Q1 2024 Portman Ridge Finance Corporation Earnings Call

Operator: Welcome to Portman Ridge Finance Corporation's first quarter 2024 earnings conference call. An earnings press release was distributed yesterday, May 8, after market close. A copy of the release, along with an earnings presentation, is available on the company's website at www.portmanridge.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

Welcome to appointment reached financed corporations first quarter 2024 earnings conference call on earnings Press release was distributed yesterday may 8th after market close a copy of their release along with an Orangish presentation is available on the company's website Triple W. Dot <unk> dot com and the investor.

Relations section and should be reviewed in conjunction with the company for them. Thank you filed yesterday with the S. E C. As a reminder, we've got this conference call is being recorded tour replete purposes. Please.

Operator: Please note that today's conference call may make 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 forward-looking statements as a result of a number of factors, including those described in the company's filings with the SEC.

Please note that today's conference call, maybe make <unk> statements.

Statements, which are not guarantees of feature for four months for results and involve a number of risk and I'm sorry, <unk> actual results may differ materially from those in forward looking statements as a result, the phone number of factors, including don't drive in the company's filings with the S. E C.

Operator: Portman Ridge Finance Corporation assumes no obligation to update any such forward-looking statements unless required by law. Speaking on today's call with Ted Goldthorpe, Chief Executive Officer, President and Director of Portman Ridge Finance Corporation, Brandon Sataran, Chief Financial Officer, and Patrick Schafer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of Portman Ridge. Please go ahead.

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No obligation to any such forward looking statements unless required by law.

Speaker Change: Speaking on today's call with the <unk>, Chief Executive Officer precedent and director of Portland Bridge Finance Corporation, Brandon <unk>, Chief Financial Officer, and Patrick Safer Chief Investment Officer.

With that I would now like to turn the call over to Ted Goldfarb Chief Executive Officer Report language. Please go ahead.

Edward Joseph Goldthorpe: Good morning, and thank you everyone for joining our first quarter 2024 earnings call. I'm joined today by our Chief Financial Officer, Brandon Satoran, and our Chief Investment Officer, Patrick Schafer. I'll provide brief highlights on the company's performance and activities for the year. Patrick will provide commentary on our investment portfolio and our markets, and Brandon will discuss our operating results and financial condition in greater detail.

Ted Goldfarb: Good morning.

Edward Joseph Goldthorpe: Thanks, everyone for joining our first quarter of 2024 earnings call I'm.

I'm joined today by our Chief Financial Officer, Brian into Turin, and our Chief investment Officer, Patrick Schaefer.

Patrick Schafer: Provide brief highlights on the company's performance and activities for the year Patrick.

Patrick Schafer: Patrick will provide commentary on our investment portfolio in our markets and bread and will discuss our operating results and financial condition in greater detail.

Edward Joseph Goldthorpe: Yesterday, Portman Ridge announced its first quarter 2024 results, and following the strong earnings trajectory we saw in 2023, we are pleased with the solid earnings power of the portfolio. Despite operating under challenging market conditions, we reported net investment income of $6.2 million, or $0.67 per share, and a net asset value of $210 million. $210.6 million, or $22.57 million per share. We continue to target a well-diversified portfolio with investments spread across 29 industries and 103 entities, while maintaining an average par balance per entity of $3.1 million.

Patrick Schafer: Yesterday, Portland Ridge announced its first quarter of 2024 results and following the strong earnings trajectory. We saw in 2023, we are pleased with a solid solid earnings power of the portfolio.

Patrick Schafer: Despite operating under challenging market conditions reported net investment investment income of $6.2 million or 67 cents per share and net asset value of $210 million too.

Patrick Schafer: 200, $210.6 million or 22 point 22 57 for sure.

Patrick Schafer: We continued to target a well diversified portfolio with investments spread across 29 industries and 103 entities, while maintaining an average par balance per entity of $3.1 million. This.

Edward Joseph Goldthorpe: This compares to 27 industries and 100 entities with an average par balance per entity of $3.1 million at the end of 2023. Credit quality remains stable with 7 investments on non-accrual representing 0.5% of the portfolio on a fair value basis. Additionally, we continue to believe our stock remains undervalued, and during the quarter, we continued to repurchase shares under our repurchase program, purchasing 51,015 shares for an aggregate cost of $1 million. These repurchases had an accretive effect on Portman's net asset value of $0.02 per share, reinforcing our commitment to shareholder value.

Patrick Schafer: This compares to twenty-seven industries and 100 entities with an average par balance per entity of 3.1 million at the end of 2023.

Patrick Schafer: Credit quality remains stable with seven investments on non accrual representing 0.5% of the portfolio on a fair value basis.

Patrick Schafer: Additionally, we continue to believe our stock remains undervalued and during the quarter. We continued to repurchase shares under our repurchase program purchasing 51015 shares for an aggregate cost of $1 million.

Patrick Schafer: These repurchases had an accretive effect department is net asset value of two cents per share reinforcing our commitment to shareholder value.

Edward Joseph Goldthorpe: Furthermore, the Board of Directors approved a dividend for the second quarter of 2024 in the amount of $0.69 per share, which represents a strong 12.2% annualized return on net asset value, which is among the highest in the BDC space.

Patrick Schafer: Further the board of directors approved dividend for the second quarter of 2024, and the amount of 69 cents per share, which represents a strong 12.2% annualized return on net asset value, which is among the highest in the BDC space.

Edward Joseph Goldthorpe: Turning to conditions in our primary market, as we previewed on our fourth quarter earnings call, M&A activity picked up during the quarter, and capital markets as a whole were extremely active as compared to the fourth quarter. Net deal activity, defined as new deals excluding corresponding repayments, in the BSL loan market was $57.2 billion, up 64% from the fourth quarter, and represented the highest new net volume since the first quarter of 2022, and is representative of the fundamental tailwinds we believe exist in our primary market.

Patrick Schafer: Turning to conditions that our primary market as we previewed on our first quarter earnings call M&A activity has picked up during the quarter and capital markets as a whole were extremely active as compared to the fourth quarter net.

Patrick Schafer: <unk> deal activity defined as new deals, excluding corresponding repayments and the base alone market was $57.2 billion up 64% from the fourth quarter and represented the highest new net volume since the first quarter of 2022 and is representative of the fundamental Tailwinds, we believe exist in our primary market.

Edward Joseph Goldthorpe: For all of 2023, private equity firms will have been sitting on record amounts of dry powder while at the same time being pushed by LPs to return capital. Although expectations for future rate hikes have diminished towards the end of the first quarter and the beginning of the second quarter, I believe the aforementioned fundamentals, combined with a positive economic outlook and sentiment, should continue to fuel new deal activity in our private credit space over the course of 2024.

Patrick Schafer: For all of 2023 private equity firms have been sitting on record amounts of dry powder, while at the same time being pushed by Lp's to return capital.

Patrick Schafer: No expectations for future rate hikes have diminished towards the end of the first quarter and the beginning of the second quarter believe the after mentioned fundamentals combined with positive economic outlook and sentiment should continue to fuel new deal activity in our private credit space over the course of 2024.

Patrick Schafer: Specifically, at Portman Ridge, and more generally across BC Partners' credit platform, we continue to find attractive opportunities both through our sponsor relationships and our focus on non-sponsor or non-traditional sponsor-backed companies, and we continue to win transactions based on our ability to custom-tailor a capital solution for the borrower and the borrower's belief that our platform can add value to their businesses, over and above just being a capital provider. Our strategy has always been to be very selective in new investment opportunities, focusing on portfolio management and risk mitigation.

Patrick Schafer: Specifically apartment ridge and more generally across Beachy partners credit platform, we continue to find attractive opportunities both through our sponsor relationships and our focus on nonsponsor or non traditional sponsor back companies and continue to wind transaction based on our ability to custom tailor capital solution for the borrower and the borrowers belief that our platform can add value.

Patrick Schafer: To their businesses over and above just being a capital provider.

Patrick Schafer: Our strategy has always been to be very selective on new investment opportunities focusing on portfolio management and risk mitigation to that point during the quarter. We made investments in into only one new portfolio company. Our goal continues to be the further diversification of our portfolio by investing in companies that have the potential to provide high return.

Patrick Schafer: To that point, during the quarter, we made investments into only one new portfolio company. Our goal continues to be the further diversification of our portfolio by investing in companies that have the potential to provide high returns for our shareholders. As we proceed further into 2024, our pipeline remains strong, and we believe we are well positioned to take advantage of new investment opportunities while also remaining diligent in our investment and capital deployment processes. With that, I'll turn the call over to Patrick Schafer, our Chief Investment Officer, for a review of our investment activity.

Patrick Schafer: <unk> for our shareholders.

Patrick Schafer: As we proceed further into 2024, our pipeline remains strong and we believe we are well positioned to take advantage of new investment opportunities. While also remaining diligent in our investment in capital of deployment process with that I'll turn the call over to Patrick Schaefer, Our Chief investment Officer for a review of our investment activity.

Patrick Schafer: Thanks Ted, turning now to slide 5 of our presentation and the sensitivity of our earnings to interest rates. As of March 31st, 2024, approximately 91.1% of our debt securities portfolio were floating rate with a spread to an interest rate index such as SOFR or prime, with substantially all of these being linked to SOFR. As you can see from the chart, the underlying benchmark rates of our assets during the quarter lag the prevailing market rates and still remain below the SOFR rates as of April 29, 2024. But between the market transition last year from LIBOR-SOFR and the pause from the Fed earlier this year, the gap has narrowed to the tightest it has been since the onset of the Fed rate hike cycle.

Patrick Schafer: Thanks Ted.

Patrick Schafer: Turning now to slide five of our presentation and a sensitivity of our earnings to interest rates as.

Patrick Schafer: As of March 31, 2024, approximately 91.1% of our debt securities portfolio with a floating rate with the spread to an interest rate index, such as sofa, a prime with substantially all these being linked to chauffeur.

Patrick Schafer: As you can see from the chart the underlying benchmark rates of our assets during the quarter.

Patrick Schafer: The prevailing market rates and still remain below the sofa rates as of April 29th of 2024, but between the market transition last year from LIBOR Sopher.

Patrick Schafer: In the pause from the fed earlier earlier this year. The gap has narrowed has narrowed to the tight as it has been since the onset of the fed rate hike cycle.

Patrick Schafer: Skipping down to slide 10, originations for the first quarter were higher than the prior year's first quarter and were above repayment levels, resulting in net originations of approximately $1.7 million. Our new investments made during the quarter are expected to yield a spread to SOFR of 581 basis points on par value, and the investments were purchased at a cost of approximately 98.4% of par. Our investment portfolio at the end of the first quarter remained highly diversified. We ended the year with investments spread across 29 different industries and 34 different borrowers, all while maintaining an average power balance per entity of approximately 3.19%. Turn to slide 11.

Patrick Schafer: Skipping down to slide 10 originations for the first quarter or higher than prior year first quarter, and we're above repayment levels, resulting in net originations approximately $1.7 million.

Patrick Schafer: Our new investments made during the quarter are expected to yield spread to chauffeur, a 581 basis points on par value.

Patrick Schafer: And the investments were purchased at a cost of approximately 98.4% a park.

Patrick Schafer: Our investment portfolio at the end of the first quarter remained highly diversified we end the year with an investment spread across 29 different industries and 34 different borrowers all while maintaining an average car balanced per entity of approximately $3.1 million.

Patrick Schafer: In aggregate, investments on non-accrual status remain relatively low at seven investments at the end of the first quarter of 2024, representing 0.5 percent and 3.2 percent of the company's investment portfolio at fair value and cost, respectively. This compares to December 31st, 2023, where there were also seven investments on non-equal status, representing 1.3% and 3.2% of the company's investment portfolio at fair value and cost, respectively. 512.

Patrick Schafer: Turn aside 11 and aggregate investments on non accrual status remain relatively low at seven investments at the end of the first quarter of 2024, representing 0.5% and 3.2% of the company's investment portfolio at fair value and cost respectively.

Patrick Schafer: This compares to December 31, 2023, where there are also seven investments Anon, Oh cool status, representing 1.3% and 3.2% of the company's investment portfolio at fair value and cost respectively.

Patrick Schafer: On slide 12.

Brandon Sataran: Excluding our non-equal investments, we have an aggregate debt investment portfolio of $384 million at fair value, which represents a blended price of 93.7% of par and is 90% comprised of first lien loans based on par value. Assuming a par recovery, our March 31, 2024 fair values reflect a potential of $25.8 million of incremental net value, a 12.1% increase, or $2.72 per share, excluding any recovery from the non-equivalent investment. If you were to further overlay an illustrative 10% default rate and 70% recovery rate on the entire debt securities portfolio, again, excluding non-accrual investments,

Patrick Schafer: Excluding are nonaccrual investments, we have an aggregate that investment portfolio of $384 million at fair value, which represents a blended price of 93.7% a par and is 90 per cent comprised of forcing loans based on par value.

Patrick Schafer: Assuming apart recovery or March 31, 2024 fair values reflect a potential of $25.8 million of incremental Nat value, a 12.1% increase to $2.72 per share excluding any recovery from the nonaccrual investments.

Patrick Schafer: If we were to further overlay in a lesser of 10% default rate and 70% recovery it to the entire debt securities portfolio again, excluding nonaccrual investments.

Brandon Sataran: The incremental NAV value potential would be $1.41 per share, or a 6.2% increase to NAV per share as of March 31, 2021. Finally, turning to slide 13, if you aggregate the three portfolios acquired over the last three years, we have purchased a combined $434.8 million of investments, and we have realized approximately 82% of these positions at a combined realized and unrealized mark of 102% of fair value at the time of closing the respective merger.

Patrick Schafer: The incremental nab value potential would be a dollar and 41 cents per share or $6 two per cent increase to NAV per share as of March 31 2024.

Patrick Schafer: Finally turn to slide 13, if you aggregate the three portfolios acquired over the last three years, you purchase a combined $434 $8 million of investments have realised approximately 82% of these positions at a combined realize an unrealized mark of 102 per cent of fair value at the time of closing the respective murderers.

Brandon Sataran: As of Q1 2024, we had fully exited the acquired Oakhill portfolio and are down to a combined $33.5 million of the acquired HCaP portfolio and the initial KCaP portfolio. I'll now turn the call over to Brandon to further discuss our financial results for the period.

Patrick Schafer: As a Q1 2024, we had fully exited the acquired <unk> portfolio and I'm down to a combined 33.5 million of the acquired each kept portfolio and the initial K cap portfolio.

Patrick Schafer: I'll know I'll turn the call over to Brandon to further discuss our financial results for the period.

Brandon Sataran: Thanks, Patrick. As Ted and Patrick previously mentioned, our results for the first quarter of 2024 continue to reflect the company's strong financial performance. Our total investment income for the quarter was $16.5 million, of which $14.2 million was attributable to interest income from the debt investment portfolio. This compares to total investment income for the fourth quarter of 2023 of $17.8 million, of which $15.3 million was attributable to interest income from the debt investment portfolio.

Brandon: Thanks, Patrick as Ted and Patrick previously mentioned our results for the first quarter of 2024 continue to reflect the company's strong financial performance.

Brandon: Our total investment income for the quarter was 16.5 million of which $14.2 million was attributable to interest income from the dead investment portfolio.

Brandon: This compares to total investment income for the fourth quarter of 2023 of 17.8 million of which $15.3 million was a tribute to attributable to interest income from the that investment portfolio.

Brandon: The decrease was primarily driven by the reversal of zero point $4 million or four cents per share of previously accrued unpaid interest on two portfolio companies placed on non accrual during the first quarter of 2024 as well as lower pay down income of zero point $4 million or four cents per share during the quarter.

Brandon: <unk>.

Brandon Sataran: The decrease was primarily driven by the reversal of $0.4 million, or $0.04 per share, of previously accrued unpaid interest on two portfolio companies placed on non-accrual during the first quarter of 2024, as well as lower pay-down income of $0.4 million, or $0.04 per share, during the quarter. Excluding the impact of purchase price accounting, our core investment income for the quarter was $16.5 million, a decrease of $1.2 million compared to $17.7 million in the prior quarter.

Brandon: Excluding the impact of purchase price accounting, our core investment income for the quarter was $16.5 million a decrease of 1.2 million compared to core investment income of $17.7 million in the prior quarter.

Brandon Sataran: Our net investment income for the quarter was $6.2 million, or $0.67 per share. This compares to $11.2 million, or $1.18 per share, for the prior quarter. The decrease in net investment income was the result of lower investment income and $0.1 million, or one penny per share, of incremental expenses in the first quarter, as well as a one-time expense reimbursement from the company's investment advisor during the prior quarter. As of March 31st, 2024, and December 31st, 2023, the weighted average contractual interest rate on our interest-earning debt investment portfolio was approximately 12.1% and 12.5%, respectively

Brandon: Our net investment income for the quarter was $6.2 million or 67 cents per share. This compares to $11.2 million or $1.18 per share for the prior quarter. The decrease in net investment income was the result of lower investment income and 0.1 million for one penny per share of incur.

Brandon: Mental expenses in the first quarter.

Brandon: As well as a one time expense reimbursement from the company's investment adviser during the prior quarter.

Brandon: As of March 31st 2024, and December 31st 2023, the weighted average contractual interest rate on our interest, earning that investment portfolio was approximately 12.1% and 12.5% respectively. We.

Brandon Sataran: We continue to believe the portfolio remains well positioned to generate incremental revenue in future quarters due to the current rate environment. Total expenses for the quarter ended March 31st, 2024 were $10.3 million, compared to total expenses of $11.9 million for the fourth quarter of 2023. The decrease was largely driven by lower incentives, by a lower incentive fee, as well as lower interest in financing costs as a result of lower average leverage during the quarter.

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

Brandon: Total expenses for the quarter ended March 31st 2024 were $10.3 million compared to total expenses of $11.9 million for the fourth quarter of 2023.

Brandon: The decrease was largely driven by lower incentives.

Brandon: By a lower incentive fee as well as lower interest in financing costs as a result of lower average leveraged during the quarter.

Brandon Sataran: Our net asset value as of March 31st, 2024 was $210.6 million or $22.57 per share, a decrease of $0.19 per share as compared to the prior quarter net asset value of $213.5 million or $22.76 per share. The decrease was largely driven by our dividend exceeding net income for the quarter ended March 31, 2020. Turning to the liability side of the balance sheet, as of March 31st, 2024, the company had a total of $291.7 million of borrowings outstanding at a weighted average interest rate of 6.9%.

Brandon: Our net asset value as of March 31st 2024 was $210.6 million or $22 and 50 50.

Brandon: 57 cents per share a.

Brandon: A decrease of 19 cents per share as compared to the prior quarter net asset value of $213.5 million or $22.76 per share.

Brandon: The decrease was largely driven by air dividend exceeding net income for the quarter ended March 31st 2024.

Brandon Sataran: This balance was comprised of $92 million in borrowings under our Senior Secured Revolving Credit Facility, $108 million of 2026 notes, and $91.7 million of 2018-2 secured notes due 2029. We finished the quarter with $23 million of available borrowing capacity under the Senior Secured Revolving Credit Facility. Accordingly, as of March 31st, 2024, our gross and net leverage ratios were 1.4 times and 1.2 times, respectively. Compared to the prior quarter, gross leverage is down one full turn from 1.5 times, and net leverage is flat.

Brandon: Turning to the liability side of the balance sheet as of March 31st 2024. The company had a total of $291.7 million of borrowings outstanding with a weighted average interest rate of 6.9%.

Brandon: This balance was comprised of 92 million and borrowings under our senior secured revolving credit facility 108 million of 2026 notes and $91.7 million of 20th 18 Dash two secured notes do 2029.

Brandon: We finished the quarter with $23 million of available borrowing capacity under the senior secured revolving credit facility.

Brandon: Accordingly as of March 31st 2024 hour gross and net leverage ratios were 1.4 times in one two times respectively.

Brandon: Compared to the prior quarter gross leverage is down one full turn from 1.5 times and net leverage is flat that.

Brandon Sataran: The decrease in gross leverage is largely driven by the paydown on the 2018-2 notes during the quarter. From a regulatory perspective, our asset coverage ratio as of quarter end was 171%. Finally, the Board approved a quarterly distribution of $0.69 per share payable on May 31, 2024 to stockholders of record at the close of business on May 21. With that, I will turn the call back over to Ted.

Brandon: The decrease in gross leverage is largely driven by the pay down on the 2018 dash two notes during the quarter.

Brandon: From a regulatory perspective are acid coverage ratio as a quarter and was 171%.

Brandon: Finally, the board approved a quarterly distribution of 69 cents per share payable on may 31st 2024 to stockholders a record at the close of business on may 21st.

Brandon: With that I'll turn the call back over to Ted.

Edward Joseph Goldthorpe: Ahead of questions, I'd like to reemphasize that we believe we are well positioned to take advantage of the current market environment, as shown in the first quarter. Through a prudent investment strategy, we believe we will be able to deliver strong returns to our shareholders for the rest of 2024. Thank you once again to all our shareholders for your ongoing support. This concludes our prepared remarks, and I'll turn the call over to you for any questions.

Edward Joseph Goldthorpe: Thank you Brandon.

Edward Joseph Goldthorpe: Ahead of questions I'd like to reemphasize that we believe we're well positioned to take advantage of the current market environment is shown in the first quarter.

Edward Joseph Goldthorpe: Through a prudent investment strategy, we believe we will be able to deliver strong returns to our shareholders for the rest of 2024.

Speaker Change: Thank you once again to all our shareholders for ongoing support. This concludes the prepared remarks, and I'll turn the call over for any questions.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on the mute when asking your question. Your first question comes from the line of Christopher Nolan; please go ahead.

Speaker Change: Thank you.

Speaker Change: Question and answer session. If you would like to ask that question. Please press star one on your telephone keypad to reach your hand.

Speaker Change: If you would like to return all your questions. Thank the press star one again.

Speaker Change: If you are called upon to answer your question.

Speaker Change: I allowed to stinker on your device, let me speak up their handset and ensuring that your phone is not underneath when asking that question.

Speaker Change: Get your first question concerning the line is Christopher Nolan. Please go ahead.

Christopher Whitbread Patrick Nolan: Hey, guys can you hear me.

Christopher Whitbread Patrick Nolan: Yeah. How are you? Good. How are you doing? Hey, the slowdown in the growth of the portfolio is now a strategy now simply to make new investments to offset the prepay. So in other words, the amount of money that you put out to work in new investments is a function of how much you get back in terms of prepays that quarter.

Christopher Whitbread Patrick Nolan: Yeah, how are Ya.

Christopher Whitbread Patrick Nolan: Good how you doing all right this slowdown in the growth of the portfolio.

Christopher Whitbread Patrick Nolan: It's a strategy now simply to make new investments to offset the prepaid so in other words.

Speaker Change: The amount of money that you put out to work in new investments as a function of how much you get back in terms of prepays that corner.

Edward Joseph Goldthorpe: I mean, I think, um... I think that's generally right, Chris.

Speaker Change: Yeah, I mean I think.

Edward Joseph Goldthorpe: I do think kind of where we are on a net leverage basis, we're sort of at the low end of kind of our one and a quarter to 1.4 times range. So I think there is, you know, we do have room and would look to kind of increase, you know, I'll call it assets, in addition to just, I'll call it, you know, one in one out. But where we sit now, I think we are probably having a little bit more of a focus on what you just said, which is making sure we're replacing assets that have been repaid.

Speaker Change: I think that's generally right, Chris I do think kind of where we are in a net leveraged basis for sort of at the low end of of kind of our one and a quarter to 1.4 times range. So I think there is you know we do have room and would look to kind of increase you know I'll I'll call. It assets. In addition to just I'll call you know one in one.

Speaker Change: <unk>.

Speaker Change: But where are we now I think we are probably having a little bit more of a focus on what you decided which is you know making sure we're replacing <unk> been repaid we are kind of selectively reducing some of our liquid exposure just given the run up in the BSL <unk> again, it's not a lot, but we have probably.

Edward Joseph Goldthorpe: We are kind of selectively reducing some of our liquid exposure, just given the run-up in the BSL market. It's not a lot, but we have probably, you know, eight or nine names that are, you know, quote unquote, liquid in our book. So, you know, we would look to exit those positions that kind of attracted prices in the BSL market and then, obviously, have. So it's a mix of a couple of those things, but I would say, you know, we definitely feel like we have room to kind of be a net grower of the portfolio, but being mindful of, you know, where we are relative to our leverage guidelines.

Inaudible: [inaudible]

Speaker Change: Yeah, eight or nine names that are you know quote unquote liquid in our book. So you know we would you know look too.

Speaker Change: Exit those positions that kind of attracted prices in the market and then obviously have those proceeds to rotate into you know new private transactions. So it makes it a couple of those things, but I would say you know we definitely feel like we have room to kind of be a net grower of the portfolio, but being mindful of you know where we are relative to our leverage guidelines.

Speaker Change: The guidelines, but some guidance.

Christopher Whitbread Patrick Nolan: And then, given that you're paying down the 2018 secured note, should we expect the bank revolver to pick up the slack and increase?

Speaker Change: And then given that you're paying down the 2018 secured note should we expect the bank revolver to pick up the slack to increase.

Edward Joseph Goldthorpe: That's right. Where the revolver sits today, we're at about $92 million drawn or so. It has $115 million in total capacity, and there's an incremental above and beyond that. But the very short answer is yes.

Speaker Change: That's right where the revolver sits today, we're at about 92 million drawn or so it has $115 million of total capacity and there's an incremental above above and beyond that but the the very short answer is yes.

Christopher Whitbread Patrick Nolan: And then, I guess finally, Ted, can you give us a little color in terms of what you're seeing in terms of BDCs, you know, looking to be bought out? How has that market changed from your perspective?

Speaker Change: Okay cause I like Ah.

Speaker Change: Finally.

Speaker Change: <unk> can you give us a little color in terms of what you're seeing in terms of B B C.

Speaker Change: Mmm looking to be bought out.

Speaker Change: Market changed from your perspective.

Edward Joseph Goldthorpe: I would say these things tend to go in waves. I would say there's not a lot of logical partners for us today, just given... I would say as of now, I don't foresee a big wave of consolidation in the short term. We'll get back in the queue. Thank you for answering my questions.

Speaker Change: I would say I would say these things tend to go in waves I would say, there's not there's not a lot of logical partners for us today just given.

Speaker Change: Just give it who's out there and given what's happening and I think you know a higher interest rates have obviously helped the whole sector in terms of earnings and other things and obviously credit quality has been stable. So I would say as of now I <unk> I don't foresee a big wave of of consolidation in the short term.

Christopher Whitbread Patrick Nolan: Okay, I'll go back in the queue. Thank you for answering my question.

Speaker Change: Alright, I'll just authenticated. Thank you for answering my questions.

Speaker Change: Thanks.

Operator: Again, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Deepak Sarpanel from Repertoire Partners. Please go ahead.

Speaker Change: Again, if you would like to ask a question press star one on your telephone keypad.

Speaker Change: Next question comes from the line out Deepak Harper now from repertoire partners. Please go ahead.

Deepak Sarpanel: Thank you. Hi Ted. Hi Patrick.

Deepak Harper: Thank you Hi, Ted Hey, Patrick.

Deepak Sarpanel: Thank you. I have a different, I guess, given the first. I actually just wanted to commend you on your fiduciary discipline to not simply grow the portfolio as some other managers do since you get paid on overall assets. So I think it's actually great. You're recognizing that your stock is undervalued. You know, when it makes sense to lean in and extend new loans, you do it. And when it doesn't, you're pulling back.

Deepak Harper:

Deepak Harper: I haven't.

Deepak Harper: Given the first.

Deepak Harper: Yes can you received I have a different perspective on that I actually just wanted to commend you on your fiduciary discipline cannot simply grow the portfolio of some other managers do since you get paid on over all acids. So I think it's actually great you're recognizing that your stock is undervalued.

Deepak Harper: You know when it makes sense to lean in and extend new loans, you're doing it and when it does any pulling back so.

Speaker Change: That's actually great and then I.

Deepak Sarpanel: So I think that's actually great. And then the question I had was, I saw the new investment in Riddell, which, obviously, I know about the products, being a football fan, but I saw that you had a broader partnership that you announced with the BC Credit and BC Partners platform. Could you talk a little bit more about that new investment and just give us a little bit more context there?

Speaker Change: The question I had was.

Speaker Change: I saw that the new investment in Ridell, which.

Speaker Change: Alright, I hope you know of the side effects being a football fan, but I saw that you had like a brighter.

Speaker Change: Partnership that you announced.

Speaker Change: With a b C credit in D C partners platform.

Speaker Change: Could you talk a little bit more about that new investment and uhm, just give us a little bit more contacts there.

Edward Joseph Goldthorpe: Yeah, I mean, we normally don't talk about individual investments, but this one specifically has been very high profile, so we have provided them financing. It closed right at quarter grand.

Speaker Change: Yeah, I mean, we normally don't talk about individual investments, but this one specifically it's been very high profile. So we we have provided him financing it close right I quit around and.

Edward Joseph Goldthorpe: And this is a perfect example of what we do, broadly speaking. So we have a board sitting with the company. We are very, very active in helping them with a number of different initiatives. And it's a great business because there's a big recurring replacement cycle embedded in their business. So usually, we don't have a big consumer franchise, but when you actually dig into the business itself, it's much less exposed to consumer discretionary spending. So yeah, it is an investment across the whole platform. And one of the advantages Portman gets as being part of a bigger platform is to get access to deals like this.

Speaker Change: You know this is a perfect example of what we do broadly speaking so we have aboard seated with a company. We are very very active in helping them with a number of different initiatives and is a great business because there's a big recurring replacement cycle embedded in their business. So not usually we don't have a big consumer.

Speaker Change: [noise] franchise, but when when you actually dig into the business itself, it's much less exposed to consumer discretionary spending. So so yeah. It it is an investment across the whole platform.

Deepak Sarpanel: I got it. And then the I couldn't tell for sure from the press releases, but to your point about the bigger platform, it almost sounded like you sourced it and brought it to the BC Partners platform rather than the other way around, or did I get that mixed up?

Speaker Change: Are the advantages department gets as being part of a bigger platform is to get access to deals like this.

Speaker Change: Got it and then.

Speaker Change: I couldn't tell for sure from the the press releases, but to your point about the bigger platform it almost sounded like.

Speaker Change: <unk> and brought it to the BC partners platform, rather than the other way round or did I get that mixed up.

Edward Joseph Goldthorpe: Not that's fair. I mean, I mean, we obviously have a lot of our own captive sourcing here. So yeah, we we we sourced it. And, you know, quite frankly, we've been working on it for, you know, we've been cultivating the management team for probably five years before the close.

Speaker Change: No. That's that's fair I mean, I mean, we obviously have a lot of our own captive sourcing here. So yeah, we we we source and.

Speaker Change: Quite frankly, we've we've been.

Speaker Change: Working on it for you know we've been cultivated the management team for probably five years before the close.

Deepak Sarpanel: That's great. And then And then one other one, is EBSC holdings related to this, or is that a separate investment?

Speaker Change: That's great and then.

Speaker Change: And then what are the what is E. B S. C holdings related to this or is that a separate investment.

Edward Joseph Goldthorpe: No, it's the same. So the investment, the combined investment was structured as, again, round numbers, sort of 65%, you know, first in secured loan and 35% a preferred equity investment or structured equity investment in the business. And so for Portman as an example, they have a weight between the two, but you can think of that as the same as, I think, the loan, the borrowers, technically Riddell, Inc., and then the preferred equity, the entity is technically EBSC, but that's just the parent company of Riddell.

Speaker Change: It's the same so the the investment the combined investment was structured as again round numbers sort of 65% you know first thing secured loan and 35%.

Speaker Change: Preferred equity investment are structured equity investment in the business and so for vegan for them and as an example, they have a waiting between the two but but that you could think of that is the same as I think the the the loan the borrowers technically for Dell, Inc. And then the preferred equity <unk>, but that is.

Speaker Change: Just up to the parent company of rebel.

Deepak Sarpanel: Got it. And I suspect that preferred equity must be convertible into common rate.

Speaker Change: Got it and I suspect that preferred equity must be convertible into common right.

Edward Joseph Goldthorpe: It does have the potential to convert at certain measures.

Speaker Change: It does have the potential to convert at at certain metrics, yes.

Deepak Sarpanel: The first lien loan looks great, right? It's like 11% cash pay first lien, and then the preferred is 10% PIC, so I figured there must be a conversion feature to make it better. That's right. That's right.

Speaker Change: Okay.

Speaker Change: The first name on the screen right, it's like an 11% cash pay first lien and then the preferred is 10 per cent pick so I figured it must be a conversion feature to me that's right.

Deepak Sarpanel: Our expectation is that the overall return on that instrument would be meaningfully higher than 10%, but for accounting purposes, that's what we would otherwise be reflecting until there was some sort of catalyst. Okay, great. Well, I mean, to me, it seems like generally more of the same good stuff seems to check off Mickey boxes; you got low and declining non-approvals, deleveraging, and paying down debt. It seems like an even higher mix of senior secured loans this quarter while working off the CLO and doing venture stuff, and then more accretive buybacks and another nice dividend.

Speaker Change: Right.

Speaker Change: Our expectation is overall return on that on that instrument would be meaningful higher than 10%, but for accounting purposes. That's what we would otherwise be be reflecting you know until until there was some sort of catalyst.

Speaker Change: Okay, great well I.

Speaker Change: I mean to me it seems like generally more of the same good stuff seemed to check off Mickey bosses, you've got low and declining none of fools.

Speaker Change: Deleveraging paying down debt.

Speaker Change: It seemed like it even higher mix of senior secured loans in this quarter, while working off the CLO and to adventure stuff.

Edward Joseph Goldthorpe: I appreciate the solid execution and the leadership. I look forward to keeping that going. Thank you. Thank you, Deepak. I appreciate it.

Speaker Change: And then more three to bypass another nice dividend. So I appreciate the solid execution in the leadership and I look forward to keeping my billing. Thank you.

Speaker Change: <unk> I appreciate it.

Speaker Change: Okay.

Operator: Thank you. Again, if you would like to ask a question, press star 1 on your telephone keypad. Your next question comes from the line of Stephen Martin. Please go ahead.

Speaker Change: Again, if you would like to ask a question press one on your telephone keypad.

Speaker Change: And next question.

Speaker Change: <unk>, let me just go ahead.

Steven L. Martin: Hi guys, so, a couple questions.

Speaker Change: Hi, guys.

Speaker Change: So a couple of questions.

Speaker Change:

Steven L. Martin: Um, Pick. Can you comment on pick and what the trends have been? It looks like pick is a higher percentage of total interest income recently.

Speaker Change: <unk> could you comment on pick and what the trends have been it it looks like pick as a <unk> a higher percentage of.

Speaker Change: Total.

Speaker Change: Interest income recently.

Patrick Schafer: Yeah, I'm sorry, I was just pulling up the number, Steve. Look, I think probably some of that is driven by us having, you know, significantly lower payment income. So it might just look a little bit, a little bit, a little bit. I'd say the broad brush comment is we don't see a material change in sort of how we are going to market and pick first cash. There have been some competitors that you've seen in our market a little bit.

Speaker Change: Yeah, I'm, sorry, I was just pulling up the the the number Steve.

Speaker Change: I think probably some of that is driven by we have significantly lower payment income. So it might just look a little bit.

Speaker Change: A little bit.

Speaker Change: A little bit.

Speaker Change: Hi, or as a percentage because of that again I'd say like the broad brush comment is we don't see a material change in sort of how we are going to marketing pick first cash there has been there have been some competitors are you seen in our market a little bit some folks had been willing.

Patrick Schafer: Some folks have been willing to offer like the first year, 12 to 18 months as a partial pick option for borrowers, as kind of like trying to win a deal. That's not particularly prevalent, candidly, but it is sort of out there every once in a while. But broadly speaking, we don't see material changes in our cash-first pick mix and kind of how we think about the portfolio.

Speaker Change: To offer like the first year 12 to 18 months as a partial pick option for borrowers is kind of like a trying to win a deal that's not particularly prevalent candidly uhm, but it is sort of out there every every once in awhile, but broadly speaking uhm, we don't we don't see material changes in our in our cash first pick.

Speaker Change: Eric Ashworth, picnics and kind of how we how we think about portfolio construction okay.

Steven L. Martin: Okay. Okay. Okay.

Steven L. Martin: On slide 10... You made the comment that you only added one new portfolio company, yet purchases and draws were almost $39 million. All the rest of that was existing portfolio companies and drawdowns on delayed terms. Yeah, that's right.

Speaker Change: On slide 10.

Speaker Change: You made the comment that you only added one new portfolio company.

Speaker Change: Yet purchases and draws were.

Speaker Change: 39 or $39 million.

Speaker Change: All the rest of that was existing portfolio companies in drawdowns on delayed terms.

Patrick Schafer: Yeah, that's right. It's a common, again, we have some revolvers, delayed drug term loans, all for existing borrowers. And we had one new security, if you will, that wasn't like a previously committed DDTL but an existing borrower. So yeah, again, broadly speaking, that is all from kind of the existing base. We'll probably have, I don't know the exact number, but we'll probably have two or three new borrowers this quarter, just kind of some activity in April and May. But yes, my statement is correct. And what you see there is activity within our existing existing

Speaker Change: Yeah, that's right I did come again, so we had some revolvers delay draw a term loans and an existing an existing bar at all an existing borrowers and we had one you know new security. If you will that wasn't like a previously committed D. D. T L. But in addition bar. So yeah again broadly speaking that is all from the existing the existing base.

Speaker Change: We'll probably have I don't know the exact number will probably have two or three new borrowers. This quarter just cause some activity in April and a but jen, but yes, but my my statement is is is correct and what you see there is activity within our existing existing.

Speaker Change: Portfolio.

Steven L. Martin: Okay, Annette, you started to comment on the current quarter. Can you make any comments about what you're expecting in terms of portfolio activity and your portfolio size versus the first quarter?

Speaker Change: Okay and that you're you started to comment on the current quarter can you make any comments about what you're expecting in terms of.

Speaker Change: Portfolio activity and your portfolio size versus the first quarter.

Patrick Schafer: Yeah, no, appreciate it. So again, kind of similar to what we said last quarter, I think in what I alluded to when Chris Nolan asked the question, I think overall we would kind of expect to be sort of on the margin in that deployer, but kind of, again, it depends a little bit on the timing of certain things. As an example for this quarter, we were up a little under 2 million from net deployments, but the Riddell transaction closed at the end of the quarter.

Speaker Change: Yeah, I know I appreciate it so again kind of similar to what we had said last quarter, I think and and what kind of I had alluded to when when Chris Nolan ask a question.

Speaker Change: Overall, we would kind of expect to be sort of on the margin and net deploy your blood kind of again it it depends a little bit on time, you have certain things. So like as an example for this quarter. We were up you know a little under $2 million from net deployments uhm, but the Ridell transaction closed at like the end of the quarter and so if that had been pushed two days it would've.

Patrick Schafer: And so if that had been pushed two days, it would have looked like we were, you know, six and a half or $7 million of net receiver of capital. So some of it depends a little bit on timing, but I think on the margin, you would expect us to be flat or slightly growing, let's say over the course of the year, Steve, and whether it falls kind of a little bit around the edge of a quarter, you know, might be a plus or minus here or there, but we kind of generally would view ourselves as a marginal net deployer of capital.

Speaker Change: Look like we were you know six and a half of $70 million of of you know net receiver of capital. So some of it depends a limited on timing, but I think on the margin you would expect us to we would expect to be flat or slightly growing let's say over the course of the year, Steve and whether it falls kind of a little bit around the edge of a quarter.

Speaker Change: Might be a plus or minus here or there, but we can generally would be ourselves as of.

Speaker Change: Large on that Deployer capital this year.

Steven L. Martin: Got it, um, slide 11 non-accruals The number of investments didn't change, the cost didn't change, I haven't had a chance to go through the whole portfolio from the queue, but the fair value changed.

Speaker Change: Got it uhm slight 11 nonaccruals.

Steven L. Martin: The number of investments didn't change the cost didn't change I haven't had a chance to go through the whole portfolio from.

Speaker Change: From the queue, but the fair value changed.

Patrick Schafer: Yeah, a lot of this was driven by probably one security being marked down. You can ultimately look it through. It's the second link security in Qualtech USA, the name of the borrower. But it's, again, regardless of whether it is on accrual or not, we kind of go through from a fair value perspective. So that's, again, just a reflection of a markdown in a position that's on accrual

Speaker Change: Yeah, well a lot of this was driven by.

Patrick Schafer: Probably one security being Mark down you can you can also look at look at through it's it's a secondly insecurity in in Qual Tech USA is the name of the borrower, but it's again.

Speaker Change: Whether it is an accrual or not we kind of go through from a fair value perspective. So that's again, Oh, just a reflection of a of a mark down in in a position that's on non accrual.

Steven L. Martin: Okay, and... Um, where are you putting money out currently? Like the most recent deal you did, or the most, well, I guess you only did one new deal in the quarter, but where, you know, the pricing you're talking about on some of the new deals for the second quarter, what are you looking at?

Speaker Change: Okay and.

Speaker Change:

Speaker Change: Where where are you where are you putting money out currently like the most recent deal you did or the most most well I guess you only did one new deal in the quarter, but where the pricing you were talking about on some of the new deals for the second quarter or what are you looking at.

Patrick Schafer: No real big change. I mean, there's been a big, big, big delta between where large-capital sponsor deals are getting done and where our market is. So, like, if you look at trends and covenants, if you look at trends and spreads, they've really come in pretty dramatically for big LBOs, and they haven't really come in that much for us. Like, there has been some spread compression, but not really that much. Now, our deployment is really in mostly two areas.

Speaker Change: Oh, no no real big change I mean, there's been a big big Big Delta between where large cap sponsored deals are getting done and where our market is so like if you look at trends and covenants. If you look at trends and spreads they've really come in pretty dramatically for big Lbo's and they haven't really come in it that much for us like.

Speaker Change: There has been some spread compression, but not really that much.

Speaker Change: Appointment really isn't that is in mostly two areas it's really.

Patrick Schafer: It's really, you know, our core sponsor finance first lane type stuff, which is still pricing at 12%, 13% yields. We do have a big non-sponsor franchise where we get paid a little bit more and help out the companies. So Riddell kind of fits into that bucket because it's not a traditional deal.

Speaker Change: Did our core sponsored finance first lain type stuff, which is still pricing of 12, 13% yields.

Speaker Change: And then number two is you know we do have a big Nonsponsor franchise, where we get paid a little bit more and help out the companies. So like rudelle kinda fits into that bucket, because it's not a traditional deal.

Patrick Schafer: So, again, we haven't really experienced spread compression in our portfolio, and the impact of the opening up of markets and stuff has been much more muted. I mean, you can see there's been a big trend of BSLs being issued to take out direct loans, but if you look at our fee income, it's never been lower. So, you know, again, as these loans approach maturity, fee income should pick up, but, you know, we haven't experienced the broad-based paydowns that you've seen.

Patrick Schafer: So again, we haven't really experienced spread compression, our portfolio and and and the impact of of the opening up of markets and stuff has been much more muted and you can see there's been a big trend of Dsl's been issue to take a direct loans, but if you look at our fee income like it's never been lower so you know again like as as these.

Steven L. Martin: Loans approach maturity fee income should pick up but you know we have an experienced the broad based paydowns that you've seen to be assault market you know do.

Steven L. Martin: that you actually just answered one of my questions, but... assuming interest rates don't change much for the balance of the year. I guess at this point they're speculating on one rate change, and no one's sure if it's up or down. What would you expect to, um, have on the unrealized line? Would you expect the portfolio to, you know, would you expect the market to increase, decrease, stay sort of where it is? Yeah, I so... Good question, Steve.

Speaker Change: Okay that you actually it was just answered one of my questions but.

Speaker Change: Which assuming interest rates don't change much for the balance of the year because.

Steven L. Martin: At this point, where they're speculating one one rate change and no-one sure if it's up or down.

Patrick Schafer: What would you expect to to to.

Steven L. Martin: To have on the unrealized line.

Speaker Change: Would you expect the portfolio to you or would you expect the mark to market to increase decrease stay sort of where it is.

Patrick Schafer: Yeah, I so... Good question, Steve. I'm just trying to think this through. It would depend a little bit more on where deals are getting done, obviously, and so there's kind of like two or three downstream effects, which is... I would say the bigger driver of how we have movements is probably a little bit more the M&A market, and maybe that is like a derivative of the interest rate environment. But where we are today, there's not a massive amount of M&A.

Speaker Change: Yeah. So.

Speaker Change: Good question Steve.

Patrick Schafer: I'm just trying to think this through or it would depend a little bit more on where do you guys are getting done obviously and so there's kind of like two or three downstream of facts, which is.

Patrick Schafer: If.

Patrick Schafer: I would say the bigger driver of whether we have of how we have movements, probably a little bit more of the M&A market and maybe that is like a derivative of the interest rate environment, but where we are today, there's not a massive amount of M&A, it's picking up obviously off of a like a pretty low base. So there was a lot more activity this quarter, but off of it and.

Patrick Schafer: It's picking up, but obviously off of a pretty low base. So there was a lot more activity this quarter, but off of an incredibly low base for probably the last three quarters of 2023. And so with that as kind of like the backdrop, it's been somewhat competitive in our market, which has led to, again, BSL prices declining, decreasing, and even private, again, on the higher side, but private market spread also compressing, which is kind of like independent a little bit of interest rates.

Patrick Schafer: Low base for you know probably the three you know the last three quarters of 2023, and so with that is kind of like the backdrop, it's been somewhat competitive in our market, which has led to again D. S. L prices declining decreasing and and even private <unk> again on the <unk>.

Patrick Schafer: Higher side, but private markets spreads also compressing, which is kind of like independent a little bit of of interest rates are not at not directly correlated to interest rates. So stop answering to say if if M&A remains.

Patrick Schafer: They're not directly correlated to interest rates. So it's a tough answer, but, sort of somewhat muted this year because of interest rates, I would say on the margin we would have unrealized gains because that would probably lead to continued spread compression and, therefore, pricing increases. But it's not, at least in our portfolio, it's not exactly a direct line between interest rate hikes or declines and the price of our portfolio. Thanks

Patrick Schafer: Sort of somewhat muted this year because of interest rates I would say on the margin. We would have unrealized gains because that would probably lead to a continued spread compression and therefore pricing increases, but it's not like in our portfolio, it's not exactly a direct line between.

Patrick Schafer: Interest rate hugged your declines in the price of our portfolio alright. Thanks.

Operator: Thank you. We have no further questions. Please continue.

Speaker Change: Thank you we have no further questions. Please continue.

Edward Joseph Goldthorpe: We did have a question about our realized losses. Brandon, do you want to take that?

Speaker Change: We did have a question about Ah realized losses brand or do you want to take that.

Brandon Sataran: So the primary driver of the realized losses during the period was one name in particular that was restructured. It was HDC or Host Way. That drove the vast majority of the realized losses during the period, so just for a little.

Brandon Sataran: Sure so.

Brandon Sataran: So the primary driver of their realized losses during the period was.

Brandon Sataran: One name in particular that was restructured it was H D C or a host way that's.

Speaker Change: That drove the vast majority of their realized.

Brandon Sataran: During the period.

Edward Joseph Goldthorpe: So really, it's one restructured security that we still continue to hold. So anyway, thank you all for attending our call. As per always, please reach out with any questions. We're always happy to discuss with anyone, and we look forward to speaking to you again in August for our second quarter conference call.

Brandon Sataran: Yeah. So just.

Brandon Sataran: One restructured security that that we still continue to hold.

Operator: Thank you very much. Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.

Edward Joseph Goldthorpe: So anyway. Thank you all for attending our call as per always please reach out with any questions. We're always happy to discuss with anyone and we look forward to speaking you again in August for our second quarter conference call. Thank.

Operator: Thank you very much.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Outro Music

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