Reports Strong Performance with Elevated Total Investment Income, Core Investment Income and Net Investment Income Quarter-over-Quarter
Increases Quarterly Distribution to $0.67 per Share
NEW YORK, Nov. 08, 2022 (GLOBE NEWSWIRE) -- Portman Ridge Finance Corporation (Nasdaq: PTMN) (the “Company” or “Portman Ridge”) announced today its financial results for the third quarter ended September 30, 2022.
Third Quarter 2022 Highlights
Subsequent Events
Management Commentary
Ted Goldthorpe, Chief Executive Officer of Portman Ridge, stated, “We were pleased to report a strong [third] quarter of financial performance, despite operating under difficult market conditions, a 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 revenue 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 to $0.67 per share.”
Mr. Goldthorpe added, “As we continue to execute our investment strategy, we are 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.”
Select Financial Highlights For the Three Months Ended
September 30, For the Nine Months Ended
September 30, 2022 2021 2022 2021 Total investment income 19,009 22,911 50,997 62,761 Total expenses 10,617 9,193 29,175 29,120 Net Investment Income 8,392 13,718 21,822 33,641 Net realized gain (loss) on investments (9,087) (3,931) (28,631) (11,373)Net unrealized gain (loss) on investments (2,968) (642) (712) 7,593 Tax (provision) benefit on realized and unrealized gains (losses) on investments (542) - (1,059) - Net realized and unrealized appreciation (depreciation) on investments, net of taxes (12,597) (4,573) (30,402) (3,780)Realized gains (losses) on extinguishments of debt - - - (1,835)Net Increase (Decrease) in Net Assets Resulting from Operations $(4,205) $9,145 $(8,580) $28,026 Net Increase (Decrease) In Net Assets Resulting from Operations per Common Share(4): Basic and Diluted: $(0.44) $1.00 $(0.89) $3.41 Net Investment Income Per Common Share(4): Basic and Diluted: $0.87 $1.50 $2.26 $4.10 Weighted Average Shares of Common Stock Outstanding—Basic and Diluted(4) 9,602,712 9,131,456 9,644,870 8,213,661
4 The Company completed a Reverse Stock Split of 10 to 1 effective August 26, 2021. As a result, the share and per share amounts have been adjusted retroactively to reflect the split for all periods prior to August 26, 2021. For the Three Months Ended September 30, For the Nine Months Ended September 30, ($ in thousands) 2022 2021 2022 2021 Interest from investments in debt excluding accretion $12,232 $14,602 $31,320 $36,750 Purchase discount accounting 1,404 2,790 4,518 11,987 PIK Investment Income 1,740 1,296 4,414 3,173 CLO Income 914 748 3,476 2,211 JV Income 2,182 2,443 6,361 7,012 Service Fees 537 1,032 908 1,628 Investment Income 19,009 22,911 50,997 62,761 Less: Purchase discount accounting (1,404) (2,790) (4,518) (11,987)Core Investment Income 17,605 20,121 46,479 50,774
Total investment income for the three months ended September 30, 2022 was $19.0 million. This compares to $15.0 million for the quarter ended June 30, 2022, and $16.9 million for the quarter ended March 31, 2022.
As of September 30, 2022, the weighted average contractual interest rate on our interest earning debt securities portfolio was approximately 10.0%. As of June 30, 2022, March 31, 2022, and December 31, 2021, the weighted average contractual interest rate on our debt securities portfolio was approximately 8.7%, 8.1% and 8.1%, respectively.
Investment Portfolio Activity
The composition of our investment portfolio as of September 30, 2022 and December 31, 2021, at cost and fair value, were as follows: ($ in thousands) September 30, 2022
(Unaudited) December 31, 2021 Security Type Cost/Amortized
Cost Fair Value %(5) Cost/Amortized
Cost Fair Value %(5) Senior Secured Loan $426,052 $415,819 73 $361,556 $364,701 66 Junior Secured Loan 65,672 61,535 11 82,996 70,549 13 Senior Unsecured Bond 416 43 0 416 43 0 Equity Securities 27,679 24,487 4 26,680 22,586 4 CLO Fund Securities 37,411 24,623 4 51,561 31,632 6 Asset Manager Affiliates(6) 17,791 - - 17,791 - - Joint Ventures 55,139 45,141 8 64,365 60,474 11 Derivatives 31 8 0 31 (2,412) - Total $630,191 $571,656 100% $605,396 $547,573 100%
5Represents percentage of total portfolio at fair value.
6Represents the equity investment in the Asset Manager Affiliates.
As of September 30, 2022, three of the Company’s debt investments were on non-accrual status, unchanged as compared to June 30, 2022 (this compares to six at March 31, 2022, and seven at December 31, 2021). Investments on non-accrual status as of September 30, 2022 and June 30, 2022 represented 0.0% and 0.3% of the Company’s investment portfolio at fair value and amortized cost, respectively. This compares to investments on non-accrual status as of December 31, 2022 of 0.5% and 2.8% of the Company’s investment portfolio at fair value and amortized cost, respectively.
Liquidity and Capital Resources
As of September 30, 2022, there was $368.9 million (par value) of borrowings outstanding with a weighted average interest rate of 5.0%, of which $108.0 million par value has a fixed rate and $260.9 million par value has a floating rate.
As of September 30, 2022, the Company had unrestricted cash of $16.9 million and restricted cash of $22.2 million. This compares to unrestricted cash of $28.9 million and restricted cash of $39.4 million as of December 31, 2021. As of September 30, 2022, we had $17.9 million of available borrowing capacity under the Senior Secured Revolving Credit Facility, and $25.0 million of borrowing capacity under the 2018-2 Revolving Credit Facility.
Total assets and shareholder’s equity as of September 30, 2022 were $629.5 million and $251.6 million, respectively, as compared to $648.3 million and $280.1 million, respectively, as of December 31, 2021.
As of September 30, 2022, and December 31, 2021, the fair value of investments and cash were as follows:($ in thousands) Security Type September 30, 2022 December 31, 2021 Cash and cash equivalents $16,871 $28,919 Restricted Cash 22,183 39,421 Senior Secured Loan 415,819 364,701 Junior Secured Loan 61,535 70,549 Senior Unsecured Bond 43 43 Equity Securities 24,487 22,586 CLO Fund Securities 24,623 31,632 Asset Manager Affiliates - - Joint Ventures 45,141 60,474 Derivatives 8 (2,412)Total $610,710 $615,913
Interest Rate Volatility
The Company’s investment income is affected by fluctuations in various interest rates, including LIBOR and prime rates.
As of September 30, 2022, approximately 89.3% of our Debt Securities Portfolio were either floating rate with a spread to an interest rate index such as LIBOR or the prime rate. 74.8% of these floating rate loans contain LIBOR floors ranging between 0.50% and 2.00%. We generally expect that future portfolio investments will predominately be floating rate investments.
In periods of rising or lowering interest rates, the cost of the portion of debt associated with the 4.875% Notes Due 2026 would remain the same, given that this debt is at a fixed rate, while the interest rate on borrowings under the Revolving Credit Facility would fluctuate with changes in interest rates.
Generally, an increase in the base rate index for floating rate investment assets would increase gross investment income and a decrease in the base rate index for such assets would decrease gross investment income (in either case, such increase/decrease may be limited by interest rate floors/minimums for certain investment assets). Impact on net investment income from
a change in interest rates at: ($ in thousands) 1% 2% 3% Increase in interest rate $2,100 $4,029 $5,957 Decrease in interest rate $1,340 $(561) $(2,493)
Net investment income assuming a 1% increase in interest rates would increase by approximately $2.1 million on an annualized basis. If the increase in rates was more significant, such as 2% or 3%, the net effect on net investment income would be an increase of approximately $4.0 million and $6.0 million, respectively.
On an annualized basis, a decrease in interest rates of 1% would result in an increase in net investment income of approximately $1.3 million. A decrease in interest rates of 2% and 3% would result in a decrease in net investment income of approximately $0.6 million and $2.5 million, respectively. The effect on net investment income from declines in interest rates impacted by interest rate floors on certain of our floating rate investments, as there is no floor on our floating rate debt facility and the 2018-2 Secured Notes.
Conference Call and Webcast
We will hold a conference call on Wednesday, November 9, 2022, at 9:00 am Eastern Time to discuss our third quarter 2022 financial results. To access the call, please dial (646) 307-1963 approximately 10 minutes prior to the start of the conference call and use the conference ID 8666889.
A live audio webcast of the conference call can be accessed via the Internet, on a listen-only basis on the Company’s website www.portmanridge.com in the Investor Relations section under Events and Presentations. The webcast can also be accessed by clicking the following link: Portman Ridge Third Quarter 2022 Conference Call. The online archive of the webcast will be available on the Company’s website shortly after the call.
About Portman Ridge Finance Corporation
Portman Ridge Finance Corporation (Nasdaq: PTMN) is a publicly traded, externally managed investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940. Portman Ridge’s middle market investment business originates, structures, finances and manages a portfolio of term loans, mezzanine investments and selected equity securities in middle market companies. Portman Ridge’s investment activities are managed by its investment adviser, Sierra Crest Investment Management LLC, an affiliate of BC Partners Advisors, LP.
Portman Ridge’s filings with the Securities and Exchange Commission (the “SEC”), earnings releases, press releases and other financial, operational and governance information are available on the Company's website at www.portmanridge.com.
About BC Partners Advisors L.P. and BC Partners Credit
BC Partners is a leading international investment firm with over $40 billion of assets under management in private equity, private credit and real estate strategies. Established in 1986, BC Partners has played an active role in developing the European buyout market for three decades. Today, BC Partners executives operate across markets as an integrated team through the firm's offices in North America and Europe. Since inception, BC Partners has completed 117 private equity investments in companies with a total enterprise value of €149 billion and is currently investing its eleventh private equity fund. For more information, please visit www.bcpartners.com.
BC Partners Credit was launched in February 2017 and has pursued a strategy focused on identifying attractive credit opportunities in any market environment and across sectors, leveraging the deal sourcing and infrastructure made available from BC Partners.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains forward-looking statements. The matters discussed in this press release, as well as in future oral and written statements by management of Portman Ridge Finance Corporation, that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements.
Forward-looking statements relate to future events or our future financial performance and include, but are not limited to, projected financial performance, expected development of the business, plans and expectations about future investments and the future liquidity of the Company. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “outlook”, “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. Forward-looking statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove to be incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements.
Important assumptions include our ability to originate new investments, and achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this press release should not be regarded as a representation that such plans, estimates, expectations or objectives will be achieved. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, (1) uncertainty of the expected financial performance of the Company; (2) expected synergies and savings associated with merger transactions effectuated by the Company; (3) the ability of the Company and/or its adviser to implement its business strategy; (4) evolving legal, regulatory and tax regimes; (5) changes in general economic and/or industry specific conditions; (6) the impact of increased competition; (7) business prospects and the prospects of the Company’s portfolio companies; (8) contractual arrangements with third parties; (9) any future financings by the Company; (10) the ability of Sierra Crest Investment Management LLC to attract and retain highly talented professionals; (11) the Company’s ability to fund any unfunded commitments; (12) any future distributions by the Company; (13) changes in regional or national economic conditions, including but not limited to the impact of the COVID-19 pandemic, and their impact on the industries in which we invest; and (14) other changes in the conditions of the industries in which we invest and other factors enumerated in our filings with the SEC. The forward-looking statements should be read in conjunction with the risks and uncertainties discussed in the Company’s filings with the SEC, including the Company’s most recent Form 10-K and other SEC filings. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required to be reported under the rules and regulations of the SEC.
Contacts:
Portman Ridge Finance Corporation
650 Madison Avenue, 23rd floor
New York, NY 10022
info@portmanridge.com
Jason Roos
Chief Financial Officer
Jason.Roos@bcpartners.com
(212) 891-2880
Lena Cati
The Equity Group Inc.
lcati@equityny.com
(212) 836-9611
PORTMAN RIDGE FINANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts) September 30, 2022 December 31, 2021 (Unaudited) ASSETS Investments at fair value: Non-controlled/non-affiliated investments (amortized cost: 2022 - $510,533; 2021 - $479,153)$489,242 $452,482 Non-controlled affiliated investments (amortized cost: 2022 - $61,336; 2021 - $74,082) 60,522 74,142 Controlled affiliated investments (cost: 2022 - $58,322; 2021 - $52,130) 21,892 23,361 Total Investments at Fair Value (cost: 2022 - $630,191; 2021 - $605,365)$571,656 $549,985 Cash and cash equivalents 16,871 28,919 Restricted cash 22,183 39,421 Interest receivable 3,166 5,514 Receivable for unsettled trades 12,250 20,193 Due from affiliates 591 507 Other assets 2,808 3,762 Total Assets$629,525 $648,301 LIABILITIES 2018-2 Secured Notes (net of discount of: 2022 - $1,270; 2021 - $1,403)$162,593 $162,460 4.875% Notes Due 2026 (net of discount of: 2022 - $1,819; 2021 - $2,157; net of deferred financing costs of: 2022 - $880; 2021 - $951) 105,301 104,892 Great Lakes Portman Ridge Funding LLC Revolving Credit Facility (net of deferred financing costs of: 2022 - $1,163; 2021 - $732) 95,908 79,839 Derivative liabilities (cost: 2021 - $31) - 2,412 Payable for unsettled trades - 5,397 Accounts payable, accrued expenses and other liabilities 4,689 4,819 Accrued interest payable 4,330 2,020 Due to affiliates 1,261 1,799 Management and incentive fees payable 3,861 4,541 Total Liabilities$377,943 $368,179 COMMITMENTS AND CONTINGENCIES NET ASSETS Common stock, par value $0.01 per share, 20,000,000 common shares authorized; 9,906,833 issued, and 9,608,913 outstanding at September 30, 2022, and 9,867,998 issued, and 9,699,695 outstanding at December 31, 2021$97 $97 Capital in excess of par value 731,358 733,095 Total distributable (loss) earnings (479,873) (453,070)Total Net Assets$251,582 $280,122 Total Liabilities and Net Assets$629,525 $648,301 NET ASSET VALUE PER COMMON SHARE(4)$26.18 $28.88
(4) The Company completed a Reverse Stock Split of 10 to 1 effective August 26, 2021, the common shares and net asset value per common share have been adjusted retroactively to reflect the split for all periods presented.
PORTMAN RIDGE FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 INVESTMENT INCOME Interest income: Non-controlled/non-affiliated investments $13,727 $16,370 $37,043 $48,283 Non-controlled affiliated investments 823 1,775 2,271 2,670 Controlled affiliated investments - (5) - (5) Total interest income $14,550 $18,140 $39,314 $50,948 Payment-in-kind income: Non-controlled/non-affiliated investments $1,505 $1,225 $3,830 $3,078 Non-controlled affiliated investments 74 71 403 95 Controlled affiliated investments 161 - 181 - Total payment-in-kind income $1,740 $1,296 $4,414 $3,173 Dividend income: Non-controlled affiliated investments $1,149 $2,070 $3,099 $3,997 Controlled affiliated investments 1,033 373 3,262 3,015 Total dividend income $2,182 $2,443 $6,361 $7,012 Fees and other income $537 $1,032 $908 $1,628 Total investment income $19,009 $22,911 $50,997 $62,761 EXPENSES Management fees $2,082 $2,065 $6,305 $5,772 Performance-based incentive fees 1,780 1,939 4,627 6,333 Interest and amortization of debt issuance costs 4,673 3,408 11,906 10,315 Professional fees 759 490 2,483 2,680 Administrative services expense 862 760 2,531 2,092 Other general and administrative expenses 461 531 1,323 1,928 Total expenses $10,617 $9,193 $29,175 $29,120 NET INVESTMENT INCOME $8,392 $13,718 $21,822 $33,641 REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) from investment transactions: Non-controlled/non-affiliated investments $(8,560) $(2,970) $(26,339) $(10,193) Non-controlled affiliated investments (527) (961) (197) (1,180) Derivatives - - (2,095) - Net realized gain (loss) on investments $(9,087) $(3,931) $(28,631) $(11,373) Net change in unrealized appreciation (depreciation) on: Non-controlled/non-affiliated investments $(318) $310 $5,381 $5,143 Non-controlled affiliated investments 338 182 (874) 1,770 Controlled affiliated investments (2,988) (955) (7,661) 1,553 Derivatives - (179) 2,442 (873) Net unrealized gain (loss) on investments $(2,968) $(642) $(712) $7,593 Tax (provision) benefit on realized and unrealized gains (losses) on investments $(542) $- $(1,059) $- Net realized and unrealized appreciation (depreciation) on investments, net of taxes $(12,597) $(4,573) $(30,402) $(3,780) Realized gains (losses) on extinguishments of debt $- $- $- $(1,835) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(4,205) $9,145 $(8,580) $28,026 Net Increase (Decrease) In Net Assets Resulting from Operations per Common Share(4): Basic and Diluted: $(0.44) $1.00 $(0.89) $3.41 Net Investment Income Per Common Share(4): Basic and Diluted: $0.87 $1.50 $2.26 $4.10 Weighted Average Shares of Common Stock Outstanding—Basic and Diluted(4) 9,602,712 9,131,456 9,644,870 8,213,661
(4) The Company completed a Reverse Stock Split of 10 to 1 effective August 26, 2021, the common shares and net asset value per common share have been adjusted retroactively to reflect the split for all periods presented.
1 Core investment income represents reported total investment income as determined in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, less the impact of purchase price discount accounting in connection with the Garrison Capital Inc. (“GARS”) and Harvest Capital Credit Corporation (“HCAP”) mergers. Portman Ridge believes presenting core investment income and the related per share amount is useful and appropriate supplemental disclosure for analyzing its financial performance due to the unique circumstance giving rise to the purchase accounting adjustment. However, core investment income is a non-U.S. GAAP measure and should not be considered as a replacement for total investment income and other earnings measures presented in accordance with U.S. GAAP. Instead, core investment income should be reviewed only in connection with such U.S. GAAP measures in analyzing Portman Ridge’s financial performance.
2 NAV per share as determined in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, was decreased 6 cents and 1 cent per share for the quarters ended September 30, 2022 and June 30, 2022, respectively, due to the impact of quarterly tax provisions.
3 Net leverage is calculated as the ratio between (A) debt, excluding unamortized debt issuance costs, less available cash and cash equivalents, and restricted cash and (B) NAV. Portman Ridge believes presenting a net leverage ratio is useful and appropriate supplemental disclosure because it reflects the Company’s financial condition net of $39.1 million and $44.0 million of cash and cash equivalents and restricted cash for the quarters ended September 30, 2022 and June 30, 2022, respectively. However, the net leverage ratio is a non-U.S. GAAP measure and should not be considered as a replacement for the regulatory asset coverage ratio and other similar information presented in accordance with U.S. GAAP. Instead, the net leverage ratio should be reviewed only in connection with such U.S. GAAP measures in analyzing Portman Ridge’s financial condition.