Portman Ridge(US:PTMN)2024-08-08 20:06Acquisitions - The company completed the acquisition of Garrison Capital Inc. (GARS) on October 28, 2020, with GARS shareholders receiving approximately $1.19 in cash and 1.917 shares of the company's common stock per share of GARS[137]. - The company acquired Harvest Capital Credit Corporation (HCAP) on June 9, 2021, with HCAP stockholders receiving $18.54 million in cash and 15,252,453 shares of the company's common stock[139]. Investment Strategy - The company has a Debt Securities Portfolio focused on generating current income and capital appreciation from investments in senior secured term loans and mezzanine debt, primarily in middle-market companies with EBITDA of $10 million to $50 million[135]. - The company intends to distribute substantially all of its net ordinary taxable income to maintain its status as a regulated investment company (RIC) under U.S. federal income tax laws[135]. - The company has made investments in CLO Fund Securities and may invest in equity securities of privately held middle-market companies, enhancing its investment diversification[135]. - The company’s investment strategy includes a focus on first and second lien term loans, which are expected to have lower default rates and higher recovery rates[135]. - The company has evaluated strategic opportunities, including potential mergers with affiliated funds, to enhance its market position[135]. - The company’s portfolio may include "covenant-lite" loans, which carry higher risks due to fewer borrower restrictions[135]. Portfolio Performance - Fair Value at December 31, 2023, is $467,865,000, a decrease from $576,478,000 at December 31, 2022[141]. - Total Purchases/Originations/Draws for the period ending June 30, 2024, amounted to $55,300,000, compared to $66,492,000 in the previous year[141]. - Total Pay-downs/Pay-offs/Sales for the same period were $(67,536,000), a significant increase from $(160,511,000) in the previous year[141]. - The net change in unrealized appreciation on investments for the period was $(5,895,000), compared to $3,322,000 in the previous year[141]. - The portfolio's Fair Value Percentage of Total Portfolio for First Lien Debt is 72.1% as of June 30, 2024, slightly up from 71.9% at December 31, 2023[142]. - The Fair Value of Joint Ventures is $54,292,000, representing 12.2% of the total portfolio as of June 30, 2024[142]. - The Fair Value of Equity investments increased to $23,830,000, which is 5.4% of the total portfolio[142]. - The total cost/amortized cost of the portfolio decreased from $540,282,000 at December 31, 2023, to $522,683,000 as of June 30, 2024[142]. - The net accretion of interest for the period ending June 30, 2024, was $2,657,000, compared to $8,980,000 in the previous year[141]. - The net realized loss on investments for the period was $(8,021,000), a decrease from $(26,896,000) in the previous year[141]. - As of June 30, 2024, the fair value of the debt investment portfolio was approximately $358.9 million, with an average par balance per entity of approximately $2.6 million[145]. - The weighted average contractual interest rate on the interest-earning Debt Securities Portfolio was approximately 12.4% as of June 30, 2024[144]. - The fair value of CLO Fund Securities decreased from $9.0 million as of December 31, 2023, to $7.4 million as of June 30, 2024[147]. - The investment in the F3C Joint Venture had a fair value of $13.5 million as of June 30, 2024, down from $14.3 million at December 31, 2023[149]. - Nine investments were on non-accrual status as of June 30, 2024, compared to seven as of December 31, 2023[145]. - The total fair value of the company's portfolio was $522.7 million as of June 30, 2024, compared to $444.4 million as of December 31, 2023[143]. - The healthcare and pharmaceuticals sector represented 12.4% of the total portfolio as of June 30, 2024[143]. - The high-tech industries sector saw a significant increase, representing 11.9% of the total portfolio as of June 30, 2024, compared to 15.7% previously[143]. - The banking, finance, insurance, and real estate sector accounted for 11.1% of the total portfolio as of June 30, 2024[143]. - The consumer goods durable sector represented 5.0% of the total portfolio as of June 30, 2024[143]. Investment Income - Investment income for Q2 2024 was approximately $16.3 million, down from $19.6 million in Q2 2023, representing a decrease of 17%[152]. - For the six months ended June 30, 2024, investment income totaled approximately $32.9 million, compared to $40.0 million for the same period in 2023, a decline of 18%[152]. - Interest income from the Debt Securities Portfolio for Q2 2024 was approximately $13.9 million, down from $15.5 million in Q2 2023, a decrease of 10%[152]. - The fair value of the investment in the Great Lakes II Joint Venture was $40.7 million as of June 30, 2024, compared to $45.0 million as of December 31, 2023, a decrease of 5.8%[150]. - As of June 30, 2024, the weighted average contractual interest rate on the interest-earning Debt Securities Portfolio was approximately 12.4%[152]. - The company had an unfunded commitment of $10.1 million to the Great Lakes II Joint Venture as of June 30, 2024, up from $5.5 million as of December 31, 2023[150]. - Investment income from Joint Ventures for Q2 2024 was $1.8 million, down from $2.3 million in Q2 2023, a decrease of 21.7%[154]. - Total investment income for the six months ended June 30, 2024, was $32.9 million, compared to $39.9 million for the same period in 2023, a decline of 17.5%[153]. - The company recognized $0.1 million in fees and other income for Q2 2024, down from $0.9 million in Q2 2023, a decrease of 88.9%[154]. - The fair value of investments in Joint Ventures was approximately $54.3 million as of June 30, 2024, compared to $59.3 million as of December 31, 2023, a decrease of 8.4%[154]. Expenses and Income - Total expenses for the three months ended June 30, 2024, were approximately $9.9 million, a decrease of 15.5% compared to $11.7 million for the same period in 2023[156]. - Management fees for the three months ended June 30, 2024, were approximately $1.7 million, down from $1.9 million in 2023, representing a decrease of 11.4%[156]. - Incentive fees for the three months ended June 30, 2024, were approximately $1.4 million, a decrease of 17.6% from $1.7 million in 2023[156]. - Interest expense and amortization on debt issuance costs for the three months ended June 30, 2024, were approximately $5.4 million, down from $6.4 million in 2023, reflecting a decrease of 15.6%[157]. - Net investment income for the three months ended June 30, 2024, was approximately $(0.4) million, compared to $1.4 million in 2023, indicating a significant decline[159]. - The net change in unrealized appreciation (depreciation) on investments for the three months ended June 30, 2024, was approximately $(6.0) million, compared to $(4.2) million in 2023[160]. - The net increase (decrease) in net assets resulting from operations for the three months ended June 30, 2024, was $(6.4) million, compared to $(3.1) million in 2023[161]. - As of June 30, 2024, the total fair value of investments was approximately $481.0 million, down from $539.4 million as of December 31, 2023[163]. - The average debt outstanding for the three months ended June 30, 2024, was approximately $288.7 million, compared to $360.8 million in 2023, indicating a reduction in leverage[157]. Distributions and Shareholder Returns - Tax-basis distributable income for the six months ended June 30, 2024, was approximately $13.2 million, or $1.42 per basic and diluted share, compared to $14.9 million, or $1.56 per basic and diluted share in 2023[159]. - As of June 30, 2024, the company had approximately $285.1 million of outstanding borrowings with an asset coverage ratio of 169%, exceeding the minimum requirement of 150% under the 1940 Act[164]. - The company issued $108.0 million of 4.875% Notes due 2026, with net proceeds of approximately $104.6 million, and is in compliance with all debt covenants[165]. - The Revolving Credit Facility has an initial principal amount of $115 million, with an accordion feature that could increase total commitments to $215 million, and as of June 30, 2024, approximately $92.0 million was outstanding[166][167]. - The company redeemed approximately $40.6 million of the par value of the 2018-2 Secured Notes during the six months ended June 30, 2024, recognizing a realized loss on extinguishment of approximately $0.3 million[167]. - The company intends to distribute at least 98% of its ordinary net taxable income and 98.2% of capital gains to avoid excise taxes imposed on RICs[168]. - Total declared distributions for 2021 amounted to $2.42 per share[170]. - In Q2 2024, the company reported earnings of $0.69 per share, maintaining the same earnings per share as in Q1 2024, resulting in a total declared earnings of $1.38 for 2024[171]. - For the full year 2023, the company declared total earnings of $2.75 per share, with each quarter contributing $0.69 in Q4, Q3, and Q2, and $0.68 in Q1[171]. - The company repurchased 79,722 shares at an aggregate cost of approximately $1.6 million during Q2 2024, compared to 27,081 shares for $0.6 million in Q2 2023[172]. - As of June 30, 2024, the company had commitments to fund investments totaling approximately $32.7 million, up from $28.6 million as of December 31, 2023[173]. - The company has a long-term debt obligation of $285.07 million, with $108 million due in the next two years[174]. - The company has made an aggregate commitment of $50 million to the Great Lakes II Joint Venture, with an unfunded commitment of $10.1 million as of June 30, 2024[173]. - The company approved a renewed stock repurchase program of up to $10 million effective March 11, 2024, similar to the previous program[172]. Accounting and Valuation - The company’s critical accounting policies involve significant estimates related to the valuation of investments and revenue recognition[174]. - The company’s investments are reported at fair value, with unrealized gains and losses reflected in the statements of operations[175]. - The company follows ASC 820 for fair value measurements, which prioritizes market-based inputs over entity-specific inputs in determining fair value[176]. - As of June 30, 2024, 88.1% of the Debt Securities Portfolio were floating rate, with 81.6% of these loans containing floors between 0.50% and 3.25%[185]. - The company had $285.1 million in borrowings outstanding at a weighted average interest rate of 6.9%, with $108.0 million at a fixed rate and $177.1 million at a floating rate[185]. - Nine investments were on non-accrual status as of June 30, 2024, indicating potential issues with collectability[179]. - Investment income from CLO equity investments is recorded using the effective interest method, with yields revised based on changes in estimated cash flows[180]. - The company intends to distribute at least 90% of its investment company taxable income to qualify for RIC tax treatment[183]. - Fair value determinations for investments are primarily based on a discounted cash flow model, with significant management judgment involved[179]. - The company recognizes unrealized appreciation or depreciation on CLO Fund Securities as market conditions change[180]. - Interest income is recorded on an accrual basis, ceasing when loans become 90 days or more past due[179]. - The company may utilize various valuation methods to determine fair value in accordance with GAAP[178]. - Interest rate risk is a principal market risk, with fluctuations affecting net interest income and the value of the investment portfolio[185]. - A 1% increase in interest rates would lead to an approximate annual increase of $1.8 million in net investment income, while a 2% and 3% increase would result in increases of approximately $3.5 million and $5.3 million, respectively[186]. - Conversely, a 1% decrease in interest rates would decrease net investment income by approximately $1.8 million, with decreases of $3.5 million and $5.3 million for 2% and 3% declines, respectively[186]. - The company values investments at fair value, determined by the Adviser under approved valuation procedures, with market quotations used when available[187]. - For investments without readily available market values, fair value is determined based on various factors including collateral value, third-party valuations, and the portfolio company's earnings potential[187]. - An independent valuation firm is engaged to provide third-party valuation consulting services, reviewing material investments in illiquid securities at least once every 12 months[187]. - The fair value of investments may differ materially from values that would be used if a ready market existed, due to inherent uncertainties in valuation[187]. - Changes in market conditions and other events may cause realized values on investments to differ from assigned valuations[187]. - The Adviser intends to continue engaging the independent valuation firm for quarterly and annual year-end valuation processes[187].