BCP Investment (BCIC) Q2 2025 Earnings Call Transcript

Transcript

Speaker 4

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.

Speaker 0

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 non-accrual at quarter end. To better reflect this next chapter and the strength of our advisor, 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 Advisors L.P., a global alternative investment platform with deep credit expertise, and reinforces our commitment to building 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 diversified portfolio, cost savings due to 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.

Speaker 2

Thanks, Ted. Activity in our core markets was partially constrained for the quarter due to the initial tariff announcement 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 retaining 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 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 six of our presentation and sensitivity of our earnings to interest rates.

As of June 30th, 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 SOFR 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 two quarters, impacting current quarter net investment income. Skipping down to slide 11, originations for the second quarter were $10.9 million and repayments 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 the 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 six investments on non-accrual status at the end of the second quarter 2025, representing 2.1% and 4.8% of the company's investment portfolio at fair value and cost, respectively. It is worth noting that for a subset of the non-accrual 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 six investments on non-accrual status as of March 31st, 2025, representing 2.6% and 4.7% of the company's investment portfolio at fair value and cost, respectively.

On slide 13, excluding our non-accrual investments, we have an aggregate debt investment portfolio of $314.7 million at fair value, which represents a blended price of 86.6% at par value, and it's 88.6% comprised of first-line loans at par value. Assuming a par recovery, our June 30, 2025 fair values reflect a potential of $24 million of incremental net value, or a 14.6% increase to net. When applying an illustrative 10% default rate and 70% recovery rate, our debt portfolio would generate an incremental $1.51 per share of net, or an 8.4% increase as it rotates. Finally, turning to slide 14, if you aggregate the last three 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 the respective merger.

As of Q2 2025, we have fully exited the acquired OPIL 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.

Speaker 3

Thanks, Patrick. For the quarter ended June 30, 2025, Portman Ridge Finance Corporation 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 non-recurring negative impact to prior quarter earnings when it was placed on non-accrual. Additionally, I'm pleased to report that PIC income has declined by approximately 20% quarter over quarter, which was also driven by a non-recurring item that inflated the company's PIC income in the prior quarter. We remain focused on managing our non-cash income to a prudent level.

Not a final date, but it's in the next, over the course of the next couple of weeks, we should have that complete. Candidly, Chris, the biggest delay is just building out the new website and whatnot under the new branding. We should have that wrapped up here in the next couple of weeks, and then we will definitely announce the ticker change and the new website, etc., 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 you're filing today under a different name.

Speaker 5

Got it. I guess the final question is, you guys are the go-to guys to buy broken BDCs. Given that there's a big maturity wall for, you know, a lot of the investment spreads for BDCs are going to be coming in, have you guys seen more deal activity or, you know, shown to you more deals for merging with other BDCs?

Speaker 2

I would say deal activity has definitely picked up. Our M&A pipeline and things that we're looking at is probably at the highest it's been in a very long time. I think it's, and I'm not sure it has to do with the maturity wall. I think it has to do with, if you just look broadly at what's happening across the space, every single day scale becomes more important. I think that's driving a lot of internal conversations at firms about where they want to focus and where they want to scale. I would say our M&A pipeline, and again, like M&A maybe happens, maybe doesn't. In my opinion, it's probably never been higher. We're spending a lot of time, at the end of the day, we want our BDC to be much larger.

Yeah, I think I hit all the high points. Just to make a couple of notes there, you know, 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 is some, you know, whether direct or perceived breakage cost, you know, between finding new lenders and kind of like dealing with a new credit agreement and a new lender group, etc. You tend to get a little bit of a premium or at least a little bit less compression if you are just kind of refining an existing deal. Our franchise is more weighted towards a non-sponsor or non-traditional 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.

That also helps at least our franchise in terms of, you know, the market like this 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.

Speaker 2

I appreciate the additional commentary there. With regard to Ted, your commentary about a fairly strong appetite to use the buyback, that was 60 days from the closing. It would 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? Yeah. If we're going to do it, when you do a merger process, there's a period of time we have to wait, like a cooling off period till the dust settles kind of thing. That takes you right towards the end of the third quarter. At that time, you're running into things like blackouts and stuff. We're trying as hard as we can to try and do something. It might slip a little bit until the blackout finishes, but that timing is roughly right. It's a little later than that, but you're not so far off.

Got it. Thanks. Congrats on getting the deal closed earlier this quarter. Curious, do you have, are you able to share kind of a pro forma net asset value either as the date that the transaction closed or end of July, anything you might have on hand there that you could share? Yeah, Eric, so it's about just north of $235 million. Okay. Thanks. With regard to that, the comment about the potential benefit to net asset value 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? Yeah, here is Patrick.

I'll have a couple of comments here. I was just saying 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. There is some kind of material net asset value benefit potential from those names that, frankly, doesn't necessarily take a maturity to work through. I would say also, practically speaking, over the course of a normal cycle, you tend to see a natural maturity duration of about two and a half to three years. That would kind of be how we look at things like that, sort of over a two and a half, three-year period. You know, again, there's kind of maybe a couple of different ways to get at it. That's helpful.

Last one for me, just looking at the non-accrual book, it seems like there's still a lot of LME activity in the space, more limited on the kind of bankruptcy side. Just curious about, as you look at your non-accrual book, the opportunity to potentially either restructure or resolve some of those and potentially kind of move those back to accrual or maybe, you know, sell. How does the resolution trajectory look at this point? Yeah, I'd say maybe let's call it like flat to fully 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 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 is, we still struggle kind of getting to a full par recovery from what we think about the business and enterprise value, etc. We continue to leave it on non-accrual, but we are recognizing the cash interest that we receive on the loan, not recognizing any of the PIC. I think our suspicion is that that situation will continue to improve versus not.

I'd say the rest of them are relatively flat to, I'd say, kind of increasing as there's another large position that we've been working with the company on monetizing some non-core assets to generate some kind of paydowns there, which again doesn't necessarily translate into turning that back on non-accrual, but getting the money back and then redeploying it somewhere else has the exact same positive benefit. Thanks for taking my questions today.

Speaker 4

Your next question comes from the line of Steven Martin with Slater Capital Management LLC. Please go ahead.

Speaker 1

Morning, guys. Most of my questions have been asked and answered. When you look at the pro forma combined portfolio, recognizing that, you know, 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'll end up getting diluted? You know, what is the nature of the difference in the portfolio going to look like? Good question, Steve. I would say, good question. I'll give you like a slightly bad answer in the sense of, you know, the reason why this made a lot of sense is the portfolios are, you know, pretty similar. We have done a very good job of exiting a number of equity positions in Logan Ridge over the last 12 months.

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 few equities will also look as a smaller amount if you count it, if you're looking at it from a Portman perspective. Logan Ridge had sort of left limited to no limited CLO equity and left joint venture positions. I think when, again, when you kind of like put it onto 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 percentage of 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, you know, from a Portman perspective, I think the mix of pure debt will, you know, likely go up a little bit or, or said differently, the CLO equity will go down. Joint venture will go down a little bit. I think the equity will go up a bit, but somewhat negligible. It'll really be a relatively consistent, you know, SOI.

Speaker 3

Got it. Steve, I would just add, you know, 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%. There is a pretty material operating expense efficiencies that you guys will all benefit from going forward, as well as, of course, the fee waivers, etc., that we put in place that will drive P&L going forward. Over the longer term, we would love to rotate out of the equity book and all of the non-yielding names that Logan Ridge has and redeploy those proceeds into interest or debt.

Speaker 1

Since there was a substantial overlap in names over the last two to three years, when you combine them, is there going to be a material difference in the number of different names in the portfolio? 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. That obviously means 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 normalize out when you add the two things together.

Candidly, I think the biggest piece from our perspective that will move around when you put the two 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 get better borrowing capacity. All of our different, two different credit facilities have different industry concentrations, leverage concentrations, things like that. The ability for us now under one combined roof to be able to move around the asset positions within the credit facilities, at least from our perspective, is where we'll be able to unlock a lot of value from the SOFR being put together. Got it. One last one. Recognizing that you'd exited a number of the larger equity positions, any change that you can talk about on what was left of the Logan Ridge equity? No, not a huge change.

There's still a couple of small things that we're working on, on getting, exiting, and moving around. I would say there's probably one or two of the larger ones that are still trying to work through their own processes. We don't have a lot of control in those instances. We obviously push and prod where we can. I would not say that there is anything logical on the horizon. Having said that, for sure, the macro environment and where the LBO environment we think is trending over the next six months, I wouldn't be surprised if we see a bunch of things that we're not expecting, smaller positions, but volume-wise, see more things that we're not expecting actually get monetized and realized.

Speaker 2

Okay. Thanks a lot, guys. Thanks, Steve.

Speaker 4

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

Speaker 0

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

Speaker 4

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

BCP Investment Corporation - Earnings Call - Q2 2025

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