Portman Ridge Finance Corporation

Thank you for holding and welcome everyone to the Portman Ridge third quarter 2022 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press star one. Thank you. It is now my pleasure to turn the call over to Ted Goldthorpe, CEO. Mr. Goldthorpe, please go ahead.

Good morning. Thanks, everyone, for joining our third quarter 2022 earnings call. I'm joined today by our Chief Financial Officer, Jason Ruse, and our Chief Investment Officer, Patrick Schaefer. I'll provide brief highlights on the company's performance and activities for the quarter. Patrick will provide commentary on our investment portfolio and our markets, and Jason will discuss our operating results and financial condition in greater detail. Yesterday, Portman Ridge announced its third quarter 2022 results, and we were pleased to report a strong quarter of financial performance despite operating under difficult market conditions, a very challenging economic environment, rising interest rates, and market volatility. Our total investment income, core investment income, and net investment income for the third quarter of 2022 all increased in comparison to the second quarter of 2022, as we started to see the impact that rising rates had in generating incremental revenues from our investments. Between the reduced cost of capital from our amended and extended credit facility with JPMorgan Chase and the continued benefit of rising rates, we expect this quarter's strong performance will continue going forward in future quarters, allowing us to increase our quarterly dividend by 6% to 67 cents per share. Regarding the macro environment in our sector, we continue to see the impact of the liquid markets spilling over into the private markets. Leveraged loan new issue volume declined by over 80% year-over-year during the quarter and is down almost 60% year-to-date due to a combination of lower M&A volumes and a decline in CLO formation, which is a key source of demand for the market. Additionally, loan prices on average peaked in August around 95% of par and then traded down to 92% of par by the end of September and remained at those depressed levels so far in the fourth quarter. The volatility displayed in the loan markets have benefited Portman Ridge in the following ways. First, the reduced demand for new issue has forced potential borrowers away from the loan market and into the private debt market, increasing our potential deal funnel and allowing for increased selectivity on new deals. The trading place decline has resulted in an increase in private debt deal economics through approximately 100 to 200 basis points of higher spreads and 100 to 300 basis points of incremental OID. Finally, the volatility has allowed Portman Ridge to be nimble and opportunistically purchase loans originally underwritten by a syndicate of banks at a significant discount. and loans trade in the secondary market at significant discounts, although the latter opportunity has become much more pronounced so far in the fourth quarter. During the third quarter, we remained cautious in our investment strategy and saw net deployments, excluding ordinary course amortization payments, of approximately $2.4 million. As a result, we ended the quarter with a well-balanced portfolio and kept our non-accrual positions under control. Although the full impact of rates have not flown through through our underlying borrowers through June 30th, the average interest coverage in our portfolio was three and a half times, and on average, LTM revenues grew by four and a half percent. As we continue to execute our investment strategy, we're well positioned to take advantage of opportunities that arise from the current market environment by continuing to be selective and resourceful in our investment decisions. We will continue to be prudent with underwriting new investments given the current economic uncertainty. With that, I will turn the call over to Patrick Schaefer, our Chief Investment Officer, for a review of our investment activity.

Patrick Schaefer Thanks, Ted. Turning now to slide five of the presentation and a sensitivity of our earnings to interest rates. As of September 30, 2022, approximately 89.3 percent of our debt securities portfolio were either floating right with the spread to an interest rate index such as LIBOR, SOFR, or prime rate, with 71% of these still being linked to LIBOR. As you can see from the chart, the underlying benchmark rate on our assets during the quarter lagged the prevailing market rates and still remains significantly below the LIBOR and SOFR rates as of November 4th, 2022. We would expect this to normalize over time as the underlying one, three, and six-month contracts reset, but for illustrative purposes, If all our assets were to reset to either a three-month LIBOR or SOFR rate, respectively, we would expect to generate an incremental $2.4 million of quarterly income. While our liability costs would also rise relative to their Q3 levels, we still expect a net positive benefit of approximately 8 cents per share, assuming all of our assets and liabilities are utilizing the same three-month benchmark rates for the entirety of the quarter. Skipping down to slide 11, Investment activity and originations for the quarter were lower than prior quarter, but repayment activity was higher, resulting in net deployment of approximately $2.4 million, excluding regularly scheduled amortization payments and fundings under previously committed facilities, including our Great Lakes joint venture. Net deployment consisted of new fundings of approximately $44.3 million, offset by approximately $41.9 million of repayments. These new investments are expected to yield a spread to SOFR of 664 basis points on the par balance, but a number of the investments were purchased at a meaningful discount to par or included upfront fees, which will generate income in addition to the stated spread. Our debt securities portfolio at the end of the third quarter remained highly diversified, with investment spread across 32 different industries and 117 different entities, all while maintaining an average par balance per entity of approximately $3.4 million. Turning to slide 12, investments on non-accrual were flat as compared to June 30th, 2022, and represent 0.0% and 0.3% of the company's investment portfolio at fair value and amortized cost, respectively. I'll now turn the call over to Jason to further discuss our financial results for the period.