Michael Gross: Yeah, without getting to the specific numbers just thematically, Ryan, as you know, the asset-based loan category that references the 15.3% asset level yield is a combination of credit solutions to your point as well as business credit and healthcare ABL, both of which came into SLR in connection with the merger with SUNS last year. And their asset level yields are higher than Credit Solutions, where they are focused, as you know, predominantly on receivable back financing, and factoring of receivables across a variety of industries, including the healthcare dedicated segments. So that’s just a little color on the components. And then, so Credit Solutions does have lower asset yields in that blend to 15.3%. But we are ramping Credit Solutions, and the return on equity there is burdened by obviously, being under invested, which we’re in the process of rebuilding that portfolio together with the cost of the business, which is more fixed.
And so we expect to see improved returns there as we continue to ramp that portfolio.
Ryan Lynch: Have there been — because it’s hard to tell has there been underlying credit issues that have pressured, the net returns off of some of these entities because from a high level because you’re right, there’s different pieces here, but from a high level that just look at your controlled investments. They represent about 38% of your overall portfolio that SLRC holds, when I look at the returns that they’ve generated for the first nine months, it’s an annualized return of about 7.1%. So there’s a very low return on these investments relative to the overall weighted average yield on your portfolio of 12.3%. So, the underlying assets that are going into these entities, seem like they’re very high and very healthy. Meanwhile, these control investments, ultimate returns that they’re generating for SLRC, are very low.
And so it’d be helpful if you could kind of piece together where reconcile what that difference is coming from, and how to improve the returns on those entities given the asset yields and number are already really strong.
Michael Gross: Sure. I think your first question, Credit Solutions, did have an asset impairment earlier this year, which we talked about, was on our balance sheet as well a mirror mark which we’re working through. And without spending too much time on that one, are optimistic that it’s marked for recovery at both Credit Solutions and us, but that’s not the full story to your point and to your question. It’s really about revamping that portfolio. The Credit Solutions in particular, does have high churn, as you know, that is lending to companies that are cashflow in transition. So, it is not an easy portfolio to keep fully invested. Although in times like this, is a time that we expect to continue to ramp that portfolio. So, we do expect to be able to build that ROE up in particular in Credit Solutions.
Away from that we’re also exploring some opportunities to dramatically increase the portfolio at our other ABL business, which is focused more on factoring and ABL receivables. But I think the short story is it’s about expanding those portfolios to a larger scale.
Shiraz Kajee: And I think it’s notable that we discussed that we have six of them known as a dry powder, the vast majority of that or substantially all of it is within the finance companies in the assets. Okay, so we have the opportunity, as we — that capital to really drive the ROE of those entities and of SLRC as a whole.
Ryan Lynch: So, it sounds like it’s more of a capital replacement, further leverage within the entities, it would be the biggest driver that you guys could see that to drive returns there, because the yields it looks like the underlying yields are already pretty healthy —
Michael Gross: Deals together, we’d be expected for more capital. And the backdrop of the regional banking crisis, as earlier this year, that sort of froze those markets. I would have told you, though, that they’re starting to reopen a year ago, when we lost a transaction. In that segment, it would be to a regional bank. And now they’re just not showing up to bid for transactions. But these are more worse working capital relationship loans, and it takes a while to launch them. The good news is they are stickier away from credit solutions, which is transactional. So, we think as we build that business and the backdrop of the regional banking crisis, whether it’s through the system, we’re already seeing increased pipeline opportunities to expand the platform.
Ryan Lynch: Okay, that’s all for me today. I appreciate the time. Thank you.
Operator: [Operator Instructions]. We’ll move next to Casey Alexander of Compass Point.
Casey Alexander: Yeah, good morning. Just one question. And I apologize. There’s a lot of calls going on at the same time. So, I’m in late. So, if you already answered this, I appreciate it. I’m just wondering, why go back to a quarterly dividend. You went to a monthly dividend, presumably for a good reason. I’m just curious why you’re going back to a quarterly dividend pay?
Michael Gross: A couple of reasons. One is pretty much all of the BDCs are correlated with just one or two exceptions. And at the end date, also it saves us money and saves probably a penny or two share annually in earnings to go back to quarterly. And that for us was reason not to do it.
Casey Alexander: Right that sounds like a good reason. Okay. Thank you. That’s my only question. Appreciate it. Thank you.
Michael Gross: Thanks, Casey.
Operator: [Operator Instructions]. We have a follow up from John-Paul Adams of Raymond James. Your line is open.
John-Paul Adams: Hey, guys, one quick follow-up about Bayside. A couple other BDCs actually just put the money on accrual. Is there any commentary on their status within your portfolio?
Michael Gross: Yeah, so, so Bayside is a restructured loan from earlier this year. And it has been restructured into a combination of debt and equity. And the company itself is in a period of very positive transition with a meaningful strategic joint venture that is underway as we speak. So, there’s a new — the old security was converted to a new debt and equity security. I can’t speak to how others are treating it but we think that the debt will accrue interest and company is performing better than expectations.
John-Paul Adams: Got it. Thank you.
Michael Gross: Thank you.
Operator: And it appears that we have no further questions at this time.
Michael Gross: Thank you, everybody. We appreciate your time. And as always, if you have any questions, please feel free to call any of us. And thank you.
Operator: This does conclude today’s conference. You may now disconnect your lines. And everyone have a great day.
