Solar Capital (SLRC) and Solar Senior Capital (SUNS) both voted last month to reduce their minimum asset coverage ratio going forward, with over 90 percent of shareholders voting to give the business development companies the ability to use additional leverage.
The investment vehicles can now increase their borrowing capacity from a 1:1 debt-to-equity ratio to 2:1, according to their respective third-quarter earnings calls. With the increased leverage, both vehicles can increase their specialty lending capacity by 30 percent.
“The asset coverage modifications will not change our investment strategy,” said Michael Gross, the BDCs’ chairman, chief executive and president, adding the additional leverage would allow Solar “to expand our specialty finance lending platform”.
SLRC invested $202.8 million in the third quarter and garnered a net asset value per share of $21.95, up two cents from the second quarter. The weighted average yield was 11.2 percent, up from 10.9 percent at the end of the second quarter.
SLRC’s current investment portfolio stands at $1.7 billion. The vehicle invests in senior secured loans across industries, with 12 percent of the portfolio focused on life sciences. The portfolio is comprised of 98 percent senior secured loans, with 83 percent being first lien and 14 percent being second-lien.
SUNS invested $40.7 million during the third quarter and brought its investment portfolio’s value to $625.9 million. The weighted average yield was 9.6 percent, consistent with the second quarter.
The portfolio is made up of 97.8 percent first lien and 2.2 percent second-lien loans with a healthcare focus. It had a net asset value of $16.81 for the third quarter down from $16.83 at the end of the second quarter.
Both earnings calls mentioned that the vehicles would utilise the $750 million that was raised by Solar Capital Partners in its SCP Private Credit Fund, which closed in October.
Solar Capital and Solar Senior Capital are both affiliated with Solar Capital Partners, a credit manager that invests in US mid-market companies. As of 30 June, the firm had invested over $9.1 billion since its creation in 2006.