Q3 2021 Logan Ridge Finance Corp Earnings Call

November 11, 2021

Ladies and gentlemen, this conference is scheduled to the insurance needs continue to standby again, ladies and gentlemen. This conference is scheduled to begin shortly policemen bye.

By thinking differently.

[music].

Good day and thank you for standing by welcome to the Logan Ridge third quarter 'twenty to 'twenty, one financial results conference call.

This time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

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're acquiring a friendly assistance. Please press star zero.

Now like to hand, the conference over to your first speaker today G. Lindbergh.

You may begin.

Thank you.

Good morning, and welcome to Logan Rich Finance Corporation's third quarter 2021 earnings conference call and earnings Press release was distributed yesterday afternoon November 10 after market closed a copy of the press release, along with an earnings presentation is available on the company's website at Logan Rich finance 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.

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

That I would now like to turn the call over to Ted Goldberg, Chief Executive Officer of Lowe's Enrich Finance Corporation. Please go ahead Ted.

Good morning, and welcome to our third quarter 2021 earnings call.

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

<unk> marks our first completed a quarter as the new advisor to Logan Rich finance.

And today I'd like to start off by summarizing the progress that we've made and what lies ahead.

Following that Patrick will provide additional detail on our investment activity to date and Jason will walk you through the financials.

We previously discussed our two immediate objectives as the new advisor first and foremost our goal is to reposition the book by rotating out of non income producing equity exposure and redeploying those proceeds into high quality senior secured income generating investments originated by BC partners.

And secondly, our key priority was to deleverage and optimize the company's debt capitalization.

I am pleased to report that during the third quarter. The company made material progress on the repositioning front exiting five portfolio companies, which generated proceeds of $59 $7 million of which approximately $11 $2 million was received for the successful exits from three non income producing equity investments.

These positions were valued at $58 7 million as of June 32021.

Additionally, during the quarter ended September 32021, we made $48 9 million of new investment commitments to 60 portfolio companies of which approximately $33 3 million was funded as of quarter end.

As a result first lien debt as a percentage of the portfolio at fair value has increased to 58% from 50% in the prior quarter second lien debt has decreased to 11% from 17% in the prior quarter and our equity portfolio decreased to 31% from 32% in the prior quarter.

We're very pleased with the progress we've made in repositioning the portfolio with that in mind I would like to spend a few minutes addressing our investment income during the third quarter.

Our investment income declined this quarter compared to prior quarter, but this was primarily driven by large exits occurring early in the quarter and the bulk of our deployment activity occurring at the end of the quarter.

As prudent underwriters and good stewards of shareholder capital, we've always taken a disciplined approach to deploying capital and the reinvestment of Logan Ridge is no exception.

In addition to the new funded loans made during the quarter largely weighted towards the end of the quarter with $37 4 million of cash on the balance sheet that is earmarked for previous commitments that we expect to fund and new investments, we intend to make.

We fully expect this dynamic to be transitory, but generally it is the result of successful proactive rotation of the portfolio.

Our platform is a robust pipeline and we expect deploy the capital in a reasonably short period of time, which should drive incremental investment income that flows through 100% to NII.

With respect to the company's debt structure, we made tangible progress in <unk>.

Risk reduction by additional deleveraging during the third quarter.

Following the full repayment of the $71 million in SBA debentures. During the second quarter. We then repaid $25 million outstanding on the Keybank credit facility during the quarter.

Accordingly, our debt to equity ratio has decreased from 1.3 times at the end of the second quarter 2021 to one one times as of the end of the third quarter 2021.

Furthermore, subsequent to quarter end, we announced that we successfully refinanced a portion of our long term debt.

On October 29, 2021, the company issued $50 million of five and a quarter senior unsecured notes due 2026, which receipt received an investment grade rating of Triple B minus from Egan Jones.

The proceeds of this offering will be used to repay $50 million in aggregate principal of 6% notes due 2022, which will be completed early next month.

Longer term, we've also discussed our plans to leverage the BC partners platform, an entire AUM base to drive operating efficiencies. So far we've reduced and stabilized operating expenses and we expect we will be able to continue this trend of spreading a stable level of expenses across a larger asset base as we seek to grow the investment portfolio.

As I mentioned earlier, our overall key objective is to reinstate a stable sustainable dividend as soon as practically possible.

Made solid progress thus far we look forward to continuing this momentum and providing additional updates in the coming quarters.

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

Thanks Ted.

I'll briefly summarize investment activities for the third quarter, and then provide some more detail on activities subsequent to quarter end.

During the quarter the company made $48 9 million of new investment commitments to six new portfolio companies of which approximately $33 3 million was funded as of quarter end.

We had approximately $64 1 million and net repayments in sales, resulting in net repayments in sales of approximately $30 8 million for the quarter.

As of September 32021, the company's investment portfolio consisted.

Company's portfolio consists of investments in 33 portfolio companies with a fair value of approximately $195 $4 million.

The debt investment portfolio, which represented 69, 1% of the fair value of our total portfolio had a yield of approximately eight 9%.

As of quarter end, we had debt investments in three portfolio companies on nonaccrual status with an aggregate amortized cost of $21 3 million and an aggregate fair value of $9 2 million, which represented 11.0 and four 7% of the investment portfolio respectively.

During the quarter the company recognized $7 4 million of realized gains on investments driven by the successful exits of our investments and three bridge solutions rapid fire protection corporate visions, Cytol and Meramec direct.

The company also recognized $9 4 million of unrealized depreciation driven largely by realizing depreciation on the positions we exited during the quarter.

On the I'll provide a little more detail on our activities subsequent to quarter end.

To date, we have successfully exited Logan ridges investment in chicken soup for the soul and approximately $7 million of our investment in Navios Holdings, Inc.

Generating proceeds of $17 million of which approximately $1 3 million was from our equity interest in Navios holdings.

This was offset by $24 3 million of new investment commitments to date.

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

As we've discussed at length, our immediate objectives continued to be successfully rotating the portfolio out of non income producing positions and redeploying the proceeds into high quality senior secured interest, earning debt investments originated by BC partners and we've made substantial progress on this initiative already.

And now I'll turn the call over to Jason.

Thanks, Patrick turning to our financial results for the quarter.

Total investment income was $3 4 million for the third quarter of 2021 compared to $5 million for the second quarter of 2021.

Interest income declined by 900000 quarter to quarter due to lower average outstanding debt investments.

It's really the third quarter did not benefit from approximately 600000 in nonrecurring dividend income received in the second quarter.

Total expenses for the third quarter of 2021 were $4 9 million compared to $5 million for the second quarter of 2021 interest and financing fees decreased by 400000 management fees decreased by 200000, and other general and administrative costs increased by 500000 compared to the prior.

Quarter.

The decrease in expenses quarter to quarter was driven primarily by lower financing costs and lower management fees. As a result of a smaller portfolio, partially offset by higher general and administrative expenses driven primarily by 400000 of one time expenses during the third quarter.

Accordingly, net investment loss for the quarter was $1 5 million or <unk> 56 per share compared to income of 34000 or one cent per share in the prior in the quarter ended June 32021.

We recognized $7 4 million in net realized gains of $9 4 million net change in unrealized losses. The net decrease in assets, resulting from operations was $3 5 million or $1 29 per share for the third quarter of 2021 compared to a net decrease of $7 6 million or two.

And 79 per share for the second quarter of 2021.

Net assets as of September 32021 were $110 3 million or $40 67 per share compared to $113 7 million or $41 96 per share at June 32021 the.

The decrease in NAV per share was primarily due to the net change in unrealized losses during the quarter and lower net investment income.

As of September 32021, we had $37 4 million in cash and cash equivalents on the liability side of the balance sheet, we fully repaid the $25 million outstanding on the Keybank credit facility during the third quarter at quarter end, we had approximately $125 million of debt outstanding comprised of $72 8 million or 6%.

Let's do 2022 and.

And $52 1 million, a five point, 75% convertible notes due 2022, the company's total debt to equity ratio was one one times at quarter end compared to one three times at June 30th and two times at the prior year end.

As Ted noted subsequent to quarter end on October 29, 2021, we issued $50 million of 5.25% senior unsecured notes due 2026, and a private placement, which were rated triple b minus by Egan Jones.

The proceeds from this offering will be used to redeem $50 million of the $72 8 million outstanding of the 6% notes due 2022.

We expect this redemption to be completed on December six 2021 and following that.

$22 8 million of the 6% notes due 2022 will remain outstanding.

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

Thank you Jason in closing, we've made significant headway since assuming management of the company in the last quarter we.

We've reduced the equity composition of the investment portfolio, we are prudently redeploying proceeds into high quality debt investments.

We've also made material progress on improving the capitalization of the company by quickly deleveraging and more recently more recently refinancing a significant portion of our long term debt capital with lower cost.

Forward to providing more updates in the coming quarters as we continue to make progress. Thank you for your support and this concludes our prepared remarks, and I will now turn the call over the operator for any questions.

Thank you ladies.

Ladies and gentlemen, as a reminder to ask a question you will need to press star one on your telephone.

So we got a question press the pound key again that if I want to ask a question.

Alright, then Chris we have Christopher Nolan with Ladenburg Thalmann.

Hey, guys I'm, Jason to 400, K onetime expenses, what would those four again please.

Yeah sure a couple of things there were.

Some prepaid or capitalized fees associated with our prior shelf registration in an equity offering program known as an ATM program.

We wrote those off as those programs expired this quarter.

And then there was.

Some additional.

Accruals that we've put on unrelated to audit.

R&D expenses.

Okay, and then I guess I mean, you guys have been making really good progress in terms of you know two of them.

Repositioning we book them.

The balance sheet. So forth what is your time frame in terms of.

You think he can now mostly.

You can get equity, let's say, 10% or less of them.

The total portfolio at cost.

We're at fair value.

We expect to make pretty material headway between now and the early first quarter. So you know by the time of our next call we'd expect the equity percentage of our portfolio to be down.

Got to as Patrick mentioned in his prepared remarks, we have two equity positions that are in pretty advanced stages of the sales process. So again, not saying, it's going to happen or not happen, but we're doing a lot of work to get those down in terms of getting to 10%.

You know I think a realistic targets probably end of next year.

But but again, we're trying to accelerate that to the best of our abilities.

Okay, Great and then I guess final question of the convertible notes any plan on you know.

Refinancing those.

Yeah, I would say, we're looking at the right side of the balance sheet Holistically right now, including the convertible notes.

We're right now looking at some.

Restructuring on call at our credit facility asset backed facility and that will follow suit.

Yeah. So we just we just put out partial tender out for our bonds right, which will close December 6th and the.

The converts are non call just given the converts so we have a little more time to to address those just because.

Although they mature in may of 2022, unlike the bonds are they're not as easily to extinguish.

Well you know.

I mean, you guys have been doing.

Yeoman's job and I know on the last call.

Soccer is trading roughly 52%.

No no.

It's closer to 65% so.

No I think the changes that you're making are definitely starting to show in our stock valuation. So good for you. Okay. That's it for me.

Great. Thank you Chris.

Thank you.

There are no questions at this time I'll now turn the call back over to the management.

Right well. Thank you all for dialing in this morning, and thank you for your continued support and as always the management team is available for calls at any time. Thank you very much.

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

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Good day, and thank you for standing by and welcome to the Logan Ridge third quarter 'twenty to 'twenty, one 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 at.

Please be advised that today's conference is being recorded if you're acquiring a friendly assistance. Please press star zero I would now like to hand, the conference over to your first speaker today G. Lindbergh.

You may begin.

Thank you.

Good morning, and welcome to Logan Rich Finance Corporation third quarter 2021 earnings conference call and earnings Press release was distributed yesterday afternoon November 10 after market closed a copy of the press release, along with an earnings presentation is available on the company's website at Logan Ridge Finance 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.

<unk> 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.

Logan, which 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 Ted Goldberg Chief Executive Officer of Logan Rich Finance Corporation. Please go ahead Ted.

Good morning, and welcome to our third quarter 2021 earnings call I'm joined today by our Chief Financial Officer, Jason and Bruce and our Chief Investment Officer, Patrick Schafer.

This marks our first completed a quarter as the new advisor to Logan Rich finance and today I'd like to start off by summarizing the progress that we've made and what lies ahead.

Following that Patrick will provide additional detail on our investment activity to date and Jason will walk you through the financials.

Previously discussed our two immediate objectives as the new advisor first and foremost our goal is to reposition the book by rotating out of non income producing equity exposure and redeploying those proceeds into high quality senior secured income generating investments originated by BC partners.

And secondly, our key priority was to deleverage and optimize the company's debt capitalization.

I'm pleased to report that during the third quarter. The company made material progress on the repositioning in front exiting five portfolio companies, which generated proceeds of $59 $7 million of which approximately $11 $2 million was received for the successful exits from three non income producing equity investments.

These positions were valued at $58 7 million as of June 32021.

Additionally, drink during the quarter ended September 32021, we made $48 9 million of new investment commitments to 60 portfolio companies of which approximately $33 3 million was funded as of quarter end.

As a result first lien debt as a percentage of the portfolio at fair value has increased to 58% from 50% in the prior quarter second lien debt has decreased to 11% from 17% in prior quarter and our equity portfolio decreased to 31% from 32% in the prior quarter.

We're very pleased with the progress we've made in repositioning the portfolio with that in mind I would like to spend a few minutes addressing our investment income during the third quarter.

As prudent underwriters and good stewards of shareholder capital, we've always taken a disciplined approach to deploying capital and the reinvestment of Logan Ridge is no exception. In addition to their new funded loans made during the quarter largely weighted towards the end of the quarter. We had $37 4 million of cash on the balance sheet that is earmarked for previous commitment.

That we expect to fund and new investments, we intend to make.

We fully expect this dynamic to be transitory, but generally it is the result of successful proactive rotation of the portfolio.

Our platform is a robust pipeline and we expect to play the capital in a reasonably short period of time, which should drive incremental investment income that flows through 100% to NII.

With respect to the company's debt structure, we made tangible progress in <unk>.

Risk reduction by additional deleveraging during the third quarter.

Following the full repayment of the $71 million in SBA debentures. During the second quarter. We then repaid $25 million outstanding on the Keybank credit facility during the quarter.

Accordingly, our debt to equity ratio has decreased from 1.3 times at the end of the second quarter 2021 to one one times as of the end of the third quarter 2021.

Furthermore, subsequent to quarter end, we announced that we successfully refinanced a portion of our long term debt.

On October 29, 2021, the company issued $50 million of five and a quarter senior unsecured notes due 2026, which receipt received an investment grade rating of Triple B minus from Egan Jones.

The proceeds of this offering will be used to repay $50 million in aggregate principal of 6% notes due 2022, which will be completed early next month.

Longer term, we've also discussed our plans to leverage the BC partners platform, an entire AUM base to drive operating efficiencies. So far we have reduced and stabilized operating expenses and we expect we will be able to continue this trend of spreading a stable level of expenses across a larger asset base as we seek to grow the investment portfolio.

As I mentioned earlier, our overall key objective is to reinstate a stable sustainable dividend as soon as practically possible. We've made solid progress. Thus far we look forward to continuing this momentum and providing additional updates in the coming quarters.

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

Thanks, Ted I'll briefly summarize investment activities for the third quarter, and then provide some more detail on activities subsequent to quarter end.

During the quarter the company made $48 9 million of new investment commitments to six new portfolio companies of which approximately $33 3 million was funded as of quarter end.

Company had approximately $64 1 million and net repayments in sales, resulting in net repayments in sales of approximately $30 8 million for the quarter.

As of September 32021, the company's investment portfolio consisted.

Portfolio consisted of investments in 33 portfolio companies with a fair value of approximately $195 $4 million the.

The debt investment portfolio, which represented 69, 1% of the fair value of our total portfolio had a yield of approximately eight 9%.

During the quarter the company recognized $7 4 million of realized gains on investments driven by the successful exit of our investments and three bridge solutions rapid fire protection corporate visions, Cytol and Meramec direct.

The company also recognized $9 4 million of unrealized depreciation driven largely by realizing depreciation on the positions we exited during the quarter.

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

To date, we have successfully exited Logan reduce investment in chicken soup for the soul and approximately $7 million of our investment in <unk> Holdings, Inc.

<unk> proceeds of $17 million of which approximately $1 3 million was from our equity interest in Navios holdings.

This was offset by $24 3 million of new investment commitments to date.

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

I'll now turn the call over to Jason.

Thanks, Patrick turning to our financial results for the quarter.

Total investment income was $3 4 million for the third quarter of 2021 compared to $5 million for the second quarter of 2021.

Interest income declined by 900000 quarter to quarter due to lower average outstanding debt investments. Additionally, the third quarter did not benefit from approximately 600000 in nonrecurring dividend income received in the second quarter.

Quarter.

Accordingly, net investment loss for the quarter was $1 5 million or <unk> 56 per share compared to income of 34000 or one cents per share in the prior in the quarter ended June 32021.

And 79 per share for the second quarter of 2021.

Net assets as of September 32021 were $110 3 million or $48 67 per share compared to $113 7 million or <unk> $41 96 per share at June 32021.

The decrease in NAV per share was primarily due to the net change in unrealized losses during the quarter and lower net investment income.

As of September 32021, we had 37 4 million in cash and cash equivalents on the liability side of the balance sheet, we fully repaid the $25 million outstanding on the Keybank credit facility during the third quarter at quarter end, we had approximately $125 million of debt outstanding comprised of $72 8 million or 6%.

That's due 2022 and.

And $52 1 million, a five point, 75% convertible notes due 2022, the company's total debt to equity ratio was one one times at quarter end compared to one three times at June 30, and two times at the prior year end.

As Ted noted subsequent to quarter end on October 29, 2021, we issued $50 million of 5.25% senior unsecured notes due 2026, and a private placement, which were rated triple b minus by Egan Jones.

The proceeds from this offering will be used to redeem $50 million of the $72 8 million outstanding of the 6% notes due 2022.

We expect this redemption to be completed on December six 2021 and following that.

<unk> $22 8 million of the 6% notes due 2022 will remain outstanding.

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

Thank you Jason in closing, we've made significant headway since assuming management of the company in the last quarter we.

We've reduced the equity composition of the investment portfolio, we are prudently redeploying proceeds into high quality debt investments.

Also made material progress on improving the capitalization of the company by quickly deleveraging and more recently more recently refinancing a significant portion of our long term debt capital with lower cost.

Forward to provide more updates in the coming quarters as we continue to make progress. Thank you for your support and this concludes our prepared remarks I will now turn the call over the operator for any questions.

Thank you, ladies and gentlemen, as a reminder to ask a question you will need to press star one on your telephone.

So we got a question press the pound key again that if I want to ask a question.

Alright, then Chris we have Christopher Nolan with Ladenburg Thalmann.

Hey, guys.

Jason the 400 K in one time expenses what would those four again please.

Yes, sure a couple of things there were.

Some prepaid or capitalized fees associated with our prior shelf registration in an equity offering program known as an ATM program.

We wrote those off as those programs expired this quarter.

And then there is.

Some additional.

Accruals that we've put on unrelated to audit.

R&D expenses.

Okay, and then I guess.

I mean, you guys have been making really good progress in terms of just.

Repositioning we book them.

The balance sheet, so forth what is your timeframe in terms of.

You think you can now mostly.

You can get equity, let's say, 10% or less of.

The total portfolio at cost.

Alright fair value.

We expect to make pretty material headway between now and the early first quarter. So by the time of our next call. We would expect the equity percentage of our portfolio to be down.

Got to as Patrick mentioned in his prepared remarks, we have two equity positions that are in pretty advanced stages of.

The sales process, so again, not saying is going to happen or not happen, but we're doing a lot of work to get those down in terms of getting to 10%.

I think a realistic targets probably end of next year.

But.

But again, we're trying to accelerate that to the best of our abilities.

Okay, Great and then I guess final question of the convertible notes any plan on refi.

Refinancing those.

Yes, I would say, we're looking at the right side of the balance sheet Holistically right now, including the convertible notes.

We're right now looking at some.

Restructuring on call at our credit facility, our asset backed facility and that will follow suit.

Yes. So we just we just put a partial tender out for our bonds right, which will close December 6th and.

The converts are non call just given the converts so we have a little more time to to address those just because.

Though they mature in may of 2022, unlike the bonds are not as easily to extinguish.

Well you know.

You guys have been doing.

Yeoman's job and I would note on the last call.

Soccer is trading roughly 52% of NAV.

Closer to 65% so.

I think the changes that youre, making are definitely starting to show in our stock valuation. So good for you. Okay. That's it for me.

Great. Thank you Chris.

Thank you.

There are no questions at this time I will turn the call back over to the management right well. Thank you all for dialing in this morning, and thank you for your continued support and as per always the management team is available for calls at any time. Thank you very much.

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

Q3 2021 Logan Ridge Finance Corp Earnings Call

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