Earnings call transcript Q4 2022

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Operator

Welcome to Portman Ridge Finance Corporation's Fourth Quarter and Full Year 2022 Earnings Conference Call. An earnings press release was distributed yesterday, March 9, after market close. A copy of the release along with an earnings presentation is available on the Company's website at www.portmanridge.com in the Investor Relations section and should be reviewed in conjunction with the company's Form 10-K filed with the SEC.

As a reminder, this conference call is being recorded for replay purposes.

Please note that today's conference call may contain forward-looking statements, which are not guarantees a future performance or results and involve a number of risks and uncertainties. with materially of in including a in company's differ as forward-looking those may the result a number filings results from the those statements described Actual SEC. the of factors, statements Corporation Finance to such law. no Portman unless Ridge by assumes required update obligation any forward-looking

and Roos, Investment Speaking on Chief and Schafer, Chief President Financial be Portman Ridge Chief Executive Ted Officer; today's of Goldthorpe, Finance Officer. call Officer, will Director Corporation; Jason Patrick

Ted turn that, Executive Goldthorpe, I to would call With Chief to of the Ridge. like Portman Officer over now

Ted Goldthorpe

XXXX. morning. our provide our portfolio Schafer. Good and highlights our investment Patrick I'm and fourth on markets, financial Patrick and detail. full and Chief will Thanks by our on Financial performance condition full Roos; Officer, today Investment I'll call. the earnings provide quarter company's operating in commentary will our everyone and Jason for Chief discuss activities greater results Jason Officer, in brief joining year joined our year for XXXX

announced Ridge and economic rates the results we of its quarter Portman rising under challenging volatility. market interest market Yesterday, environment, XXXX conditions, the with in earnings power difficult a are solid despite and full and operating pleased year company fourth

$XX.X income increased investment in seen Our core in comparison by million $XXX,XXX XXXX to to in XXXX. million $XX.X

sourced to impact we in that our the revenue see from investments. As generating continue rising rates incremental have

our the cost that to per us situated returns and lag performance continuing earnings we has delivering asset helping our XXXX. and share, and to credit our and both a second the Morgan realization dividend capital, extended allowed has benchmarks facility believe in of amended from for $X.XX shareholders timing quarter rising our were to attractive to we reduced reduce raise quarter straight of our JP momentum this Additionally, our relative our with further Overall, base. to expenses Chase

and on markets remained uncertain Regarding a volatility macro in our syndicated continued bullish whole, our new and portfolio to returns. the as the ability investment reduced the and rotate primary incremental risk market opportunities backdrop despite at

For points points. the new are of upfront by XXX have basis XXX XXX approximately to and the compared fees XXX year, basis Spreads to beginning widened an opportunities, to incremental as

strong and levels. Additionally, this, leverage from of to and as compared reduced in weighted contributions we the was QX of all equity leverage average X.Xx sponsors the To fourth X.Xx see we deals illustrate completed Xx in to continue for quarter total XXXX.

repurchase to repurchase in than at shares. under of back of XXXX focus of the million the shares of to as shares cost valuation Portman the XX,XXX double our Turning renewed continue program. the stock Ridge repurchasing XXXX approximate at we XXX,XXX In approximately repurchased in more alone, X.X believe we an continued shares we total amount company, a

we're shares repurchasing to through potential On to this for Portman do trend We into upside XXXX, also of walk call, this so. expect an able the as value. continue asset Patrick cases will

net embedded derive to by We history. Our normalized versus to portfolio interest earnings and there at even potential the lane adds is so the spreads experience discount valued and in value a significant wider both is our or this NAV elevated new short-term rates and in portfolio, believe earnings to upside default rising debt is par. originations now momentum on defaults first largely If upside. driven rates

the Officer for turn Chief our of call to over investment our Investment With that, activity. Patrick review I Schafer, will

Patrick Schafer

Thanks, Ted.

and our our five Turning interest the to to slide earnings of sensitivity of rates. presentation

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

LIBOR rates and and the our SOFR during the below the assets of the the of XXXX. prevailing rate remains from quarter see lagged as chart, can rates benchmark February market XXth, you significantly As underlying still

We underlying contracts X-, the reset. time and X-month this would as over X- expect normalize to

our to if either incremental For quarterly expect income. assets X-month $X a were would all generate reset million lesser rate LIBOR to of to an purposes, respectively, or we SOFR

cost QX entire levels, rise their X-month also rates of we benefit net all relative the share, our utilizing and $X.XX a While for our per still approximately liability are assets to liabilities assuming will positive expect benchmark of an same quarter.

of offset income million spread of expected $XX.X basis to of lower balance par purchased to to approximately new SOFR activity investments approximately at regularly are quarterly million excluding the Slide cost on investments investment deployment par, of XXX incremental in repayments. fourth Great by Net of a the Lakes were in and the XX. the fundings joint million net including Both new approximately a committed quarter quarter, generate under points fundings than spread. Skipping payments These scheduled of and of consisted and stated our amortization ventures. deployment for originations approximately resulting to prior were which previously $XX.X the will facilities, down XX.X% $X.X yield addition

we these As plus return SOFR mentioned rate secured equity. release, XXX points, basis very plus XXX assets at LIBOR in press in yielding our a on points notes a $XX.X basis resulting XXXX-X our million under attractive of do to fund

so our to funding Additionally, us had in have have $XX.X venture this Lakes under during additional close that that we joint funded Great the into fully quarter, far funded commitment. taken year being aggregate million and

to joint balance in should higher and which Similar new at experience our spreads OID, going in come sheet, assets returns increasing incremental venture our forward. have result widening Lakes with Great the investments on

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

on non-accrual the of non-accrual represent as XXXX as which on seven at In subordinated X.X% Turning compared and remained company's We at had fair fourth X.X% at of portfolio XX. amortized investments is cost to XXXX, September investment investments respectively. holdings, December of which and one four on These to on XXXX. investment status four zero. incremental status quarter the end of XX, at aggregate, non-accrual the Slide valued value note to compared relatively XX, a in non-accrual in prior is investments XXXX, investments low as

On XX, opening of if remarks, the Ted Slide three in on as focus rows the we top table. his mentioned

securities of aggregate lien an is and which value $XXX.X first a value. debt of you have fair represents comprised par million, of value of We price blended par XX.XX% loans at XX%

million XX, NAV fair recovery, par reflect incremental a of of a or December potential $X.XX value $XX.X per Assuming share. XXXX, our values

per would value portfolio overtime anything has recovery there incremental rate portfolio, historically. above is is matures lesser a repaid. of as you XX% assume For This a or experienced on if would share this and NAV default market the is rate expecting debt be and an $X.XX a purposes, rate the XX% default still

Turning finally Slide XX. to

you the over aggregate X years, these $XXX.X last we three of investments. If a have portfolios purchased million combined

mark two-thirds these fair of and combined a XXX% respective unrealized of over of at realized at value the time realized positions have We of closing their mergers.

rate $X.X XX% to vein able there pandemic previous to those $XX.X most million the market are and XXXX, as a the despite XXXX of a XX, compared default weak XXXX. and asset analysis. December million or in recovery and similar as value achieve XX% slide, of portfolios, these in when a par global for In incremental rate similar of applying a XXXX an remains results as classes all We in almost

to results call the our the over I'm Jason period. for to now further financial discuss turn

Jason Roos

Patrick. Thanks,

As despite a environment, the both quarter for Ted full XXXX economic performance. and challenging previously our financial and Patrick both the mentioned, under strong year fourth results for operating reflect

This of XX.X the XX.X income XXXX full The largely reflected securities securities million, portfolio. to year XXXX, which for along investment income purchase from due was year XX million the was was attributable was investment price full in which income XXXX million Total from well for decrease to of to income compares XX.X as of total with to interest the reduced debt the lower interest aggression income. attributable fee as lower repayments debt portfolio. million

of in the for investment an was the of million, price XXX,XXX million core as of Excluding income XX.X accounting, XX.X to XXXX. impact year compared income increase core purchase our investment

or year XXXX The was due income repayment reduced Our fee accretion, activity, over XX.X per impact lower reduced was and $X XX the $X.XX million per to XXXX. or year net share, decrease of the income. year million largely share purchase for compares aforementioned which the full investment for to year full

rate December XX, revenue of As our interest XX.X% the the interest quarters. portfolio debt in weighted future in on and generate earning and securities incremental XXXX was approximately contractual remains positioned average environment a December We to XX, XXXX, believe rising rate well respectively. X.X%

the Total expenses reduced see item expense note was expenses to we on costs. XXXX. debt. and are costs administrative total of associated XX.X general December expenses to and predominantly the year trend interest million the for One we XX, million to other we're in services This rising to compared with XXXX administrative in full XX.X to maintain seen that by related year driven is XXXX. A continue looking ended our

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

X.X XX% and million relating borrowings of secured of the total a XXX on balance notes million of to balance under of comprised of in revolving XXX.X side a borrowings XXXX, draw credit XXX.X value four a liability of notes quarter On increase revolving X.X facility, December by million XX.X represents outstanding facility. a sheet, XXXX due quarter on XX, in as and million par secured million This XXXX. over our of due million the notes had offset of we repayment million our our credit XX

capacity the As reinvestment the after million the and capacity credit ended available dash draw no the we of of November our facility, XX, secured XXXX borrowing had on remaining XX.X as facility borrowing end under revolving quarter, senior XXXX. period the two of revolving under shortly

successfully month, to per and interest interest and previous the so from far, our facility refinance per as in the pointed facility secured benchmark in of the three reduced out April annum to extended maturity changed our to which credit XXXX. annum earnings the revolving senior we rate April, of calls, Additionally, X.XX% margin X.X% rate XX,

the This of gross on net end perspective, its was basis. high a As under quarter X.Xx X.Xx the end fourth a target expiration quarter our basis two was revolver capacity XXst, at XXX%. the in range, advance of in the ratio a on XXXX From our by driven our coverage dash of of asset at XXXX. drawing and is remaining the December XXXX, ratio regulatory debt-to-equity of

business March on announced quarter the in stockholders seen which consecutive and distribution on XXXX, first financial XXXX. the represents future the increase declared for financial over quarterly an distribution increased quarterly by of an at and as XXst, prior XXth, was Lastly, of and is latest from the our quarters. two March distribution quarters. quarter close increased of to performance similar increase yesterday, fourth increases, quarter a per six board the of levels, approved quarters of and the levels $X.XX stockholder supported payable the last This $X.XX distribution increase continue represents $X.XX also expectations and record performance $X.XX by of The from of strong share, fourth in of stockholder XXXX

With call to back that, turn will I the Ted. over

Ted Goldthorpe

you prudent our advantage Thank investment anticipate shareholders that our shareholders Through able for we ongoing management, with again we questions. that to coupled be strategy, are to once take will our emphasis we market. all Thank selective I'd our reemphasize the like support. for returns of on current of generate well believe to to you. Ahead positioned in XXXX. we cost yet strong

call and the turn prepared concludes This the our over now with remarks, questions. any operator I'll

Operator

of come line first the Our Thalmann. will question with [Operator Christopher Instructions] from Ladenburg Nolan

Christopher Nolan

of What's bringing range? leverage is we're the leverage what's ratio terms down, level, in and current going The the it maintaining forward target that high. anticipation

Patrick Schafer

Yes.

it's Patrick I Schafer. Chris, think our -- hey

So our before, we ranges remains of leverage I kind to target which X.X. think, is X.XX stated what

that at little So we're a X.X. bit above

attractive expect think. as decline into leverage of net. was us back that over financing target and our up to particularly at range, of range would our it's out our we below little it leverage kind I Again, mentioned, what a given X.Xx we bit year brought of LIBOR is have But the above drew terming of we X.XX. plus this course revolver, would which intentionally kind something a think

Christopher Nolan

guys but days to it's any follow of a perspective fast-moving as your early Silicon and the situation, Bank a have, deposits figure it's And their out sponsors evolving companies in any and and trying news terms have today, of terms Patrick. I question, but know know portfolio of welcomed. in thanks quickly you or there? I may And Silicon a exposure are to up would Okay, is Valley it's situation, in significant Valley be

Patrick Schafer

unforeseen effects focused too And knock happens, a early flow knock-on of on of, and like how but we cash. this think on effects companies of and always our then I Yes, the think there through other assess, night as this tech anytime called effects. on too again, look as is very to time portfolio don't right that something does -- big this you through if lender really number to of We happened morning, would to our going we're lot rest it's on last we portfolio, this material portfolio to impact a ripple at going there say have and think, in some they're don't the a if of we little I there's discounts, think to of is at sell financial spoke the things looking whole at terms having certain other because be some they're that unless businesses obviously, it. given big we're securities markets? the well will our any as now, a both

Operator

[Operator Instructions].

question with Lynch line KBW. will Ryan of from Your next the

Ryan Lynch

morning. Good

happened First, as income as, expense. in quarter-over-quarter well wanted as I investment well to interest interest as what income to just hop of kind or regarding

bit a at Meanwhile the were fees. $XXX,XXX look your lower look and hundred lower like about investment that $XX.X dollars those but So a as it core slide of I in thousand to $XX.X only think accelerated million also maybe couple only little I was dollars QX. know income, quarter, as increased at far I from versus -- million.

went $X million. So by hundred expense that was up dollars thousand only a But interest few over headwind. meanwhile

lag So wondering, rates, I of the just same I quarter numbers. impact impacted but a there that positive third that from rising was understand is lag

want lag. effectively generally feels same quarter-over-quarter, where the we we But so will always And are, it like amount. should out to moving we be

in why on of movement curious investment Where numbers? quarter in moved rates just was third which where income quarter, then the relative impacted fourth went. I So quarter this the have mostly really lack to would your rates

Patrick Schafer

is just -- Ryan, let start me quickly Patrick. this

me timing. quickly the start on Let

at is which the bulk, liabilities, Portman, it middle of the the end So our floating is the reset November. particularly for in CLO, not specifically resets of rate bulk, XX% the over our of but quarter,

of a are majority reset bit cadence of during a rate we different So a the on on where our quarter. floating the liabilities

actual of Fed time, reset. the mismatch can the hikes rate over when on of of timing course the depending So a because are a we period get that bit of a there,

because There when So a $X.X again, to our not roll amount quarter. they of presentation, rate increase discussed in forward, our were basis. it kind we and show significant of you fourth on further kind of the is in where run a the liabilities, of we during and reset

income But themselves. timing. go wanted of So out the the numbers timing kind that's some to on differences. there of over to I'll Jason throw to highlighted turn that why we the of specifically through some just it But

a when situation, big reset. unique of a a our bit chunk liabilities of floating of We rate because have

Jason Roos

Yes. happening netting Okay. some there's there. And impacts

kind So of purchase you if you quarter-over-quarter, at see a of running about $XXX,XXX. clip look at off accretion

So that's with income rates to that of has be piece throughout a quarter. the the offset interest

a the to can $XXX,XXX just on offsetting those some was to investment That's more was at, million and that. by drivers and slightly get talk offset up net really call $XXX,XXX. are on mentioning. look alone. accretion income. the bit increase million $X.X that interest are plus dollars well closer quarter-over-quarter income you to it, over down quarter-over-quarter pure to quarter-over-quarter to we net If down, about CLO little But of interest, we I a Fees

Ryan Lynch

steel And that going much good Yes. down expect low income Why run would a more if that run that important? -- is Is so forward? quarter rate. to rate

Jason Roos

your yield, life that's your and cash Yes. what the IRR flows flows. accounting around The you drives those And on that interest income the CLOs method. which CLOs. assets IRR as move in and of will calculate your model as a the your those And drives future reset change, the on basis cash interest beneficial you over are your is for

the As market that yield the down, cash which just yield. flow a of cash decreasing, environment driving is what's in embedded coming flows given that future that we're in, result stream the that expected is reduction

Ted Goldthorpe

shorthand is, Yeah, the so at perspective. revenue actual the there is price the of recognize has on CLOs marked an a are impact that we from what

being down less CLOs a not on down being to the necessarily revenue necessarily. quarter, It's lead cash securities So from marks over flow the recognized. being quarter

in because you underlying to to it's see CLOs. as we in opposed mark increase little a the the of of quarter, flows up would CLOs that. a speaking were revenue, if the So revenue an more But theory, bit roughly of recognition cash next

Jason Roos

happened time, say, the other Yeah, change they defaults to third-party fair terms and and for methodology and of and but the think, in think CLOs how how same view future it's I thing their of XXXX in periods account around they valuation firms defaults. I

a so on they impact quarter, made not also income, but And -- that which an in had obviously the on only valuations. change fourth

Ryan Lynch

were like Then prepared the a the net nav. a other quarter BDC other relative quarter they've know but of lot losses decline driving recorded certainly is marked about talked bit this that the market portfolio it you last quarters I in to kind outsized the just of really last about, marks. your sounds and and been talked but couple question to it you comes in little remarks, to,

that outside what that marking BDC. BDCs can portfolios, non-accrual a range increased you and significantly markdowns portfolio, also is an but the they when indicator well so at non-accrual for look know normal can't I Now in I I meaningfully, standpoint comment specifically, other how understand we've their seen that have on the the increased are still declines least your hasn't one from that default been at have credit

you market mark play just the that just mean, theoretically feels like to those out it is and large and So, more depending to to how will Can conditions market besides really if on BDCs. other about why there's time, something talk relative mark on what -- those are eventually it market. outside it they're so recover over but it's you spend I expecting? going markdowns

Ted Goldthorpe

markets about think, levered, you big markets. we're and not Yeah, comparable we -- if vis-a-vis back, you right? I year happened were what mean with we're it's something indices a think a overall huge year take obviously last step really and that just If the where outlier last big,

We are remarks. I and an not speak people's increase mark lane other XX% first policies, outlier seeing debt a we our or mentioned debt, in -- vis-a-vis as sector, quality. And can't his XX.X. and market the decrease average in credit BDC average, Patrick are is at is our our of but to XX% debt

indices, upside way, the the you So, what are like that obviously well. earnings rate can be lots by this, saying, by big in shock of where still add I look elevated you at and mirror in default to you're we way, a feel if vis-a-vis there our look every to hear portfolio at our we our single again, nav. pretty as and look market you we and very day would a peers’ and valuations the I say, should But can ways different our

temporary to fair -- I stuff, nature. there's believe our at not would policies, there I non-accruals specific are declines zero. on our but obviously, broad and today I'm credit going are NAV say valuation but we always mark-to-market value largely mean, And is, again, so, comment our

say our obviously, would I internally hear about want But we something and to I a and valuations lot conservative adhere policies. that it's talk what be on -- saying -- to obviously actually, valuation we our you're always So I here.

Patrick Schafer

true Yes. would a BDCs two opposed of liquid other as other of type has minor perhaps little have party mark-to-market And we marks. that small Ryan, chunk to do add I kind portfolio a of of points lot is valuation a the like third some unlike more bit a

perhaps fair general actual a then obviously, assets. not a that or to valuation So investment value BDC yields that second sorry, and kind have get on the syndicated the relative of reliance do on to benchmarks. have would liquid markets two kind level benchmarks the And is is, thing another slightly policies. decent again, the has of disproportionate into in doesn't of impact and perhaps people's really I We those say our had the any market volatility where

perhaps using So that not if perspective. again, a lead that more ultimately, others yield Lever from loan does to little bit a more, relative of perhaps mark-to-market, does CS to kind on indices volatility they're

Ryan Lynch

at at looking just I I is the flow at Credit bid and looking mean, versus Swiss, LCDs XX. Yes. a I'm the guess average I'm name

in I also certainly I conservatism you your marked liquid loan down appreciate and that at would overall that your so level that and if if is level. it leverage guess don't indices I out see that's the What in other see book time of marked XX. broad find over that conservatism to potential? first conservatism indices, that And down have why don't it potential We'll low marking just of ask, when BDCs name guys I at drives mark. level and I But that

Patrick Schafer

is XX these think marks. I [XX.XX] number today figure. And are a again, that

if three a credit of and our this changes. post for year. we've had SVB, months we'll But indices first when at liquid pretty So see the you this benchmarks, rally obviously, in again, look big

than So, tighter, you were we higher the portfolio, tighter look prices spreads they're at meaning XXXX. if today, they meaning at value are used our to are benchmarks, the

floating So a rally real and you've has because you've portfolio this put floor loan floating loans. debt, a obviously, majority had obviously, is rate in pretty valuations. in for had under big And rate the definitely longer vast rally a higher credit big

number obviously, would the to today, So going the were today, we if different. value you're look book like our use like NAV and again, using, the indices

Ted Goldthorpe

Suisse and I'm in right and of not index I what average as that literally use pulled the a up I'm XX. year-end to at follow up only say, Credit XX.X, mean, loan that looking price again, the thing I'd offline. of we index was now, broad -- use And we again, Ryan, is levered Yes. part happy a

said, I It's entity that's or sync up that to part our I'm apples But happy like not what up XX, is available that's, makes of afterwards. the to So, apples. valuation again, indices process. sure I'm a publicly

get And high valuation about last we But for because, thing say, for we is look mighty the our and again, all our can policies the single to I'd testing think every board hit realization want and everybody and do back our were don't was where speak realizations we values realized. themselves. at it for -- I higher are rate was across and than overvalued. beforehand, And where and it the other valued of it's XXX% quarters basically like couple we at last

to mean, it us just board that are our provide to So for generally -- speaking shows the comfort valuations I conservative. it's

Ryan Lynch

figure to and in are for the is of outsider the is a of quality broadly just now focus the credit [indiscernible], investors is trying that and the that moves given if what's to which in And out in is to conservative, of credit are think, sort and your I from looking as navigate then that. to decline. combination what something do the mark-to-market? market on booth I that's particularly there just NAV or both across Is NAV outside today, probably portfolio going them, with for we right here Yes. outsiders the trying portfolio these an figure we outsized as guess, is But decline out, just looking, NAV I at trying as fine. guess, well

appreciate I it. So

Ted Goldthorpe

last saying? everything with too. agree agree I that. night [indiscernible] with I Honestly, all

it's I'm we diverse have credit like like as frustrating we business but an -- and we is as well seeing, we doing issues incredibly so not feel everybody, will say And portfolio. have our well feel not are we I because really mean, really

We I And can just like a that think basically loan have reporting huge see our at others, to NAV year just on non-accruals but where the one don't are off impact I to mean, BDCs like name comment look broad business. I Again, I'd got and our -- I numbers so last indices not it's and say zero. are me, benchmarks in -- just really won't I are. have flat flat wildly

you guess I that's mean, So obviously our be we but as we the timing a have was if same I My shareholder, fourth are the ask question. what can't same is so we increases would be normalize. buying is ourselves I'd because and I raised back question -- are I all -- the -- counter saying to asking continuing for our is that lag dividend dividend We will the time. issues stock. well,

And pretty this we are earnings so again, year. optimistic for

Operator

we management. [Operator conference time. the have to I'll over questions at further this Instructions]. And back hand no

Ted Goldthorpe

look Thank very everyone, And you, our all speaking announcing for Thank be when today. Great. joining us we will forward much. to quarter results. we early to May you in XXXX you

Operator

meeting. Ladies Thank conclude today's all joining. and gentlemen, for that you will

You may now disconnect.

Portman Ridge Finance (PTMN) 10 Mar 232022 Q4 Earnings call transcript