Portman Ridge(PTMN)2025-03-13 20:15Investment Strategy - The company primarily invests in illiquid securities, including loans and equity of private companies, with a focus on distressed debt securities [98]. - The company carries its investments at fair value, which may differ materially from market values due to the inherent uncertainty in determining fair value for illiquid investments [448]. - An independent valuation firm is engaged to provide third-party valuation consulting services, reviewing material investments in illiquid securities at least once during a trailing 12-month period [449]. - The fair value pricing of investments considers factors such as collateral value, third-party valuations, portfolio company earnings, and market comparisons [448]. Regulatory Compliance - The company must maintain at least 70% of its total assets in qualifying assets as defined by the 1940 Act [104]. - The asset coverage requirement for senior securities was changed from 200% to 150% effective March 29, 2019 [107]. - The company is subject to examination by the SEC for compliance with the 1940 Act [116]. - The company is prohibited from indemnifying any director or officer against liability arising from willful misfeasance or gross negligence [116]. - The company may incur a U.S. federal excise tax if it fails to meet the Excise Tax Avoidance Requirement, which is based on specific distribution criteria [120]. - The company is subject to a 4% nondeductible U.S. federal excise tax on undistributed income unless it meets the Excise Tax Avoidance Requirement [120]. Taxation and Distributions - The company is required to distribute at least 90% of its investment company taxable income to qualify for RIC tax treatment [118]. - If the company fails to qualify as a RIC, it would be subject to corporate tax on all taxable income at regular rates, impacting distributions to stockholders [129]. - The company may need to recognize taxable income without receiving cash, which could necessitate distributions to satisfy the Annual Distribution Requirement [123]. - The company is authorized to borrow funds to satisfy the Annual Distribution Requirement and to eliminate U.S. federal income and excise tax liabilities [124]. - The company has adopted a dividend reinvestment plan allowing stockholders to reinvest distributions in additional shares of common stock [130]. Interest Rate Sensitivity - As of December 31, 2024, approximately 90.1% of the Debt Securities Portfolio were floating rate, with a weighted average interest rate of 6.2% on 1.5 million annually, while a 2% increase would raise it by about 4.6 million [445]. - A 1% decrease in interest rates would lead to a decrease in net investment income of approximately (3.0) million and ($4.3) million, respectively [446]. - 89.8% of floating rate loans in the portfolio contain interest rate floors ranging from 0.50% to 5.25% [441]. Competition and Management - The company faces competition from commercial investment banks, specialty finance companies, hedge funds, and other BDCs, which may have lower funding costs and greater managerial resources [99]. - The company has no employees since externalization and does not expect to have any in the future [100]. - The company has adopted a code of ethics to establish procedures for personal investments and restrict certain personal securities transactions [109]. - The company may not change its business nature without approval from a majority of its outstanding voting securities [103]. - Management acknowledges that actual results may materially differ from simulated outcomes due to potential changes in credit quality and asset composition [447].