Logan Ridge Finance Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Logan Ridge fourth quarter 2021 financial results. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I will now like to turn the conference over to your speaker for today, Serena Ligi. You may begin.

Thank you. Good morning, and welcome to Logan Ridge Finance Corporation's fourth quarter and full year 2021 earnings conference call. An earnings press release was distributed on March 14th after market closed. A copy of the release, along with an earnings presentation, is available on the company's website at www.loganridge.com. in the investor relations section and should be reviewed in conjunction with the company's form 10-K filed on Monday 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 FCC. 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 fourth quarter and full year 2021 earnings call. I am joined today by our Chief Financial Officer, Jason Ruse, and our Chief Investment Officer, Patrick Schaefer. This marks our second completed quarter and the first fiscal year as the new advisor to Logan Ridge Finance. And today, I'll 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 through the financials. Our immediate objectives as the new advisor are to first reposition the book by rotating out of non-income producing equity exposure and redeploying those proceeds into higher quality senior secured income generating investments originated by BC partners. And second, to deliver and optimize the company's debt capitalization. During 2021, we made substantial progress repositioning the investment portfolio having successfully monetized approximately $100 million of the legacy portfolio we inherited. Since assuming the role as the company's investment advisor on July 1, 2021, we've successfully exited equity investments in six portfolio companies, generating $13.4 million of proceeds through December 31, 2021, which can be redeployed into interest-earning investments originated by Mt. Logan Management, part of the BC Partners credit platform. During the fourth quarter, we exited three equity investments generating $2 million in proceeds that can be redeployed into interest-earning investments. Originations and repayments were very active during this period, and we will continue to redeploy the company's capital into new investment commitments originated by the BC Partners credit platform in 2022. During the quarter, we made approximately $46.2 million of investments and had approximately $42.1 million in repayments and sales and investments, resulting in net deployment of approximately $4.1 million for the fourth quarter of 2021. Since assuming the role of the company's investment advisor on July 1st, 2021, we have deployed $79.5 million in interest-earning investments originated by Mount Logan Management through December 31st, 2021, and it had sales and repayments of $106 million during the same period. As you can see on slide four, first lien debt as a percentage of the portfolio at fair value was 49.6 percent, second lien debt was 15.2 percent, subordinated debt was 2.5 percent, and collateralized loan obligations were 3.9 percent, and our equity portfolio decreased to 28.8 percent. During the year, we made significant progress in risk reduction. Following the full repayment of the $91 million in SBA debentures during the first and second quarter, we repaid the $25 million outstanding on the KeyBank credit facility and refinanced a portion of our long-term notes, and during the fourth quarter, using $50 million of 5.25% senior secured notes due 2026, which received an investment-grade rating of BBB-. Our total debt-to-equity ratio is 1.2 times as of the end of 2021, as compared to two times at the end of 2020. We will continue to work on optimizing the company's capital structure in 2022, aiming to further lower our overall costs of debt. Our longer-term goal is to leverage the BC Partners platform and entire AUM base to drive operating efficiencies. So far, we have reduced and stabilized operating expenses by approximately 23% to $20.3 million in 2021, as compared to $26.4 million in 2020. and we'll expect 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 we lay out on slide eight of the earnings presentation, we believe there's a near-term pathway to positive earnings and longer-term accretion from the rotation of non-income generating assets. In the near term, we expect significant cost savings from both one-time items in the fourth quarter, such as an extra 30 days of interest on the $50 million of notes that were refinanced, and from lower liability costs upon the full refinancing of the legacy Logan Ridge liability structure, in addition to incremental income through the investment of our cash on our balance sheet. In the longer term, our expected rotation out of non-income generating assets is expected to significantly increase returns on equity for our shareholders, but our ability to predict the exact timing of that rotation is difficult. I would also like to note that we are not including any benefit from high-grading the existing income-generating portfolio or any benefit from rising interest rates in this analysis. With that, I will turn the call over to Patrick Schaefer, our Chief Investment Officer.