Q3 2021 Portman Ridge Finance Corp Earnings Call

November 5, 2021

Yes.

Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience. Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

[music].

Good day and thank you for standing by welcome to the Portman Ridge third quarter of 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 you will need to press star one on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today G. Hey, Lindsay Representatives of the company. Please go ahead.

Thank you good morning, and welcome to Portman Ridge Finance Corporation third quarter 2021 earnings Conference call and earnings Press release was distributed yesterday November 4th after market closed a copy of the press release, along with an earnings presentation is available on the company's website at Www Dot Portman Ridge.

<unk> dot 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 as a result of a number of factors, including those described in the company's filings with the SEC pardon me much finance.

Corporation assumes no obligation to update any such forward looking statements unless required by law.

That now like to turn the call over to Ted Goldfarb, Chief Executive Officer of Portman Ridge. Please go ahead Ted.

Thank you.

Good morning, and thanks, everyone for joining our third quarter earnings call I'm joined today by our Chief Financial Officer, Jason and Bruce and our Chief Investment Officer, Patrick Schafer.

Brief highlights on the company's performance and activities this quarter.

Patrick will provide commentary on our investment portfolio.

In our markets and Jason will discuss our operating results and financial condition in greater detail.

Yesterday afternoon, Portman Ridge announced its third quarter 2021 results.

We reported overall, a solid quarter in which we generated strong earnings well covered our distribution and increased our net asset value.

Origination was robust this quarter and we're beginning to see more evidence of the strength of the BC partners platform and generating attractive risk adjusted opportunities.

Of note, we completed a one for 10 reverse stock split effective August 26 2021.

So all metrics discussed will reflect that split.

For the third quarter of 2021, we've generated and I I of $1 50 per share.

NAV per share as of quarter end was $29.71, an increase of 43 or one 5%.

Compared to our NAV per share of 29 28 in the prior quarter, reflecting broad based improvements in our debt portfolio and joint ventures.

On the corporate front, we've previously spoken about our intent to leverage fixed costs are growing asset base and generate cost efficiencies overtime.

Last quarter, we issued $108 million and four and seven eighths.

Senior unsecured notes and used the proceeds to redeem the full $76 7 million of 608 notes in the third quarter.

We also redeemed in full $28 $75 million of the H cap 600, eights notes that were assumed as part of the H cap transaction.

As a result in the third quarter, we generated interest savings driven by a lower weighted average cost of debt.

Furthermore, we maintained other operating expenses at a relatively stable level quarter to quarter and believe the impact of these savings will continue to merit materialize overtime as we continue to grow and reposition our portfolio to higher quality and higher yielding BC partners originate assets.

And additional corporate news last quarter, we indicated that following a period of restrictions related to ongoing M&A activity, we're able to resume our share buyback program by the end of the second quarter.

We've continued participating in a repurchase program and as a result during the third quarter, we repurchased a total of one 4 million shares.

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

Finally, as announced yesterday the board of directors declared a 62 cent per share quarterly distribution.

This represents a <unk> increase from prior quarter levels and reflects the consistent performance of the company to date.

<unk> will continue to assess the distribution level on a quarterly basis and will take into consideration both the companys ongoing performance as well as the general economic outlook and related factors.

In summary, we were pleased to report on yet another quarter of solid earnings portfolio performance and investment activities.

In terms of overall progress fallen M&A activity over the last year and a half we feel very good about where we sit in terms of our overall leverage and portfolio of competition.

Over the past couple of quarters, we have refinanced our long term debt, which will result in interest savings in the long run.

Furthermore, with the overall leverage at the lower end of our target range with the capacity to grow and increase the proportion of BC originated assets.

We've accomplished much of this proactive portfolio repositioning that we've targeted but we'll continue to take an opportunistic approach in this regard.

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

Thanks Ted.

Turning first quickly to the current market conditions.

Third quarter of 2021 continued to experience elevated transaction volume and activity driving both origination and sales and repayments.

Lower interest rates as well as above average economic growth and continued post pandemic activity are all contributing factors to these current market conditions.

As many in our sector have noted the market strength has carried over from the first half of the year and into the second half we had an active quarter in terms of originations and repayments with originations materially outpacing repayments.

A total of $62 million in debt securities during the quarter and exited or repaid on investments with a carrying value of $36 $6 million.

With respect to the debt originations, we had investments into 10 borrowers.

Of which only two were existing borrowers in it in total.

All of these 10 transactions were completed alongside other BC partners entities.

Excluding short term investments that were sold prior to the end of the quarter, 97% of new investments were first lien securities and 3% were second lien securities.

The average spread on these new investments was 586 basis points. Additionally, we made net new investments of $4 $7 million into our great Lakes joint venture.

On the repayments and disposition side the quarter was less active relative to the first two quarters of 2021 in total we exited or repaid on 18 positions 14 of which were repayments in aggregate. These exits represented a carrying value of approximately $36 6 million and resulted in a gain of approximately 500000.

Yeah.

Relative.

To the June 30 of 2021 fair value or cost originated during the quarter, our debt and equity securities accounted for an approximate $134000 net loss, while CLO equity positions accounted for $809000 net gain in our two joint ventures accounted for a $2 $1 million net gain.

On an equivalent basis as of September 30th 2021, Portman Ridge has $455 $1 million of debt securities marked at 93, 8% of par and yielding a stated spread to LIBOR of 725 basis points on accruing debt securities.

This compares to $419 6 million of debt Securities marked at 93, 5% of par and yielding a stated spread to LIBOR of 744 basis points on accruing debt securities as of June 30th 2021.

Non accruals as of September 32021 represented two 5% of cost and <unk>, 9% of fair value on the investment portfolio as compared to three 3% and one 5% respectively as of June 32021.

Six investments were on nonaccrual status as of September 30th 2021, compared to investments there on non accrual status as of last quarter.

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

Thanks, Patrick.

Ted noted during the third quarter, we completed a 10 for one reverse stock split effective August 26 2021.

As a result, all common shares and per share metrics have been adjusted retroactively to reflect this split.

Turning to our results for the quarter GAAP net investment income for Q3 was $13 7 million or $1 50 per share, which compares to net investment income of $11 7 million or $1 51 per share in the previous quarter.

Total investment income was $22 9 million, an increase of $1 4 million or six 3% from the prior quarter driven by higher interest income and higher capital structuring fees received during the quarter, reflecting a strong level of originations.

Total expenses for Q3 decreased to $9 2 million. This compares to $9 8 million of total expenses in the previous quarter $10 2 million in Q1 and from $11 million in the fourth quarter of 2020.

As we have discussed at length, we are very focused on maintaining a stable level of operating expenses against our asset base, which has grown significantly in the past here. We expect further leveraging of our fixed costs driven by lower weighted average interest rates across our borrowings and the spreading of operating expenses across a larger base of assets.

As we seek to continue to grow our portfolio.

Turning to our portfolio at quarter end, we had total investments excluding derivatives at $562 million net assets were $271 million or $29 71 per share an increase of 43 cents per share from $29 28 per share in the previous quarter.

This marks the sixth straight quarter that we've increased NAV per share.

Turning to the liability side of the balance sheet as of September 32021, we had a total of $340 9 million par value of borrowings outstanding comprised of $69 1 million in borrowings under our credit facility of $108 million of four and seven 8% notes due 2026 and a one.

30, <unk> hundred $63 9 million in secured notes due 2029 during.

During the third quarter, we redeemed in full $28 $75 million of each cat six and an 8% notes that we had assumed as part of the H GAAP transaction.

Having now refinanced approximately $106 million of legacy that we are pleased with the composition of our debt capital structure at this time.

As of September 32021, our debt to equity ratio was 1.26 times on a gross basis and 1.05 times on a net basis.

From a regulatory perspective, our asset coverage ratio at quarter end was 178%.

Given that our stated objective has been to target overall leverage to a range of 1.25 to 1.4 times. We believe we remain solidly positioned to pursue growth opportunities.

As of quarter end, we had unrestricted cash of $28 5 million restricted cash of $21 1 million and an additional $45 9 million of available borrowing capacity under the credit facility.

Aggregate unfunded commitments stood at $48 7 million as of September 32021.

As announced yesterday, our quarterly distribution of <unk> 62 per share, which represents an increase of two cents per share compared to prior quarter levels was approved by the board and declared payable on November 32021 to stockholders of record at the close of business on November 15th 2021.

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

Thank you, Jason I'll close by saying that we're very pleased with the progress we've made in terms of active repositioning deleveraging and refinancing our long term debt.

Now that most of the heavy lifting and lifting is complete we are focusing on continuing to generate solid earnings results on a consistent and steady basis.

So very pleased to be increasing our distributions per share for our shareholders.

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

As a reminder to ask a question you will need to press star one on your telephone.

Sure Your question press the pound key.

Please stand by while we compile the Q&A roster.

Our first question comes from the line of Christopher Nolan from Ladenburg Thalmann Your.

Your line is now open hey, guys.

Non accruals is it correct that ATP oil is now occurring.

No ATP is technically an equity position. So there was no accrual status for it in either direction. It continues to receive cash, but it's not an accrual.

Position, either direction, and how 'bout amtech and Raven.

Amtech was refinanced out at par during the quarter.

And Raven actually is.

Essentially flipped to a liquidating trust. So there is a very very small amount. That's left over that is just a part of a liquidating trust that will be ongoing it's technically an equity position now so theres no accrual status for that either great. The $3 9 million realized loss what was the driver for that please.

There's a handful of positions that were exited during the quarter at a carrying.

Carrying value or slightly above and this was unrealized flipping to realized.

Gotcha, and then I guess final question is higher capital structure fees and revenues.

Any color you can provide on that.

Yeah, that's a function of I would say a positive trend in the growth of the BC credit platform, enabling to take a larger role in call. It a ranging deals and taking more of the fees upfront.

And we had a few of those this quarter.

Great I'll get back in the queue. Thanks.

Thank you Andrew.

As a reminder to ask a question you will need to press star one on your telephone.

All your question press the pound key.

Our next question comes from the line of Ryan Lynch from <unk>. Your line is now open.

Hey, good afternoon, thanks for taking my questions.

Obviously with the merger related accretion from.

The merger related accretion accounting creates a lot of moving pieces. It makes I think earnings really really difficult to kind of understand.

Like what is the true earnings power. So could you help us out and I don't know if you have this right now or if you can come back but can you provide the dollar amount of merger related accretion that ran through the income statement.

Third quarter. So we can kind of tell what what is kind of the true operating earnings level versus what.

Or was it kind of skewed by by those those.

On accretion.

Yeah, Yeah sure sure Ryan and thanks, Thanks for the question.

So we did try to break that out for our investors.

Investors in our tax footnote in the Q, so you'll see a line item there that's specific to year to date purchase.

Purchase accounting accretion so that's the accretion number though that will run through the P&L.

That's on a year to date basis. So you just have to back out what the year to date and last quarter was to get the number I.

I think I don't remember off hand, and I think it's right around $5 6 million.

Okay.

And then you know.

Post quarter end, you guys purchased $18 million.

Two assets from from a subsidiary of JMP can you just talk about you.

How like what are the what are those two assets number one and two hour, though like how did that transaction come about with the background on how those were sourced.

How that deal came about.

Yeah, So why don't I start.

We obviously have a very close relationship with that firm.

It was announced that citizens bank is buying JMP and there is some residual assets on their balance sheet that we knew really well.

They wanted to clean up so.

Net of a cash transaction.

We did it at NAV and stock and so.

Since we purchased it.

Purchased at below.

What we think is true fair market value. So we think we got good value and we were able to move very very quickly.

And JMP given there the transaction we've done previously with harvest I think it was pretty familiar with Portman ridge in our stock and they've obviously made a bunch of money in our stock given the.

The timing of the harvest transaction, so it kind of made it a very synergistic.

Transaction, so obviously those assets should roll off relatively quickly.

And then obviously.

We can we can.

That put on additional assets just given our leverage lines. So it's a very very very accretive transaction to earnings.

Okay. That's helpful background.

The other question I had was looking at slide number four where you kind of break down the three.

Yeah.

Three mergers and kind of how much has been monetized, obviously and you mentioned in the bullet. There that you guys are still working through some of the harvest assets to kind of monetize some of those are obviously with the Ohio and garrison theres going be a level of assets that you guys view as kind of.

Core long term assets do you view that those two portfolios are kind of at the remaining <unk>.

<unk> that are still in your portfolio that came from those those two other bdcs are kind of core long term position and we'll still.

Remaining there and kind of run off in normal course over time or are you still looking to kind of proactively monetize any investments in those Oh, hi, and garrison books.

Yes, its Oregon garrison I think we've kind of monetize the things we want to monetize and Chris mentioned earlier things like ATP, which obviously are doing phenomenally well given what's happened with oil prices. So I think.

I think in both of those portfolios, we feel pretty good about where they are so you'll see these kind of naturally roll off but.

I think the positions, we really wanted to exit we've largely done that and each cap in a perfect world Theres, probably some additional names to here that we would love to get refinanced out of so we are spending.

As a percentage of the book, we're probably spending a disproportionate amount of time on the harvest names just because we're trying to.

Chop some of these names down.

But again, we feel very very good about where they are valued and we feel good about the book and again, it's a it's not a huge proportion of the overall apartment rich portfolio, but there are a couple of names in here that we're working to potentially monetize.

The only other thing I would say Ryan was particularly for Ohio garrison.

There were different reasons for both as to why we intentionally accelerated some of the refinancing repayment exit exit strategies there for Ohio.

Viewed to the outside world as a riskier second lien portfolio, which we didn't feel like it was but that said we wanted to kind of <unk>.

Optically show that we're able to exit those positions at at very good valuations and so there was kind of again, some some heightened impetus for for exits there and garrison portfolio as a whole was significantly over levered immediately post closing of garrison. So there was again some kind of heightened rationale for a more expedited exit.

Process over some of those assets.

Okay.

Understood.

One other thing I'd say just is it just an interesting theme, it's not really related to your question but is is.

In a typical environment you get refinanced out of your higher yielding assets.

Spreads compressed environment.

Right now, we're actually getting refinanced out of them.

Like the stuff, we get refinanced out is actually like around the same as what we're originating and where we're originating really hasnt changed that much over the last.

You know call. It two years I mean, obviously absent the COVID-19.

Impacts last year. So the things that we are getting taken out of or actually not necessarily our highest yielding positions, which I think is pretty healthy.

Mhm.

Got you and then just just one final one if I can I'll hop back in the queue you guys, obviously had pretty strong growth this quarter.

There's been a lot of things going on.

On as far as mergers goes over last several years.

The market is really active right now, but that obviously bodes well for deploying capital deployment, but it also can pressure.

Repayments and prepayments so.

What is your kind of outlook for fourth quarter and beyond as far as the ability to to.

To deploy capital.

And our net growth at the same time, you're also looking just to monetize some assets, which could also put some pressure on that what's your guys confidence in you guys going to be able to grow the portfolio in the fourth quarter.

And early into 2022.

Yes, Ryan I would say.

So the reality is we have a we have a pretty strong pipeline here, where we sit today in general you've had a pretty strong pipeline all year, I think particularly for our business.

Some of that is is a lot of it can be timing related there are points in time, where we come to quarter end and we're sitting on a bunch of cash because.

The particular transaction or to have gotten pushed out by a couple of weeks, So I'd say kind of absent general.

When we're closing deals and we feel pretty good.

That will we will be able to continue to grow the portfolio from a origination perspective relative to repayments and we saw it in Q3 repayments were only about half of our originations and it wasn't it wasn't like we were intentionally trying to put the pedal down on originations or repayments.

The activity on repayments has slowed a little bit and that will just allow us to naturally grow the portfolio on a net basis.

Okay.

Understood. That's all for me I appreciate the time.

Thank you. Our next question comes from the line of Steven Martin from Slater. Your line is now open. Thanks, a lot hi, guys.

Question I asked almost every quarter can you comment on the Clo's and timing of runoff because I do think that continues to granted it's it's become a very small portion of the portfolio, but I think it's a it's a big negative.

And.

To the equity securities.

Have grown and I was wondering what the nature is now of the equity securities and what's the likelihood of some of them getting flipped in this current active environment and three can you talk about the nonperforming and what your expect.

<unk> and <unk>.

Terms of workout elimination sale et cetera.

Yeah I'll start off.

So on CLO equity I would say, we've got it down to a very very small percent of our books. So when you say, it's a massive negative you know I think this quarter is like 3% and so we expect it to kind of not really be larger than 5% of our overall business. So we think it's at a pretty good spot.

We are.

We actually are expecting some of the legacy pieces to come out.

Part of this GMP transaction, we obviously picked up a little bit of <unk>.

<unk> products in that transaction. So I think as I said, I don't think youre going to see us have massive.

Increases in our CLO equity and again over time that should that should migrate down it's not a real core part of our business I think on the.

The nonperforming side and Patrick can obviously add his color I don't think we expect to see any real material change in those figures I mean, obviously, you've seen our non accruals were down by about a third of this quarter and I think credit quality of the overall portfolio is pretty stable buying some surprise so as of as of now I don't really see us.

Expecting a big increase in AR.

And non performers and then do I talked with the equity because it because I think it depends on what he is doing enough to talk about the equity portion.

Just quickly to add on to the non accruals I mean, the reality is.

One one of our accruals. It was a was a piece of equity that can get converted to a promissory note. Some time ago. So never really should have been an accrual we essentially moved up in the capital structure and just just chill.

Something that was equity into into a no, but we were never expecting any any interest from it regardless so how do we get there.

Negative tag, but the reality is that never had any impact and then another one is tank partners and we've been waiting for a judge to approve the final liquidation payment on a wind down that had happened over the course of 2019 and 2020, so which is kind of sitting there in cash.

And in a trough waiting and waiting to be willing to be sent out to us. So again, just naturally speaking we should at some point lose a couple of non accruals generally speaking.

Overtime.

And sorry, what was the what was your third question Steven.

Equity.

Yes, again, it depends a little bit on the on kind of what timeline you are looking at we did take over some equity positions as far as the age cap portfolio. We have not added any new equity positions kind of on the BC side that I that I can think of off the top of my head. There's one position that we have.

<unk> had some warrants and a business that got marked up during the quarter, but generally speaking it's not our we're not actively seeking out equity position. So I think the increase it you'd be you'd be looking at is more so driven by the <unk> merger as opposed to as opposed to general operating model.

Alright, Thank you very much.

Thank you. Our next question comes from the line of Angelo Guarino from a private Investor. Your line is now open.

Hi, Thanks for taking my.

My not really question I really like the question I just wanted to say that I want to congratulate everybody.

Excellent performance when we.

When you came up came into town and so what youre going to do with K Cup you laid out a plan.

And said.

The proof will be in the pudding and.

Looking at US post reverse split post refinancing of all of that high debt.

Growing the asset base of that.

We have enough scale, so the fixed costs or are manageable.

Make a note that you said you do.

Congratulations.

Thank you very much Angela.

But I mean, we really feel we really feel like we laid out a plan and we feel like we've kind of.

Achieved it and so now I think I think I think you will see the next couple of quarters. You know there really the goal is continue to hack away at costs, where we can make.

<unk> maintained portfolio yields and be disciplined underwriting.

And we.

We think we've got obviously great earnings momentum, but we also were able to raise the dividend this quarter and on a go forward basis, we would hope to have a pattern of maybe increasing dividends over time.

No.

Yeah.

Some of the questions from someone who was.

I'm familiar with BC partners before.

Before you showed up with K Cup was okay well.

Talking about our deal flow. Our deals are you know the stuff, we're going to bring to the table from PC partners is going to be a better quality pizza.

Partners is going to give us better access to low cost capital.

All of those things.

That's been proven.

So.

Just.

Keep it up and keep keep pointing to the bleachers and keep it in the ball.

That's great. Thank you so much.

Thank you. Our next question comes from the line of Steve Martin from Slater. Your line is now open.

Yeah.

Hey, guys I forgot one question can you comment on spillover you probably have your 2020 done now and what does that look like.

Oh, yeah. So.

Yes so.

From a.

Just overall.

Tax distributable taxable income for the quarter.

It ticked up a little bit from where we were year.

Year to date Q2.

We're looking to.

Yeah.

With the uptick in the dividend kind of get to a fully distributed rule as possible, but I think.

If the depends on where Q4 comes in and obviously that that's going to.

That will drive where we ended up for the for the year.

That would drive kind of where we.

Where we land with.

Any kind of a special or.

Uptick and the dividend at that point, so so I would say that we're not the cake isn't baked on that yet, but we're looking at it fairly closely and.

Managing that distributable income.

Yeah.

<unk>.

I'm sorry.

Now we benefited from two things on this which is we got a bit of a tax.

Advantage from some of these M&A deals we did and we also the way CLO accounting works you also get a bit of a tax.

Vantage, which we're focused on.

As Jason said, because the M&A is kind of done and the benefits of accretion are kind of rolling off and because CLO equity is such a small part of our business now youre going to see the spillover income begin to increase.

And you can get.

Idea of where it stood by your estimate at the end of the quarter.

Yeah. So so when I said that at the end of Q2, we were right on.

We were fully distributed right at that Mark.

Q3, ticked up a bit and you kind of see where we landed in the tax footnote. There provides where the distributable income is year to date versus if you just look at that versus the distributions today. So as of Q3, we are under distributed.

But.

I don't remember I don't recall the exact dollar figure alright, Thank you very much.

Thank you at this time I would like to turn the call back over to management for closing remarks.

Alright. Thank you everyone for joining us today, a very happy Thanksgiving for everybody on the call and we look forward to continued dialogue with all of our shareholders.

And we look forward to speaking to you on the next call. Thank you very much.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

[music].

Okay.

[music].

Hum.

Sure.

Hum.

Yeah.

[music].

Good day and thank you for standing by welcome to the Portman Ridge third 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 you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today G Halen first.

And it is of the company. Please go ahead.

A copy of the press release, along with an earnings presentation is available on the company's website at Www Dot Portman Ridge Dot 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.

Jorge <unk> Finance Corporation assumes no obligation to update any such forward looking statements unless required by law.

That now like to turn the call over to Ted Goldfarb, Chief Executive Officer of Portman Ridge. Please go ahead.

Thank you.

Good morning, and thanks, everyone for joining our third quarter earnings call I'm joined today by our Chief Financial Officer, Jason and Bruce and our Chief Investment Officer, Patrick Schafer.

Brief highlights on the company's performance and activities this quarter.

Rick will provide commentary on our investment portfolio.

In our markets and Jason will discuss our operating results.

Financial condition in greater detail.

Yes, good afternoon, Portman Ridge announced its third quarter 2021 results.

We reported overall, a solid quarter and whats your generated strong earnings well covered our distribution and increased our net asset value.

Origination was robust this quarter and we're beginning to see more evidence of the strength of the BC partners platform and generating attractive risk adjusted opportunities.

Of note, we completed a one for 10 reverse stock split effective August 26 2021.

So all metrics discussed will reflect that split.

For the third quarter of 2021, we've generated and I I of $1 50 per share.

NAV per share as of quarter end was $29 71.

An increase of 43.

Our one 5%.

Compared to our NAV per share of <unk> 29, 28 in the prior quarter, reflecting broad based improvements in our debt portfolio and joint ventures.

On the corporate front, we've previously spoken about our intent to leverage fixed costs, but growing asset base and generate cost efficiencies overtime.

Last quarter, we issued $108 million and four and 708.

Senior unsecured notes and used the proceeds to redeem the full $76 7 million of 600 eights notes in the third quarter.

We also redeemed in full $28 $75 million of the H cap 600, eights notes that were assumed as part of the H cap transaction.

As a result in the third quarter, we generated interest savings driven by a lower weighted average cost of debt.

Furthermore, we maintained other operating expenses at a relatively stable level quarter to quarter and believe the impact of these savings will continue to merit materialize over time, as we continue to grow and reposition our portfolio to higher quality and higher yielding BC partners originated assets.

We've continued to participate in our repurchase program and as a result during the third quarter, we repurchased a total of one 4 million shares.

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

Finally, as announced yesterday the board of directors declared a 62 cent per share quarterly distribution.

This represents a <unk> increase from prior quarter levels and reflects the consistent performance of the company to date.

The board will continue to assess the distribution level on a quarterly basis and will take into consideration both the companys ongoing performance as well as the general economic outlook and related factors.

In summary, we were pleased to report on yet another quarter of solid earnings portfolio performance and investment activities.

In terms of overall progress fallen M&A activity over the last year and a half we feel very good about where we sit in terms of our overall leverage and portfolio composition.

Over the past couple of quarters, we have refinanced our long term debt, which will result in interest savings in the long run.

Furthermore, with the overall leverage at the lower end of our target range with the capacity to grow and increase the proportion of BC originated assets.

We've accomplished much of this proactive portfolio repositioning that we've targeted but we'll continue to take an opportunistic approach in this regard.

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

Thanks Ted.

Turning first quickly to the current market conditions.

Third quarter of 2021 continued to experience elevated transaction volume and activity driving both origination and sales and repayments.

Lower interest rates as well as above average economic growth and continued post pandemic activity are all contributing factors to these current market conditions.

A total of $62 million in debt securities during the quarter and exited or repaid on investments with a carrying value of $36 $6 million.

With respect to the debt originations, we had investments into 10 borrowers.

Of which only two were existing borrowers in it in total.

All of these 10 transactions were completed alongside other BC partners entities.

Excluding short term investments that were sold prior to the end of the quarter, 97% of new investments were first lien securities and 3% were second lien securities.

The average spread on these new investments was 586 basis points. Additionally, we made net new investments of $4 $7 million into our great Lakes joint venture.

Yeah.

Relative to the June 32021, fair value or cost originated during the quarter, our debt and equity securities accounted for an approximate $134000 net loss, while CLO equity positions accounted for a $109000 net gain in our two joint ventures accounted for a $2 $1 million.

Net gain.

On an equivalent basis as of September 32021, Portman Ridge has $455 $1 million of debt securities marked at 93, 8% of par and yielding a stated spread to LIBOR of 725 basis points on accruing debt securities.

This compares to $419 6 million of debt Securities marked at 93, 5% of par and yielding a stated spread to LIBOR of 744 basis points on accruing debt securities as of June 30th 2021.

Non accruals as of September 32021 represented two 5% of cost and <unk>, 9% of fair value on the investment portfolio as compared to three 3% and one 5% respectively as of June 32021.

Six investments were on nonaccrual status as of September 32021, compared to investments there were on nonaccrual status as of last quarter.

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

Thanks, Patrick.

Ted noted during the third quarter, we completed a 10 for one reverse stock split effective August 26 2021 as.

As a result, all common shares and per share metrics have been adjusted retroactively to reflect this split.

Total expenses for Q3 decreased to $9 2 million. This compares to $9 8 million of total expenses in the previous quarter $10 2 million in Q1 and from $11 million in the fourth quarter of 2020.

As we have discussed at length, we are very focused on maintaining a stable level of operating expenses against our asset base, which has grown significantly in the past year. We expect further leveraging of our fixed costs driven by lower weighted average interest rates across our borrowings and the spreading of operating expenses across a larger base of assets.

We seek to continue to grow our portfolio.

Turning to our portfolio at quarter end, we had total investments excluding derivatives at $562 million net assets were $271 million or $29 71 per share an increase of 43 per share from $29 28 per share in the previous quarter.

This marks the sixth straight quarter that we have increased NAV per share.

30, <unk> hundred $63 9 million unsecured notes due 2029.

During the third quarter, we redeemed in full $28 $75 million of H cap six and an 8% notes that we had assumed as part of the H GAAP transaction.

Having now refinanced approximately $106 million of legacy that we are pleased with the composition of our debt capital structure at this time.

As of September 32021, our debt to equity ratio was one six times on a gross basis and 1.05 times on a net basis.

From a regulatory perspective, our asset coverage ratio at quarter end was 178%.

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

As of quarter end, we had unrestricted cash of $28 5 million restricted cash of $21 1 million and an additional $45 $9 million of available borrowing capacity under the credit facility.

Our aggregate unfunded commitments stood at $48 7 million as of September 32021.

As announced yesterday, our quarterly distribution of <unk> 62 per share, which represents an increase of <unk> <unk> per share compared to prior quarter levels was approved by the board and declared payable on November 32021 to stockholders of record at the close of business on November 15th 2021.

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

Thank you Jason.

Close by saying that we're very pleased with the progress we've made in terms of active repositioning deleveraging and refinancing our long term debt now.

Now that much of the heavy lifting and lifting is complete we are focusing on continuing to generate solid earnings results on a consistent and steady basis.

We're also very pleased to be increasing our distributions per share for our shareholders.

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

As a reminder to ask a question you will need to press star one on your telephone.

All your question press the pound team. Please stand by while we compile the Q&A roster.

Our first question comes from the line of Christopher Nolan from Ladenburg Thalmann Your.

Your line is now open hey.

You guys.

Non accruals is it correct that ATP oil is now occurring.

No ATP is technically an equity position. So there is no accrual status for it in either direction and continues to receive cash, but it's not an accrual.

Position, either direction, and how 'bout amtech and Raven.

I would say it was refinanced out at par and during the quarter.

And Raven actually is.

Essentially flipped to a liquidating trust. So there is a very very small amount that's left over that.

That is just a part of a liquidating trust that will be ongoing it's technically an equity position now so theres no accrual status for that either great. The $3 9 million realized loss what was the driver for that please.

Yes.

A handful of positions that were exited during the quarter at.

Carrying value or slightly above and this was unrealized flipping to realized.

Gotcha, and then I guess final question is higher capital structure fees and revenues.

Any color you can provide on that.

That's a function of I would say a positive trend in the growth of the BC credit platform, enabling to take a larger role in call. It a ranging deals and taking more of the fees upfront.

And we had a few of those this quarter.

Great I'll get back in the queue. Thanks.

Thank you Andrew.

A reminder to ask a question you will need to press star one on your telephone.

John Your question press the pound key.

Our next question comes from the line of Ryan Lynch from <unk>. Your line is now open.

Hey, good afternoon, thanks for taking my questions.

Obviously with the merger related accretion from the.

The merger related accretion accounting creates a lot of moving pieces. It makes I think earnings really really difficult to kind of understand.

Like what is the true earnings power. So could you help us out and I don't know if you have this right now or if you can come back but.

Can you provide the dollar amount of merger related accretion that ran through the income statement in the third quarter. So we can kind of tell what what is kind of the true operating earnings level versus what it was.

All those kind of skewed by by those those.

The accretion.

Yes, sure sure Ryan and thanks for thanks for the question.

So we did try to break that out for <unk>.

Investors in our tax footnote in the Q, so you'll see a line item there that's specific to year to date.

Purchase accounting accretion so that's the accretion number though that will run through the P&L.

That's on a year to date basis. So you just have to back out what the year to date at last quarter. It was to get the number.

I think I don't remember off hand, I think it's right around $5 6 million.

Okay.

And then.

Post quarter end, you guys purchased $18 million.

Two assets from from a subsidiary of JMP can you just talk about.

How what are the what are those two assets number one and two hour, though like how did that transaction come about was the background on how those were sourced.

How that deal came about.

Yeah, So why don't I start.

We obviously have a very close relationship with that firm.

It was announced that citizens bank is buying JMP and there is some residual assets on their balance sheet that we knew really well.

That they wanted to clean up.

No.

Net of a cash transaction.

We did it at NAV and stock and so.

The assets, we purchased we purchased at below.

What we think is true fair market value. So we didn't we got good value and we were able to move very very quickly.

And JMP given there the transaction we've done previously with harvest I think it was pretty familiar with Portman ridge in our stock and they've obviously made a bunch of money in our stock given.

The timing of the harvest transaction, so it kind of made it a very synergistic.

Transaction, so obviously those assets should roll off relatively quickly.

And then obviously.

We can we can.

That put on additional assets just given our leverage lines. So it's a very very very accretive transaction to earnings.

Okay. That's helpful background.

The other question I had was looking at slide number four we kind of breakdown the three.

Yes.

Three mergers and kind of how much has been monetized obviously.

Mentioned in the bullet there that you guys are still working through some of the harvest assets to kind of monetize some of those.

Obviously with the Ohio, and garrison Theres going be a level of assets that you guys view as kind of core long term assets do you view that those two portfolios are kind of at the remaining <unk>.

Physicians that are still in your portfolio that came from those those two other bdcs are kind of core long term position that will still remain there and kind of run off in normal course over time or are you still looking to kind of proactively monetize any investment in those.

And garrison books.

And both of those portfolios, we feel pretty good about where they are so you'll see these kind of naturally roll off but.

As a percentage of the book, we're probably spending a disproportionate amount of time on the harvest names just because we're trying to.

Chop some of these names down.

But again, we feel very very good about where they valued and we feel good about the book and again, it's not a huge proportion of the overall Portman ridge portfolio, but there are a couple of names in here that we're working to potentially monetize.

The only other thing I would say Ryan was particularly for Ohio garrison.

There were different reasons for both as to why we intentionally accelerated some of the refinancing repayment exit exit strategies there for Ohio.

Viewed to the outside world as a riskier second lien portfolio, which we didn't feel like it was but that said we wanted to kind of <unk>.

Optically show that we are able to exit those positions at at very good valuations and so there is kind of again, some heightened impetus for fragrance, there and the garrison portfolio as a whole was significantly over levered immediately post closing of garrison. So there was again some kind of heightened rationale for a more expedited exit.

Process over some of those assets.

Okay.

Understood.

One other thing I'd say is that just an interesting theme, it's not really related to your question but is is.

In a typical environment you get refinanced out of your higher yielding assets.

Spreads compressed environment.

Right now, we're actually getting refinanced out of.

Like the stuff, we get refinanced out is actually like around the same as what we're originating and where we're originating really hasn't changed that much over the last.

You know call. It two years I mean, obviously absent the COVID-19.

Impacts last year. So the things that we are getting taken out of or actually not necessarily our highest yielding positions, which I think is pretty healthy.

Mhm.

Got you and then just just one final one if I can I'll hop back in the queue you guys, obviously had pretty strong growth this quarter.

There's been a lot of things going on.

On as far as mergers goes over the last several years.

Market is really active right now but that obviously.

Well for deploy capital deployment, but it also can pressure.

Repayments and prepayments so.

Whats your kind of outlook for fourth quarter and beyond as far as the ability to.

Deploy capital.

Net growth at the same time. They are also looking just to monetize some assets, which could also put some pressure on that what's your guys confidence in you guys going to be able to grow grow the portfolio in the fourth quarter.

And early into 2022.

Yes, Ryan I would say.

I think the reality is we have a we have a pretty strong pipeline here, where we sit today in general you've had a pretty strong pipeline all year, I think particularly for our business.

Some of that is is a lot of it can be timing related there are points in time, where we come to quarter end and were sitting on a bunch of cash because DIY.

Particular transaction or to have gotten pushed out by a couple of weeks. So I'd say kind of absent general timing of when we're closing deals and we feel pretty good.

That will we will be able to continue to grow the portfolio from an origination perspective relative to repayments and we saw it in Q3 repayments were only about half of our originations and it wasn't it wasn't like we were intentionally trying to put the pedal down on originations or repayments.

The activity on repayments has slowed a little bit and that will just allow us to naturally grow the portfolio on a net basis.

Okay.

Understood. That's all for me I appreciate the time.

Thank you. Our next question comes from the line of Steven Martin from Slater. Your line is now open. Thanks, a lot hi, guys.

Question I asked almost every quarter can you comment on the close and the timing of runoff because I do think that continues to granted it's it's become a very small portion of the portfolio, but I think it's a it's a big negative and.

Two the equity securities.

In terms of workout elimination sale et cetera.

Yeah I'll start Cai.

On CLO equity I would say, we've got it down to a very very small percent of our books. So when you say, it's a massive negative you know I think this quarter is like 3% and so we expect it to kind of not really be larger than 5% of our overall business. So we think it's at a pretty good spot.

We are.

We actually are expecting some of the legacy efficiencies to come out, but as part of this JMP transaction, we obviously picked up a little bit of structured products in that transaction. So I think as I said I don't think youre going to see us have massive.

Increases in our CLO equity and again over time that should that should migrate down it's not a real core part of our business I think on the nonperforming side and Patrick can obviously add his color I don't think we expect to see any real material change in those figures I mean, obviously, you've seen our non accruals were down.

By about a third of this quarter and I think credit quality of the overall portfolio is pretty stable volume. Some surprise so as of as of now I don't really see us expecting a big increase in AR and nonperforming.

<unk> and then do I talked with the equity because it because I think it depends on what.

Talk about the equity portion.

And just quickly to add on to that.

Non accruals I mean, the reality is one one of our accruals. It was a was a piece of equity that can get converted to a promissory note. Some time ago. So never really should have been an accrual we essentially moved up in the capital structure changes.

Change something that was equity into into a no, but we were never expecting any any interest from it regardless.

So how do we get.

In antitrust waiting and waiting to be willing to be sent out to us. So again, just naturally speaking we should at some point lose a couple of non accruals generally speaking.

Over time.

And sorry, what was the what was your third question Steven Oh.

Equity.

Yes, again, it depends a little bit on the on kind of what timeline you are looking at we did take over some equity positions as far as the age cap portfolio, we have not added any new equity positions.

BC side that I that I can think of off the top of my head. There's one position that we'd had some warrants into business that got marked up during the quarter, but generally speaking it's not our we're not actively seeking out equity position. So I think the increase that you'd be you'd be looking at is more so driven by the <unk> merger as opposed to as opposed to.

General operating model.

Alright, Thank you very much.

Thank you. Our next question comes from the line of Angelo Guarino Brown, a private investor. Your line is now open.

Hi, Thanks for taking my.

My question I really like the question I, just wanted to say that I want to congratulate everybody.

On.

Excellent performance I mean, when we were.

When you came up came into town and so what youre going to do with K Cup you laid out a plan.

And said you know the.

Proof will be in the pudding and.

Looking at US post reverse split post refinancing of all that high debt.

Growing the asset base of that.

We have enough scale. So the fixed costs are are manageable.

I just wanted to make a note that you said you do.

And congratulations.

Thank you very much Angela I appreciate that I mean, we really feel we really feel like we laid out a plan and we feel like we've kind of achieved.

Achieved it and so now I think I think I think you'll see the next couple of quarters. You know there really the goal is continue to hack away at costs, where we can make.

<unk> maintained portfolio yields and be disciplined underwriting.

And.

Yeah.

So some of the questions from someone who wasn't familiar.

Familiar with BC partners before.

Before you showed up with K Cup was okay well.

Talking about our deal flow our deals.

We're going to bring to the table from BC partners is going to be a better quality VC partners is going to give us better access to low cost capital all of those things.

No.

That's been proven so.

Just yeah.

Keep it up and keep keep pointing to the bleachers and keep it in the ball.

Great. Thank you so much.

Thank you. Our next question comes from the line of Steven Martin from Slater. Your line is now open.

Hey, guys I forgot one question can you comment on spillover you probably have your 2020 done now and what does that look like.

Oh, yeah. So.

Yes so.

From a.

Just overall.

Tag distributable taxable income for the quarter.

It ticked up a little bit from where we were.

Year to date Q2.

We're looking to.

Yeah.

With the uptick in the dividend kind of get to fully distributable as possible, but I think.

If the depends on where Q4 comes in and obviously that that's going to.

That will drive where we ended up for the for the year.

The drive kind of where we are.

Where we land with.

Any kind of a special or.

Uptick and the dividend at that point, so I would say that we're not the cake isn't baked on that yet.

But we're looking at it fairly closely and.

Managing that distributable income.

<unk>.

I'm sorry.

We benefited from two things on this which is we got a bit of a tax.

Advantage from some of these M&A deals we did and we also the way CLO accounting works you also get a bit of a tax advair.

Advantage, which we're focused on.

As Jason said, because the M&A is kind of done and the benefits of accretion are kind of rolling off and because CLO equity such a small part of our business now youre going to see the spillover income begin to increase.

And you can get it.

Idea of where it stood by your estimate at the end of the quarter.

Yeah. So so when I said at the end of Q2, we were right on.

We were fully distributed right at that Mark.

Q3, ticked up a bit and you kind of see where we landed in the tax but note. There provides where the distributable income is year to date versus and you can just look at that versus the distributions today. So as of Q3, we are under distributed.

But.

I don't remember I don't recall the exact dollar figure alright, Thank you very much.

Thank you at this time I would like to turn the call back over to management for closing remarks.

Alright. Thank you everyone for joining us today very happy Thanksgiving for everybody on the call and we look forward to continued dialogue with all of our shareholders.

And we look forward to speaking to you on the next call. Thank you very much.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q3 2021 Portman Ridge Finance Corp Earnings Call

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