Logan Ridge Finance Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 9, 2024

There are 6 speakers on the call.

Operator

Good morning, and welcome to the Logan Ridge Finance Corporation's First Quarter Ended March 31, 2024 Earnings Conference Call. An earnings press release was distributed yesterday, May 8, after the close of the market. A copy of the release along with a supplemental earnings presentation is available on the company's website atwww.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 Please note that today's conference call may contain forward looking statements, which are not guarantees of future performance of results and involve a number of risks and uncertainties.

Operator

Actual results may differ materially from those in the forward looking statements as a result of a number of factors, including described in the company's filings with the SEC. Speaking on today's call will be Ted Galtorf, Chief Executive Officer, President and Director of Logan Ridge Finance Corporation Brandon Satoran, Chief Financial Officer and Patrick Schafer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Kaulder, Chief Executive Officer of Logan Ridge Finance Corporation. Please go ahead, Ted.

Speaker 1

Thank you. Chief Financial Officer, Brandon Satoran and our Chief Investment Officer, Patrick Schaeffer. Following my opening remarks, Patrick will provide additional details on our investment activity to date and Brandon will walk through our financials. While I will keep my prepared remarks brief today and limit it to a few key highlights, which Patrick and Brandon provide more detail on shortly, I would like to emphasize that during the Q1 of 2024, we continue to build upon record financial results we've generated in 2023. The 1st quarter results are highlighted by the quarter over quarter increases in net investment income and net asset value of 63% and 1% respectively.

Speaker 1

Following the strong earnings we saw in 2023, Logan Ridge is off to a solid start in 2024 ending the Q1 with net deployment of $8,900,000 and a robust pipeline. As the company's exposure to the legacy equity portfolio has continued to decline and its exposure to credits originated by the BC Partners credit platform have increased, the benefit to shareholders has been clear and is being reflected through Logan's strong financial results. Furthermore, as a result of the company's strong financial performance during the quarter, the company declared a second quarter distribution of $0.33 per share or 3% increase to the company's quarterly distribution compared to the prior quarter. This is the company's 5th consecutive quarterly increase and represents an 83% increase from the 0.18 dollars per share distribution we declared in the Q1 of 2023. Finally, during the quarter, the company repurchased 21,000 867 shares which was accretive to NAV by approximately $0.08 per share.

Speaker 1

Looking forward to the rest of 2024, our pipeline remains robust and we continue to see attractive investment opportunities in the market. Over the course of 20 23, private equity firms were sitting on records amounts of dry powder, while at the same time are being pushed by LPs to return capital. Although expectations for future rate hikes have diminished toward the end of the Q1 and the beginning of the second quarter, we believe the aforementioned 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. We remain focused on increasing shareholder value by leveraging the company's stronger balance sheet and we believe our platform remains well equipped to take advantage of current market conditions. Specifically at Logan Ridge and more generally across the BC Partners Credit platform, we continue to find attractive opportunities both through our sponsor relationships and our focus on sponsor and non sponsor backed companies and continue to win transactions based on our ability to custom tailor solution for the borrower and the borrower's belief that our platform can add value to their business above and beyond just being a capital provider.

Speaker 1

With that being said, I will turn the call over to Patrick Schaeffer, our Chief Investment Officer.

Speaker 2

Thanks Ted and hello everyone. As of March 31, 2024, the fair value of Logan's portfolio was approximately $200,100,000 with exposure to 62 portfolio companies. This compares to 60 portfolio companies with fair value of approximately $189,700,000 as of the prior quarter and 59 portfolio companies with the fair value of $203,300,000 as of March 31, 2023. During the quarter ended March 31, 2024, we continue to deploy capital in new and existing portfolio companies. Specifically, the company made approximately $9,800,000 in new and existing investments and had approximately $900,000 in repayments and sales, resulting in net deployment of approximately $8,900,000 for the quarter.

Speaker 3

While we continue to be prudent

Speaker 2

and disciplined underwriters, we believe that the loans originated in the current environment will prove to be an attractive vintage. On to portfolio composition, as of March 31, 2024, 60% of the company's investments at fair value were invested in assets originated by the BC Partners Credit Platform. As of March 31, 2024, our debt investment portfolio represented 80.8% of the total portfolio at fair value with a weighted average annualized yield of approximately 11.4% excluding income from non accruals and collateralized loan obligations. This compares to a debt portfolio which represented 82.0 percent of our total portfolio at fair value with a weighted average annualized yield of approximately 11.1% excluding income from non accruals and collateralized loan obligations as of the prior quarter and 83.1% with a weighted average annualized yield of approximately 10.7 percent as of March 31, 2023. The weighted average annualized yield excluding income from non accruals and collateralized loan obligations increased by 30 basis points and 70 basis points compared to prior quarter and prior year respectively.

Speaker 2

As of March 31, 2024, 88.5% of our debt investment portfolio at fair value was bearing interest at a floating rate compared to 86.4% as of December 31, 2023 and 83.4% as of March 31, 2023. As of March 31, 2024, 1st lien debt represented 66.5% 65.2% of our total portfolio on a cost and fair value basis respectively. This compares to 1st lien debt representing 65.4 percent of our total portfolio on both the cost and fair value basis as of December 31, 2023 65.4 percent 67.7 percent of our total portfolio on a cost and fair value basis respectively as of March 31, 2023. The non yielding equity portfolio represented 15.2% and 18.2% of our portfolio on a cost and fair value basis respectively as of March 31, 2024. This compares to 15.5% 17.0 percent of the portfolio on a cost and fair value basis as of December 31, 2023.

Speaker 2

Moving on to non accrual status. As of March 31, 2023, the company had 3 portfolio companies on non accrual status with an aggregate amortized cost and fair value of $17,200,000 $10,600,000 respectively or 8.3% and 5.3% of the investment portfolio at cost and fair value respectively. This compares to 3 portfolio companies on non accrual status as of the prior quarter with a cost and fair value of $17,200,000 $12,800,000 respectively or 8.7% and 6.9% of the company's of the investment portfolios cost and fair value respectively. And I'll turn the call over to Brandon.

Speaker 4

Thanks, Patrick. Turning to our financial results for the quarter ended March 31, 2024. For the quarter ended March 31, 2024, Logan generated $5,000,000 of investment income, an increase of $600,000 as compared to 4,400,000 dollars in the prior quarter. The increase was largely a result of a one time reversal of $600,000 of previously accrued on a portfolio company that was placed on non accrual in Q4 of 2023. Total operating expenses for the Q1 increased by approximately $200,000 to $4,100,000 as compared to $3,800,000 for the prior quarter.

Speaker 4

The increase in operating expenses was primarily driven by higher financing costs as well as higher general and administrative expenses. Our net investment income for the Q1 was $900,000 or $0.35 per share, an increase of $300,000 from $600,000 or $0.22 per share in the Q4 of 2023. As I noted previously, the increase in net investment income was primarily due to reversing 600,000 dollars or $0.22 per share of previously accrued income on a portfolio company that was placed on non accrual status in the prior quarter. Our net asset value as of March 31, 2024 was $90,200,000 representing a $1,000,000 increase as compared to the prior quarter net asset value of $89,200,000 On a per share basis, net asset value was $33.71 per share as of March 31, 2024, representing a $0.37 increase as compared to $33.34 at the end of 2023. The increase in net asset value quarter over quarter was driven by net realized and change on the portfolio as well as Logan Ridge out earning the quarterly dividend payment by $100,000 Finally, as of quarter end, the company had $8,300,000 in cash and cash equivalents as well as $23,000,000 of unused borrowing capacity available for deployment in investments originated by the BC Partners Credit platform.

Speaker 4

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

Speaker 1

Thank you, Brandon. To our shareholders, thank you for your continued support. This concludes our prepared remarks, and I will now turn the call over to the operator for any questions.

Operator

Thank you. We will now begin the question and answer session. And your first question comes from the line of Christopher Nolan of Ladenburg Thalmann. Please go ahead.

Speaker 3

Hey, guys. Brandon, just to make sure that you mentioned the $0.22 recovery from the previous non accrual. Was that for this quarter? No, Chris, that was last quarter. We had

Speaker 4

about $600,000 in receivables that we had to write off through Q4 NII. Okay. So that's the reversal this quarter you're seeing flow through earnings.

Speaker 3

So there was a reversal this quarter?

Speaker 2

No, I think what you mentioned is the fact that we did not have a reversal this quarter, but did have a reversal last quarter, that's what you're that's part of why you're seeing the meaningful increase. The flip.

Speaker 4

Got it. Got it.

Speaker 3

Okay. Thank you. Nth Degree, you guys are getting a lot of love from Nth Degree Equity Holdings. And what do you say about this? Because quarter mile calculations, the fair value net increased 38% quarter over quarter and that counts as a percentage of your total equity holdings.

Speaker 3

Yes. Chris, I think what

Speaker 2

I would say is the company continues to do very, very well When we took over this portfolio in the first place, this was marked at probably close to 0. It was a it is a events business where they like put up and organize events for trade shows and things like that. I think they actually like run part of the I believe they actually run part of the Apple like CES conference and such. So like a pretty good business that got massively impacted it was announced last quarter, sorry, not quarter, was announced last quarter sorry not quarter last the summer of last year. So they're just continuing to perform very well.

Speaker 2

There is at least one other BDC that's also in it with us and you can see pretty consistent growth trajectory with kind of how that firm looks at this position as well as us.

Speaker 1

Okay. And then

Speaker 3

I guess the final question is, where are we thinking about leverage going forward? Yes. So what I'd say is,

Speaker 2

I think similar to how we think about our other BDC, Portman Ridge, I think our like conceptual we conceptually feel like BDC should probably be somewhere in the 1.25 times to 1.4 times net leverage depending on the environment, depending on portfolio composition, etcetera. I think right now Logan is at 1.3 on a net basis or on a gross basis, sorry. And a little bit less than that on net, not significantly less. So we're kind of at the low end of our range. Obviously, as you alluded to it, we have 1 or 2 very large equity positions.

Speaker 2

So there is a little bit of a little bit more variability in our NAV than perhaps others. I would say to the extent that 1 or 2 of our large equity positions were to be realized and monetized in cash, we would probably feel a little bit more comfortable bringing leverage up from there. But kind of where again, given sort of that portfolio composition, we would probably sort of look to be on the lower end of our sort of guidance until those kind of get realized.

Speaker 1

Got it. Okay. Thank you.

Operator

Your next question comes from the line of Stephen Martin of Slater. Please go ahead.

Speaker 5

Hello again, guys.

Speaker 3

Hi Steve. How are you?

Speaker 5

Hey, following Portman, can you talk a little bit more about the deployments in the Q1? In Portman, it was only one new borrower. What does that look like in Logan Ridge? And obviously, can you talk a little bit more about the deployments you expect in the Q2?

Speaker 2

Yes. I think for Portman sorry, I think for Logan, there were 2 new borrowers. And there was again, this is a little bit more of the nuance, but there was one particular portfolio company or investment we made across the platform was a little bit lower on the yield spectrum. So we didn't think it quite made sense for Portman from a yield perspective or an ROE perspective. But for Logan, it fit very nicely within the leverage facilities.

Speaker 2

So on an ROE basis, it was significantly more attractive for Logan than it would have been for Portman. So there is again, it's another position that's across our platform, but it made a little bit more sense for Logan than it did for Portman. But other than that, again, I'd say the trends are generally fairly similar across the 2 on the margin where we were obviously more of a net deployer in Logan than in Portland just because it was on the little bit lower end of the leverage spectrum. But I would think kind of what we talked about Steve earlier is the same, which is I think over the course of the year, we would expect Logan again on the whole to be a net deployer of capital. Again, some of it depends on if we have some realizations hopefully and particularly in our equity portfolio and kind of the timing of if we did happen to receive $15,000,000 or $14,000,000 change from nth degree, which is kind of where it's marked, just as a simple example, might take a little bit time for us to rotate that cash into loans and if that happens over quarter end etcetera, you might see some net repayment.

Speaker 2

But over again, where we sit at the end of the year, we would expect to probably be a net deployer of capital in Logan Ridge.

Speaker 5

And your prospects for the Q2?

Speaker 2

In terms of deployment, again similar, which is I think we are in a pretty good spot, have a good pipeline depending on timing of such. Again, I would think that Logan is on the whole probably a net deployer for the Q2. But again, it's I don't it would probably not be as large of a net deployer as it was in Q1 just because again we're at about a little under 1.3 times gross leverage. So we're kind of in a decent spot from a leverage perspective.

Speaker 5

Okay. And you made the comment, I think that Rydal was came right at the end of the quarter? Correct. So we didn't really see the impact of Rydal on the investment income?

Speaker 2

Not at all. Dollars 0 of impact on net investment income for the quarter.

Speaker 4

That's the open trade payable on the balance sheet $4,000,000

Speaker 2

It traded and closed on like Good Friday and settled on like Monday. So it kind of went over quarter

Speaker 5

Right. And the rest of the deployment, was that made sort of throughout the quarter or did we not see when you get a full quarter of in Q2 when you get a full quarter of Q1's deployments, will it be a material increase?

Speaker 2

I think it will certainly be an increase. They were not done at the beginning of the quarter. They certainly weren't done as far towards the end as Riddell. So you would see like 100% pickup from Riddell. But there definitely again should be tailwinds from the net deployment in Q2 versus Q1.

Speaker 2

And again off the top of my head, I think the other one that I was referencing closed sometime in March. But again, you will definitely see a pickup from our net deployments kind of heading into Q2.

Speaker 5

Okay. And would you care to further your comments on possible exits of equity of the equity portfolio?

Speaker 2

I think the comments I would make is similar to the market as a whole. M and A is starting to come back in the private credit space, but generally speaking in sort of the private equity space as well. It was a really tough it's been a really tough 12 or 18 months to try and sell a business. And so I think just from a macro perspective, we have a lot better chances of exiting an equity position or 2 this year relative to last year or probably even in sort of the back half of twenty twenty two unless something had already been in the process. Nothing really got done in the back half of twenty twenty two either.

Speaker 2

So I'd say we're hopeful and optimistic, but from a macro perspective, we certainly have tailwinds to be able to exit some of these as opposed to all of last year. There were certainly meaningful headwinds to exiting equity positions.

Speaker 1

We expect to make a lot of progress on that front over the course of the year.

Speaker 5

Got you. And the non accruals, by the way, you made the comment in your prepared remarks about non accruals about there being 3 non accruals. The schedule says 4. Is the schedule wrong or did you just misspeak?

Speaker 2

No, sorry, 3 borrowers on non accrual. 1 of them happens to have 2 securities.

Speaker 5

Got you.

Speaker 2

But it's the same set quarter over quarter.

Speaker 5

Okay. Because how I see, because in the on the schedule it says non accrual investments not borrowers. Correct. Got you.

Speaker 2

Apologies for the confusion there.

Speaker 5

No, not a problem. Not a problem. So it was a further mark down of an exit. So at the end of Q3, it was $10,600,000 at fair value, then it jumped up to 12 $800,000 then it went down to $10,600,000 Is that just coincidence that it's the same number?

Speaker 2

Yes, it is. From Q3 to Q4, we added 1, which was the reason for the increase there. And this quarter, one of them was marked down and it's a pure the numbers are pure coincidence.

Speaker 5

Got you. Any prospect of cleaning some of those off? Are they in workout? Is there a shot that the borrower will restructure

Speaker 2

it? They're all in various obviously all in various different stages since they're on non accrual in sort of restructuring. I would say for the only one that really moves the needle, we probably still have a lot of time to kind of working through that. So there's of the three names, there's 2 that are on the smaller end and one is fairly large, which is the historical Sequoia position. And I'd say that one still has a lot longer to work through.

Speaker 2

And again, the other ones, we obviously continue to try to work out and work through. I wouldn't say we're necessarily any closer than we were last quarter and we're also not farther away. We're hopeful that we're hopeful on all of them to try and move them into accrual status eventually. But again, for the one that moves the needle, I would not say we're closer to.

Speaker 5

Got you. All right. Thanks a lot.

Speaker 1

Thanks, Steve. Thank you, Steve.

Operator

There are no further questions at this time. I will now turn the conference back over to Ted Galter for closing remarks. Great.

Speaker 1

Well, thank you everyone for joining us today and we look forward to speaking to you again in August when we announce our Q2 results. Thank you very much.

Operator

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

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Key Takeaways

  • In Q1 2024, net investment income rose 63% quarter-over-quarter to $0.35 per share and net asset value increased 1% to $33.71 per share.
  • Logan Ridge deployed a net $8.9 million in Q1, growing its portfolio to a fair value of $200.1 million across 62 companies, with 80.8% in debt at an 11.4% weighted average yield.
  • The company declared a Q2 distribution of $0.33 per share, its fifth consecutive increase and an 83% rise from Q1 2023.
  • Logan Ridge repurchased 21,867 shares during the quarter, accreting approximately $0.08 per share to NAV.
  • As of March 31, 2024, it held $8.3 million in cash and $23 million of unused borrowing capacity, maintaining gross leverage around 1.3×.
AI Generated. May Contain Errors.
Earnings Conference Call
Logan Ridge Finance Q1 2024
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