Q3 2023 Portman Ridge Finance Corp Earnings Call

November 9, 2023

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 S. E C.

Ridge 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 Portman Ridge Finance Corporation, Jason Ruth Chief Financial Officer, and Patrick Schaefer, Chief Investment Officer with that I would now like to turn the call over to Ted Goldberg, Chief Executive Officer of Portman Ridge.

Good afternoon, and thanks, everyone for joining our third quarter 2023 earnings call I'm joined today by our Chief Financial Officer, Jason Rus, and our Chief Investment Officer, Patrick Schafer.

<unk> brief highlights on the company's performance and activities for the quarter, Patrick will provide commentary on our investment portfolio and our markets and Jason will discuss our operating results and financial condition in greater detail.

Yesterday Portman Ridge announced its third quarter 2023 results and we are pleased with the solid earnings power of the portfolio. Despite operating in a somewhat challenging market conditions.

Our core investment income was up year over year, increasing by $700000 as we continue to see the impact that rising rates have on our debt portfolio. Additionally.

Additionally, our net asset value per share increased from $22 54 per share to $22 65 per share.

We continued our accretive repurchase program purchasing over 60000 shares at an average cost of approximately $1 $2 million during the third quarter.

Due to the continued strong performance this past quarter. The board of directors was able to approve a dividend of <unk> 69 per share a level that represents a 12, 2% annualized return on net asset value.

On a year to date basis total dividends to be distributed to shareholders amounted to $2 75 per share representing seven 4% increase as compared to the dividend distributed in 2022.

As we have discussed in previous quarters M&A deal flow continues to be a depressed levels year to date, but we remain optimistic on the overall outlook on.

On the sponsor finance front, we're starting to see the early innings of deal activity pick up through a combination of valuation expectations being more reasonable and acceptance that interest rates will remain elevated for an extended period of time significant dry powder on the sidelines and private equity Lps encouraging the return of capital from their fund managers.

Sponsors are looking to put less total leverage on their companies, which lowers our detachment point.

We will remain cautious on the ultimate execution rate of these M&A processes. The recipe for increased activity levels appear to be in place.

Both the sponsor and non sponsor activity.

We continued to find the investment opportunities to be very attractive given the combination of higher benchmark rates lower leverage on new deals higher equity contributions from sponsors and better documentation.

Given the continued macro uncertainty around inflation consumer sentiment and ongoing conflict in Ukraine, and Israel, we continue to be very selective on new investment opportunities and have overall found investments in existing portfolio companies more attractive than those of new borrowers.

Refocusing on Portman Ridge, we continue to believe our stock remains undervalued. Thus as previously mentioned, we continue to repurchasing shares under our renewed stock purchase program.

In the third quarter, we repurchased an incremental 60559 shares for an aggregate cost of approximately $1 $2 million.

This follows the trend set throughout 2022, and the first half of 2023 and expect this trend to continue through the final quarter of the year as we were able to do so.

Following my remarks, Patrick will also walk through the potential upside cases for net asset value, but in addition to the market trading discount of our stock price. We continue to believe that there is significant embedded value.

To NAV, even when overlaying conservative default and recovery rates.

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

Thanks Todd.

Turning now to slide five of our presentation and the sensitivity of our earnings to interest rates as of December as of September 32023, approximately 95% of our debt securities portfolio were either floating rate with a spread to an interest rate index, such as LIBOR still for a prime rate with 98%.

Are these being linked to sofa.

As you can see from the chart the.

Underlying benchmark rate of our assets during the quarter lagged the prevailing market rates and still remain below the sofa rates as of October 32023, but the gap is the narrowest. It has been since the onset of the fed rate hike cycle hike cycle.

For illustrative purposes, if all our assets were to reset to either a three month LIBOR or sofa rate, respectively. We would expect to generate an incremental $75000 of quarterly income.

Having said that slide seven shows a slight decline in NII per share on a run rate basis, driven largely by a slightly lower asset balance as of September 32023, and our simple methodology of not assuming any changes to the portfolio.

Skipping down to slide 11 originations for the third quarter were slightly higher than the prior quarter, but still remain below repayment levels, resulting in net repayments and sales of approximately $11 6 million.

Some of this was driven by late repayments during the quarter and two transactions expected to close in Q3, they were pushed into early Q4 our.

Our new investments made during the quarter are expected to yield a spread to sofa of 917 basis points on par value and the investments were purchased at a cost of approximately 99 spot two 7% of par.

Our investment securities portfolio at the end of the third quarter remained highly diversified with investment spread across 26 different industries and 101 different entities, all while maintaining an average power balance per entity of approximately $3 3 million.

Turning to slide 12, we had one new portfolio company go on nonaccrual as of as compared to June 30 of 2023, and one come off non accrual due to the completion of our restructuring.

In aggregate securities on non accrual status remained relatively low.

At eight investments in the third quarter of 2023 as compared to seven investments on nonaccrual status as of June 32023. These eight investments on non accrual status at the end of the third quarter of 2023 represent one six and three 6% of the company's investment portfolio at fair value and amortized cost.

Respectively.

On slide 13, excluding our non accrual investments, we have an aggregate debt securities fair value of $427 million, which represents a blended price of 93, 4% of par value and is 88% comprised of first lien loans at par value.

Assuming the power recovery, our September 32023, fair values reflect a potential of $28 million of incremental NAV value of 13, 1% increase or $2 94, $2 94 per share excluding any recovery on the nonaccrual investments.

For illustrative purposes, if you would assume a 10% default rate and a 70% recovery rate on this debt portfolio. There would still be an incremental $1 60 per share of NAV value or a seven 1% increase over time as the portfolio matures and is repaid again. This is excluding any recovery on the nonaccrual investments.

This indicative default rate is above anything the market is expecting or has experienced historically.

Finally, turning to slide 14, if you aggregate the three portfolios acquired over the last three years, we have purchased a combined $435 million of investments have realized over 78% of these positions at a combined realized and unrealized mark of 103% of fair value at the time of closing that.

Respective mergers.

This is an indication of our ability to effectively realize the value of legacy portfolios acquired while rotating into BC partners sourced assets.

More importantly, we were able to achieve those results. Despite the global pandemic in 2020, and most of 2021 and a weak market for almost all asset classes in 2022, and the first half of 2023.

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

Thanks, Patrick.

As both Ted and Patrick previously mentioned, despite operating under a challenging economic environment. Our results for the third quarter of 2023 reflects strong financial performance.

Our total investment income decreased slightly by 400000 to $18 6 million in the third quarter of 2023.

In comparison to $19 million in the third quarter of 2022. This.

This reported total investment income represents a $1 million decrease from the $19 6 million a reported total investment income in the second quarter of 2023.

The quarter over quarter decrease was largely due to reduced fee income and dividend income compared to the second quarter of 2023.

Excluding the impact of purchase price accounting, our core investment income for the third quarter of 2023 was $18 3 million an increase of 700000 as compared to $17 6 million for the third quarter of 2022, a decrease of 900000 as compared to $19 2 million for the second quarter of 2023.

Our net investment income for the third quarter of 2023 was $7 2 million or <unk> 75 per share a decrease of $1 2 million as compared to $8 4 million or <unk> 87 per share for the third quarter of 2022, and a decrease of 700000 as compared to $7 9 million were <unk> 83 per share for the second quarter.

2023.

The quarter over quarter decrease was largely due to the aforementioned decreases seen in fee and dividend income.

As of September 32023, and June 32023, the weighted average contractual interest rate on our interest earning debt securities was approximately 12, 3% and 12, 1% respectively.

We continue to believe the portfolio remains well positioned to generate incremental revenue in future quarters due to the current rate environment.

Total expenses decreased quarter over quarter from $11 7 million for the second quarter of 2023 to $11 4 million in the third quarter of 2023.

This decrease was due to reduced expenses and predominantly all expense categories are result of our efforts to reduce overall expenses.

Our net asset value for the third quarter of 2023 was $214 8 million or $22 65 per share as compared to $215 million or $22 54 per share in the second quarter of 2023.

Turning to the liability side of the balance sheet as of September 32023, we had a total of $321 5 million par value of borrowings outstanding at a current weighted average interest rate of six 9%.

This balance was comprised of $74 million in borrowings under our revolving credit facility of $108 million and 478% notes due 2026 and $139 $5 million unsecured notes due 2029 the quarter over quarter decrease of $12 2 million was primarily driven by an $8 2 million repayment.

The secured notes due 2029, and a net 4 million repayment on the revolving credit facility.

As of the end of the quarter, we had $41 million of available borrowing capacity under the senior secured revolving credit facility and no remaining borrowing capacity under the 2018 dashti revolving credit facility as the reinvestment period ended shortly after our draw on November 22022.

As of September 32023, our debt to equity ratio was one five times on a gross basis and 134 times on a net basis from a regulatory perspective, our asset coverage ratio at quarter end was 166%.

Finally, and as announced in November 8th 2023, a quarterly distribution of <unk> 69 per share was approved by the board and declared payable on November 32023 to stockholders of record at the close of business on November 20th 2023.

This is <unk> <unk> per share distribution increase as compared to the fourth quarter of 2022.

Including the distribution subsequent to the announcement of full year 2022 earnings results total stockholder distributions for 2023 amounted to $2 75 per share.

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

Thank you Jason ahead.

Ahead of questions I'd like to reemphasize that we believe we are well positioned to take advantage of the current market environment as we have shown throughout throughout the year so far.

Through our prudent investment strategy, we believe we will be able to deliver strong returns to our shareholders in the final quarter of the year and into 2024.

Thank you once again to all of our shareholders for ongoing support this.

This concludes our prepared remarks, and I will turn the call over to for any questions.

At this time, if you'd like to ask a question simply press star followed by the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Our first question will come from the line of Paul Johnson with <unk>. Please go ahead.

Good evening guys.

My question.

And the first is just kind of.

Maybe kind of getting here.

Overall thoughts on leverage towards gross leverage in the BDC.

And where you are today.

Going.

Into next year.

Our focus on reducing that.

Sure.

Rotating out of certain investments.

Just basically just redeploying it was coming in.

Damian.

Austerity.

Yes.

Yes, it's a great question.

I think the answer is again, we have a stated target leverage range, which we're close to the high end of and so again I don't I don't feel like our level of anything our leverage will go down I don't feel like our leverage will go up going into next year I mean, there's a lot of uncertainty going into next year, we're earning very strong Roe and.

And we don't need leverage to earn our dividend nor R. R.

Our earnings so we if you recall, we took up leverage for a temporary period of time, which is now coming down because we had a use it or lose it facility that was that was very accretive for shareholders.

But.

Yes, we expect leverage to come down.

Or at least stay stay within the range that we've kind of outlined to people.

Yes, that's helpful.

<unk>.

Sure Pete variability.

We continue buying back shares.

How do you see that kind of.

Your thoughts around share repurchase.

I mean, I think I think listen I think we've done it for a bunch of years in a row like we're very committed to buy back stock and again.

Given where our Roes are and given where new investment rates are it's also very accretive for us to invest but given where our stock trades and given where our yield is at market. We just think it makes a lot of sense for us to buy back stock.

Okay. Thanks for that.

And then.

Another question is just on interest income.

Hum.

Calculating it right now.

Approximately about 16% of total interest income.

Well it is pik income this quarter.

I just want to make sure that I'm looking at that correctly and then also how does that compare I guess historically.

The portfolio.

Yes, I would say.

We did have more pik income this quarter relative to prior quarters Thats a function of some of our.

We look at interest income and Pik income as kind of one and the same is there.

<unk>.

Source of income, but you are right. This quarter, we had a larger amount.

Our investment income.

Made up of Pik income, which is a function of.

Uh huh.

Some of that some of the assets that were previously cash paying are now picking due to some of the optionality that they have in the agreements themselves yes.

There was one.

There was also one specific named it moved from cash to pick. This in Q3, but then was exited in.

<unk>.

Where we sit today on the phone and in Q4, so all else equal would you expect that to go down a little bit next quarter, just because of the exit of one of the one of the assets that had a little bit of pick for one particular quarter.

Yes.

Very helpful. Thanks.

Your next question will come from the line of Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Hey, guys.

For your portfolio companies are you seeing sponsors step up and put in more equity or not.

Not really.

Well why don't I go first and then Patrick.

To respond I think we're seeing that.

This is just my own opinion, I think youre seeing a bifurcation of the market between size of sponsor.

Meaning I think we're seeing pretty constructive behavior on behalf of middle market sponsors and we're seeing more economic decision, making on behalf of larger sponsors.

And again, that's more effects the larger players in the BDC space and the syndicated markets, but yes, we are in constant dialogue with our sponsor.

Counterparts, and I think they've been very very constructive so far yes.

I don't have much to add.

<unk> is the only thing in some instances if sponsors are looking at some sort of amend and extend for a kind of multiyear period, neither thing that ourselves as well.

Lenders in the market are focused on is interest coverage at this point as opposed to leverage and so there is often times, where there needs to be a little bit of incremental equity coming into the structure to bring you down to a coverage perspective that makes sense. So those are obviously all kind of one off conversations, but as Ted said kind of usually in those discussions the bifurcation is really on sizes.

Sponsor in <unk>.

What they are comfortable doing.

And I guess, a follow up question would be what sort of EBITDA multiples are you seeing given the change in rates obviously.

Yeah.

We have to trust.

The building.

Yeah.

Yes, So I think I think there is a push pull.

But everyone's on the same page wishes sponsors are back solving for there.

Interest coverage ratios basically to Patrick's point, but we're not being asked to Max let our companies.

So we've seen leverage come down anywhere from one to two turns pretty consistently and that just ties back into interest coverage ratios and as a recent large private equity deal that was done with no debt and the sponsor of the view that they're going to be able to finance. It later cheaper, which I don't know I'm not sure I would make that bet.

But yes, we're definitely we've been asked for lower leverage levels. So it's not.

Tension of like we're being asked for Max leverage we don't want to do it.

That's all for me thank you.

Again to ask a question simply press star one on your telephone keypad Thats star one for any questions.

Our next question will come from the line of Steven Martin with Slater. Please go ahead.

Hey, guys.

A couple of questions you said and on the non accruals that.

One one on one went off yet, but the total went from seven to eight.

Am I missing something.

I mean technically one.

The new the new non accrual has just two different securities as a revolver and our term loan and they are paired with each other so we will have.

Both of them on nonaccrual, it's it's one borrower, but two different security so that table, a security count and not borrow account.

Alright.

Would you care to elaborate on what that one security was.

I know what it is but what the story is behind it.

Yeah.

The security that came back of this theory that went on.

The one that came back we are less concerned with.

On.

Good one.

The legal entity name is H D C.

Host way there is a term loan and revolver.

HTC HW intermediate holdings LLC as the legal name.

It's a company that we've had sort of marked below par for a period of time.

They have sort of one business that has been struggling in one side of the house it has been growing pretty well.

But the side of the house is growing a little bit smaller on the side of the house that is declining we've been working with the other lenders on a potential.

Restructuring pathway for the company.

And kind of in light of in light of the what we hope is a relatively short pathway to a restructuring we felt it prudent to put it on non accrual in the quarter.

The hope that its a relatively short lift candidate within there.

Our sponsor backed deal.

It was a sponsor backed deal the sponsor is not very involved at this stage.

Got it and was it a DC source deal or was it one you inherited.

It was not it was inherited from the garrison portfolio Okay.

Can you talk about quarter.

Quarter to date events visa.

<unk> B.

Repayments and sales.

<unk> et cetera, and or share repurchase.

I can give you some high level numbers.

On the purchases, we had about 18 little over $18 million of purchases offset by approximately $30 million of sales and pay downs.

If you're doing the role then you have about a million seven of unrealized gain offset by a realized loss of about six and then with accretion and some others you get you get the delta in the investment portfolio.

Okay. Let me ask you about your asking about you're asking about you're asking about quarter to date right.

About activity through.

So sorry quarter end.

Yes, I mean, I would say there is nothing.

Patrick can speak up to you, but I think nothing nothing outside of normal course, like I don't think theres anything, particularly different about the market today than we experienced in the third quarter No thats right we have had.

One or two.

A handful of portfolio companies repay we've invested in one or two new portfolio companies again, as Ted said I don't think Theres anything.

Particularly outside of the ordinary course, that's kind of gone on so far quarter to date.

Okay and share repurchase quarter to date.

I'd have to get back to you on that number.

Steve but as you know the program is it's an ongoing program and.

When that turns out will who will set it up.

As we normally do.

Okay.

Two more.

Can you comment on the CLO market.

And given.

Given you're over earning the dividend.

And your view on dividends going into the end of the year.

Yes, I'll take the CLO market and take a talk about about dividends.

I'd say in general the CLO market is has been a little bit healthier, particularly sort of back half of Q3.

And maybe a touch into the first first bit of Q4 here.

<unk>.

That has led overall to a little bit better bids in pricing in the syndicated loan market in general as some that CLO formation has driven the need to.

Need to buy some assets, so I'd say generally.

Really speaking the CLO market is a little bit healthier.

This quarter or where we sit today relative to perhaps some times in the last couple of quarters.

Having said that our CLO that we are invested in generally speaking are out of their investment periods.

So by and large the CLO managers, there are kind of making decisions around what they might expect in terms of repayments on their various portfolios the relative Oc tests and things like that around distributions et cetera. So our particular portfolio was a little bit.

Separate from the CLO market broadly, but I'd say generally speaking the market has.

Had some improvement.

Over the last call it six to eight weeks or so.

So given your specific portfolios.

Hello, Your CLO portfolio as a source of funds rather than a use of funds.

It's always a source of funds.

It's always a different amount of source of funds, but.

It's not a use of funds.

Okay, Yes, I meant money youre, asking you're asking about I think youre asking about total I think you are asking about total return versus income return and again, we're getting positive income off of our portfolio and I think I mean listen it's it's only a couple of weeks into the quarter. I don't think we can I don't think we really know in terms of evaluation.

Small and again, it's it's 2% of our portfolio.

And to your.

Your comment about year end dividends.

In terms of a special dividend is that what you're asking about are we seeing something along those lines.

I mean listen we obviously benefited greatly from some of this M&A, which.

Created some advantages for our shareholders around spillover income I would say, we feel really good about our dividends, even if the fed cuts rates, which we don't obviously speculate on because that's not our thing.

The dividend pretty protected down to a pretty big reduction in short term rates. So again, we assess every quarter.

Obviously, we are comfortably over earning our dividend in a period of time, where we're getting.

So I think we feel good about where our dividend is and.

Again like what we'll assess it at year end and see if there is a C where we are in terms of spillover income.

Alright, Thanks, a lot.

Our next question comes from the line of James Power. Please go ahead.

Good afternoon, I was wondering if that is I don't know whether I'm pronouncing it correctly repertoire partners.

Any way they've made a filing in the last quarter.

<unk> had quite a bit of stock I was wondering if you would talk to them about their intentions and what they are they're going to be sellers.

This.

And how did they get that bigger block.

Yes, I don't think we comment on individual shareholders and individual shareholders intentions.

So I am not sure we want to really make a comment on that.

Okay alright, thank you.

And we have no further questions at this time I'll hand, the call back over to Ted Gulfport for any closing remarks.

Great well. Thank you all for attending our call as.

As always please reach out to us with any questions, which we're happy to discuss and hope everybody has a great Thanksgiving and we look forward to speaking to you again on our next call. Thank you.

Ladies and gentlemen, thank you all for joining today's meeting that we will conclude our call you may now disconnect.

Yes.

Okay.

Yes.

[music].

Welcome to Portman Ridge Finance Corporation third quarter 2023 earnings Conference call and earnings Press release was distributed yesterday November eight after market closed a copy of the 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.

Note that todays 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 S. E C.

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

Good afternoon, and thanks, everyone for joining our third quarter 2023 earnings call.

I'm joined today by our Chief Financial Officer, Jason Rus, and our Chief Investment Officer, Patrick Schafer I'll provide brief highlights on the company's performance and activities for the quarter Patrick.

Patrick will provide commentary on our investment portfolio and our markets and Jason who will discuss our operating results and financial condition in greater detail.

Yesterday Portman Ridge announced its third quarter 2023 results and we are pleased with the solid earnings power of the portfolio. Despite operating in a somewhat challenging market conditions.

Our core investment income was up year over year, increasing by $700000 as we continue to see the impact that rising rates have on our debt portfolio additions.

Additionally, our net asset value per share increased from $22 54 per share to $22 65 per share.

We continued our accretive repurchase program purchasing over 60000 shares at an average cost of approximately $1 $2 million during the third quarter.

On a year to date basis total dividends to be distributed to shareholders amounted to $2 75 per share representing seven 4% increase as compared to the dividend distributed in 2022.

As we have discussed in previous quarters M&A deal flow continues to be at depressed levels year to date, but we remain optimistic on the overall outlook.

Sponsors are looking to put less total leverage on their companies, which lowers our detachment point.

We will remain cautious on the ultimate execution rate of these M&A processes. The recipe for increased activity levels appear to be in place.

Both the sponsor and non sponsor activity.

Refocusing on Portman Ridge, we continue to believe our stock remains undervalued. Thus as previously mentioned, we continue to repurchasing shares under our renewed stock purchase program.

In the third quarter, we repurchased an incremental 60559 shares for an aggregate cost of approximately $1 2 million.

This follows the trend set throughout 2022, and the first half of 2023 and expect this trend to continue through the final quarter of the year as we were able to do so.

To NAV, even when overlaying conservative default and recovery rates.

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

Thanks Todd.

To an interest rate index, such as LIBOR, so for a prime rate with 98% of these being linked to sofa.

As you can see from the chart the underlying benchmark rate of our assets during the quarter lag to prevailing market rates and still remain below the sofa rates as of October 32023, but the gap is the narrowest. It has been since the onset of the fed rate hike cycle hike cycle.

For illustrative purposes, if all our assets were to reset to either a three months LIBOR or sofa rate respectively.

We would expect to generate an incremental $75000 quarterly income.

Some of this was driven by late repayments during the quarter and two transactions expected to close in Q3 that were pushed into early Q4.

Turning to slide 12, we had one new portfolio company go on nonaccrual as of as compared to June 30 of 2023, and one come off non accrual due to the completion of our restructuring.

In aggregate securities on non accrual status remained relatively low.

At eight investments in the third quarter of 2023 as compared to seven investments on nonaccrual status as of June 32023. These eight investments on nonaccrual status at the end of the third quarter of 2023 represent one six and three 6% of the company's investment portfolio at fair value and amortized cost.

Respectively.

This indicative default rate is above anything the market is expecting or has experienced historically.

Finally, turning to slide 14, if you aggregate the three portfolios acquired over the last three years, we've purchased a combined $435 million of investments have realized over 78% of these positions at a combined realized and unrealized mark of 103% of fair value at the time of closing that.

Respective mergers.

This is an indication of our ability to effectively realize the value of legacy portfolios acquired while rotating into BC partners sourced assets.

More importantly, we were able to achieve those results. Despite the global pandemic in 2020, and most of 2021 and a weak market for almost all asset classes in 2022, and the first half of 2023.

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

Thanks, Patrick.

As both Ted and Patrick previously mentioned, despite operating under a challenging economic environment. Our results for the third quarter of 2023 reflects strong financial performance.

Our total investment income decreased slightly by 400000 to $18 6 million in the third quarter of 2023.

In comparison to $19 million in the third quarter of 2022. This.

This reported total investment income represents a $1 million decrease from the $19 6 million a reported total investment income in the second quarter of 2023.

The quarter over quarter decrease was largely due to reduced fee income and dividend income compared to the second quarter of 2023.

2023.

The quarter over quarter decrease was largely due to the aforementioned decreases seen in fee and dividend income.

As of September 32023, and June 32023, the weighted average contractual interest rate on our interest earning debt securities was approximately 12, 3% and 12, 1% respectively.

We continue to believe the portfolio remains well positioned to generate incremental revenue in future quarters due to the current rate environment.

Total expenses decreased quarter over quarter from $11 7 million for the second quarter of 2023 to $11 4 million in the third quarter of 2023.

This decrease was due to reduced expenses and predominantly all expense categories are result of our efforts to reduce overall expenses.

Our net asset value for the third quarter of 2023 was $214 8 million or $22 65 per share as compared to $215 million or $22 54 per share in the second quarter of 2023.

Turning to the liability side of the balance sheet as of September 32023, we had a total of $321 5 million par value of borrowings outstanding at a current weighted average interest rate of six 9%.

This balance was comprised of $74 million in borrowings under our revolving credit facility of $108 million and $4 <unk> percent notes due 2026, and $139 $5 million unsecured notes due 2029 the quarter over quarter decrease of $12 2 million was primarily driven by an $8 2 million repayment.

The secured notes due 2029, and a net $4 million repayment on the revolving credit facility.

As of September 32023, our debt to equity ratio was one five times on a gross basis and 134 times on a net basis from a regulatory perspective, our asset coverage ratio at quarter end was 166%.

This is <unk> <unk> per share distribution increase as compared to the fourth quarter of 2022.

Including the distribution subsequent to the announcement of full year 2022 earnings results total stockholder distributions for 2023 amount to $2 75 per share.

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

Thank you Jason ahead.

Ahead of questions I'd like to reemphasize that we believe we are well positioned to take advantage of the current market environment as we have shown throughout throughout the year. So far through our prudent investment strategy. We believe we will be able to deliver strong returns to our shareholders in the final quarter of the year and into 2024.

Thank you once again to all of our shareholders for ongoing support.

This concludes our prepared remarks, and I will turn the call over to for any questions.

At this time, if you'd like to ask a question simply press star followed by the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Our first question will come from the line of Paul Johnson with <unk>. Please go ahead.

Yeah, Good evening guys.

My question.

And the first is just kind of.

Maybe kind of giving here.

Overall thoughts on leverage post gross leverage in the BDC.

Today going into next year.

Focus on reducing that.

Or.

Rotating out of certain investments.

They're just basically just redeploying it was coming in.

Amos.

Austerity yet.

Yes.

Yes, it's a great question.

And we don't need leverage to earn our dividend nor R. R.

But.

Yes, we expect leverage to come down.

Or at least stay stay within the range that we've kind of outlined to people.

Yes, that's helpful.

Exactly.

<unk> P durability.

We continue buying back shares.

How do you see that kind of.

Your thoughts around share repurchases.

I mean, I think I think listen I think we've done it for a bunch of years in a row like we're very committed to buy back stock and again.

Okay. Thanks for that.

And then.

Another question is just on interest income.

Hum.

Calculating it right now approximately about 16% or so total interest in color.

Was pik income this quarter.

I just want to make sure that I'm looking at that correctly and then also how does that compare I guess historically.

The portfolio.

Yes, I would say.

We did have more pik income this quarter relative to prior quarters Thats a function of some of our.

We look at interest income and Pik income as kind of one and the same as a.

<unk>.

Source of income, but you are right. This quarter, we had a larger amount of our investment income being made up of Pik income, which is a function of.

Uh huh.

Some of that some of the assets that were previously cash paying are now picking due to some of the optionality that they have in the agreements themselves yes.

There was one.

There was also one specific name that moved from cash to pick. This in Q3, but then was exited in.

<unk>.

Yes, that's very helpful. That's all for me thanks.

Your next question will come from the line of Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Hey, guys.

For your portfolio companies are you seeing sponsors step up and put in more equity or not.

Not really.

Well why don't I go first and then Patrick.

Respond I think we're seeing that.

This is just my own opinion, I think youre seeing a bifurcation of the market between size of sponsor.

Meaning I think we're seeing pretty constructive behavior on behalf of middle market sponsors and we're seeing more economic decision, making on behalf of larger sponsors.

And again, that's more effects the larger players in the BDC space and the syndicated markets, but yes, we are in constant dialogue with our sponsor.

Counterparts, and I think they've been very very constructive so far yes.

I don't have much to add Ted Ted.

There is the only thing in some instances if sponsors are looking at some sort of amend and extend for a kind of multiyear period, neither thing that ourselves as well as just.

Sponsor in.

What they are comfortable doing.

And I guess, a follow up question would be what sort of EBITDA multiples are you seeing given the change in rates I mean, obviously.

We have to see.

More developing.

Yes, So I think I think there is a push pull.

But everyone's on the same page wishes sponsors are back solving for there.

Interest coverage ratios basically to Patrick's point, but we're not being asked to Max let our companies.

So we've seen leverage come down anywhere from one to two turns pretty consistently and that just ties back into interest coverage ratios meso recent large private equity deal that was done with no debt and the sponsor is just up the view that they are going be able to finance. It later cheaper, which I don't know I'm not sure I would make that bet.

But yes, we're definitely we've been asked for lower leverage levels. So it's not.

Tension of like we're being asked for Max leverage we don't want to do it.

That's all for me thank you.

Again to ask a question simply press star one on your telephone keypad Thats star one for any questions.

Our next question will come from the line of Steven Martin with Slater. Please go ahead.

Hey, guys.

Just a couple of questions you said and on the non accruals that.

One one on one went off yet, but the total went from seven to eight.

Am I missing something.

I mean technically one.

The new the new non accrual has just two different securities as a revolver and our term loan.

Perry with each other so we have both of them on nonaccrual. It's it's one borrower, but two different security so that table, a security count and not borrow account.

Alright.

Would you care to elaborate on what that one security was or.

I know what it is but what the story is behind it.

The security that came back of the surety that went on.

The one that came back we are less concerned with what went on.

Good one.

The legal entity name is H D C.

<unk> there is a term loan and revolver.

HTC HW intermediate holdings LLC as the legal name.

It's a company that.

We've had sort of marked below par for a period of time, they have sort of one business that has been struggling in one side of the house it has been growing pretty well.

But the side of the house is growing a little bit smaller on the side of the house that is declining we've been working with the other lenders on our potential.

Restructuring pathway for the company.

And kind of in light of in light of the what we hope is a relatively short pathway to a restructuring we felt it prudent to put it on non accrual in the quarter.

Hope that its a relatively short lift candidate within there.

Our sponsor backed deal.

It was a sponsor backed deal the sponsor is not very involved at this stage.

Got it and was it a DC source deal or was it one you inherited.

It was not it was inherited from the garrison portfolio Okay.

Can you talk about quarter.

Quarter to date events visa.

<unk> B.

Repayments and sales.

<unk> et cetera, and or share repurchase.

I can give you some high level numbers.

On the purchases, we had about 18, a little over $18 million of purchases offset by approximately $30 million of sales and paydowns.

If youre doing the role then you have it.

About a million seven of unrealized gain offset by a realized loss of about six and then with accretion and some others you get you get the delta in the investment portfolio.

Okay, So you're asking about you're asking about you're asking about you're asking about quarter to date right.

Are you thinking about activity through.

So sorry quarter end.

Yes, I mean, I would say there is nothing.

Patrick can speak up too, but I think nothing nothing outside of normal course, like I don't think theres anything, particularly different about the market today than we experienced in the third quarter No thats right. We have had one or two.

A handful of portfolio companies repay we've invested in one or two new portfolio companies again, as Ted said I don't think Theres anything.

Particularly outside of the ordinary course, that's kind of gone on so far quarter to date.

Okay and share repurchase quarter to date.

I'd have to get back to you on that number.

Steve but as you know the program is it's an ongoing program and.

When that turns out will we will set it up.

As we normally do.

Okay.

Two more.

Can you comment on the CLO market.

And <unk>.

Given you're over earning the dividend.

And your view on dividends going into the end of the year.

Yes, I'll take the CLO market and Ted can talk about about dividends.

I would say in general the CLO market is has been a little bit healthier, particularly sort of back half of Q3.

And maybe a touch into the first first bit of Q4 here.

<unk>.

That has led overall to a little bit better bids in pricing in the syndicated loan market in general as some that CLO formation has driven the need to.

Need to buy some assets, so I'd say kind of in.

Generally speaking the CLO market is a little bit healthier.

This quarter or where we sit today relative to perhaps some times in the last couple of quarters, having said that our CLO that we are invested in generally speaking are out of their investment periods.

Separate from the CLO market broadly, but I'd say generally speaking the market has.

<unk> had some improvement.

Over the last call it six to eight weeks or so.

So given your specific portfolios the CLO your CLO portfolio as a source of funds rather than a use of funds.

Well, it's always a source of funds.

It's always a different amount of source of funds, but.

It's not a use of funds.

Okay, Yes, I meant Monday, youre, asking that you're asking about I think you are asking about total I think you are asking about total return versus income return and again, we're getting positive income off of our portfolio and I think I mean listen it's it's only a couple of weeks in the quarter I don't think we can I don't think we really know in terms of valuation.

Small and again.

It's 2% of our portfolio.

And Ted your.

Your comment about year end dividends.

In terms of a special dividend is that what you're asking about are we seeing something along those lines.

I mean listen we obviously benefited greatly from some of this M&A, which.

The dividend pretty protected down to a pretty big reduction in short term rates. So again, we assess every quarter.

Obviously, we are comfortably over earning our dividend in a period of time, where we're getting.

So I think we feel good about where our dividend is and I don't I don't.

Again like what we'll assess it at year end and see if there's a C where we are in terms of spillover income.

Alright, Thanks, a lot.

Our next question comes from the line of James Power. Please go ahead.

Good afternoon, I was wondering if that is I don't know whether I'm pronouncing it correctly repertoire of partners.

Any way they've made a filing in the last quarter.

Quite a bit of stock I was wondering if you would talk to them about their intentions and what they are they're going to be sellers.

This.

Block and how did they get that bigger block.

Yes, I don't think we comment on individual shareholders and individual shareholders intentions.

So I'm not sure we want to really make a comment on that.

Okay alright, thank you.

And we have no further questions at this time I'll hand, the call back over to Ted Gulfport for any closing remarks.

Great well. Thank you all for attending our call as.

As always please reach out to us with any questions, which we're happy to discuss and hope everybody has a great Thanksgiving and we look forward to speaking to you again on our next call. Thank you.

Ladies and gentlemen, thank you all for joining today's meeting that we will conclude our call you may now disconnect.

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