$12.12
$19.67
bear $12.12
base $16.67
bull $19.67
margin of safety $10.50
market price* $11.38
SLR Investment Corp. is a business development company, a publicly traded lending fund, managed externally by SLR Capital Partners. It began in 2007 as Solar Capital and lends mainly to privately held U.S. middle-market companies. Today it is almost entirely senior secured, spread across sponsor cash-flow loans, asset-based lending, equipment finance and life-science loans. Part of the asset-based and equipment books sits inside finance companies it owns outright: SLR Credit Solutions, SLR Healthcare ABL, SLR Business Credit, SLR Equipment Finance and Kingsbridge Holdings. At June 30, 2026 the portfolio was valued at $2.10 billion. It was funded by $982 million of shareholders' equity ($18.00 of net asset value per share) and $1.15 billion of borrowings. In April 2022 the company absorbed its sister fund, SLR Senior Investment Corp., and the share count has held at 54.55 million since 2023. How we measured earnings. A lender's operating cash flow mostly reflects loans made and repaid, so it says little about earning power. We use net investment income instead: interest and fees, less interest cost, management fees and other expenses. We then charge credit losses separately. Net investment income per share was $1.68 in 2016, $1.62 in 2017, $1.77 in 2018, $1.71 in 2019, $1.40 in 2020, $1.44 in 2021, $1.48 in 2022, $1.69 in 2023, $1.77 in 2024 and $1.59 in 2025. The 2023-2024 highs came from unusually high short-term interest rates, and that has reversed. Both quarters of 2026 came in at about $0.33 a share, and the quarterly distribution was cut from $0.41 to $0.31 beginning with the June 2026 payment. We start from about $1.30 a year. That is lower than 2025, which itself fell 10%. We assume no growth from new capital. One feature of the fee contract supports that level. The manager earns no incentive fee in a quarter until income reaches 7% a year of net asset value, about $1.26 a share today. In 2025 that fee was $21.7 million, roughly $0.40 a share. If lending income keeps slipping, the manager's incentive fee absorbs most of the decline before shareholders feel it, until income falls below that 7% line. Credit losses are the real cost of lending. From 2013 through 2025, realized and unrealized losses totalled about $3.90 per share, roughly $0.30 a year. They clustered in 2015 (energy and older subordinated loans, $1.18), 2020 ($1.04) and 2022 ($1.13). Net asset value per share has drifted from $22.50 at the end of 2013 to $18.00 at June 30, 2026. Two loans, 1.8% of the portfolio at fair value, were on non-accrual at June 30, 2026, against none at the end of 2025. The portfolio also took $10 million of unrealized losses in the first half of 2026. The cases. Borrowings are the raw material of a lender, and their interest is already deducted in net investment income, so we value what is left for shareholders directly. The company has recycled repaid loans into new ones continuously since 2007, through the 2008-2009 crisis, so each case's earning power continues past ten years at that case's level, with no growth. Base case, about $16.67 per share: income stays near $1.30 a share, and credit losses run at the 13-year record of $0.30 a year. That leaves about $1.00 a share of lasting earnings, a little under 6% on today's book value, so the base case sits below net asset value. Bear case, about $12.12 per share: one full credit cycle like 2008-2010. Leveraged-loan defaults then peaked near 10%. Solar Capital itself marked down $157 million, about 12% of its equity, in the first nine months of 2008, when it carried almost no borrowings. Today the company borrows more than a dollar per dollar of equity, which roughly doubles the effect on shareholders. We assume about 5% of the portfolio, roughly $1.90 a share, is permanently lost over three years, with further temporary markdowns that later recover. Income drops to about $1.15 during those years. The $234 million of notes due in 2027 would be refinanced in the middle of that cycle at higher rates, costing roughly $0.11 a share a year. Afterwards, net asset value is about $16. Income rebuilds to about 7% of that smaller base, and ordinary losses resume, leaving about $0.77 a share of lasting earnings. Even with a 10% trough markdown, asset coverage would stay near 167%, above the 150% legal minimum. Distributions would likely be cut, but forced selling of shares at depressed prices should not be needed. Bull case, about $19.67 per share: income rises to about $1.40 a share. The company earned that in 2020 and 2021 even with near-zero base rates. Here it gets there by using its unused borrowing room, since asset coverage is 186% against the 150% minimum. Losses run at about $0.22 a year, the 2013-2025 record without its single worst year. Lasting earnings are about $1.18 a share. This case is worth more than book value only because the company keeps earning a lending spread on its capital through a normal cycle. A return to the 2023-2025 income level of $1.59-$1.77 is not included, because that depended on interest rates rather than anything the company controls. Borrowings at year-end 2025 included $75 million of notes due 2026, $234 million due in 2027 and $175 million due in 2028. The last three 2028 notes were placed in 2025 at 5.95%-6.14%. There was also a $505 million revolving facility and a $275 million facility maturing August 2028. Margin of safety price: $10.50. We are fairly sure of the income level. It is reported every quarter, the last two quarters agree, and the fee hurdle cushions further declines. We are less sure of the loss rate, which is where the risk sits. The worst plausible outcome is a credit cycle hitting a leveraged book. The structure would likely survive it: senior secured loans, mostly asset-backed collateral, coverage well above the legal minimum and staggered note maturities. Shareholders would still lose several dollars of book value, and the distribution would be cut. Suppose we are wrong on both income and losses, at $1.15 and $0.45 a year. Lasting earnings would then be about $0.70 a share, worth roughly $11.70. At $10.50, today's $1.24 annual distribution alone represents a yield of about 12%. A modest move toward even the bear value would imply a 20% return within a year. Over three years, the base case implies a return above 20% a year. The weaker combination does not, which is why the margin-of-safety price is not set higher.