Portman Ridge Finance Corporation

Welcome to Portman Ridge Finance Corporation's first quarter 2024 earnings conference call. An earnings press release was distributed yesterday, May 8th, after market close. A copy of the release along with an earnings presentation is available on the company's website at www.portmanridge.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 to 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 forward-looking statements. As a result of a number of factors, including those described in the company's filings with the SEC, Portman Ridge Finance Corporation assumes no obligation to update any such forward-looking statements unless required by law. Speaking on today's call would be Ted Goldthorpe, Chief Executive Officer, President and Director of Portman 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 Fort Language, please go ahead.

Good morning, and thanks everyone for joining our first quarter 2024 earnings call. I'm joined today by our Chief Financial Officer, Brandon Satoran, and our Chief Investment Officer, Patrick Schaefer. 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 Brandon will discuss our operating results and financial condition in greater detail. Yesterday, Portman Ridge announced its first quarter 2024 results, and following the strong earnings trajectory we saw in 2023, we are pleased with the solid earnings power of the portfolio. Despite operating under challenging market conditions, we reported net investment income of $6.2 million, or 67 cents per share, and net asset value of $210.6 million, or 22.57 per share. We continue to target a well-diversified portfolio with investments spread across 29 industries and 103 entities while maintaining an average par balance per entity of $3.1 million. This compares to 27 industries and 100 entities with an average par balance per entity of $3.1 million at the end of 2023. Credit quality remains stable with seven investments on non-accrual representing 0.5% of the portfolio on a fair value basis. Additionally, we continue to believe our stock remains undervalued, and during the quarter, we continue to repurchase shares under our repurchase program, purchasing 51,015 shares for an aggregate cost of $1 million. These repurchases had an accretive effect to Portman's net asset value of 2 cents per share, reinforcing our commitment to shareholder value. Further, the Board of Directors approved dividend for the second quarter of 2024 in the amount of 69 cents per share, which represents a strong 12.2% annualized return on net asset value, which is among the highest in the BDC space. Turning to conditions in our primary market, as we previewed on our fourth quarter earnings call, M&A activity has picked up during the quarter, and capital markets as a whole were extremely active as compared to the fourth quarter. Net deal activity, defined as new deals excluding corresponding repayments in the BSL loan market, was $57.2 billion, up 64% from the fourth quarter and represented the highest new net volume since first quarter of 2022 and is representative of the fundamental tailwinds we believe exist in our primary market. For all of 2023, private equity firms have been sitting on record amounts of dry powder while at the same time being pushed by LPs to return capital. Although expectations for future rate hikes have diminished towards the end of the first quarter and the beginning of the second quarter, I believe the aforementioned fundamentals combined with positive economic outlook and sentiment should continue to fuel new deal activity in our private credit space over the course of 2024. Specifically at Portman Ridge and more generally across BC Partners' credit platform, we continue to find attractive opportunities both through our sponsor relationships and our focus on non-sponsor or non-traditional sponsor-backed companies and continue to win transactions based on our ability to custom tailor a capital solution for the borrower and the borrower's belief that our platform can add value to their businesses over and above just being a capital provider. Our strategy has always been to be very selective on new investment opportunities, focusing on portfolio management and risk mitigation. To that point, during the quarter, we made investments into only one new portfolio company. Our goal continues to be the further diversification of our portfolio by investing in companies that have the potential to provide high returns for our shareholders. As we proceed further into 2024, our pipeline remains strong, and we believe we are well positioned to take advantage of new investment opportunities while also remaining diligent in our investment and capital deployment process. With that, I'll turn the call over to Patrick Schaefer, our Chief Investment Officer, for our review of our investment activity.

Patrick Schaefer Thanks, Ted. Turning now to slide five of our presentation and the sensitivity of our earnings to interest rates. As of March 31, 2024, Approximately 91.1% of our debt securities portfolio were either floating rate with a spread to an interest rate index such as SOFR or PRIME, with substantially all 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 April 29th, 2024. But between the market transition last year from LIBOR to SOFR and the pause from the Fed earlier this year, the gap has narrowed has narrowed to the tightest it has been since the onset of the Fed rate hike cycle. Skipping down to slide 10, originations for the first quarter were higher than prior year first quarter and were above repayment levels, resulting in net originations of approximately $1.7 million. Our new investments made during the quarter are expected to yield a spread to SOFR of 581 basis points on par value, and the investments were purchased at a cost of approximately 98.4% of par. Our investment portfolio at the end of the first quarter remained highly diversified. We ended the year with investment spread across 29 different industries and 34 different borrowers, all while maintaining an average power balance per entity of approximately $3.1 million. Turning to slide 11, in aggregate, investments on non-accrual status remained relatively low at seven investments at the end of the first quarter of 2024, representing 0.5% and 3.2% of the company's investment portfolio at fair value and cost, respectively. This compares to December 31st, 2023, where there were also seven investments on non-recall status, representing 1.3% and 3.2% of the company's investment portfolio at fair value and cost, respectively. On slide 12, excluding our non-recall investments, we have an aggregate debt investment portfolio of $384 million at fair value, which represents a blended price of 93.7% of par and is 90% comprised of first lien loans based on par value. Assuming a par recovery, our March 31, 2024 fair values reflect a potential of $25.8 million of incremental NAV value, a 12.1% increase, or $2.72 per share, excluding any recovery from the non-accrual investments. If we were to further overlay an illustrative 10% default rate and 70% recovery rate to the entire debt securities portfolio, again, excluding non-accrual investments, the incremental NAV value potential would be $1.41 per share, or a 6.2% increase to NAV per share as of March 31, 2024. Finally, turning to slide 13, if you aggregate the three portfolios acquired over the last three years, we have purchased a combined $434.8 million of investments, have realized approximately 82% of these positions at a combined realized and unrealized mark of 102% of fair value at the time of closing the respective mergers. As of Q1, 2024, We had fully exited the acquired O'Kill portfolio and are down to a combined $33.5 million of the acquired HCAP portfolio and the initial KCAP portfolio. I'll now turn the call over to Brandon to further discuss our financial results for the period.