CPTA - Earnings call transcript Q2 2019 | Logan Ridge Finance Corporation

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Operator

At this time, I would like to welcome everyone to Capitala Finance Corporation’s Conference Call for the Quarter Ended June 30, 2019. All participants are in a listen-only mode. A question-and-answer session will follow the company’s formal remarks. Today's call is being recorded and a replay will be available approximately three hours after the conclusion of the call on the company's website at www.capitalagroup.com under the Investor Relations section.

The hosts for today's call are Capitala Finance Corp.'s Chairman and Chief Executive Officer, Joe Alala; and Chief Financial Officer and Chief Operating Officer, Steve Arnall. a the on operating company's issued with X, results. Corporation of details quarterly Finance press August release XXXX Capitala financial and company's A available press the website. the copy release of on is

information, forward-looking Please that provide than the operating strategies, this goals, contains results flows. including note statements and regarding statements cash call information that other beliefs, future company's historical

statements. Although, those projected from could differ the company materially believes these the statements forward-looking are reasonable, actual results in

and risks, These Forward-Looking based uncertainties subject various to sections assumptions the underlying forward-looking Statements company's quarterly and are those statements report XX-Q. and including titled to obligation on statements. revise are on update no the Factors any under disclosed Form numerous Risk undertake or Capitala in

to At Joe this I meeting Alala. like time, would to turn over the

Joe Alala

Good into you today. thank address operator. quarter you, of for results the and insights everyone, we any Yesterday, you Steve have. second morning, you the us XXXX. give for quarter our released may and questions I'll joining and Thank

specifics from XXXX, Before in debt want focusing secured three portfolio. change and Early we strategy. investment get into adjust decision in we investor our rebalanced After away of debt related to remind successfully to senior you to moving the strategy current made our mezzanine the I we debt. on quarter, the years, investments the have

XX% Firstly, debt to XXXX June June at investments value compared are XX% XXXX XX, basis. of a the at total debt XX, portfolio on fair

and since per IPO, have quarter distributions return second to $X.XX the share line million that for was I'd capital. income a $XXX had in we've quarterly the investment like of with in Net point never out paid regular our distribution.

factors. was value significantly Net impacted by several asset

Acquisition for investment investor the XXXX. transacted not ranges prior we of million Bank Ultimately realized mezzanine This our point. our since LLC. company mark. responsibility to business were expected and the is no buyers $XX.X earlier The interview Senior at provided similar a in we the loss price sales in supported given the has in investment sell During taken which Several the ranges had on bankers bank. this over value quarter, the outcome fair by foresaw AAE

Services' under Also on stock our belief $X.X Acquisition collectively under of during Portrait that EBITDA. with is million shares declined shares is lockup traded is LLC, with equity a This $X.X this from this GTM in related the equity Well appreciation resulting decline publicly lockup, to recorded until our of US temporary. our Studios, million CableOrganizer unrealized rate the mostly It --valuations declines value year. value by we November quarter.

basis portfolio a at As risk XXXX, in grade a Non-accrual in X.X% value have million fair total or we four on portfolio. X.X% currently couple look $X.X or of observations. risk The credits basis our IPO balances our value XXXX. since the lowest a the And three. the within on level total a a of at of fair of June total portfolio. XX, We

invested in $XXX.X we which actively Our securities. first manage investment strategy has debt changed of the XXXX, credits. XX% entire continues in focusing our [Indiscernible]fund were million reductions to on the portfolio team Since BDC portfolio, in investments, the lien

As reducing stated and investments. mezzanine investments and rebalance our continued focused on secured senior investment earlier, we portfolio to equity debt

and through investments. and lower equity of a unrealized produce We net a in ultimately lower gains this distributions of confident support and income losses that quarterly return will realized on superior resulting are strategy more stable equity investment on level

value and and a quarter of fair Our investment basis a equity the on portfolio cost represents XX.X% end. basis XX.X% at portfolio

Holdings senior is Inc. rebalancing Part holdings the redeploy monetize During Bath into continue investments. additional of the and gains to we quarter, US portfolio need the equity our our from proceeds Group LLC equity to recognized and investments the in of secured Navis debt

monetization our in the in summary, we satisfied XXXX reduction second a while significant are from are half about I'd future secured ask decline later In to exits XXXX. like during earnings in results not And equity investments resulting debt on provide to first with and NAV, we anticipate point, At financial a We more this of expect from sales. Steve very our normal equity senior some portfolio. a color results. optimistic quarter

Steve Arnall

was Thanks, of income comparable of quarter $X.X of a everyone. current periods. Loan of Fund second distribution for $XX.X the II, $X.X lowest XXXX. from income level million, XXXX million the investment waiver decreased for Capitala lower the PIK morning, $X.X million decrease were Dividend periods comparable second million quarter during Joe. for the Good income of than for of quarter since $X.X and $X.X was from XXXX Total million the XXXX, million XXXX. total including fees, quarter XXXX. quarter the Total expenses fourth million for the the the $X.X Senior of LLC. period, Incentive quarter of increased net X.X% income second investment second the second

income distribution important will investment of an offset of million, quarter US Bath our or distribution. Navis AAA share by the realized Net of and realized XXXX coverage Holdings. our $X.XX per second always to related per totaled share. and Produce acquisition realized J&J Consistent losses measure for losses XXXX Group in gains $X.XX was Holdings, of $XX.X the Net We partially with quarterly from second for quarter line performance.

second totaled in million depreciation $XX.X million, $XX of of to unrealized or compared $X.XX XXXX. per comparable for appreciation share, Net quarter XXXX, period for the

of for a The million, in XXXX. per operations period $X.X net net of assets for quarter comparable net share $X.XX from resulting or compared the second the decrease totaled in million increase $XX.X XXXX, to

share cash $X.XX at we total XX, XXXX, or XXst, XXXX. June share At in XXXX, XX, cash compared per per December $XXX.X $XX.X assets million, to had million June equivalents. $XX.XX Net and

year-end. and plus June facility addition, at secured Regulatory LIBOR basis X.XX X.XX available million at $XXX.X was compared In to had XXth, drawn points. our leverage on we million priced $X XXX senior at XXXX

effective be to XXX% November Directors least at of ratio Xst, as not anticipate XXXX. our asset do shareholder meeting We Board begun but reduced XXXX, ratio coverage a million effective of November special in subject fourth company have investment to year. covered of basis XXXX, a Xst, be of this On asset the of June fair at quarter with cost approved our a investments for million. value $XXX planning XX portfolio minimum $XXX.X the XXth, included of At to the

lien million at debt investments June average second the average $XX.X a Debt we weighted During yield had XX, where invested portfolio weighted of structures XXXX was quarter, companies. X.X%. and five $XX.X company portfolio the one existing across first entire totaled million The on yield new XX.X%.

Capitala XX.X% at Loan lien second XXXX collectively and warrant a portfolio, comprised equity on subordinated while Fund lien Senior and basis investments of First represent the X.X%. June debt XX, our investments value and debt II XX.X% XX.X% fair represent investment represent

respectively. we million At value two million and fair $X.X companies of and end quarter on portfolio non have basis $XX.X status cost accrual the with

Lastly, our including direct platform year And quality Finance of we on profile expect an senior Corp. in satisfy half origination the second that generating Capitala active is secured platform regard. opportunities return Capitala focused of the that the

At questions. turn over for this it would operator, point, like to we

Operator

[Operator Instructions]

comes Ladenburg And from first Thalmann. proceed. question with Please Nolan Christopher our

ChristopherNolan

you out for bit first higher I I an a normally my And increase know first XX% I so is what first saw see guys are or it's guess guys. in portfolio than you'd targeting? last -- little yield lien Hey, what lien Because last which out. sort of that's The the is question.

SteveArnall

first piece. am the Yes. Capitala mean is Fund our of taking what unitranche out other Loan entities I where taking you're specifically we've last this asking the not out facility I then Capitala I sure Senior part the Chris. program overall got and

out Capitala priced yield The higher it entities benefiting differently clearly first will in so that from the be are a regard. that other

when participates expecting Capitala in those Finance So yields Corp to I it unitranche double-digit think we're for see facilities.

ChristopherNolan

Okay.

a CLF So function just it's really?

SteveArnall

the time, of that's Most yes. correct,

ChristopherNolan

on then and my Okay follow-up is leverage.

What anticipate leverage guys increasing beyond you your the in given regulatory of ratios terms November. start regulatory You leverage is plan your that? can that after

SteveArnall

Yes. Good Chris. question,

look, total SBA The being the at regulatory our is difference X.XX So, debentures. of leverage exempt quarter. our X.X; the end is

total how ability leverage bankers, net deliver increases going for be we regulatory work our our of impacts As with asset mindful future to certainly in we're any share. our to value stable

towards that and from X.XX, moving So meantime in of making not higher there. bit leverage we're lot senior away the to there's secured And support a mezzanine continue to help room move going equity. should debt investments

higher we'll that our continue becomes effective move year. So again had to and approved to level work with towards as bank and our of Xst try this board November

ChristopherNolan

question. What's normalized guys. Final more for balance cash sheet you cash basis

SteveArnall

It greatly. varies

with We active activity investment have repayments. pretty coupled

we at that pretty and quarter where back the unusual. end normal We've are the can So of would liquidity fair a that's of work to amount put say got is we actually. I not

Operator

Our Joseph with next Jefferies. question Kyle from Please proceed. comes

KyleJoseph

on the NOI in forward? that that I taking think non-accrual How accrual? it for thanks talked And do there And wanted guys. base you morning, how my books? NAB. going sales left good to the on just touch on impacts Joe, or on investment that questions. of is about about process anything quarter impacted your we Was Hey, a

SteveArnall

on cash Steve. June that going NII investments. it scheduled fall work. because it was Kyle, this continue right took of on XXth. It kind current investment We on that but We've is we take as accrual negative a forward that have been status one. not but is has I'll should meaningful impact and restocked back to at our to off off put of repayments a that

longer no an it's So investment. active

KyleJoseph

the any to for follow-up could shifting. of been changes you industry. seen leverage in the changes in competitive me, industry one the about industry? then we the since of any And We've thanks. in outlook just increase last it, its the sort you're but talk the seeing if sort spoke Obviously, just Got has been rate dynamic able

JoeAlala

loan be that. very loans generate market new And the able prior side of lien the or I the is process very lien right as leverage on around still entrants right is strategy. have years to less left And really average on loans seems the in but industry of similar the those been a first our those leaving. mean to in We've some it's XX%. as this It's Joe. competitive first yield value. nice is on is XX% competitive in The to think. reasonable are three Steve lower-middle all quarters average some less we than The earlier last to mentioned loans trending

we some out, piece, have captive lower, first and of XX%. higher -- if position are to do we're first small some lien a either first out they fund all very loan first taking or loans senior in around little most of are out little Some a our those

market XX% doing We're not the a that's of first structure where third-party. very we're behind in unitranche active loans, XX% lien to

we correctly. And generate those our unitranche believe still do yields. really type or should we So loans structured

floors higher little loans we our structured years. negotiating down past specific actually when proactive We a than points we often our do. with expect, have these has Now we three LIBOR Those in all became recent the were have bit cut. gone the over And each deal. competitors

the So place having to And to expect good it in market. think about in grow of fall to these of and lower-middle the and ability good the this a team market we're amount credit. the find we we to more liquidity we size have, start feel deals that comes lower-middle we when

Operator

Our next proceed. with from Please comes question Ryan Lynch KBW.

RyanLynch

my thanks morning taking for Good questions. and

one, First just AAE. wanted I on to up fall back

prior like was income. status sounds mark process, that guys' still still it seemed high a sales The an interest on question company the guys a some you that value had giving and and a So bankers fair was process you was in pretty in accrual some that it still quotes. paying quarter. were It was like

from So able exit driving was extreme to just at was X. them mark a based complete process pretty of mark you on a the that or Because the had XX being there else sales at that? it's go basis guys whole to to anything the

JoeAlala

of interest we assets a on few higher great We AAE, those monetize bank investment past been range a end same could asset; could about. value did last process banks. from of sold quarter. Produce that the a our trying ran had we free We that the it banks achieve. haven't company risk investment actually many achieve. had process. to one over a We've cost. a they tight sell the that risk-free full Most range, investment enterprise interview was in the got years. we They believe actively We J&J question. was believe It size over That's talked actually improve the or XX% they a

that team involved our entire market. It valuation bids We obviously process. in actually independent in to had went We this receive range.

out to So the this offers mezzanine bids the the to something range third post involved. declined we in They take the much and We really believe. would And company. believe then that over were bank transacted and party to more taken were longer we that us. to point but a of did transaction. particular this no gets do operations bankers them that did diligence, than the have point this responsibilities would has the of in they try decline go the if We not the declined hold, bank care

we the is that a was So that chose believe and banks, we that that did bank in to the process good impair We we outcome for they zero. we the original not did transact not But the confident were the the ran very wanted. company. in just offers made at were process

RyanLynch

several least the portfolio. you the to Okay of guys' exposure some guys high. be your investments? the I half you process year? your able then as mentioned quarters years further your reduce that concentration that's it a currently in confidence second maybe the are for in or second is last guys' last active reduced there your in reduce exit know some you'll been and that of of the at positions goal companies you your of process are portfolio half in There expect equity several for kind fairly year, of are What markets the or bid the to M&A equity gives that

JoeAlala

Yes. focus look holdings. three sort you is to That's what Equity of if at well. equity publish top names on we're question. perform we the our another that really great But continues

it's we meaningfully -- stock One the track time. of we expire of that are as period Services ups But traded company do lock US over has publicly can Wells time. mentioned traded declined publicly about you talked earlier, past the as the over

can our more you that when two that would equity how large So publicly track have just affect Then valuations. ones. we

large the They're two One already banker. has hired of ones in a process.

optimistic on in We that stages. some the thoughts communicated have been early process very

a company asset that end held transact and that's the larger other year. believe of is BDCs do too. now by We the between It

other monetize the XXXX process while. in larger also and really would larger And should put need a been at to about of fall. we're so first in books that's But for the right that out then So our has go will Wells which one excited make months XXXX a market that on our that for to owned it's lien meaningful market yields. then conversion where they that the believe we're that's one that conversion. by that other on may one. six and then to BDCs these track one it a US and equity that's We looking you're in into it to earnings really And monetize now we our cash too into earnings, on fall optimistic take really and

SteveArnall

on lockup. This is rises. that still Remember Wells Steve. under US It we're

to to November get equal we once trade. are all the free of So things we

Operator

Ward with next proceed. Our Troy from comes Ares question Please Management.

TroyWard

Hey. from a following Good question morning, I guys. had up Hey, on a just Ryan's Joe, real quick question.

couple I questions. how talked based You a about on value takeout. the your was have

hinge in an that And those fair were long other any value underlying the shouldn't than values in takeout? buyer. have there second, investor that almost higher your in you on how an should as are First investment knowledge any transaction as of your of been and solely fundamentals a portfolio owner that

what their in to value. bids, that So diligence but out was you wiped lowered surprised surprised also found the that fair your due buyers

JoeAlala

multi-part sort this of question. me sort a Let

in few the sect that sort me Let parts.

The familiarity with investment. first this part is

first it. and We we it. back fact, fund. very In investment successful we it sold the XXXX got entered entered back time this it private We were when We in think I investment.

it. company familiar -- investment that So Very was earnings. has it, but for This a XX this a is of this have lot earnings. it years and active did company, rental a This familiar company assets we've almost not does have company been in with with very it now. equipment

valuation was process as it's basing So multiple everyone the our sky were anything that not their on. if on value, in was transaction the the of EBITDA potential basing time trailing it bankers a

think the buyers some third-party to happened process believed I in we CapEx understand refurbish needed of what fleet. the the the are from

of management greater much we that than Some equipment beliefs. and believe was

accordingly. of not path my capital in is then reduce bids And scenario. to sort a their get just more they could recovery. opinion worry the about frustrated the So where bank And saw the debt junior because they got much they

their And did. do want path we the once unless to their can they they take start to that they them the see remedies they have that them out, they to that's lender out, wants right performing take right have which mezzanine

saw transaction process, was a -- a end. deal. and just the did the process equipment was the were EBITDA. was the in same sponsor have so impaired it was in multiple equity was with values it familiarity removed We obviously it we banks on at but we that not from But So It that have but EBITDA. based was the but we completely on based range, and failed

TroyWard

I see.

with So do it the your and them seniors just couldn't if to to about stack was position you over much buy more in you run out? ability capital

JoeAlala

only else Yes. pending the are that you of -- it that And anything owned not. over the both the the And valued question performing; sale. there goes mentioned ones is And ones ones that sort another was then that performing; underperforming. for about the all-- are portfolio in

views equity think Bath. this US quarter happened value a monetization really hopefully in is at EBITDA. some So And of we on will with occur last better that's have a we than our optimistic that multiple what

So, multiple was a yes, that. great capital. on huge been invested It a we've return on

and this on of bad NAV. focus further things do that on to did believe we happen the when things quarter much that assets really portfolio to we successful last those good over the performing the rebalancing deployed years, we're that of confirms along strategy of look the past the But related and three it all portfolio assets. sort and and it at Unfortunately, take that change second XXXX management in the underwriting started that you in

TroyWard

SBIC. and has it speak such ability Okay down Were XX% one in to your cost last SBI in is your SBIC of what assets or me. three what how NAV important have structure. with been of that many a the relates the And that's the you months? write- part and an and then -- conversations impaired the us been to Can question for much

JoeAlala

relationship on Steve a digging here to just try On to SBI. get with answer SBIC. that I broad say in over will to on what's

of a private communications unique. We to Earnings lot accounting thing It's for you're also to READ, have value big have very them. addition about that's Retain BDCs. versus to READ Available What referring these is fair funds much a in focal do SBIC with a We Distribution. basis referred SBA a point cost and for It's accounting. as

really on they focus it. So

believe fall. positions some all this we we we value meaning books. have of communicated We fair had equity And, you where money Because US this READ. Those last positive mentioned books and Bath not things our the some books, READ do negative made The SBI equity equity we half SBA our to point the on over in SBA quarter. monetization of just Like to and accounting over remember the concern have that cost. have helped any -- fact, not I monetization events more SBA your us at one that where is we is READ keep keep, time, on READ will you Xx happen. got has to this keep

was cost. we on books sold was our cost last million. for in could so Bath quarter US It we $X.X of So our $XXX,XXX have if $XXX,XXX it a for like

appreciated then monetize book realize Son to it once the you asset. you

the READ how general in work SBA calculations valuations. in So that's

in -- been in have we program the with are since XXXX. communication So constant them. We've we

outcomes we favorable. of value be do XXXX end we very So will and relationship that READ the our believe by the

Operator

with Thalmann. a And follow-up Please we Christopher here have Nolan from proceed. Ladenburg

ChristopherNolan

Hi, questions thank you. answered,

SteveArnall

Steve. is Troy's AAE a come I investments. investment. last related This finish ones perspective SBIC was the SBIC to were realized want to questions back and of an which From

bearing have will a that there. So

those Portrait Certainly not the those value is unrealized softness are the SBIC in Services again Wells US are unrealized but we in fair Studios side. to two this earnings. mentioned at to other class point, just -- CableOrganizer but On the due they program, and that

of End Q&A

Operator

I'm And showing to to closing like in remarks. you. Joe questions Thank for queue. no I'd Alala back the over turn call

Joe Alala

answer everyone a thank sent to the Steve like day around exciting summary. little week, today. participating for is most some We'd of any more all analysts Steve I of questions. and the

next on around to than quarter. you happy we We're for all day. participation. Thank if So up that do your to look And follow want you to more that. forward

Operator

Ladies today's participation your and This gentlemen, conference. you the concludes for thank in program.

now have disconnect. day. may Everyone a You great

Logan Ridge Finance (LRFC) 6 Aug 192019 Q2 Earnings call transcript