Item 5. Market for Registrant’s Common Equity
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock
Our common stock is traded on the NASDAQ Global Select Market under the symbol “SLRC”. The following table sets forth, for each fiscal quarter during the last two fiscal years, the net asset value (“NAV”) per share of our common stock, the high and low closing sales prices for our common stock, such sales prices as a percentage of NAV per share and distributions per share.
Price Range
Premium or
(Discount)
of High Closing
Premium or
(Discount)
of
Low Closing
Price to
Declared
NAV (1)
High
Low
Price to NAV (2)
NAV (2)
Distributions (3)
Fiscal 2023
Fourth Quarter
$
18.09
$
15.43
$
14.14
( 14.7
)%
( 21.8
)%
$
0.41
Third Quarter
18.06
15.60
14.22
( 13.6
)
( 21.3
)
0.41
Second Quarter
17.98
15.20
13.59
( 15.5
)
( 24.4
)
0.41
First Quarter
18.04
16.00
14.12
( 11.3
)
( 21.7
)
0.41
Fiscal 2022
Fourth Quarter
$
18.33
$
15.03
$
12.50
( 18.0
)%
( 31.8
)%
$
0.41
Third Quarter
18.37
15.76
12.32
( 14.2
)
( 32.9
)
0.41
Second Quarter
18.53
18.19
14.17
( 1.8
)
( 23.5
)
0.41
First Quarter
19.56
19.26
17.68
( 1.5
)
( 9.6
)
0.41
(1)
NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The net asset values shown are based on outstanding shares at the end of each period.
(2)
Calculated as of the respective high or low closing price divided by NAV and subtracting 1.
(3)
Represents the cash distribution for the specified quarter.
On February 23, 2024, the last reported sales price of our common stock was $14.89 per share. As of February 23, 2024, we had 19 stockholders of record.
Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at a discount from net asset value or at premiums that are unsustainable over the long term is separate and distinct from the risk that our net asset value will decrease. Since our IPO on February 9, 2010, our shares of common stock have traded at both a discount and a premium to the net assets attributable to those shares. As of February 23, 2024, our shares of common stock traded at a discount equal to approximately 17.7% of the net assets attributable to those shares based upon our net asset value as of December 31, 2023. It is not possible to predict whether the shares offered hereby will trade at, above, or below net asset value.
DISTRIBUTIONS
Tax characteristics of all distributions will be reported to stockholders on Form 1099 after the end of the calendar year. Future quarterly distributions, if any, will be determined by the Board. We expect that our distributions to stockholders will generally be from accumulated net investment income, from net realized capital gains or non-taxable
return of capital, if any, as applicable.
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We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC tax treatment, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, although we currently intend to distribute realized net capital gains ( i.e.
, net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment.
We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions.
We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a business development company, we may in the future be limited in our ability to make distributions. Also, our revolving credit facility may limit our ability to declare distributions if we default under certain provisions. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of the tax benefits available to us as a regulated investment company. In addition, in accordance with GAAP and tax regulations, we include in income certain amounts that we have not yet received in cash, such as contractual payment-in-kind
income, which represents contractual income added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a regulated investment company.
With respect to the distributions to stockholders, income from origination, structuring, closing and certain other upfront fees associated with investments in portfolio companies are treated as taxable income and accordingly, distributed to stockholders.
We cannot assure stockholders that they will receive any distributions at a particular level.
All distributions declared in cash payable to stockholders that are participants in our dividend reinvestment plan are generally automatically reinvested in shares of our common stock. As a result, stockholders that do not participate in the dividend reinvestment plan may experience dilution over time. Stockholders who do not elect to receive distributions in shares of common stock may experience accretion to the net asset value of their shares if our shares are trading at a premium and dilution if our shares are trading at a discount. The level of accretion or discount would depend on various factors, including the proportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount of the distribution payable to a stockholder.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
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STOCK PERFORMANCE GRAPH
This graph compares the cumulative total return on our common stock with that of the Standard & Poor’s BDC Index, Standard & Poor’s 500 Stock Index and the Russell 2000 Financial Services Index, for the period from December 31, 2018 through December 31, 2023. The graph assumes that a person invested $10,000 in each of the following: our common stock (SLRC), the S&P BDC Index, the S&P 500 Index, and the Russell 2000 Financial Services Index. The graph measures total stockholder return, which takes into account both changes in stock price and dividends. It assumes that dividends paid are invested in additional shares of the same class of equity securities at the frequency with which dividends are paid of such securities during the applicable fiscal year.
The graph and other information furnished under this Part II Item 5 of this Form 10-K
shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the 1934 Act. The stock price performance included in the above graph is not necessarily indicative of future stock price performance.
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FEES AND EXPENSES
The following table is intended to assist an investor in understanding the costs and expenses that you will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this report contains a reference to fees or expenses paid by “us” or “SLRC,” or that “we” will pay fees or expenses, you will indirectly bear such fees or expenses as an investor in SLR Investment Corp.
Stockholder transaction expenses:
Sales load (as a percentage of offering price)
—
% (1)
Offering expenses (as a percentage of offering price)
—
% (2)
Dividend reinvestment plan expenses
—
% (3)
Total stockholder transaction expenses (as a percentage of offering price)
—
% (2)
Annual expenses (as a percentage of net assets attributable to common stock) (4)
:
Base management fee
3.21
% (5)
Incentive fees payable under the Advisory Agreement (up to 20%)
2.27
% (6)
Interest payments on borrowed funds
7.35
% (7)
Acquired fund fees and expenses
0.35
% (8)
Other expenses (estimated)
1.08
% (9)
Total annual expenses
14.26
%
(1)
In the event that the shares of common stock are sold to or through underwriters, a corresponding prospectus supplement will disclose the applicable sales load and the “Example” will be updated accordingly.
(2)
The prospectus supplement corresponding to each offering will disclose the applicable offering expenses and total stockholder transaction expenses.
(3)
The expenses of the dividend reinvestment plan are included in “other expenses.”
(4)
Annual Expenses are presented in this manner because common stockholders will bear all costs of running the Company.
(5)
Our 1.50% base management fee under the Advisory Agreement (giving effect to the Letter Agreement) is based on our gross assets, which is defined as all the assets of SLRC, excluding temporary assets, including those acquired using borrowings for investment purposes, and assumes our gross assets remain consistent with gross assets for the fiscal year ended December 31, 2023. The base management fee is reduced to 1.00% on gross assets that exceed 200% of total net assets as of the immediately preceding quarter.
(6)
Assumes that annual incentive fees earned by our investment adviser, SLR Capital Partners, remain consistent with the incentive fees earned by SLR Capital Partners for the fiscal year ended December 31, 2023. The incentive fee consists of two parts:
The first part, which is payable quarterly in arrears, equals 20% of the excess, if any, of our “Pre-Incentive
Fee Net Investment Income” that exceeds a 1.75% quarterly (7.00% annualized) hurdle rate, which we refer to as the Hurdle, subject to a “catch-up”
provision measured at the end of each calendar quarter. The first part of the incentive fee is computed and paid on income that may include interest that is accrued but not yet received in cash. The operation of the first part of the incentive fee for each quarter is as follows:
•
no incentive fee is payable to our investment adviser in any calendar quarter in which our Pre-Incentive
Fee Net Investment Income does not exceed the Hurdle of 1.75%;
•
100% of our Pre-Incentive
Fee Net Investment Income with respect to that portion of such Pre-Incentive
Fee Net Investment Income, if any, that exceeds the Hurdle but is less than 2.1875% in any calendar quarter (8.75% annualized) is payable to our investment adviser. We refer to this portion of our Pre-Incentive
Fee Net Investment Income (which exceeds the Hurdle but is less than 2.1875%) as the “catch-up.”
The “catch-up”
is meant to provide our investment adviser with 20% of our
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Pre-Incentive
Fee Net Investment Income, as if a Hurdle did not apply when our Pre-Incentive
Fee Net Investment Income exceeds 2.1875% in any calendar quarter; and
•
20% of the amount of our Pre-Incentive
Fee Net Investment Income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized) is payable to our investment adviser (once the Hurdle is reached and the catch-up
is achieved, 20% of all Pre-Incentive
Fee Investment Income thereafter is allocated to our investment adviser).
The second part of the incentive fee equals 20% of our “Incentive Fee Capital Gains,” if any, which equals our realized capital gains on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. The second part of the incentive fee is payable, in arrears, at the end of each calendar year (or upon termination of the Advisory Agreement, as of the termination date).
(7)
We have historically and will in the future borrow funds from time to time to make investments to the extent we determine that the economic situation is conducive to doing so. The costs associated with our outstanding borrowings are indirectly borne by our investors. For purposes of this section, we have computed interest expense using the average consolidated balance outstanding for borrowings during the fiscal year ended December 31, 2023. We used SOFR or a similar base rate on December 31, 2023 and the interest rate on the Credit Facility, the SPV Credit Facility, the 2027 Series F Unsecured Notes, the 2027 Unsecured Notes, the 2026 Unsecured Notes, the 2025 Unsecured Notes and the 2024 Unsecured Notes on December 31, 2023. We have also included, as applicable, the estimated market discount or amortization of fees incurred in establishing the Credit Facility, the SPV Credit Facility, the 2027 Series F Unsecured Notes, the 2027 Unsecured Notes, the 2026 Unsecured Notes, the 2025 Unsecured Notes and the 2024 Unsecured Notes as of December 31, 2023. Additionally, we included the estimated cost of commitment fees for unused balances on the Credit Facility and the SPV Credit Facility. As of December 31, 2023, we had $507.0 million outstanding under the Credit Facility, $206.3 million outstanding under the SPV Credit Facility and $135 million, $50 million, $75 million, $125 million and $85 million outstanding under the 2027 Series F Unsecured Notes, the 2027 Unsecured Notes, the 2026 Unsecured Notes, the 2025 Unsecured Notes and the 2024 Unsecured Notes, respectively. We may also issue preferred stock, subject to our compliance with applicable requirements under the 1940 Act, although we have no immediate intention to do so.
(8)
The holders of shares of our common stock indirectly bear the expenses of our investment in SLR Senior Lending Program LLC (“SSLP”). No management fee is charged on our investments in SSLP in connection with the administrative services provided to SSLP. Future expenses for SSLP may be substantially higher or lower because certain expenses may fluctuate over time.
(9)
“Other expenses” are based on estimated amounts for the current fiscal year, which considers the amounts incurred for the fiscal year ended December 31, 2023 and include our overhead expenses, including payments under our Administration Agreement based on our allocable portion of overhead and other expenses incurred by SLR Capital Management in performing its obligations under the Administration Agreement.
Example
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed that our annual operating expenses would remain at the levels set forth in the table above and have excluded performance-based incentive fees. As such, the below example is based on an annual expense ratio of 11.99%. See Note 7 above for additional information regarding certain
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assumptions regarding our level of leverage. In the event that shares are sold to or through underwriters, a corresponding prospectus supplement will restate this example to reflect the applicable sales load.
1 Year
3 Years
5 Years
10 Years
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return
$
120
$
335
$
521
$
884
The example and the expenses in the tables above should not be considered a representation of our future expenses, and actual expenses may be greater or less than those shown.
While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. The incentive fee under the Advisory Agreement, which, assuming a 5% annual return, would either not be payable or would have an insignificant impact on the expense amounts shown above, is not included in the example. This illustration assumes that we will not realize any capital gains (computed net of all realized capital losses and unrealized capital depreciation) in any of the indicated time periods. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, our expenses and returns to our investors would be higher. For example, if we assumed that we received our 5% annual return completely in the form of net realized capital gains on our investments, computed net of all cumulative unrealized depreciation on our investments, the projected dollar amount of total cumulative expenses set forth in the above illustration would be as follows:
1 Year
3 Years
5 Years
10 Years
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return
$
130
$
359
$
554
$
919
In addition, the example assumes no sales load. Also, while the example assumes reinvestment of all distributions at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on the distribution payment date, which may be at, above or below net asset value unless the company makes open market purchases and the shares received will be determined based on the average price paid by our agent, plus commissions.
Item 6.
Reserved