Portman Ridge Finance Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 8, 2025

Key Takeaways

  • Positive Sentiment: Portman Ridge completed its transformative merger with Logan Ridge Finance Corporation and will rebrand as BCP Investment Corporation (ticker BCIC) to leverage greater scale, diversification, and cost efficiencies.
  • Positive Sentiment: Second-quarter net investment income increased to $4.6 million, or $0.50 per share, up from $0.47 per share in Q1, and the Board declared a sustainable base distribution of $0.47 plus a supplemental $0.02 per share.
  • Negative Sentiment: Net asset value fell by $0.96 to $17.89 per share at June 30, driven by $9.1 million of net realized and unrealized losses, partially offset by quarterly income.
  • Positive Sentiment: Deal activity in the core markets picked up late in Q2 and into Q3, prompting a robust pipeline of refinancings and new investments, and management plans to use excess cash for opportunistic share buybacks.
AI Generated. May Contain Errors.
Earnings Conference Call
Portman Ridge Finance Q2 2025
00:00 / 00:00

There are 7 speakers on the call.

Operator

Welcome to Portman Ridge Finance Corporation's Second Quarter Ended 06/30/2025 Earnings Conference Call. An earnings press release was distributed yesterday, August seven, after market closed. A copy of the release, along with an earnings presentation, is available on the company's website at www.cortmanridge.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.

Operator

Actual results may differ materially from those in the forward looking statements as a result of a number of factors, including those described in the company's filings with the SEC. Cortman Ridge Finance Corporation assumes no obligation to update any such forward looking statements unless required by law. Speaking on today's call will be Ted Goldthorpe, Chief Executive Officer, President and Director of Portman Ridge Finance Corporation Brandon Satoran, Chief Financial Officer and Patrick Schaeffer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of Portman Ridge. Please go ahead, Ted.

Speaker 1

Good morning, and welcome to our second quarter twenty twenty five earnings call. I'm joined today by our Chief Financial Officer, Brandon Satoran and our Chief Investment Officer, Patrick Schafer. Following my opening remarks on the company performance and activities during the second quarter, Patrick will provide commentary on our investment portfolio and our markets, and Brandon will discuss our operating results and financial condition in greater detail. We continue to advance our strategic priorities in the second quarter, generating net investment income of $4,600,000 or $0.50 per share compared with $4,300,000 or $0.47 per share in the prior quarter. Our focus remains on maintaining a high quality portfolio and delivering long term value to our shareholders.

Speaker 1

Additionally, the recent completion of our merger with Logan Ridge Finance Corporation marks a transformational milestone for the company. We are extremely proud to have completed this transaction and look forward to the greater scale, broader portfolio diversification and enhanced financial flexibility it will provide. We believe the newly combined company will drive improved operating efficiency and shareholder returns over time. Logan Ridge also delivered strong results for the second quarter, generating net investment income of $1,200,000 or $0.47 per share, up from $900,000 or $0.35 per share in the 2025. The increase was driven by net deployment activity of $3,800,000 during the quarter and continued credit strength with no new investments on nonaccrual at quarter end.

Speaker 1

To better reflect this next chapter and the strength of our advisor, we will also be changing our corporate name to BCP Investment Corporation with the NASDAQ, ticker BCIC, in the following weeks. The new name highlights our affiliation with BC Partners, a global alternative investment platform with deep credit expertise, and reinforces our commitment to building an industry leading business development company. For the 2025, the Board of Directors approved a base distribution of $0.47 per share as well as a supplemental cash distribution of $02 per share. Of note, earlier this year, we modified our dividend policy and introduced a stable base distribution of $0.47 per share, which is anticipated to be sustainable across market cycles. Looking forward, we are excited about the opportunities ahead for the combined company.

Speaker 1

We will seek to leverage the company's enhanced scale, further diversified portfolio, cost savings due to overall operating expenses and improved stock trading liquidity to deliver compelling risk adjusted returns and drive long term value for our shareholders. We remain confident in our strategy and experienced management team as we enter the back half of this year. With that being said, I will turn the call over to Patrick Schafer, our Chief Investment Officer, for a review of our investment activity. Thanks, Ted. Activity in our

Speaker 2

core markets was partially constrained for the quarter due to the initial tariff announcement and subsequent revisions to the various levels. Having said that, deal volume did pick up meaningfully towards the end of the quarter and thus far during Q3, our pipeline and repayment activity has been fairly active. For the first time in a while, there appears to be a healthy mix of new LBO sale processes as well as refinancing and the syndicated markets appear to be open for the very large end of the middle market. While this last dynamic has limited direct impact on our franchise, it does point to overall healthy capital markets that should lay the groundwork for increased deal activity in the second half of the year. Turning now to slide six of our presentation and sensitivity of our earnings to interest rates.

Speaker 2

As of 06/30/2025, approximately 86.9% of our debt securities portfolio was based on a floating rate with a spread peg to an interest rate index such as SOFR or prime rate, with substantially all of these being linked to SOFR. As you can see from the chart, SOFR rates have slightly declined over the last two quarters, impacting current quarter net investment income. Skipping down to slide 11, originations for the second quarter were $10,900,000 and repayment and sales were $17,000,000 resulting in net repayment and sales of approximately $6,100,000 Overall yield on par value of the new investments during the quarter was 11.5%, slightly above the yield of the overall portfolio at 10.7% on par value. Our investment portfolio at year end remains highly diversified. We ended the second quarter with a debt investment portfolio when excluding our investments in CLO funds, equities and joint ventures spread across 69 different portfolio companies and 25 different industries with an average par balance of $2,600,000 Turning to slide 12, in aggregate, we had six investments on non accrual status at the end of the second quarter twenty twenty five, representing 2.14.8% of the company's investment portfolio at fair value and cost respectively.

Speaker 2

It is worth noting that for a subset of the non accrual population, the company started during Q2 to recognize interest income on a cash basis, I. E. Only when cash payments are received. This compares to six investments on non accrual status as of 03/31/2025, representing 2.64.7% of the company's investment portfolio at fair value and cost respectively. On slide 13, excluding our non accrual investments, we have an aggregate debt investment portfolio of $314,700,000 at fair value, which represents a blended price of 86.6% at par value and it's 88.6% comprised of first lien loans at par value.

Speaker 2

Assuming a par recovery, our 06/30/2025 fair values reflect the potential of $24,000,000 of incremental NAV value or a 14.6% increase to NAV. When applying an illustrative 10% default rate and 70% recovery rate, our debt portfolio would generate an incremental $1.51 per share of NAV or an 8.4% increase as it rotates. Finally, turning to slide 14, if you aggregate the last three acquired portfolios, we have purchased a combined $435,000,000 of investment and have realized approximately 88% of these positions at a combined realized and unrealized mark of 100% of fair value at the time of closing the respective merger. As of Q2 twenty twenty five, we have fully exited the acquired Oak Hill portfolio and are down to a combined $20,000,000 of the acquired HCAT and initial KCAT portfolios. I'll now turn the call over to Brandon to further discuss our financial results for the period.

Speaker 3

Thanks, Patrick. For the quarter ended 06/30/2025, Portman Ridge generated $12,600,000 of investment income, an increase of 500,000.0 compared to the $12,100,000 reported for the quarter ended 03/31/2025. The increase in investment income from the prior quarter was primarily driven by the reversal of previously accrued but unpaid income from our investment in Sundance, which had a non recurring negative impact to prior quarter earnings when it was placed on non accrual. Additionally, I'm pleased to report that PIK income has declined by approximately 20% quarter over quarter, which was also driven by a nonrecurring item that inflated the company's PIK income in the prior quarter. We remain focused on managing our noncash income to a prudent level.

Speaker 3

For the quarter ended 06/30/2025, total expenses were $8,100,000 which represents a $300,000 increase or $03 per share as compared to $7,800,000 reported for the prior quarter. The increase in expense compared to the prior quarter was driven by lower than anticipated tax expenses in the prior year, the benefit of which was recognized in the prior quarter. Accordingly, our net investment income for the 2025 was $4,600,000 or $0.50 per share, which constitutes an increase of $300,000 or $03 per share from $4,300,000 or $0.47 per share for the 2025. Our net asset value as of 06/30/2025 was $164,700,000 representing an $8,800,000 decrease as compared to the prior quarter net asset value of $173,500,000 On a per share basis, net asset value was $17.89 per share as of 06/30/2025, representing a $0.96 per share decrease as compared to $18.85 per share as of 03/31/2025. The decline in NAV was primarily driven by net realized and change in unrealized losses of 9,100,000 partially offset by the company's second quarter net investment income exceeding the distribution paid in May for the first quarter by $300,000 As of 06/30/2025, our gross and net leverage ratios were 1.6x and 1.4x, respectively, compared to and 1.3 times, respectively, the prior quarter.

Speaker 3

Specifically, as of 06/30/2025, we had $255,400,000 of borrowings outstanding with a current weighted average contractual interest rate of 6%. This compares to the same amount outstanding as of the prior quarter with a weighted average contractual interest rate of 5.9%. The company finished the quarter with $52,600,000 of available borrowing base capacity under the senior secured revolving credit facility, subject to borrowing base restrictions. With that, I will turn the call back over to Ted.

Speaker 1

Thank you. Ahead of questions, I'd like to reemphasize how excited we are for the opportunities the newly combined company will create and our rebranding to BCP Investment Corporation. Additionally, with a robust pipeline, prudent investment strategy and increased scale, we believe we are well positioned to take advantage of the current market environment and will be able to deliver strong returns to our shareholders through the 2025. Thank you again to all our shareholders for your ongoing support. This concludes our prepared remarks, and I'll turn the call over for any questions.

Operator

Your first question comes from the line of Christopher Nolan with Ladenburg. Please go ahead.

Speaker 4

Hey, guys. Brandon, were there any non recurring items in the quarter?

Speaker 3

Outside of the other income that's broken out on the financial statements, there were no material items.

Speaker 4

Okay. And then why was interest income higher quarter over quarter despite a smaller portfolio and a slight dip in yield?

Speaker 3

So it was largely driven by the net deploy the deployment we had in the prior quarter flowing through the current period.

Speaker 1

Okay,

Speaker 2

so timing. Yes, Chris, it's a timing impact of last quarter. We tended to have some more stuff come on sort of like February and into March, so we didn't get kind of a full quarter impact last quarter.

Speaker 4

I am all down with simple timing issues.

Speaker 3

Yeah, and Chris, we also had the so in the prior quarter we had the Sundance one time reversal of previously accrued income by about a half a million dollars that impacted Q1 on an out of period basis that I highlighted in my script.

Speaker 4

Great. And then the realized loss is 15 mil, ProAir was 6 mil, what's the rest for?

Speaker 3

So the other half is Anthem, which we restructured this quarter.

Speaker 4

Great. And I guess final, is there a hard date when the trading symbol's gonna switch over and the name change's gonna take effect?

Speaker 3

Not a final date, but it's in the next over the course of the next couple weeks, we're gonna we should have that complete. Candidly, Chris, the the biggest delay is just building out the new website and whatnot under the new branding. But we should have that wrapped up here in,

Speaker 2

you know,

Speaker 3

the next couple weeks, and then we will definitely announce the ticker change and the new website, etcetera, at that time. We also didn't wanna do it in the middle of earnings because it does have some administrative implications when your name as of 06:30 was Portman Ridge and you're filing today under a different

Speaker 4

Got it. Guess final question is, you guys sort of are the go to guys to buy broken BDCs. And given that there's a big maturity wall for a lot of the investment spreads for BDCs are gonna be coming in. Have you guys seen more deal activity or shown to you more deals for merging with other BDCs?

Speaker 1

I would say, I'll answer that question. I would say deal activity has definitely picked up. Our M and A pipeline and things that we're looking at is probably the highest it's been in a very long time. I'm not sure it has to do with the maturity wall. I think has to do with, I think if you just look broadly what's happening across the space, I think every single day scale becomes more important.

Speaker 1

And I think that's driving a lot of internal conversations at firms about where they want to focus and where they want to scale. So I would say our M and A pipeline, and again, M and A maybe happens, maybe doesn't, in my opinion, it's probably never been higher. So we're spending a lot of time At the end of the day, we want our BDC to be much larger. And we really benefited from support from a lot of great shareholders to get our merger done. And as we've told people, hope would be that's the first or a step towards other steps to get to bigger scale.

Speaker 1

And so our pipeline is not just full of traditional BDCs. It's also full of closed end funds, private, non traded BDCs and other type entities. So like, I would say, there's a you know, there's there's been a bit of a lot of winners and there's been a few winners and and a couple people who are having a hard time scaling, and those people are beginning to explore partnering with a bigger platform to help grow.

Speaker 5

Sorry, that was a

Speaker 1

very long answer.

Speaker 4

Yeah. No. No problem at all. I mean, it's all good stuff. I imagine the next steps will be renegotiating the bank revolver and you sort of, you know, edging towards at some point, to get an investment grade rating for the notes.

Speaker 4

I mean, is

Speaker 5

that Yeah.

Speaker 1

If you look at I mean, if you look at financing costs across the space, you know, like the larger platforms and I'm not I'm and I just described BDC, but if you're associated with a larger platform, there's a material difference in financing costs. And, you know, we're in the cost of capital business, and that all drops the bottom line. So and that and, obviously, in an environment where, you know, spreads are coming down, you know, and there's some there's some, you know, headwinds on earnings, you know, refinancing debt at cheap rates, and the market right now is wide open, is is, you know, very important to driving earnings. Yeah. Okay.

Speaker 1

That's it for me. Thanks. Thanks, Chris.

Operator

Your next question comes from the line of Eric Zwick with Lucid Capital Markets. Please go ahead.

Speaker 5

Good morning, everyone. In your prepared remarks, sounded good morning. You sounded fairly optimistic about the opportunity for originations in the back half of the year, noting some increased LBO activity there up in the market. Just as you look at the pipeline today, I'm curious how it kind of breaks down in terms of maybe new and add on opportunities and how spreads are today versus maybe a quarter ago, beginning of the year?

Speaker 1

Yeah, why don't go first? I would say, I mean, we're focused on two things in the back half of this year. We are seeing a big uptick in refinancing activity. And you haven't seen it roll through our earnings yet, but you will. And so our sponsor based pipeline has increased dramatically over the last two or three months.

Speaker 1

And I'm sure you've heard that from others. And on top of that activity levels have picked up too, like we're getting real realizations. I would say it's a pretty, and Patrick can comment too, I think it's a pretty healthy mix of, it's been all refis for three years. For the first time we're actually seeing some true sales, but it's still primarily refinancings. I would say spreads, in my opinion, really haven't come down that much the last quarter.

Speaker 1

And we target the middle market, our spreads still seem to be 50 to 75 basis points higher than the very large deals that are getting done. But the syndicated markets are white hot right now. Deal price this week with no OID at very tight spreads. And again, we don't really compete with the syndicated markets, but our industry broadly does. And that's obviously pressure on spreads.

Speaker 1

But I would say, the other thing I just mentioned is, we're very cognizant of where our stock trades. We obviously have been unable to buy back stock or do other things. And we've been out there publicly as part of this merger saying that when we're kind of eligible to do it, I think we'll be pretty aggressively buying back stock and not just through normal course ways. And I think it's when run the math on where spreads are today versus us buying back stock or tendering for stock, obviously it makes a lot of sense for us to consider both. So I think in the back half of this year, I mentioned refinancing activities up.

Speaker 1

That cash is not going be just plowed into new lower spread in loans. I think some of that money is going to used to buy back stock.

Speaker 5

The answer a lot of sense.

Speaker 1

Go ahead,

Speaker 2

Patrick. No, the to it's kind intended of all all the the high points, to make a couple of notes there. Again, generally speaking, if we're doing kind of a refi type of an opportunity, you tend to get a little bit of a better spread because there is some whether direct or perceived breakage cost between finding new lenders and kind of like dealing with a new credit agreement and a new lender group, etcetera. So you tend to get a little bit of a premium or at least a little bit less compression if you are just kind of refi ing an existing deal.

Speaker 1

Our

Speaker 2

franchise is more weighted towards non sponsor or non traditional sponsor. Again, it's a little bit less competitive. You're going to get a little bit of better ability to kind of price and structure deals. So that also helps at least our franchise in terms of kind of when sort of the bigger deals and sponsors are kind of really leaning on lenders to drive terms. We do get a little bit of insulation and protection from that.

Speaker 5

I appreciate the additional commentary there. And with regard to, Ted, your commentary about fairly strong appetite to use the buyback, that that was sixty days from the closing, so it'd be kind of mid September, like September or so when you could potentially get back into the market with

Speaker 1

the buyback. Is that correct? Yes. So if we're do a so when you do a merger process, there's a period of time we have to wait, like a cooling off period till, know, till, you know, the dust settles kind of thing. And that takes you right towards the end of the third quarter.

Speaker 1

And then at that time, you're running into things like blackouts and stuff. So we're trying as hard as we can to try and do something. So it might slip a little bit until the blackout finishes. But that timing is roughly right. It's a little later than that, but you're not so far off.

Speaker 5

Got it. Thanks. And Juan, congrats on getting the deal closed earlier this quarter. Curious, do you have are you able to share kind of a pro form a NAV either as the date that the transaction closed or July? Anything you might have on hand there that you could share?

Speaker 3

Yeah, Eric, so it's about just north of $235,000,000

Speaker 5

Okay, thanks. And with regard to that, the comment about the potential benefit to NAV from the positions that you currently hold that are at a discount to par, like the potential for those to convert towards par as they mature. Any kind of commentary you could provide in terms of the potential timeframe? Like what is the average remaining maturity on that portion of the book or just how to think about the opportunity and timeframe to realize those potential benefits?

Speaker 2

Eric, this is Patrick. I'll open up a couple of comments here. We should say it's not all just maturity necessarily. We do have a handful of sort of liquid QSIP type securities that do move around a bit. So there is some kind of, you know, material NAV benefit potential from those names that, you know, frankly, you know, doesn't necessarily take a maturity to work through.

Speaker 2

I would say also kind of practically speaking, over the course of a normal cycle, you tend to see a natural maturity duration of kind of about two and a half to three years. So that would kind of be how we sort of look at things like that is sort of over a two and a half, three year period. Again, there's kind of maybe a couple of different ways to get at it.

Speaker 5

That's helpful. Last one for me. I'm just looking at the nonaccrual book, it seems like there's still a lot of LME activity in the space, more limited on the bankruptcy side. But just curious about, as you look at your nonaccrual book, opportunity to potentially either restructure or resolve some of those and potentially kind of move those back to accrual or maybe sell. How does the kind of the resolution trajectory look at this point?

Speaker 2

Yeah. I'd say, you know, I'd say maybe let's call it, like, flat to slightly positive in the sense of, you know, I do think there are probably a couple of the smaller names on there that are just gonna take kind of a very long time to work through. One of our bigger names, we kind of alluded to it on the call, but there has been sort of a, I call it a partial restructuring, full, but such that, you know, we are now, you know, receiving cash interest on the loan, however, kind of given all the puts and takes, we still don't think it is we still struggle kind of getting to a full par recovery from kind of what we think about the business and enterprise value, etcetera. So kind of we continue to leave it on non accrual, but we are recognizing the cash interest that we receive on the loan, not recognizing any of

Speaker 1

the pick.

Speaker 2

And I think our suspicion is that that situation will continue to improve versus not. And I'd say the rest of them are relatively flat to I'd say kind of increasing. There's another large position that we've been working with the company on monetizing some noncore assets to generate some kind of pay downs there, which again, doesn't necessarily translate into turning that back on non accrual but getting the money back and then redeploying it somewhere else has the exact same positive benefit.

Speaker 5

Thanks for taking my questions today.

Operator

Your next question comes from the line of Steven Martin with Slater Capital. Please go ahead.

Speaker 6

Good morning, guys.

Speaker 5

Good morning, Steve.

Speaker 6

Of my questions have been asked and answered. When you look at the pro form a combined portfolio, recognizing that we sort of knew what was in each, what's the most dramatic change going to be? Is it just is it the Logan equity that Portman doesn't have a lot of equity and it will end up getting diluted? What is the nature of the difference in the portfolio going to look like?

Speaker 2

Yeah. Good question, Steve. I was going say Good I'll give you like a slightly especially bad answer in the sense of you know, the reason why this made a lot of sense is the portfolios are, you know, pretty similar, and we have done a very good job of exiting a number of equity positions in Logan Bridge over the last twelve months. So I would say yes. I think if you look at the pro form a company, equity will look as a relatively small amount.

Speaker 2

I would say our joint ventures and fuel equities will also look as a smaller amount. You're looking at it from a Portman perspective, Logan Ridge had sort of less limited CLO equity and less joint venture positions. So I think, again, when you kind of like put it onto the balance sheet for ninethirty, and you're looking at it from an important perspective, those numbers will be down a little bit as a percentage of total and kind of the debt will be up a bit as a percentage of total. I don't think it's dramatic, candidly, but I would say, again, if you kind of from a Portman perspective, I think the mix of pure debt will likely go up a little bit or said differently, the CLO equity will go down, measure will go down a little bit. I think the equity will go up a bit, but somewhat negligible.

Speaker 2

So it'll really be a relatively consistent SOI.

Speaker 3

Got it. Steve, I would just add, as of sixthirty, the weighted average yield was 10.7% at Portman, for Logan it was 10.6% on a combined basis, it's 10.7%. But there is a, you know, pretty material operating expense efficiencies that you guys will all benefit from going forward, as well as, of course, the fee waivers, etcetera, that we put in place that will drive P and L going forward. And then over the longer term, we would love to rotate out of the equity book and all of the non yielding names that Logan Ridge has and redeploy those proceeds into interest earning assets originated by this.

Speaker 6

Since there was a substantial overlap in names over the last two to three years, When you combine them, is there going to be a material difference in the number of different names in the portfolio?

Speaker 2

Again, we can talk about materiality. Probably not. I mean, again, if you're looking at it from a Portman perspective, there's 94, 96 unique borrowers that will maybe go up by 10 to 15 names. So that obviously we are adding diversification. I wouldn't say it is substantial.

Speaker 2

I would also say the names are pretty similar, but depending on the timing of when we did the individual names, One name might be a slightly higher percentage of Logan versus Portman that will kind of normalize out when you add the two things together. Candidly, I think the biggest piece from our perspective that will move around when you put the two things together is we'll have a lot more flexibility around where we sort of put the names and the exposures between our different credit facilities and where we can kind of get better borrowing capacity. Again, all of our two different credit facilities have different industry concentrations, leverage concentrations, kind of things, all that, all like that. So the ability for us now under one combined roof to be able to sort of, I'll call it, move around the asset positions within the credit facilities, at least from our perspective is where we'll be able to sort of unlock a lot of value from the SOI being put together.

Speaker 6

Got it. One last one. Recognizing that you'd gotten you exited a number of the larger equity positions, any change that you can talk about on what was left of the Logan Ridge equity?

Speaker 2

No, not a huge change. There's still a couple of small things that we're working on getting exiting and moving around. Outdata is probably one or two of the larger ones that are still sort of trying to work through their own processes. We don't have a lot of control in those instances, so we obviously kind of like push and prod, you know, where we can. But I would say, you know, I would not say that there is anything, you know, logical on the horizon.

Speaker 2

But having said that, like for sure, the macro environment and where kind of LBO environment we think is trending over the next six months, I wouldn't be surprised if we see a bunch of things that we're not expecting, smaller positions, but volume wise, see more things that we're not expecting actually get monetized and realized.

Speaker 6

Okay. Thanks a lot,

Speaker 1

guys. Thanks, Steve.

Operator

That concludes our question and answer session. I will now turn the call back over to Ted Goldthorpe for closing remarks.

Speaker 1

Thank you all for attending the 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 November when we announce third quarter twenty twenty five results. And I wish everybody a great end to their summer. Thank you so much.

Operator

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

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