PTMN - Earnings call transcript Q3 2020 | Portman Ridge Finance Corporation

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Portman Ridge Finance Corporation Conference Call. An earnings press release was distributed Monday evening, November 9.

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

As a reminder, this conference call is being recorded today Tuesday, November 10, 2020. This call is also being hosted on a live webcast, which can be accessed at our Company's website at www.portmanridge.com in the Investor Relations section under Events. there a presentation session. and speakers' the will question be answer After most the Instructions] forward-looking would these you ask Ridge's includes conference cause refer filings and Portman [Operator differ call projections. we actual statements results Today's materially factors for SEC important projections to and to recent that with from that Finance statements, law. by unless Corporation not to undertake does Ridge required Portman update forward-looking its host for would today's Mr. introduce now I like your to conference, Portman Ted Goldthorpe, Officer Finance of Ridge Chief Corporation. Executive Mr. begin. may you Goldthorpe,

Ted Goldthorpe

welcome you Overall, will Thank and realized the for on merger us. joining portfolio. the Garrison Ridge's gains do significant third results Capital we begin Officer, which XXXX afternoon, will of net quarter entire improvement that Ted operator the marked a Gilpin today on third I'm same of Patrick Yesterday you, by solid unrealized quarter Thank XX. Ted Gilpin financial Investment and pleased Portman by provide everyone. portfolio. closed quarter Patrick for our my CFO, by the I investment across speak more reported Chief Portman additional will our my Ridge Schafer. our million with I'm and in detail performance we financial $X.X joined results. had and to report discussing and on October

net levels better after during quarters set asset While M&A $X.XX, to value per past per of pick near while we consistent Net was quarter. several we several quarters. of prospects. sentiment level to present portfolio the of quite last we tightening Driving activity we having market still quarter experienced M&A began through the was a share lenders at which asset increase clearly investment to value buyers, have the of spreads market share this and on per prior of gain for $X.XX sense end in been distribution market in in towards direct fashion with levels XXXX. and June share of the increase of from due four visibility in middle in substantially the is share to source past the all per $X.XX X% up picked improved and as an the asset Net press pick a other to up began the value and the income pace words as refinancing continue COVID, sellers loans was quarter. with respect up cleared quarter term the strengthening throughout quarter. of experienced up years, to base and our portfolio companies broad XX, an orderly as the end the traditional financial to net the activity market activity our day. returning

Turning we now this which merger truly believe June on we announced XX, closed XX transformational first to merger Garrison for a in Portman the our less It's years. the subsequently event Ridge continued October BDC strategic transaction team closed and by Capital on the our execution of successfully third as than public in it consolidation the represents space. our vision of is two

We benefits are company. combine to the very excited this merger about brings the

assets the compared to essentially significant as September merger million size of Ridge $XXX of helped XX. size, the in First, million approximately scale combined of doubling By company. and $XXX assets the results of the total closing Portman added total company

speak investment term, in X.X% times for of we the portfolio to Portman related to X.XX generate share today, will to longer on basis our deals. need and target As flexibility proforma the previously mediate where our increase discussed to a approximately and $X.XX leverage its a per of we quarter of larger to on distribution. range cover to company expect an capability company, our Based X.X common XX% historical sit overhead and liquidity and strain on expenses stock larger public the per savings to return

Over the from Portman CLO the annual from last five and quarters, despite headwinds investment has earnings our reduced declining equity LIBOR portfolio. its averaged return XX.X% on portfolio,

across expect estimates the Although, sourcing of to in efforts subject are Furthermore, benefits historical stakeholders is the going our to capabilities of insight access our will our and investment in expertise, future, be already by BC that access resources namely ability our earnings and returns the significant are forward. to should entire and of company. considerable provide these change shareholder's underway. we leveraging the all into what industry afforded to re-positioning platform sustain combined Integration required portfolio prospects level, achieve distribution Partners

becomes As of Garrison at approximately million cash the a a of a the hand asset i.e. value originated $XX the this once debt Proforma coverage by Garrison these call, sales cash net for at basis to we've after asset premium to the callable, or merger regulatory X.X the Portman's approximately of debt, is assets of merger. leverage slight on time times the use and pay already fair down approximately sold XXX%. of on

review future our on over forward to a of remarks. financial sell we directly the overview for results with that Ted? Officer brief investments With is our our look to investments call our debt additional originated very before our significantly that, we period Financial some a then investment will to Gilpin, strategy you updating and in part market have concluding portfolio first Chief senior continue portfolio goal on as opportunistically Investment believe and to focus turn Schafer, to Ted reduced will the short assets risk lien of Officer for call I to a the activity a secured but of We reposition maintain progress of Patrick time. with quarters. Chief in of our our Overtime,

Ted Gilpin

good Ted everyone. you, morning Thank

million The underwrite $X.XX As is of at $X.XX up Leagues million joint our $X.X million increase CLO share. ventures. positions quarter on portfolio, XXXX XX, attributable X $XXX.X including investments stood $X.X diluted legacy NAV equity Great investment per BCP in share, Freedom to last $X.X September X% $XXX in on KCAP a our across or and per the and million our a our our mainly from of or portfolio, gains debt securities million

our As Ted to improvements million in are conditions investment resulted observe valuation. the share quarter $X.X improved of share third of $X.XX for as quarter Net which beginning significant third was the per million income mentioned, in per the compared last market in to or income we and for $X.XX XXth, XXXX $X.X per share of We've share to year. October on with and on distribution of five right net past current announced of paid investment in record November our be XXth. per for the We quarters $X.XX quarterly quarterly $X.XX distribution. XXth shareholders on October line generated

liquidity Following we payment and this our schedule. respect commitments million unfunded With and commitments, unfunded at declaration aggregate our at September $XX.X resume will to stood distribution, XX, normal XXXX.

the amount certain satisfied to commitment. borrower. as draw However, unilateral that proceeds, by must or a can And use borrower subject only subject to million right $X.X this commitments restrictions, before such be leverage is draw the the remaining are of down borrowing base, of on

are balance relatively a On strong sheet, the liability limited and have of flexibility, relatively investment and side funding position with we in believe that commitments. liquidity meaningful the we

in under had we million a $XXX $XX As XX, of facility, for $XX credit September debt. our outstanding XXXX, million million total X.XXX% borrowings of and notes in of

September regulatory debt ratio times requirement from at of for a XXX%, program XXXX repurchased stock BDCs this shares repurchase Under of of above XXX,XXX per continue equity and is perspective, our the shares XXX%. statutory X.XX XXXX, of XXXX, stock we ratio our March As of of to coverage the asset as XX, a $X.XX share. price was an XX, quarter which September in announced repurchasing to was average

We plan continue on year. into we To shares. August buy XXbX repurchase to facilitate expect evaluate these XXst back of to opportunities, a to opportunities entered further this

from Portman Goldthorpe that's $X Garrison's with newly Capital Ted NAV. cash Sierra complete are $XX.X of stockholders pleased very stockholders received Ridge an valued a our Portman received investment issued As additional of payment of to from Crest. also million Ridge combination XXth, the Garrison XXX% at million shares we and closing in advisor a quarter, on mentioned, this cash Garrison merger October

a received per share of Ridge stock result, and share. X.XXX of in shares per As Garrison cash Garrison stockholders Portland $X.XX stock

owned of Garrison the providing of combined and like We're combined to results Portland Schafer, the to to Officer. company. forward that, next over quarter. fully turn process closing our former approximately integration XX% shareholders and Investment XX% owned call Ridge look Patrick I'd stockholders in Following With Chief

Patrick Schafer

page Turn Thanks the to nine Ted. presentation. of slide

perspective The third given upcoming quiet relatively from to Garrison. preparing we us, leverage and a the for merger plan was quarter with operate where for

first In which one During $X.X the investments being other & was Great a the alongside remaining value, on a the with venture, million made security brand into points. BC face net XXX was XX% venture. the which venture average weighted Lakes Partners the aggregate, Lakes our joint entities. new in the which was that basis joint spread The Great of into and of investments which we of two currently excluding borrower, of and joint BCP the new add-ons investment, on two quarter, remains borrowers, Lakes Great balance the sheet of to completed totaled the XX% was

one or at After of position. In cost either million realized, quarter. of resulted the sold exited a it recognized carrying our value of or their positions $XX,XXX. gain $X.X our quarter, $X.X four approximately exit aggregate, for XXth, if a unrealized and All carrying fully the were non-accrual over we million was acquired between of to was gains on Additionally, adjusting portfolio. the value June relative movements positions a positions, we represented course OHAI unrealized and legacy fully during above in which approximately of

of gain, Our at X, par unrealized ventures an management million on securities yielding spread of the to par unrealized to at of of gain debt million debt approximate as April basis $X.X LIBOR accruing points our $XXX.X of million on spread of gain. positions accruing and Ridge basis securities, for June price compares basis XXXX. for securities. a any September remaining the This securities Portman joint Portman of and equivalent a LIBOR to $XXX.X over yielding equity equity of debt an million basis, and marked two XXX million took accounted Ridge On debt CLO $X.X and securities, stated spread Crest at marked has million of and XXXX of points unrealized XX.X% XX.X% securities a XX, accounted points XX.X% stated for to Sierra $X.X when XXX a debt as of of accounted XX, XXX on LIBOR debt $XXX.X and of marked par at blended of portfolio, stated while

back call XX, to compared XX. X.X% investment as to costs September and Goldthorpe. of value fair that, represented portfolio, respectively, I'll turn non-accruals With slide XXXX the of the to X.X% XX, as X.X%, X.X% over June and of of Turning as Ted on

Ted Goldthorpe

Thank you, second improving conditions pleased Patrick. these in environment business In to March in to third the certainly closing, times. The quarter. in the especially with the results COVID are quarter, be in we difficult seems compared

However, as over a we continue to remain the COVID second wave cases of of us. continues to loom vigilant possibility

Garrison pleased with support. our And more company of to shareholders I'd on We for any merger successfully have now I'll thank operator for quarter. to and the to turn to call look questions. next are over ongoing all forward combined very closed the providing like the updates your

Operator

comes [Operator Thalmann. Ladenburg Instructions] first from question Christopher with Our Nolan

Your open. line is now

Christopher Nolan

the the count you falling do estimate please? ending closing? into Hey is guys. to What Garrison share ending What

Ted Gilpin

Yes, can to give estimated I was XX,XXX. I $XX believe mute. you Chris, I count under ending the share Sorry, be on [Indiscernible]. million. We the just it's

Christopher Nolan

further guess do on, are from of once in of what's valuations terms And is of BDC you to a these terms forward up strategic how hovering land you go acquisitions in sort What I where your Garrison, plan thoughts to days? given or digested there? Great. follow

Ted Goldthorpe

say I is, to cheap. a well, sectors would things. we I say would hold couple continue One

see own you'll we're going of this think I quarter. that more buyback continue our to So to stock. And

just types of number into privately to able derisk obviously, for or record the we're think is, because, we've traded compelling. things or I very on traded transactions. two other mechanisms, being benefits of to a track our are publicly additional the shareholders shown And BDCs BDCs lookout again, these our business, add always they're whether to

two I weeks. in down highlighted think and the were we've net got we gross it close in times we it's X.X leverage, - times But, call. to when the we two merger, Garrison

very a what to we've similar so And shown. it's playbook

period of on so the synergies about a And executed integration we and a acquisition de in lot risked short we've talked of very the time.

So, so way. it. to would we're to lookout these have are always hard for that put say, on the things we predict. announce, always to I But anything don't And, imminent

Christopher Nolan

it. Got

Okay, thanks.

Operator

Johnson Paul from comes question next with Our Instructions] KBW. [Operator

open. line now Your is

Paul Johnson

for Thanks my guys. question. taking Yeah. good Hey, morning,

You or actually times clarified one million of post-closing sales net to heard The after wanted X.X that's million those leverage, you $XX all assets just that ask, proforma it, so sure questions I of assuming the right. $XX make to - was mentioned? I

Ted Goldthorpe

They right. bit actually yes. take time that's settle, Yes, to but little a

Paul Johnson

Sure.

Ted Gilpin

One that'll there be from which then become some inherited are transaction, CLO the callable closed liabilities and that imminently. we've

So able debt. when be to those we'll pay transactions settle, off

reason our is our for that's it CLO - from to So haven't the when books but off as these a pay quoted net we are because our down transactions waiting liabilities. we're be risk they settle, we'll a some of able these settled, and perspective,

Paul Johnson

tranches the guys positive. yeah, focus Okay. obviously that's merger But that that then, of are CLO post-closing the maybe your which forward, perhaps the baby first bonds think very deleveraging Is be completed very XXXX. in is debt debt and due going debt, return of in capital? I And for unsecured quick will sort priority improvement, there of the forward very to payoff the or retention that you any there net positive some to quarters, level maybe the already there, some

Ted Goldthorpe

into - CLO we'll between would on there's John, the liability and remove probably speaking. to at unsecured? that a CLO unsecured secured secured sheet the debt. like back due, think be the piece. bonds the and baby aware have a mix market for are go not that of balance a the of But possibility we'll you that the the coming is end, generally we're first, reliant on yes, unsecured would have So, is to I sort priority But debt blend

Paul Johnson

quarter? sort Got the drove that that previous up higher higher income a was dividend to you. of lastly, was from specifically I And just want anything less catch the this a Or quarter? from more quarter ask JV, distribution this or just there

Ted Goldthorpe

up up as to the to a Now, you're as do prior it pretty do. held distribute able spot got in normally catch weren't on, able quarter. quarters, were we much We this

of you steady three the think this across much sort last of that's look So pretty quarters, state.

Paul Johnson

would about may kind the quarter be would if looking depreciation of approximately, happened I that's beginning this Got remaining year how year? much $XX the into first of more, the since going one the actually, you. you of think I'm net that in from the how of recoverable I at characterize speaking think, And next depreciation? just beginning depreciation. maybe you million of Again, year, broadly

write I quarter recoverable? Do how up that of you Or was or think this look that? X.X sort so? you significant pretty a at of as remaining characterize depreciation would

Ted Gilpin

why at par. at I where look - Yeah the crack to I if don't marked, debt take decent we're I marked average our a is that? think discount at our still on mean, average first you

when we're pretty our but and the surprises, some our and we're - obviously, just going to going to we predict. extent NAV any specific think can general. about now So realize just happen, upside non-accruals I to have we down, don't what's continue hard not cautious own to there next that our year about get is in just is going portfolio, speaking embedded And that between think to in I into NAV

we've as number they it's again, our really NAV. things we marked, should So, And are, their are hard conservatively upside to our piece always recover is, we think where debt again, be where are hesitant our if and to marked predict. A, able kind the perspective some marked. out dramatically, average that's is pretty continue vis-à-vis the two a been in two cost But, we're think step there But you is and forward CLOs a just the debt good increase And if change there. news or from of happening last on given spreads to of to take back, actually our daily provide any over quarters. guidance basis amount guidance uncertainty I

portfolio our will we've the credit trend like period the seen given So as on quarter. two what then on be LIBOR six continuing hard stay is, additional progress some time. been a say, saw books spreads to And out And in has But happening a those the everything of I we've improved improvement our non-accrual in you actually kind we been that's to have to actually, number so well, face spreads again, quarter for our we some hopefully would encouraged obviously But just of there. so this negative. way. and has months. this that we've seen And able to been over of quality last trailing basis get continue that from predict made put

Paul Johnson

Got you.

Okay. Thanks that's all Thanks. for for commentary. That's me. that. good And

Operator

from Martin Our Steven Instructions] question [Operator with Slater. comes next

now Your line is open.

Steven Martin

more can through be you it went detail more where cost, of portfolio diminishing. it guys you off and and what about be was, a what it look, doesn't Hi, to talk through questions, didn't is, thought CLO today? I where it couple is and where it little it Hello? running guys. And would it A seem the went it at

Ted Goldthorpe

or Ted you well. to Patrick address Yes, as that want do

Ted Gilpin

Sure.

Patrick Schafer

Yeah.

was, talking I I invest. where we're of it, portfolio, to at where kind equity deemphasizing didn't CLO now, terms evenly, portfolio period. the to reinvestment when split was in our it mean, positions reinvestment it look [Indiscernible], Sorry, we it their is I'll I not have, obviously, and about And in where you continuing still half But of relatively out of is are period. are half of our the think say,

in speaking a a assets fill kind And generally, values are of we think And out that. like an things to today, been of and where, and half so, about triple are rotate what management kind bit March, other at has the discounts, their of active generally happened if of where runoff. we and able take about C's, collateral out portfolio during them you buy the half of of

two flat accounting cost relatively, things be I of of to kind leading an on that. a Gilpin, to differ so, I us on but those bit think specific And Ted basis. And is the mixture of that amortized little

Ted Gilpin

Steve. yeah, So hi,

effective goes you cash for what So, the method which a flows booked. recognizes and change will pieces through as interest gets as that IRRs, income. which is to calculation the determine cost, and CLO you'll those pie obviously, will, if accounting, then what take down which the get different And quarterly,

may with And the the down they in brings it would cost see get pay income reinvestment, to generally be if But it rather the less those as a you change, since quarter, quarter principal, of so down. but flows significantly start cash of principle come you continued fees to and typically, where should down overtime. more a speaking,

you'll them diminish. so, And see

we're So, you'd what that's expect ready, if see. to

Steven Martin

Okay, and Was up. the that that? CLO though income accounting CLO the quarter, even there the went down something was mark for accounted in this

Ted Goldthorpe

Generally speaking...

Ted Gilpin

It's rather forward. to right. cash have periods in we only some [Indiscernible] few less coming the have We period, investment bring over time,

well. calculation come the tend down come that So out some that would of see as would you to income

Patrick Schafer

a also CLO timing bit the a of and of between equities. there's the mark little Yes, lag the accounting

Steven Martin

So, CLO like going in should quarter Or time? of quarters? point couple the forwards, do more know last or we the more given any at this income not like be

Ted Gilpin

it's it they Well, tend moment, of the say of would would as where I to income parts that expect relatively continue would income the one is, But necessarily at similar it's lessen, I down, frustrating the to sort pay to although, that to is that, - predictable. be, Steve, not of CLOs that it

Ted Goldthorpe

during little so relatively things of cash period, further CLOs obviously decent CLOs, none be importantly, importantly, there's but of should actual shut of least indication bit, out think no a move the the I on consistent. accounting at couple and a coming this degradation it that march that's off nothing, will been Yeah, the but a

Steven Martin

i.e. XXth, portfolio the - Okay. the to sort when subsequent a the you mark had How closed. September so marks mark, XXth, about had September October, deal you mark of after commenting a when on the

think haven't mark given you You evolved of at had the October, you a tightening? today, the marked sort end it but and markets what has obviously, do of that

Ted Goldthorpe

far roll perspective, that transaction merger, the there's costs get legal would my I closed. for NAV, to say, so fees say, and from be it just going would I to through stuff I mean, some

that negative slight a have. we obviously that's So

kind the you've we issued bit just but how at time, say the down at when so credit markets NAV - were like that So, many costs. transaction is you NAV back can can seen, of you shares at to been like tailwind our because the look look little merger, there's a into like, hard the As that's of in and can actually continued flattish, a you set as but

there's NAV going And so, guess on win material way of here today. to long it's saying, be a we I think a sit as I impact don't

offset So, costs. some a transaction by little of bit tailwinds

Steven Martin

cost leverage in And cost at is combining cost of the your or and forward to When one is structure, they what acquisition, look had had? like main about going started - what BDCs buying, is what you goals which you Okay. obviously them? smaller BDCs of savings talk structure you what look bigger versus the the the

Ted Gilpin

one big reasons Yeah, so I the to that's think, little bit of obviously a combine bigger. get to

G&A And income at you other one though, insurance you statement, expense we doesn't and only our two you plus one right. audit, fees, the in look anymore, have admin case, two and services so, one side, look this so, expect not would equal if professional expenses, at

little with percentage expenses some sort industry become of would assets. have Your expect bit, our that of I more of people a a more the working expenses will on in-line on the things, as you but some have increase rest to

we've in companies a up. been high. the And put marginally you little similar should And now those together size go so, only bit two expenses and

to you're up. going where to that's start think I pick So

Steven Martin

Yeah, before. lot people I had Garrison of that had a left heard Garrison

in accounting did to So your over? or - What in to otherwise? over bring headcount, going people do area What to are you have space? your bring big picture you you how to did did whether have you many

Patrick Schafer

is relevant space isn't fortunately space during relevant, COVID. fortunately not Well,

Steven Martin

want you in to now? come Do

Patrick Schafer

relevant, true. using if may space Well, it. The of that's portion even one's not be rent no expense

Steven Martin

Yeah, that's true.

Ted Gilpin

Yes.

We'll Garrison, bring the we're I that those are over we to obviously, to mean - not to as have it lift. it's from of I stuff little Steve. mean, question financial more didn't space. have person I more mean, had side. So there's fund, going do. to to a We again, did add bit of allocation I more sort to we configuring relates lots good the one positions, not and think and there's need But accounting capacity. big a

Ted Goldthorpe

going mean, spend less. very versus would I Yes, clear. lot answer I a Garrison That's to we're what that spending, was

all So, the own like Within to that taken some the cost that bottom-line. own drops business, drops board, fees, across of some of our the months we've costs even again, take things six just last out professional size our over business, actions and that all bottom-line.

focused is on So, alone and like it, into cost stuff, the of franchise, we that we're creative. that we've then, anything take monetize not liquid And the origination that's portfolio our take recycle on their of can types been it we mid-single-digits like own doing the if only on about accretive. And think all space and things we focused pretty again costs, we're think outside merger, on transaction business. also like, costs and any that

accretion the even to be that. think we So than going higher

spread the is picked So the into in and assets recycle the months. lot of water some widening a is have seen acquisitions, liquid that spreads. of we've again, assets markets, more but some of lot you've up - A in monetizing these proprietary pickup, them that spread that last nine

high-single-digits all accretive. So mid should to those be between things, it

Steven Martin

Now merger? deal? done done which this you're expecting comment, it. you that is and/or with and you're your will last given you've Okay. probably share Ted, - count Have One to question bigger repeat reverse any further and again consideration I

Ted Gilpin

stocks…? split reverse mean you Do

Steven Martin

split. sorry, split. Reverse reverse I'm

Ted Gilpin

[Multiple Yeah. Speakers]

Steven Martin

I'm ahead. sorry. Go

Ted Gilpin

Go ahead.

Ted Goldthorpe

shareholder To vote. we do a that, need

And so…

Steven Martin

I'm vote. ready to

Ted Goldthorpe

on do just don't see of over the it sense big us couple Well, for I mean, good mean, so, we a or guess same so of to mean, be have yourself suggested idea. merger and quarters. I mean, months. and mainly reverse I the shareholders stock our surprised think we'll splits thing. And it's a we're focused do lot I that it a next and I - couple reverse - my was makes that it's is, to in us the it something do think the last

Steven Martin

a try let's your right, before in you acquisition. next this guys So, thanks to slip All do lot.

Ted Gilpin

Thanks Steve.

Operator

follow question a line Ladenberg of Nolan Thalmann. Christopher up with have the We from

open. line Your now is

Christopher Nolan

digit Ted, to EPS, mid single was presume? that accretive I to

Ted Goldthorpe

per share, yeah. To NII

Christopher Nolan

thoughts what anything then, SBA or are And great. that? your like lowering funding else your Okay, debt terms in costs, of

Ted Goldthorpe

can SBA looking the we the debt. approved. are are of get into an did think I and very I'm but would SBA we some not on one it, And of terms mean take we attractive. if say Well, I get SBIC the approved, debt I period us would time. sure

wouldn't I that. people want to guide So to

the debt, our I with had away we think I of liability their obviously we're diversified lines, on is bigger now. very when now have bank some focus during thing the we're business bonds side our great And very around - peers our mean, debt. March, is between CLO heavily issues our and bank our skewed towards from that

on our some CLO probably between, that unsecured I our is at point. tapping optimizing in. the just all given think this earlier, Ted debt taking market focus think we're mentioned so, I it And cash And

to it's don't access yeah, are but soon. costs, think funding SBA focused So anytime we realistic I us reducing very on for the

Christopher Nolan

Got it.

it you. That's me. Thank for Okay.

Operator

the back call to remarks. session. to turn That I'd closing management for concludes today's like question-and-answer

Ted Goldthorpe

Thank appreciate in for all the joining suggestions all us dial questions. And We Thanks. of and have. any much today. you that Thank myself, you course, really every might questions answer team today. the for available in for Patrick, you and is very to dialing entire always Ted, or management

Operator

call. Ladies and this gentlemen, today's concludes participating. for you Thank conference

disconnect. now may You

Portman Ridge Finance (PTMN) 10 Nov 202020 Q3 Earnings call transcript