Finance

Portman Ridge Finance Corporation Announces Second Quarter

Reports Strong Investment Activity and Lower Non-Accruals; Reduces Cost of Capital    
Maintains its Quarterly Distribution of $0.63 per Share

NEW YORK, Aug. 09, 2022 (GLOBE NEWSWIRE) — Portman Ridge Finance Corporation (Nasdaq: PTMN) (the “Company” or “Portman Ridge”) announced today its financial results for the second quarter ended June 30, 2022.

Second Quarter 2022 Highlights

  • Net asset value (“NAV”) for the second quarter of 2022 was $261.7 million ($27.26 per share1) as compared to $278.3 million ($28.76 per share1) in the first quarter of 2022.
  • Total investment income for the second quarter of 2022 was $15.0 million, of which $11.9 million was attributable to interest income from the debt securities portfolio, inclusive of payment-in-kind income.  
  • Excluding the impact of purchase price accounting, core investment income2 for the second quarter of 2022 was $13.7 million.
  • Net investment income (“NII”) for the second quarter of 2022 was $5.5 million ($0.57 per share).
  • Additionally, certain investments that closed either at quarter end or shortly thereafter would have generated an incremental $0.10 per share of NII if closed on April 1, 2022.
  • As of June 30, 2022, three of the Company’s debt investments were on non-accrual status compared to six as of March 31, 2022.
  • During the quarter, the Company repurchased 106,627 of shares under its Stock Repurchase program at an aggregate cost of approximately $2.5 million; since the beginning of the year, the Company has repurchased a total of 129,617 shares for an aggregate cost of approximately $3.0 million.
  • During the second quarter of 2022, the Company refinanced its Revolving Credit Facility with JPMorgan Chase Bank – the agreement placed three-month SOFR as the benchmark interest rate and reduced the applicable margin to 2.80% per annum from 2.85% per annum. Additionally, the Company extended the reinvestment period and scheduled termination date to April 29, 2025 and April 29, 2026, respectively.
  • Total investments at fair value as of June 30, 2022 was $581.5 million; when excluding CLO Funds, Joint Ventures and short-term investments, these investments are spread across 32 different industries and 118 entities with an average par balance per entity of approximately $3.5 million.
  • As of June 30, 2022, par value of outstanding borrowings was $364.9 million with an asset coverage ratio of total assets to total borrowings of 170%. On a net basis, leverage as of June 30, 2022 was 1.2x. 3

Subsequent Events

  • Declared a stockholder distribution of $0.63 per share for the third quarter of 2022, payable on September 2, 2022 to stockholders of record at the close of business on August 16, 2022.

Management Commentary
Ted Goldthorpe, Chief Executive Officer of Portman Ridge, stated, “As seen by many in our industry, our operations have been affected by the challenging economic environment, rising interest rates and market volatility. Operating under these conditions, we continued our strategy of being prudent in our investment strategy and seeking out strong companies to add to our portfolio. As a result, even under these market conditions, we ended the quarter with a strong portfolio, reduced our non-accrual positions and maintained a dividend of $0.63 per share. Investment activity was strong, and although originations are still lower than the second half of 2021, during the second quarter, we deployed approximately $32.9 million of our available cash in new investments and an additional $20.6 million in the beginning of the third quarter, all but $7.2 million of which were investments we had in the pipeline since the end of the first quarter. On the other side of the balance sheet, we proactively restructured our agreement with JPMorgan Chase to lower the interest rate, shift from LIBOR to SOFR, and extend the maturity date by 2 ½ years. This restructured agreement has lowered our cost of capital. Overall, we believe that we are well-positioned to improve our portfolio performance and investment income in the second half of 2022.”

________________
1 NAV per share as determined in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, was decreased 1 cent and 5 cents per share for the quarters ended June 30, 2022 and March 31, 2022, respectively, due to the impact of quarterly tax provisions.
2 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.
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 $44.0 million of cash and cash equivalents and restricted cash. 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.

Select Financial Highlights

    For the Three Months Ended June 30,
    2022   2021
Total Investment Income   $ 15,044     $ 21,545  
Total Expenses     9,522       9,835  
Net Investment Income     5,522       11,710  
             
Net realized gain (loss) on investments     (13,991 )     (2,356 )
Net unrealized gain (loss) on investments     113       1,490  
Tax (provision) benefit on realized and unrealized gains (losses) on investments     (77 )      
Net realized and unrealized appreciation (depreciation) on investments, net of taxes     (13,955 )     (866 )
Realized gains (losses) on extinguishments of debt            
Net Increase (Decrease) in Net Assets Resulting from Operations   $ (8,433 )   $ 10,844  
Net Increase (Decrease) In Stockholders’ Equity Resulting from Operations per Common Share (4):        
Basic and Diluted:   $ (0.88 )   $ 1.40  
Net Investment Income Per Common Share (4):        
Basic and Diluted:   $ 0.57     $ 1.51  
Weighted Average Shares of Common Stock Outstanding—Basic and Diluted (4)     9,634,870       7,747,169  
                 

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.

     
($ in thousands)   For the Three Months Ended June 30, 2022
Interest from investments in debt excluding accretion   $ 9,275  
Purchase discount accounting     1,303  
PIK Investment Income     1,292  
CLO Income     928  
JV Income     2,071  
Service Fees     175  
Total Investment Income     15,044  
Less: Purchase discount accounting     (1,303 )
Core Investment Income     13,741  
         

Total investment income for the three months ended June 30, 2022 and June 30, 2021 was $15.0 million and $21.5 million, respectively. Total expenses for the three months ended June 30, 2022 and June 30, 2021 were $9.5 million and $9.8 million, respectively.

As of June 30, 2022, the weighted average contractual interest rate on our interest earning debt securities portfolio was approximately 8.7%. As of both March 31, 2022 and December 31, 2021, the weighted average contractual interest rate on our debt securities portfolio was approximately 8.1%.

Investment Portfolio Activity
The composition of our investment portfolio as of June 30, 2022 and December 31, 2021 at cost and fair value was as follows:

($ in thousands) June 30, 2022
(Unaudited)
  December 31, 2021
Security Type Cost/Amortized
Cost
    Fair Value     %(5)     Cost/Amortized
Cost
    Fair Value   %(5)  
Senior Secured Loan $ 418,560     $ 414,920     72     $ 361,556     $ 364,701     66  
Junior Secured Loan   62,272       59,147     10       82,996       70,549     13  
Senior Unsecured Bond   416       43     0       416       43     0  
Equity Securities   27,033       24,805     4       26,680       22,586     4  
CLO Fund Securities   44,880       24,271     4       51,561       31,632     6  
Asset Manager Affiliates(6)   17,791                 17,791            
Joint Ventures   66,065       58,273     10       64,365       60,474     11  
Derivatives   31       22           31       (2,412 )    
Total $ 637,048     $ 581,481     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 June 30, 2022, three of the Company’s debt investments were on non-accrual status as compared to six at March 31, 2022 and seven at December 31, 2021. Investments on non-accrual status as of June 30, 2022 decreased to 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 March 31, 2022 of 0.2% and 1.9% of the Company’s investment portfolio at fair value and amortized cost, respectively, and 0.5% and 2.8% as of December 31, 2021, respectively.

Liquidity and Capital Resources
As of June 30, 2022, we had $364.9 million (par value) of borrowings outstanding with a weighted average interest rate of 4.3%, of which $108.0 million par value had a fixed rate and $256.9 million par value had a floating rate. Portman Ridge expects future portfolio investments to predominately be floating rate investments.

As of June 30, 2022, the Company had unrestricted cash of $22.0 million and restricted cash of $22.0 million. This compares to unrestricted cash of $28.9 million and restricted cash of $39.4 million as of December 31, 2021. As of June 30, 2022, we had $21.9 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 June 30, 2022 were $652.8 million and $261.7 million, respectively, as compared to $648.3 million and $280.1 million, respectively, as of December 31, 2021.

As of June 30, 2022 and December 31, 2021, the fair value of investments and cash were as follows:

($ in thousands)      
Security Type   June 30, 2022     December 31, 2021  
Cash and cash equivalents   $ 22,039     $ 28,919  
Restricted Cash     21,991       39,421  
Senior Secured Loan     414,920       364,701  
Junior Secured Loan     59,147       70,549  
Senior Unsecured Bond     43       43  
Equity Securities     24,805       22,586  
CLO Fund Securities     24,271       31,632  
Asset Manager Affiliates            
Joint Ventures     58,273       60,474  
Derivatives     22       (2,412 )
Total   $ 625,512     $ 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 June 30, 2022, approximately 87.5% of our Debt Securities Portfolio were either floating rate with a spread to an interest rate index such as LIBOR or the prime rate. 78.4% of these floating rate loans contain LIBOR floors ranging between 0.10% and 2.25%. 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   $ 2,478     $ 4,098     $ 5,717  
Decrease in interest rate   $ 1,085     $ 1,133     $ 1,030  
                         

Net investment income assuming a 1% increase in interest rates would increase by approximately $2.5 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 $4.1 million and $5.7 million, respectively.

On an annualized basis, a decrease in interest rates of 1% would result in an increase in net investment income of approximately $1.1 million. A decrease in interest rates of 2% and 3% would result in an increase in net investment income of approximately $1.1 million and $1.0 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, August 10, 2022 at 9:00 am Eastern Time to discuss our second 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 7102603.

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 Second 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)

    June 30, 2022     December 31,
2021
 
    (Unaudited)        
ASSETS            
Investments at fair value:            
Non-controlled/non-affiliated investments (amortized cost: 2022 – $506,773; 2021 – $479,153)   $ 485,800     $ 452,482  
Non-controlled affiliated investments (amortized cost: 2022 – $72,114; 2021 – $74,082)     70,962       74,142  
Controlled affiliated investments (cost: 2022 – $58,161; 2021 – $52,130)     24,719       23,361  
Total Investments at Fair Value (cost: 2022 – $637,048; 2021 – $605,365)     581,481       549,985  
Cash and cash equivalents     22,039       28,919  
Restricted cash     21,991       39,421  
Interest receivable     2,829       5,514  
Receivable for unsettled trades     4,779       20,193  
Due from affiliates     693       507  
Other assets     18,997       3,762  
Total Assets   $ 652,809     $ 648,301  
LIABILITIES            
2018-2 Secured Notes (net of discount of: 2022 – $1,314; 2021 – $1,403)     162,549       162,460  
4.875% Notes Due 2026 (net of discount of: 2022 – $1,933; 2021 – $2,157; net of deferred financing costs of: 2022 – $918; 2021 – $951)     105,149       104,892  
Great Lakes Portman Ridge Funding LLC Revolving Credit Facility (net of deferred financing costs of: 2022 – $1,244; 2021 – $732)     91,827       79,839  
Derivative liabilities (cost: 2021 – $31)           2,412  
Payable for unsettled trades     20,293       5,397  
Accounts payable, accrued expenses and other liabilities     4,723       4,819  
Accrued interest payable     2,452       2,020  
Due to affiliates     891       1,799  
Management and incentive fees payable     3,259       4,541  
Total Liabilities     391,143       368,179  
COMMITMENTS AND CONTINGENCIES            
NET ASSETS            
Common stock, par value $0.01 per share, 20,000,000 common shares authorized; 9,897,776 issued, and 9,599,856 outstanding at June 30, 2022, and 9,867,998 issued, and 9,699,695 outstanding at December 31, 2021     97       97  
Capital in excess of par value     731,189       733,095  
Total distributable (loss) earnings     (469,620 )     (453,070 )
Total Net Assets     261,666       280,122  
Total Liabilities and Net Assets   $ 652,809     $ 648,301  
NET ASSET VALUE PER COMMON SHARE (4)   $ 27.26     $ 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)

    Three Months Ended
June 30,
    For the Six Months Ended June 30,  
    2022     2021     2022     2021  
INVESTMENT INCOME                        
Interest income:                        
Non-controlled/non-affiliated investments   $ 10,649     $ 17,443     $ 23,316     $ 31,913  
Non-controlled affiliated investments     857       662       1,448       895  
Total interest income     11,506       18,105       24,764       32,808  
Payment-in-kind income:                        
Non-controlled/non-affiliated investments     1,199       720       2,325       1,852  
Non-controlled affiliated investments     73       24       329       24  
Controlled affiliated investments     20             20        
Total payment-in-kind income     1,292       744       2,674       1,876  
Dividend income:                        
Non-controlled affiliated investments     1,005       1,114       1,950       1,927  
Controlled affiliated investments     1,066       1,416       2,229       2,642  
Total dividend income     2,071       2,530       4,179       4,569  
Fees and other income     175       166       371       596  
Total investment income     15,044       21,545       31,988       39,849  
EXPENSES                        
Management fees     2,088       1,914       4,223       3,707  
Performance-based incentive fees     1,169       2,300       2,847       4,393  
Interest and amortization of debt issuance costs     3,889       3,527       7,233       6,907  
Professional fees     879       696       1,724       2,190  
Administrative services expense     822       718       1,669       1,332  
Other general and administrative expenses     675       680       862       1,397  
Total expenses     9,522       9,835       18,558       19,926  
NET INVESTMENT INCOME     5,522       11,710       13,430       19,923  
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS                        
Net realized gains (losses) from investment transactions:                        
Non-controlled/non-affiliated investments     (14,109 )     (2,028 )     (17,779 )     (7,223 )
Non-controlled affiliated investments     118       (328 )     330       (219 )
Derivatives                 (2,095 )      
Net realized gain (loss) on investments     (13,991 )     (2,356 )     (19,544 )     (7,442 )
Net change in unrealized appreciation (depreciation) on:                        
Non-controlled/non-affiliated investments     4,870       (1,430 )     5,699       4,833  
Non-controlled affiliated investments     (1,329 )     1,257       (1,212 )     1,588  
Controlled affiliated investments     (3,428 )     1,883       (4,673 )     2,508  
Derivatives           (220 )     2,442       (694 )
Net unrealized gain (loss) on investments     113       1,490       2,256       8,235  
Tax (provision) benefit on realized and unrealized gains (losses) on investments     (77 )           (517 )      
Net realized and unrealized appreciation (depreciation) on investments, net of taxes     (13,955 )     (866 )     (17,805 )     793  
Realized gains (losses) on extinguishments of debt                       (1,835 )
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS   $ (8,433 )   $ 10,844     $ (4,375 )   $ 18,881  
Net Increase (Decrease) In Net Assets Resulting from Operations per Common Share (4):                        
Basic and Diluted:   $ (0.88 )   $ 1.40     $ (0.45 )   $ 2.37  
Net Investment Income Per Common Share (4):                        
Basic and Diluted:   $ 0.57     $ 1.51     $ 1.39     $ 2.50  
Weighted Average Shares of Common Stock Outstanding—Basic and Diluted (4)     9,634,870       7,747,169       9,666,298       7,974,361  
                                 

(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.

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