNS currently has one of the strongest balance sheets in the company's history, which we believe will serve us well in the current downturn. On March 31st, Solar Senior announced the issuance of $85 million of 3.90% senior unsecured five-year notes in a private placement with institutional investors. The proceeds were initially used to reduce borrowings under the company's revolving credit facilities before funding additional investments and for general corporate purposes. At March 31st, 2020, SUNS had $174.4 million of debt outstanding and net leverage of 0.69 times down from 0.78 times net leverage in the prior quarter. Solar Senior Capital has over $220 million to fund portfolio growth, subject to borrowing base limitations.
As a reminder, Solar Senior's target leverage is 1.25 times to 1.50 times debt-to-equity under the reduced asset coverage requirement. As of March 31st, 2020, Solar Senior Capital had unfunded commitments of approximately $17 million. The unfunded commitments largely consist of contingent delayed draw term loans related mostly to add-on acquisition financing in our cash flow lending business as well as incremental financing commitments to life science companies tied to capital or operating thresholds or benchmarks. At this point, less than $5 million of the company's $17 million of unfunded commitments are for revolvers that can be fully drawn today by the borrowers representing a current liquidity to non-contingent unfunded commitments coverage ratio of approximately 48 times.
In our opinion, this abundance of liquidity not only enables SUNS to be opportunistic in our originations during dislocation, but also preserves our ongoing access to the capital markets. From a P&L perspective, gross investment income for the three months ended March 31st, 2020, totaled $8.8 million versus $9.5 million for the three months ended December 31st, 2019. Net expenses for the three months ended March 31st, 2020 were $3.1 million compared to $3.8 million for the three months ended December 31st, 2019. Net investment income for the quarter ended March 31st, 2020 was $5.7 million or $0.35 per average share as compared to $5.7 million or $0.35 per average share for the three months ended December 31st, 2019.
For the quarter ended March 31st, the investment advisor voluntarily waived management fees of $964,000 and incentive fees of $56,000 compared to $671,000 of fees waived for the quarter ended December 31st, 2019. Below the line, Solar Senior had a net realized and unrealized loss for the first fiscal quarter totaling $27.7 million compared to net realized and unrealized gain of $0.1 million for the three months ended December 31st, 2019. Accordingly, Solar Senior had a net decrease in net assets resulting from operations of $22.1 million or $1.37 per share for the three months ended March 31st, 2020. This compares to a net increase in net assets resulting from operations of $5.8 million or $0.36 per average share for the three months ended December 31st, 2019.
Lastly, our Board of Directors declared a monthly distribution for May 2020 of $0.10 per share payable on June 2nd, 2020 to stockholders of record on May 22nd, 2020. At this time, I'd like to turn the call over to our Co-Chief Executive Officer, Bruce Spohler.
Bruce Spohler -- Co-Chief Executive Officer, Chief Operating Officer, Director
Thank you, Rich. Solar Seniors' portfolio has benefited greatly from our initiative to expand the origination platform through the development and acquisition of specialty finance businesses. At quarter-end, approximately 55% of our total portfolio was in senior secured, asset-based and life science lending strategies, which represents SUNS highest allocation to commercial finance assets since inception. The remaining 45% of the portfolio was invested in senior secured cash flow loans predominantly first lien assets.
As of March 31st, our $625 million comprehensive portfolio is highly diversified, encompassing 234 issuers across over 130 industries. Our largest industry exposures are healthcare providers and services, professional services, and insurance. The average investment per issuer was $2.7 million or less than 0.5% of the portfolio. At quarter-end, approximately 100% of our portfolio at fair value consisted of senior secured loans comprised of close to 99% first lien assets and 1% second lien asset. We believe that our efforts to position the portfolio to almost an entirely first lien construct, which carry less risk than second lien and mezzanine loans will result in greater capital preservation during this crisis.
At March 31st, our weighted average asset level yield at fair value was 9.8%. By focusing on our commercial finance verticals, we've been able to maintain asset level yields approaching 10% despite the sharp drop in LIBOR resulting from the Federal Reserve's efforts to aid the economy. At March 31st, the weighted average investment risk rating of SUNS portfolio was 2.0 based on our one to four risk rating scale, with one representing the least amount of risk.
As further indication of the resiliency of our investments to date, 100% of SUNS portfolio was performing at quarter-end and continues to be at April 30th. Including activity across our four business lines, originations totaled $68 million and repayments were $88 million in the first quarter. Originations were a mix of new deals and upsizing to existing borrowers. Let me now provide an update on each of our investment verticals including details on our valuation approach.
Let me start with cash flow. While the disruption to the economy as a result of the COVID pandemic has been unprecedented, we believe that our cash flow portfolio is well positioned to withstand a prolonged recession. Our cash flow portfolio does not have direct exposure to cyclical industries such as energy, commodities, travel, retail, leisure, heavy manufacturing or consumer discretionary sectors. We have been in active dialogue with management teams and sponsors across our portfolio of companies regarding their business prospects as a result of COVID. We are encouraged by the steps taken by the portfolio companies to preserve their liquidity as well as the continued strong sponsor support of these businesses.
Our predominantly first lien portfolio, again [Phonetic] 99% together with our relatively modest average first lien leverage of just under 5 times together with a significant junior capital cushion and strong sponsor support positions us well to withstand economic headwinds in our cash flow portfolio. We view the majority of our investments as generally providing essential services in non-cyclical sectors that will continue to be required as the stay-in-place restrictions are eased. Solar conducted a rigorous COVID stress test across the entire cash flow portfolio as part of our first quarter valuation process.
Our valuation framework incorporated sector-specific market spread movements in the quarter, adjusting for the existence of LIBOR floors, the expected weighted average life of our investments, the existence of covenants, and other issuer-specific factors such as their liquidity profile, the sponsor support of the business, and our position in the company's capital structure. The majority of the decline in our portfolio marks are reflective of market spread movements that we expect to reverse over time.
To provide further context, market spreads for the LCD first lien single B index widened approximately 400 basis points during the first quarter. Since quarter-end, it has reversed somewhat and tightened by approximately 150 basis points or 35% as of April 30th. At quarter-end, our cash flow portfolio consisted of $282 million or approximately 45% of our comprehensive portfolio, is invested across 32 borrowers with an average investment size of just under $9 million. These companies had a weighted average EBITDA of $107 million, which highlights our long-standing commitment to finance larger business, which we believe are better positioned to withstand an economic downturn. The weighted average yield of our cash flow portfolio was just over 8%.
During the first quarter, we originated $33 million of first lien cash flow loans and experienced repayments of $70 million. Our new investments were primarily a combination of new investments and add-on investments to existing portfolio companies. We are very encouraged by our available liquidity at SUNS to take advantage of the current market dislocation, which we expect to persist.
Over the last few years, we made a conscious decision to shrink our cash flow portfolio owing to frothy market conditions, which resulted in highly levered deals with very loose documentation. We have begun to see more opportunities to finance large middle market companies at lower leverage levels and with better covenant and call protections and at wider spreads. We will continue to maintain our discipline of investing in non-cyclical sectors focused on the upper-end of the middle market in our cash flow book.
Now let me give an update on our asset-based strategies. As a reminder, SUNS owns two commercial finance businesses that specialize in making senior secured ABL loans on a first lien basis, secured predominantly by accounts receivable. These companies lend to small and mid-sized U.S. businesses who typically have limited access to traditional bank financing. Gemino Healthcare is focused on providing revolving accounts receivable facilities exclusively to healthcare service providers. Collateral here consists of Medicare and Medicaid and private insurance receivables.
Our North Mill business finances companies operating in the distribution, business services, and manufacturing sectors. North Mill is typically the agent and sole lender to its borrowers and its financing structures predominantly include revolving accounts receivable financings as well as factoring agreements. In addition, all factoring agreements have recourse to the underlying borrowers. Both Gemino and North Mill are led by teams of seasoned professionals who have been in asset-based lending for 25 to 40 years. The management teams are experienced risk underwriters across multiple economic cycles. Their business models are highly resilient, relationship-driven and serve as the lifeline of working capital provider to small businesses across the U.S.
In prior economic downturns, ABL loans generally provided high recovery rates more so than those supported only by cash flows. Overall, both Gemino and North Mill's portfolios continue to perform well and in accordance to our expectations at the time of purchase. In addition, the collaboration across Gemino and North Mill on the business development side together with North Mill's acquisition of Summit Financial Resources last year has broadened and deepened our coverage across regions, it's also enhanced the pipeline of our investment opportunities.
Now let me provide a brief update on both Gemino and North Mill, our valuation approach, and the current investment environment. Let me start with North Mill. At quarter-end, North Mill's portfolio was just over $180 million, representing 29% of SUNS portfolio. The portfolio consists of over 155 borrowers with an average investment of just over $1 million. Over 99% of North Mill's bars are deemed essential businesses and the PPP is expected to be highly beneficial to North Mill's portfolio of companies. Importantly, the portfolio is defensively positioned with approximately one-third of its exposure in the distribution industry with a concentration of food, one-third is also in staffing with an emphasis on outsourced and remote IT, and one-third is in manufacturing with many borrowers operating in essential industries.
Both at quarter-end and April 30th, there were no defaults or delinquencies across North Mill's borrowers. During the first quarter, we funded over $16 [Phonetic] million of new investments and had repayments of just under $5 million at North Mill, the weighted average asset level yield at quarter-end was 12.5%. At March 31st, the fair value of our equity investment in North Mill was marked down by approximately 10% from the prior quarter. SUNS utilizes the service of an independent third-party valuation firm during this process. Our valuation framework is primarily driven by price-to-book values of public peer comparables as well as private market transactions of similar commercial finance businesses, and to a lesser extent, a change in mark-to-market yields.
Knowing where comparable businesses have been acquired over the past few years, we believe that North Mill is conservatively valued. During the first quarter, North Mill paid the company a cash dividend of just over $1.25 million, down from $1.4 million in the prior quarter. The reduction matches the dividend to earnings and is conservative as we think about the current economic environment and North Mill's business prospects.
The integration of Summit Finance into North Mill is proceeding ahead of expectations. We are encouraged by the disciplined and shared credit culture, broader geographic coverage, an enhanced pipeline of attractive investments across both PBL and factoring structures. We view factoring as a highly attractive asset class and this portfolio as well as the addition of Summit's core underwriting and BDO team has increased North Mill's exposure to and expertise in factoring. Importantly, North Mill takes a conservative approach by prioritizing factoring agreements with recourse to the underlying borrower. We anticipate continued steady performance and growth for North Mill.
Now let me turn to Gemino. Our healthcare ABL business has not been negatively impacted by the COVID pandemic. In fact, it is extremely well positioned to benefit from this public health emergency. The impairment risk remains extremely low given Gemino's disciplined underwriting and a focus on financing health service providers who have government and high-quality insurance company accounts receivable as collateral. Cash collections typically go directly into Gemino's lock boxes as well as fees and interest payments, which we debit automatically.
At quarter-end as well as at April 30th, there were no defaults nor delinquencies across Gemino's borrowers. At March 31st, the Gemino portfolio was $138 million, consisting -- I'm sorry, representing approximately 22% of our total portfolio, is comprised of 37 borrowers with an average loan size of just over $3.5 million. The weighted average asset level yield at Gemino was approximately 9.5%.
During the first quarter, we funded $16 [Phonetic] million of new investments and had repayments of approximately $10 million. During the quarter, Gemino delivered a 12% ROE, the highest that we have seen from them in years. Gemino has stable funding with no near-term maturities, having refinanced its credit facility late last year into a new four year credit facility at LIBOR plus 2.25% compared to the previous facility at LIBOR plus 2.60%. At quarter-end, the fair value of our equity investment in Gemino was marked down approximately 3% from the prior quarter. SUNS also uses the services of an independent third-party valuation firm in this process.
While our valuation framework for control equity investments is fundamentally grounded in an assessment of peer price-to-book values, there are no great comparable public companies for Gemino. So we rely more on private transactions as we value this highly specialized business. If not for the trading down of public finance company peers resulting from the COVID crisis, we actually would have marked Gemino up from the prior quarter, given the growth in its portfolio and achievement of its highest ROE in its history.
Since owning Gemino, our price-to-book valuation has been very conservative relative to commercial finance companies with similar risk profiles. For the first quarter, Gemino paid SUNS a cash dividend of just under $1 million, consistent with the prior quarter, representing an 11% return. As we look into the future, we feel very confident in the portfolio quality of Gemino and believe the company is well positioned to capture additional growth as the market settles down.
And finally, let me touch on our life science lending business. Overall, life science portfolio is largely insulated from short-term market and economic dislocations given the long-dated equity investment periods and product cycles of our portfolio companies' assets. At the present time, the impact of COVID-19 has had a de minimis impact on the portfolio. 100% of our loans in this segment are performing and we continue to expect no losses in this segment. As a reminder, we have never realized a loss in our life science portfolio across the platform.
Currently, none of our life science portfolio companies have less than three months of cash runway, and 100% of these companies have more than 12 months of cash runway. This is largely a result of our investment focus on public and venture capital-backed late-stage, multi-product, pharma and medical device companies that are either close to or entering commercialization. It's important to remember that our discipline is to make life science investments at very low loan to values, 15% to 20% on average, where value is defined as actual cash invested in the business and not an enterprise value post the most recent round of funding or if public market capitalization.
While the FDA maybe slowing trials down for new products in favor of fast-tracking COVID treatments or vaccines and patients may also be reluctant to participate in trials given this pandemic, the projected three to nine-month potential delays for some companies is small in relation to the 10 year to 15 year development process that they've been undergoing as well as the significant capital invested in these companies relative to the size of our loan. In addition, there are some late-stage development companies we invest in, whose revenues maybe deferred as a result of delays in procedures or surgeries that are considered elective or non-essential.
The financial viability of many hospitals, doctors, and healthcare providers rely on these non-essential services as a key source of revenues and we expect these services to begin to ramp back up in the next couple of months as we get into the second half of 2020. At quarter-end, our life science portfolio totaled just over $22 million, consisted of seven borrowers with an average investment size of just over $3 million. Our life science loans represented 3.5% of our total portfolio and 9.5% of SUNS' first quarter gross investment income. The weighted average yield on this portfolio was just under 10%, excluding success fees and warrants.
Our valuation framework for life science investment is based on marketing each investment close to its advertised cost, including the final fee that we contractually receive at payoff. There's no liquid market for private life science venture debt and we don't use any equity benchmark for determining that fair value. At April 30th, there have been no material changes to the underlying credit quality of our life science investments. Healthcare space, in general, continues to be extremely attractive and we are not seeing a slowdown in new life science investment opportunities. Also, the increased scale of the Solar platform enhances the opportunity set for investment in even later stage public, pharma, and device companies that may require even larger loan sizes. However, we will continue to be highly disciplined in new investments.
In conclusion, we believe that SUNS' portfolio is extremely well positioned to weather this crisis. As we continue to navigate this challenging environment, we will remain in close contact with our portfolio companies, their management and sponsor teams, and support them as well as work with our extensive network of relationships to also play offense and look for new investment opportunities. Solar Capital Partners' commercial finance platform and significant dry powder enables us to provide structured financing solutions including both cash flow and asset-based loans for capital-constrained companies during this time period. Solar Senior will also be able to participate in these financings while continuing to make significant diversification across its issuers. At this time, I'll turn the call back to Michael.
Michael Gross -- Co-Chief Executive Officer, Chairman of the Board, President
Thank you, Bruce. In closing, we would like to thank Solar Senior Capital shareholders for their support and patience during this difficult time. From inception, we have endeavored to make the right decisions to preserve and enhance long-term shareholder value. Our priority has always been to create and maintain a portfolio that can generate steady income for our shareholders and protect our capital. Over the course of the extended faulty credit markets, we have remained disciplined in the face of significant spread compression, higher leverage, and loose structures, all which have elevated the risk of principal loss in middle market leverage finance.
As a result, we have positioned SUNS defensively, diversified our portfolio across cash flow and specialty finance, first lien, senior secured loans to manage downside risk, we have operated well under target fund leverage and we have preserved liquidity. We believe we have taken the appropriate steps to navigate successfully through what we anticipate to be a prolonged and difficult period. Throughout, we have maintained alignment through our ownership of SUNS alongside our fellow shareholders. Our decisions to prioritize capital preservation rather than leveraging the portfolio and taking on more risk at the wrong time of the cycle, have allowed us to enter into this dislocation in a position of relative strength.
Importantly, we have confidence that our team's expertise and ability to provide financing across cash flow and ABL solutions should enable SUNS to continue to support its existing portfolio companies and make new investments during this period of turmoil. As a result of recent fundraising, the SCP platform now has over $6.5 billion of investable capital including potential leverage with over $3 billion of that currently available to make new investments. SCP's private funds maintain a co-investment strategy with Solar Senior Capital, which provides the company access to attractive co-investment opportunities in upper middle market companies that otherwise would not have with its capital base alone.
Specifically, the collective dry powder enables the platform to speak for large positions and to provide rescue financing solutions as well as add-on acquisition financing when M&A activity resumes. Now more than ever, our scale should serve as a competitive advantage for Solar Senior Capital. Importantly, for Solar Senior Capital, this scale and flexibility to finance cash flow and asset-based solutions for larger companies is a significant advantage today.
Traditionally, the greatest investment opportunities exist during periods of market dislocation when capital is scarce. With over $220 million of available capital and a strong foundation given our defensive portfolio and low leverage, we believe the company is positioned to originate attractive new investments while also supporting our existing portfolio companies as needed. Our patience and willingness to remain underinvested provides us the foundation to be opportunistic. Given the magnitude of the economic disruption, we believe that the improved investment opportunity set will persist for several quarters as companies seek liquidity and financing solutions.
With our solid portfolio foundation, stable funding sources, and strong liquidity, SUNS is in a great position to capitalize on opportunistic investments. We currently have no anticipated needs for additional liquidity or capital and accordingly have no plans to issue dilutive equity or expensive unsecured debt. Each year for the past eight years, our shareholders have granted us the approval to issue shares below net asset value, subject to the Board's approval at the time of issuance. We've always viewed this trust in us as a great responsibility and have managed the business accordingly and have never taken advantage of this.
Given our belief in the company's ability to successfully navigate the current challenge as we are disappointed in the current share price, we remain confident that the quality of our portfolio results in a stable net asset value, which ultimately be reflected in a higher and absolute relative share price.
We hope that all of you are in good health. We would like to thank the unsung heroes in the healthcare profession and the essential service workers on the front lines in this crisis. To support their efforts in our home city of New York City, currently the center of the epidemic, Solar Capital Partners, our investment advisor, donated $1 million to the Mount Sinai Hospital and Columbia University Irving Medical Center collectively, to be used for the procurement of PPE for COVID research and for the mental health of those frontline healthcare workers and their families. We thank you very much for your time today. Operator, could you please open the line for questions?
Questions and Answers:
Operator
[Operator Instructions] Our first question will come from the line of Mickey Schleien from Ladenburg. You may begin.
Mickey Schleien -- Ladenburg -- Analyst
Yes, good morning everyone.
Michael Gross -- Co-Chief Executive Officer, Chairman of the Board, President
Good morning, Mickey.
Mickey Schleien -- Ladenburg -- Analyst
Hey, let me start by thanking you for that charitable contribution. As the parent of a healthcare worker, I really appreciate it and I think it's a great thing. Moving on to just a couple of business questions. As you mentioned, Solar as a platform has been waiting for a dislocation in the cash flow sponsored finance market for a long time and now it's arrived. Yet, no one could have predicted that it would be from the pandemic, but obviously, there are many unknowns regarding its duration and the impact on the economy. Nevertheless, I'm hearing that middle-market spreads have widened, perhaps 150 basis points, 200 basis points and as you've noted, terms have improved a lot for lenders like you. Are the economics attractive enough for you now to go back into the market at this point in time or is there just still too much uncertainty to even try to underwrite, notwithstanding the better terms that are available?
Bruce Spohler -- Co-Chief Executive Officer, Chief Operating Officer, Director
So great question. I would say, as you know, Mickey, what has held us on the sideline -- well, we always like more price, has really been your commentary around risk and that's why we have been so underinvested on the cash flow side. What we are seeing now is -- it's early days. We're all talking about what we expect over the next couple of quarters once people figure out what they own, to your point, how is it going to weather this cycle and this incredibly tragic experience that all portfolio companies will not be immune from, but several will come out the other side and will be positioned well.
And so our focus really has been, at the moment, on finding those opportunities. There is no conversation with sponsors that are approaching us around covenant-light or high-levered structures. So that's the easy conversation and that's been critical for us. It is what's been keeping us on the sidelines. Pricing, to your point, is a good 150 basis points, 200 basis points higher, but importantly, it's higher for lower risk. I think the immediate opportunity in cash flow is really a couple of things.
One, we have been able to look at some companies that we are lender in common with some of our peers who may need to sell some good assets to shore up their balance sheets and so that's a good opportunity for us where we already know the risk and have bought into the risk, albeit we can buy those at discounts to choose our yield, but we already had signed off on the structure. Secondarily, we see as the market does unfold, there's still that same tremendous pent-up private equity capital on the sideline. For good, healthy businesses, the sponsors are going to look to take advantage of this opportunity, deploy equity into platforms where they want to buy down their multiple and take advantage of some opportunities to add-on acquisitions. Many of those lenders may be tapped out and we will look to lend into those businesses as the companies are getting bigger and derisking alongside new equity coming in.
So I think that's the first opportunity set on the M&A side as opposed to new platform creation as we get deeper into 2020 and in the interim, we're also working with our ABL teams. Our originators are highly coordinated across the platform to bring our ABL expertise into cash flow companies and what we're doing there is using the ability to take advantage of the Swiss cheese documents that exist in the marketplace today for cash flow lending that allow people to carve out certain pools of collateral.
So we can bring in a North Mill, a Gemino, a Crystal, a Nations Equipment and hive off collateral and charge that 200 basis point premium, albeit on a collateralized basis. In the meantime, get to know the business that we're not an incumbent lender, to see, to your point, is this a sector that beyond the underlying collateral value that we like the cash flows when we get to the other side of this and things start to reopen. So we're starting to plant some seeds there so that we can position ourselves to deploy more cash flow capital. We would like to look back a year from now, 1.5 years and really have not only continue to grow North Mill and Gemino, but really scaled up our cash flow book.
Mickey Schleien -- Ladenburg -- Analyst
Thank you, Bruce, that's really helpful and just a couple of questions on sponsors, which you mentioned. Do you see any meaningful differences in the way they're behaving in terms of their size? Specifically, I'm referring to sponsors that -- smaller sponsors that are more lower middle market focused and you have larger sponsors, which are middle market or upper middle market focused. Any differences in the way they're behaving and your anticipation of how they're going to support their investments?
Bruce Spohler -- Co-Chief Executive Officer, Chief Operating Officer, Director
As you know, we operate at the upper mid-market, so I apologize. I'm going to reserve the commentary to that part of the marketplace, but while we've always been upper mid-market is during periods of downturn, we have seen, to your question, more support generally speaking from sponsors just because the businesses themselves are that much more resilient to get through difficult times, but I think the key issue is really, regardless of whether your upper mid-market or another segment, is really the underlying fundamentals of that business is going to be the determinant.
Sponsors are spending a lot of time right now going through each asset in their portfolio and figuring out where are they putting good money after good and where does it not make sense to invest and support the business. So far, we are blessed that at SUNS, we really don't see liquidity problems or lack of support from the sponsors. I think that's predominantly because we have invested in these defensive businesses that people, obviously, all of these companies, let's face it, everything's on watch list for us, Mickey. You know when everybody is working from home and you're in the low to zero revenue environment, there's no business that is immune.
The key is to be in sectors that people believe will have a reason to exist on the other side and begin to recover as we get deeper into this year and so that's where we're seeing is because we've gone into those types of defensive sectors, it's more likely than not that either they are very high free cash flow in businesses, which is a key tenant of our underwriting and/or they have support from the sponsor, but it is very asset by asset.
Mickey Schleien -- Ladenburg -- Analyst
Okay and my last question and I do appreciate your comments there. The dry powder that these sponsors are holding has actually been around for quite a while as we all know. So I'm curious about the issue of how old are these funds that we're talking about? And are they still young enough in their life cycle to have an incentive to support the borrowers or given that this money has been sitting around so long, are they less interested in supporting borrowers because the life cycle of the fund is ending anyway?
Michael Gross -- Co-Chief Executive Officer, Chairman of the Board, President
So the answer is really what your focus is on those funds that are kind of past their investment period because, clearly, funds are still within the investment period if they think it makes economic sense to support their companies, they're going to call capital from LPs and do so. What you are seeing, and we're aware of conversations going on, is that what LPs -- GPs, even if their fund is past investment period, do not want to let assets go if they think the business is still viable and so they are looking at ways where they can raise liquidity into their funds through either loans or preferred. There's a kind of a shadow banking system, if you will, for private equity firms as well that you can borrow against the portfolios to inject it. So we don't see an issue of kind of funds being too old to support their companies.
Mickey Schleien -- Ladenburg -- Analyst
That's really interesting Michael and very helpful. I appreciate it. Those are all my questions today. Everybody stay safe and healthy.
Michael Gross -- Co-Chief Executive Officer, Chairman of the Board, President
Yoo too, Mickey.
Bruce Spohler -- Co-Chief Executive Officer, Chief Operating Officer, Director
Yoo too, Mickey, we appreciate your time.
Operator
[Operator Instructions] And I'm not showing any questions at this time.
Michael Gross -- Co-Chief Executive Officer, Chairman of the Board, President
Thank you so much for your time and efforts. We wish everyone to continue to stay healthy and safe and as you know, we are completely transparent. So if there are any questions or concerns anyone has, please feel free to reach out to any of us at any time. Take care and be safe.
Operator
[Operator Closing Remarks]
Duration: 54 minutes
Call participants:
Michael Gross -- Co-Chief Executive Officer, Chairman of the Board, President
Richard Peteka -- Chief Financial Officer & Treasurer
Bruce Spohler -- Co-Chief Executive Officer, Chief Operating Officer, Director
Mickey Schleien -- Ladenburg -- Analyst
