Logan Ridge Finance Corporation

Ladies and gentlemen, this conference is scheduled to begin shortly. Please continue to standby. Again, ladies and gentlemen, this conference is scheduled to begin shortly. Please continue to standby. Thank you for your patience. Thank you. Thank you. Thank you. Good day and thank you for standing by. Welcome to the Logan Ridge 3rd Quarter 2021 Financial Results Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, Jihei Lindford. You may begin.

Thank you. Good morning and welcome to Logan Ridge Finance Corporation's third quarter 2021 earnings conference call. An earnings press release was distributed yesterday afternoon, November 10th after market closed. A copy of the press release along with an earnings presentation is available on the company's website at loganridgefinance.com in the investor relations section and should be reviewed in conjunction with the company's form 10Q 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 the forward-looking statements as a result of a number of factors, including those described in the company's filings with the SEC. Logan Ridge Finance Corporation assumes no obligation to update any such forward-looking statements unless required by law. With that, I would now like to turn the call over to Ted Goldthorpe Chief Executive Officer of Logan Ridge Finance Corporation. Please go ahead, Ted.

Good morning, and welcome to our third quarter 2021 earnings call. I'm joined today by our Chief Financial Officer, Jason Ruse, and our Chief Investment Officer, Patrick Schaefer. This marks our first completed quarter as the new advisor to Logan Ridge Finance. And today, I'd like to start off by summarizing the progress that we've made and what lies ahead. Following that, Patrick will provide additional detail on our investment activity to date, and Jason will walk you through the financials. We previously discussed our two immediate objectives as the new advisor. First and foremost, our goal is to reposition the book by rotating out of non-income-producing equity exposure and redeploying those proceeds into high-quality, senior-secured, income-generating investments originated by VC partners. And secondly, a key priority was to leverage and optimize the company's debt capitalization. I'm pleased to report that during the third quarter, the company made material progress on the repositioning front, exiting five portfolio companies which generated proceeds of $59.7 million, of which approximately $11.2 million was received for the successful exits from three non-income producing equity investments. These positions were valued at $58.7 million as of June 30th, 2021. Additionally, during the quarter ended September 30th, 2021, we made $48.9 million of new investment commitments to six new portfolio companies, of which approximately $33.3 million was funded as of quarter end. As a result, first lien debt as a percentage of the portfolio at fair value has increased to 58% from 50% in the prior quarter, Second lien debt has decreased to 11% from 17% in the prior quarter, and our equity portfolio decreased to 31% from 32% in the prior quarter. We're very pleased with the progress we've made in repositioning the portfolio. With that in mind, I would like to spend a few minutes addressing our investment income during the third quarter. Our investment income declined this quarter compared to prior quarter, but this is primarily driven by large exits occurring early in the quarter, and the bulk of our deployment activity occurring at the end of the quarter. As prudent underwriters and good stewards of shareholder capital, we've always taken a disciplined approach to deploying capital, and the reinvestment of Logan Ridge is no exception. In addition to the new funded loans made during the quarter, largely weighted towards the end of the quarter, we had $37.4 million of cash on the balance sheet that is earmarked for previous commitments that we expect to fund in new investments we intend to make. We fully expect this dynamic to be transitory, but generally it is the result of successful proactive rotation of the portfolio. Our platform has a robust pipeline, and we expect to play the capital in a reasonably short period of time, which should drive incremental investment income that flows through 100% to NII. With respect to the company's debt structure, we made tangible debt progress in risk reduction by additional deleveraging during the third quarter. Following the full repayment of the $71 million in SBA debentures during the second quarter, we then repaid $25 million outstanding on the key bank credit facility during the quarter. Accordingly, our debt-to-equity ratio has decreased from 1.3 times at the end of the second quarter, 2021, to 1.1 times as of the end of the third quarter, 2021. Furthermore, subsequent to quarter end, we announced that we successfully refinanced a portion of our long-term debt On October 29th, 2021, the company issued 50 million of five and a quarter senior unsecured notes due 2026, which received an investment grade rating of triple B minus from Egan Jones. The proceeds of this offering will be used to repay 50 million in aggregate principal of the 6% notes due 2022, which will be completed early next month. Longer term, we've also discussed our plans to leverage the BC Partners platform an entire AUM base to drive operating efficiencies. So far, we've reduced and stabilized operating expenses, and we expect we will be able to continue this trend of spreading a stable level of expenses across a larger asset base as we seek to grow the investment portfolio. As I mentioned earlier, our overall key objective is to reinstate a stable, sustainable dividend as soon as practically possible. We've made solid progress thus far. We look forward to continuing this momentum and providing additional updates in the coming quarters. With that, I will turn the call over to Patrick Schaefer, our Chief Investment Officer.

Thanks, Ted. I'll briefly summarize investment activities for the third quarter and then provide some more detail on activities subsequent to quarter end. During the quarter, the company made $48.9 million of new investment commitments to six new portfolio companies. of which approximately $33.3 million was funded as of quarter end. The company had approximately $64.1 million in net repayments and sales, resulting in net repayments and sales of approximately $30.8 million for the quarter. As of September 30, 2021, the company's portfolio consisted of investments in 33 portfolio companies with a fair value of approximately $195.4 million. The debt investment portfolio, which represented 69.1% of the fair value of our total portfolio, had a yield of approximately 8.9%. As of quarter end, we had debt investments in three portfolio companies on non-accrual status, with an aggregate amortized cost of $21.3 million and an aggregate fair value of $9.2 million, which represented 11.0% and 4.7% of the investment portfolio, respectively. During the quarter, the company recognized $7.4 million of realized gains on investments, driven by the successful exits of our investments in Three Bridge Solutions, Rapid Fire Protection, Corporate Visions, Citel, and AmeriMark Direct. The company also recognized $9.4 million of unrealized depreciation, driven largely by realizing depreciation on the positions we exited during the quarter. I'll now provide a little more detail on our activities subsequent to quarter end. To date, we have successfully exited Logan Ridge's investment in Chicken Soup for the Soul and approximately $7 million of our investment in Navis Holdings Inc., generating proceeds of $17 million, of which approximately $1.3 million was from our equity interest in Navis Holdings. This was offset by $24.3 million of new investment commitments to date. We have equity interest in two additional portfolio companies that are currently in various stages of sale processes, one of which we're cautiously optimistic will close by year-end. As we've discussed at length, our immediate objectives continue to be successfully rotating the portfolio out of non-income-producing positions and redefining the proceeds into high-quality, senior-secured, interest-earning debt investments originated by BC partners. And we've made substantial progress on this initiative already. I'll now turn the call over to Jason.

Thanks, Patrick. Turning to our financial results for the quarter, total investment income was $3.4 million for the third quarter of 2021 compared to $5 million for the second quarter of 2021. Interest income declined by $900,000 quarter to quarter due to lower average outstanding debt investments. Additionally, the third quarter did not benefit from approximately $600,000 in non-recurring dividend income received in the second quarter. Total expenses for the third quarter of 2021 were $4.9 million compared to $5 million for the second quarter of 2021. Interest and financing fees decreased by $400,000, management fees decreased by $200,000, and other general and administrative costs increased by $500,000 compared to the prior quarter. The decrease in expenses quarter to quarter was driven primarily by lower financing costs and lower management fees as a result of a smaller portfolio partially offset by higher general and administrative expenses driven primarily by $400,000 of one-time expenses during the third quarter. Accordingly, net investment loss for the quarter was $1.5 million or $0.56 per share compared to income of $34,000 or $0.01 per share in the quarter ended June 30, 2021. We recognize $7.4 million in net realized gains and $9.4 million net change in unrealized losses. The net decrease in assets resulting from operations was $3.5 million or $1.29 per share for the third quarter of 2021 compared to a net decrease of $7.6 million or $2.79 per share for the second quarter of 2021. Net assets as of September 30, 2021, were $110.3 million, or $40.67 per share, compared to $113.7 million, or $41.96 per share, at June 30, 2021. The decrease in NAV per share was primarily due to the net change in unrealized losses during the quarter and lower net investment income. As of September 30, 2021, we had $37.4 million in cash and cash equivalents, On the liability side of the balance sheet, we fully repaid the $25 million outstanding on the KeyBank credit facility during the third quarter. At quarter end, we had approximately $125 million of debt outstanding comprised of $72.8 million of 6% notes due 2022 and $52.1 million of 5.75% convertible notes due 2022. The company's total debt-to-equity ratio was 1.1 times at quarter end compared to 1.3 times at June 30th and two times at the prior year end. As Ted noted, subsequent to quarter end on October 29th, 2021, we issued $50 million of 5.25% senior unsecured notes due to 2026 and a private placement, which were rated BBB- by Egan-Jones. The proceeds from this offering will be used to redeem $50 million of the $72.8 million outstanding of the 6% notes due 2022. We expect this redemption to be completed on December 6, 2021, and following that, $22.8 million of the 6% notes due 2022 will remain outstanding. With that, I will turn the call back over to Ted Golddorf.

Thank you, Jason. In closing, we've made significant headway since assuming management of the company in the last quarter. We've reduced the equity composition of the investment portfolio, and we are prudently redeploying proceeds into high-quality debt investments. We've also made material progress on improving the capitalization of the company by quickly deleveraging and, more recently, refinancing a significant portion of our long-term debt capital at lower cost. We look forward to providing more updates in the coming quarters as we continue to make progress. Thank you for your support, and this concludes our prepared remarks, and I will now turn the call over to the operator for any questions.

Thank you. Ladies and gentlemen, as a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw a question, you press the pound key. Again, that is star 1 to ask a question. All right. And first, we have Christopher Nolan with Ledenberg Thalmann.

Hey, guys. Jason, the 400K one-time expenses, what would those for again, please?

Yeah, sure. A couple of things. There were some prepaid or capitalized fees associated with a prior shelf registration and an equity offering program known as an ATM program. We wrote those off as those programs expired this quarter. And then there was some additional accruals that we put on related to audit expenses.

Okay, and then I guess, I mean, you guys have been making really good progress in terms of, you know, just repositioning the book and the balance sheet and so forth. What is your timeframe in terms of you think you can mostly, you know, you can get equity, let's say, to 10% or less of, you know, the total portfolio cost or fair value?

I mean, we expect to make pretty material headway between now and the early first quarter. So, you know, by the time of our next call, we expect the equity percentage of our portfolio to be down. We've got two, as Patrick mentioned in his prepared remarks, we have two equity positions that are in pretty advanced stages of a sales process. So, again, I'm not saying it's going to happen or not happen, but we're doing a lot of work to get those down. In terms of getting to 10%, you know, I think a realistic target is probably end of next year. But, again, we're trying to accelerate that to the best of our abilities.

Okay, great. And then I guess final question to the convertible notes. Any plan on refinancing those?

Yeah, I would say we're looking at the right side of the balance sheet holistically right now, including the convertible notes. We're right now looking at some. restructuring on, call it our credit facility, asset-backed facility, and that will follow suit.

Yeah, so we just put a partial tender out for our bonds, right, which will close December 6th. And the converts are non-call, just given they're converts. So we have a little more time to address those, just because, you know, although they mature in May of 2022, unlike the bonds, they're not as easily to extinguish.

Well, you know, I mean, you guys have been doing a yeoman's job, and I know on the last call your stock was trading roughly 52% of NAV. Now it's closer to 65%. So, you know, I think the changes that you're making are definitely starting to show in the stock valuation. So good for you. Okay, that's it for me. Great. Thank you, Chris.

Thank you. And there are no questions at this time. Now I'll turn the call back over to the management.

Great. Well, thank you all for dialing in this morning, and thank you for your continued support. And as per always, the management team is available for calls at any time. Thank you very much.

Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. you

good day and thank you for standing by welcome to the logan ridge third quarter 2021 financial results conference call at this time all participants are in the listen only mode after the speaker's presentation there will be a question and answer session to ask a question during the session you will need to press star 1 on your telephone please be advised that today's conference is being recorded if you are acquiring the further assistance please press star zero I would now like to hand the conference over to your first speaker today, Jihei Lindford. You may begin.

Thank you. Good morning and welcome to Logan Ridge Finance Corporation's third quarter 2021 earnings conference call. An earnings press release was distributed yesterday afternoon, November 10th after market closed. A copy of the press release along with an earnings presentation is available on the company's website at loganridgefinance.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 the forward-looking statements as a result of a number of factors, including those described in the company's filings with the SEC. Logan Ridge Finance Corporation assumes no obligation to update any such forward-looking statements unless required by law. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of Logan Ridge Finance Corporation. Please go ahead, Ted.

Good morning, and welcome to our third quarter 2021 earnings call. I'm joined today by our Chief Financial Officer, Jason Ruse, and our Chief Investment Officer, Patrick Schaefer. This marks our first completed quarter as the new advisor to Logan Ridge Finance. And today, I'd like to start off by summarizing the progress that we've made and what lies ahead. Following that, Patrick will provide additional detail on our investment activity to date, and Jason will walk you through the financials. We previously discussed our two immediate objectives as the new advisor. First and foremost, our goal is to reposition the book by rotating out of non-income producing equity exposure and redeploying those proceeds into high-quality, senior-secured, income-generated investments originated by VC partners. And secondly, a key priority was to deleverage and optimize the company's debt capitalization. I'm pleased to report that during the third quarter, the company made material progress on the repositioning front, exiting five portfolio companies which generated proceeds of $59.7 million of which approximately $11.2 million was received for the successful exits from three non-income producing equity investments. These positions were valued at $58.7 million as of June 30, 2021. Additionally, during the quarter ended September 30, 2021, we made $48.9 million of new investment commitments to six new portfolio companies, of which approximately $33.3 million was funded as of quarter end. As a result, first lien debt as a percentage of the portfolio at fair value has increased to 58% from 50% in the prior quarter. Second lien debt has decreased to 11% from 17% in the prior quarter. And our equity portfolio decreased to 31% from 32% in the prior quarter. We're very pleased with the progress we've made in repositioning the portfolio. With that in mind, I would like to spend a few minutes addressing our investment income during the third quarter. Our investment income declined this quarter compared to prior quarter, but this is primarily driven by large exits occurring early in the quarter and the bulk of our deployment activity occurring at the end of the quarter. As prudent underwriters and good stewards of shareholder capital, we've always taken a disciplined approach deploying capital, and the reinvestment of Logan Ridge is no exception. In addition to the new funded loans made during the quarter, largely weighted towards the end of the quarter, we had $37.4 million of cash on the balance sheet, that is earmarked for previous commitments that we expect to fund and new investments we intend to make. We fully expect this dynamic to be transitory, but generally it is the result of successful proactive rotation of the portfolio. Our platform has a robust pipeline, and we expect to play the capital in a reasonably short period of time, which should drive incremental investment income that flows through 100% to NII. With respect to the company's debt structure, we made tangible debt progress risk reduction by additional deleveraging during the third quarter. Following the full repayment of the $71 million in SBA debentures during the second quarter, we then repaid $25 million outstanding on the KeyBank credit facility during the quarter. Accordingly, our debt to equity ratio has decreased from 1.3 times at the end of the second quarter, 2021, to 1.1 times as of the end of the third quarter, 2021. Furthermore, subsequent to quarter end, we announced that we successfully refinanced a portion of our long-term debt. On October 29th, 2021, the company issued 50 million of five and a quarter senior unsecured notes due 2026, which received an investment grade rating of triple B minus from Egan Jones. The proceeds of this offering will be used to repay 50 million in aggregate principal of the 6% notes due 2022, which will be completed early next month. Longer term, we've also discussed our plans to leverage the BC Partners platform and entire AUM base to drive operating efficiencies. So far, we've reduced and stabilized operating expenses, and we expect we will be able to continue this trend of spreading a stable level of expenses across a larger asset base as we seek to grow the investment portfolio. As I mentioned earlier, our overall key objective is to reinstate a stable, sustainable dividend as soon as practically possible. We've made solid progress thus far, We look forward to continuing this momentum and providing additional updates in the coming quarters. With that, I will turn the call over to Patrick Schaefer, our Chief Investment Officer.

Thanks, Ted. I'll briefly summarize investment activities for the third quarter and then provide some more detail on activities subsequent to quarter end. During the quarter, the company made $48.9 million of new investment commitments to six new portfolio companies. of which approximately $33.3 million was funded as of quarter end. The company had approximately $64.1 million in net repayments and sales, resulting in net repayments and sales of approximately $30.8 million for the quarter. As of September 30, 2021, the company's portfolio consisted of investments in 33 portfolio companies with a fair value of approximately $195.4 million. The debt investment portfolio, which represented 69.1% of the fair value of our total portfolio, had a yield of approximately 8.9%. As of quarter end, we had debt investments in three portfolio companies on non-accrual status with an aggregate amortized cost of $21.3 million and an aggregate fair value of $9.2 million, which represented 11.0% and 4.7% of the investment portfolio, respectively. During the quarter, the company recognized $7.4 million of realized gains on investments, driven by the successful exits of our investments in Three Bridge Solutions, Rapid Fire Protection, Corporate Visions, Citel, and AmeriMark Direct. The company also recognized $9.4 million of unrealized depreciation, driven largely by realizing depreciation on the positions we exited during the quarter. I'll now provide a little more detail on our activities subsequent to quarter end. To date, we have successfully exited Logan Ridge's investment in Chicken Soup for the Soul and approximately $7 million of our investment in Navis Holdings, Inc., generating proceeds of $17 million, of which approximately $1.3 million was from our equity interest in Navis Holdings. This was offset by $24.3 million of new investment commitments to date. We have equity interest in two additional portfolio companies that are currently in various stages of sale processes, one of which we're cautiously optimistic will close by year-end. As we've discussed at length, our immediate objectives continue to be successfully rotating the portfolio out of non-income-producing positions and redefining the proceeds into high-quality, senior-secured, interest-earning debt investments originated by BC partners. And we've made substantial progress on this initiative already. I'll now turn the call over to Jason.

Thanks, Patrick. Turning to our financial results for the quarter, total investment income was $3.4 million for the third quarter of 2021 compared to $5 million for the second quarter of 2021. Interest income declined by $900,000 quarter to quarter due to lower average outstanding debt investments. Additionally, the third quarter did not benefit from approximately $600,000 in non-recurring dividend income received in the second quarter. Total expenses for the third quarter of 2021 were $4.9 million compared to $5 million for the second quarter of 2021. Interest and financing fees decreased by $400,000, management fees decreased by $200,000, and other general and administrative costs increased by $500,000 compared to the prior quarter. The decrease in expenses quarter to quarter was driven primarily by lower financing costs and lower management fees as a result of a smaller portfolio partially offset by higher general and administrative expenses driven primarily by $400,000 of one-time expenses during the third quarter. Accordingly, net investment loss for the quarter was $1.5 million or $0.56 per share compared to income of $34,000 or $0.01 per share in the quarter ended June 30, 2021. We recognize $7.4 million in net realized gains and $9.4 million net change in unrealized losses. The net decrease in assets resulting from operations was $3.5 million, or $1.29 per share, for the third quarter of 2021, compared to a net decrease of $7.6 million, or $2.79 per share, for the second quarter of 2021. Net assets as of September 30, 2021, were $110.3 million, or $40.67 per share, compared to $113.7 million, or $41.96 per share, at June 30, 2021. The decrease in NAV per share was primarily due to the net change in unrealized losses during the quarter and lower net investment income. As of September 30, 2021, we had $37.4 million in cash and cash equivalents, On the liability side of the balance sheet, we fully repaid the $25 million outstanding on the KeyBank credit facility during the third quarter. At quarter end, we had approximately $125 million of debt outstanding comprised of $72.8 million of 6% notes due 2022 and $52.1 million of 5.75% convertible notes due 2022. The company's total debt-to-equity ratio was 1.1 times at quarter end compared to 1.3 times at June 30th and two times at the prior year end. As Ted noted, subsequent to quarter end on October 29th, 2021, we issued $50 million of 5.25% senior unsecured notes due to 2026 and a private placement, which were rated BBB- by Egan-Jones. The proceeds from this offering will be used to redeem $50 million of the $72.8 million outstanding of the 6% notes due 2022. We expect this redemption to be completed on December 6, 2021, and following that, $22.8 million of the 6% notes due 2022 will remain outstanding. With that, I will turn the call back over to Ted Golddorf.

Thank you, Jason. In closing, we've made significant headway since assuming management of the company in the last quarter. We've reduced the equity composition of the investment portfolio, and we are prudently redeploying proceeds into high-quality debt investments. We've also made material progress on improving the capitalization of the company by quickly deleveraging and, more recently, refinancing a significant portion of our long-term debt capital with lower cost. We look forward to providing more updates in the coming quarters as we continue to make progress. Thank you for your support, and this concludes our prepared remarks, and I will now turn the call over to the operator for any questions.

Thank you. Ladies and gentlemen, as a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw a question, you press the pound key. Again, that is star 1 to ask a question. All right. And first, we have Christopher Nolan with Vandenberg Thalmann.

Hey, guys. Jason, the 400K one-time expenses, what were those for again, please?

Yeah, sure. A couple of things. There were some prepaid or capitalized fees associated with a prior shelf registration and an equity offering program known as an ATM program. We wrote those off as those programs expired this quarter. And then there was some additional accruals that we put on related to audit expenses.

Okay, and then I guess, I mean, you guys have been making really good progress in terms of, you know, just repositioning the book and the balance sheet and so forth. What is your timeframe in terms of you think you can mostly, you know, you can get equity, let's say, to 10% or less of, you know, the total portfolio cost or fair value?

We expect to make pretty material headway between now and the early first quarter. So by the time of our next call, we expect the equity percentage of our portfolio to be down. We've got two, as Patrick mentioned in his prepared remarks, we have two equity positions that are in pretty advanced stages of a sales process. So again, I'm not saying it's going to happen or not happen, but we're doing a lot of work to get those down. In terms of getting to 10%, I think a realistic target is probably end of next year. But But again, we're trying to accelerate that to the best of our abilities.

Okay, great. And then I guess the final question is the convertible notes. Any plan on refinancing those?

Yeah, I would say we're looking at the right side of the balance sheet holistically right now, including the convertible notes. We're right now looking at some restructuring on, call it our credit facility, asset-backed facility, and that will follow suit.

So we just put a partial tender out for our bonds, right, which will close December 6th. And the converts are non-call, just given their converts. So we have a little more time to address those, just because, you know, although they mature in May of 2022, unlike the bonds, they're not as easily to extinguish.

Well, you know, I mean, you guys have been doing, you know, a yeoman's job, and I know on the last call, Your stock was trading roughly 52% of NAV. Now it's closer to 65%. So, you know, I think the changes that you're making are definitely starting to show in the stock valuation. So good for you. Okay, that's it for me. Great. Thank you, Chris.

Thank you. And there are no questions at this time. Now I'll turn the call back over to the management.

Great. Well, thank you all for dialing in this morning, and thank you for your continued support. And as per always, the management team is available for calls at any time. Thank you very much.

Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.