Portman Ridge(US:PTMN)2022-05-10 20:06Debt Securities and Investment Portfolio - The company has a Debt Securities Portfolio focused on generating current income and capital appreciation from investments in senior secured term loans, mezzanine debt, and selected equity investments in privately-held middle market companies [282]. - The middle market is defined as companies with EBITDA between $10 million and $50 million and/or total debt between $25 million and $150 million [282]. - The company's investments may include "covenant-lite" loans, which carry a higher risk of loss compared to loans with financial maintenance covenants [284]. - Total portfolio fair value as of March 31, 2022, was $568,011,000, an increase from $547,573,000 as of December 31, 2021 [302]. - The investment portfolio was diversified across 30 different industries and 116 different entities, with an average par balance per entity of approximately $3.3 million [309]. - The fair value of Senior Secured Loans increased to $395,062,000 as of March 31, 2022, from $364,701,000 as of December 31, 2021 [303]. - The company’s investment in Joint Ventures was valued at $60,217,000 as of March 31, 2022, consistent with the previous period [303]. - The healthcare and pharmaceuticals sector accounted for 8% of the total portfolio fair value as of March 31, 2022, down from 11% as of December 31, 2021 [306]. - As of March 31, 2022, six investments were on non-accrual status, a decrease from seven as of December 31, 2021 [309]. - The company had approximately $29.1 million invested in CLO Fund Securities as of March 31, 2022, down from $31.6 million as of December 31, 2021 [312]. Acquisitions and Corporate Actions - The company completed the acquisition of Garrison Capital Inc. (GARS) on October 28, 2020, with GARS stockholders receiving approximately $1.19 in cash and 1.917 shares of the company's common stock for each share of GARS [290]. - 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 [292]. - The company assumed $28.75 million in aggregate principal amount of HCAP's 6.125% Notes due September 15, 2022, as part of the HCAP acquisition [294]. - A reverse stock split of 1-for-10 was executed on August 26, 2021, reducing the number of authorized shares from 100 million to 20 million [299]. Financial Performance and Income - The investment income for the three months ended March 31, 2022, was approximately $16.944 million, a decrease from $18.305 million in the same period of 2021 [335]. - The net investment income for KCAP Freedom 3 LLC for the three months ended March 31, 2022, was $1.740 million, compared to $1.519 million in 2021 [323]. - The total equity of KCAP Freedom 3 LLC decreased to $34.177 million as of March 31, 2022, from $35.677 million as of December 31, 2021 [321]. - The net income for KCAP Freedom 3 LLC for the three months ended March 31, 2022, was $217,000, a significant decrease from $3.285 million in the same period of 2021 [323]. - The investment income attributable to interest income on the Debt Securities Portfolio was approximately $13.0 million for the three months ended March 31, 2022, down from $15.2 million in 2021 [337]. - For the three months ended March 31, 2022, core investment income was approximately $15.1 million, an increase of 12.5% from $13.5 million in the same period of 2021 [340]. - Investment income from CLO Fund Securities was approximately $1.6 million for Q1 2022, compared to $617 thousand in Q1 2021, reflecting a significant increase of 158% [341]. Expenses and Liabilities - Total expenses for the three months ended March 31, 2022, were approximately $9.0 million, a decrease of 10.5% from $10.1 million in the same period of 2021 [349]. - Net investment income for Q1 2022 was approximately $2.4 million, or $0.24 per share, down from $3.1 million, or $0.41 per share in Q1 2021 [352]. - The company had approximately $352.4 million of outstanding borrowings with an asset coverage ratio of 180%, exceeding the minimum requirement of 150% under the 1940 Act [358]. - The company declared a total dividend of $0.63 in 2022, compared to $2.42 in 2021 [1]. - The company’s long-term debt obligations total $352.4 million, with $80.6 million due within one year [382]. Valuation and Investment Methodologies - The company's investments are primarily classified as Level III, indicating significant management judgment in valuation [389]. - Fair value of investments is determined based on market conditions, financial performance, and comparable transactions [394]. - The company utilizes a discounted cash flow model for valuing its wholly-owned Asset Manager Affiliates [392]. - The company’s valuation methodologies may involve significant management judgment and assumptions about market conditions [397]. - 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 [416]. Strategic Intent and Future Outlook - The company intends to distribute substantially all of its net ordinary taxable income to stockholders to maintain its status as a regulated investment company (RIC) [285]. - The company may evaluate strategic opportunities including mergers, divestitures, and joint ventures depending on market conditions [286]. - The company intends to continue making quarterly distributions to stockholders, aiming to distribute at least 98% of ordinary net taxable income to avoid excise taxes [371][375]. - The company is required to maintain adequate liquidity to cover normal cyclical swings in funding availability and unexpected funding requirements [357]. - The company may borrow amounts up to 5% of total assets for temporary purposes, in addition to the leverage limits set by the 1940 Act [358]. - The company is prohibited from declaring dividends if its asset coverage is below the required threshold, ensuring compliance with the 1940 Act [374].