Q1 2022 Logan Ridge Finance Corp Earnings Call
Okay.
Good day, and thank you for standing by welcome to the Logan Rick's first quarter 2022 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. Please.
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Ask a question during the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Serena Lisa. Please go ahead.
Thank you good morning, and welcome to Logan Reg Finance Corporation's first quarter 2022 earnings Conference call and earnings Press release was distributed yesterday May 12 after market closed a copy of the release along with an earnings presentation is available on the company's website at Ww.
Debbie adopt Logan Reg 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 Ridge Finance Corporation assumes no obligation to update any such forward looking statements unless required by law with that I would now like to turn the call over to Ted go Thorburn, Chief Executive Officer of Logan Bridge Finance Corporation. Please go ahead Ted.
Good morning.
Welcome to our first quarter 2022 earnings calls.
I'm joined today by our Chief Financial Officer, Jason Rus, and our Chief Investment Officer, Patrick Schafer.
Following my opening remarks, Patrick to provide additional detail on our investment activity to date and Jason will walk through the financials.
This marks a third completed quarter is the new advisor to Logan Ridge and I'm pleased to say that we do.
Made significant progress since we began managing the company.
Although we have been operating in an environment, where theres market volatility political uncertainty and rising interest rates.
Fair value of our investment portfolio grew to approximately $207 million driven primarily by unrealized depreciation on the portfolio and the judicious deployment of proceeds generated from exiting the legacy portfolio into interest, earning investments originated by the BC partners credit point.
Additionally, we are pleased to report that subsequent to quarter end, we successfully refinanced the remainder of Logan ridges legacy capital structure, which is a testament to the benefits shareholders received.
From our ability to leverage the size and scale of our platform and the strong relationships, we have with our lenders and financing partners.
Specifically on April 1st we issued a $15 million convertible notes on May 10th we amended our existing senior secured revolving credit agreement with Keybank to increase the commitment reduce the interest rate and extended its maturity date.
The proceeds will be used to repay the $52 1 billion.
Five and three quarters convertible notes outstanding as well as $22 $8 million of 6% notes outstanding both of which are scheduled to mature on may 31st 2022.
These transactions materially lower the cost of debt capital, which will be transformative for the company and an important milestone during the early stewardship.
Investors will begin to benefit from a lower cost of debt capital during the third quarter of 2022.
With that being said, let me turn the call over to Patrick Schafer, Our Chief investment Officer.
Thanks Ted.
The fair value of our investment portfolio as of March 31, 2022 grew by $8 $7 million to $206 9 million as of March 31, 2022 from $198 2 million as of the prior quarter due to unrealized depreciation on the portfolio and that appointment.
As of March 31, 2022, our portfolio consisted of investments in 42 different portfolio companies.
We continue to judiciously, you redeploy capital generated from exiting the legacy portfolio.
During the quarter, we made approximately $16 4 million of investments, which outpaced the $8 4 million in repayments in sales, resulting in net deployment of approximately $8 million for the period.
Our debt investment portfolio, which represented 68, 1% of our total portfolio at fair value had a weighted average annualized yield of approximately eight 3%, excluding non accruals and collateralized loan obligations.
Regarding non accruals as of March 31, 2022, we had debt investments in two portfolio companies on nonaccrual status with an aggregate cost of $12 $7 million in fair value of $7.01 million, which represented six 4% and three 4% of the investment portfolio respectively.
This remains fairly unchanged from the prior period, which we reported non accrual debt investments in two portfolio companies with an aggregate amortized cost of $12 $7 million and an aggregate fair value of $7 6 million Alex.
As of March 31, the first lien.
Debt as a percentage of the portfolio at fair value was 47 48, 7% second lien debt was 16, 1% subordinate debt was three 4% collateralized loan obligations or three 7% and our equity portfolio was 28, 4%.
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 3 million for the first quarter of 2022 compared to $4 9 million for the first quarter of 2021. The decline in interest income was due primarily to lower average debt investments as a result of our efforts to derisk and Delever the company.
Total expenses for the first quarter of 2022 were $4 4 million compared to $5 7 million for the first quarter of 2021. The decrease in expenses was driven primarily by lower interest and financing expenses, which declined by 800000 and lower base management fees, which declined by 400000.
Interest and financing costs as well as base management fees declined as a result of managing a smaller portfolio due to our intentional and delevering deleveraging of the company.
Outside of net investment income for the quarters ended March 31, 2022, and 2021, we reported $200027 2 million of net change in unrealized depreciation and investments respectively.
Additionally, the company reported net realized losses of less than 100000 and $14 million respectively for the same periods.
Accordingly, we reported a net decrease in net assets, resulting from operations of 900000 or <unk> 32 per share during the first quarter of 2022. This compares to a net increase in net assets from operations of $12 4 million or $4 56 per share and $4 <unk> per share on a diluted basis for the first quarter.
2021.
Net asset value as of quarter end declined slightly to $106 2 million or $39 16 per share compared to a $107 1 million or <unk> $39 48 per share as of December 31, 2021, Despite the general uncertainty in the market and environmental conditions.
As of March 31st 2022, we had $15 8 million in cash and cash equivalents and our total debt to equity ratio was 1.18 times as of March 31st 2022, We had no outstanding draws on the Keybank credit facility.
Regarding our capital structure as Ted mentioned on April one we issued $15 million of convertible notes the convertible notes mature in April 2032, and bear interest at a fixed rate of 5.25%.
The amendment to the Keybank credit facility increased the initial commitment from 25 million to $75 million extended the maturity date to 2027 from 2023 and decreased the interest rate to one months term so for plus 290 basis points with a 40 basis point floor during the revolving period from one month LIBOR.
And 350 basis points subject to a 75 basis point floor.
The amended credit facility also provides an uncommitted accordion feature that would allow the company to borrow up to an additional $125 million, which will afford us the flexibility to grow the balance sheet.
The proceeds will be used to pay off the $52 1 million of five and three quarter percent convertible notes outstanding as well as the remaining $22 8 million of 6% notes outstanding both of which mature in May 31 2022.
We continue to closely monitor the increase in fed federal interest rates and the effect. It could have on our net income for the rest of the year and going forward. Although the effect of these geopolitical and macroeconomic factors, including inflation are outside of our control. Our team is focused on prudent risk and portfolio management, while pursuing growth.
With that I will turn the call back over to Ted Goldberg.
Thank you Jason.
We've achieved another solid quarter and are confident that we will continue to grow our portfolio. Despite the increased turbulence in the economy, driven by inflation and supply chain and the ongoing invasion.
We are prudent with our investments and are hopeful for the future.
Thank you for all your support this concludes our prepared remarks, and I will now turn over the call to the operator for any questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
These standby, while we compile the Q&A roster.
Our first question comes from Christopher Nolan of Ladenburg Thalmann. Please proceed hey, guys. The new Okay, Hey, guys, the new capital structure, Jason any guidance or ideas, how much of our per share.
Savings.
That could reference I can give you yeah, just just roughly I would say life to date, including the finance restructuring that we did last year I can give it to you in dollars.
Say, it's roughly.
600 Grand a quarter.
But Chris if you. This is Patrick if you look at our Q4 earnings deck, we show a little bit of a break we show a bridge around NII and one of those bars is the refinancing of our of the cap structure. The the pricing of everything came in kind of exactly as expect.
So you could use that that chart it as a pretty decent proxy to the quarterly impact.
Great and then related to that were there any non accruing or excuse me nonrecurring.
Items expense items or income items in the quarter. The expenses. It should give you a pretty good run rate going forward. There was one item in there are around $70000 mm.
We took too.
Write offs somebody the capitalized expenses for for the shelf registration that we had to write off this quarter outside of that 70000, it's pretty close to run rate.
Gotcha, and then I guess, you know being able to for revenues to cover the dividend excuse me revenues cover expenses I mean that seems like to be a key.
Golar I would think at this point any thoughts as to when we might see a crossover where you guys might be profitable.
Yeah I.
I think from a profitability perspective, the two big focus is or the main focus has been this new facility, which allows us to do a couple of different things, which is one lower the cost side of the equation.
But two provides us the ability to kind of increase the asset side. So we have a 75 million dollar facility and if you know we fully drew that facility that would that would put us at about 1.3 times leverage as compared to the 1.18, where we sit today.
So between those two things you know the.
Two things should should get us in the positive here and in the question is how quickly we would deploy that keybank facility proceeds plus the cash depending on market conditions, what kind of be the driver of us getting from where we are today to something positive, but again, if you think back to the bridge we outlined.
I don't think that.
That gap from where we are today to positive is reliant upon you know any significant change in the in the equity stakes or kind of a rotation of those to get us into the positive.
Final question decrease in equity as a percentage of total investments at cost.
The decrease quarter over quarter any color around that.
No look I honestly I forget my suspicion is it is because we increased the asset the cost of our other positions as opposed to.
The the equity decreasing if that makes sense got it that's it for me I'll get back in the queue. Thanks guys.
Thank you.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Next question comes from Steven Martin of Slater. Please proceed with your question.
Hi, guys.
You guys have been pretty busy redoing the capital structure.
And you got a couple of new investments in in the first quarter can you comment on what's going on quarter to date in the second quarter.
Yeah, I didn't take it high level gotcha.
Yeah, I'll take it high level and then Patrick can jump in I would say you know activity levels have picked up dramatically.
Post quarter end.
It feels like a lot of demand for a particular sponsor verticals was pulled forward into last year and it feels like I'm forgetting small malls. So I think I think we continue to be very cautious about everything.
Everything going on clearly, but you know I'd say activity levels are definitely picked up.
But Patrick do you want to speak more specifically.
No. That's all right I think the only thing I would specifically add is we are in Logan, specifically, we had a bit of a unique dynamic where we we're obviously closing the credit facility and we kind of needed to have a relatively static.
Asset list in order to in order to kind of close out a borrowing base and kind of do all that and get it done in close so we had a little bit of a period of time, where we kind of needed to be relatively quiet from a trading perspective is still that we can have a static pool.
But generally as Ted said, our pipeline generally continues to be pretty strong.
Though we're being relatively cautious in the environment, but we certainly have our we believe we have plenty of opportunities to to deploy the cash and credit facility going forward.
More specifically between now.
And recognizing that you had to be quiet for sort of.
The debt reasons.
Should we expect that between now and the end of the quarter you will actually fund some some transactions.
I think that should be the expectation, yes, with the caveat that its a little bit more unpredictable on the repayment front. So we might all again, where we sit today, there's probably a couple of things that we're hoping are going to happen in the quarter, but you might get to the end of the quarter and still have a a.
Net negative deployment, just if we happen to have a couple of large repayments during the quarter, but I think from a pure deployment perspective, yes, you could expect to see us do.
Ploy capital from here to the end of the quarter.
Well speaking of specific large repayments can you update us on esports.
If you can.
Unfortunately, I don't think we're able to provide an update on esport at this time.
Okay.
Given the new refinancing, giving given you're I'm sure you're expecting this question given your discount to NAV.
Is there anything in the new credit agreements that restrict your ability to repurchase shares at a 50% discount to NAV.
No there's nothing in our facility that would restrict our ability to repurchase shares.
Okay.
And I don't recall, so if I if I'm asking this in error do you have a you don't have a repurchase.
In plan in place do you know.
No not right now, Steve it's something that we're thinking through and.
It's a good question I think it's something that.
Mike.
Do you put in place here in the near future.
With respect to the convertible note was there a specific reason for the convertible note.
Yeah, I think I think when we can.
The reason why I think we're pretty focused on diversity of Oh matching we don't need to rely on one source of financing and obviously this greatly reduces the amount of convertible debt in our capital structure.
So really what we're doing is instead of just doing a one.
One for one refi of our convert.
The decision was made it's cheaper cost of capital under the bank facilities, we have but we think it's important to maintain access to that market.
In case, we need to use in the future.
So we had a very very small deal.
Yeah, that's right that's right.
Questioning it.
Had a very big one obviously the portfolio is a lot smaller so I was wondering if there was a more specific.
A requirement or just the desire for diversification.
Yeah, and we're constantly thinking about fixed versus floating.
Liabilities you know so I'm.
So the converts are fixed which provide some benefit to us.
But you know floating into lower.
Lower spreads so it's something we're always kind of a balancing and thinking about them trying to diversify our waterfall.
Okay.
Any general comment on the portfolio I mean.
You put on a whole bunch of new positions and you inherited a whole bunch of old position you know you've got a legacy portfolio.
Any comment on the legacy portfolio vis vis what you you know you expected or underwrote when you got there.
Yeah, I think I.
I would say generally speaking it's kind of performed.
In line as as.
As you kind of talked before and in other forums, mostly mostly the Portman ridge form.
We normally underwrite based on only negative things happening.
And you you all you always have positive events. So we've had a couple of strong performers in the portfolio.
After that you know, maybe some weakness, particularly with chief fire being being the biggest one but we kind of knew that going in.
We did the transaction. So I'd say that was kind of expected that that one was struggling but outside of that I'd say kind of generally speaking in aggregate the portfolio performed relatively relatively in line with our with our expectations.
Okay.
I'll turn it over someone else.
Thank you.
Next question comes from David Magee Jockey at compliance management.
Hi, good morning, and I apologize. If this is something that you guys have covered in the past, but I'm just kind of wondering with regards to your legacy positions and where.
Thinking about where you'd like to be with the new underwriting when you look at positions that she's inherited debt or equity like.
And there are more volatile and they're not generating any current income.
But you know maybe you look at it and think this has a pretty nice IRR, it's just going to take three or four years to get there, but it's probably got a I don't know.
Pick a number 14 or 15% IRR.
How do you prioritize getting out of that and giving up what you see as Mike might be potential upside versus just getting it out of the portfolio and moving and in and having the portfolio positioned as you want it.
Yeah. That's a great question a very good question actually I don't I don't think we've actually had this conversation.
He took over the vehicles, we were levered two to one and so you know I think our biggest priority, particularly with this equity book was to get them to get them all.
Average down which is kind of dumb, which gives us more flexibility on what to do on that.
The word I would say.
And the second big priority for US was refinancing the whole capital structure, we have two big maturities coming due in May which would just refinance because we talked about.
And then obviously, there's a big laser focused on getting into.
NII positive, which given everything we've talked on this call. We're all we're on track for now we're adding more <unk>.
Interest, earning assets for portfolio, where we've cut expenses when we cut liability call.
So to your question I think we have more time and flexibility to somebody like something.
But we do think equity as a percentage of the bulk is still too high.
And it was an equity position, we think is undervalued and we think we can make a bunch of money on it obviously.
We won't sell it but I would say generally speaking you know if we can get there.
Al you were close to something we think it is fair value I think I think the bias is towards monetizing and putting them into interest earning assets.
Right.
It makes sense given that you.
I haven't.
I guess I can understand when managers really want to hold on to equity in and especially when it's worth a lot, but I think in Bac vehicles. The equity just can create so much mark to market volatility, but it's just not a great vehicle to hold it in and so.
I was just kind of curious to see how youre balancing out.
Maintaining or improving your net asset value in the equity base versus kind of getting to where you want to be.
Yeah I agree and also you know we're also very focused on really diversifying the portfolio. So if you compare this to the other bdcs, we manage you know.
Any large equity position, regardless of how much we like it it just doesn't make sense more concentrated positions that'll be D C.
So I think right focus from our perspective, we're getting increased diversity.
And would you say that the the destination that you're moving toward is going to be.
Have a very similar profile to what you have with the other other BDC.
In the long run yes, okay, yes, I mean, one of the advantages that Logan rid shareholders got when we took this over as access to our platform and if you look at our investment activity most.
Everything we do now is you know deals that were leading across the platform and you know all Logan ridge benefits from that.
So yeah, our focus is to.
Make this portfolio a lot more blayne, you know get diversified getting them that and and start driving NII in terms of the dividend back home.
And you wouldn't see.
Some managers have.
Sort of a sister Bdcs that are out there where one takes focus more broadly on the capital structure and another one that's more senior focused do you not see that or do you see them being.
Really very comparable to one another.
Yeah, I didn't I don't think we're gonna have you I don't think we're going to go the route of like a senior BDC Junior BDC like I don't think that's where we're going.
I think over time, all Bdcs should look more and more of a similar investment wise.
Just got a couple of franchise so I don't.
And we're always exploring strategic opportunities as everybody knows and you know maybe if there's some interesting angle for us to you know.
Maximize value for shareholders, we'll go down that road, but I think generally the base cases for us too.
Make this vehicle look more and more like our other vehicles.
Great Great well. Thank you very much for your time and congratulations on the progress.
Thank you.
Thank you at this time I would like to turn the conference back to Ted Goldcorp for closing remarks.
Great well. Thank you everyone for joining us this morning, and we look forward to speaking to you in mid August when we announce our 2022 second quarter results and of course, if anybody has any further questions or any further follow ups. Please feel free to reach out to any member of the management team. Thank you very much and have a great week.
And.
Okay.
This concludes today's conference call. Thank you for participating and you may now disconnect.
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