Q2 2023 Logan Ridge Finance Corp Earnings Call

Okay.

Thank you good morning, and welcome to Logan Rich Finance Corporation's second quarter ended June 32023 earnings Conference call.

An earnings press release was distributed yesterday after the close of the market.

A copy of the release along with the supplemental earnings presentation is available on the company's website.

W that slogan, which finance dotcom and.

In the Investor Resources section.

And should be reviewed in conjunction with the company.

<unk> 10-Q.

But the S E T.

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.

Clothing, those described in the company's filings.

C C.

Speaking on today's call Lindsay Goldberg, Chief Executive Officer.

President.

And director of Logan Rich Finance Corporation.

Jason Rus.

<unk> financial Officer, and Patrick Schafer.

Chief investment officer.

With that I would now.

Now I'd like to turn the call over to Doug Coltharp, Chief Executive Officer of Sogang Rich Finance Corporation. Please go ahead Doug.

Okay.

Good morning, and welcome to our second quarter 2023 earnings call.

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.

I'd like to start by highlighting that the second quarter of 2023 with Logan rages strongest quarter to date since we took over managing the company just two years ago and.

And largely a continuation of the performance trajectory Logan has been on since the middle of 2022.

As the company's exposure to legacy equity portfolio has continued to decline and its exposure to credits originated by BC partners credit platform has increased the benefit to shareholders has been clear and has been reflected through Logan's financial results.

With that in mind I will keep my prepared remarks brief today and limited to a few key highlights, which Patrick and Jason will provide more detail on shortly.

First and foremost as a result of the company's strong financial performance. The board of directors approved an 18% increase in our quarterly distribution, bringing it to 26 cents per share compared to 22 cents per share last quarter.

Since we've turned the quarterly dividend back on in early 2023, we've increased it each quarter.

Our net asset value was up 3% this quarter or $1 five per share as compared to the prior quarter.

We reported our fourth straight quarter of positive net investment income, which amounted to $1 million or 38 cents per share for this quarter. This.

This trend illustrates the enhanced earnings power of our portfolio driven by the reworked capital structure, we refinanced in 2022 and the success, we've had monetizing the non yielding legacy portfolio and redeploying that into income generating names.

Deployment for the quarter remained positive with $4 $8 million in new investments and $4 $4 million in repayments and sales, leaving us with net deployment of approximately zero point $4 million.

As of quarter end the portfolio consisted of investments in 62 different companies.

Finally during the quarter, we continued repurchasing shares under our share repurchase program that was established in late March as of June 30th we had repurchased approximately 14000 shares for an aggregate cost of approximately $290000, which was accretive to NAV by approximately eight cents per share.

Looking ahead, we remain cautiously optimistic for the second half of 2023, and we continue to believe that 2023 will prove to be a very attractive private credit vintage.

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

Thanks Ted.

As of June 32023, the fair value of Logan's portfolio was approximately $206 $6 million with exposure to 62 portfolio companies.

This compares to 59 portfolio companies with a fair value of approximately $203 3 million in the prior quarter.

During the second quarter, we continued to judiciously deploy capital specifically the company made approximately $4 $8 million of investments and approximately $4 4 million in repayments and sales.

Delving in that deployment of approximately zero point $4 million for the quarter.

Compared to a year ago Logan's portfolio growth and increased diversification is even more impressive as the company had just 44 portfolio companies with a fair value of $175 $9 million.

As of June 32023, more than half of the company's investment portfolio at fair value was invested in assets originated by the BC partners credit platform as.

As we have consistently demonstrated since we were appointed to serve as the company's investment adviser we've been extremely thoughtful with your capital initially laser focused on derisking the portfolio and now ensuring underwriting remains prudent and disciplined as you look to selectively take advantage of this lender friendly market.

Moving onto our portfolio composition.

Quarter end, our debt investment portfolio consisted represented 82, 2% of the total portfolio at fair value with a weighted average annualized yield of approximately 10, 8% excluding income from non accruals and collateralized loan obligations.

This compares to a debt investment portfolio, which represented 83, 2% of our.

Total portfolio at fair value with a weighted average annualized yield of approximately 10, 7% excluding income from non accruals and collateralized loan obligations as of the prior quarter.

This decrease in our debt portfolio relative to the prior quarter was largely driven by the strong performance of our equity portfolio during the quarter.

As of June 30th 2023, 83, 2% of our debt investment portfolio at fair value was bearing interest at a floating rate compared to 83, 4% as of March 31 2023.

Further as of June 32023, first lien debt represented 66, 1% and 66, 8% of our portfolio on a cost and fair value basis, respectively. This compares to first lien debt represented 65, 4% and 67, 7% of our total portfolio on a cost and fair value basis, respectively.

As of March 31, 2023.

And 55, 7% and 55, 4% of our total portfolio on a cost and fair value basis, respectively as of June 32022.

The non yielding equity portfolio represented 16, 5% and 16, 4% of the portfolio on a cost and fair value basis, respectively. As of June 30th 2023.

This compares to 16, 4% and 14.6% of the portfolio on a cost and fair value basis as of March 31 2023.

The increase in our equity portfolio relative to the prior quarter was largely driven by the strong performance of our equity book during the quarter.

Moving on to non accrual status.

During the three months ended June 32023, there were no new portfolio companies added to non accrual status. However, we did add an additional security to nonaccrual status Logan's first lien term loan to Lucky Bucks LLC as of June 32023, we had two portfolio companies on nonaccrual with an aggregate ameren.

Size cost and fair value of $17 1 million and $11 1 million, respectively were seven 8% and five 3% of the investment portfolio at cost and fair value respectively. This.

This compares.

To two portfolio companies on nonaccrual status as of the prior quarter with a cost and fair value of $14 2 million and 10.0 million, respectively, representing six 4% and four 9% of the investment portfolio's cost and fair value respectively.

Now I'll turn the call over to Jason.

Thanks, Patrick turning to our financial results for the quarter ended June 30th 2023.

For the second quarter of 2023, Logan generated $5 3 million of investment income, which was flat compared to the prior quarter and increased by 1.9 million compared to the same quarter in the prior year the.

The increase was primarily driven by redeploying proceeds received from exiting the non yielding equity portfolio into interest, earning assets originated by the BC partners credit platform as well as an increase in base rates.

Total operating expenses for the second quarter of 2023 slightly increased by approximately 122000 to $4 3 million as compared to $4 2 million in the first quarter of 2023, primarily due to higher interest and financing expenses as a result of higher average outstanding borrowings on our credit facility during the period.

Compared to the second quarter of 2022 expenses were higher by approximately 73000 again, driven by higher interest and financing expenses, but also administrative service fees, partially offset by lower management fees and general and administrative expenses in the current period.

Our net investment income for the quarter was 1 million or <unk> 38 per share marking the fourth consecutive quarter of positive net investment income and a complete turnaround compared to the second quarter of 2022 for which the company reported a net investment loss of 929000.

Our net asset value as of June 30th 2023 was $96 2 million, representing a 2.4 million increase or two 6% as compared to the prior quarter net asset value of $93 8 million.

On a per share basis net asset value was $35 68 per share as of June 32023.

Representing a dollar and five cents per share increase or 3% as compared to $34 63 per share at the end of the first quarter of 2023.

I'd like to highlight that the difference between the two 6% increase in net asset value compared to the 3% increase in net asset value per share is the accretive effect of our share buyback program.

The increase in net asset value quarter over quarter was driven by the net investment income in excess of the may 31st 2023 dividend payments net realized and unrealized gains on the portfolio during the quarter and the accretive effect on a per share basis of our share repurchase program.

Compared to the company's prior year, and net asset value of $95 million net asset value increased by $1 2 million or one 3%.

On a per share basis net asset value per share increased by 64 cents per share or one 8%.

From $35 enforced.

As of December 31, 2022.

Then the difference between the 1.3% in the one 8% is the accretive effect Logan shareholders received from the buyback program the.

The increase in net asset value relative to the prior year was driven by that company out, earning its dividend net realized and unrealized gains on the portfolio during the quarter and the accretive effect on a per share basis of our share repurchase program.

Finally as of quarter end, the company had $6 3 million in cash and cash equivalents as well as $18 6 million of unused borrowing capacity available for deployment and investments originated by the BC partners credit platform.

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

Thank you Jason.

Why don't we open up the call for Q&A, but before that we're just we're very proud of the continued progress we made during the second quarter of 2023 and look forward to increasing shareholder value through the back half of the year.

Shareholders. Thank you for your continued support and I'll now turn the call over to the operator for any questions.

Okay.

The floor is now open for your questions now to ask a question. This time. Please press star and then number one on your telephone keypad.

We will now pause for just a moment to compile the Q&A roster.

Your first questions come from the line of Christopher Nolan with Ladenburg Thalmann.

Your line is now open.

Hey, guys what was the driver for the Q B increase in diluted share count Q O Q.

So the increase in diluted.

Uh huh.

Well, we had the share buyback program. So you should have had an anti dilution effect for the quarter.

Oh got it so.

If you're referring to the guide the diluted EPS is related to that.

Our debt that we issued last year that had a conversion feature to it.

Gotcha.

And then who's driver for the appreciation of equity fair values was there a particular driver.

Yeah, that's the largest driver.

Was one portfolio company called Nth degree our company continues to perform very very well and they they completed a relatively accretive acquisition during the quarter budget. It's it's it's mostly are driven in one company and it's just continued very strong performance.

Great and then final question is pardon me if I missed this but was there a particular driver for the realized loss as well as the unrealized appreciation.

Yeah. So so this portfolio had some CLO equity in it.

And as a result of markdowns on that portfolio. This quarter, we took some impairment on on those CLO.

Gotcha, so that realized losses predominantly CLO flipped from unrealized to realized.

Only a portion of it was a flipped about 400000 was a flip but but.

But all of that realized was related to CLO impairment.

Yeah, and you know at quarter end. So it looks like you guys are starting to hit your stride on this strategically any ideas in terms of possibly taking on some SBA debt or anything like that.

Yes, that's a good question I mean, we've explored it I think it's really difficult for.

Our understanding is it's been it's really hard for Bdcs to get new Spic's licenses and obviously, we don't we don't have one.

So it is something we always think about but I think it's unlikely that we'll be able to get one.

Got it okay. That's it for me thanks.

Thanks.

Our next question comes from the line of Steve Martin with Slater, Gary Your line is now open.

Hi, again guys.

Thanks, Dave.

This is the first quarter.

The increase was great. The buyback was great. But this is the first quarter were.

Sequentially as opposed to year over year the.

The NII didn't really go up.

If I if you look at slide.

Slide four.

Investment income was sort of flat expenses were up a little and you had a great progression of increasing investment income. So I was wondering.

What the driver of that was and what we should expect.

Yeah.

It's a couple of things, Steve, which is particularly for the current quarter or what's really two things, which is Q1 had some kind of nonrecurring fees in it. So when you actually kind of strip that out and I know, we specifically called it out.

Last quarter as well, but I think there's something in the area of 200000 of nonrecurring fee income.

But when you kind of when you kind of strip out the fee income. There is there is a more material increase quarter over quarter in terms of the investment income. So that obviously again, it's a it's a higher quality revenue stream and then secondly, we also as mentioned we did put an incremental security on non accrual.

So when you again when you kind of like if you were to quote unquote normalize for that you know organically. We are still growing our income base. So those would be the two biggest factors in what.

Appears to be flat sequentially.

Show the prospects for the third quarter.

If you had normalized Q2, and Q Q1 and Q2.

That ramp is occurring and we should expect absent something.

One of these unusual items you are talking about that that should continue to grow.

Yeah, that's right Steve.

The core earnings or our solid youll see that growth projection or that growth trend over over the last few quarters. Once you strip out these one time items.

And Ted.

Patrick a question I asked earlier.

What is the third quarter it looked like for deployments repayments any chance any any more of those equity securities got monetized and can be rolled into something producing.

I honestly I forget exactly where we noticed it.

I think it might have been in our area that pressures our earnings deck, but we did we did monetize a relatively large position subsequent to quarter end Jurassic quest and there was something in the area of $6 $7 million of debt as well as an equity position. There I think it was about I think we had more debt at quarter end at about.

650, grand or so so not meaningful but between that and and I think that was a relatively under yielding investments as well relative to what our new money is being put out at.

But so thats like six again call it like $7 five ish million between debt and equity that we would expect to sort of redeploy in the quarter and I'd say in general.

We would expect to be a net deploy capital as opposed to a net receiver, though obviously kind of timing dependent on you know when when we receive paydowns.

Again, just as as <unk> talked about and important as well our pipeline you know private credit is a little bit longer gestation period for four pipeline. So just depending on when that stuff would come back to us.

But we would think of this vehicles still is in that deploy our capital.

Sorry for missing that it's been a little Crazy This morning, and I got on your call a couple of minutes.

Alright and.

Can you talk about dividend policy on Logan Ridge as opposed to as opposed to Portman and I'm sure it's slightly different.

Yes, I mean, obviously with every passing quarter, we're chopping more what on the NII side and feeling more and more comfortable.

Around dividend coverage. So obviously, we increased the dividend at a pretty healthy way, but there's obviously room to continue to increase the dividend. So barring any kind of negative surprises, we expect the dividend yield to continue to rise.

Alright, Thanks, a lot.

Thank you.

Okay.

Since there are no further questions at this time.

After that Goldcorp I turn the call back over to you.

Great. Thank you. Thank you everyone for joining us today, and we look forward to speaking you again in November when we announce our third quarter results and I want to wish everybody, a very happy and to summer. Thank you very much.

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