Portman Ridge Finance Corporation (NASDAQ:PTMN) Q2 2025 Earnings Call Transcript

Portman Ridge Finance Corporation (NASDAQ:PTMN) Q2 2025 Earnings Call Transcript August 8, 2025

Operator: Welcome to Portman Ridge Finance Corporation’s Second Quarter Ended June 30, 2025 Earnings Conference Call. An earnings press release was distributed yesterday, August 7, 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 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 Satoren, Chief Financial Officer; and Patrick Schafer, 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.

Edward Joseph Goldthorpe: Good morning, and welcome to our second quarter 2025 earnings call. I’m joined today by our Chief Financial Officer, Brandon Satoren; and our Chief Investment Officer, Patrick Schafer. 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 $0.50 per share compared with $4.3 million or $0.47 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 $0.47 per share, up from $0.9 million or $0.35 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 nonaccrual at quarter end.

To better reflect this next chapter and the strength of our adviser, 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 reinforce our commitment to build an industry-leading business development company. For the second quarter of 2025, the Board of Directors approved a base distribution of $0.47 per share as well as a supplemental cash distribution of $0.02 per share. Of note, earlier this year, we modified our dividend policy and introduced a stable base distribution of $0.47 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 portfolio — further diversified portfolio, cost savings due to lower all — overall operating expenses and improved 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 Schafer, our Chief Investment Officer, for a review of our investment activity.

Patrick Schafer: Thanks, Ted. Activity in our core market 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 a limited direct impact on our franchise, it does point to overall healthy capital markets that should lay the groundwork for increased deal activity in the second half of the year.

Turning now to Slide 6 of our presentation and sensitivity of our earnings to interest rates. As of June 30, 2025, approximately 86.9% of our debt securities portfolio was based on a floating rate with a spread pegged to an interest rate index such as SOFT 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. Getting 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 remains 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 6 investments on nonaccrual 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’s worth noting that for a subset of the nonaccrual 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 6 investments on nonaccrual 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 nonaccrual investments, we have an aggregate debt investment portfolio of $314.7 million at fair value, which represents a blended price of 86.6% of par value and its 88.6% comprised of fist lien loans at par value. Assuming a par recovery, our June 30, 2025, fair values reflect the 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 3 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 in 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.

Brandon Satoren: Thanks, Patrick. For the quarter ended June 30, 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 31, 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 nonrecurring negative impact to prior quarter earnings when it was placed on nonaccrual. Additionally, I’m pleased to report that PIK income has declined by approximately 20% quarter-over-quarter which was also driven by a nonrecurring item that inflated the company’s PIK income in the prior quarter. We remain focused on managing our noncash income to a prudent level.

For the quarter ended June 30, 2025, total expenses were $8.1 million, which represents a $0.3 million increase or $0.03 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 $0.50 per share, which constitutes an increase of $0.3 million or $0.03 per share from $4.3 million or $0.47 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 30, 2025, representing a $0.96 per share decrease as compared to $18.85 per share as of March 31, 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 1.6x and 1.4x, respectively, compared to 1.5x and 1.3x, 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 base capacity under the senior secured revolving credit facility, subject to borrowing base restrictions.

With that, I will turn the call back over to Ted.

Edward Joseph Goldthorpe: Ahead of questions, I’d like to reemphasize how excited we are for the opportunities the newly combined company will create and are 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 we’ll 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.

Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Christopher Nolan with Ladenburg.

Christopher Whitbread Patrick Nolan: Brandon, were there any nonrecurring items in the quarter?

Brandon Satoren: Outside of the other income that’s broken out on the financial statements, there were no material items this quarter.

Christopher Whitbread Patrick Nolan: Okay. And then why was interest income higher quarter-over-quarter despite a smaller portfolio and a slight dip in yield?

Brandon Satoren: So it was largely driven by the net — the deployment we had in the prior quarter flowing through the current period.

Patrick Schafer: Yes, 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.

Christopher Whitbread Patrick Nolan: Simple timing issues?

Brandon Satoren: Yes. And first, we also had the — so in the prior quarter, we had the Sundance onetime reversal of previously accrued income by about $0.5 million that impacted Q1 on an out-of-period basis that I highlighted in my script.

Christopher Whitbread Patrick Nolan: Great. And then the realized loss was $15 million. ProAir was $6 million. What’s the rest…

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

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

Brandon Satoren: Not a final date, but its in the — over the course of the next couple of weeks, we’re going to — we should have that complete. It candidly, 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 the next couple of weeks, and then we will definitely announce the ticker change and 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 6/30 was Portman Ridge and your filing today under a different…

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

Edward Joseph Goldthorpe: I would say we — 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. I think — I’m not sure it has to do with the maturity wall. I think it has to do with — I think if you just look broadly what’s happening across the space, I think every single day, scale becomes more important. And I think that’s driving a lot of internal conversations at firms about 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 it’s — in my opinion, it’s probably never been higher. So we’re spending a lot of time. At the end of the day, like 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, like the hope would be that 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 like I would say — there’s been a bit of a lot of winners and there’s been a few winners and a couple of people who have had a hard time scaling and those people are beginning to explore partnering with a bigger platform to help grow. So sorry, that was a very long answer.

Christopher Whitbread Patrick Nolan: Yes. 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’re sort of edging towards at some point, try to get an investment-grade rating for the notes. I mean…

Edward Joseph Goldthorpe: Yes, if you look at — I mean, if you look at financing costs across the space, 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 we’re in the cost of capital business, and that all drops to the bottom line. So — and obviously, in an environment where spreads are coming down and there’s some headwinds on earnings, refinancing our debt at cheap rates. And the market right now is wide open, is very important to driving earnings.

Operator: Your next question comes from the line of Erik Zwick with Lucid Capital Markets.

Erik Edward Zwick: You sounded fairly optimistic about the opportunity for originations in the back half of the year, noting some increased — activity up in the market. Just as you look at the pipeline today, I’m curious how kind of breaks down in terms of maybe new and add-on opportunities and how spreads are today versus maybe a quarter ago beginning of the year?

Edward Joseph Goldthorpe: Yes. Why don’t I go first. I would say — I mean we’re focused on 2 things in the back half of this year, like we are seeing a big uptick in refinancing activity, and you haven’t seen it roll through our earnings yet, but if you will. And so like our sponsor-based pipeline has increased dramatically over the last 2 or 3 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 3 years. For the first time, we’re actually seeing some true sales — and — but it’s still primarily refinancings. I would say spreads, in my opinion, really haven’t come down that much in the last quarter.

And 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 the syndicated markets, but our industry broadly 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 where 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, saying that when we’re kind of eligible to do it, I think we’ll be pretty aggressively buy back stock and not just through normal course ways.

And I think it’s — when you run the math on where spreads are today versus us buying back stock or tendering for stock, obviously, it makes a lot of sense for us to do consider both. So I think in the back half of this year, 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 buy back stock.

Patrick Schafer: Ted had all the high points, I 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 were some — whether direct or perceived breakage cost between finding new lenders and kind of like dealing with a new credit agreement and a new lending 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 refi existing deal. Our franchise is more weighted towards nonsponsor or nontraditional sponsor. Again, it’s a little bit less competitive. You’re going to get a little bit of better ability to kind of price and structure deals. So that also helps at least our franchise in terms of kind of [indiscernible] when sort of the bigger deals and sponsors are kind of really leaning on lenders to drive terms. We do get a little bit of insulation and protection from that.

Erik Edward Zwick: I appreciate the additional commentary there. And with regard to Ted, your commentary about fairly strong appetite to use the buyback, that was 60 days from the closing to 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?

Edward Joseph Goldthorpe: Yes. So — so when you do a merger process, there’s a period of time we have to wait like a cooling off period till — to like 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 it’s you’re not so far off.

Erik Edward Zwick: Got it. And one, 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 or that you could share?

Edward Joseph Goldthorpe: Yes. Eric, so it’s about just north of $235 million.

Erik Edward Zwick: Okay. And with regard to the comments about the potential 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 timeframe? Like what is the average remaining maturity on that portion of the book? Or just how to think about the opportunity and timeframe to realize those potential benefits?

Patrick Schafer: Yes, it’s Patrick. I’ll have a couple of comments here. We just say it’s not all just maturity necessarily. We do have a handful of sort of liquid CUSIP-type securities that do move around a bit. And so there is some kind of material NAV benefit potential from those names that frankly doesn’t necessarily take a maturity to work through. I would say also kind of practically speaking, over the course of a normal cycle, you tend to see a natural maturity duration of kind of about 2.5 to 3 years. So that would kind of be like how we sort of look at things like that sort of over a 2.5, 3-year period. Again, kind of maybe a couple of different ways to get at it.

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

Edward Joseph Goldthorpe: Yes. I’d say I’d say maybe, let’s call it, like flat to fault you positive in the sense of — 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’d call it, a partial restructuring, not full, but such that we are now receiving cash interest on the loan however, kind of given all the puts and takes, we still don’t think it — we still struggle, kind of getting to a full par recovery from kind of what we think about the business and enterprise value, et cetera. So kind of we continue to leave it on nonaccrual, but we are recognizing the cash interest that we received on the loan, not recognizing any of the pick, and I think our suspicion is that, that situation will continue to improve versus not.

And I’d say the rest of them are relatively flat to, I’d say, kind of increasing. There’s another large position that we’ve been working with the company on monetizing some noncore assets to generate some kind of pay downs there, which, again, doesn’t necessarily translate into turning that back on nonaccrual, but getting the money back and then redeploying it somewhere else has the exact same positive benefit.

Operator: Your next question comes from the line of Steven Martin with Slater Capital.

Steven L. Martin: 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 — what’s the most dramatic change going to be? Is it just the — is it the Logan equity that Portman doesn’t have a lot of equity and it will end up getting diluted. What is the nature of the difference in the portfolio going to look like?

Patrick Schafer: Good question. I’ll give you like a slightly bad answer in the sense of — the reason why this made a lot of sense is the portfolios are 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 fuel equities will also look as a smaller amount. If you kind of — 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 positions. So I think again, when you kind of like put it on to the balance sheet for 9/30, and you’re looking at it from a Portman perspective, those numbers will be down a little bit, as a percent of the 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 — from a Portman perspective, I think that the mix of your debt will likely go up a little bit or say differently, the CLO equity will go down to measure will go down a little bit. I think the equity will go up a bit, but somewhat negligible. So it will really be a relatively consistent SOI.

Edward Joseph Goldthorpe: Steve, I would just add, as of 6/30, 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’d look to rotate out of the equity book and all of the non-yielding names that Logan Ridge has and redeployed those proceeds into interest earning [indiscernible].

Steven L. Martin: Since there was a substantial overlap in names over the last 2 to 3 years, when you combine them, is there going to be a material difference in the number of different names in the portfolio?

Patrick Schafer: 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 that obviously, we are adding diversification. I wouldn’t say it is substantial. And I would also say the names are pretty similar, but depending on 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 2 things together. Candidly, I think the biggest piece from our perspective that will move around when you put the 2 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 better borrowing capacity.

Again, all of our different — 2 different credit facilities have different industry concentrations, leverage concentrations, kind of things that — all like that. So 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 sort of unlock a lot of value from the SOI being put together.

Steven L. Martin: Got it. One last one. recognizing that you’ve gotten — you exited a number of the larger equity positions. Any change that you can talk about on what was left of the Logan Ridge equity?

Patrick Schafer: No. Not a huge change. There’s still a couple of small things that we’re working on, on getting — exiting and moving around out data is probably 1 or 2 of the larger ones, that are still sort of trying to work through their own processes. We don’t have a lot of control in those instances. So we obviously kind of like pushing [indiscernible] where we can. But I would say I would not say that there is anything 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 6 months? I wouldn’t be surprised if we see a bunch of things that we’re not expecting smaller positions — but volume-wise, you see more things that we’re not expecting to actually get monetized and realized.

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

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

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