- Earnings call transcript Q3 2022

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Operator

Welcome everyone to the Portman Ridge Third Quarter 2022 Financial Results Conference Call. [Operator Instructions] Thank you. It is now my pleasure to turn the call over to Ted Goldthorpe, CEO. Mr. Goldthorpe, please go ahead.

Ted Goldthorpe

morning. Good joining XXXX for call. third our everyone earnings quarter Thanks, Officer, our and Schafer. I'm by Financial Jason Patrick joined today Officer, Chief Roos; Investment our Chief provide activities performance the highlights the quarter. I'll and brief on for company's Jason detail. commentary provide and portfolio markets, operating our Patrick will in will our greater on discuss condition and investment our and financial results economic despite pleased a strong challenging quarter Yesterday Portman quarter rising third a report its environment, difficult XXXX results, conditions, financial and to performance operating rates Ridge announced and under market we market were interest of very volatility.

reduced this our had investment Our cost income, increased credit our from and investment rates, allowing second dividend for to that we total our quarterly the in JPMorgan income Chase, Between to share. see investments. rates the and comparison of $X.XX strong quarter by core quarter the forward X% generating to facility all income XXXX, increase future incremental quarter we to net going performance as with extended XXXX impact rising of continued continue in started of revenues investment benefit per from of and the third expect the us in amended capital quarters, will rising

of XX% lower demand a and and the down in is we for due volumes our over the over is Regarding a almost M&A environment macro quarter market. the combination decline year-to-date, the during of the continue impact to formation, liquid in the XX% a source key markets. year-over-year which CLO to sector, volume Leveraged by issue declined see private of into spilling markets loan new

The of end levels displayed in down XX% average in Ridge loan and at of on have of in quarter. peaked par markets the volatility depressed XX% par then and traded the Portman prices to far fourth those following loan benefited September the remained the by ways. so in August Additionally, around

selectivity and market borrowers and forced reduced deal loan from market, increasing our on debt deals. First, potential away issue the into new demand for the has new for funnel increased potential private the allowing

resulted private points increase higher XXX in Secondly, trading incremental XXX deal basis XXX OID. basis price through decline has XXX the economics in to to points of of spreads, approximately an and debt

Portman secondary Finally, volatility discount, nimble discounts. by market originally be significant allowed syndicate has at significant loans purchase Ridge of and at to trade the underwritten opportunistically banks the in and a a loans

Although the has latter much in more opportunity so quarter. the pronounced become far fourth

$X.X deployments, remain we strategy ordinary quarter, our cautious million. net saw course and third the of payments During excluding investment approximately in amortization

with and we a positions a quarter portfolio the non-accrual well kept As balanced result, ended our control. under

Although impact full interest on average, of borrowers through the portfolio average coverage LTM by flown not our the X.X%. through was underlying X.Xx in rates June grew XX, and our revenues have

well to that strategy, selective resourceful execute As investment we positioned arise advantage by continue in opportunities the to decisions. of investment we're current from to market and our be environment our take continuing

a review We will for investment to will uncertainty. to our investments of the be I economic prudent our call With that, Patrick given Chief Investment Schafer, over underwriting new turn with current the continue Officer activity.

Patrick Schafer

Ted. Thanks

a the now Slide sensitivity presentation of X earnings and Turning rates. interest our to to of

to rate of of these securities floating XX% spread being with As LIBOR. as debt either rate XXXX, Primary our index, approximately or with an were of SOFR XX, portfolio to September a LIBOR, interest still XX.X% linked such

SOFR benchmark of $X.X to X, rates rates our quarter expect three the assets for chart, market rate, on month rate As prevailing as illustrative We million normalize would or month significantly to lagged below six an income. the if purposes, we during of the see LIBOR underlying our were from would the assets expect and quarterly SOFR LIBOR November respectively, as you incremental contracts still a the time and reset remains But all one, either underlying over XXXX. three to reset. can this and the to generate

balance, of funding liability our are Skipping investment resulting costs was approximately $XX.X including of approximately of new amortization spread of $X.XX under million for stated utilizing Great spread. of down a relative consisted but positive XX, expected to offset share, to but venture. deployment our repayments. QX for assuming the assets previously new per committed also same regularly net investments facilities, par rise originations payments Slide approximately purchased will activity of entirety in par and number to net and points are by a lower of benchmark or While $XX.X all at income upfront still million, their the basis fees, the three Net of scheduled SOFR quarter, were addition yield repayment fundings excluding the would investments than XXX discount which benefit deployment our approximately the Lakes meaningful included million, levels, on activity to generate the quarter month expect were to a $X.X quarter. higher, of and we prior These joint to liabilities rates in a

while portfolio debt of balance highly per quarter maintaining of the an diversified securities approximately the third remained different across and different spread with end $X.X XXX Our entities, entity average industries, XX million. investments at all par

the portfolio the XXXX, nonaccrual and Jason June XX, discuss on to X.X% X.X% call were period. value flat to now at investments the further fair turn investments cost XX, at financial amortized Slide of results and our compared for and -- respectively. to to I'll over company's Turning represent as investment

Jason Roos

Thanks Patrick.

economic income revenue overall of of that operating of investment income portfolio. investment As performance. under $X.X on compares from Total financial which and quarter for incremental generating attributable million XXXX was for to challenging portfolio. income quarter-over-quarter $XX investment the interest both of the the to strong debt of second period impact our quarter rising for our third securities rates, of XXXX due the third to $XX increase the environment, million, total was results million million This reflect quarter Ted previously and Patrick despite $XX.X mentioned, a

core Excluding the our income reduction investment the the from investment accretion purchase core price quarter impact HCAP the XXXX. XXXX. quarter $XX.X in a price purchase second Garrison to million. amounted investment $X.X million to in mergers, was reflects for of $XX.X Core and million This accounting, income income third which of compares

Our million, million of the net investment quarter compares share per income for for $X.X quarter $X.XX the third $X.XX XXXX share, to per second or XXXX. was of $X.X which or

rising of expense interest were This settlement $XX.X third as quarter fourth to compared resulting quarter last of inherently predominantly third associated income. the quarter the rate our million in with early associated as investments a investments, floating year. due quarter, the quarter-over-quarter well in of increase environment rising rate is to debt. benefit in was the of $X.X by million our with Total the XXXX on interest driven expenses the costs second for certain This

$XX.XX value third due compared $XX.XX million was XXXX. XXXX securities second The quarter and share in or per for the driven $XXX.X Our of to entirely to was million our or debt portfolio. decline movements within of $XXX.X our mark-to-market equity quarter asset net as per share the by almost

under as outstanding in XXXX credit of XXXX, $XXX.X X of credit to of side $X quarter-over-quarter On the we comprised balance par a of represents borrowings a liability sheet unsecured borrowings million had million on million value our increase our total of XX, $XX.X $XXX facility. a million $XXX.X September relating of the due XXXX. balance X/X% notes draw notes and of facility, and This due million

of $XX quarter, the revolving million of we of credit As million credit of and secured the the senior borrowing facility the $XX.X revolving under available borrowing end had XXXX-X capacity under facility. capacity

to three SOFR, second annum of our refinanced quarter benchmark margin successfully of Additionally, to interest the the rate credit XX, April out the XXXX. X.XX% April, facility earnings rate and to changed as the in call, X.X% secured in reduced maturity the per revolving and per extended senior pointed annum we from which interest months facility

XX, ratio ratio with gross positioned We XXXX, X.Xx was remain and quarter asset was a debt-to-equity end to at coverage we As overall From pursue our basis. of September perspective, a position. on well X.Xx our opportunities believe growth on our net leverage regulatory XXX%. a basis

XX, This expectations Lastly, declared our increased and December November quarterly the approved similar I quarterly the performance at announced performance will share, for back of supported increase financial $X.XX strong on quarter distribution from continue business on XXXX. of represents stockholders of third $X.XX into distribution is XX, call as turn to and over record XXXX to by and by close per prior an was levels, With Ted. of yesterday, financial that, board the payable a which to the quarters. quarter future

Ted Goldthorpe

results, financial questions, our this the year took Ahead to Jason. of quarter past of portfolio early the you, this saw benefits the Thank that we again reposition emphasize we've ones to like see quarter. active to steps strong we the in demonstrated I'd like

we're for another financial believe to we once call our I'll an the As strong now we questions. are to the again ongoing Thank quarter. performance prepared in in support. any turn your you fourth shareholders ideal year-end, This of position to quarter all our concludes for remarks. strong And approaching of have over operator

Operator

[Operator Thalmann. Ladenburg Instructions] Christopher Nolan with

is open. Your line

Christopher Nolan

Hi, non-recurring guys. any Jason, I missed there items in earnings? it. Were

Jason Roos

a P&L? run is just about for the you're rate, I -- would side of I Yes, normal good of at quarter the assume expense pretty expense this kind say, talking look

Christopher Nolan

anything. Yes,

Jason Roos

pretty good to it's for Yes, say a so would quarter I no yes that. Largely, you. rate run

some expense, which quarter-over-quarter. down. admin say probably a down would are reflects benefit would are about is look coming insurance reduced tax that's mark, which would as pretty rate, good $XXX,XXX by fees well legal professional around I side, little right that down expense a to forward. That's the I and largely $XXX,XXX. around for we're normalized and quarter-over-quarter, CLO that premiums, use at due more On I Other some expenses light. right going seeing run expense on costs probably $XXX,XXX

Christopher Nolan

go On revenue, please ahead? oh

Jason Roos

rates income as continued CLO a good in a and in Yes, pretty revenue continue anticipate on we positions And I as to there about run I materials, to mean provided going of side, interest all should JV a that income the to, within the reset run the in, but rate future coming see pretty was to say the continue be that uptick it's well. our as walk rate. good we rise. income, the

Christopher Nolan

way terms Then of quarter be to company's interest benefit it a this seemed the fairly earnings the it given and towards in working seems be - clean is environment run rate that that to dividend whole was the $X.XX Is it? to unless that bit potentially fair that. things on a tax a like low Is issues be at rate. or there are side issues, new look the to little seems

Ted Goldthorpe

think Ted. relatively fair. that's This I is

to be pressure there's risk The be dividend, I - dividend going a on our is if versus increase. think to increases going it's

just there's so much think I now. uncertainty right

short-term rates portfolio or seeing by of issues quality considerations. up. macro all passing in We deterioration just And given driven through quality every is considerations credit lot as numbers, roll credit the just versus any are with a going not But our micro keep our quarter uncertainty forecast our today. it

So mean earnings on sits think Slide deck, our at getting only in LIBOR we're X.X% today the best. I and I on states LIBOR X.X%. X

coming So versus keep dividend. and to there's we going think to the - earnings through, the be good a about they really of I dividend extent hard with There's think got conversation increasing to a decreasing tailwinds the we've lot board be potentially going

Christopher Nolan

That's it thank you. from me,

Jason Roos

On the a variable management towards dividend versus have bias as pretty team, policy is, on other a dividends. base hand probably dividend we, strong

obviously, to some we've because some regards being dividend have actually of that So, tax spillover preference higher others we income. out versus do the of base over is benefits around advantage of as specials. done, a But M&A over in time to we the our get have

Christopher Nolan

thank Okay, you.

Operator

KBW. with Johnson Paul

Your open. is line

Paul Johnson

question. Yes good morning, my thanks for taking

just of kind you the of your kind that by First $X.XX, slide, understand is result us closer, show a asking of does was I our jump. estimate of big to, projecting pretty is - which sort question, any hoping could $X.XX, in the X, $X.XX to you're included purchase you This I last there there? question some at quarter, slide But a the around Slide that a presentation better was help this little this way think, And happen that Is there? Maybe jump was to in adjusted looking to better. ROE if have would a there. I little good bit way, include much that on a is to slide to what closer sort is ROE. consider some obviously, helpful which this lot a from rate expect So I you same XX% ROE, run feels a of you like you generate of Is kind a high? accounting of level accretion way is how guess, good that quarter?

Patrick Schafer

Schafer. this is Paul, so Yes Patrick

this form is which questions, this of exercise. be analysis couple or kind a this the of is simplistic So X to intended of chart most on

just done the QX to assuming we underlying doing rate really be end for and the at and everything and what So kind quarter what of essentially quarter assets taking the what would transpired. the difference it's that at benchmarks run that actually really the changing that on is liabilities was of opposed from as a

So, that numbers. price here $X.XX that the amount QX the accretion to point, of the include in purchase would same was

that slide we on X, next of we on had So, the on can have accounting. slide, the where kind discount show see purchase you

the of the possible So that about rates simplistic of our assumptions that SOFR. trying kind had XX in incremental than benchmark and QX. we anything just anything other number portfolio, changing in as to in amount not this as in LIBOR we're our would P&L is similar be that make any Again, on a making and

you kind of kind to basis, walk you difference overlay of that would XX%. the the of -- X a core on can take reported that like kind That your to $X.XX between Slide on that and So our and of could would kind same what look easy be core just here

Ted Goldthorpe

Yes night, note your and just this. you for it - last did

- other big activity. flat obviously thing assumes other assumption the is it The repayment

slide, previous change the in from shown we've quarter-to-quarter. that As obviously, can

think just higher, the not to show really show rates what impact footnotes just were - trying assumptions is this been. all if would do bunch the to is we're is So I here on purely shareholders. have our and our meant This of for make rates you earnings this just like and a -

Paul Johnson

there. Got explanation it, the I yes, appreciate

this think is a out the helpful way. I slide of

the dividend for thanks another So and your explanation on then on that question policy.

so the So is of as you arms good raise there of of this guess, Just dividend a around incremental what going or sort rate distribution be I of earnings or to kind the that quarter. fairly next it adjusted kind level? the or higher I forward, new mean, $X.XX maintain the above $X.XX we an generation expect? margin, guess, intent, the walk of run year had good you portfolio more is Obviously, I hikes? kind margin is pretty just maybe this intention, of conservative the and on that get a you your cushion in well do

Ted Goldthorpe

own a this, take our so be rates, their of you're benefit our middle our people cover the both. approach portfolio. and I short-term forward I that. to answer of make mean, they're down this year, Again third coming if view on dividend each answer given passing curve at mean, next which look showing we macro-economists, the sustained Again, quarter, the - I fact to very we're through can to rates of we most that on period the think have just just time. measured is you take which which not I rates a want increase, to end sure I going again, short-term we rates that. think is flowing can want conservative with are BDCs This dividend quickly. done changing for think have not to

very think the I want momentum positive So a two I healthy versus Then given just is maintain stable uncertain is cushion approach. again, to to around we a environment. - want dividend that but just think do we relatively measured policy. take But the number

Paul Johnson

that. it. Got Appreciate

Ted Goldthorpe

bunch thing we're is nonaccruals. want I a the like think So not of I to expecting whole stress

Our portfolio is incredibly diversified.

it. think to like to given again, taking conservative. on happening view what's just We're it's we just want continue we're not be in I So the not world, credit. a seeing But

Paul Johnson

expect correct income is GDV for there like should quarter, quarter that That the sounds it good makes I'm be rate, fairly from forward, the - going Yes, on run going curious I'm number in forward sorry, should you But income know potentially reduction the a kind little had run be that JV what questions was of that quarter, or just heard make that through sense. lower? just have I we correctly, the there. investment may a income can I JVs. me that previous in should a sure going looking because return want it if for one of a of we million in CLO just of forward going sense makes wrong the is capital? a at or that that $X.X this you like so I to bit looks if your don't to

Patrick Schafer

Paul, Hey it's Patrick.

in we to of - during the of right we we So essentially was it's I specifically - sort and related the of quarter, expiring expiring. period Lakes joint to our venture, try the was investment or this, frame Great particularly the the way joint - or venture to process but

built venture joint everything moved from a to and joint we So a venture. a venture joint essentially new one X

but moved upsized kind just joint venture. So we of over, also that

specifically we've a reallocated, on as got quarter. that Portman you kind return temporary had So will. capital fundings you if of of saw that essentially Then during the incremental

income of meaningful the end going Possibly with My be if rising off the I'll to this assets may rates So from not Is rate expect you floating the, those call of to as a of quarter, to really kind are level, bit guess temporary that will. back impact? and far see June underlying but it, is small that you're you'd by all very a be decline? there well.

Paul Johnson

it. Got

Patrick Schafer

again, that It the quarter, of joint to in the was a by get we'll to the end really temporary venture. time notional kind back that, of be return same capital the of we value

Paul Johnson

the quite you terms case, last it. improving you today's wanted potentially potentially BC just sounds changed of it that's at get the But may market. seeing guys like Got if the the quarter, like from that I were not if sense, question, quality in in to that just be in I flow attractive, deal terms the And seeing, of environment? but all platform, last guess, your deals believe, were Partners learning maybe sounded as it less, is the are

Ted Goldthorpe

definitely to mean there changed is, of the got rates, six of Yes. the think -- rising sense I months risks a in I question period we it's tightening. ago was spread biggest in

effectively some people markets of like the space I The for cut felt at the months. think in and complete some six closed been spread, players large have to opposite. syndicated it's our going least were been

getting we're stepped So wider. priced six unit say -- in I and provide has S was people high-quality like and now, -- getting our We're that right being are Like on would very XXX spreads XXX would that industry very that selective tranches capital. are plus to at plus months ago. have

almost basis points incremental and So also SOFR. we're getting spread, we're XXX XXX of points basis getting of

what the double we're on generating were and So, returns and even to larger ago close six companies. quite months frankly, they are better

incredible is this environment an capital. So to deploy

quite The Patrick frankly, statements, rarely. we I'd the selectively very have other to say, we as in said debt as well, thing and the buy ability which obviously secondary do

the secondary For you lot where the really to a go also credit debt and lien time at industries into risk. even what be don't things we really XXXX, buy LTVs. rate pieces first appears low opportunities first that middle bank really there's if of are really, to In floating since there of massive are recession, feel a of

all, the both answer. side. and Obviously, I've lot primary we're So long the the for a of said. That's repayments seeing side all on opportunities That's I'm down. are sorry secondary

is some obviously, reason, which it repayment versus seeing this in what fourth year. repayment of last activity But is a quarter activity. quarter, are good. relatively for it was We in but seeing saw again little We we're still uptick bit it muted this

Paul Johnson

my Thanks. those great. information great. All questions. that's That's and Yes, all are great

Ted Goldthorpe

Thank you.

Operator

do time. with Instructions] [Operator a Martin Steven at further question no Slater questions Capital. this from are There We have

Steven Martin

thanks quarter, the Great for dividend. and incremental

Ted Goldthorpe

Steve. Hi

Steven Martin

Slide love bought. which always portfolios XX, all the you've I of good. is sort Good,

now, a doesn't even continued You've mark-to-market have and appear losses. such of you it stand done on those those talk of runoff? job with underwriting that like about there you where evolution portfolios been the any great the Can

Patrick Schafer

it's Yes Patrick. hey Steve,

market those to out, of a just There's, it OHAI Again, of still for to of left. name. the in but while like portfolio, liquid like left. of not that names them anything again, have to of I'll a Garrison, kind think we're expect this right. to we're course Generally of kind from left private credits. -- in feel So is there. still portfolio liquid look, XX% the would percent comfortable side, ordinary more really good kind is there's that kind I invested XX-ish need with in take kind to only the press generally not which some couple of our very We taken waiting opportunities. don't all - to sell keep of there. on get Obviously, we We're speaking, mix kind from of

lastly, hold terms it, a comfortable harvest think companies of probably So that environment generally of period be XX% quarter think deals just the on a There's, but the the likely going refinancing. more we're relative with exits It's in quality, fruition. longest come would should right next some time. of two of one basis of still -- those kind it We're still given to we've or probably into names of short relatively been over this knew to we and to on out now. with working credit a refinancings we that the on couple in of more the kind again, the I Then on

there in I button portfolio pressing We that large of that. in the hopeful of terms months, you particularly just to chunk say, call on, next next be of we kind any But general, have again, pretty referenced want that exit six don't harvest we're if a would for be would names months. really decent expecting we're within another that that the over pretty really call I where the couple of of kind out comfortable will will. the we're in say, So rotation. are in in six in taken we

Steven Martin

mark-to-market talked related sort of most fundamental The and about, related. that mark-to-market great is not pricing you the and of that's

this or think at in Portman would deals on page? about BC How If old versus mark-to-market look you source the deals it? you of sort

Ted Goldthorpe

that massive in couple variance names difference were of say negatives kind portfolio, and the positives had more that would between back some coming there's some little well legacy each impact that think COVID is there - characterize as I'd more from bit for the the candidly, the perhaps don't in - you Yes. a for have them. a legacy I any if don't sense been there's way this other. will, of portfolios, think I probably I there offset of more I

So that of really you across the true with everything kind books. we in same all the just way. mark leaves mark-to-market exact Again,

rates an So is a on name the impact change in equal going to name. benchmark it as have BC on an old is gas a

So credit like and pretty the say more from I probably in the overall, things, generally are mark-to-market each portfolios. consistent other books. impacted we're generally just those But across offset is

Patrick Schafer

credit basically if mark-to-market on marks, mark-to-market. like at is but and basically this puts quarter it's you puts out back credit, and Yes, volatility you our just all spread the this - from if look XXX% takes, it's of is of Like - widening. there's they're takes

Steven Martin

week obviously, a the their to by having that to BDC calls companies the bigger. are how of go. and number some mark-to-markets aren't listened add, I the don't understand last of just I'll more over way, Yes. There

- listened to. it you're the relatively conservative from of others so to knowledgeable And to perspective, like seems some compared being I've my

opportunity? wanted buy a just back preserve Was the this quarter. to little because and stock didn't turbulent you market You any that was

Ted Goldthorpe

back buy think I no. answer to stock. that time mean I Yes, We've to any buy always stock, that we'll said we're is the back able

a our stock. total priority of our buyback and period to buying for for in big short rinsing to buyback be stock where stock. given it's a time, relatively us think got a it our back shareholders we've program mean, to I us sense for I makes trades, path be

stock do. feel we to like stock buy able time to being quarter, buy can buy to a but past weren't stock, relatively we there's path any we We So able this soon. back

Steven Martin

a lot. thanks Okay,

Ted Goldthorpe

Thanks.

Operator

There turn final no questions to like now back further [Operator this remarks. call to management Instructions] time. the at over I'd are for

Ted Goldthorpe

I everybody joining everyone, our to for we results, full wish Thanksgiving. early announcing you today, March were year us a look to when happy Thanks, and and in Thank early we forward you. speaking and very

Operator

This concludes participation. thank you conference your today's for call. We

You may now disconnect.

Portman Ridge Finance (PTMN) 9 Nov 222022 Q3 Earnings call transcript