Q2 2021 Portman Ridge Finance Corp Earnings Call

August 6, 2021

[music].

Excuse me, ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily and.

Until that time your lines will again be placed on music hold thank you for your patience.

[music].

Good day, and thank you for standing by and welcome to the second quarter 2021 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question during the session and do we need to press star 1 on your telephone.

Please be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

I will now hand, today's conference over to your Speaker G. Hey, Lindbergh. Please go ahead.

Thank you good morning, and welcome Department and Rich Finance Corporation second quarter, 2020, 1 earnings conference call and earnings Press release was distributed yesterday August after market closed a copy of the release along with the earnings presentation is available on the company's website at Www Dot Portman Ridge Dot com and the <unk>.

And 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 uncertainty actual results may.

Differ materially from those and the forward looking statements as a result of a number of factors, including those described and the company's filings with the SEC Portman Ridge Finance Corporation assumes no obligation to update any such forward looking statements unless required by law with that I would now like to turn the call over to take Goldberg, Chief Executive Officer of Portman Ridge.

Please go ahead Ted.

Good morning, and thanks, everyone for joining our second quarter earnings call.

I'm joined today by our Chief Financial Officer, Jason and Bruce and our Chief Investment Officer, Patrick Schafer.

Provide brief highlights on the company's performance and activities. This quarter, Patrick will provide comment commentary on our investment portfolio and our markets and Jason will discuss our operating results and financial conditions and greater detail.

Yesterday afternoon, Portman Ridge announced its second quarter 2021 results, we had an active quarter highlighted by the strong financial results and a successful closing of the merger with Harvest Capital Corporation, which was which was completed on June 9th 2021.

On the corporate front, we were pleased to reinstitute our share repurchase program. Following the closing of the harvest transaction during.

During the quarter, we repurchased $380000 of shares and subsequent to quarter and we've repurchased an additional $1.2 million of shares.

We also announced yesterday that the board has approved a 1 for 10 reverse stock split that we expect to complete during the third quarter with and effective date to be announced in the coming weeks.

Beginning with our second quarter results, we generated net investment income per share of <unk> 15 cents and.

And earnings per share of <unk> 14 cents.

Net asset value per share increased to $2 and 93 per share as of June 30th and and prevented <unk> from the first quarter.

And marks the fifth straight quarter that we've increased NAV per share.

The increase reflected continued favorable market conditions, including the ongoing tightening of credit spreads and was offset partially by approximately <unk> <unk> per share of 1 time H GAAP transaction costs.

We also had an active quarter in terms of origination and repayment. We successfully invested a total of $62 million during the quarter that generated a weighted average spread of 691 basis points and fully exited or repaid on investments with a carrying value of $79.

Patrick will provide more detail in his commentary, but we note that our new originations are consistently being underwritten at higher yields.

Higher than those of our existing debt portfolio investments imply and future increased returns for our shareholders on a risk adjusted basis.

On June 9th we closed our merger with harvest, which resulted in a number of benefits Department Ridge and shareholders that we've discussed at length in previous calls.

These benefits include the additional did I didnt have size and diversification to the existing platform. The leveraging of public company expenses across a broader asset base, the capability and flexibility to speak for larger deals and the longer term and this prospect for overall improved trading and liquidity and our stock.

Harvest portfolio added complementary primarily first lien assets too and investment portfolio and also resulted in a net deleveraging to the tune of about 0.1 turns on both the growth gross and net basis.

We expect the merger to.

To be earnings accretive for shareholders. Both in the short and long term driven by cost synergies across the platform, particularly with respect to public company expenses, but we also expect to benefit from lower financing fees and a lower blended fee structure.

On this note during this quarter, we took the opportunity to reduce our long term senior unsecured cost of debt by issuing $108 million of 4 spot 875% senior notes.

The proceeds from these notes will be used to redeem and full the $76.7 million of 608 notes during the quarter.

And a $28.75 million of H GAAP, 608th notes, which were redeemed subsequent to the quarter.

Accordingly, this refinancing will result in substantial interest rate savings overtime.

As we've stated in the past we expect these interest savings and other cost efficiencies stemming from our consolidation activities to more fully emerge as we continue to spread fixed costs over a significantly larger asset base.

And corporate news, we are pleased to report that following the closing of the H GAAP transaction, we've resumed active participation and our stock repurchase program.

As a reminder, on March 11th 2021, the company's board of directors Reauthorized, the company to repurchase up to an aggregate of $10 million of the chairs and the open market until March 31.2022.

Also as previously announced the company entered a rule <unk> 5 and 1 stock trading plans to facilitate the repurchase of up to $2.5 million of its shares under the share repurchase program.

Since the closing of the H kept merger and to date, we've repurchased approximately a total of 1.6 million shares.

We continue to conduct buybacks under the program throughout the remainder of the year based on market conditions and other factors.

We also announced yesterday that the board of Directors has approved a 1 for 10 reverse stock split of the company's outstanding common stock with should we expect to complete and the third quarter. This.

And this is something we've been talking about for a while as we believe having the shares under the <unk> reverse stock split may provide greater flexibility for wider range of shareholders and thus ultimately generate value for the benefit of all shareholders.

We will make announcement and the coming weeks regarding the effective date and and.

Further details around the first stock split.

In summary, we feel very good about the first half of 2021, having accomplished a number of key objectives. Our portfolio is performing well and we're pleased that overall much of the heavy lifting is complete and terms of proactive modernizations and deleveraging.

Market conditions are strong with transaction levels remain high and liquidity is abundant and with our leverage at the lower end of our target range, we have ample capacity to expand investment activity as we continue to rebuild and shift the portfolio composition to BC partners originated assets and.

Totally we remained very focused on generating cost savings and all areas of the company in order to maximize value from it for our shareholders.

With that I will turn the call over to our CIO, Patrick Schafer from review of our investment activity.

Okay.

Thanks Todd.

Turning first to current market conditions and <unk>.

Corner continued where the first quarter left off with strong economic tailwind and continued low interest rates in.

In terms of liquid loan benchmarks spreads during Q2 continued to tighten on average compared to Q1.

The middle market benchmarks remain very slightly wider than Q4.2020.

Sorry, Q4, 2019, but those also tightened in tandem with the broadly syndicated markets.

And volume remains strong in the quarter, including both new investment opportunities through M&A activity as well as refinancing activity repayments.

Prepayments continued at an elevated level and were largely offset by new investment activity during the quarter with some additional transactions slipping into early Q3.

As before.

We note that spreads remained wider and the direct loan origination market relative to the liquid credit market and our ability to use the breath of our platform to lead and structure transactions should generate consistent attractive risk adjusted returns in excess of the broader market.

Looking ahead to the second half of the year, our focus continues to be managing our pipeline activity asset repayments now that we are comfortably within our target leverage range our.

Our new debt originations continue to generate yield in excess of our in place debt portfolio as a whole excluding the impact of the acquired harvest portfolio. So long term. We believe the increased repayment activities will lead to increased returns for shareholders as you're further rotate out of legacy assets and assets originated by BC partners.

Even excluding the harvest merger and associated assets second quarter was very active in light of the elevated repayment activity across the portfolio during.

During the quarter, we made investment into 14, and borrowers 7 of which were existing borrowers, including both of our joint ventures, and 7 of which were brand new borrowers and total all but 1 of the 14 transactions were completed alongside other BC partners entities and.

In aggregate. These 14 investments totaled approximately $62 million of face value.

Excluding short term and investments that were sold prior to the end of the quarter, 73% of new investments, we're first and securities 18% were settling and securities and 9% were net add ons to the great Lakes and freedom 3 joint ventures.

The weighted average spread on the new investment excluding the joint ventures with 691 basis points.

On the repayment and disposition side the quarter also continuing to be very active.

And total we fully exited or repaid on 19 positions 16, and which were repayments and aggregate. These exits represented a carrying value of approximately $70 million and resulted in a gain of approximately $1.5 million.

During the quarter, our debt and equity securities accounted for approximately $5.9 million net gain while CLO equity positions accounted for a $1.1 million net gain and our 2 joint ventures accounted for approximately $617000 net loss.

On an equivalent basis as of June 30.

Portman Ridge had $449.6 million of debt securities market, and 93, 5% of par and yielding a stated spread to LIBOR of 745 basis points and accruing debt securities Mr.

This compares to $412.3 million of debt securities marked at 93, 9% of par and yielding and stated spread to LIBOR of 658 basis points on accruing debt securities as of March 31, 2021.

Non accruals as of June 32021 represented.

2.6% of costs and 1.1% of fair value on our investment portfolio as compared to 2.3% and Dearborn and 7% respectively as at March 31.

8 investments were on non accrual status as of June 32021.

And now I will turn the call over to Jason to further discuss our financial results for the quarter.

Thanks, Patrick.

GAAP net investment income from second quarter, 2021 was $11.7 million or <unk> 15 per share, which compares to net investment income of $8.2 million or <unk> <unk> per share and the previous quarter.

Total investment income was $21.5 million and increase of $3.2 million from 17% due primarily to the increase and investments, resulting from the H GAAP margin and income, resulting from continued elevated repayment activity.

We also generated additional income from CLO fund securities driven by repricing activity and a number of underlying Clo's and also from our joint ventures, driven by continued portfolio rotation and increased utilization of the JV as compared to prior quarter.

Total expenses for Q2.

Free to 9.8 million from $10.1 million and the previous quarter and from $11 million and the fourth quarter of 2020.

Over the past several quarters, we have grown assets significantly well maintained and Maine.

Training and relatively stable level of operating expenses and we expect this trend will remain consistent going forward.

At quarter, and we had total investment excluding derivatives and a $520 million and net assets of $269 million or $2.93 per share and increase the <unk> from $2 and 92 per share and the previous quarter.

<unk> per share was impacted by approximately <unk> <unk> per share of 1 time H GAAP transaction expenses.

This impact as Ted mentioned this marks the fifth straight quarter, though we had an increase in NAV per share.

The increase in NAV per share for the quarter was mainly attributable to net investment income of $11.7 million during the quarter. Several affiliates of the company's adviser and an affiliate of Libre Max and her immediate holdings L. P purchased 1.4 million shares of the company's common stock for total consideration of approximately $4 million and a private.

Placement.

As a reminder, the externalization agreement entered into by the company in 2019 required the advisor to use up to $10 million of incentive fee earned to be reinvested and newly issued stock and NAV through March 31.2021.

These shares sold represented the incentive fees received from the company.

Taking into account these factors as well as the dividend paid during the quarter NAV per share was $2.93.

June 32021.

During the second quarter, we issued 108 million and aggregate principle of stomach 4 and 7 and 8% senior unsecured notes and 2 private placement offerings.

Issued $80 million of the 4 and <unk>.

Notes on April 32021, and issued an additional 28 million on June 24, 2021 under identical terms.

Proceeds from these issuances were used to redeem in full and the 6 and 1.8 notes with outstanding principal balance of $76.7 million on May 32021, and also to redeem and 4 H caps 6 and 1 day.

With outstanding principal of 28, 7 and 5 million and subsequent to quarter and on July 23.2021.

Accordingly as of June 32021, we had a total of 306.

69.7 million par value of borrowings outstanding.

Price of $108 million of the 4 and from an 8% notes just disco $69.1 million and borrowings under our credit facility.

Third and $63.9 million and secured notes due 2029 and $28.75 million of each cat 6 and 1.8% notes.

As previously mentioned were redeemed on July 23.2021.

As of June 32021, our debt to equity ratio was 1.4 times on a gross basis and 1 times on a net basis.

From a regulatory perspective, our asset coverage ratio at quarter and was 171%.

The reduction in net leverage from the previous quarter was driven primarily by the increase and net assets from the H GAAP merger.

Given that our stated objective has been to target overall leverage to a range of 1.5 to 1.4 times. We believe we are solidly positioned to pursue growth opportunities.

As of quarter, and we had unrestricted cash of $65.7 million of which 28 million withheld repay the H cap 6 and 1.8% notes restricted cash of $47.6 million and an additional $46 million of available borrowing capacity under the credit facility.

Our aggregate unfunded commitment and stood at $36.5 million as of June 32021.

As announced yesterday and consistent with prior quarter levels, a quarterly distribution of <unk> <unk> per share was approved by the board and declared payable on August 31, 2021 to stockholders of record at the close of business on August 17.2021.

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

Thank you Jason.

How is it getting here, we've had a busy and productive quarter highlighted by another quarter of solid earnings and also the successful closing of the H GAAP merger on the corporate side, we were pleased to resume our share repurchase activities and we expect to continue to conduct buybacks subject to market conditions and other factors.

Additionally, we are pleased to announce the board's approval for a 1 for 10 reverse stock split and we expect to complete the split sometime in the third quarter looking.

Looking ahead, we are in solid financial shape, and we've continued to position Portman Ridge for long term success and earnings power. Our team has worked very hard to drive and execute on initiatives that we believe will create value for our shareholders. At the same time, we will remain vigilant as the potential for resurgence in Covid and Delta variant cases, Unfortunately become a possibility.

<unk> to consider.

Thank you all once again to all of our shareholders and stakeholders for your ongoing support. This concludes our prepared remarks and I'll now turn over the call to the operator for any questions.

Thank you.

As a reminder, if you would like to ask and audio question. Please press star followed by the number 1.

And your next question. Your first question is from the line of Christopher Nolan with Lindenberg Thalmann.

Hey, guys.

<unk>.

Patrick spreads on new investments were 691 basis points, what's the spreads on existing investments. Please.

Yes, so existing investment Inc.

Including H cap and the H GAAP assets was 745 and excluding the 8 caps is more like 660 basis points.

Okay great.

And Jason I know, you've mentioned and the press release that the.

And it was 2 cents of deal cost impacting NAV and I thought I heard Ted and say if there was 1 cent.

Affecting operating EPS.

I heard that wrong.

The operating EPS number actually 17, rather and 15.

No I would say, it's like right on the cusp, there and rounding probably gotten away there.

Uh huh.

2 it's probably a safe number.

Okay.

And then finally on the non accrual front I mean.

And so you had 2 new non accruals was ATP and the other 1 is pro are are those H cap deals.

And so this is about the ATP.

And should not be a new.

And non accrual and it was taken over and the Ohio transaction back in December 2019, and it's and we've never accrued interest on it. So it's always been on non accrual so perhaps that might have just been a scanning.

Issue.

Never been it's never been and accruing status and since we took it over.

And pro Air is the is the 1 is the increase and.

And non accrual and that was on non accrual under H cap at the time, we took it over.

Got it okay. Thanks.

Thanks, guys.

And just I mean, just to note that is yes.

And we've not seen a or credit quality.

What day of our overall portfolio is very stable to probably improving so that it's.

It's just a the increase and non accruals was primarily attributed to the harvest merger.

Okay. Thanks.

Yeah.

Once again, if you would like to ask and audio question. Please press star followed by the number 1. Your next question is from the line of Ryan Lynch with K B W.

Hi, good afternoon, and thanks for taking my questions.

The first 1 do you have the dollar amount and the purchase discount accretion.

And that came through the interest income side regarding and the garrison and.

Harvest mergers.

Yeah. So so.

So first I would point out.

Purchase discount of 3.8 that we that we booked on the H GAAP transactions and the current quarter part of that.

I'll, let converted itself and to NII.

To pay.

Pay down activity and normal runoff, but I would I would point to.

And some of our disclosure and the tax footnote related to.

Approximately <unk> <unk> for the quarter coming through the accretion line.

<unk>.

And that includes what that includes Gary and earnings yes.

That's helpful and then.

And look at your overall.

Combined portfolio today.

You obviously have.

Decent amount.

Gary and assets.

You guys have the new harvest book when you initially took on the gears and assets you sold off a decent amount part of that does maybe you know just because you wanted to delever and maybe part of it.

Didn't necessarily want those particular assets on your book.

At the time of the closing as we sit here today.

Do you feel that there is going to be.

Much.

And of exits.

Of the remaining garrison book or the H GAAP assets that came on or are those going to just kind of operate and your portfolio as normal course, and runoffs kind of more organically.

Yeah. This is Patrick.

Happy to take that I think the short answer is.

It'll probably be a little bit more of an organic course for the remainder with the caveat that the.

And the gears and assets that we still own a decent chunk of them still remain liquid and and Sellable and so we tend to use that as kind of a lever to sell those more liquid loans and 1 more originating kind of our own transactions, so depending on our pipeline and our origination.

<unk> you might see slightly more exits on the garrison names just because of that dynamic, but there'll be there'll be nothing else too and other than that.

Yeah.

Okay.

Understood and then the only last 1 is was there.

Guys are obviously building up the.

And the broader.

<unk>.

BC partners credit platform.

I was just curious with the with the <unk> merger.

Or I guess, even weighted with the garrison merger did you guys onboard any employees and our investment professionals from those mergers or did you guys. Just keep all the people in house.

And just to kind of manage those portfolios.

And post post merger.

Yeah, I'll take that I mean, I would say.

I would say.

Generally speaking and each of these mergers we have not taken on the investment teams.

But we do have some ongoing relationship with the existing firms to help us with.

And anything we require on the investment side. So yeah, we feel like we're getting the benefit of continuity on these deals, but we've actually.

<unk> taken an investment professionals, we've actually hired new ones on our side.

Okay understood.

Understood.

That's all from me I appreciate the time today.

Your next question is from the line of Kelly rushing with U S capital.

Thank you.

Have a somewhat complex question.

It's my expectation that.

With the 1 for 10 reverse split.

The stock will probably lose 10% of its value.

And looking at the.

And the buyback.

For our quarter.

Yeah.

The average price.

The purchase price of the stock I think was $2.42.

And approximately 60 trading days.

And those 60 trading days there are only 2 days.

And that the stock didn't trade below $2.42.

So it looks to me like there should have been buying.

Buying a weakness as opposed to buying on strength. So average price during that period was about $2.35, roughly I know there are legal restrictions and.

And buying back stock, but it can also be used somewhat tactically.

And my question is.

Is there a process as our strategy in terms of the buyback.

To alleviate the unlikely.

Pressure on the stock from the reverse split.

So so yeah, let me answer the question.

Number 1 is obviously because of the harvest transaction, we are blacked out until the very very ended the quarter.

I think the time period, you're using on the stock price is not that relevant because we were not buying stock over that period of time, we were only really started buying stock very close to quarter and so I think that's number 1.

Number 2 is we don't I mean, obviously, we don't try and market time, our buyback program like we're not buying 1 day out. The next day I think we want to be consistently and the market buying back stock because again, we don't know where our stocks can trade on any given day.

And the reverse stock split I mean look at.

And historically reverse stock splits have been done with our companies and a position of weakness.

And reverse splits for for various reasons, including like maintaining the lifting requirements. I mean, this is something that all of our big institutional shareholders and many of our retail shareholders have asked us to do.

And obviously, we think we're doing it from a position of strength.

If we reverse stock split.

It allows a broader group of institutions to buy our stock people can actually margin and the stock and it opens up the number of buyers for it so.

Don't know how you came up with your 10%.

Decline and it might be right you might be wrong, but we actually we are doing this from a position of strength versus weakness, we're not doing this because we need to maintain our listing requirement or.

There are some other nefarious reason, we're doing this at the direction of a lot of our.

And we were trying to listen to our shareholders and get their feedback and.

This is something that we've obviously.

Foreshadowed to the market for the better part of the last 8 months and so this is not a surprise. This was people voted on our shareholders voted on this and our annual meeting. So again, it's not something that we're trying to like a railroad through and.

And so I think the market is.

We believe the markets are efficient.

We've foreshadowed this for 8 months and people voted on it. So this is not this shouldnt come and as a big surprise to the market.

It'll be a big surprise to me if it doesn't go down.

After the reverse split.

A long long pattern, regardless of the currently being strong so I hope you're right.

And so does not do me any good.

And seen it too many times to think.

And that that will happen. So yeah, I mean listen it could be right I mean listen our job our job and listen at the end of the day, our job is to execute on earnings and book value growth and.

Yeah.

No idea, where our stocks and Detroit, but obviously, we've been giving them. We're not just doing this we've gotten a lot of advice from shareholders analysts bankers and.

And yes, you could be right and you reported that the buyback program and the fact that we'll be in the market.

And back stock should if you are right and the stock will face weakness because of a reverse stock split. The fact that we're in the market buying back stock should at least.

Mute that impact if you could turn out to be right.

Oh, yes, I can.

And I hope I'm, not but if the objective is to buy as much stock as possible with as little money as possible I would think you would look to weak periods or potential weak periods to do that if it's legally Pos so alright, thank you and the way.

Just simplistically, we think about a buyback program just so we're on the record of saying it is.

Our cost of capital vehicle. So we have a cost of debt, we have a cost of equity and our stock price trades today. It just makes a lot of sense for us to buy back stock and so.

And so to your point like that changes and if our stock trades at 2 times book, maybe it doesn't make sense for us to keep buying back stock, but when our stock trades today versus where originated new assets like.

As a shareholder and we think it makes a lot of sense to buy back stock.

Very accretive for our shareholders.

Your next question is from the line of Chris Nolan with Ladenburg Thalmann.

Ted.

Given your perspective of what the debt market is for Bdcs, given the private placements and given that you.

You guys have done a wonderful job in terms of.

Fixing up Portman Ridge.

Or is your thinking in terms of debt costs for other similarly, dented BDC do you think.

You know the market sales totaled $4.875 for other bdcs.

Well, we're investment grade rated so so.

Yes.

No I would I would.

Here's what I would say I would say, we get the benefit of being part of a larger institution.

So.

The fact that we're a bigger platform. The fact that we pay lots of money to the street. The fact that we are institutionalized gives us a big advantage on the financing costs and you can see we're financing ourselves 125% cheaper than harvest was.

And.

So I think from I think from our perspective.

Being part of a large institution helps us so I wouldn't compare it apples to apples and then our finance and it was done very seamlessly.

And I don't think a comparable BDC will be able to finance themselves at the exact same rate as us just because we obviously.

A little more institutionalized to our peers, but.

And what we've been guided to by the market as a comparable bdcs and should we be able to finance themselves and the high fives.

Great. Okay. Thank you.

Thank you at this time I'll turn the call back to management for any closing remarks.

Thanks, everyone for joining us today, we look forward to speaking to you and the next quarter and in the meantime, if anybody has any questions feel free to reach out to any member of management.

Body else a failure with corporate rich. Thank you very much and have a wonderful weekend and the wonderful and of the center.

Thank you and this does conclude today's conference call you may now disconnect.

Yeah.

[music].

Please be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

I will now hand, today's conference over to your Speaker G. Hey, Lindbergh. Please go ahead.

Thank you good morning, and welcome Department and Rich Finance Corporation second quarter 2021 earnings Conference call and earnings Press release was distributed yesterday August 5th after market closed a copy of the release along with an earnings presentation is available on the company's website at Www Dot Portman Ridge dotcom and the IND.

Buster 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 as a result of a number of factors, including those described and the company's filings with the SEC Portman Ridge Finance Corporation assumes no obligation to update any such forward looking statements unless required by law.

I would now like to turn the call over to take Goldberg Chief Executive Officer of Portman Ridge. Please go ahead Ted.

Good morning, and thanks, everyone for joining our second quarter earnings call.

I'm joined today by our Chief Financial Officer, Jason and Bruce and our Chief Investment Officer, Patrick Schaefer I will.

Provide brief highlights on the company's performance and activities this quarter, Patrick and provide comment commentary on our investment portfolio and our markets and Jason will discuss our operating results and financial conditions and greater detail.

On the corporate front, we were pleased to reinstitute our share repurchase program. Following the closing of the harvest transaction during.

During the quarter, we repurchased $380000 of shares and subsequent to quarter and we've repurchased an additional $1.2 million of shares.

We also announced yesterday that the board has approved a 1 for 10 reverse stock split that we expect to complete during the third quarter with and effective day to be announced in the coming weeks.

Beginning with our second quarter results, we generated net investment income per share of <unk> 15 cents and.

And earnings per share our 14th fence.

Net asset value per share increased to $2 and 93 per share as of June 30th and and prevented <unk> from the first quarter.

And marks the fifth straight quarter that we've increased NAV per share.

Patrick will provide more detail in his commentary, but we note that our new originations are consistently being underwritten at higher yields.

And then those of our existing debt portfolio investments imply and future increased returns for our shareholders on a risk adjusted basis.

On June 19th we closed our merger with harvest, which resulted in a number of benefits to Portman Ridge and shareholders that we've discussed at length in previous calls.

These benefits include the additional did adding of size and diversification to the existing platform. The leveraging of public company expenses across a broader asset base, the capability and flexibility to speak for larger deals and our longer term and this prospect for overall improved trading and liquidity and our stock.

Harvest portfolio added complementary primarily first lien assets to our investment portfolio and also resulted in a net deleveraging to the tune of about 0.1 turns on both the growth gross and net basis.

We expect the merger to.

To be earnings accretive for shareholders, both from the short and long term driven by cost synergies across the platform, particularly with respect to public company expenses, but we also expect to benefit from lower financing fees and a lower blended fee structure.

On this note during this quarter, we took the opportunity to reduce our long term senior unsecured cost of debt by issuing $108 million of 4 spot 875% senior notes.

The proceeds from these notes will be used to redeem and full the $76.7 million of 608 notes during the quarter and a $28.75 million of H GAAP 608 notes, which were redeemed subsequent to the quarter.

Accordingly, this refinancing will result in substantial interest rate savings overtime as.

As I stated in the past, we expect these interest savings and other cost efficiencies stemming from our consolidation activities to more fully emerge as we continue to spread fixed costs over a significantly larger asset base.

And corporate news, we are pleased to report that following the closing of the H GAAP transaction, we resumed active participation and our stock repurchase program and.

As a reminder, on March 11th 2021, the company's board of directors Reauthorized, the company to repurchase up to an aggregate of $10 million of chairs and the open market until March 31.2022.

Also as previously announced the company entered a rule <unk> 5 and 1 stock trading plans to facilitate the repurchase of up to 2 and a half million of chairs under the share repurchase program.

And so closer to the age cut merger and to date, we've repurchased approximately a total of $1.6 million shares.

We continue to conduct buybacks under the program throughout the remainder of the year based on market conditions and other factors.

We also announced yesterday that the board of Directors has approved a 1 for 10 reverse stock split of the company's outstanding common stock with should we expect to complete and the third quarter.

This is something we've been talking about for a while as we believe and having the shares undergo a reverse stock split may provide greater flexibility for wider range of shareholders and thus ultimately generate value for the benefit of all shareholders. We.

We will make announcement and the coming weeks regarding the effective date and and.

And further details around the first stock split.

In summary, we feel very good about the first half of 2021, having accomplished a number of key objectives.

Our portfolio is performing well and we're pleased that overall much of the heavy lifting is complete and terms of proactive modernizations and deleveraging.

Internally, we remain very focused on generating cost savings and all areas of the company in order to maximize value for our shareholders.

With that I will turn the call over to our CIO, Patrick Schafer from a review of our investment activity.

Yes.

Thanks Pat.

Turning first to current market conditions, and second corner continued where the first quarter left off with strong economic tailwind and continued low interest rates.

In terms of liquid loan benchmarks.

During Q2 continued to tighten on average compared to Q1.

And the middle market benchmarks remain very slightly wider than Q4.2020.

Sorry, Q4 of 2019, but those also tightened in tandem with the broadly syndicated markets and transaction volume remains strong in the quarter, including both new investment opportunities through M&A activity as well as refinancing activity repayments continued at an elevated level and were largely offset by new investment activity during the quarter.

With some additional transactions slipping into early Q3.

As before.

We note that spreads remain wider and the direct loan origination market relative to the liquid credit market and our ability to use the breath of our platform to lead and structure transactions should generate consistent attractive risk adjusted returns in excess of the broader market.

Looking ahead to the second half of the year, our focus continues to be managing our pipeline activity against asset repayments now that we are comfortably within our target leverage range.

<unk> originated by BC partners.

Even excluding the harvest merger and associated assets second quarter was very active in light of the elevated repayment activity across the portfolio during.

During the quarter, we made investment into 2014 borrowers and 7 of which were existing borrowers, including both of our joint ventures, and 7 of which were brand new borrowers and total all but 1 of the 14 transactions were completed alongside other BC partners entities and.

Aggregate day, 14 investments totaled approximately $62 million of face value.

Excluding short term and investments that were sold prior to the end of the quarter, 73% of new investments, we're first and securities, 18%, we're settling and securities and 9% were net add ons to the great Lakes and freedom 3 joint ventures.

The weighted average spread on the new investment excluding the joint ventures with 691 basis points.

On the repayment and disposition side the quarter also continued to be very active and total we fully exited or repaid and 19 positions.

And which were repayments and aggregate. These exits represented a carrying value of approximately $70 million and resulted in a gain of approximately $1.5 million.

During the quarter, our debt and equity securities accounted for approximately $5.9 million net gain while CLO equity positions accounted for a $1.1 million net gain access.

Thank you and accounted for approximately $617000 net loss.

And on equivalent basis as of June 30.

And <unk> Ridge had $449.6 million of debt securities marked at 93, 5% of par and yielding a stated spread to LIBOR of 745 basis points non accruing debt securities.

This compares to $412.3 million of debt securities marked at 93, 9% of par and yielding and stated spread to LIBOR of 658 basis points and accruing debt securities as of March.

31.2021.

Non accruals as of June 32021 represented.

2.6% of costs and 1.1% net fair value on investment portfolio as compared to 2.3% and Europe and 7% respectively as at March 31.

8 investments were on non accrual status as of June 32021.

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

Thanks, Patrick.

Total investment income was $21.5 million and increase of $3.2 million or 17% due primarily to the increase in investment through resolving from the age cat merger and income, resulting from continued elevated repayment activity.

We also generated additional income from CLO fund securities driven by repricing activity and a number of underlying yellows and also from our joint ventures, driven by continued portfolio rotation and increased utilization of the J D as compared to prior quarter.

Total expenses for Q2 decreased to $9.8 million from $10.1 million from the previous quarter and from $11 million and the fourth quarter of 2020.

Over the past several quarters, we have grown assets significantly well maintained and maintaining a relatively stable level of operating expenses and we expect this trend will remain consistent going forward.

At quarter, and we had total investment excluding derivatives at $520 million and net assets of $269 million or $2.93 per share and increase the Wednesday and from $2 and 92 per share and the previous quarter.

<unk> per share was impacted by approximately <unk> <unk> per share of 1 time H GAAP transaction expenses.

Despite this impact as Ted mentioned this marks the fifth straight quarter, though we have increased and that for sure.

The increase in NAV per share for the quarter was mainly attributable to net investment income up $7.7 million during the quarter. Several affiliates of the company's adviser and an affiliate of neighbor bags and her immediate holdings L. P and purchased 1.4 million shares of the company's common stock for total consideration of approximately $4 million and a private placement.

And.

These shares sold represented the incentive fees received from the company.

Taking into account these factors as well as the dividend paid during the quarter NAV per share was $2.93 and as of June 32021.

During the second quarter, we issued $108 million and aggregate principle of stomach 4 and 7.8% senior unsecured notes and.

And 2 private placement offering we issued $80 million of the 4 and 7.8 notes on April 32021, and issued an additional 28 million on June 24, 2021 under identical terms.

Proceeds from these issuances were used to redeem and pool and the 6 and 1.8 notes with outstanding principal balance of debt.

How many points.

1.7 billion on May 32021, and also to redeem and 4 H caps 6 and 1 day.

With outstanding principal of $28.75 million subsequent to quarter and on July 23.2021.

Accordingly as of June 32021, we had a total of 300 and see.

69.7 million par value of borrowings outstanding.

Price of $108 million of the 4 and from an 8% notes just discussed $69.1 million and borrowings under our credit facility of $163.9 million and <unk>.

<unk> notes, due 2029, and $28.75 million of age cat 6 and 1.8% note that.

And that as previously mentioned were redeemed on July 23, 2021 and.

As of June 32021, our debt to equity ratio was 1.4 times on a gross basis and 1 times on that basis.

From a regulatory perspective, our asset coverage ratio at quarter and was 171%.

And the reduction in net leverage from the previous quarter was driven primarily by the increase and net assets from the H GAAP merger.

Given that our stated objective has been to target overall leverage to a range of 1.5 to 1.4 times. We believe we are solidly positioned to pursue growth opportunities.

Our aggregate unfunded commitment and stood at $36.5 million as of June 32021.

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

Thank you Jason.

How is it getting here, we've had a busy and productive quarter highlighted by another quarter of solid earnings and also the successful closing of the H cap merger on the corporate side, we were pleased to resume our share repurchase activities and we expect to continue to conduct buybacks subject to market conditions and other factors.

Additionally, we are pleased to announce the board's approval for a 1 for 10 and reverse stock split and we.

To complete the split sometime in the third quarter looking.

Looking ahead, we are and solid financial shape, and we've continued to position Portman Ridge for long term success and earnings power and our team has worked very hard to drive and execute on initiatives that we believe will create value for our shareholders. At the same time, we will remain vigilant as the potential for a resurgence in Covid and Delta variant cases, Unfortunately become a possibility.

Day to consider.

Thank you all once again to all of our shareholders and stakeholders for your ongoing support. This concludes our prepared remarks and I'll now turn over the call to the operator for any questions.

Thank you.

As a reminder, if you would like to ask and audio question. Please press star followed by the number 1.

And your next question. Your first question is from the line of Christopher Nolan with Lindenberg Thalmann.

Hey, guys.

<unk>.

Patrick spreads on new investments were 691 basis points, what's the spreads on the existing investments. Please.

Yes, so existing investment, including H cap and the H GAAP assets was 745 and excluding the age caps is more like 660 basis points.

Okay great.

And Jason I know, you mentioned and the press release that the.

And it was 2 cents of deal costs impacting NAV and I thought I heard Ted and say if there was 1 cent.

Affecting operating EPS was <unk>.

I heard that wrong.

As the operating EPS number actually 17, rather and 15th.

Yeah.

It's right on the cusp, there and rounding probably gotten away there.

Uh huh.

2 it's probably a safe number.

Okay.

And then finally on the non accrual front I mean.

And so you had 2 new non accruals was ATP and the other 1 is pro are are those H cap deals.

And so this specialty ATP.

And should not be a new.

Non accrual and it was taken over and the Ohio transaction back in December of 2019, and it's weak.

We've never accrued interest on it and it's always been on non accrual so perhaps that might have just been outstanding.

Issue net.

Ben it's never been and accruing status and since we took it over.

And pro Air is the is the 1 is the increase and.

And non accrual and that was on non accrual under H cap at the time, we took it over.

Okay. Thanks.

Thanks, guys.

Yeah, and just I mean, just to note that is yes.

And we've not seen a our credit quality of our overall portfolio is very stable to probably improving so that it's.

It's just a the increase and non accruals was primarily attributed to the harvest merger.

Okay. Thanks.

Once again, if you would like to ask and audio question. Please press star followed by the number 1. Your next question is from the line of Ryan Lynch with K B W.

Hi, good afternoon, and thanks for taking my questions.

The first 1 do you have the dollar amount and the purchase discount accretion.

And that came through the interest income side regarding the garrison and.

Harvest mergers.

Yeah. So so.

So first I would point out.

Purchase discount of 3.8.

And that we booked on the H GAAP transactions and the current quarter part of that weighted.

I'll, let converted itself and to NII just true.

Pay down activity and normal run off but I would I would point to.

And some of our disclosure and the tax footnote related to.

Approximately 8 cents for the quarter coming through the accretion line.

<unk>.

Yeah and that includes what kind of that debt includes Gary from NHK.

Yes.

That's helpful and then.

And I look at your overall.

Combined portfolio today.

Obviously has.

Decent amount of Gareth and assets.

You guys have the new harvest book when you initially took on the gears and assets you sold off a decent amount part of that maybe you know just because you wanted to delever and maybe part of it.

And do necessarily want those particular assets on your book.

And at the time of the closing as we sit here today.

Do you feel that theres going to be.

Much kind.

And of exits.

Of the remaining garrison book or the H GAAP assets that came on or are those going to just kind of operate and your portfolio as normal course, and and runoffs kind of more organically.

Yeah. This.

This is Patrick having to take that I think the short answer is.

It will probably be a little bit more of an organic course for the remainder with the caveat that the gears and assets and we still own a decent chunk of them still remain liquid and sellable and so we tend to use that as kind of a lever to sell those more liquid loans.

And more originating kind of our own transactions, so depending on our pipeline and our origination activity you might see slightly more exits on the garrison names just because of that dynamic, but there'd be there'd be nothing else to it other than that.

Yeah.

Okay.

Understood and then the only last 1 is was there.

You guys are obviously building up the broader.

And BC partners credit platform.

And I'm, just curious with the with the <unk> merger.

Or I guess, even weighted with the garrison merger did you guys onboard any employees and our investment professionals from those mergers or did you guys. Just keep all the people in house.

And to kind of manage those portfolios.

Post post merger.

Yeah, I'll take that I mean, I would say I.

I would say.

Generally speaking and each of these mergers we have not taken on the investment teams.

But we do have some ongoing relationship with the existing firms to help us with you know anything.

And anything we require on the investment side. So we feel like we're getting the benefit of continuity on these deals, but we've actually.

And as opposed to taking on investment professionals, we've actually hired new ones on our side.

Okay.

Understood.

That's all from me I appreciate the time per day.

Your next question is from the line of Kelly rushing with U S capital.

Oh, Thank you I have a.

Somewhat complex question.

It's my expectation that.

With the 1 for 10 reverse split.

The stock will probably lose 10% of its value and.

And looking at the.

And the buyback.

For our quarter.

The average price.

The purchase price of the stock I think was $2.42.

And approximately 60 trading days.

And those 60 trading days there are only 2 days.

And that the stock didn't trade below $2.42.

So it looks to me like there should have been buying.

Buying a weakness as opposed to buying on strength. So average price during that period was about $2.35, roughly I know there are legal restrictions and.

And buying back stock, but it can also be used somewhat technically.

And my question is.

Is there a process is there a strategy in terms of the buyback.

To alleviate the unlikely.

Pressure on the stock from the reverse split.

So I want to ask the question.

Number 1 is obviously because of the harvest transaction, we are blacked out until the very very ended the quarter.

Number 2 is yes, we don't I mean, obviously, we don't try and market time, our buyback program like we're not buying 1 day out. The next day I think we want to be consistently and the market buying back stock because again, we don't know where our stocks can trade on any given day and.

And the reverse stock split I mean look good.

And historically reverse stock splits have been done when a company and a position of weakness.

And reverse splits for various reasons and including like maintaining and listing requirements. I mean, this is something that all of our big institutional shareholders and many of our retail shareholders have asked us to do.

And obviously, we think we're doing it from a position of strength.

If we reverse stock split.

It allows a broader group of institutions to buy our stock people can actually margin and the stock and it opens up the number of buyers for it so.

I Dunno, how you came up with your 10%.

Decline in monitoring and that'd be right you might be wrong, but we actually we are doing this from a position of strength versus weakness and we're not doing this because we need to maintain our listing requirement or.

And Theres some other nefarious reason, we're doing this at the direction of a lot of our.

And we were trying to listen to our shareholders and get their feedback and.

This is something that we've obviously.

You know like foreshadowed to the market for the better part of the last 8 months and so this is not a surprise. This was people voted on and our shareholders voted on this and our annual meeting. So again, it's not something we're trying to like a railroad through and so I think the market did you.

We believe the markets are efficient.

And we've foreshadowed this for 8 months and people voted on it. So it. This is not this shouldnt come as a big surprise to the market.

It'll be a big surprise to me if it doesn't go down.

After the reverse split.

A long long pattern, regardless of the currently being strong so I hope you're right.

No.

And that does not do me any good but I've I've seen it too many times to think.

And that that will happen. So yeah, I mean listen it could be right I mean listen our job our job and listen at the other day, what our job is to execute on earnings and book value growth and.

Yes.

No idea, where our stocks and to trade, but obviously, we've been giving them. We're not just doing this we've gotten a lot of advice from shareholders analysts bankers and.

And yes, it could be right and you reported at the buyback program and the fact that we'll be in the market buying back stock should if you are right and the stock will face weakness because of a reverse stock split. The fact that we're in the market buying back stock should at least.

Mute that impact if you could turn out to be right.

Yeah, So like I say I hope I'm, not but if the objective is to buy as much stock as possible with as little money as possible I would think you would look to weak periods or potential weak periods to do that if it's legally Pos so alright, thank you and the way the way Simplistically, we think about a buyback program. Just so we're on the record of saying it is.

We are a cost of capital vehicle. So we have a cost of debt we have a cost of equity.

And our stock price trades today. It just makes a lot of sense for us to buy back stock and so.

And so to your point like that changes and if our stock trades at 2 times book, maybe it doesn't make sense for us to keep buying back stock, but when our stock trades day versus where originated new assets.

Like as a shareholder we think it makes a lot of sense to buy back stock.

Very accretive for our shareholders.

Your next question is from the line of Chris Nolan with Lindenberg Thalmann.

Ted.

And given your perspective of what the debt market is for Bdcs, given the private placements and given that.

You guys have done a wonderful job in terms of.

And you know fixing up Portman Ridge Hum.

Where is your thinking in terms of debt costs for other similarly debt.

And <unk> Bdcs do you think.

You know the markets, there's still a 4.8.75 for other dented bdcs.

And.

Well, we're investment grade rated so so.

Yes.

Uh huh.

Here's what I would say I would say, we get the benefit of being part of a larger institution.

So.

The fact that we're a bigger platform. The fact that we pay lots of money to the street. The fact that we are institutionalized it gives us a big advantage on our financing costs and you can see we're financing ourselves, 125% cheaper than harvest was and.

So I think from I think from our perspective.

And being part of a large institution helps us so I wouldn't compare it apples to apples and then our financing it was done very seamlessly.

And and I don't think a comparable PDC will be able to finance themselves at the exact same rate as us just because we obviously.

Or a little more institutionalized to our peers, but.

What we've been guided to by the market as a comparable bdcs and we'd be able to finance themselves and the high fives.

Great. Okay. Thank you.

Thank you at this time I'll turn the call back to management for any closing remarks.

Thanks, everyone for joining us today, we look forward to speaking to you and the next quarter and in the meantime, if anybody has any questions feel free to reach out to any member of management or anybody else a failure with coronary rich. Thank you very much and have a wonderful weekend and wonderful and of the center.

Thank you and this does conclude today's conference call you may now disconnect.

Q2 2021 Portman Ridge Finance Corp Earnings Call

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