PhenixFIN (US:PFX)2025-08-06 20:17Company Overview - The company operates as a non-diversified closed-end management investment company regulated as a BDC under the 1940 Act, with a focus on generating current income and capital appreciation through investments primarily in privately-held companies valued between $25 million and $250 million [210]. - The company has a portfolio consisting mainly of senior secured first lien term loans, senior secured second lien term loans, senior secured bonds, preferred equity, and common equity, with a focus on investment sizes between $10 million and $50 million [212]. - The company is required to invest at least 70% of its total assets in qualifying assets, including securities of private or thinly traded public U.S. companies [213]. Financial Performance - As of June 30, 2025, the company's portfolio had a fair market value of approximately $294.4 million, up from $227.9 million as of September 30, 2024, representing a 29.1% increase [224]. - For the nine months ended June 30, 2025, the company received proceeds from sales and settlements of investments totaling $90.8 million, compared to $87.9 million for the same period in 2024, reflecting a 3.3% increase [224][225]. - The total investment income for the three months ended June 30, 2025, was $6.2 million, slightly down from $6.2 million in the same period of 2024, while for the nine months ended June 30, 2025, it increased to $18.4 million from $16.6 million in 2024, a growth of 10.8% [229][230][231]. - Operating expenses for the three months ended June 30, 2025, increased by $0.7 million, or 17.5%, compared to the same period in 2024, and for the nine months ended June 30, 2025, they rose by $2.3 million, or 18.5% [232]. - Interest and financing expenses for the three months ended June 30, 2025, increased by $0.9 million, or 54.5%, compared to the same period in 2024, and for the nine months ended June 30, 2025, they rose by $3.0 million, or 61.1% [233]. - The company recorded net realized losses of $(12.0) million on portfolio investments for the three months ended June 30, 2025, and $(11.9) million for the nine months ended June 30, 2025 [236]. - The weighted average yield on debt and other income-producing investments was 12.7% as of June 30, 2025, compared to 12.3% as of September 30, 2024 [227]. - The company experienced a net decrease in net assets from operations of $(1.5) million for the three months ended June 30, 2025, compared to a net increase of $2.6 million for the same period in 2024 [244]. - For the nine months ended June 30, 2025, the net increase in net assets from operations was $0.1 million, a significant decline from $12.5 million for the same period in 2024 [245]. Investment Activity - The company invested $159.5 million during the nine months ended June 30, 2025, compared to $85.5 million in the same period of 2024, indicating a significant increase in investment activity [224][225]. - For the three months ended June 30, 2025, the company reported net unrealized gains of $9.3 million, primarily due to reversals of unrealized losses on Black Angus Steakhouses, LLC ($9.1 million) and Lighting Science Group Corporation ($1.0 million) [239]. - For the nine months ended June 30, 2025, the company recorded net unrealized gains of $8.5 million, with significant contributions from Black Angus Steakhouses, LLC ($8.2 million) and Lighting Science Group Corporation ($1.0 million) [240]. Cash and Borrowings - As of June 30, 2025, the company had $7.3 million in cash and cash equivalents, a decrease from $67.6 million as of September 30, 2024 [248]. - The company has outstanding borrowings of $87.0 million under a $100 million revolving credit facility as of June 30, 2025, with a maturity date of April 17, 2030 [251][255]. - The company has commitments under loan and financing agreements to fund up to $4.7 million to five portfolio companies as of June 30, 2025 [258]. Dividends and Tax Treatment - The company must distribute at least 90% of its net ordinary income and realized net short-term capital gains to maintain its RIC tax treatment [213]. - The company intends to distribute substantially all of its taxable income to stockholders to maintain its RIC tax treatment [249]. - The company declared a special dividend of $2,645,925 on May 9, 2024, and a subsequent special dividend of $2,888,283 on February 6, 2025 [264]. - The company intends to distribute at least 90% of its investment company taxable income to maintain its RIC tax treatment [281]. - The company is subject to a 4% federal excise tax on undistributed income if it does not distribute at least 98% of its net ordinary income for any calendar year [281]. Employee Compensation - The company adopted a Long-Term Cash Incentive Plan in May 2022, providing performance-based cash awards to key employees based on pre-established financial goals [216]. - For the performance period ending September 30, 2024, key employees received cash awards of $1,403,530 and $599,260 based on the achievement of performance goals [217]. - The target performance award for the 2025 LTIP Plan is set at $1,000,000 for the CEO and $425,000 for the CFO [222]. Market Conditions and Risks - Rising interest rates may adversely affect the company's performance by increasing borrowing costs and potentially leading to defaults among portfolio companies [208]. - The company has faced market volatility due to global events, including the invasion of Ukraine, which has impacted operating results and may continue to do so [203]. - The higher interest rate environment has increased volatility in U.S. and global capital markets [283]. - The company anticipates potential future interest rate increases as indicated by the Federal Reserve [283]. Valuation and Fair Value Measurement - The company follows ASC 820 for measuring the fair value of portfolio investments, categorizing them into three levels based on the observability of inputs [272][273]. - The board of directors oversees a multi-step valuation process for investments without readily available market quotations, involving management estimates and judgments [276]. - At June 30, 2025, one investment was on non-accrual status with a fair value of approximately $0.0 million, representing 0% of the fair value of the portfolio [280]. - At September 30, 2024, three investments were on non-accrual status with a combined fair value of approximately $2.4 million, or 1.1% of the fair value of the portfolio [280]. Interest Rate Sensitivity - As of June 30, 2025, 53.1% of the income-bearing investment portfolio was based on floating rates, primarily linked to the SOFR reference rate [284]. - A prolonged reduction in interest rates could decrease gross investment income and net investment income if not offset by increased spreads or reduced operating expenses [284]. - The floating rate debt investments composition as of June 30, 2025 included 12.9% with a floor under 1%, 33.7% with a floor between 1% and under 2%, and 51.0% with no floor [284]. - A hypothetical increase of 300 basis points in interest rates could result in a net increase of $1,200,000 in income after expenses [285]. - Conversely, a decrease of 300 basis points could lead to a net decrease of $1,200,000 in income after expenses [285]. - The majority of variable rate investments have an interest rate floor, which may limit income increases until benchmark rates exceed a certain threshold [284]. Hedging Activities - The company did not engage in hedging activities for the nine months ended June 30, 2025, and the year ended September 30, 2024 [283]. - The company may hedge against interest rate fluctuations using standard hedging instruments, subject to regulatory requirements [283].