PTMN - Earnings call 3 2023 | Portman Ridge Finance Corporation

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Operator

Welcome to Portman Ridge Finance Corporation's Third Quarter 2023 Earnings Conference Call.

An earnings press release was distributed yesterday, November 8, 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-Q filed yesterday 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 of 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

Edward Goldthorpe

afternoon, joining Good our quarter XXXX and third thanks, everyone, for earnings call.

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

quarter solid portfolio are announced we XXXX its and Portman in operating despite power Yesterday, earnings market a somewhat third Ridge conditions. results, challenging the of with pleased the

income core debt by continue we portfolio. as on impact year-over-year, rates see up the Our $XXX,XXX to that our increasing rising was investment have

asset share. per from share per to $XX.XX share per Additionally, increased net our value $XX.XX

past dividend a We compared dividend approve to XXXX. $X.XX a the a to an the to approximately amount be basis, share, to this annualized XX,XXX $X.X continued in on representing total distributed board accretive third share, the return able net program, million asset per that year-to-date distributed of X.X% $X.XX was value. a quarter. shares to continued On quarter, represents our level average XX.X% purchasing performance as a over strong shareholders during the repurchase increase directors per dividends at cost of of Due to

discussed remain in deal flow have M&A outlook. on previous year-to-date, we the optimistic to but be depressed at quarters, levels As overall continues we

activity see of the rates remain of pick private of combination equity fund will and starting from reasonable return encouraging early valuation finance elevated capital up On the more extended the on managers. of expectations interest are deal a an the front, that we powder being sidelines period innings dry for to their sponsor through acceptance LPs significant time, and

Sponsors less higher their point. the processes, to for non-sponsor our activity the find on We'll higher total new are activity very Both put be leverage M&A looking and continue -- benchmark which these rates, better opportunities ultimate from investment increased to lowers on contributions cautious rate companies, attractive the and to the leverage combination place. levels deals, remain equity of detachment the in appear execution on sponsor be to lower of we given documentation. sponsors recipe

uncertainty continue very continued Ukraine on and more portfolio inflation, investment be attractive companies than around opportunities overall have conflict macro new Given Israel, to consumer in and the ongoing in we new investments borrowers. and sentiment found selective existing those in

the million. cost the This so. the follows do and able trend to this XXXX to of trend set $X.X quarter half continue first repurchased approximately we stock renewed quarter, continued Refocusing Ridge, incremental as program. believe under an on our to we shares Thus, we aggregate mentioned, previously XX,XXX for purchase the an In throughout of XXXX final and expect of our remains are repurchasing as the through stock we Portman undervalued. continue year shares third

recovery to there rates. believe significant upside through for in cases that my But asset default Patrick we discount value overlaying to continue stock of also value. market to the will the NAV Following is our price, potential net remarks, conservative embedded walk even addition trading when and

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

Patrick Schafer

Ted. Thanks,

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

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

chart, during rates see cycle. and rate the since of As is of of underlying from prevailing the has hike rates below it market assets Fed October XXXX, lagged our but the quarter benchmark still SOFR onset narrowest the the XX, the the the you rate gap can as remain been

we by our on simple to XX, changes largely would lots a a slight For our all basis SOFR rate, not reset run purposes, methodology slightly Having a or share balance rate generate quarterly were in a X of to incremental to asset that, said assuming LIBOR $XX,XXX income. an portfolio. either of of the NII expect lower of assets driven if to Slide as September shows decline X-month per and XXXX, any respectively,

approximately Skipping $XX.X slightly still XX. but million. below quarter than down to for Originations Slide of remained sales third quarter and levels, the prior were the resulting in repayments higher net repayment

quarter was the Some X close early in this pushed that and to during late repayments expected by driven QX of into were transactions QX.

spread and Our yield purchased XXX are investments expected to the new a the quarter basis were of at cost a points of made approximately investments on SOFR XX.XX% to of during par. par value,

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

XXXX, the We -- a In investments one aggregate, of to compared amortized come XX. relatively nonaccrual to as off and of the cost, new due XXXX X.X% on the completion compared on XX, fair at Slide XXXX third quarter June of June nonaccrual the investments securities as to of portfolio value at company remain nonaccrual going at investment of third represent restructuring. status X of X the Turning and in company's as to These one end stats respectively. and had X low XX, as XXXX. of status X.X% portfolio nonaccrual investments on quarter nonaccrual

aggregate of of blended value par securities an we XX% nonaccrual is first at par On and fair loans lien have value comprised which a million, investments, $XXX debt Slide XX.X% XX, price of value. of excluding represents our

potential fair NAV recovery, Assuming $XX par excluding September recovery investments. of value, share, a $X.XX of million a nonaccrual or a our XX, incremental increase reflect the per any on XX.X% values XXXX,

purposes, portfolio, recovery of illustrative on would you XX% would value rate or still be XX% X.X% NAV there share debt assume this a incremental rate per a default if rate and portfolio For an the a market anything increase over as on experienced is is is above indicative this the excluding expecting is recovery historically. or the time investments. matures repaid. Again, and nonaccrual default $X.XX This has any

XX. Slide to turning Finally,

portfolios indication over positions an XX% combined our fair have realize ability of mark sourced the over of combined assets. of value at effectively realized legacy of realized respective BC acquired while portfolios of to investments, at XXX% the you acquired and million the of last mergers. we a This X X closing the value the these years, Partners purchased a If aggregate rotating time $XXX of is unrealized have into

global importantly, More results XXXX for half most we're able to almost weak first XXXX XXXX and the pandemic those all a in and of market the achieve of asset XXXX. despite and classes in

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

Jason Roos

Thanks, Patrick.

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

investment quarter to a comparison of the to XXXX. million income represents total of third decreased from second and quarter-over-quarter the second $XX Our in compared to in $XXX,XXX quarter million XXXX slightly total million decrease reported the investment This income third quarter income of by to income the $XX.X reduced due of of in investment income in $X The was total $XX.X reported dividend million quarter XXXX. largely the decrease fee XXXX.

of compared of for investment the second for XXXX, third Excluding $XXX,XXX to compared $XX.X $XX.X to of million the price income the $XX.X impact quarter the of our of as accounting, was purchase decrease million core XXXX third $XXX,XXX increase an XXXX. a quarter million, of for as quarter

third quarter per $X.X of Our net income or the for share, decrease The per income. per third XXXX of as to aforementioned second and share the million quarter-over-quarter million XXXX as or $X.XX $X.XX decreases due was and or compared of XXXX. million $X.X of for decrease investment $X.XX million quarter the a fee was $X.X dividend a to decrease unit largely to share $X.X compared for quarter $XXX,XXX of the

of and XX, weighted the interest-earning contractual our on respectively. XXXX, XX.X% XX, rate As interest XX.X%, debt June September securities average and XXXX, was approximately

portfolio was third of well expenses. to result environment. quarter to to Total This predominantly second the remains the revenue quarters generate due decrease to from in $XX.X XXXX. categories, positioned quarter a believe in for to future current all continue reduced XXXX reduce the overall expense efforts incremental of expenses due $XX.X our quarter-over-quarter the million in million expenses We rate to decreased of

or million value asset million of the XXXX per quarter or second as the $XX.XX to share in third $XXX.X for $XXX compared $XX.XX XXXX. net per was share of quarter Our

Turning to of the liability sheet. balance side the

XXXX we $XXX.X of million our under credit This XX, of value interest weighted a in $XXX the net $X $X.X million due secured notes by X.XXX% on on $XXX.X The credit million XXXX. a notes XXXX Notes the borrowings borrowings average revolving balance million a and of an of and million rate September million repayment $XX.X due driven primarily current at of due had secured was XXXX, was quarter-over-quarter of As facility. in X.X%. comprised revolving million of $XX total outstanding par decrease facility, repayment

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

X.Xx of basis. coverage a As was was regulatory basis on and From a our debt-to-equity at gross asset on our perspective, quarter XXX%. end XX, ratio a ratio September XXXX, X.XXx net

a distribution per increase $X.XX to on amount a quarter the XX, share. of of payable announcement XXXX. by announced XX, close for on of distribution of approved compared of November November and as This XXXX stockholder year XXXX. quarterly stockholders declared X, results total per the share fourth business distribution and November earnings the Including Finally, to full distributions XXXX is XXXX, $X.XX as the to to was the record per board subsequent $X.XX XXXX, at share

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

Edward Goldthorpe

Thank you, Jason.

to environment I'd throughout to the shareholders current returns the of so able quarter of we that will our strong for year Thank you shown believe Through deliver are have shareholders believe Ahead like all of we investment be ongoing final far. XXXX. again to reemphasize we positioned we prudent the year to we as the and once advantage take in into our questions, support. market strategy, well to our of

turn This remarks, call concludes for and questions. I over our the will prepared any

Operator

Our with from of [Operator question line first the will Paul KBW. Johnson come Instructions]

Paul Johnson

if just there's there, at where just in leverage post kind payment that that in of on is The thoughts out overall are coming you on leverage be what's your terms helpful. of basically year, of that focus just into of gross see going giving would just investments and kind first certain the across maybe reducing next kind rotating or the redeploying

Edward Goldthorpe

Yes, great question. it's a

I again, high think have the answer stated which is, leverage target we're range, end close of. to the a we

will if to uncertainty going We're into I nor so -- our I up I don't don't leverage anything next need ROEs, go earn very our into like mean our there's feel next and again, a year. leverage we will And earning year. like strong feel leverage earnings. down. of our don't dividend going go lot

was shareholders. recall, of a leverage is to least that that down temporary we a period people. come within use coming or you leverage range took it stay we've if -- had of it at for we we now for very expect up kind the down to or outlined yes, we which facility But lose because accretive time, So

Paul Johnson

kind ability of buying then continue of share around And thoughts to do see does that helpful. kind How kind That's you back repurchases? your -- of any your that I impede Yes. of shares? your guess,

Edward Goldthorpe

lot like years row, given a are very us think, back given where yield new we again, But just I it where sense of mean, at and buying to it to stock trades accretive a given our and given our for we've is also invest. listen, I us we're very of think to stock. for bunch where investment buy ROEs where for back stock. committed And it's done makes in are, a rates market,

Paul Johnson

I If I this PIK I'm I'm correctly. want right, And so looking then And to my approximately income. was quarter. at how sure it guess, other on does about total income XX% question is then compare, interest of calculating to just the also, income historically interest make that or portfolio? that just

Jason Roos

of income say at we source you're did as as one interest quarters. to of I Yes, and right. this and a That's PIK quarter look we income. more have would function a our the -- of conglomerate income prior income kind PIK some of But relative same

is of PIK to our larger now they agreements of paying This income, cash had of the being the some PIK-ing were that made assets up are optionality function a of we of previously, have which in investment income that the themselves. quarter, amount due some a

Patrick Schafer

one Yes. PIK to on And was there in there then was specific QX, -- phone but sit this was QX. name in in today that also from one cash -- we moved where exited the

PIK you that all go next a of a of expect to So particular down one bit just one that for quarter. little little of exit because assets equal, the bit of the quarter had

Operator

next line Thalmann. the with will question Ladenburg Your of from come Nolan Christopher

Christopher Nolan

or seeing really? sponsors companies, are portfolio not up your you more For in step equity put and

Edward Goldthorpe

I go then don't first Patrick Why can respond. and

sponsors. a just size the is And meaning, middle-market behalf like think I bifurcation decision-making seeing I sponsors, opinion, larger the think so think I behavior that affects I sponsor, in of very, you're players my more been dialogue constant the pretty syndicated yes, they've BDC and of economic seeing on like own behalf we're constructive of sponsor on far. in larger we're this more constructive think we're very counterparts. between again, And and markets. we're But in our like with market space -- seeing seeing the

Patrick Schafer

lenders Ted thing well I looking the this a are leverage. interest period, point in there. at some only and for just as as nail add, as at sponsors focused of Yes. amend extend sort thing of market have instances, kind on the in much ourselves hit to some opposed don't is the to multiyear that coverage if are The

structure down to oftentimes bring coverage to there's so And be incremental to bit where a there that the coming of makes needs a little you into perspective equity sense.

obviously sponsor kind in of are of of conversations. and those doing. is one-off usually what they're really as size kind Ted discussions, But the bifurcation So all on those said, comfortable

Christopher Nolan

I seeing of multiples in EBITDA [Technical sort a rates? And be you guess what obviously mean, follow-up I change question the are . would Difficulty] given

Edward Goldthorpe

Yes.

there's companies. same point, the I So not to is on interest being page, is pull, coverage push for to basically max a ratios, everyone back-solving Patrick's are but lever asked which think their we're but sponsors

to to was the seen private debt. ratios. X we've consistently, interest So which come down leverage with leverage the into mean we're recent that no that I large of just X equity is sponsor pretty going definitely been anywhere deal coverage I'm not to know, able finance view a turns back sure cheaper, lower ties for it I that would later, from that done don't they're be just and And there's I make levels. yes, bet. asked But

don't like So leverage asked the want not it's to of we're max being it. for we tension do

Operator

will next come Martin from the of [Operator question line Slater. with Instructions] Steven Our

Steven Martin

questions. of couple A

missing went went that went that X Am said off, X. and the to You on I the non-accruals on total but X something? X from

Patrick Schafer

term with loan each other. No. in our as new securities revolve I they're just mean, and different technically, one, X nonaccrual the we has paired

but X So them different both of on it's -- securities. we X borrower, It's nonaccrual. have

security not So count and is that count. borrower table

Steven Martin

you right. it know would X elaborate -- what on is, behind story is Can what -- security that the was to care All I it? but or what you

Patrick Schafer

security came went the of that security The back on? that

Steven Martin

The the one one concerned on. that with we came that were back, less went

Patrick Schafer

the is candidate has side marked hope They name. working a that legal growing but to restructuring. has struggling smaller relatively and We've business a been is a quarter we've side name of is been it the is par bit to of We felt have what growing with the other on house period in pretty prudent the Hostway, in short-lived there's it's it's restructuring potential the revolver below well, one we the relatively sort the of one time. nonaccrual light Intermediate of house, entity side pathway is HDC/HW of for short had Holdings, a other a sort that that of house, in hope been it It's on legal a the of the LLC there. The that company it declining. term loan company HDC and lenders put the with within for kind a of pathway -- little and

Steven Martin

Is it a sponsor-backed deal?

Patrick Schafer

deal. It very stage. was The is not involved sponsor-backed at sponsor a this

Steven Martin

source one Got was BC Or a it. inherited? was it And deal? it you

Patrick Schafer

It portfolio. from It was was not. inherited Garrison the

Steven Martin

vis-a-vis quarter-to-date Okay. talk and events and/or repurchase? about Can et share repayments you sales, cetera,

Jason Roos

I can give you some high-level numbers.

On had sales of about little pay-downs. of we the approximately $XX by purchases, -- purchases, over offset million XX a $XX million and

about $X.X have then then $X.X get in with doing portfolio. delta you others, the role, offset about accretion a million of If of you're And the loss the by and unrealized realized investment million. you a some gain

Edward Goldthorpe

You're about you or are mean I right? through about asking activity quarter-to-date, quarter-end. about talking -- you're asking

Steven Martin

Yes.

Edward Goldthorpe

Yes. speak the of normal think today I about course. mean, I -- mean up nothing I don't can to quarter. anything in I than Like would different third think say Patrick I there's there's market But experienced outside we you. nothing particularly the

Patrick Schafer

We that's companies new X the or particularly Ted I X course of that's anything in repay. companies. of We've on No, there's X said, handful Again, so quarter-to-date. portfolio right. far portfolio ordinary think of invested kind X or had outside as gone don't

Steven Martin

Okay. repurchase quarter-to-date? share And

Jason Roos

program as get to to And we have know, it is we'll -- up ongoing number, set the when on out, that that Steve. an it's normally program. turns But back do. I'd you as you

Steven Martin

comment going you your and Okay. the given the view Two CLO of more. on the end you're And dividends on over-earning Can into market? dividend, the year?

Patrick Schafer

CLO can and market talk Ted Yes. dividends. take the about I'll

market some particularly been bids into the and of and has better of that pricing bit driven of market formation to general to touch general, has buy assets. That of overall syndicated bit in first loan some CLO need in a led healthier, as little QX CLO in has back the half a the here. QX is the a -- I'd maybe say, little sort bit

I'd quarter speaking, So in last of market is the kind the couple this a relative like perhaps today to healthier or where bit say CLO sometimes generally quarters. sit we little of

CLOs our periods. Having the investment we said that their are are that, invested of generally -- out speaking, in,

the and CLO relative that making things repayments in cetera. by around So what the et like of there decisions their tests of distributions, and OC portfolios, on large, might kind are various expect around they managers terms

to last, portfolio over from but our generally a say, separate some market or is it, market weeks call little X I'd broadly, so. bit had the So the speaking, the particular has CLO improvement X

Steven Martin

So of funds portfolio your the a than given source rather CLO of is portfolios, specific CLO a -- your use funds?

Edward Goldthorpe

source it's It's -- of always a it's but It's not of funds. just of funds. of amount source a always different a funds, use

Steven Martin

Okay. mean... Yes. I

Edward Goldthorpe

again, you're it's asking about we're couple return valuation. only we I think weeks look, think -- in again, quarter. of I X% the return. our getting don't And I total small. of off versus into And income mean, portfolio. portfolio. positive really it's terms And income I our think It's of know a

Steven Martin

Okay. And year-end dividends? Ted, comment your about

Edward Goldthorpe

a dividend, asking of that you're terms is what special In about?

Steven Martin

lines. Yes, something along those

Edward Goldthorpe

M&A, our big I to mean, for feel The speculate I our pretty dividend we pretty spillover dividend. really created shareholders from not rates benefited we cuts listen, rates. which obviously about don't that's of we on advantages in say obviously some Even good thing. our a reduction which this the some would down short-term around is protected income. because Fed greatly if

we're a and is. -- dividend [Technical So I -- it terms if are dividend think Difficulty] period of assess there's again, where don't we of where we'll earning where in again, income. And -- spillover our I we're our comfortably So year-end getting about feel see time in every we quarter over see at assess good obviously, we

Operator

line Power. comes from of Our next James question the

Unknown Analyst

in of quite partners made I out. -- bigger they wondering know did -- talk you that quarter And had them pronouncing going correctly, filing be intentions are about get I I and block? to was they their they anyway, to of was last -- don't block? bit whether it the if wondering a this stock would I'm a about but and what sellers they've how repertoire this

Edward Goldthorpe

comment think don't shareholders' on shareholders we individual Yes, individual intentions. and I

sure So I'm really on not a that. make to comment we want

Operator

Ted at Goldthorpe questions for call further any I'll time. remarks. back no this hand closing the have over We to

Edward Goldthorpe

our all you thank for Well, Great. attending call.

us we call. happy As forward everybody to Thanksgiving. to please per to And any next again has reach always, great which out Thank you. with we're look on a our you I discuss. hope speaking questions, to And

Operator

call. Ladies joining will and for meeting. you all gentlemen, today's thank our That conclude

You now disconnect. may

Portman Ridge Finance (PTMN) 9 Nov 232023 Q3 Earnings call transcript