Steven Martin

Inquired about the nonaccrual assets, the potential for recovery, the risk profile of the remaining legacy portfolio, the status of BC Partners-sourced loans, and the valuation marks on the BC-sourced book.

Answer

The largest nonaccrual asset, Sequoia, is not expected to have a meaningful recovery. The remaining legacy portfolio risk is considered low. Of the three nonaccrual names, one (Lucky Bucks) is a BC-sourced name. The BC-sourced book, excluding Lucky Bucks, is generally marked well, with most names near par.

Inquired about the deployment strategy for the fourth quarter given lower leverage, the reason for the decrease in the fair value of nonaccrual assets, the small size of the share repurchase program, and the outlook for exiting the remaining large equity positions.

Answer

Executives explained that lower leverage gives Logan more flexibility to invest in a wider range of credit opportunities. The nonaccrual value decreased due to a markdown on an existing investment (Sequoia). The share repurchase program was set before the Nth Degree sale provided extra liquidity and will be reassessed for the next quarter. They are optimistic about exiting the remaining equity positions in the current favorable M&A market but do not control the timing.

Asked for details on the quarter's unrealized loss, the status of the legacy equity portfolio and potential exits, the age of the larger equity positions, and the reason for a valuation discrepancy on a specific holding compared to another BDC's mark. He also urged the company to resume share buybacks.

Answer

Management explained the unrealized loss was mainly driven by two specific companies, American Clinical Solutions and Avanti. They are optimistic about monetizing the legacy equity portfolio in the current M&A market, noting the largest holdings are mature. The valuation difference on one asset is due to a more conservative marking policy. The comment on share buybacks was acknowledged.

Steven Martin of Slater Capital Management questioned the composition of non-accrual investments, their prospects for returning to current pay status, and the realistic potential for recovering the portfolio's embedded unrealized losses.

Answer

Chief Investment Officer Patrick Schafer detailed the status of the two main non-accruals, Naviga and Sundance, noting a potential path for Naviga to resume cash interest payments. Executive Edward Goldthorpe and Patrick Schafer clarified that their NAV upside calculations are based on performing credits, stripping out non-accruals, and that significant recovery potential exists within the performing portion of the debt portfolio.

Steven Martin asked for the rationale behind the new base-plus-supplemental dividend policy, questioned the company's difficulty with capital deployment and shrinking portfolio, and inquired about the firm's incremental investment capacity and the impact of unwinding its JMP CLO investments.

Answer

Executive Edward Goldthorpe and CIO Patrick Schafer explained the new dividend policy aligns with an industry trend and was benchmarked against peers to set a competitive base dividend (approx. 9.7% of NAV) with a supplemental payout of about 50% of excess NII. Regarding deployment, Goldthorpe cited a muted market for new deals, while Schafer noted that timing issues, like a large year-end repayment, skewed the net deployment figures. An executive clarified that investment capacity is not directly tied to NAV and that unwinding the CLOs, which are outside the main credit facility, will free up cash that can be used to generate new incremental investment capacity.

Steven Martin from Slater Capital asked if the company expects to be a net deployer of capital in the fourth quarter, questioned the reason for the significant decline in PIK income, and requested details on activity within the non-accrual portfolio, including any potential restructurings.

Answer

Executive Edward Goldthorpe and CFO Brandon Satoren confirmed they expect to be a net deployer in Q4, contingent on unforeseen repayments. They explained the PIK income decline was driven by two portfolio companies reverting from PIK to cash interest payments, a positive development. Satoren detailed that one investment (QualTek) exited non-accrual status while another (Vega) was added, and noted that a restructuring for Robert Warshauer is in process and should resolve shortly.

Steven Martin asked if the company expects to be a net deployer of capital in the fourth quarter, questioned the reason for the significant decline in PIK income, and requested details on non-accrual portfolio activity and the status of any restructurings.

Answer

Chief Financial Officer Brandon Satoren confirmed the company expects to be a net deployer in Q4, barring unforeseen exits. He explained the PIK income decline was driven by two portfolio companies reverting to cash interest payments, a reduction of about $500,000. He also detailed that one new borrower (Vega) was added to non-accrual status, while another (Robert Warshauer) is in a restructuring process and should become an accruing security soon.

Steven Martin of Slater challenged management on the modest EBITDA improvement guided for 2025 despite significant restructuring charges in 2024. Citing long-term stock underperformance, he pressed the board on its commitment to shareholder value and asked at what point they would consider selling the company.

Answer

Executive Andy Cheung explained that the 2025 guidance reflects a significant revenue decline headwind, and the underlying cost savings are substantial when comparing on a like-for-like basis. President and CEO James Ray addressed the strategic question by stating that maximizing shareholder value is a regular topic at board meetings. He defended recent divestitures as necessary actions to clean up the portfolio and position CVG to capitalize on an eventual market recovery, which they believe is the best path to increasing the stock price.

Steven Martin expressed frustration with the company's persistent underperformance across all business segments and questioned management's discussion of acquisitions. He then asked directly when the company expects to report its first quarter of positive operating profit growth.

Answer

CEO James Ray acknowledged the frustration and clarified that any potential acquisitions would only be considered after the company achieves stability and sustained margin expansion. In response to the direct question, he stated that while no formal guidance has been provided, he expects a positive operating profit quarter in 2025, aspiring for it to occur within the first half of the year.

Inquired about expected net deployments in Q4, the reason for the significant decline in PIK income, activity within non-accrual investments, and the outlook for restructurings.

Answer

Executives confirmed they expect to be a net deployer of capital in Q4. The drop in PIK income was attributed to two portfolio companies reverting to cash payments. Regarding non-accruals, QualTek exited while Vega entered, though the latter is seen as temporary. No other significant restructurings are on the horizon, though one smaller position (Robert Warshauer) is expected to be resolved soon.