Q2 2021 Logan Ridge Finance Corp Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to our second quarter 2021 financial results Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assist.

During the conference. Please press Star then zero on your Touchtone telephone as a reminder, this conference is being recorded I would now like to turn the conference over to your host Ms Jee Hayes Lanford.

Thank you. Please go ahead.

Thank you good morning, and welcome to Logan Rich Finance Corporation second quarter 2021 earnings Conference call and earnings Press release was distributed this morning August 16th before market open a copy of the press release, along with an earnings presentation is available on the company's website at Ww.

W Dot Logan Rich finance Dot com in the Investor Relations section and should be reviewed in conjunction with the company's Form 10-Q filed today 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 detailed in the company's filings with the SEC Logan Rich Finance Corporation.

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 Ted Goldberg Chief Executive Officer of Logan Rich findings Corporation. Please go ahead Ted.

Good morning, and thank you for joining us on our earnings call.

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

As you know on July one we announced the closing of the transition to a new investment advisor for Bogan Rich Finance Corporation.

Logan ridges, new advisor is Mount Logan management, LLC, an affiliate of BC partners Advisor LP for U S regulatory purposes, and part of the BC partners credit platform as a wholly owned subsidiary of Mount Logan Capital, Inc. A Canadian public company.

BC partners credit as a leading provider of capital to middle market companies and as part of the broader BC partners organization, a leading global alternative asset manager with more than $40 billion of assets under management and over 30 years of operating history in the U S and Europe.

We're very excited about the advisor transition at Logan Ridge and as previously discussed with two immediate objections objectives as the new advisor.

First we are focused on actively rotating and replacing non income producing investments with debt investments in the form of high quality senior secured positions originated by BC partners.

Secondly, we will look to improve and optimize the company's capital structure by reducing leverage and reducing the cost of debt, while providing additional flexibility.

Just six weeks since closing this transaction.

Transition, we've made significant headway on both of these objectives.

Patrick will provide more commentary in his remarks, but we were pleased to report that subsequent to quarter end. The company has exited five portfolio companies, including three equity investments valued at $58.7 million as of June 32021.

We also have two additional portfolio companies that are in various stages of sales processes.

Yeah.

Secondly at the end of the second quarter the company repaid in full the $71 million and SBA debentures outstanding and surrendered its corresponding Spic's license.

Additionally, the Keybank credit facility was repaid subsequent to quarter end.

Our priority in the coming months as it relates to the right side of the balance sheet will be to address the near term maturities with the objective of reducing cost of debt and increase in funding flexibility.

Ultimately our goal is to execute on these initiatives such that we are in a position to reinstate a sustainable dividend as soon as possible.

Over the longer term, we believe there is an opportunity to reduce our administrative and operational expenses by leveraging the scale of BC partners credit platform and potential synergies across our total AUM base.

Additionally, we plan to grow the platform, including through pursuing inorganic opportunities to further drive scale to the benefit of shareholders, including reducing the stock trading discount to NAV.

We have a solid track record of executing strategic transactions in the public BDC sector, and we plan to leverage our expertise and abilities as opportunities arise in order to execute on our growth initiatives for Logan rich.

With that I will turn the call over to Patrick Schafer, our Chief investment Officer.

Yeah.

Thanks Ted.

Briefly summarize investment activities for the quarter, then provide some more detail on activity subsequent to quarter end.

During the second quarter, the company made approximately $10 million of investments and had approximately $33.5 million in repayments in sales, resulting in net repayments in sales of approximately $23.5 million for the period.

As of June 32021, the company's portfolio consisted of investments in 32 portfolio companies with a fair value of approximately $228 million of debt investment portfolio, which represents 67, 7% of the fair value of our total portfolio had a yield of approximately nine 9%.

At quarter end, we had debt.

Debt investments in three portfolio companies on nonaccrual status with an aggregate amortized cost of $21.3 million and a fair and an aggregate fair value of $9.8 million, which represented nine 8% and four 3% of the investment portfolio respectively.

During the quarter the company recognized $6.9 million of realized gains on investments driven by the successful exits of our investments and city gear LLC Cif secure computing, Inc, and <unk> technologies LLC.

The company also recognized $13.7 million of unrealized depreciation driven in large part by two portfolio companies that have been impacted by COVID-19 related challenges.

I'll now provide a little more detail on our activities subsequent to quarter.

To date, we have successfully exited Logan to reduce investments rapid fire Protection, Inc. <unk> solutions LLC, a meramec direct LLC sites.

<unk>, Inc, and corporate Visions, Inc. Generating proceeds of $59.7 million of which approximately $11.2 million was from our equity interest in these portfolio of companies.

These positions were marked at $58.7 million as of June 32021, and our equity interests were valued at $10.2 million.

The marks as of June 32021, we successfully exited 14% of the company's equity portfolio.

Additionally, we have equity interest in two additional portfolio companies that are currently in various stages of sale processes that we're cautiously optimistic we'll close by year end.

As we've discussed at length. Our objective is to continue to rotate out of these legacy positions and redeploy these proceeds into high quality senior secured interest, earning debt investments originated by BC partners.

We believe these early successes are promising and density of our ability to execute on our strategic plan for repositioning this portfolio such that it earns a sustainable cash income streams sufficient to support a consistent recurring dividend for Logan red shareholders.

I'll now turn the call over to Jason.

Thanks, Patrick.

I'll now quickly review the quarter and its key drivers.

Total investment income was $5 million for the second quarter of 2021 compared to $4.9 million for the first quarter of 2021.

Interest income declined by 500000 quarter to quarter, offset primarily by 600000 and nonrecurring dividend.

<unk>.

Total expenses for the second quarter of 2021 were $5 million compared to $5.7 million for the first quarter of 2021 interest and financing expenses declined by 300000 base management fees declined by 100000, and other general and administrative expenses declined by.

264000.

Interest expense decreased compared to the prior quarter, primarily due to full repayment of the SBA debentures in June.

Accordingly, net investment income for the quarter was 34000 or <unk> per share compared to a loss of 800000 or 29 per share in the quarter ended March 31.2021.

We recognized $6.9 million in net realized gains of $13.7 million net change in unrealized losses, and 800000 extinguishment loss on the SBA debentures.

The net decrease in assets, resulting from operations was $7.6 million or $2.79 per share for the second quarter of 2021 compared to a net increase of $12.4 million or $4.56 per share for the first quarter of 2021.

Net assets at June 30th.

21 were $113.7 million or <unk>, $41.96 per share compared to a $121.3 million or <unk> $44.74.

Per share at March 31, 2021, the decrease in NAV per share was primarily due to the net change in unrealized losses during the quarter.

At June 30th.

'twenty, one we had $26.1 million in cash and cash equivalents on the liability side of the balance sheet, we fully repaid $71 million of SBA debentures during the second quarter.

At quarter end, we had approximately $150 million of debt outstanding comprised of $25 million drawn on our senior secured credit facility with Keybank $72.8 million of fixed rate notes bearing an interest rate of 6% and $52.1 million of convertible notes bearing an interest rate of 575% the company's tow.

<unk> debt to equity ratio was one three times at quarter end compared to one six times at March 31, and two times at the prior year in subsea.

Subsequent to quarter end, we have fully repaid the $25 million outstanding on our senior secured Keybank facility.

As Ted mentioned, we are actively focused on continuing to optimize our debt capital structure.

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

Thanks, Jason.

In summary.

We are very pleased with the progress we've made already since undertaking management of the company on July one we are focused on risk reduction by materially rotating the composition of the investment portfolio from non income generating equity investments and redeploying those proceeds into income producing high quality debt investments and also.

Rapidly deleveraging with a longer term objective of further optimizing our current liability structure.

Our goal is to reinstate the dividend at a sustainable rate as soon as practically possible.

Over time, our goal is to streamline operating expenses by leveraging the breadth and depth of the broader BC partners credit platform and increased scale through strategic transactions.

We look forward to providing more updates in the coming quarters as we continue to make progress.

You all for your support this concludes our prepared remarks, and I will now turn over the call to the operator for any questions.

Ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Once again that is star one for a question.

Your first question comes from Christopher Nolan from Lindenberg Thalmann.

Hey, guys.

Nice quarter congratulations on all the progress we've made in such a short time.

Is it fair to say that the given the eggs.

Exits of $58 million in the quarter to date, and we should see the cash balance starts to substantially rise of the balance sheet. So is the plan to start paying down the remaining debt early.

Hey, Chris This is Patrick.

Thanks for the question. So some of that balance went towards repaying the keybank facility, which we noted.

In our prepared remarks, and then we didnt highlighted specifically, but we have been actively.

Actively reinvesting those proceeds in BC originated transactions, so when we get to kind of our quarter and Youll see new investments on the books that are kind of BC driven VC related investments. So there is a combination of those two things going on.

Great and then a follow up should we expect realized gains.

Third quarter from these exits.

So far from these Adcs I think I think we mentioned the number of theirs.

There is a slight increase in terms of proceeds we receive relative to the balance as of June 30 is so as it relates to these specific five investments yes.

And then obviously TBD on future realizations, but so far yes.

Great. Thank.

Thank you.

Once again, ladies and gentlemen, if you would like to ask a question that is star followed by the number one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from queue. Please press the pound key once again that is star one to ask a question.

I would now like to turn the call back to management for closing comments.

Yeah.

Thank you everyone for joining us today, and we look forward to speaking to you next quarter and I as always with US. Please reach out to any member of management at anytime with any questions. Thank you very much.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.

Okay.

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