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Logan Ridge Finance (LRFC) - 2022 Q3 - Quarterly Report

Financial Performance - Total investment income for the three months ended September 30, 2022, increased by 0.4million,or11.20.4 million, or 11.2%, to 3.748 million compared to 3.372millioninthesameperiodof2021[263].FortheninemonthsendedSeptember30,2022,totalinvestmentincomedecreasedby3.372 million in the same period of 2021[263]. - For the nine months ended September 30, 2022, total investment income decreased by 3.0 million, or 22.1%, to 10.389millioncomparedto10.389 million compared to 13.342 million in the same period of 2021[264]. - Operating expenses for the three months ended September 30, 2022, decreased by 1.3million,or27.01.3 million, or 27.0%, to 3.566 million compared to 4.882millioninthesameperiodof2021[265].FortheninemonthsendedSeptember30,2022,operatingexpensesdecreasedby4.882 million in the same period of 2021[265]. - For the nine months ended September 30, 2022, operating expenses decreased by 3.4 million, or 21.9%, to 12.186millioncomparedto12.186 million compared to 15.601 million in the same period of 2021[266]. - The company recorded a net decrease in net assets resulting from operations of 3.0millionforthethreemonthsendedSeptember30,2022,and3.0 million for the three months ended September 30, 2022, and 8.9 million for the nine months ended September 30, 2022[269]. - The company recognized 5.2millionofnetrealizedlossesand5.2 million of net realized losses and 10.3 million of net realized gains on portfolio investments during the three and nine months ended September 30, 2022, respectively[267]. - The net change in unrealized appreciation (depreciation) on investments was 2.0millionforthethreemonthsendedSeptember30,2022,and2.0 million for the three months ended September 30, 2022, and (17.3) million for the nine months ended September 30, 2022[268]. Investment Portfolio - As of September 30, 2022, the fair value of the investment portfolio was approximately 193.1million,consistingofinvestmentsin54portfoliocompanies[249].Thedebtinvestmentportfoliorepresented79.4193.1 million, consisting of investments in 54 portfolio companies[249]. - The debt investment portfolio represented 79.4% of the total portfolio fair value, with a weighted average annualized yield of approximately 8.9% as of September 30, 2022[254]. - As of September 30, 2022, 6.0% of the investment portfolio's fair value was in non-accrual status, with an aggregate fair value of 8.9 million[257]. - The portfolio composition by industry as of September 30, 2022, showed healthcare investments at 33.3million,representing17.333.3 million, representing 17.3% of the total portfolio[258]. - The fair value of first lien debt investments was 119.4 million, representing 61.9% of the total portfolio fair value as of September 30, 2022[258]. Financial Obligations and Capital Structure - The Company had approximately 83.8millioninrepaymentsandsalesduringtheninemonthsendedSeptember30,2022,resultinginnetrepaymentsoflessthan83.8 million in repayments and sales during the nine months ended September 30, 2022, resulting in net repayments of less than 0.1 million[253]. - Total contractual obligations as of September 30, 2022, amounted to 110.8million,including110.8 million, including 50.0 million for 2026 Notes and 15.0millionfor2032ConvertibleNotes[288].TheCompanyissued15.0 million for 2032 Convertible Notes[288]. - The Company issued 15.0 million in aggregate principal amount of 5.25% fixed-rate convertible notes due April 1, 2032[273]. - The Company issued 50.0millionin2026Noteswithafixedinterestrateof5.2550.0 million in 2026 Notes with a fixed interest rate of 5.25%, maturing on October 30, 2026[277]. - The Company had approximately 50.0 million in aggregate principal amount of 2026 Notes outstanding as of September 30, 2022[279]. - The Company redeemed 50.0millionofthe2022NotesonDecember6,2021,andhadno2022NotesoutstandingasofSeptember30,2022[280].AsofSeptember30,2022,thecompanyhaddrawn50.0 million of the 2022 Notes on December 6, 2021, and had no 2022 Notes outstanding as of September 30, 2022[280]. - As of September 30, 2022, the company had drawn 45.8 million from the KeyBank Credit Facility, with an aggregate principal amount of up to 75.0millionavailable[272].TheoutstandingamountontheKeyBankCreditFacilitywas75.0 million available[272]. - The outstanding amount on the KeyBank Credit Facility was 45.8 million, with a variable interest rate of one-month SOFR + 2.90% and an interest rate floor of 0.40%[304]. Tax and Regulatory Compliance - The company has a requirement to distribute at least 90% of its net ordinary income to maintain RIC tax treatment[199]. - The company must distribute at least 90.0% of its investment company taxable income to qualify as a RIC under U.S. federal tax law[240]. - The company will incur a 4.0% excise tax on undistributed income if it does not distribute at least 98.0% of its ordinary income in any calendar year[240]. - The tax years ended December 31, 2021, 2020, 2019, and 2018 remain subject to examination by tax authorities[242]. Valuation and Accounting Policies - The company has identified investment valuation, revenue recognition, and income taxes as its most critical accounting estimates[217]. - The company records investment transactions on the trade date, with realized gains or losses calculated using the specific identification method[218]. - The fair value of investments may fluctuate significantly from period to period due to inherent uncertainties[223]. - The company utilizes a multi-step valuation process, including market quotes, recent trading activity, and discounted cash flows[222]. - The company recognizes interest income on an accrual basis, including paid-in-kind (PIK) interest, to the extent that amounts are expected to be collected[233]. - Non-accrual investments are reviewed when they become 90 days or more past due, ceasing interest income recognition if the borrower cannot service its debt[234]. - The company recorded a valuation allowance on deferred tax assets of 2.9millionasofSeptember30,2022,comparedto2.9 million as of September 30, 2022, compared to 2.5 million as of December 31, 2021[248]. - The company recognized an increase in the valuation allowance of 0.4millionduringtheninemonthsendedSeptember30,2022[248].RiskFactorsThecompanyissubjecttofinancialmarketrisks,particularlychangesininterestrates,whichmayimpactitscostoffundingandinterestincome[303].Inaprolongedlowinterestrateenvironment,thecompanysnetinterestincomemaybeadverselyaffectedduetothecompressionofinterestincomeandexpenses[306].Thecompanysnetinvestmentincomeissensitivetochangesinmarketinterestrates,whichcouldhaveamaterialadverseeffectonitsfinancialperformance[305].A300basispointincreaseininterestratescouldresultinanetincomeincreaseof0.4 million during the nine months ended September 30, 2022[248]. Risk Factors - The company is subject to financial market risks, particularly changes in interest rates, which may impact its cost of funding and interest income[303]. - In a prolonged low interest rate environment, the company's net interest income may be adversely affected due to the compression of interest income and expenses[306]. - The company’s net investment income is sensitive to changes in market interest rates, which could have a material adverse effect on its financial performance[305]. - A 300 basis point increase in interest rates could result in a net income increase of 2.56 million, while a 300 basis point decrease could lead to a net income decrease of 1.95million[307].ThecompanydidnotengageinhedgingactivitiesfortheninemonthsendedSeptember30,2022,exposingittointerestratefluctuations[303].CorporateStructureandGovernanceThecompanywasformedtoexpandthebusinessofLegacyFundsthroughadditionaldebtandequityinvestments[200].ThecompanyisregulatedasabusinessdevelopmentcompanyundertheInvestmentCompanyActof1940[195].Thecompanyhasconsolidatedfinancialstatementsthatincludeitswhollyownedsubsidiaries[214].TheInvestmentAdvisoryAgreementallowstheInvestmentAdvisortochargeaBaseManagementFeeandanIncentiveFee[296].TheCompanyenteredintoanewAdministrationAgreementwithBCPartnersManagementLLConJuly1,2021,foradministrativeservices[300].Thecompanyevaluatesstrategicopportunities,includingpotentialmergerswithaffiliatedfunds[205].CashandLiquidityTheCompanyhad1.95 million[307]. - The company did not engage in hedging activities for the nine months ended September 30, 2022, exposing it to interest rate fluctuations[303]. Corporate Structure and Governance - The company was formed to expand the business of Legacy Funds through additional debt and equity investments[200]. - The company is regulated as a business development company under the Investment Company Act of 1940[195]. - The company has consolidated financial statements that include its wholly owned subsidiaries[214]. - The Investment Advisory Agreement allows the Investment Advisor to charge a Base Management Fee and an Incentive Fee[296]. - The Company entered into a new Administration Agreement with BC Partners Management LLC on July 1, 2021, for administrative services[300]. - The company evaluates strategic opportunities, including potential mergers with affiliated funds[205]. Cash and Liquidity - The Company had 11.3 million in cash and cash equivalents as of September 30, 2022[285]. - The company had outstanding unfunded commitments related to debt investments totaling 2.4milliontoAccordionPartnersLLCand2.4 million to Accordion Partners LLC and 3.1 million to Critical Nurse Staffing, among others, amounting to a total of 12.5million[301].Thecompanyheld38securitieswithavariableinterestrate,representingapproximately76.312.5 million[301]. - The company held 38 securities with a variable interest rate, representing approximately 76.3% of the fair value of total debt investments as of September 30, 2022[304]. - All other interest-paying liabilities, including 50.0 million in 2026 Notes and $15.0 million in 2032 Convertible Notes, were bearing interest at a fixed rate as of September 30, 2022[304].