Q3 2025 Portman Ridge Finance Corp Earnings Call
Operator: Welcome to BCP Investment Corporation's Q3 ended September 30, 2025 Earnings Conference Call. An earnings press release was distributed yesterday, November 6, after market close. A copy of release along the 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. 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 forward-looking statements as a result of a number of factors, including those described in the company's filings with the SEC. BCP Investment Corporation assume no obligation to update any such forward-looking statements unless required by law.
Well it comes to B C. P investment corporations third quarter ended September 30th Sweaty try to five earnings conference call.
In your press release was distributed yesterday November six after market close.
A copy of release along the earnings presentation is available on the company's website at Www Dot D. C. P investment Corporation Dot com in the Investor Relations section and should be reviewed in conjunction with the company's Form 10-Q filed yesterday with the S. E C.
As a reminder, this conference call is being recorded for replay purposes.
Please note that today's conference call may contain forward looking statements. He tried up 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 S. E C.
D C. P investment Corporation assumes no obligation to update any such forward looking statements unless required by law.
Operator: Speaking on today's call will be Ted Goldthorpe, Chief Executive Officer, President, and Director of BCP Investment Corporation, Brandon Satoren, 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 BCP Investment Corp. Please go ahead, Ted.
Speaking on today's call will be Ted Goldfarb, Chief Executive Officer, President and director of BCP Investment Corporation.
<unk> Torres Chief Financial Officer, and Patrick Schaefer, Chief Investment Officer.
With that I would now like to turn the call over to Ted Goldfarb, Chief Executive Officer of BCP Investment Corp. Please go ahead.
Ted Goldthorpe: Good morning. Welcome to our Q3 2025 earnings call. I'm joined today by our Chief Financial Officer, Brandon Satoren, and our Chief Investment Officer, Patrick Schafer. Following my opening remarks on the company's performance and activities during the Q3, Patrick will provide commentary on our investment portfolio and our markets, Brandon will discuss our operating results and financial condition in greater detail. We are pleased to report strong results for the Q3. Our first earnings as a combined company following the completion of our merger with Logan Ridge on 15 July 2025. This milestone marks the beginning of a new chapter for BCIC as we continue to leverage our expanded scale, broader portfolio diversification, enhanced operating efficiency to drive long-term value for shareholders. I'm pleased to report meaningful progress on the value creation initiatives we announced in June 2025.
Good morning, welcome to our third quarter 2025 earnings call I'm joined today by our Chief Financial Officer, Brendan Horgan, Our Chief investment Officer, Patrick Schafer.
Following my opening remarks on the company's performance and activities during the third quarter, Patrick will provide commentary on our investment portfolio and our markets and Brian will discuss our operating results and financial condition in greater detail.
We are pleased to report strong results for the third quarter, our first earnings as a combined company. Following the completion of our merger with Logan Rich on July 15 2025.
This milestone marks.
Beginning a new chapter for BC IC as you continue to leverage our expanded scale broader broader portfolio diversification enhanced operating efficiency to drive long term value for shareholders.
I am please to report meaningful progress on our value creation initiatives, we announced in June 2025.
Ted Goldthorpe: Notably, consistent with our previously stated intentions, the company plans to commence a modified Dutch auction tender of approximately $9 million. Combined with the daily share repurchases executed by the company under the buyback program, as well as open market purchases by management, the advisor, and its affiliates, we anticipate total repurchases when combined with management's, advisor's, and its affiliates' ownership of BCIC's outstanding stock could approximate 10% by year-end. These actions underscore our continued focus on driving shareholder value and narrowing the discount to NAV. During the quarter, we generated net investment income of $8.8 million, or $0.71 per share, compared with $4.6 million or $0.50 per share in the prior quarter. We expect to realize further benefits of our expanded scale and broader investment platform.
One is really consistent with our previously stated intentions the company plans to commence a modified Dutch auction tender approximately $9 million.
Combined with that the only share repurchases executed by the company under the buyback program as well as open market purchases by management adviser and its affiliates, we anticipate total repurchases when combined with management's advisors affiliates' ownership of <unk> outstanding stock can approximate 10% by year end.
These actions underscore our continued focus on driving shareholder value and narrowing the discount to NAV.
During the quarter, we generated net investment income of $8 $8 million or <unk> 71 per share compared with $4 $6 million or <unk> 50 per share in the prior quarter.
We expect to realize further benefits of our expanded scale and broader investment platform.
Ted Goldthorpe: For Q4 2025, the board of directors approved a base distribution of $0.47 per share, which when annualized based on 6 November 2025 closing price of $12.13 per share represents a yield of 15.5%. Before handing over the call, I'd like to take a moment to address recent commentary in the broader private credit markets. While recent high-profile collapses of certain borrowers have understandably drawn market attention, we firmly believe the full scale of concern for the overall private credit market is unwarranted.
For the fourth quarter of 2025, the board of directors approved a base distribution of <unk> 47 per share, which when annualized based on November six 2025 closing price of $12 13 per share represents a yield of 15, 5%.
Before handing over the call I'd like to take a moment to address recent commentary and the broader private credit markets.
Recent high profile collapses of certain borrowers understandably drawn market attention. We firmly believe the full scale of concern for the overall private credit market is unwarranted echo <unk> sentiment from other leaders in our industry in the case of first brands. For example, only 2% of its nearly $12 billion balance sheet was blanked private credit highlighting.
Ted Goldthorpe: Echoing sentiment from other leaders in our industry, in the case of First Brands, for example, only 2% of its nearly $12 billion balance sheet was linked to private credit, highlighting that events like this aren't signs of systemic weakness if a sector has been subject to disproportionately heightened scrutiny despite its limited involvement in these high-profile bankruptcies. Looking ahead, our focus remains on disciplined capital allocations, maintaining a high-quality portfolio, and delivering attractive risk-adjusted returns for our shareholders. With a larger, more diversified platform and a stronger balance sheet, we believe we are well-positioned to drive continuing earnings growth and long-term value creation. With that, I will turn the call over to Patrick Schafer, our Chief Investment Officer, for a review of our investment activity.
That events like this arent signs of systemic weakness in the sector has been subject to disproportionately heightened scrutiny. Despite its limited involvement in these high profile bankruptcies.
Looking ahead, our focus remains on disciplined capital allocation, maintaining a high quality portfolio and delivering attractive risk adjusted returns for our shareholders.
With a larger more diversified platform a stronger balance sheet. We believe we are well positioned to drive continued earnings growth and long term value creation.
With that I will turn the call over to Patrick Schafer, Our Chief investment Officer for a review of our investment activity.
Patrick Schafer: Thanks, Ted. Overall M&A activity in our core markets continued to increase during the quarter as a combination of easing benchmark rates and more settled tariff framework gave sponsors more confidence in the macro environment. To illustrate this, over 80% of our new fundings during the quarter were in new borrowers, a significantly higher percentage than what has historically been over the last several quarters. With the renewed activity has also come renewed competition on deals. Overall tightening of spreads. As you've noted in the past, our focus on companies with less than $50 million of EBITDA and our sourcing of non-sponsor-backed companies provide some insulation to these trends. We continue to be selective from a credit quality perspective and are focused on maximizing risk-adjusted return for our shareholders.
Thanks, Ed.
Overall M&A activity in our core markets continue to increase during the quarter as a combination of using benchmark rates and more settled tariff framework. These sponsors more confidence in the macro environment.
To illustrate this over 80% of our new fundings during the quarter.
We're in new borrowers a significantly higher percentage than what has historically been over the last several quarters with the renewed activity has also come or new competition on deals and overall tightening of spreads as you know in the past our focus on companies with less than $50 million of EBITDA and our sourcing of non sponsor backed companies.
To provide some insulation to these trends.
We continue to be selective from a credit quality perspective, and are focused on maximizing risk adjusted returns for our shareholders.
Patrick Schafer: Turning to slide 10, originations for the third quarter were $14.2 million, and repayments and sales were $43.8 million, resulting in net repayments and sales of approximately $29.6 million. Overall yield on par of the new debt investments during the quarter was 12.5%. This compares to a 13.8% weighted average annualized yield, excluding income from non-accruals and collateralized loan obligations as of 30 September 2025. Excluding the impact of purchase discount accretion, the weighted average annualized yield, excluding income from non-accruals and collateralized loan obligations, was approximately 10.3% as of 30 September 2025. Our investment portfolio at year-end remained highly diversified.
Turning to slide 10 originations for the third quarter were $14 2 million and repayments and sales were $43 $8 million, resulting in net repayments in sales of approximately $29 6 million.
Overall yield on par of the new debt investments during the quarter was 12, 5%. This compares to a 13, 8% weighted average annualized yield excluding income from non accruals and collateralized loan obligations as of September 32025.
Excluding the impact of purchase discount accounting the weighted average annualized yield excluding income from non accruals and cloud, Arizona obligations was approximately 10, 3% as of September 32025.
Our investment portfolio at year end remained highly diversified.
Patrick Schafer: We ended the Q3 with a debt investment portfolio when excluding our investments in CLO funds, equities and joint ventures spread across 79 different portfolio companies and 28 different industries with an average par balance of $3.2 million per entity. Turning to slide 11. At the end of the Q3 2025, we had 10 investments on non-accrual status, representing 3.8% and 6.3% of the portfolio at fair value and cost, respectively. This compares to 6 investments on non-accrual status as of 30 June 2025, representing 2.1% and 4.8% of the portfolio at fair value and cost, respectively. I would note that the quarter over quarter increase does include investments acquired through the Logan Ridge transaction that were on non-accrual at the time of that transaction.
Ended the third quarter with a debt investment portfolio when excluding our investments in CLO funds equities and joint ventures spread across 79 different portfolio companies in 28 different industries.
Average <unk> balance of $3 2 million correct.
Turning to slide 11 at the end of the third quarter 2025, Yes, 10 investments on nonaccrual status represented three 8% and six 3% of the portfolio at fair value and cost respectively.
This compares to six investments on nonaccrual status as of June 32025, representing two 1% and four 8% of the portfolio at fair value and cost respectively.
I'd note that the quarter over quarter increase does include investments acquired through the Logan for each transaction.
Nonaccrual at time of that transaction.
Patrick Schafer: It's further worth noting that 2 of the investments currently on non-accrual status, we continue to recognize interest income on a cash basis, that is only when payments are actually received. On slide 12, excluding our non-accrual investments, we have an aggregate debt investment portfolio of $429.5 million at fair value, which represents a blended price of 93.1% of par value and is 84.4% comprised of first lien loans at par value. Assuming a par recovery, our 30 September 2025 fair values reflect a potential of $31.2 million of incremental net value or a 13.7% increase to NAV.
It's further worth noting that two of your investments currently on non accrual status. We continue to recognize interest income on a cash basis that is only when payments are actually received.
On slide 12, excluding our non accrual investments, we have an aggregate debt investment portfolio of $429 5 million at their route which represents a blended price of 93, 1% of par value.
And is 84, 4% comprised of first lien loan at par value.
Assuming a recovery our September 32025, fair values reflect a potential of $31 $2 million of incremental naphtha or 13, 7% increase to now.
Patrick Schafer: When applying an illustrative 10% default rate and 70% recovery rate, our debt portfolio would generate an incremental $1.36 per share of NAV, or a 7.8% increase as approaches. I'll turn the call over to Brandon Satoren to further discuss our financial results for the quarter.
When applying the lesser of 10% default rate and 70% recovery rate our debt portfolio would generate an incremental $1 36 per share of Nab.
47, 8% increase as Brookdale and I will turn the call over to Brendan.
I'll, then discuss our financial results for the quarter.
Brandon Satoren: Thanks, Patrick. For the quarter ended September 30, 2025, the company generated $18.9 million in investment income, an increase of $6.3 million compared to $12.6 million reported for the quarter ended June 30, 2025. Core income for the same periods was $15.3 million and $12.6 million, respectively. The increase in investment income from the prior quarter was primarily driven by the Logan Ridge Finance Corporation acquisition, which contributed $7.4 million of GAAP income and $3.8 million of core. For the quarter ended September 30, 2025, gross expenses were $10.3 million and net expenses were $10.1 million, which includes the $0.2 million performance-based incentive fee waiver.
Thanks, Patrick for the quarter ended September 32025, the company generated $18 $9 million in investment income and.
An increase of $6 3 million compared to $12 6 million reported for the quarter ended June 32025.
Core income during the same period.
<unk> was $15 3 million and $12 6 million respectively.
The increase in investment income from the prior quarter was primarily driven by fill book and rich acquisition, which contributed $77 $4 million of GAAP income and $3 8 million of core.
Okay.
For the quarter.
For the quarter ended September 32025, gross expenses were $10 $3 million and net expenses were $10 $1 million, which includes the 0.2 million performance based incentive fee waiver.
Brandon Satoren: This represents a $2 million increase compared to $8.1 million for the prior quarter. The increase in expenses compared to the prior quarter reflects the larger combined company. Accordingly, our net investment income for the quarter ended September for Q3 2025 was $8.8 million, or $0.71 per share, which constitutes an increase of $4.3 million, or $0.21 per share, from $4.6 million, or $0.50 per share, for Q2 2025. Core net investment income for Q3 2025 was $5.3 million, or $0.42 per share, compared to $4.6 million or $0.50 per share for Q2 2025.
This represents a $2 million increase compared to $8 $1 million for the prior quarter.
The increase in expenses compared to that.
Prior quarter reflect a larger combined company.
Accordingly, our net investment income for the quarter ended September.
For the third quarter of 2025 was $8 8 million or <unk> 71 per share.
Which constitutes an increase of $4 3 million or 21 per share from $46 million.
<unk> 50 per share for the second quarter of 2025.
Core net investment income for the third quarter of 2025 was $5 $3 million or <unk> 42 per share compared to $4 6 million or <unk> 50 per share for the second quarter of 2025.
Brandon Satoren: As of 30 September 2025, our net asset value totaled $231.3 million, an increase of $66.6 million from the prior quarter's NAV of $164.7 million. The increase in total NAV on a gross dollar basis was primarily driven by net realized and unrealized gains of $14.8 million. The $49.6 million impact on a GAAP basis of the Logan Ridge acquisition, partially offset by the Q3 distribution exceeding core net investment income compared to the prior quarter's distribution of $1.1 million.
As of September 30th 2025, our net asset value totaled $231 $3 million, an increase of $66 6 million from the prior quarters NAV of $164 7 million.
The increase in total NAV on a gross dollar basis was primarily driven by net realized and unrealized gains of $14 8 million to $49 6 million.
Impact on a GAAP basis at the Logan Ridge acquisition.
Partially offset by the third quarter distribution exceeding four net net net investment income.
For the prior compared to the prior quarter's distribution of $1 1 million.
Brandon Satoren: On a per share basis, NAV was $17.55 per share as of 30 September 2025, representing a $0.34 decrease compared to $17.89 as of 30 June 2025. The decline in that per share was primarily due to core net investment income, which excludes purchase discount accretion, not fully covering the dividend for the quarter and approximately $4 million of mark-to-market loss across the portfolio. As of 30 September 2025, our gross and net leverage ratios were 1.4 times and 1.3 times respectively, compared to 1.6 and 1.4 times respectively in the prior quarter. Specifically, as of 30 September 2025, we had a total of $324.6 million of borrowings outstanding, with a current weighted average contractual interest rate of 6.1%.
On a per share basis snap was $17 55 per share as of September 30th.
2025, representing a 34% decrease compared to $17 89 as of June 32005.
The decline in NAV per share was primarily due to core net investment income, which excludes purchase discount accretion not fully covering the dividend for the quarter and approximately $4 million of mark to market vastola across the portfolio.
As of September 32025, our gross and net leverage ratios were one four times of one three times, respectively compared to one six and one four times respectively in the prior quarter.
Specifically as of September 32025, we had a total of $324 6 million of borrowings outstanding with a current weighted average contractual interest rate of six 1%. This compares to $255 4 million of borrowings outstanding as of the prior quarter.
Brandon Satoren: This compares to $255.4 million of borrowings outstanding as of the prior quarter, with a weighted average contractual interest rate of 6%. The company finished the quarter with $110 million of available borrowing capacity under the senior secured revolving credit facilities subject to borrowing-based restrictions. Consistent with our long-term capital approach, we proactively extended and laddered our unsecured debt maturities, issuing a $75 million, 7.75% note that is due in October 2030 and a $35 million 7.5% note due October 2028. While at the same time initiating the redemption of our 4 7/8% Notes due in April 2026, expected to be completed on or about November 13th. These actions diversify funding, reduce near-term refinancing risk, and enhance financial flexibility.
<unk> with a weighted average contractual interest rate.
6%.
The company finished the quarter with $110 million of available of available borrowing capacity under our senior secured revolving credit facilities subject to borrowing base restrictions.
Assistant with our long term capital approach, we proactively extended and mattered, our unsecured debt maturities issuing a $75 million.
775% note that is due in October 2030, and a $35 million seven.
Seven 5% notes due October 2028.
While at the same time initiating the redemption of our four and seven eights notes due in April 2026 expected to be completed on or about November 13th.
These actions diversify funding reduced near term refinancing risk and enhance financial flexibility.
Brandon Satoren: With that, I will now turn the call back over to Ted.
With that I will now turn the call back over to Ted.
Ted Goldthorpe: Thanks, Brandon Satoren. Other questions, I'd like to reemphasize how excited we are about the opportunities the newly combined company are already creating. As we move forward, our focus remains on disciplined capital allocation, maintaining a high-quality portfolio, and delivering attractive risk-adjusted returns for our shareholders. With a more diversified platform and a strengthened balance sheet, we believe we are well-positioned to drive the continued earnings growth and value creation in the quarters ahead. Thank you once again to all of our shareholders for your ongoing support. This concludes our prepared remarks. I'll turn over the call for any questions.
Thanks Brendan.
Other questions I'd like to reemphasize, how excited we are about the opportunities the newly combined company are already creating.
As we move forward, our focus remains on disciplined capital allocation, maintaining a high quality portfolio and delivering attractive risk adjusted returns for our shareholders with a more diversified platform and a strengthened balance sheet. We believe we are well positioned to drive continued earnings growth and value creation and the earnings in the quarters ahead.
Thank you once again to all of our shareholders for your ongoing support. This concludes our prepared remarks, and I'll turn out on the call for any questions.
Operator: Thank you. As a reminder, to ask a question, you will need to press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Erik Zwick with Lucid Capital Markets. Please go ahead.
Thank you as a reminder to ask a question you will need to press Star then the number one on your telephone keypad.
And if you would like to withdraw your question Press Star One again, we will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of avid speak with lucid capital markets. Please go ahead.
Okay.
Erik Zwick: Thank you. Good morning, guys. I wanted to start first in terms of with your kind of pronouncement of potentially repurchasing 10% of the shares. Just wanna make sure, is that relative to the 9/30 outstanding balance of about 13.96?
Thank you good morning, guys.
Wanted to start first.
Yes.
To start first in terms of.
With your kind of announcement that potentially repurchasing.
10% of the shares just want to make sure is that relative to the 930 outstanding balances of about $13 96.
Brandon Satoren: It's relative to the transaction closing date shares, which was about $13.2 million off the top of my head. Let me Hold on, I have that right here.
Okay.
It's relative to the transaction closing date shares which was about 13.
$2 million at the top of my head EMEA.
How about I have that right here, yes, when we announced that when we close the transaction.
Ted Goldthorpe: Yeah. When we closed the transaction, you know, we committed to shareholders that we'd buy back, you know, a bunch of stock between, like, as soon as practically possible. Obviously, you know, we were in our blackout period till today. The intention is to buy back 10% of the closing amount of shares.
We committed to shareholders that we buy back.
A bunch of stock between.
As soon as practically possible and obviously, we're in a blackout period until today so.
The intention is to buy back 10% of the closing about a shares but Eric and the short answer is that we're not a lot of days in Q3 that we could do anything because of some of the rules around six a cooling off period things like that so.
Patrick Schafer: Erik, the short answer is there were not a lot of days in Q3 that we could do anything because of some of the rules around 6-day cooling off period, things like that. It's off of a slightly higher number than the 30 September, but that's gonna be a decent approximation.
It's off of a slightly higher number than the September 30, but thats going to be a decent approximation.
Brandon Satoren: That's right. If you recall, I was gonna say, Erik, we had to wait 60 days until after closing before we could turn the buyback back on. We did provide some color on post-quarter end daily repurchases in our subsequent events, which was about $1.2 million.
That's correct if you recall we have.
I was going say, Eric we had to wait 60 days until after closing before we could turn to buyback back on we did provide some color on.
Post quarter end daily.
Daily repurchases and our subsequent events, which was.
About $1 $2 million.
Erik Zwick: Actually, I did see that too. Great. That's helpful. You know, secondly, looking at slide 11 and just noticing the quarter-over-quarter improvement in your internal ratings, you know, performing versus underperforming. Was the majority of that change from 30 June to 30 September a result of the combination as well? Or was there any additional kind of, you know, upgrades going on within the combined portfolio?
Actually yes, I did see that too so great.
Helpful.
And then secondly.
Looking at slide 11, and just noticing the.
Quarter over quarter improvement in your internal ratings are performing versus underperforming.
With the majority of that change from June 30 to September 30, as a result of the <unk>.
Combination as well or was there any additional upgrades.
Going on within within the combined portfolio.
Patrick Schafer: Yeah. I mean, the short answer is, like, both. I mean, there were certainly upgrades going on in the portfolio, but the reality is we added a significant chunk through the Logan and kind of using those internal ratings kind of gets you that. Again, it's a little bit of both, but you know, my hunch is, without giving the specifics, it's probably the assets from Logan coming onto the balance sheet and those ratings as opposed to, you know, a broad swath of increases.
Yes.
The short answer is like both I mean, there were certainly upgrades going on in the portfolio, but the reality is we added a significant chunk through the Logan and kind of using that those internal ratings kind of gives you that so again, it's a little bit of both but my heart.
Yes.
<unk>.
Without without giving the specifics like the it's probably the assets from Logan coming on to the balance sheet and those ratings as opposed to.
A broad swap of increases, yes, probably like the biggest surprise for us over the last six months as we really haven't had a lot of negative portfolio surprises and we've had a bunch of positive portfolio surprises and again.
Ted Goldthorpe: Yeah. Probably like the biggest surprise for us, over the last 6 months is we really haven't had a lot of negative portfolio surprises, and we've had a bunch of positive portfolio surprises. Again, you know, our LPs and our shareholders are a little rattled by some of the recent, you know, headlines out there around First Brands, Tricolor, you know, this telecom name last week. You know, the reality is a lot of those are really idiosyncratic. I mean, a lot of them are related to fraud, number 1. Number 2 is a lot of the underperformance has been in their asset-based
Our Lps and our shareholders are a little rattled by some of the recent headlines out there around the first brands Tricolore.
Telecom named last week.
Reality is a lot of those are really idiosyncratic I mean, a lot of them are related to fraud.
Number one but number two is a lot of the.
Underperformance has been in their asset base.
Ted Goldthorpe: Parts of their business as opposed to the cash flow-based parts of their business. This BDC sell-off, we think is probably overdone. It's beginning to correct a little bit, but, you know, we're not seeing broad-based weakness in our portfolio.
Parts of their business as opposed to the cash flow based parts of the business. So.
Or does this BDC sell off we think is probably overdone, it's beginning to correct a little bit, but we're not seeing broad based weakness in our portfolio.
Erik Zwick: No, I appreciate the commentary there. I would echo that sentiment just from the number of portfolios I've reviewed so far this earnings season. Just with respect to the 10 credits that are on non-accrual at this point, could you just kind of maybe walk through your strategy and methodology for, you know, resolving those, if there's any potential for, you know, restructurings or sales or resolutions in the near term for any of those?
No I appreciate the commentary there and I would echo that sentiment just from the number of portfolios I've reviewed so far this earning season.
And just with respect to the 10 credits that are on non accrual at this point could you just kind of maybe walk through your strategy and methodology for.
Resolving those if there is any potential for restructurings or sales or resolutions in the near term for any of us.
Patrick Schafer: Yeah, Erik, I mean, the short answer is they're all very, like, company specific. There is one name that we're in the process of restructuring, and that hopefully is gonna get resolved in Q4. You know, if may get flipped into Q1, but that's a kind of relatively near-term thing that'll get resolved out. You know, there's one of them that is sort of for sale on the market and hopefully, you know, they have a couple divisions and hopefully some or all that gets resolved in Q4.
Yes, Eric I mean, the short answer is they're all very like company specific. So there is a there is one name that we are in the process of restructuring and that hopefully is going to get resolved in Q4.
Maybe it slips into Q1, but that those kind of relatively near term thing that will get resolved out there.
One of them that is sort of for sale in the market and hopefully there are a couple of billions of hopefully some or all of that gets resolved in Q4, and then but other than that.
Patrick Schafer: You know, other than that, you know, the rest of them, it's again, you know, continuing to optimize what's the best return, whether that is, you know, putting a little bit more capital or growing the businesses, whether it's looking for, you know, restructuring of the balance sheet or just kind of an outright sale. Each of the opportunities are sort of like one-off and have their own kind of pros and cons. There are, again, probably two or three companies that we would hope to have a near-term resolution on.
The rest of them, it's again continuing to optimize what's the best return whether that is putting a little bit more capital to growing the businesses, whether it's looking for restructuring of the balance sheet or just kind of an outright sale each of the each of the opportunities are sort of like one off.
And have their own top grossing.
There are again, probably two or three.
That we would hope to have a near term resolution.
Erik Zwick: Erik, thanks for the update there.
And Eric I think they're okay.
Brandon Satoren: Yeah.
Brandon Satoren: Oh, go ahead.
Okay.
Brandon Satoren: Erik, it's worth highlighting, last quarter, you may have noticed, there were 2 assets we put on cash basis income recognition. That's generally a good indicator when you start recognizing some income on the assets and again, when those assets are current on the debt and paying their coupon interest.
It's worth highlighting last quarter.
You may have noticed that there were two assets.
Put on cash basis income recognition.
It's generally a good indicator when you start recognizing some income on the assets and again when those assets are current on their debt and paying the coupon interest.
Erik Zwick: Yep, that makes sense. Thanks for taking my questions this morning.
Yes that makes sense. Thanks for taking my questions. This morning.
Patrick Schafer: Thanks. Have a good weekend.
Thanks have a good weekend.
Erik Zwick: Thanks. Have a good day.
Yeah.
Operator: Your next question comes from the line of Steven L. Martin with Slater Capital. Please go ahead.
Your next question comes from the line of Steven Martin with Slater Capital. Please go ahead.
Steven L. Martin: Morning, guys, congratulations on getting the deal done and, you know, starting the cleanup process. With respect to the buyback, which you know we applaud, how is that going to affect your ability to continue to do deals going forward? Can you also talk about what the Q4 activity level looks like?
Good morning, guys and congratulations on getting the deal done and.
Cleaning of starting the cleanup process.
With respect to the buyback, which you know we applaud.
Is that going to affect you.
Your.
<unk> ability to continue to do deals going forward.
And can you also talk about what the Q4 activity level looks like.
Brandon Satoren: Yeah. I'll answer the first comment. I mean, if you look this quarter, we obviously came into the quarter with a lot of cash 'cause we were just kind of gearing up for this. You know, again, when you take a few step back, you know, if you look at where spreads are in the middle market versus where our stock trades, you know, it's still accretive for us to buy back stock. There's a massive pipeline that I should really defer to Patrick on this, but we have a massive pipeline of what I would call generic sponsor finance. You know, the ability to get premium pricing, I would say, or wider spreads. You know, our pipeline in that area is probably not as robust.
Yes, I'll answer I'll answer the first comment I mean, if you look this quarter, we obviously came into the quarter with a lot of cash because we were just kind of gearing up for this.
Again, what you think as you step back if you look at where spreads are in the middle market.
Versus where our stock trades still accretive for us to buy back stock.
So we don't we arent seeing theres, a massive pipeline that I should really defer to Patrick on this but we have a massive pipeline of what I would call generic sponsor finance.
The ability to get premium pricing I would say our wider spreads.
Pipeline in that area is probably not as robust. So we have an unlimited amount of supply like L. $475 500 kind of thing we're not seeing a lot of like.
Brandon Satoren: We have an unlimited amount of supply at, like, L 475 to L 500 kinda thing. We're not seeing a lot of, like, you know, much wider spreading stuff that we like right now. I know, Patrick, I don't know if you agree with that.
Much wider spread and stuff that we like right now Patrick obviously right.
Patrick Schafer: No, I think you're right. I've kind of said this several times on our calls. From our perspective, it's around getting the right pipeline in the portfolio as opposed to, as said, that, you know, we could load up on S 475, S 500 unitranche. I'm not sure that that ultimately, like, spits out the right ROE for our shareholders. We're being careful and judicious with how we actually deploy our capital, but we do have a very large pipeline of opportunities to the extent that sort of, you know, we feel like the credit and the pricing, you know, align with each other.
<unk> said this several times.
<unk> on our calls.
But from our perspective, it's around.
Getting the right pipeline in the portfolio as opposed to it said that we could we could load up on that $4 $75 500 unit tranches I'm not sure that that ultimately spits out the right ROE for our shareholders. So we're being careful and judicious with how we actually deploy our capital, but we do have a very very large pipeline of opportunities.
Stent that sort of we feel like the credit and the pricing.
With each other.
Steven L. Martin: Well, you know.
Well.
Patrick Schafer: But on a, on a more-
I see.
Steven L. Martin: You are investing in your own stock at these.
Okay. Thank you for vesting in your own stock at these spread yes.
Patrick Schafer: Yeah.
Steven L. Martin: Where your own stock trades.
Where your own stock trades.
Yes, that's right. So again, we run the math every single quarter for our board and we show the math of doing a new investment versus versus the buyback and buybacks generally.
Patrick Schafer: That's right. Again, we run the math every single quarter for our board, and we show the math of doing a new investment versus the buyback and, you know, buybacks generally. They're kind of fairly similar, to be honest, depending on what you see on pricing. But buybacks are a guaranteed return and, you know, we feel like it's pretty shareholder-friendly and we're supportive of making the right capital allocation decisions for our shareholders.
Fairly similar to be honest, depending on what you're seeing on pricing, but buybacks are a guaranteed return and we feel like it's pretty shareholder friendly and we are supportive of making the right capital allocation decisions for our shareholders.
Brandon Satoren: Yeah. I think it's worth noting, Steve, just to sort of reinforcing the point that we think it's, you know, important to do for shareholders at these prices, especially because of the day one NAV impact. However, it is hard to buy back large swaths of our equity and maintain prudent leverage ratios. You'll note, the fund is gonna buy back seven and a half million dollars. Management is gonna come in and fill out the rest of the order book for the buyback. Recognizing exactly what you're getting at.
It's worth, noting seeing better just to sort of reinforcing the point that we think instead.
Important to do for shareholders at these prices, especially because of the day what have impact.
However, it is hard to buyback.
Large swaths.
Our equity and maintain prudent leverage ratios so youll note.
The fund is going to buy back $705 million.
Management is going to come in and fill out the rest of the yogurt box.
Sure the buyback.
So recognizing exactly what can you do it again.
Steven L. Martin: Yeah. No. Look, we applaud both, and we have been a proponent of management increasing its stake as well. Just out of curiosity, has there been any further realizations? I assume most of what's in the legacy LRFC portfolio is still a lot of equity.
Yes, no I look we applaud both thing we have been a proponent of management, increasing its stake as well.
Just out of curiosity has there been any further realizations.
Assume most of what's in the legacy El RFC portfolio is is still a lot of equity.
Patrick Schafer: No, I don't think that's a fair statement. I don't have the number off the top of my head, to be honest, Steven. It's probably disproportionate relative to the rest of our book. I would have to run the math. I mean, maybe it's a third to a half of it, you know, $20 million or so of equity. I would not say it's the majority of it.
No I don't think Thats, a I don't think Thats, a fair statement I don't I don't have the number off the top my head to be honest Steve.
But it's probably disproportionate relative to the rest of our book.
But I would I would have to run to run the math, but I'd be may.
Maybe it's a third to a half of it.
20 million Bucks or so.
<unk> equity.
But I would not say the majority of it.
Steven L. Martin: Okay. On that same page, just out of curiosity, on page 10, the weighted average yield on debt investments at par is 13.8. Does that have something to do with the purchase accounting? Because it jumped up from 10.7 to 13.8.
Okay.
On the same page just out of curiosity on page 10.
The weighted average yield on debt investments at par.
Is 13, eight does that has something to do with the purchase accounting.
Jumped up from 10, 7% to 13 eight.
Brandon Satoren: Yep, that's exactly right. On a core basis, it's about 10.3%, Steve. That is the impact of purchase discount accretion. You know, you may note, when you do an asset acquisition, the board negotiates everything on a NAV for NAV basis. The actual accounting for it, when you issue the equity, it actually is issued at the market price or closing stock price on the issuance date. Because of the discount to NAV on the issuance date, that creates a large disconnect between the NAV you're bringing on and the dollar value of the purchase reflected in your financials, which creates an unrealized gain that's allocated to the cost basis of your investment portfolio, which is accreted into income over time.
Yes.
Exactly right so on a core basis, its about 10, 3% Steve.
Steve but that is the impact of purchase accounting accretion.
Okay.
You May note.
<unk>.
When you do an asset acquisition the board negotiates everything on a NAV for NAV basis, but the actual accounting for it when you issued the equity it accurately as issued at.
Market price or closing stock price on the issuance date.
So because of the discount to NAV on the issuance date that creates a large disconnect between the NAV youre, bringing on.
And the dollar value of the purchase reflected in your financials, which creates an unrealized gain that's allocated to the cost basis of your investment portfolio, which is accretive.
Steven L. Martin: Got it. Yeah, no, I got that. You know, you might wanna consider either footnoting that or putting a second number there.
Got that you might want to consider either footnoting that are putting a second home or there.
Patrick Schafer: Yeah, good call. Good call, Steve. Yeah, again, putting the two portfolios together was slightly dilutive on a yield at par basis. as I mentioned in our call, you know, our new origination was about a 12.5% yield. obviously, you know, we're being thoughtful and selective about our new investments to kind of work on increasing that yield despite sort of, you know, where kind of spreads are going in the market in general.
Yes.
So again going ahead and putting the two portfolios together was slightly dilutive on a yield at par basis, but as I mentioned in my call. Our new origination was about a 12, 5% yield so obviously were.
We're being thoughtful and selective about about our new new.
New investments.
To work on increasing that yield despite sort of were kind of spread that go into the market in general.
Steven L. Martin: Okay. Can you talk about PIK this quarter? It didn't move too much. What's going on on the PIK side of the portfolio?
Okay.
Can you talk about pick this quarter.
It didn't it didn't move too much and whats going on on the <unk> side of the portfolio.
Brandon Satoren: Steven L. Martin, it actually did come down quite a bit as a percentage of the book. It's down to about 14.3%. I was pulling up what it was last quarter, it was quite a bit higher, north of 20%, I believe. Yeah, 19.5%.
So.
Steve It actually did come down quite a bit as a percentage of the book, it's down to about 14, 3%.
And as part of what it was last quarter, but in concert.
Quite a bit higher north of 20% type of changes.
Yes, 19 points I wish it were.
Steven L. Martin: That figure was a percentage of the current quarter's income.
<unk> of the current quarter's income.
Yeah.
Brandon Satoren: Yes, that's right. Yeah, I mean, it's come down quite materially, Steve. It's come down on a combined basis by, you know, a quarter.
Yes, that's right.
But yes, I mean, it's come down quite materially Steve's guidance come down on a combined basis by.
Quarter.
Patrick Schafer: Yeah, by 5 points. Again, we're, you know, as I said, like, not as I said, but part of our strategy is a, is a good amount, not good amount, but we have securities on our book that have a mix of cash and PIK. We have investments that we do that we look at a first lien and a preferred equity investment together, you know, for the same company, and that preferred is fixed and the first lien is cash. Again, as we've kind of noted before, you know, not all PIK is bad PIK.
But five point again.
But part of our strategy is.
Good amount, but not good enough, but we have securities on our books to have a mix of cash on cash.
Investments that we do that we look at a first lien and a preferred equity investment together.
For the same company in that preferred is picked in the first lien is cash.
So again as we've kind of noted before.
Not not I'll take it back.
Patrick Schafer: We are certainly, you know, actively working to reduce that number and are conscious of, you know, market perception of that and are being careful as we think about new deals and how we think about allocating to kind of make sure that we are overweighting, you know, cash opportunities versus things that have a blend of cash and PIK.
But we are certainly actively working to reduce that number and are conscious of.
Market perception.
That and are being careful as we think about new deals and how we think about allocating.
Got to make sure that we are overweight in cash.
Cash opportunities versus first things that havent blend of cash impact.
Steven L. Martin: Okay, Brandon. Overhead expenses and the expense side of the income statement, is this quarter exemplary, or is there, you know, does this quarter still have merger-related costs that are gonna come out?
Okay Brandon.
Yes.
Overhead expenses and the expense side of the income statement.
Is this quarter exemplary or is there was this does this quarter still have.
Merger related costs that are going to come out.
Brandon Satoren: This is actually a pretty decent run rate. Most of the transaction costs don't flow through the income statement here. They hit NAV on the closing date. There were some elevated expenses obviously for time spent integrating the portfolios, et cetera. However, we closed on 15 July, so there's, you know, the next quarter will have 15 days of extra expenses. However, we think that, you know, 1.9, 1.8 number is a reasonable run rate for the combined portfolio.
So this is actually a pretty decent run rate most of the transaction costs.
Don't flow through the income statement here they hit NAV.
On the closing date.
There were some elevated expenses, obviously for time spent integrating the portfolios et cetera. However, we closed on July 15th So there is.
15, the next word about 15 days of extra expenses. However, we think that.
One nine.
One eight number is a reasonable run rate for the combined.
Steven L. Martin: Got it. professional fees were elevated. Is that still residual?
Got it on.
Professional fees were elevated is that still residual.
Brandon Satoren: Yes, exactly.
Yes.
Exactly.
Steven L. Martin: Okay. Thanks a lot, guys.
Okay.
Thanks, a lot guys.
Patrick Schafer: Yeah, thank you.
Yes, Thanks, Steve.
Operator: Your next question comes from the line of Christopher Nolan with Ladenburg. Please go ahead.
Your next question comes from the line of Christopher Nolan with Ladenburg.
Please go ahead.
Christopher Nolan: Steve just asked all my questions. Thanks.
Steve just asked all my questions. Thanks.
Okay.
Patrick Schafer: Thanks, Chris.
Thanks, Chris.
Operator: Your next question comes from the line of Erik Zwick with Lucid Capital Markets.
Again, if you would like to ask a question pardon the number one on your telephone keypad.
Your next question comes from the line of Eric Suite.
Lucy capital markets. Your line is open.
Erik Zwick: Thanks. Just a quick follow-up. On the topic of the purchase discount accretion, was all of the discount recorded in Q3? I suspect there may still be potentially more. If so, what is that balance and over what kind of time period will the remaining amount be recognized?
Thanks.
A quick follow up.
On the topic of the purchasing accounting accretion what was all of the discount.
Recorded in <unk> or I suspect there may still be potentially more and if so what does that balance and over what kind of time period will that remaining amount.
Recognize.
Ted Goldthorpe: Yeah, I don't have a brand on the amount. It's generally recognized over the duration of the underlying assets themselves. It's tough to tell you exactly what that would be. The decline curve, if you will, is going to be based on how those assets get monetized and what their maturity dates are, et cetera.
Yes, Brandon on the ball, but it is generally recognized over the duration of the underlying assets themselves.
So its tough its tough to tell.
Exactly exactly what that would be the decline curve. If you will is going to be based on how those assets get monetize and what their maturity dates are et cetera.
Brandon Satoren: That's right.
That's great. Thanks in terms of go ahead.
Erik Zwick: In terms of. Yeah, go ahead. Yeah.
Brandon Satoren: I was just gonna say, there's about just north of $21 million of purchase accounting accretion. There's about $18 million left. I would just say, generally speaking, a lot of the purchase accounting increase room tends to work its way through the book in the first couple of quarters after closing. It is recognized over time, but obviously you have assets with shorter maturities, things like that, and, you know, natural portfolio rotation as a result of the integration. That, you know, again, this quarter we had $3.6 million on, you know, a, you know, effectively a stub quarter.
I'm just going to say.
<unk>.
Just north of $21 million of purchase accounting accretion there is theres about it.
18 or.
$18 million left.
I would just say generally speaking the.
A lot of the purchase accounting increased.
It tends to work its way through the book in the first couple of quarters. After closing it is recognized over time, but obviously you have assets with shorter maturities things like that.
Natural portfolio rotation as a result of the integration.
No.
Okay. Okay.
We had $3 6 million.
Effectively a stub quarter.
Erik Zwick: Yeah. Okay. Greater amounts up, upfront, and then it'll kind of trail off as that portfolio kind of matures and pays down over time. Okay, that's very helpful. Thank you.
Yes, okay. So greater amounts of upfront and then it will kind of trail off as that portfolio.
Kind of matures.
Pay down over over time, Okay. That's very helpful. Thank you.
Operator: There are no further questions at this time. I will now turn the call back over to Ted Goldthorpe for closing remarks.
There are no further questions at this time I will now turn the call back over to Ted Goldberg for closing remarks.
Ted Goldthorpe: Thank you all for attending our call. As always, please reach out to us with any questions, which we're happy to discuss. We look forward to speaking to you again in March when we announce our Q4 and full year 2025 results. Have a good weekend. Thank you very much.
Thank you all for attending our call and as always please reach out to us with any questions, which we're happy to discuss we look forward to speaking to you again in March when we announce our fourth quarter and full year 2025 results.
Have a good weekend and thank you very much.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.