Q3 2022 Logan Ridge Finance Corp Earnings Call
And our earnings press release distributed yesterday after the close of market.
A copy of the release along with supplemental earnings presentation is available on the company's website at Www Dot Logan bridge fine yet dotcom.
Investor Resources section and should be reviewed in conjunction with the company's form 10, gosh Q filed with the U S E C.
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 any forward looking statement as a result of a number of factors, including those described in the company's filings with the SEC.
Logan Rich Finance Corporation assumes no obligation to update any such forward looking statements unless required by law.
Speaking on today's call will be.
Ted Goldberg Chief Executive Officer.
President and director of Logan Ridge Finance Corporation.
Jason <unk>, Chief Financial Officer, and Patrick Schaefer, Chief Investment Officer.
With that I would now like to turn the call over to Ted Gulfport, Chief Executive Officer of Logan Bridge Finance Corporation.
Thank you.
Good morning, and welcome to our third quarter 2022 earnings call.
As mentioned I'm joined today by our Chief Financial Officer, Jason Rus, and our Chief Investment Officer, Patrick Schafer.
Following my opening remarks, Patrick will provide additional detail on our investment activity to date and Jason will walk through the financials.
To open I'd like to remind shareholders that back in August when we reported our second quarter results. We told you that the second quarter of 2022 was transformative for the company.
The fruits of our labor will begin to be evident in the performance of the company during the second half of 2022.
Fast forward to today I am pleased to state that the company has reported its first quarter of positive NII under our stewardship.
A significant milestone for the company.
Well Patrick will provide additional details on the portfolio I would like to highlight that we believe Logan richest portfolio is strong and substantially derisked have an increased diversity from 32 portfolio companies. When we took managing the portfolio on July one 2021 to 54 portfolio companies.
Of September 32022.
Similarly, we've been averaging down our hold size from $7 $2 million. When we took over last July to $3 $6 million as of September 32022, effectively having our average credit exposure to our portfolio companies.
Further with our new credit facility and our current credit leverage and our current leverage capacity. We believe we are well positioned to continue growing the portfolio and capitalize on opportunities arising from the current credit environment, which we believe will ultimately produce a very attractive vintage.
Accordingly over the coming quarters, we remain we will remain laser focused on prudently growing the portfolio and increasing leverage such that we achieve our target leverage ratio of one three times to one four times, which will further increase our earnings power and improve our overall financial performance.
As always though we are carefully monitoring the current economic environment the impact of rising.
The rise of rising rates on our portfolio of companies in the broader credit market.
To wrap up my prepared remarks, I would like to reiterate managements belief that we've successfully righted the ship and our top priority moving forward is increasing the company's profitability with that in mind. We are cautiously optimistic that the company will be in a position to return to paying a quarterly dividend during the first quarter of 2023.
With that I will turn the call over to Patrick Schafer, our Chief investment Officer.
Thanks Ted.
As of September 32022, the fair value of our portfolio was approximately $193 1 million and consisted of 54 portfolio companies.
Lien debt represented 61, 2% and 61, 9% of our total portfolio on a cost and fair value basis, respectively.
This compares to 54, 4% and 49, 6% of the company's total portfolio on a cost and fair value basis, respectively. As of December 31, 2021.
At quarter end, our debt portfolio, our debt investment portfolio represents 79, 4% of the total portfolio at fair value and had a weighted average annualized yield of approximately eight 9% excluding income from non accruals and collateralized loan obligations or nine 7% when excluding.
Our debt securities and non accrual from both the numerator and denominator.
This compares to a debt portfolio, which represented 75% of our total portfolio at fair value with a weighted average annualized yield of approximately eight 7% excluding income from excluding income from non accruals and collateralized loan obligations or 9% when excluding our debt securities on a on non accrual from both the numerator and denominator.
Later at the end of the second quarter.
Going forward, we would expect a rising rate environment, continuing to benefit Logan Ridge, a 76% of our assets are floating rate compared to only 41% of our liabilities.
During the quarter the company continued to judiciously redeploy capital generated from exiting the legacy portfolio specifically.
Specifically the company made approximately $36 $7 million of investments and had approximately $17 $1 million in repayments and sales.
Resulting in net repayments in sales of approximately $19 $6 million for the quarter. Thus our investment portfolio as of September 32022 consisted of investments in.
Because we had investments in 54 portfolio companies with a fair value of approximately $193 1 million or an average investment size.
$3 $6 million.
Our non yielding equity portfolio as of September 32022 decreased to 17, 6% and 17.0% of the portfolio on a cost and fair value basis, respectively. This compares to 21, 7% and 21, 4% of the portfolio on a cost and a fair value basis as of the second quarter.
And 27, 1% and 32, 6% of the portfolio on a cost and fair value basis as of December 31, 2021, which marks a substantial improvement.
Additionally, subsequent to the quarter end, we exited Burke American Autoparts group LLC at the September 30th fair value further, reducing our non yielding equity portfolio to 15, 6% of the portfolio on a fair value basis.
During the quarter, we had no new non accruals.
Additionally, the company ended the quarter with $11 3 million in cash as well as $29 $2 million of unused borrowing capacity available for deployment investments originated by the BC partners credit platform.
I'll now turn the call over to Jason.
Thanks, Patrick turning to our financial results for the quarter ended September 32022, as Ted mentioned, we recorded net investment income of 200000 for the quarter ended September 32022. This was a substantial improvement compared to the prior quarter net investment loss of 900000, which represents a one point.
$1 million increase in income this quarter.
This was largely driven by a 400000 dollar increase in total investment income of $600000 reduction in interest and financing costs driven by work, we did refinancing the legacy capital structure and a $100000 reduction in general and administrative expenses during.
During the quarter, we reported a $5 2 million realized loss on investments, partially offset by unrealized depreciation on the portfolio of $2 million. The realized loss was almost entirely due to Logan ridges exit of our former portfolio companies Biology, Inc, which had no NAV impact during the quarter as our fair value estimate in the prior quarter was consistent with where we were take.
<unk>.
As of September 32022, our net asset value was $98 2 million or $36 21 per share as compared to $101 1 million or <unk> $37.31 per share at the end of the second quarter of 2022.
Finally, as Patrick mentioned cash and cash equivalents as of September 32022 have decreased to $11 3 million compared to $29 5 million as of the prior quarter largely attributable to the increased deployment throughout the quarter with that I will turn the call back over to Ted.
Thank you Jason we are proud of the significant milestones we've achieved to date and are looking forward to further increasing the company's profitability. Thank.
Thank you for your support this concludes our prepared remarks, and I'll now turn the call over to the operator for any questions.
At this time in order to ask a question press star one on your telephone keypad, well pause for just a moment to compile the question and answer roster.
Okay.
Your first question comes from the line of Christopher Nolan from Ladenburg Thalmann. Your line is open.
Guys, Jason were there any non recurring items in the quarter.
Thankfully I think this quarter, you'll see a lot of normalization in the numbers from previous quarters. So last quarter. We had about 230000 of excess expense related to some of the interest expense coming through and having multiple.
Our maturing debt that we paid off last quarter. This quarter, we don't see we don't have that.
The general and administrative expenses have come down largely because we've normalized our legal costs. So long winded way of saying no I think.
This quarter is a pretty good run rate on the expense side and and Youre starting to see some of the benefit of.
The deployment that are and some of the rate rise that impacted the portfolio during the quarter on the revenue side.
Great.
Also congratulations to everyone for getting back to profitability I mean, so long road and a lot of credit to all of you.
On that note I'm, what's the thoughts about where our leverage goes and given that where do you think youre going to do with the $75 million credit facility because it seems to be small.
Yeah, So hey, Chris it's Patrick So I think.
Similar to.
Are there public deals I think we think the leverage range is kind of in the one three to one four times and if you kind of do that math.
You get decently close too.
The top of that facility kind of as is.
And so that kind of is sort of our expectation over some period of time and the speed with which we get there will depend a little bit on kind of some exits and things like that Additionally, we have upwards of $100 million accordion on that facility that we theoretically could tap.
At some point, but for now at least kind of our kind of stated leverage range, we would get to pretty close to the top of that facility and that was kind of how we designed it originally.
Great and I guess strategically now that you know.
It seems that.
You have the wind at your back and the earnings is it fair to assume that we're gonna have profitability in future quarters.
Yes, that's our expectation I mean, it's a good question I mean with rising rates increased deployment, and obviously refinancing our debt structure and obviously are.
As Patrick mentioned in his prepared remarks, we have more floating rate assets than we have floating rate debt. So all those factors absent a one off expense to your question.
We expect to be probably we expect to have <unk> to our profitability.
Because it seems to me that the seventh sense could be.
Lease absorbed benchmark run rate going forward or somewhere in that vicinity.
My thinking completely off.
I mean as as per other vehicles, there is a lag to when we get the benefits of LIBOR. So I think that's I think we would we would hope to achieve more let's put it that way.
Yes, I think the other the other thing going on with particularly with with Logan here is.
Starting kind of in around May when we refinanced out the credit facility and other liabilities, we sort of continuously been increasing assets and investments from that point on so theoretically kind of your ending quarterly balances are higher terminal velocity than sort of the average over the quarter. So we generally speaking should be benefiting all else be equal.
From both the rate environment as well as kind of continuing to add be a net adder of assets during during the quarters.
Yeah, and I'd, just say you know.
Along these lines.
And I know this is not your question but.
Obviously, we would expect to turn on the dividend relatively soon if these earnings continue.
And you know a material dividend versus a token dividend and then number two as soon as practically possible. It probably it makes sense frustrate buy back stock and so to the extent, we're able to that's something that we're obviously thinking about it as well.
And I would add to that take your management team out to a really nice holiday lunch.
Yes.
[laughter] alright, good job guys. Thanks.
Thanks.
Your next question comes from the line of Steven Martin from Slater. Your line is open hi, guys.
Again.
Thanks, David.
Yeah.
You just made some comments about sort of the terminal velocity versus the quarter and obviously, having been on the Portland and call you gave some indication of what the pro forma would have looked like.
All else being equal if rates had reset.
Can you give us some sort of comparable color on what that number would have been.
Yes. It is.
It's a little bit it's a little more complicated important but that said I would say, it's probably in kind of the sort of 15 ish percent range, obviously, depending on kind of when everything everything resets, but that would probably be again kind of roughly speaking.
The potential increase.
Okay.
<unk>.
Can you talk about your mark to markets.
In terms of characterizing them.
Rate related spread related credit related.
Yes, I'd say, we probably had.
The 222, Mark to markets that roughly speaking offset each other that we're kind of credit related both the positive and negative and then kind of the rest by and large was rate rate movement related as opposed to credit related.
The first in terms of detractors was logistic partners launch on silvers.
Companies entering and sale process and we're a minority holder there.
But we think that kind of roughly a good approximation of value for where the majority holders.
We'll be looking to exit the business and then on the on the positive side.
Sequoia that Sequoia alone.
Not so much in the detail, but we.
We're we think we have some extra collateral there as part of some transactions that ultimately should lead to a better a better recovery on a quicker timeline than perhaps we thought about last quarter again, those two like roughly even each other out my guess is it's probably maybe.
A million Bucks to the negative when you net the two and then the rest at rest or anything else is it really all mark to market.
Gotcha.
The <unk> you were talking about I had actually had a question you really there was a big mark down from second quarter to third quarter was that.
Based on company performance or just what you know about the sale process.
What we know about the sale process and I'd say the.
Incentives and mindset to the majority of holders, which are kind of controlling the sale process.
Gotcha.
<unk>.
Yeah.
Okay.
In terms of.
Inherited portfolio.
What do you what do you see it in terms of maturities and repayments.
Through the end of the year.
Yeah.
Again, it's a little bit tough with that exact visibility, but I think <unk>.
Based on kind of conversations we've been having so far with certain portfolio companies. I think you could expect to see or we would expect to see a couple of the bigger positions latest positions actually pay off before before year end now that said.
That is a just kind of what we're hearing right now and obviously given where market conditions are that can move very very quickly from from from week to week or month to month.
But we're expecting at this point a.
A couple of.
A.
Bigger chunkier legacy positions to actually get get repaid by quarter by year end rather.
Yeah, I mean, we're working really hard to get out of the legacy positions and the other thing I mean, we put in the press release, but just to reiterate we've exited a equity position subsequent to quarter end, so you'll see that and we will reinvest that money in income generating assets. So again youll see.
But absent markdowns, which we don't foresee you you'll see the debt portfolio grow as a percentage of the overall.
Portfolio.
And we continue to cut dropdown that equity exposure.
Hum.
In the Portland call you discussed taking advantage of public liquid securities.
Private liquid securities.
Can you do the same thing or are you doing the same thing here at Logan rich.
And the short answer is yes, we can do the same thing we have a little bit of a different kind of credit facility at Logan than we do import men that.
Adds a kind of a wrinkle to exactly how much of those things, we can or cannot do based on the facility, but I'd say generally speaking, yes, we kind of similarly at Logan rates can and will look to take advantage of those markets.
Okay.
And I think you know as the earlier question are you know great.
Great job turning this around people forget how.
How short a period of time, you've actually control it.
Yeah.
Yes. Thank you I appreciate you, saying that we are.
Yeah.
Obviously, we'd like progress to happen as fast as possible, but we're we're obsessed with getting to the right place.
Thanks, a lot.
Thanks.
Again, if you would like to ask a question press star one on your telephone keypad.
Okay.
There are no further questions at this time Mr.
Mr. Ted Goldcorp I turn the call back over to you.
Great well. Thank you everyone for joining us today, we look forward to speaking to you again on our next quarterly call, which will be our full year results and we'd like to wish everybody a very early but happy Thanksgiving.
This concludes today's conference call you may now disconnect.
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