Portman Ridge Finance Corporation

year 2023 earnings conference call. An earnings press release was distributed yesterday, March 13th after market close. A copy of the release along with an earnings presentation is available on the company's website at www.parklandridge.com in the investor relations section and should be reviewed in conjunction with the company's Form 10-K file yesterday with the SEC. As a reminder, this conference call is being recorded by 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. Portland 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 Portland Ridge Finance Corporation, Jason Roos, Chief Financial Officer, Patrick Schaefer, Chief Investment Officer, and Brandon Satoran, Chief Accounting Officer. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of Portman Ridge.

Good morning, and thanks everyone for joining our fourth quarter and full year 2023 earnings call. I'm joined today by our Chief Financial Officer, Jason Ruse, our Chief Investment Officer, Patrick Schaefer, and our Chief Accounting Officer, Brandon Satoran. I'll provide brief highlights on the company's performance and activities for the year. 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 fourth quarter and full year 2023 results, and we are pleased with the solid earnings power of the portfolio, despite operating in somewhat challenging market conditions. During the year, we saw a 10% increase in total investment income and a 16% increase in core investment income year over year. Additionally, our net asset value per share increased from $22.65 per share to $22.76 per share quarter over quarter. Credit quality also improved in the quarter, with a reduction in non-accruals on a cost, market value, and company count basis. We continued our accretive repurchase program, purchasing 101,680 shares at an average cost of approximately $1.8 million during the fourth quarter. Due to the continued strong performance this past quarter, the Board of Directors was able to approve another strong dividend for the first quarter of 2024 in the amount of 69 cents per share, a level that represents a 12.1% annualized return on that asset value. For the full year 2023, total dividends distributed to shareholders amounted to $2.75 per share, representing a 7.4% increase as compared to the dividend distributed in 2022. Turning to conditions in our primary market, new deal activity began picking up in late Q4, and while our primary market has been consistently active for most of 2024 so far, deal activity during 2023 as a whole was meaningfully down relative to 2022 and 2021. On the sponsor finance front, the fourth quarter deal activity began to tick up through a combination of valuation expectations being more reasonable and a belief by most industry participants that interest rates had either reached their peak or near enough that new buyers could reasonably estimate their cost of capital. In both the sponsor and non-sponsor activity, we continue to find the investment opportunities to be very attractive, giving the combination of higher benchmark rates, lower leverage on new deals, higher equity contributions from sponsors, and better documentation. As has been the case for the last couple of quarters, we continue to be very selective on new investment opportunities, and have overall found investments in existing portfolio companies more attractive in new borrowers. To that end, during the fourth quarter, 55% of our capital deployed was in existing portfolio companies as compared to 45% being deployed into new borrowers, three new borrowers to be specific. Our goal continues to be to maintain an exceptionally diversified portfolio and invest in companies that have the potential to provide strong returns for our shareholders. Refocusing on Portman Ridge, we continue to believe our buyback, our stock remains undervalued throughout 2023 and consistently repurchased shares under a renewed stock purchase program. During the year, we repurchased an incremental 224,933 shares for an aggregate cost of approximately $4.4 million. This compares to an aggregate cost of $3.8 million for full year 2022. Consistent with prior years, the company's board of directors renewed our $10 million stock buyback program for another year. And with that, I will turn the call over to Patrick Shaver, our chief investment officer, for a view of our investment activity.

Thanks, Ted. Turning now to slide five of our presentation and the sensitivity of our earnings to interest rates. As of December 31, 2023, approximately 90% of our debt portfolio were either floating rate were either floating rate with a spread to the 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, the underlying benchmark rates of our assets during the quarter lagged the prevailing market rates and still remain below the SOFR rates as of March 8, 2024, but between the market transition last year from LIBOR to SOFR and the recent pause from the Fed, the gap is the narrowest it has been since the onset of the Fed rate hike cycle. the Fed rate hike cycle. For illustrative purposes, if all of our assets were to reset to a three-month SOFR rate, we would expect to generate an incremental $86,000 of quarterly income. Having said that, slide seven shows the aggregate impact to NII on a run rate basis of both our assets and liabilities as of December 31st, 2023. Given the relatively shallow benchmark curve and limited financial impact of this analysis, we will likely be retiring the slide going forward from our earnings presentations, as we have been relatively in equilibrium for the past few quarters. Skipping down to slide 11, originations for the fourth quarter remain at a lower level than prior year fourth quarter, as well as below the repayment levels, resulting in net repayments and sales of approximately $30.1 million. Our new investments made during the quarter are expected to yield a spread to SOFR of 798 basis points on par value, and the investments were purchased at a cost of approximately 96.3% of par. Our investment securities portfolio at the end of the fourth quarter remained highly diversified. We ended the year with investments spread across 27 different industries and 100 different entities, all while maintaining an average par balance per entity of approximately $3.1 million. Turning to slide 12, In aggregate, securities on non-accrual status remain relatively low and decreased to seven investments at the end of the fourth quarter of 2023, as compared to eight investments on non-accrual status as of September 30, 2023, as one of our borrowers emerged from bankruptcy in Q4 and our restructured loan returned to cash pay. These seven investments on non-accrual status at the end of the fourth quarter of 2023 are represent 1.3% and 3.2% of the company's investment portfolio at fair value and amortized cost, respectively. On slide 13, excluding our non-accrual investments, we have an aggregate debt securities fair value of $373 million, which represents a blended price of 94.3% of par and is 88% comprised of first lien loans at par value. Assuming a par recovery, Our December 31st, 2023 fair values reflect a potential of $29.2 million of incremental NAV value, a 13.7% increase, or $3.12 per share, excluding any recovery on non-accrual investments. If we were to overlay an illustrative 10% default rate and 70% recovery to the entire debt securities portfolio, again, excluding non-accrual investments, the incremental NAV value potential would be $1.83 per share, or an 8% increase to NAV per share as of December 31, 2023. Finally, turning to slide 14, if you aggregate the three portfolios acquired over the last three years, we have purchased a combined $434.8 million of investments and have realized over 82% of these investments at a combined realized and unrealized mark of 102% of fair value at the time of closing the respective mergers. I'll now turn the call over to Jason to further discuss our financial results for the period.