Q3 2024 Logan Ridge Finance Corp Earnings Call
Speaker Change: Thank you. Good morning and welcome to the Logan Ridge Finance Corporation's third quarter ended September 30, 2024, earnings conference call. An earnings press release was distributed Thursday, November 7, after the close of the market.
Speaker Change: A copy of the release along with a supplemental earnings presentation is available on the company's website at www.loganrichfinance.com in the Investor Resources section and should be reviewed in conjunction with the company's Form 10-Q filed with the SEC. As a reminder, this conference call is being recorded for replay purposes.
Speaker Change: 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.
Speaker Change: Actual results may differ materially from those in the forward-looking statements, such as a result of a number of factors, including those described in the company's filings with the SEC.
Speaker Change: Speaking of today's call will be Ted Goldthorpe, Chief Executive Officer, President and Director of Logan Ridge Finance Corporation, Brandon Satoren, Chief Financial Officer, and Patrick Schafer, Chief Investment Officer.
Speaker Change: With that, I would like to turn the call over to Ted Goldthorpe, Chief Executive Officer of Logan Ridge Finance Corporation. Please go ahead, Ted.
Good morning.
Speaker Change: quarter 2024 earnings call. As mentioned I am joined today by our chief financial officer Brandon Satoren and our chief investment officer Patrick Schafer.
Speaker Change: Following my opening remarks, Patrick will provide additional details on our investment activity today and Brandon will walk through the financials.
Speaker Change: Before Brandon and Patrick provide more details on our portfolio and financials, I would like to discuss a few key highlights for the recorder.
Speaker Change: During the third quarter, we successfully exited our largest investment, nth-degree investment group, for $17.5 million in cash, which was $2 million above its previously reported fair value as of June 30, 2024, in exchange for all of our equity interests.
Speaker Change: The sale of this equity investment is a transformative event for the company as it represented 7.9% of the company's investments at fair value prior to the sale.
Speaker Change: The proceeds of which can now be redeployed into interest-earning assets originated by BC Partners Credit Platform, which will significantly improve the long-term earnings power of our portfolio.
Speaker Change: The rotation out of legacy equity portfolio has been a key component of our turnaround strategy for Logan Ridge since Mount Logan Management took over as the company's investment advisor in July of 2021. We are proud to have taken a major step forward towards this goal.
Speaker Change: Additionally, the underlying credit portfolio has remained stable with no new investments being placed on non-accrual status during the quarter.
Speaker Change: The strength of the company's financial position and the outlook for long-term earnings power in the portfolio has allowed the company to declare a fourth quarter distribution of $0.36 per share.
Speaker Change: The dividend has doubled compared to the $0.18 per share distribution we declared in the first quarter of 2023 when we reintroduced our quarterly dividend, highlighting the company's successful turnaround story since we took over management back in July of 2021.
Speaker Change: Additionally, during the quarter, we amended and extended our revolving credit facility with KeyBank.
Speaker Change: The new attractive terms, which reduced the applicable margins and extended the maturity date of both the reinvestment and amortization periods, have reduced our overall cost of capital.
Speaker Change: for a meaningful additional boring capacity and providing us with further financial flexibility.
Speaker Change: Regarding the private credit markets, and specifically the core middle market, which we define as companies generating between 10 and 50 LBD,
Speaker Change: Activity levels continue to be elevated relative to 2023, but the majority of the activity has consistently been from refinancings, add-ons, or amended extend transactions that most often result in lower cost of capital for borrowers and extended maturities.
Speaker Change: While true new buyout financings have remained at depressed levels through 2024, we continue to believe that a combination of dry powder, sponsors looking to return capital to LPs, and the ongoing rate cuts by the Fed are all tailwinds to activity in our sector.
Speaker Change: Looking forward to the final quarter of 2024 and into 2025, as we navigate through economic uncertainty and a dynamic interest rate environment, remain confident in our prudent investment strategy, strong pipeline, and experienced management team.
Speaker Change: We continue to see attractive opportunities in our pipeline and believe we remain well-positioned to continue to deliver positive returns to our shareholders through the diligent deployment of capital, continued rotation out of the legacy equity portfolio, by leveraging the attractive terms of our amended credit facility.
Speaker Change: With that, I will turn the call over to Patrick Schafer, our Chief Investment Officer.
Patrick Schafer: Thanks Ted and hello everyone. As of December 30th 2024, the fair value of Logan's portfolio was approximately 176.5 million dollars with exposure to 59 portfolio companies.
Patrick Schafer: This compares the 61 portfolio companies with a fair value of approximately $195.6 million as of the prior quarter and 59 portfolio companies with a fair value of $187.1 million as of September 30, 2023.
Patrick Schafer: During the quarter ended September 30th, 2024, while our pipeline of new opportunities remains strong, we continue our prudent and judicious approach on the deployment front.
Patrick Schafer: During the quarter we deployed approximately $900,000 in new and existing investments and had approximately $19 million in repayments and sales, resulting in net repayments and sales of approximately $18.1 million for the quarter.
Patrick Schafer: The high level of repayments and sales were due largely to the aforementioned sale of our largest equity position, Nth Degree, for $17.5 million. The company used a portion of the proceeds from the sale of Nth Degree to pay down the KeyBank credit facility.
Now on to our portfolio composition.
Patrick Schafer: As of September 30, 2024, 65.4% of the company's investment portfolio at fair value was invested in assets originated by the BC Partners Credit Platform.
Patrick Schafer: up from 59.4% in the last quarter, and that percentage is artificially low as the proceeds from Nth Degree are not reflected in the amount of the investment portfolio originated by the BC Partners Credit Platform.
Patrick Schafer: As of September 30th, 2024, our debt investment portfolio represented 86.8% of the total portfolio at fair value, with a weighted average annualized yield of approximately 12.3%, excluding non-accruals and collateralized loan obligations.
Patrick Schafer: or 11.1% excluding just the income from nonaccruals and collateralized loan obligations.
Patrick Schafer: This compares the debt investment portfolio, which represented 80.0% of our total portfolio at fair value.
Patrick Schafer: excluding non-accruals and collateralized loans, or 11.4% excluding just the income from non-accruals and collateralized loan obligations as of the prior quarter.
Patrick Schafer: As of September 30, 2024, 88.6% of our debt investment portfolio at fair value was bearing interest at a floating rate, compared to 88.1% as of June 30, 2024, and 82.3% as of September 30, 2023.
Patrick Schafer: As of September 30, 2024, Breslin debt represented 67.6% and 69.3% of our total portfolio on a cost and fair value basis, respectively.
Patrick Schafer: This compares to first lien debt representing 65.8% and 64.0% of our total portfolio on a cost and fair value basis as of June 30, 2024, and 63.6% and 64.8% of our total portfolio on a cost and fair value basis, respectively, as of September 30, 2023.
Patrick Schafer: The equity portfolio represented 12.7% and 12.1% of the portfolio on a cost and fair value basis, respectively, as of September 30th, 2024. This compares to 15.2% and 19.0% of the portfolio on a cost and fair value basis as of June 30th, 2024.
We acted out of cruelty.
Patrick Schafer: As of September 30, 2024, the company had four debt investments across three portfolio companies on non-equal status with an aggregate amortized cost and fair value of $17.2 million and $8.2 million respectively, or 8.8% and 4.6% of the investment portfolio at a cost and fair value respectively.
Patrick Schafer: $17.2 million and $10.1 million respectively, or 8.5% and 5.2% of the investments portfolio's cost and fair value respectively.
and I'll turn the call over to Brandon.
Brandon Satoren: Thanks, Patrick. For the quarter ended September 30, 2024, Logan generated $5.1 million of investment income, a decrease of $0.3 million as compared to $5.4 million for the prior quarter.
Brandon Satoren: The decrease was primarily due to the receipt of a non-recurring dividend of $0.2 million during the second quarter of 2024.
Brandon Satoren: Total operating expenses for the third quarter decreased by approximately $0.4 million to $4.2 million, as compared to $4.6 million for the prior quarter. The decrease was largely due to non-recurring professional fees incurred in the previous quarter.
Brandon Satoren: Accordingly, our net investment income for the third quarter was $1,000,000 or $0.37 per share, an increase of $0.2 million from $0.8 million or $0.28 per share last quarter.
Brandon Satoren: Our net asset value as of quarter end was $86.3 million, representing a $2.4 million decrease as compared to the prior quarter net asset value of $88.7 million.
Brandon Satoren: On a per share basis, net asset value is $32.31 per share as of September 30th, 2024, representing an $0.82 per share decrease as compared to $33.13 per share as of June 30th, 2024.
Brandon Satoren: The decrease in net asset value quarter over quarter was primarily driven by net realized and unrealized losses on the portfolio.
Brandon Satoren: Additionally, I'd like to highlight that on August 21st, we amended and extended our existing senior secured revolving credit facility with KeyBank. Under the terms of the amendment, the applicable margin during the reinvestment period was reduced from 2.9% to 2.8%.
Brandon Satoren: The reinvestment period was also extended from May 2025 to August 2027 and the maturity date was extended from May 2027 to August 2029.
Brandon Satoren: Importantly, under the terms of the amendment, the advanced rates and concentration limits were revised, which created meaningful additional borrowing capacity for Logan Rich.
Speaker Change: Finally, as of quarter end, the company had $5 million in cash and cash equivalents, as well as $35.9 million of unused borrowing capacity available for deployment and new investments. With that, I will turn the call back over to Ted.
Speaker Change: Thank you, Brandon. To our shareholders, thank you so much for your continued support. This concludes our prepared remarks, and I'll now turn the call over to the operator with any questions.
Speaker Change: Thank you. We will now begin our question and answer session. If you are dialed in and would like to ask a question, please press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. We'll pause for a moment to compile the Q&A roster. Thank you.
Thank you.
Speaker Change: Our first question comes from the line of Christopher Nolan with Leidenberg-Talman. Please go ahead.
Speaker Change: Hey, guys. First off, I want to say congratulations on the nth degree. You guys should take a victory lap around the conference table.
And it was a good job all around.
There were not, Chris.
And then, I guess, um...
Speaker Change: What does this mean for, in terms of integrating Logan Ridge with some of your other vehicles?
Speaker Change: I mean listen I mean as we've said very publicly you know there's a number of things we had to get done in order to move that ahead and obviously this removes a very very big barrier to do that so you know I think I think we feel you know we've kind of outlined that three or four things that have to happen and those are all seem to be followed into place
Speaker Change: And then a final question on the revised facility, you guys indicated that
Speaker Change: You seem to have a higher advance rate. It sounds like the bank has become much more accommodating to you guys, which is interesting given the potential for commercial real estate.
Speaker Change: you know, wave hitting commercial banks. I mean, am I reading it correctly where the bank has actually been a bit more accommodating to you guys in revising the facility? That's it for me, thank you.
Speaker Change: Chris, I think what I'd say as a blanket statement there, and we can get into Logan, but I'd say like across our platform, we are definitely seeing our finance resources being a little bit more accommodating, a little bit more aggressive on terms, on kind of
Speaker Change: availabilities and advanced rates and concentration limits and things like that.
Speaker Change: So I think as a blanket statement, we are definitely seeing
Speaker Change: you know, more competition from folks who want to do our financing facilities, you know, this being kind of a representation of that.
I think specifically for Logan Ridge, you know,
Speaker Change: For our facility, you know, it was put in place initially when we first took over and so there were just frankly
Speaker Change: just a number of different concentration limits and the way it's done, it's a very prescriptive, you know, depending on all the different metrics of the company, you get a certain advance rate.
Speaker Change: A lot of what we were doing was sort of just rightsizing the different concentration limits and tests and things like that, given that we now have a much larger portfolio.
Speaker Change: that that facility is financing. So I would think of it, I would think of specifically what we did here as a little bit more
Speaker Change: unique to Logan Ridge is because of when we put that facility on versus now, but your comment, I think, as a broad brush is accurate, which is we are finding our financing sources in general to be a lot more accommodating and aggressive on advanced rates and, you know, cost of capital and things like that.
Speaker Change: Okay, that's it for me and congratulations once again. That was definitely a win. Thanks.
Thank you, Mr. Chris.
Speaker Change: Our next question comes from the line of Stephen L. Martin with Slater. Please go ahead.
Hi again, guys.
Speaker Change: Let me repeat some of the same questions. Can you comment on deployment?
Speaker Change: In the fourth quarter, I understand you guys are, you know, Logan and Portman are on the same platform.
Speaker Change: But with the pay down from nth degree, I guess Logan is a lot more, a lot less leveraged, and it would seem that
Speaker Change: You're going to have to do something a little different to get Logan more leveraged if Portman can't be.
Um
I don't know that I...
Speaker Change: The short answer is yes, the longer it is, I don't know that I'd frame it as need to do something differently, but yes, I think that
Speaker Change: where Logan is right now with the nth degree and the paydown, I would say they certainly have, it is certainly less of a, you know, one in, one out, or less of an optimizing the balance sheet necessarily, and they're...
Speaker Change: probably more value to Logan in terms of being a little bit more of a market buyer of credit as opposed to being a selective buyer. So I think, you know, Logan, you know, probably has a little bit more flexibility to participate in some of the lower yielding stuff that we still find, you know, very attractive from a credit perspective, but maybe is willing to do something at a marginally lower ROA because there is a significant benefit from an ROE perspective.
Right, I would hope so.
Speaker Change: And does the, well, I guess the deployment question is sort of moot. Nonaccruals, okay?
Speaker Change: You didn't, the number didn't change, the investments, the cost didn't change, but it seems like you picked up a little extra, two million dollars extra on nth degree, but then you, your non-accruals went from ten million dollars of fair market value to eight.
What would you change there?
Speaker Change: that has generally sort of tracked flat or slightly down relative to when we took over the portfolio.
Speaker Change: And given the lower leverage, it would seem that Logan has more capacity to buy, and we've talked about it, you know, to buy back stock at the current discounts.
Speaker Change: Yeah, I know a comment I'd make there, Steve, is because we...
Speaker Change: proactively put in place 10B-5 programs to avoid or to allow those to work during blackout periods.
Speaker Change: We put in place a program without knowing what was happening with that degree. So I think in hindsight, it's it's easy to say the program should have been larger given lower leverage, but we didn't have we didn't have the level of visibility on that degree coming back.
Speaker Change: when we originally put in place the 10E5 program for this quarter, so I agree with you, I think.
Speaker Change: all as being equal, it would be reasonable to think that that could be a larger program, but at the time we had to put it in place and then we kind of couldn't really amend it until it came up again. Sort of the facts on the ground were slightly different than they are with hindsight.
Well, then the obvious question is, has it been amended?
All right.
Speaker Change: It had to run in place for a certain period of time, and when we go in and reset that, we will reset it with all the facts and circumstances in place when we think about that.
Steve, I'll just...
Speaker Change: Yeah, we normally do it like one quarter at a time and then we have the earnings and we put in place a new one for the next quarter. So it's a quarterly program that we put in place. So I didn't mean to be like evasive, Steve. The answer is yes. Now when we put in place a new program for this quarter, we'll factor in the fact that leverage is where it is and our liquidity is where it is as opposed to, you know, when we put in place at the beginning of the last quarter.
Speaker Change: Okay, and you only really have two more equity positions of size?
Speaker Change: Any thoughts or in any view as to the repayments on those? Is there anything on the horizon that you can't mention by name but might be in the works?
You know, look, I, um...
Speaker Change: You know, I think I'll sort of repeat what I've done for the last couple quarters, which is I think this is a
Speaker Change: decent market for companies to try and go out and execute an M&A strategy. I think for both of those large positions, you know, I think our sense is that they've been
Speaker Change: held by the respective owners for a long enough period of time.
Speaker Change: that we think it would make sense for them to go and execute on some sort of M&A transaction, but we obviously don't control either of those scenarios.
Speaker Change: But again, I would say that this feels like a fairly favorable market to be looking for exits for equity positions.
Okay, thanks a lot.
Thank you.
Speaker Change: And that concludes the Q&A session. I would like to turn the call over back to Mr. Ted Goldthorpe for any closing remarks.
Speaker Change: Right, well thank you very much for everyone joining us today and we look forward to seeing you again in a few weeks during our investor luncheon scheduled for December 12th. Thank you so much and happy early Thanksgiving.
Speaker Change: That concludes today's meeting. Thank you for your participation. You may now disconnect.
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