Logan Ridge Finance - Q2 2021

Transcript

Speaker 0

Thank you. Good morning, and welcome to Logan Rich Finance Corporation's 2nd Quarter 2021 Earnings Conference Call. An earnings press release was distributed this morning, August 16, before market open. A copy of the press release, along with an earnings presentation This presentation is available on the company's website at www.loganridgefinance.com in the Investor Relations section and should be reviewed in conjunction with company's Form 10 Q filed today 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 detailed in the company's filings with the SEC. Logan Rich Finance Corporation assumes no obligation to update any such forward looking statements unless required by law. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of Logan Ridge Finance Corporation. Please go ahead, Ted.

Speaker 1

Good morning, and thank you for joining us on our earnings call. I'm joined today by our Chief Financial Officer, Jason Roos and our Chief Investment Officer, Patrick Schaeffer. As you know, on July 1, we announced the closing of the transition to a new an advisor for Logan Ridge Finance Corporation. Logan Ridge's new advisor is Mount Logan Management LLC, an affiliate of BC Partners Advisor LP for U. S.

Regulatory purposes and part of the BC Partners credit platform as a wholly owned of Mount Logan Capital Inc, a Canadian public company. BC Partners Credit is a leading provider of capital to middle market companies and as part of the broader BC Partners organization, a leading global alternative asset manager with more than $40,000,000,000 in assets under management and over 30 years of operating history in the U. S. And Europe. We're very excited about the advisor transition at Logan Ridge and as previously discussed, We have 2 immediate objectives as the new advisor.

First, we are focused on actively rotating and replacing Non income producing investments with debt investments in the form of high quality senior secured positions originated by BC Partners. Secondly, we will look to improve and optimize the company's capital structure by reducing leverage and reducing the cost of debt while providing additional flexibility. In just 6 weeks since closing this transaction or transition, We have made significant headway on both of these objectives. Patrick will provide more commentary in his remarks, but we are pleased to report that subsequent to quarter end, The company has exited 5 portfolio companies, including 3 equity investments, valued at $58,700,000 as of June 30, 2021. We also have 2 additional portfolio companies that are in various stages of sales processes.

Secondly, at the end of the Q2, the company repaid in full the $71,000,000 in SBA debentures outstanding and surrendered its corresponding SBIC license. Additionally, the KeyBanc credit facility was repaid subsequent to quarter end. Our priority in the coming months As it relates to the right side of the balance sheet, will be to address the near term maturities with the objective of reducing cost of debt and increasing funding flexibility. Ultimately, our goal is to execute on these initiatives such that we are in a position to reinstate a sustainable dividend as soon as possible. Over the longer term, we believe there's an opportunity to reduce our administrative and operational expenses by leveraging the scale of BC Partners' credit platform and potential synergies across our total AUM base.

Additionally, we plan to grow the platform including through pursuing inorganic opportunities to further drive scale to the benefit of shareholders, including reducing the stock trading discount to NAV. We have a solid track record of With that, I will turn the call over to Patrick Schaeffer, our Chief Investment Officer.

Speaker 2

Thanks, Ted. I will briefly summarize investment activities for the quarter, then provide some more detail on activities subsequent to quarter end. During the Q2, the company made approximately $10,000,000 of investments and had approximately $33,500,000 in repayments and sales, resulting in net repayments and sales of approximately $23,500,000 for the period. As of June 30, 2021, The company's portfolio consisted of investments in 32 portfolio companies with a fair value of approximately $228,000,000 The debt investment portfolio, which represents 67.7 percent of the fair value of our total portfolio, had a yield of approximately 9.9%. At quarter end, we had debt investments in 3 portfolio companies on nonaccrual status with an aggregate amortized cost of $21,300,000 and an aggregate fair value of $9,800,000 which represented 9.8% and 4.3% of the investment portfolio, respectively.

During the quarter, the company recognized $6,900,000 of realized gains driven by the successful exits of our investments in City Gear LLC, CIS Secure Computing Inc. And ZERGO Technologies LLC. The company also recognized $13,700,000 of unrealized depreciation, driven in large part by 2 portfolio companies that have been impacted by COVID related challenges. I'll now provide a little more detail on our activities subsequent to quarter end. To date, we have successfully exited Logan Ridge's investments, Rapid Fire Protection, Inc, 3 Bridge Solutions LLC, of Miramuk Direct LLC, Cytel Inc.

And Corporate Visions Inc. Generating proceeds of $59,700,000 of which approximately $11,200,000 was from our equity interest in these portfolio companies. These positions were marked at 58 $700,000 as of June 30, 2021, and our equity interests were valued at $10,200,000 Based on the March as of June 30, 2021, We successfully exited 14% of the company's equity portfolio. Additionally, we have equity interest in 2 additional portfolio companies that are currently in various stages of sale processes that we're cautiously optimistic will close by year end. As we've discussed at length, Our objective is to continue to rotate out of these legacy positions and redeploy these proceeds into high quality senior secured interest earning debt investments originated by BC Partners.

We believe these early successes are promising and demonstrate our ability to execute Our strategic plan for repositioning this portfolio such that it earns a sustainable cash income stream sufficient to support a consistent recurring dividend for Logan Ridge shareholders. I'll now turn the call over to Jason.

Speaker 3

Thanks, Patrick. I will now quickly review the quarter and its key drivers. Total investment income was $5,000,000 for the Q2 of 2021 compared to $4,900,000 For the Q1 of 2021, interest income declined by $500,000 quarter to quarter, offset primarily by $600,000 in non recurring Dividend received. Total expenses for the Q2 of 2021 were $5,000,000 compared to $5,700,000 for the Q1 of 2021. Interest and financing expenses declined by 300,000 Base management fees declined by $100,000 and other general and administrative expenses declined by $264,000 Interest expense decreased compared to the prior quarter primarily due to full repayment of the SBA debentures in June.

Accordingly, net investment income for the quarter was $34,000 or 0 point 0 $1 per share compared to a loss of 800,000 or $0.29 per share in the quarter ended March 31, 2021. We recognized $6,900,000 in net realized gains, $13,700,000 net change in unrealized losses and $800,000 extinguishment loss on the SBA debentures. The net decrease in assets resulting from operations was $7,600,000 or $2.79 per share for the Q2 of 2021 compared to a net increase of $12,400,000 or $4.56 per share for the Q1 of 2021. Net assets at June 30, 2021 were $113,700,000 or 41.96 The decrease in NAV per share was primarily due to the net change in unrealized losses during the quarter. At June 30, 2021, we had $26,100,000 in cash and cash equivalents.

On the liability side of the balance sheet, we fully repaid 71,000,000 of SBA debentures during the Q2. At quarter end, we had approximately $150,000,000 of debt outstanding comprised of $25,000,000 drawn on Senior secured credit facility with KeyBanc, dollars 72,800,000 of fixed rate notes bearing an interest rate of 6% and $52,100,000 of convertible notes bearing an interest rate of 5.75%. The company's total Debt to equity ratio was [email protected]@March31 and 2x@theprioryearnd. Subsequent to quarter end, we have fully repaid the $25,000,000 outstanding on the senior secured KeyBanc facility. As Ted mentioned, we are actively focused on continuing to optimize our debt capital structure.

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

Speaker 1

Thanks, Jason.

Speaker 2

In summary,

Speaker 1

We are very pleased with the progress we've made already since undertaking management of the company on July 1. We focused on risk reduction By materially rotating the composition of the investment portfolio from non income generating equity investments and redeploying those proceeds into income producing high quality debt investments and also rapidly deleveraging with a longer term objective of further optimizing our current liability structure. Our goal is to reinstate the dividend at a sustainable rate as soon as practically possible. Over time, our goal is to streamline operating expenses by leveraging the breadth and depth of the broader BC Partners credit platform and increased scale through strategic transactions. We look forward to providing more updates in the coming quarters as we continue to make progress.

Thank you all for your support. This concludes our prepared remarks.

Speaker 4

Jeffer Nolan from Ladenburg Thalmann.

Speaker 5

Hey, guys. Nice quarter. Congratulations on all the progress you've made in such a short time. Is it fair to say that the given the exits of $58,000,000 in the quarter to date, We should see the cash balance start to substantially rise with the balance sheet. And if so, is the plan to start paying down the remaining debt currently?

Speaker 2

Hey, Chris. This is Patrick. Thanks for the question. So some of that balance went towards Repaying the KeyBanc facility, which we noted, in our prepared remarks. And then we didn't highlight it specifically, but we have been Actively reinvesting those proceeds in BC originated transactions.

So when we get to kind of our quarter end, you'll see new investments on the books that are kind of BC driven, BC related investments. So there's a combination of those two things going on.

Speaker 5

Great. And then a follow-up, should we expect realized gains And the Q3 from these exits?

Speaker 2

So far from these exits, yes. I think we mentioned the numbers. There There's a slight increase in terms of proceeds we received relative to the balance as of June 30. So as it relates to these specific five investments, yes. And obviously, TBD on future realizations, but so far, yes.

Great. Thanks. Thank you.

Speaker 4

I would now like to turn the call back to management for closing comments.

Speaker 1

Thank you everyone for joining us today and we look forward to speaking to you next quarter. And as always with us, please reach out to any member of management at any time with any questions. Thank you very much.

Speaker 4

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.