Logan Ridge Finance Corporation

Good morning and welcome to Logan Ridge Finance Corporation's second quarter and a June 30, 2024 earnings conference call. An earnings press release was distributed yesterday, August 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 at www.loganridgefinance.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 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. Speaking today's call will be Ted Goldthorpe, Chief Executive Officer, President and Director of Logan Ridge Finance Corporation, Brandon Satoran, Chief Financial Officer, and Patrick Schaefer, Chief Investment Officer. 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.

Welcome to our second quarter 2024 earnings call. As mentioned, I am joined today by our Chief Financial Officer, Brandon Satoran, and our Chief Investment Officer, Patrick Schaefer. Following my opening remarks, Patrick will provide additional details on our investment activity to date, and Brandon will walk through our financials. Before Patrick and Brandon provide more details on our portfolio and financials, I would like to discuss a few key highlights from the quarter. During the second quarter, we continue to make progress towards our strategy of reducing the company's exposure to the legacy equity portfolio and increase the exposure to credits originated by the BC Partners credit platform. The benefits of such strategy resulted in a steady increase in our total investment income quarter over quarter. Second quarter, total investment income increased by $400,000 to $5.4 million, $5.0 million the previous quarter, and by $100,000 as compared to the same quarter last year. Additionally, the underlying credit performance of our portfolio has remained strong, with no new investments being placed on non-approval status during the quarter. Furthermore, the strength of the company's financial position and the outlook for the long-term earnings power of the portfolio has allowed the company to declare a third quarter distribution of 33 cents per share. The dividend has almost doubled compared to the 18 cents per share distribution we declared in the first quarter of 2023 when we reintroduced in our quarterly dividend, highlighting the company's successful turnaround and story since we took over management back in July of 2021. Looking forward to the second half of 2024, we continue to see attractive opportunities in our portfolio and our pipelines to deploy our available capital. New deal activity has picked up pace, and the syndicated markets have continued to remain open. Elaborers have continued to rely heavily on private capital providers for M&A activity, given the certainty they provide, resulting in tailwinds for our industry. Having said that, a combination of continued private credit capital raising and a more competitive syndicated market alternative has led to meaningful spread compression in certain parts of the private credit market. According to KBRE DLD private data, private credit spreads for borrowers greater than $100 million of EBITDA and those between $50 and $100 million of EBITDA have both declined by approximately 75 basis points since the beginning of the year. That is compared to spread compression of approximately 50 basis points for our borrowers between $20 and $50 million of EBITDA and just over 25 basis points for borrowers with less than $20 million of EBITDA. We remain focused on increasing shareholder value through the diligent deployment of capital, continued rotation out of legacy investment portfolio, and by leveraging and maximizing the earnings power of the company's balance sheet. With that, I'll turn the call over to Patrick Schaefer, our Chief Investment Officer. Thanks, Ted, and hello, everyone. As of June 30, 2024, the fair value of Logan's portfolio was approximately $195.6 million with exposure to 61 portfolio companies. This compares to 62 portfolio companies with a fair value of approximately $200.1 million as of the prior quarter and 62 portfolio companies with a fair value of $206.6 million as of June 30, 2023. During the quarter ended June 30, 2024, while our pipeline of new opportunities remained strong, we continued to be prudent and judicious on the deployment front, specifically coming off a strong quarter of net deployments during the first quarter of 2021. In the second quarter, we deployed approximately $1.5 million in new and existing investments and had approximately $5.6 million in repayments and sales, resulting in net repayments and sales of approximately $4.1 million for the quarter. Regarding portfolio composition, as of June 30, 2024, 59.4% of the company's investment portfolio at fair value was invested in assets originated by the BC Partners credit platform. As of June 30, 2024, our debt investment portfolio represented 80% of the total portfolio at fair value with a weighted average annualized yield of approximately 11.4%, excluding income for non-approvals and collateralized loan applications. This compares to a debt investment portfolio, which represented 80.8% of our total portfolio at fair value, with a weighted average annualized yield of approximately 11.4%, excluding income from non-accruals and collateralized loan obligations, as of the prior report, and 82.2%, with a weighted average annualized yield of approximately 10.8%, as of June 30, 2023. Notably, while the weighted average annualized yield, excluding income from non-accruals and collateralized loan obligations, remained unchanged from the prior quarter, it increased by 60 basis points as compared to the prior year. As of June 30, 2024, 88.1% of our debt investment portfolio at fair value was bearing interest at a floating rate compared to 88.5% as of March 31, 2024, and 83.2% as of June 30, 2023. As of June 30, 2024, first lien debt represented 65.8% and 64% of our portfolio at cost and fair value respectively. This compares to first lien debt representing 66.5% and 65.2% of our total portfolio on a cost and fair value basis as of March 31, 2024, and 66.1% and 66.8% of our total portfolio respectively. as of June 30, 2023. The equity portfolio represented 15.2% and 19.0% of the portfolio on a cost and fair value basis, respectively, as of June 30, 2024. This compares to 15.2% and 18.2% of the total portfolio on a cost and fair value basis as of March 31, 2020. Moving on to non-accrual status. As of June 30, 2024, the company had four debt investments across three portfolio companies on non-accrual status, with an aggregate amortized cost and fair value of $17.2 million and $10.1 million, respectively, or 8.5% and 5.2% of the investment portfolio at cost and fair value, respectively. This remained unchanged from the first quarter, which had four debt investments across three portfolio companies. with a cost and fair value of 17.2% and $10.6 million, respectively, or 8.3% and 5.3% of the investment portfolio's cost and fair value, respectively.