Portman Ridge Finance (PTMN) 10 Aug 222022 Q2 Earnings call transcript

Welcome to the Portman Ridge Finance Corporation Second Quarter 2022 Earnings Conference Call. An earnings press release was distributed yesterday, August 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-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. Actual results may differ materially from those in the forward-looking statements.

a filings factors, with of in those result Company's the the a number including of described As SEC. required Portman obligation Ridge law. unless to no by update any Finance such forward-looking Corporation assumes statements now that, Chief Goldthorpe, of like With Officer would to the to Executive call Ridge. turn Portman Ted over I

on portfolio Good I'll second Chief company's our Officer, its report in performance of detail. XXXX Jason will investment the and Yesterday, our everyone we quarter will our a earnings provide our call. on for greater and our thanks, Patrick morning, a solid by challenging Financial joining announced I'm Officer, Ridge and Chief and Schafer. to second Patrick discuss results our Investment pleased performance operating Portman highlights and for in financial XXXX activities Jason quarter. and quarter environment. joined today performance Roos condition economic financial this commentary provide results, markets. are

experienced and and portfolio. focusing in companies committed of deployment which capital During factors, and add to prudent to to our market remain other significant our on the we political macroeconomic strategy quarter industry our volatility strong

capital even conditions, of $XX.X Almost additional investments the borrowers with investments half share. still Investment new we investment and second originations cash existing of only $XX.X emphasize first to in steps million As were I'd timing end these approximately in the the from strong both quarter the seen although maintained our non-accrual investments very of new investment markets, provide of than available new closed July. a previous dislocation of are investments taken deployed quarter, investments of public settled second that XXXX, the Patrick pipeline a as a that in income additional new lower million the the July. very an of we've of like in quarter. details, activity, towards we the will since of ended these lowered or private in during the effect due most quarter had quarters as and the and refinancing to to all limited quarter deployment net quarter, $X.XX but but markets, the the per of under had strong compared end and result, been was reduced dividend during market our activity the was issue, the

the NII anticipate result Slide side investments sheet. As share driven we closed. that the normalized our relative NII of our already second of our to majority quarter to with Shifting to increase in presentation X of activity have is by liability per earnings shows, that $X.XX that new than quarterly share, balance greater per

XXXX. investment cost capital approximately Furthermore, operations are of of our which and turn our the long-term rate, well for maintained and second activities. SOFR, at We our we distribution, Chief of reflects will shares from helped cost lowered and an positioned to that $X that, the and quarterly are of the half the to investment provided of with cost extend by maturity able we since to the million $X.X net $X.XX Patrick program performance in review with performance beginning years. stable Overall, our repurchased year. believe date our And X.X improve income a XXX,XXX Investment activity. restructure call Schafer, stock to investment million nearly over we JPMorgan I our our Officer portfolio the further interest aggregate LIBOR aggregate an purchase an under the incremental our We of shift lower Chase shares horizon. our over during restructured and agreement of This and renewed agreement XXX,XXX quarter, investment has

Ted. Thanks,

assets $X.X of in fee we income during had X, the expected Slide position June aggregate, there given heading no but list on our Furthermore, of interest limited $XXX,XXX to were expected XX, limited that XXXX, these an the incremental of as is assets to into a one-time the approximately income, expense around specific a be In thereafter, cash close significant as additional to generated plus or income. million Turning generate quarter, shortly closing either we have quarterly relatively result to quarter. investments. SOI of provided these details are

rates. Turning sensitivity Slide earnings to now and our around interest X to

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

from As on rates quarter the and benchmark below market rates significantly as August lag you of and remain still the assets chart, the the prevailing XXXX. LIBOR underlying X, our rate see the can during SOFR

to expect SOFR, reset or LIBOR reset. We contracts would to for expect three-month purposes, six-month these a time to of the incremental one, as were But assets either income. normalize $X.X respectively. it’s quarterly our generate luster to underlying and three all of over an We a of million

relative were quarter but borrowers, million existing levels, the quarter. will quarter Skipping $XX.X Investment XXXX, repaid million investments. quarter $X.XX for now second benefit we While deployed the very on of we share, also three-month benchmark the or Slide all approximately assuming and of and per the we and our were originations higher first expect refinancing down during liabilities the highlighted. third just approximately have to refinanced a for $XX.X QX approximately backended were liability Net raise than to activity of as entirety of our of are XX. also same rates their the positive still utilizing of costs assets net

spread. an will second spread generate addition But been which incremental quarter, a are points that third XXX of par, in beginning income purchased balance. a to the to meaningful investments number to $XX.X SOFR discount investments pipeline to of on of of in were the relating XXX funded in investments the basis million to expected the had of quarter. we investments early par new Additionally, since basis our These yield points the a at these

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

Turning to XX. Slide

As quarter, up during on our we earnings materially previewed call, a of in our cost portfolio portfolio the group basis. of April, in cleaned first non-accrual of Yakima as our represented a quarter exit XX% result March XX the which

debt non-accrual XXXX as and of XXXX. investments XX, three XX, of June of March as six compared our XX, on of December status As to were XXXX, seven

and the company's non-accrual value June of amortized investment of investments non-accrual to on as to at cost XXXX of fair XX, on portfolio As a as result, status March X.X% of which and XX, status compares XXXX, respectively, decreased X.X% the turn over portfolio further and Jason amortized period. at of X.X% I’ll the financial X.X% X.X% to for as of X.X% respectively. investment fair and to discuss and cost call XXXX, value and now December the company's result respectively our investments XX,

Thanks, Patrick.

previously many both mentioned for market similar performance affected to As financial BDCs, the macroeconomic factors. by was Patrick our Ted volatility quarter other and other and geopolitical and

our portfolio. mark-to-market Our to equity share XXXX was second the of associated XX, and declines XXXX net with both on at compared $XX.XX securities quarter share value asset CLO with debt for March as $XX.XX decline per the per

March of XXX For debt XX, second million income underlying basis June but is X.X as quarter XX back as X. associated down securities August points was to to from the million impacts, evaluations, points fell leverage not basis X.X impacted points loan which PIK price and changes by from in portfolio, context of basis attributable points the XX to the driven around now Total investment XX has quality. XXX mark-to-market of $XX X. directional our materially the Suisse as credit of of August Credit of market gained NAV XXX security as loan debt income. our some moves income The points March a to of by from were interest back index for was $XX.X index changes went but average These June inclusive

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

continued million Total for million were second several work expenses to the quarter XXXX quarters, Over have in $X.X the expenses. to $X.X quarter last second last the toward compared reducing of year. we of

accretion as rate as the origination for currently interest quarter rate of positively sales our to the the Our a $X.X Due investments. investments, previous asset interest million, the future the investments rate for reset of $XXX.X CLO paydowns, among or quarter. in rate the from result affected income variable per income in from of which debt. be experienced purchases certain largely quarter recorded second benefit million, share, and up beyond rates our timing paydowns income approximately investments lower of was floors higher of had quarter closing down quarter quarter investment which environment we was and portfolio and total on outpacing we embedded experiencing, with and for to end, nearly many reset the on our expense complete by we At combination was income periods are of $XX.X floating the our for investment million expect QX associated we our net higher $X.XX to timing reduced certain due

of of had balance the facility. of XX, in a X million liability the of credit we million sheet and $XXX.X result due credit value of XXXX X/X% under million side of borrowings This a million due secured outstanding June comprised a the our facility, $XXX.X $XXX on draw On our increase of million $XX.X notes as borrowings par total XXXX, $XX.X was XXXX. of notes

XX, $XXX.X a of XXXX, a fixed with floating consisted of interest. of $XXX approximately rate value interest value par rate million March of and As liabilities had par million that our

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

were Additionally, and facility. reduced the in but the successful most we of notably, refinancing credit rate facility secured our maturity revolving interest April, which perhaps of the extended in senior

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

stated range X.Xx, believe to we we overall to leverage a of to our solidly to remain has pursue opportunities. growth X.XXx Given objective been positioned target

was of turn payable August of approved announced on back that, distribution as to and at XX, Goldthorpe. the the September I Lastly, quarterly share per over declared will Ted and on XXXX. a by record call stockholders $X.XX With of X, the Board business XXXX yesterday, close to

bottom to Thank we business to expect of again see is you, although our questions, of the largely our our improve of now in the expectations, for I'd second performance call issue full normal metrics you once again, and the to of were that Jason. our as over to for and the any concludes of portfolio our half all this line emphasize below like our timing Ahead shareholders This the some your to active of operator a initiatives Thank repositioning prepared I'll effect year. this support. ongoing turn questions. remarks,

comes Christopher the first from line Your question Instructions] of Ladenburg from [Operator Thalmann. Nolan

open. is line Your

Hey, were new related any guys. the the higher regarding Jason, expenses, credit there expenses – to interest facility? on capitalized

expense, in that little, on to much balance the interest Very net debt on is we but variable due really of rate sheet. increase all the it most of rise that have the pretty

HIMA. was the driver is Grupo loss then the And realized Great. for

the within that. quarter like That's say that I – very Yes. than driver of the minimal then was in portion of of would very thousands, less XXX,XXX. say hundreds realized true I the would And loss predominant

Yes, ahead. go Great.

then remainder the was up unrealized realized. made a that as predominantly some flip that vast realized. is majority unrealized took you all of between CLO – know a And and impairment Grupo we And was of well of as and which well, Yes. that. HIMA The between flip

impairment? was much How the CLO

I'm sorry.

was much impairment? CLO How the

the across of million Yes. CLOs. was $X the It around a couple

it. final discrete had HIMA, recall, I Grupo And as non-accrual. question, investments, Got which were multiple that

So scheduled gone Grupo I the HIMA investments. noticed from

everything just So was wiped, right?

Correct. We as securities sold the one package. all

There you go.

guys. Thanks Okay.

the comes line KBW. from question Lynch from next Ryan Your

open. is line Your

morning. good Hey,

or the bit lower the Just regarding the expect had CLO that should was is quarter like versus sort we quite second income rate forward prior what decline It curious this drove questions decline quarter quarter. another a statement. lower? good number of I'm just a a this income looked sequential and couple going in

Yes.

rate the method and every of positions rate And I would cash income hopefully as of come beneficial should market that income run rebound So CLO a should the we a they is of flows on why be versus prior quarter. if this a the income interest to to seeing are the based flows. are function anything cash as equity on in dependent you're the the CLO is that the we're those think back. accounting underlying good flows interest cash updated those drop quarter. in deteriorated this cash That's underlying quarter, seeing And because flows under start and quarter this currently, what those book

just Okay. The versus cost. income fairly stable, underlying around book are cash how as much it’s flows themselves taking we to

Return capital. to

Yes. Was on of underlying what based changed quarter the kind on the securities? pricing the during CLO

the Yes. asset the that flows the the To flows into is anticipated I NPV itself. flows, referring cash forecasted of the cash go clarify cash calculation was that underlying to

pressure, and think deck things going up to hear earnings to what it. average fees average, second the it's some this going guys you where The that. accelerated being you Got forward. sense being exceeded think, helpful the levels, and to, this to but predict, I it's Slide which repayment and and of get had quarter. quarter are I'm versus you drove question historical – that's to hard OID pick what the lower would going associated return know just guys activity slide but of talk if movements to we've just for Obviously on X, not quarterly from about to on with do Understood. I out forward? happens normalized any operating kind some quarter do even forward, obviously prepayment put it lower I one I going love curious, The hard of expect thoughts your in you

Yes.

to trying detail hard obviously what's of release. out press happening it's like just this lot put from really in figure a because, are presentation the We to

the again, going levels and activity it and that to level see So be could I see go just you're don't think saw activity going in repayment forward wrong. same don't down. we XXXX, I XXXX

LBOs actually XX, markets so last back activity like the than come we should that ago. that second level we could things, back last but lot valuation were levels but to that for year. weeks pricing six was to the to not our right, it where obviously I slowdown again, the where nearly to sure it's new benchmarks. we've eight not – seen seen did and June pricing just just given is activity it more I'm the actually from where repayment a recover change, they You've since come six And the back that since And in saw given levels. see And has that we're extent months in quarter, to

really and So the X, this good stuff quarter, second in but we're loans news showed is we're Slide X, you spreads recovering period close we to Page booking don't we're the of really assets doing, stuff. at time. we're doing happy anywhere we and for foresee very on and good wide XX the to yields the about I Like did the some back is

Okay.

the get level refied, repayment, not So getting same Yes. not it's we're prepayment We a good you're to because income. assets – keep like the classic. getting classic but it's of our as

should So wider, our quality see up. sense going to think earnings to – SOFR spreads in go of start of like are you're is the up going our I

is So our mix and little you're you're going going would bit more I going to to the of to be going – a change say. to get predictable, lot it’s – income a

what of you what what for But Ted were getting kind with question, Ryan, I I think, the to. your purposes, probably think alluded

have We on kind repayment activity of quarter line are repayment in and activity. sight seeing the we of

still of won't quarter, a we're slower seeing sight a repayment already than it. in line we It's items that pace zero it on XXXX. a in meaningfully of So be activities just at have terms of number the

Ryan correlated on I'd the getting never my credit that in thing I've say, that's a we're not other stuff one typically thing new is repaid seen is career the theme, actually, And quality. with

got not that surprised the your been old whole or say, usually weaker we've that in by. I on to three refinanced We've we've getting portfolio, So at credits positions get credits. positively you're – our not two refinanced best seen legacy notices credits are, would

given would odd that seems assets. any higher the why seems that have in be, of kind you spreads not quality benchmark they of rates or Do that of sense best you both sense lower and why any the of occurs? maybe Do out would that refinance move have strange

Yes. are so seasoned been more are I mean, that longer. assets, outstanding there speaking, have generally these assets for

need So next happen no that. some just idea to some its it’s are think of people get of people – And the of so what's have months. uncertain maturities, ahead get I incredibly to of ahead you an environment it's trying don't people going over I XX XX year. to trying to to just – tell next

are around willing people certainty for structure. pay so to And more capital

And one also of that curious talk investment number. for I'm you question the you dollar other just guys price, out which you're On core income you guys Slide maybe had math. just core X.XXX. and curious of net those about from just understand your amount investment core Obviously, then to talk backing back about in NII are just expenses I'm you income curious, be accretion but are the Understood. also that backing what that I merger-related merger-related core? $X.XX quarter Jason. that, I then that I can core X, footnote, about Okay. the I'm number? you out accounting impact do these number, incurring this best are expenses within expenses, of number what that net purchase out that the talk

Ryan. we Yes. I can – walk that, would yes, through you the say

not structure accounting. based fee it on just have that any the the all or income, recalculating out from a of run number new that generated fees quarter. fees had the purchase But the taking in including the occurred We accretion assumes the not and accounting current had we're purchase not it's the detail calculation all separately. We

that expect opposed we fees in predominantly So as to… the

it's basically So lower calculation? – that fees like lowering basically the incentive you're for

Exactly.

Okay. Got it.

morning. all for Okay. appreciate this time me. I That's the

line from from Slater. Martin Steven next of Your question comes the

line open. is Your

Hi, guys.

How Steve. Hey are you?

Good. It's and on earnings and BDC leverage the already in your third only the all quarter? been occurred week have long given for the comfort factors ratio and you Wednesday. pro comment the a of it's Can forma level closings

I mean, I'll say…

Ted. ahead, Go

Yes.

say, Sorry. June range right today not leverage valuations future, versus that to. we where obviously leverage people – organically. And I'm help that again, on guided is we've predicting just the based of our the ratio I but XX, kind would are in should

because on upwards mean mark the you'll an You unrealized? get

provide we I in like mean, – our Jason of use was remarks, vast – spread Yes, prices said so to you Correct. of up happen prepared mark-to-market, have asset – want have to just as if September, tightened, since can June it speaking tied since what's because XX. majority we his obviously, but – know we generally going most obviously don't spreads to guidance and widening don't in gone the

Yes.

say is, closing the I’d leverage the no is of calculations. given real to position of on had thing, The impact that gross our kind other all Steve so cash have we speak

I Repeat catch one. quite didn't that Wait. that.

from don't that referencing the closings all deployment. actual sitting any have we've for test, Yes. had all leverage right. cash been waiting the of our our Because We the there balance sheet, cash the impact gross on

doesn't change in we $XX the or referenced July, So gross really the any leverage. in so extra million closed that come with that

to Right. expense interest why very that comment little made incremental And you offset income. there the interest that's was that

Correct.

significantly, is a no some assets. slight we because but incremental interest – associated correct. averaged pretty that's There out, just expense with yes, and those much think, draw I stuff

were sort of of What's and part of unfunded the of for end as commitments you've your the quarter closed? what those already how level many of of

it the is of got but digging no that characterized is kind don't have say think here we I quarter-end how to in would I that terms not. in to incremental total I considered closings, here the a Jason deals the unfunded, we limited committed show think whether number, I of for commitment or at know referenced what they was

those up or that. limited. up trades, show little settled in associated revolvers due trades commitments very would pending our think of our had But think or substantially but for if like you it I limited investments normally or unfunded settlement new There but shows in don't things a details will. unfunded was bit, I that

Got it.

to plus about I a it change dividend dividend think the the was Are you're policy? best and forma. Was you to of your X how a X, system on adjustments? Slide deck Slide slide just in assuming – feel basis do going your dividend occurs, sort quarterly whole you of adjust your dividend pro or to and the go going base

Yes.

that strange is call think, quarter. I listen, a it's mean, I but quarter, quarter. transition I reassess we'll I just it I just this mean, – think, next

we'll feel prefer I our think, that is this September I the to variable predictable So I like feedback over speaking, the we want paying our gotten Board. base we'll dividend meeting, mean, going September is XX with to But a generally results. particularly think dividends coming versus Board we've finalize because is, root discussing have months, be I our shareholders the go from dividend. just they conversation we a be something raising we feel couple the as it's next

moved All stocks a your And NAVs buyback? down, NAVs XX% or and you now book ongoing feel come that little do the priced about your how mark, your your right. above value up

the a sense buy just – our you math, back I at you it buyback don't have I it accretion look sense stock. to makes dilution, to for just think do makes perspective, look actually still if float you stock. the think And if From if we us us for at problem.

we seen I uncertain earnings to think of Like environment, don't gotten now, our portfolio and a our any – has very have credit up companies So quality And think again, our are that. as plans very well. stop you've it's better. holding I but

it I considered, stock. being us makes for So to think back with all buy sense those things

I the I think level that I've on I calls portfolio? non-accruals has don't will anyone that a and don't at these of And been – of comment Great. lot lower

on that. what space and just BXB consumer we middle the mostly saying you do. and not has appreciate I seen really market weakness mean, BDC been across is the it's you've Well, listen, focused and franchise I again, places our

the that So the people our doing the us right that's helped thing. others other think or I saying I'm not seen. DNA are It surprises have of some and just that not wrong avoid

All right. Thank very you much.

[Operator call There Ridge, Officer back to of Portman Goldthorpe, turn questions this over Ted further no at I you. Instructions] are Mr. Chief time. Executive the

look this on in you we're to So you when tried quarter to to early disclosure. seen we'll of those guys speaking We And Presentation, put thanks everyone our our find always November be for our lot more open forward joining haven't us a XXXX into can announcing detail And we results. to we're website. who it, really today. Investor which whether open to always feedback for providing

please So to please team. for who the want end the your always door Thanks any those additional here. of to out member always, per to the and things, and management as summers enjoy is of obviously everybody, reach open try

us or happy visit talk very and us much. come anytime. to a please give you Thank So we're call to of you kind

conference today's concludes This call.

now may disconnect. You