Logan Ridge Finance (US:LRFC)2025-05-08 20:05Financial Performance - The company generated revenue primarily from cash interest on debt investments, with additional revenue expected from equity performance participation [208]. - Total investment income for the three months ended March 31, 2025, was $4.631 million, compared to $5.003 million for the same period in 2024 [253]. - Net investment income for the three months ended March 31, 2025, was $928,000, slightly down from $947,000 in the same period of 2024 [253]. - The company reported a net realized gain on investments of $2.603 million for the three months ended March 31, 2025, compared to a gain of $287,000 in 2024 [253]. - Total investment income decreased by $0.4 million, or 7.4%, from $5.4 million in Q1 2024 to $5.0 million in Q1 2025, primarily due to a decline in interest income from $4.6 million to $3.9 million [257]. - Operating expenses decreased by $0.4 million, or 8.7%, from $4.1 million in Q1 2024 to $3.7 million in Q1 2025, with interest and financing expenses dropping from $2.0 million to $1.8 million [259]. - Net realized gains on portfolio investments increased significantly from $0.3 million in Q1 2024 to $2.6 million in Q1 2025 [260]. - Net unrealized depreciation on investments was $(8.8) million in Q1 2025, compared to a net appreciation of $0.7 million in Q1 2024 [261]. - The company recorded a net decrease in net assets resulting from operations of $(5.4) million in Q1 2025, with a per share decrease of $(2.02) [262]. Investment Portfolio - As of March 31, 2025, the company's investment portfolio had a fair value of approximately $169.6 million, down from $172.3 million as of December 31, 2024 [243]. - The company’s portfolio included investments across various industries, with healthcare representing 20.3% and information technology 15.6% of the total portfolio fair value as of March 31, 2025 [252]. - As of March 31, 2025, the company had debt investments in three portfolio companies on non-accrual status with an aggregate fair value of $3.7 million, representing 2.2% of the investment portfolio [251]. - The total unfunded commitments to existing portfolio companies as of March 31, 2025, amounted to $7.408 million, a decrease from $8.249 million as of December 31, 2024 [292]. Capital Structure - The initial public offering (IPO) raised net proceeds of $74.25 million from the sale of 4,000,000 shares at $20.00 per share [197]. - The company raised approximately $136.0 million in net proceeds from equity offerings since its IPO through March 31, 2025 [265]. - As of March 31, 2025, the company had $50.0 million in aggregate principal amount of 2026 Notes outstanding [274]. - The KeyBank Credit Facility had draws of $43.5 million as of March 31, 2025, with a maturity date of August 21, 2029 [266]. - The Company has $43.5 million outstanding on its KeyBank Credit Facility, which has a variable interest rate of one-month SOFR + 2.80% [298]. Regulatory Compliance - The company is required to distribute at least 90% of its net ordinary income to maintain its regulated investment company status [195]. - The Company intends to distribute at least 90.0% of its investment company taxable income to qualify for RIC tax treatment, avoiding federal income taxes [234]. - The Company may face limitations in making distributions due to asset coverage requirements applicable as a BDC under the 1940 Act [281]. - The asset coverage ratio was 179.4% as of March 31, 2025, indicating compliance with borrowing requirements [275]. Valuation and Fair Value - The Company utilizes a multi-step valuation process for its investments, considering market quotes, recent trading activity, and discounted cash flows [216]. - Investments are categorized into a fair value hierarchy: Level 1 for active market prices, Level 2 for similar assets, and Level 3 for unobservable inputs [220][221]. - The fair value of investments may fluctuate significantly due to market conditions and may differ from realized values in forced sales [217][218]. - The Company employs an income approach using discounted cash flow methodologies to estimate fair value based on expected cash flows [224]. - The enterprise value waterfall approach is used to determine enterprise value based on EBITDA multiples of comparable publicly traded companies [223]. Strategic Opportunities - The company is evaluating strategic opportunities, including potential mergers with affiliated funds [201]. - The Company entered into a Merger Agreement with Portman Ridge Finance Corporation, which includes a two-step merger process with the Company becoming a wholly-owned subsidiary of PTMN [294]. Taxation - The Company has a net deferred tax asset valuation allowance of $3.9 million as of March 31, 2025, compared to $3.8 million as of December 31, 2024 [237]. - The company recorded zero tax provision for the three months ended March 31, 2025, and 2024, indicating no material tax liabilities [237]. - Tax characteristics of all distributions paid are reported to stockholders on Form 1099 after the end of the calendar year, with potential reclassification based on future dividends and operating results [285]. Dividend Policy - For the three months ended March 31, 2025, the Company declared a distribution of $0.36 per share to stockholders of record as of March 24, 2025, compared to $0.32 per share for the same period in 2024 [280]. - The Company has adopted an "opt out" dividend reinvestment plan (DRIP) for common stockholders, allowing cash distributions to be automatically reinvested unless opted out [283]. Interest Rate Sensitivity - The annual impact on net income from a 300 basis point increase in interest rates could result in an increase of $2.878 million, while a 300 basis point decrease could lead to a reduction of $2.662 million [300]. Other Information - The company has entered into a two-year fee waiver agreement with its investment adviser to limit capital gains fees [203]. - The company did not engage in hedging activities for the three months ended March 31, 2025 [297]. - The company commenced operations on May 24, 2013, and completed its IPO on September 30, 2013 [196]. - The company has a history of approximately $326.3 million in investments and $67.1 million in cash and other assets at the time of its formation [198]. - The Company has a net deferred tax asset valuation allowance of $3.9 million as of March 31, 2025, compared to $3.8 million as of December 31, 2024 [237].