Portman Ridge Finance Corporation

Welcome to Portman Ridge Finance Corporation's second quarter ended June 30th, 2025 earnings conference call. An earnings press release was distributed yesterday, August 7th, after market closed. 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 10-Q filed yesterday 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. Portman 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 Portman Ridge Finance Corporation. Brandon Satorin, 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 Portman Ridge. Please go ahead, Ted.

Good morning, and welcome to our second quarter 2025 earnings call. I'm joined today by our Chief Financial Officer, Brandon Satorin, and our Chief Investment Officer, Patrick Schaefer. Following my opening remarks on the company performance and activities during the second quarter, Patrick will provide commentary on our investment portfolio and our markets, and Brandon will discuss our operating results and financial condition in greater detail. We continue to advance our strategic priorities in the second quarter, generating net investment income of $4.6 million, or 50 cents per share, compared with $4.3 million, or 47 cents per share, in the prior quarter. Our focus remains on maintaining a high quality portfolio and delivering long-term value to our shareholders. Additionally, the recent completion of our merger with Logan Ridge Finance Corporation marks a transformational milestone for the company. We are extremely proud to have completed this transaction and look forward to the greater scale, broader portfolio diversification, and enhanced financial flexibility it will provide. We believe the newly combined company will drive improved operating efficiency and shareholder returns over time. Logan Ridge also delivered strong results for the second quarter, generating net investment income of $1.2 million, or 47 cents per share, up from 0.9 million, or 35 cents per share, in the first quarter of 2025. The increase was driven by net deployment activity of $3.8 million during the quarter and continued credit strength with no new investments on non-accrual at quarter end. To better reflect this next chapter and the strength of our advisor, we will also be changing our corporate name to BCP Investment Corporation with the NASDAQ, ticker BCIC, in the following weeks. The new name highlights our affiliation with BC Partners, a global alternative investment platform with deep credit expertise, and reinforces our commitment to building an industry-leading business development company. For the second quarter of 2025, the Board of Directors approved a base distribution of 47 cents per share, as well as a supplemental cash distribution of 2 cents per share. Of note, earlier this year, we modified our dividend policy and introduced a stable base distribution of 47 cents per share, which is anticipated to be sustainable across market cycles. Looking forward, we are excited about the opportunities ahead for the combined company. we will seek to leverage the company's enhanced scale, further diversified portfolio, cost savings due to overall operating expenses, and improve stock trading liquidity to deliver compelling risk-adjusted returns and drive long-term value for our shareholders. We remain confident in our strategy and experienced management team as we enter the back half of this year. With that being said, I will turn the call over to Patrick Schaefer, our Chief Investment Officer, for a review of our investment activity.

Thanks, Ted. Activity in our core markets was partially constrained for the quarter due to the initial tariff announcements and subsequent revisions to the various levels. Having said that, deal volume did pick up meaningfully towards the end of the quarter, and thus far during Q3, our pipeline and repayment activity has been fairly active. For the first time in a while, there appears to be a healthy mix of new LBO sale processes as well as refinancings, and the syndicated markets appear to be open for the very large end of the middle market. While this last dynamic has limited direct impact on our franchise, it does point to overall healthy capital markets that showed later groundwork for increased deal activity in the second half of the year. Turning now to slide six of our presentation and sensitivity of our earnings to interest rates. As of June 30th, 2025, approximately 86.9% of our debt securities portfolio was based on a floating rate with a spread peg to an 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, SOFR rates have slightly declined over the last few quarters, impacting current quarter net investment income. Skipping down to slide 11, originations for the second quarter were $10.9 million and repayment and sales were $17.0 million, resulting in net repayment and sales of approximately $6.1 million. Overall yield on par value of the new investments during the quarter was 11.5%. slightly above the yield of the overall portfolio at 10.7% on par value. Our investment portfolio at year-end remained highly diversified. We ended the second quarter with a debt investment portfolio, when excluding our investments in CLO funds, equities, and joint ventures, spread across 69 different portfolio companies and 25 different industries, with an average par balance of $2.6 million. Turning to slide 12, in aggregate, we had six investments on non-recrual status at the end of the second quarter of 2025, representing 2.1% and 4.8% of the company's investment portfolio at fair value and cost, respectively. It is worth noting that for a subset of the non-recrual population, the company started during Q2 to recognize interest income on a cash basis, i.e., only when cash payments are received. This compares to six investments on non-recrual status as of March 31, 2025, representing 2.6% and 4.7% of the company's investment portfolio at fair value and cost, respectively. On slide 13, excluding our non-accrual investments, we have an aggregate debt investment portfolio of $314.7 million at fair value, which represents a blended price of 86.6% at par value, and it's 88.6% comprised of first-in-loans at par value. Assuming a par recovery, our June 30, 2025 fair values reflect a potential of $24 million of incremental NAV value, or a 14.6% increase to NAV. When applying an illustrative 10% default rate and 70% recovery rate, our debt portfolio would generate an incremental $1.51 per share of NAV, or an 8.4% increase as it rotates. Finally, turning to slide 14, if you aggregate the last three acquired portfolios, we have purchased a combined $435 million of investments, and have realized approximately 88% of these positions at a combined realized and unrealized mark of 100% of fair value at the time of closing the respective merger. As of Q2 2025, we have fully exited the acquired Oak Hill portfolio and are down to a combined $20 million of the acquired HCAP and initial KCAP portfolios. I'll now turn the call over to Brandon to further discuss our financial results for the period.

Thanks, Patrick. For the quarter ended June 30th, 2025, Portman Ridge generated $12.6 million of investment income, an increase of $0.5 million compared to the $12.1 million reported for the quarter ended March 31st, 2025. The increase in investment income from the prior quarter was primarily driven by the reversal of previously accrued but unpaid income from our investment in Sundance, which had a non-recurring negative impact to prior quarter earnings when it was placed on non-approval. Additionally, I'm pleased to report that PIC income has declined by approximately 20% quarter over quarter, which was also driven by a non-recurring item that inflated the company's PIC income in the prior quarter. We remain focused on managing our non-cash income to a prudent level. For the quarter ended June 30th, 2025, total expenses were $8.1 million, which represents a $0.3 million increase, or 3 cents per share, as compared to $7.8 million reported for the prior quarter. The increase in expense compared to the prior quarter was driven by lower than anticipated tax expenses in the prior year, the benefit of which was recognized in the prior quarter. Accordingly, our net investment income for the second quarter of 2025 was $4.6 million, or 50 cents per share, which constitutes an increase of $0.3 million, or 3 cents per share, from $4.3 million, or 47 cents per share, for the first quarter of 2025. Our net asset value as of June 30, 2025, was $164.7 million. representing an $8.8 million decrease as compared to the prior quarter net asset value of $173.5 million. On a per share basis, net asset value was $17.89 per share as of June 30th, 2025, representing a 96 cent per share decrease as compared to $18.85 per share as of March 31st, 2025. The decline in NAV was primarily driven by net realized and change in unrealized losses of $9.1 million, partially offset by the company's second quarter net investment income exceeding the distribution paid in May for the first quarter by $0.3 million. As of June 30, 2025, our gross and net leverage ratios were 1.6 times and 1.4 times, respectively, compared to 1.5 and 1.3 times, respectively, in the prior quarter. Specifically, as of June 30, 2025, we had $255.4 million of borrowings outstanding, with a current weighted average contractual interest rate of 6%. This compares to the same amount outstanding as of the prior quarter with a weighted average contractual interest rate of 5.9%. The company finished the quarter with $52.6 million of available borrowing-based capacity under the senior secure revolving credit facility, subject to borrowing-based restrictions. With that, I will turn the call back over to Ted.

Thank you. Ahead of questions, I'd like to reemphasize how excited we are for the opportunities the newly combined company will create in our rebranding to BCP Investment Corporation. Additionally, with a robust pipeline, prudent investment strategy, and increased scale, we believe we are well positioned to take advantage of the current market environment and will be able to deliver strong returns to our shareholders through the second half of 2025. Thank you again to all our shareholders for your ongoing support. This concludes our prepared remarks, and I'll turn the call over for any questions.

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Christopher Nolan with Lattenburg. Please go ahead.

Hey, guys. Brandon, were there any non-occurring items in the quarter?

Outside of the other income that's broken out on the financial statements, there were no material items in the quarter.

Okay. And then why was interest income higher quarter over quarter despite a smaller portfolio and a slight dip in yields?

So it was largely driven by the deployment we had in the prior quarter flowing through the current period.

Okay. Yeah, Chris, it's just a timing impact of last quarter. We tended to have some more stuff come on sort of like second half of February and into March, and so we didn't get kind of a full quarter impact last quarter.

I am all down with simple timing issues.

Yeah, and, Chris, we also had the – So in the prior quarter, we had the Sundance one-time reversal of previously accrued income by about a half a million dollars. That impacted Q1 on an out-of-period basis that I highlighted in my script.

Great. And then the realized loss was 15 mil. ProAir was 6 mil. What's the rest for?

So the other half is Anthem, which we restructured this quarter.

Great. And I guess final, is there a hard date when the trading symbol is going to switch over and the name change is going to take effect?

Not a final date, but over the course of the next couple weeks, we should have that complete. Candidly, Chris, the biggest delay is just building out the new website and whatnot under the new branding. But we should have that wrapped up here in June. and the new website, et cetera, at that time. We also didn't want to do it in the middle of earnings because it does have some administrative implications when your name as of 630 was Portman Ridge and you're filing today under a different name.

Got it. I guess the final question is you guys sort of are the go-to guys to buy broken BDCs. And given that there's a big maturity wall for, you know, a lot of the investment spreads for BDCs are going to be coming in. Have you guys seen more deal activity or, you know, shown to you more deals or merging with other BDCs?

I would say, I'll answer that question. I would say deal activity has definitely picked up. Our M&A pipeline and things that we're looking at is, Probably the highest it's been in a very long time. You know, I think, I'm not sure it has to do with the maturity wall. I think it has to do with, you know, I think if you just look broadly what's happening across the space, I think every single day scale becomes more important. And, you know, I think that's driving a lot of internal conversations at firms about, you know, where they want to focus and where they want to scale. So I would say our M&A pipeline, and again, like M&A maybe happens, maybe doesn't. in my opinion, it's probably never been higher. So we're spending a lot of time. At the end of the day, we want our BDC to be much larger. And we really benefited from support from a lot of great shareholders to get our merger done. And as we've told people, the hope would be that's the first or a step towards other steps to get to bigger scale. And so our pipeline is not just full of traditional BDCs. It's also full of closed-end funds, private non-traded BDCs and other type entities. So I would say there's been a lot of winners, and there's been a few winners and a couple people who are having a hard time scaling, and those people are beginning to explore partnering with a bigger platform to help grow. Sorry, that was a very long answer.

Yeah, no, no problem at all. I mean, it's all good stuff. I imagine the next steps will be renegotiating the bank revolver and you sort of, you know, edging towards at some point try to get an investment grade rating for the notes. I mean, is that fair?

Yeah, I mean, if you look at financing costs across the space, you know, like the larger platforms, and I'm not just describing BDC, but if you're associated with a larger platform, there's a material difference in financing costs. And, you know, we're in the cost of capital business and that all drops the bottom line. And obviously in an environment where spreads are coming down and there's some headwinds on earnings, refinancing your debt at cheap rates, and the market right now is wide open, is very important to driving earnings.

Okay, that's it for me. Thanks.

Thanks, Chris.

Your next question comes from the line of Eric Zwick with Lucid Capital Markets. Please go ahead.

Good morning, everyone. Uh, prepared remarks. You sounded, uh, Hey, good morning. Um, you sounded fairly optimistic about the, um, you know, opportunity for originations in the back half of the year, noting some, you know, increased, uh, LBL activity, you know, up in the market. Um, just as, as you look at that, the pipeline today, I'm curious, you know, how it kind of breaks down in terms of maybe new and add on opportunities and how spreads are today versus maybe, you know, a quarter ago, beginning of the year.

Yeah. Why don't I go, why don't I go first? I would say, I mean, we're focused on two things in the back after this year. We are seeing a big uptick in refinancing activity, and you haven't seen it roll through our earnings yet, but you will. And so our sponsor-based pipeline has increased dramatically over the last two or three months, and I'm sure you've heard that from others. And on top of that, activity levels have picked up too, like we're getting real realizations. I would say it's a pretty, and Patrick can comment too, I think it's a pretty healthy mix of It's been all refis for three years. For the first time, we're actually seeing some true sales. But it's still primarily refinancings. I would say spreads, in my opinion, really haven't come down that much the last quarter. And where we target the middle market, our spreads still seem to be 50 to 75 basis points higher than the very large deals that are getting done. But the syndicated markets are white hot right now. deal price this week with no OID at very tight spreads. And again, we don't really compete with syndicated markets, but our industry probably does. And that's obviously placing some pressure on spreads. But I would say, the other thing I just mentioned is we're very cognizant of our stock trades. We obviously have been unable to buy back stock or do other things. And we've been out there publicly as part of this merger and saying that when we're kind of eligible to do it, you know, I think we'll be pretty aggressively buyback stock and not just through normal courseways. And I think it's, you know, when you run the math on where spreads are today versus us buyback stock or tendering for stock, you know, obviously it makes a lot of sense for us to consider both. So I think in the back half of this year, you know, I mentioned refinancing activities up. That cash is not going to be just plowed into new lower spreading loans. I think some of that money is going to be used to buyback stock.

Go ahead, Patrick. Ted hit all the high points. Just to make a couple of notes there. Again, generally speaking, if we're doing kind of a refi type of an opportunity, you tend to get a little bit of a better spread because there is some you know, whether direct or perceived breakage cost, you know, between finding new lenders, you know, and kind of like dealing with a new credit agreement and a new lender group, et cetera. So you tend to get a little bit of a premium or at least a little bit less compression if you are just kind of refining an existing deal. Our franchise is more weighted towards non-sponsor or non-traditional sponsor. Again, it's a little bit less competitive. You're going to get a little bit of better you know, ability to kind of price and structure deals. So that also helps at least our franchise in terms of kind of, you know, when sort of the bigger deals and, you know, sponsors are kind of really leaning on lenders to drive terms. You know, we do get a little bit of insulation and protection from that.

You know, I appreciate the additional commentary there. And with regard to, Ted, your commentary about, you know, fairly strong appetite to use the buybacks That was 60 days from the closing, so it'd be kind of mid-September, like September 15-ish or so, when you could potentially get back into the market with the buyback. Is that correct?

Yeah. So when you do a merger process, there's a period of time we have to wait, like a cooling-off period, until the dust settles kind of thing. And that takes you right towards the end of the third quarter. And then at that time, you're running into things like blackouts and stuff. So we're trying as hard as we can to try and do something. So it might slip a little bit until the blackout finishes. But that timing is roughly right. It's a little later than that, but you're not so far off.

Got it. Thanks. And, one, yeah, congrats on getting the deal closed earlier this quarter. Curious, do you have – are you able to share kind of a pro forma NAV, either as the date that the – transaction closed or end of July, anything you might have on hand there that you could share?

Yeah. Eric, so it's about just north of $235 million. Okay.

Thanks. And with regard to the other comment about the potential, you know, benefit to NAV from the positions that you currently hold that are at a discounted PAR, like the potential for those to convert towards PAR as they mature, any kind of commentary you could provide in terms of the potential time frame, like what is the average remaining maturity on that portion of the book, or just how to think about the opportunity and time frame to realize those potential benefits.

Yeah, this is Patrick. I'll have a couple comments here. Let's just say it's not all just maturity necessarily. We do have a handful of sort of liquid QSIP type securities that, that do, that do move around a bit. And so there is some kind of, you know, material nav benefit potential from those names that, you know, frankly, you know, doesn't, doesn't necessarily take a maturity to, to, to work through. I would say also kind of practically speaking, you know, over the course of a normal cycle, we tend to see a natural maturity of, duration of kind of about two and a half to three years. So that would kind of be like how we sort of look at things like that is sort of over a two and a half, three year period. You know, again, there's kind of maybe a couple of different ways to get at it.

That's helpful. And last one for me, just looking at that, the non-accrual book, and it seems like There's still a lot of LME activity in the space, you know, more limited on the kind of bankruptcy side. But just curious about, as you look at your non-accrual book, the opportunity to potentially either restructure or resolve some of those and potentially kind of move those back to accrual or maybe, you know, sell. How does it kind of the resolution trajectory look at this point?

Yeah, I'd say, you know, I'd say maybe let's call it like flatly positive in the sense of, You know, I do think there are probably a couple of the smaller names on there that are just going to take kind of a very long time to work through. One of our bigger names, we kind of alluded to it on the call, but there has been sort of a, I call it a partial restructuring, not full, but such that, you know, we are now, you know, receiving cash interest on the loan. You know, however, kind of given, you know, all the puts and takes, You know, we still don't think it is, you know, we still struggle kind of getting to a full par recovery from, you know, kind of what we think about the business and enterprise value, et cetera. So kind of we continue to leave it on non-accrual, but we are recognizing the cash interest that we receive on the loan, not recognizing, you know, any of the PIC. And, you know, I think our suspicion is that that situation will continue to improve versus not. And I'd say, you know, the rest of them are, you know, relatively flat to, you know, I'd say, you know, kind of increasing. There's another large position that we've been working with the company on monetizing some non-core assets to generate some kind of paydowns there, which, again, doesn't necessarily translate into, you know, turning that back on non-accrual, but getting the money back and then redeploying it somewhere else, you know, has the exact same positive benefits.

Thanks for taking my questions today.

Your next question comes from the line of Steven Martin with Slater Capital. Please go ahead.

Morning, guys. Most of my questions have been asked and answered. When you look at the pro forma combined portfolio, recognizing that we sort of knew what was in each portfolio, What's the most dramatic change going to be? Is it just the Logan equity that Portman doesn't have a lot of equity and it'll end up getting diluted? You know, what is the nature of the difference in the portfolio going to look like?

Yeah, good question, Steve. I was going to say, yeah, great question. Good question. I'll give you like a slightly bad answer in the sense of, you know, the reason why this made a lot of sense is the portfolios are, you know, pretty similar. And we have done a very good job of exiting a number of equity positions in Logan Ridge over the last 12 months. So I would say yes. I think if you look at the pro forma company, equity will look as a relatively small amount. I would say our joint ventures and CLO equities will also look as a smaller amount if you're looking at it from a Portman perspective. Logan Ridge had sort of less limited to no limited CLO equity and less joint venture equity. So I think, again, when you kind of like put it onto the balance sheet for 930 and you're looking at it from an important perspective, those numbers will be down a little bit as a percentage of total and kind of the debt will be up a bit as a percentage of total. I don't think it's dramatic, candidly, but I would say, again, if you kind of you know, from a Portman perspective, you know, I think that the mix of pure, uh, pure debt will, will, you know, likely go up a little bit or, or said differently, the CLO equity will go down. So I mentioned we'll go down a little bit. I think the equity will go up a bit, but somewhat negligible. Um, so it'll really be a relatively consistent, you know, SOI.

Yeah. Yeah. Steve, I would just add, as of 630, the weighted average yield was 10.7% at Portman. For Logan, it was 10.6%. On a combined basis, it's 10.7%. But there's pretty material operating expense efficiencies that you guys will all benefit from going forward, as well as, of course, the fee waivers, et cetera, that we put in place that will drive P&L going forward. And then over the longer term, we've looked to rotate out of the equity book and all of the non-yielding names that Logan Ridge has and redeploy those proceeds into interest earnings.

Since there was a substantial overlap in names over the last two to three years, when you combine them, is there going to be a material difference in the number of different names in the portfolio?

Again, we can talk about materiality. Probably not. I mean, again, if you're looking at it from a Portman perspective, there's 94, 96 unique borrowers that will maybe go up by 10 to 15 names. So, obviously, we are adding diversification. I wouldn't say it is substantial. I would also say the names are pretty similar, but depending on You know, the timing of when we did the individual names, one name might be a slightly higher percentage of Logan versus Portman that will kind of like normalize out when you add the two things together. You know, candidly, I think the biggest piece from our perspective that will move around when you put the two things together is we'll have a lot more flexibility around where we sort of put the names and the exposures between our different credit facilities and where we can kind of get you know, better borrowing capacity. You know, again, all of our different, two different credit facilities have different industry concentrations, leverage concentrations, kind of things all that, all like that. So, you know, the ability for us now under one combined roof to be able to sort of, I'll call it move around the asset positions within the credit facilities, at least from our perspective, is where we'll be able to unlock a lot of value from the SOI being put together. Got it.

One last one. Recognizing that you'd exited a number of the larger equity positions, any change that you can talk about on what was left of the Logan Ridge equity?

No, not, not, not a huge change. Um, there's still a couple of small things that we're working on, on, you know, getting, you know, exiting, um, and moving and moving around outdated is probably one or two of the, of the larger ones. Um, that are still sort of, you know, trying to work through their own processes. You know, we don't have a lot of control in those instances. So we obviously kind of like push and prod, you know, where we can. But I would say, you know, I would not say that there is anything, you know, logical on the horizon. But having said that, like for sure the macro environment and where kind of LBO environment we think is trending over the next, you know, six months, You know, I wouldn't be surprised if we, you know, see a bunch of things that we're not expecting, you know, smaller positions, but, you know, volume-wise, you know, see more things that we're not expecting actually get monetized and realized.

Okay. Thanks a lot, guys.

Thanks, Steve.

That concludes our question and answer session. I will now turn the call back over to Ted Goldthorst for closing remarks.

Thank you all for attending the call. As always, please reach out to us with any questions, which we're happy to discuss. We look forward to speaking to you again in November when we announce third quarter 2025 results, and I wish everybody a great end to their summer. Thank you so much.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.