Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Portman Ridge Finance Corp (PTMN, Financial) reported net investment income of $6.5 million or $0.70 per share, an increase from the prior quarter.
- The company maintains a well-diversified portfolio with exposure to 28 industries and 75 unique portfolio companies.
- PTMN successfully amended and extended its senior secured revolving credit facility with JPMorgan Chase Bank, increasing the facility size to $200 million and reducing the applicable margin.
- The Board of Directors approved a $0.69 per share distribution for the third quarter of 2024, representing a 13% annualized return on net asset value.
- The company continues to repurchase shares under its share repurchase program, which was accretive to net asset value by $0.03 per share during the quarter.
Negative Points
- Net realized and unrealized losses on investments and debt were $12.8 million for the quarter, a significant increase from the prior quarter.
- The company's net asset value decreased to $196.4 million or $21.21 per share, down from $210.6 million or $22.57 per share in the prior quarter.
- Investments on non-accrual status increased to nine investments, representing 4.5% of the company's investment portfolio at cost.
- Originations for the quarter were lower than the previous quarter and below the current quarter repayments and sales levels, resulting in net repayments and sales of approximately $18.2 million.
- The company experienced meaningful spread compression in certain parts of the private credit market, impacting new investment opportunities.
Q & A Highlights
Portman Ridge Finance Corp (PTMN) Q2 2024 Earnings Call Highlights
Q: What was the driver for the realized loss and the unrealized depreciation?
A: The primary driver for the unrealized depreciation was QualTek, which was exited shortly after the quarter-end. The realized loss was related to an investment called Tank, which was marked down previously and realized at that mark.
Q: What should we expect in terms of a realized loss for QualTek in Q3?
A: The unrealized loss for QualTek will flip to realized in Q3 with no additional NAV impact. The exact quantum can be followed up on, but it will be a complete flip from unrealized to realized.
Q: Can you give any perspective on the BDC M&A market given the asset quality deterioration?
A: The BDC M&A market remains relatively quiet. However, there is significant strategic activity in the broader asset management space, driven by the need for scale and cost pressures. This trend is expected to continue over the next 12 to 18 months.
Q: Is there a broader issue in the high-tech industry part of your portfolio?
A: The tech portfolio, primarily enterprise software, has seen longer sales cycles and budget shifts towards AI. Additionally, there have been some company-specific events impacting valuations, such as cyber issues.
Q: What is the current trend in amendments, extensions, and waivers?
A: There has not been a material pickup in amendment and waiver activity. The market has normalized, and while there are some normal course amendments, the activity has been relatively muted this quarter.
Q: Can you comment on the nature of your PIK income?
A: PIK income is a mix of additional pricing concessions for covenant relief or maturity extensions and structured equity solutions. The overall cash to PIK ratio is around 85-15.
Q: Should we expect a recapture of some unrealized losses given the recent spread compression?
A: There is a lag in the impact of spread compression, which starts at the top and trickles down. This should be a tailwind for valuations, and some NAV upside is expected as spreads continue to compress.
Q: Why are the position sizes in recent deals smaller?
A: The strategy is to maintain a well-diversified portfolio, which is more advantageous for shareholders. Smaller positions in more deals reduce the impact of any single investment and increase consistency of results.
Q: How are the CLO equity positions valued?
A: CLO equity positions are valued by third parties, with high discount rates reflecting the opaque market and compressed returns to equity. The Great Lakes joint venture, a significant part of the portfolio, is valued at lower discount rates.
Q: Is there any seasonality or timing factors contributing to this being a tougher quarter?
A: The challenges are more thematic than seasonal. The market has seen a slowdown in new LDO activity and M&A at the private equity sponsor level, impacting the pipeline. However, a large percentage of portfolio companies are expected to go for sale in the fourth quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
