PTMN - Earnings call transcript Q4 2018 | Portman Ridge Finance Corporation

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Operator

Good morning, ladies and gentlemen, and welcome to the KCAP Financial, Inc. Conference Call. An earnings press release was distributed yesterday.

If you did not receive a copy, the release is available on the company's website at www.kcapfinancial.com in the Investor Relations section.

As a reminder, this conference call is being recorded today, Wednesday, February 27, 2019. Events. being at the www.kcapfinancial.com our Investor section also can webcast, in is Relations accessed be company's under call hosted live on which the This website at projections, Today's differ these and to conference materially Financials filings factors from for recent projections. the most forward-looking actual that call statements would KCAP we that cause you includes ask refer SEC important with and results to its update KCAP Financial statements required by undertake does forward-looking law. unless to not host your for introduce now Mr. conference, would I today's Executive of KCAP Chief and President Pearson, Dayl Officer Financial. Mr. you begin. Pearson, may

Dayl Pearson

thank morning call Financial A by Partners. Ted Good November. in am XXXX for for and a you BC earnings today and all results. lot joining has review Ted joined full-year CFO; of KCAP Gilpin, happened our of since our Goldthorpe last I our

initiatives. our me on So let comment strategic

company transaction company's an of As an L.P., February the to At on the or special agreement BDC Agreement closing of between by will approved Sierra Crest by of of BC managed managed Company stock company's into entered as XX, completed BC XXXX, a with Investment are previously Partners which a and announced, the function pursuant agreement held LLP appropriately satisfied the will Advisors Partners. company's waived, If the advisory the purchase stockholders upon the externalized. stockholders conditions the externally BC transactions Partners Externalization, contemplated LLC, are an affiliate and the be Adviser. operations an management Management our Company affiliate Externalization and closing meeting commence

under at setting LibreMax price which next million. per Advisors XXXX. Trimaran on comparisons company. of XXXX, Debt Advisors, will Holdings closing purchase have few press be with December of transition the difficult? the both make to the an Advisors, our Partners fourth On approximately Holdings agreed to and impact close Katonah $XX.X share. quarters around this entered release. Management the in making income of closing $X.XX and wholly-owned the November date sell initiatives We strategic of a quarter of a balance to We'll LibreMax record expect in Commodore first causes quarter quarter shareholders we into X, a Intermediate the agreement had will with statement which These subsidiary for end days cash impact to BC reposition be this previous and The Trimaran quarter on What a XXXX. the on This a time approximately date transaction disclose distribution to XX, closed transactions transaction and an also in the will fourth first our sheet in quarter of an

summary let Ted it before level me to give XXXX financial our Now over high of full-year handing you highlights and quarter fourth a Gilpin.

cash NII of XXXX, year compared the our of to which in quarter, flows. $X.XX ended was in For per transactions distribution XX, million to the shareholders. We $XX was to primarily million paid end approximately KCAP quarter. At approximately the in generate or cash investable to third AMA distribution had Quarter the the we from $X.XX that intend redeploy further December need fund disposition $XX share. $X.XX

deal cash. flow As year-end relationship previously, seeing of we the opportunity at BC benefits to are discussed the attractive the increase invest and investment

have of closed loans VCP million approximately to-date. $XX $XX investment sourced million commitment Great our Excluding Lakes we rather,

pipeline. that approved closed in approximately assets In in the $XX more Committee closing KCAP by and addition, assets not identified Investment million the have

assets of the experienced Holdings in quarter of in is Tank an to process uptick number -- quality Our investments rather we non-accruals committee in But solid. be continues continues broader our BDC market, the credit to as including the which in this credit with our being restructured. have

average weighted to our compared December securities mark-to-market of to mark on of XX. was XX, debt the PAR XXXX, XX QX portfolio As

as was the by our PAR end CLO Both XX, our of value these at of been somewhat of QX. mark-to-market weighted and to sell-off of of year-end. terms have average loan to weighted portfolio, In versus the in December driven of as have mark-to-market the the recovered PAR since year-end XX XX average market

the Our market investment volatility fourth a quarter, syndicated $XX the totaled of portfolio. debt marks. volatility end and portfolio investment CLO weakness QX $XXX of total CLO the totaled broadly and XX% of this the end and represented quarter about at the At magnified million loan the was of was million. in approximately fourth in securities approximately the equity period

of now details First the to of loans I'll XX% Ted? our ask now, And XX%. lien represent Gilpin loans walk financials. through Junior represent our portfolio. debt Ted

Ted Gilpin

Good you, morning Dayl. Thank everyone.

investment NII December both XXXX in $X.XX on million Net at $X.X realized $X.XX our investment our and the Taxable investment year ratio XX, in million year CLO $XXX and million XXX% XXXX from million of versus $XXX was and in or income with $X.XX XXXX our per value $X.XX investments share. venture of XXXX. $X.XX per approximately due in had CLO $XX $XXX quarter share share second per down million for or in losses equity million Total at per movement coverage Total net for widespread capital XXXX. from share X.X% of $X.XX XX/XX/XXXX per quarters return to in or of XXXX, non-recurring end per and Net per our expenses was share share were the versus million of of losses a NII. income stood the net $X.XX share $X.XX which down of was accounting unrealized loss substantial a On saw income Fourth fourth and was realized dislocations negative $XX for Total versus a per a quarter $X.XX for million were market $X.XX per XXXX. the total As and was million saw downward asset distributable of per XX/XX/XXXX, share. joint in million million share XXXX. per of there $XX.X was Net approximately $X.XX in debt versus and XX.X%. including the was distributions markets impact of was or return in XXXX or $X.X million the income in third NAV share in return negative $XX.X XX/XX/XXXX. $X.X XXXX share. was $X.X approximately $X.X in unrealized $X.XX asset and XXXX. XXXX.

XX/XX/XXXX Therefore of distribution equals cash at KCAP was total to AMA that, in FXC. The to of value return fair remaining all $XXX.X Holdings And million Manager over relates remaining KCAP of venture fair million our turn $XX.X to with $X.X capital. few December a of BC as value $XX.X all all comments. the for substantially plus Affiliates. its of Manager $XX.X at sale the it of from X/XX/XXXX. of Ted the million the of the AMAs like distribution for Asset value which Manager from of I'd to million of KCAP million million XX, management, For a resulted $X.X value Commodore XXXX, versus with Partners joint of This our completed fair solely the Asset XX/XX/XXXX of Goldthorpe

Ted Goldthorpe

Ted. Thanks

shareholders. the we the transaction excited and our We are closing of support appreciate very

to with We we'd that, forward. the the are with all any back questions. for engaging like looking our call to operator forward to stakeholders And turn going

Operator

Instructions]. [Operator

JMP York from comes question Chris first Our of Securities.

open. Your line is

Chris York

Good and my morning guys taking thanks questions. for

you So and rotation Ted be your there to or could are under you be the as to evaluate management? BC's Legacy today, investments consider portfolio that non-core subject

Ted Goldthorpe

business I with mean which the the I Chris. think no. question, great monetize. CLO a the That's manager thought We is of largely part we the answer non-core

So you're as a see portfolio period a going period rotation over originate over a longer new we of to I time assets. short but of of don't see massive time rotation think wholesale you'll a

Chris York

Ted, in of the Dayl could diving bit changes it. Got explain marks recovery marks. deeply in potentially risk portfolio, then in your more the And future then little investment you and and two investments the the or a or

which marked color the of the more quarters then at X in declined being you you about for on as said restructured, bit which And of the Partners XX% the drivers a process is of both a cost. write-downs to curious I'm of of those? Tank Freedom now Specifically, alluded little is couple JV Dayl, has in

Dayl Pearson

Sure.

being equity in into I its is Tank. as the Tank think, significant -- market. in of a in Tank then said, see We conversion in of majority restructured. process I owning lender's position the recovering is of

a and other So in and thought a of restructure prudent we company it it's activity significant has solid the backlog. to. places -- difficult had Basin But drilling Permian convert but position the portion a years several in pretty just to obviously with was lack

the of But don't to then the further going really performance company upon anticipate So that. be again going in we depending it's forward. write-downs

right backlog. I business have backlog now. have they a solid As said, They solid a of

we're will confident revenue convert that into pretty So that cash and flow.

to think JV, you would at lot first financing so aren't there necessarily mark-to-market, continue. lot of a of CLO the even in year-end by lot was dislocation got we to have a that those market loans financing terms we In type of that other fact the a the lot in a have the the again and is underlying CLO, value, that I hit due though to the It's of there quarter of loans. in is a recovered still that market recovery middle anticipate trading activity and driven

event as it of with more CLO that's think securities. we short-term is So equity a the

Chris York

it. Got

terms in is the mark-to-market? of that Freedom market clear that there more no is assets be of the would JV, credit to real explain Just there issues X

Dayl Pearson

It’s all mark.

Ted Gilpin

Yes, mark-to-market.

Dayl Pearson

JV It's to expectations. all mark-to-market. The perform to continues

Chris York

Amortized mark XX%. year-to-date? it say are that fair how so then there, at about if to And the that the believe being you XX% back we of is given down cost, a Is market it I of recoveries most from

Dayl Pearson

come vast back that quarter I majority since of would say XX/XX. has -- the since

Chris York

KCAP expected what costs to the first Okay. then borne by transaction are quarter Externalization? the the in friction or related And

Ted Gilpin

legal be expenses, be haven't some there'll costs, it we Well, a first but expenses, friction clearly expenses. the quarter there be there'll yet some personnel on deal expenses, will number be for full there'll obviously some some put

relates would some the be transaction. as the pressure expenses on in So closing expect out to I quarter there first the it to

Dayl Pearson

now And that rent, the by Yes. expenses partially such which KCAP. as certain by insurance, are Asset borne other borne Manager Asset borne fully were the Manager are like things by that and there

normalize over a be as in in we will the the we year externalize. first expect consolidate which the will there So for quarter that as bump and well expenses little

Chris York

could Okay. those a Is there way potential we one-time of range quantify any expenses?

Dayl Pearson

to point. working still We're through. do It’s this difficult at

Ted Gilpin

just a yet. see I Yes, I don't pieces couple answer to really have the there, of there's

Chris York

$XX Got it, capital you'll you here, once have okay. And then, in million loss have Ted, you carryforwards. so close

or So potential? include utilize in strategy will by securities these maybe capital either even your investing gain with to ways carryforwards go-forward companies

Ted Goldthorpe

companies the of on public core for a of market of previous strategy advantage we've -- a got -- been always taper that. take core be that and part out we couple to always other been period think credit that's think and lending involved our we've do been to been at to rooted It's don't looked have focus Might of like that. I where very business. years really on ago situations in some I tried basis. But a go-forward That's we've time particularly opportunities in one-off there tantrum we're might middle us difficult. our

Chris York

then And potential close? is last target ROE leverage what it. this and target one under leverage be Got your upon then is

Ted Gilpin

Yes, is I think the yes. answer

and answer one of large X.X one think use to I the typically above like to soon. the range us somewhere And don't that X.X. is is think going between foresee I I anytime

hard and very there's And one anyway. in going believe it so that debt I our be would to documents things one that it find certain test to the to above prevents we're

So in case. are protected shareholders any

longer-term that's discussion. think a I So

-- on change think the So debt going target basis. I the a really don't target to you're go-forward see

Chris York

congrats it. Very Thanks it my for and questions me. That's on helpful. close. Got taking for

Dayl Pearson

Chris. Thanks,

Operator

Our next of from KBW. Johnson Paul question comes

open. Your line is

Paul Johnson

question of that Thanks million was investments? was BC that you I $XX questions. million that received $XX from included of investments didn't Good taking my morning you guys. first funded catch, million in that quite My Partners and $XX for is around quarter-to-date,

Ted Gilpin

the venture. to commitment the $XX joint plus Lakes that Tranche Yes, Great million Unit

So you to that gets million. $XX

the before million $XX so close to get to somewhere expect of of that the we quarter million. you to million, end $XX another have $XX We would

So The expect than we're than we're it's things now, to far to pretty the little that transfers to always you million. bit but taking close well to. are a take expect way longer along longer and than getting had you hoped like and our right loans harder that on road $XX we

Paul Johnson

great. Okay,

Ted Gilpin

have we say pipeline at will robust the I And a very moment.

happen that early So I quarter. think in the second should

Paul Johnson

lien terms Okay. you at or from the are senior loans I mean you assets, the some the what the first can looking quarter? in that loans, the describe just pipeline of one Partnerships are potentially BC also this are or

Ted Gilpin

first low situations. opportunistic couple generally assets. There lien The are fairly vast but of lien in are they're assets second majority these of leverage

mezzanine they're sort is the anything range lien in stuff So million at because $XX.X are the second not of of million nothing I $XX.X as traditional think of balance $XX companies EBITDA sort what of I say don't a you think BC. like sort mezz below. moment. of million $XX somewhere would most with bigger. million There to in below

position Although the there of couple I but traditional yields unit stretch, loans, maybe in being loans like these marketplace the in are pipeline a particularly current in the tranche senior middle first in type think sort dollar market senior the we'd and attractive.

yields in upon are based sort high-single-digits, of high-single-digits. very now think right closed the I what the we've

Paul Johnson

Ted I'd the the guess in about You that of terms you Goldthorpe. take for grow XX% maybe Thanks Okay. go-forward is over portfolio question also today, in CLO you portfolio strategy? expect And ask your announced for I a managing BDC? its to for of as the that, the What's this maintain outlook then that. role guys

Ted Goldthorpe

of mean our strategy, will you going are obviously be that shrink that of see to and go-forward include going to it I you yes, don't But organically to as shrink to think a [ph] the think part CLOs Yes, some it's see part strategy. that reset. smaller over take I time. some would I as of us of I the expect these portfolio happens

Paul Johnson

one Are two in leverage guys into two-to-one to aren't are you leverage, on okay meantime call in mean on callable your until bonds questions And you the outstanding goes the month. Okay. one-to-one possible then you the next know guess effect I September. since what's bonds? I guys last I thoughts looking the running are below those

Dayl Pearson

at now close perspective in unlikely this September. get always on we from But no There's it to that? and of to our always add the we're looking something if it so to it's going one-to-one on we at short-term, discussing and anything forward. and rush we're to it's don't we call know leverage internally all to and because want you looking but going being real say as I our you Ted; constantly calls, have alternatives financing short-term and say we'll continue be are didn't

Ted Gilpin

that's think I No, right.

Paul Johnson

was need one hurdles close? to need items be be And lastly Okay. and now what that out the kind that are satisfied way. of or of bigger of to that's remaining for the essentially to transaction conditions the And XX-K the

to So of where satisfied are some the remaining things transaction? for need be that the

Dayl Pearson

stuff lot are done that's closing. like takes think no It hard. all just that there I rudimentary little to We Nothing issues so make a it's mostly key, want the properly, phone, stuff. that that of time. all sure overhang all it's potential space, really

to that's close make So this completely idea nothing is I before think sure we there's the down point. bad But is to up the outstanding, everything locked transaction. that's on

Operator

of Thalmann. comes Ladenburg question Nolan Christopher next Our from

open. is line Your

Christopher Nolan

that did sorts? non-accruals sort cleanup The of reflects year-end you. thank Great, of a

Ted Gilpin

at We're it larger Gilligan, reflected one position Tank. was right? really Dan looking which right Well,

Unidentified Company Representative

effort. [Indiscernible] [indiscernible] go to

Ted Gilpin

I mean the are positions; only of significant one Tank. most tiny is Yes. real those

Christopher Nolan

went correct Tank you basis I correct; Am that quarter-to-quarter, actually cost that in up correct? your -- is actually

Dayl Pearson

Capitalization of peak. the

Christopher Nolan

Got it. look when And alluded go take does does back take it you look effect, Ted back for back guys to look Goldthorpe, over, that then, to? you when a when have back

Ted Goldthorpe

in back the look a not it's but contemplated, currently it's So Externalization agreement.

Christopher Nolan

no is look back? there So

Ted Goldthorpe

no back now. of There's look as

Christopher Nolan

might guys adjusted what issued press indicated be? target the externally, specify Are KCAP. of Okay. you able And to then for when you you terms good in return release going risk that

Ted Goldthorpe

I Yes. back. mean take a think, I let's mean I step

monetize we've not And manager done. is dividend assets. is which that strategy then redeploy generating earning we broader NII into wanted which and the field think coverage obviously the NII to obviously I

first of that largely obviously two just CLO our don't reduce we've have as of earlier So CLO the number and to and on BDC. equities, the them kind Dayl done on like to obviously first necessarily like tranche increase We structure into unit we alluded in a assets actually lien and our like is And business call. CLO reliance the think right it's assets. reliance

at think out unlevered are given as we on yields just if look where of basis I an you our lien originations [indiscernible] expect to today around That's the XX%. unit both And I first come on originate where roughly tranche would and new today LIBORs. so

Christopher Nolan

from And Thank Thanks. my it great. that’s taking you basically me. Okay, much very for call.

Dayl Pearson

Thank you, Chris.

Operator

Our Greenough next [ph]. question from Angelo comes

Your line is open.

Unidentified Analyst

Good morning and -- thanks Dayl congratulations on for and taking my call. Ted,

Dayl Pearson

Angelo. Thanks, Thanks.

Unidentified Analyst

in debt. KCAP’s move. from to company, access to terms. imagine I new see your the the strategy great more On a didn't have think restructuring favorable I BCP and doing filings I anything have a that And organization talking Ted this for can under really about if the debt managements it’s

you that So tell you how us going maybe of can forward? a strategy see

Dayl Pearson

Yes.

So sheet. you're I of think to side liability our our balance referring

of say We use the because BC much financing one get big various cost like to fees often we in investment times financial have we big You through so banks a being of advantages because so funding. the cheaper asked system banks. in paid and Partners much of is

if the so benefit definitely there's to the the Internal or Managers compare you liability versus some you External Managers on of side. some see smaller larger a And managers, can managers of

all on spread to able is are that down, get should expect bottom-line financing So time for our obviously and we costs we basis drops over lower be shareholders. to up which LIBOR obviously the would a

Unidentified Analyst

pro noticed being Yes. wasn't it forma surprised of actually I wasn't of actually part made? liabilities the and the that case your was I part refinancing

Dayl Pearson

you, honest of just we really quantify lot non-callable. absolutely refinancing to that bonds very it's actually be a good because are hard a It's -- point. it's To with are

at estimate to of debt. forward refinance where this time would So it's like spreads a markets were going all we we're making the be and

is think think part these again I costs going and actually and big financing we of that of bring. think vehicles I bring amongst ability think But to other -- the to things capital origination vehicles. this I we're cost value consumer things vis-à-vis, I a we other So produce the are

I think you'll -- think big I that's see. advantage that a

Unidentified Analyst

have philosophy; mix have And fixing do of you a a the debt? you

Dayl Pearson

it’s I -- I obviously mean big and I interest we're don't I good I Yes, match to bet mean what a want to want mean I on rates. make assets and at. liabilities not

ask I going told took which would seven play If rates have me up are to you you six or XXXX, years interest through.

very not of assets some we're in world are rate lot a our good said, financing. no again We're There now is of of debt that so That don't say we interest longer-term covenants. being raise would cheapest macro, risk at. to fixed. I we right like at have at take in the rate like credit. has The underwriting underwriting Obviously something that's So terms good thing look fixed to ability is to risk.

think tap for or can in lock decent give structure. see you'll liabilities sense. our I us But might baby amount of markets opportunistically if bond the cheap we we long-term our that So think where I a rate shareholders, floating can capital in market other financing

Operator

There remarks. Pearson closing Dayl further are the for over any to back I'd to turn like no questions. call

Dayl Pearson

file financials. you the forward for joining to all we you look at end you much. to Thank and us of today very when and you the questions our we first thank the quarter for Thank discussion robust talking and

Operator

disconnect. gentlemen, and today's the day. you great Everyone does a you Ladies participating program may conference. all and for This thank in have conclude

Portman Ridge Finance (PTMN) 27 Feb 192018 Q4 Earnings call transcript