Portman Ridge(PTMN) - 2024 Q1 - Quarterly Report

Part I. Financial Information Consolidated Financial Statements This section presents the unaudited consolidated financial statements for Portman Ridge Finance Corporation, including Balance Sheets, Statements of Operations, and Cash Flows, for the period ended March 31, 2024 Consolidated Balance Sheets As of March 31, 2024, Portman Ridge reported total assets of $527,382 thousand and net assets of $210,607 thousand, with Net Asset Value per common share at $22.57 Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Investments at Fair Value | $471,255 | $467,865 | | Total Assets | $527,382 | $549,239 | | Total Liabilities | $316,775 | $335,721 | | Total Net Assets | $210,607 | $213,518 | | Net Asset Value Per Common Share | $22.57 | $22.76 | Consolidated Statements of Operations For Q1 2024, total investment income was $16,526 thousand, with net investment income of $6,226 thousand, and a net increase in net assets from operations of $4,486 thousand Q1 2024 vs. Q1 2023 Operating Results (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Investment Income | $16,526 | $20,327 | | Total Expenses | $10,300 | $11,798 | | Net Investment Income | $6,226 | $8,529 | | Net Realized and Unrealized Loss | ($1,527) | ($8,474) | | Net Increase in Net Assets | $4,486 | $55 | | Net Investment Income Per Share | $0.67 | $0.89 | | Net Increase in Net Assets Per Share | $0.48 | $0.01 | Consolidated Statements of Changes in Net Assets Net assets decreased by $2,911 thousand in Q1 2024 to $210,607 thousand, primarily due to stockholder distributions and stock repurchases, partially offset by net increase from operations Reconciliation of Net Assets for Q1 2024 (in thousands) | Description | Amount | | :--- | :--- | | Net Assets at Beginning of Period (Jan 1, 2024) | $213,518 | | Net Increase from Operations | $4,486 | | Distributions Declared | ($6,444) | | Stock Repurchases | ($953) | | Net Assets at End of Period (Mar 31, 2024) | $210,607 | Consolidated Statements of Cash Flows Net cash provided by operating activities was $9,391 thousand in Q1 2024, while net cash used in financing activities was $41,351 thousand, leading to a $31,960 thousand decrease in cash Cash Flow Summary for Q1 2024 (in thousands) | Activity | Amount | | :--- | :--- | | Net Cash Provided by Operating Activities | $9,391 | | Net Cash Used in Financing Activities | ($41,351) | | Change in Cash and Restricted Cash | ($31,960) | | Cash and Restricted Cash, Beginning of Period | $71,564 | | Cash and Restricted Cash, End of Period | $39,604 | Consolidated Schedules of Investments The total investment portfolio's fair value was $471,255 thousand as of March 31, 2024, primarily comprising senior secured loans and diversified across various industries Portfolio Composition by Security Type (March 31, 2024) | Security Type | Fair Value (in thousands) | % of Total Portfolio | | :--- | :--- | :--- | | Senior Secured Loan | $349,844 | 74% | | Junior Secured Loan | $36,270 | 8% | | Joint Ventures | $53,164 | 11% | | Equity Securities | $23,428 | 5% | | CLO Fund Securities | $8,549 | 2% | | Total | $471,255 | 100% | Top 5 Industry Concentrations by Fair Value (March 31, 2024) | Industry Classification | Fair Value (in thousands) | % of Total Portfolio | | :--- | :--- | :--- | | High Tech Industries | $72,617 | 15% | | Services: Business | $59,607 | 13% | | Joint Venture | $53,164 | 11% | | Healthcare & Pharmaceuticals | $56,094 | 12% | | Banking, Finance, Insurance & Real Estate | $51,332 | 11% | - As of March 31, 2024, the company held loans to 79 investee companies with aggregate principal of approximately $430,400 thousand, compared to 80 companies and $420,900 thousand at year-end 2023[96] - Seven debt investments were on non-accrual status as of March 31, 2024, with an aggregate fair value of $2,200 thousand, representing 0.5% of the total investment portfolio's fair value[117] Consolidated Financial Highlights For the first quarter of 2024, the company's total net asset value return was 2.7%, with an annualized ratio of net investment income to average net assets of 11.8%, and an asset coverage ratio of 171% Financial Highlights for the Three Months Ended March 31 | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net asset value, end of period | $22.57 | $23.56 | | Total net asset value return | 2.7% | 0.4% | | Total market return | 8.1% | (7.4)% | | Asset coverage ratio | 171% | 162% | | Ratio of net investment income to average net assets (annualized) | 11.8% | 15.1% | | Ratio of total expenses to average net assets (annualized) | 19.5% | 20.9% | Notes to Consolidated Financial Statements This section details the company's accounting policies, investment portfolio composition, borrowings, and related party transactions, providing context for the financial statements Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial performance, portfolio activity, and liquidity, highlighting total investment income of $16,526 thousand and an asset coverage ratio of 171% Portfolio and Investment Activity Q1 2024 saw net portfolio deployment of $3,640 thousand, with the total portfolio fair value increasing slightly to $471,255 thousand, remaining diversified across industries Portfolio Activity for Q1 2024 (in thousands) | Activity | Amount | | :--- | :--- | | Fair Value at Dec 31, 2023 | $467,865 | | Purchases / originations / draws | $39,080 | | Pay-downs / pay-offs / sales | ($35,440) | | Net accretion of interest | $1,276 | | Net realized gains (losses) | ($1,597) | | Increase (decrease) in fair value | $71 | | Fair Value at Mar 31, 2024 | $471,255 | - The weighted average contractual interest rate on the interest-earning Debt Securities Portfolio was 12.1% at March 31, 2024, down from 12.5% at December 31, 2023[299][319] Results of Operations Total investment income for Q1 2024 was $16,526 thousand, with net investment income of $6,226 thousand, and a net increase in net assets from operations of $4,486 thousand, driven by lower unrealized depreciation Core Investment Income Reconciliation (in thousands) | Description | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Investment Income (GAAP) | $16,526 | $20,327 | | Less: Purchase discount accounting | ($73) | ($1,042) | | Core Investment Income (Non-GAAP) | $16,453 | $19,285 | Expenses Breakdown (in thousands) | Expense Category | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Management fees | $1,729 | $1,953 | | Performance-based incentive fees | $1,234 | $1,808 | | Interest and amortization of debt issuance costs | $5,725 | $6,332 | | Total expenses | $10,300 | $11,798 | - The net change in unrealized appreciation for Q1 2024 was a gain of $100 thousand, compared to a loss of $6,000 thousand in Q1 2023, which primarily drove the higher net increase in net assets[334] Financial Condition, Liquidity, and Capital Resources As of March 31, 2024, the company maintained a strong liquidity position with $39,604 thousand in cash and restricted cash, an asset coverage ratio of 171%, and $291,700 thousand in outstanding debt - The company's asset coverage ratio was 171% as of March 31, 2024, comfortably above the required 150% minimum[338] - A renewed stock repurchase program of up to $10,000 thousand was authorized on March 11, 2024, effective through March 31, 2025[359] - The company has unfunded commitments of $33,300 thousand to portfolio companies and $10,900 thousand to the Great Lakes II Joint Venture as of March 31, 2024[361][362] Critical Accounting Policies The valuation of Level III portfolio investments is identified as the most critical accounting policy, determined by the Adviser using various methodologies, alongside policies for income recognition and RIC taxation - The Board has designated the Adviser as its 'valuation designee' per SEC Rule 2a-5, responsible for determining the fair value of the investment portfolio[366] - A majority of the company's investments are classified as Level III in the fair value hierarchy, requiring significant management judgment and estimation[370] - The company places loans on non-accrual status when they become 90 days or more past due or collection is not expected, with seven investments on non-accrual status as of March 31, 2024[380] Quantitative and Qualitative Disclosures About Market Risk The company's principal market risks are interest rate fluctuations and portfolio valuations, with a hypothetical 1% interest rate increase estimated to raise annual net investment income by approximately $1,700 thousand Hypothetical Impact of Interest Rate Changes on Annual Net Investment Income (in thousands) | Change in Interest Rates | Impact on Net Investment Income | | :--- | :--- | | +3% | $5,192 | | +2% | $3,461 | | +1% | $1,731 | | -1% | ($1,693) | | -2% | ($3,368) | | -3% | ($5,042) | - As of March 31, 2024, approximately 91.1% of the Debt Securities Portfolio consisted of floating-rate investments, while $183,700 thousand of the company's $291,700 thousand in debt was floating rate[389] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure during the period - None reported Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures are effective[398] - No material changes to internal control over financial reporting occurred during the quarter ended March 31, 2024[399] Part II. Other Information Legal Proceedings The company is involved in putative stockholder class action lawsuits inherited from the HCAP acquisition, which are expected to be dismissed via a settlement where Portman Ridge will not incur costs - The company is involved in legal proceedings inherited from the HCAP merger, known as the Delaware Actions[402] - A settlement has been reached where all claims will be dismissed. Portman Ridge will not be responsible for any portion of the settlement payment[405] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to risk factors were reported for the quarter ended March 31, 2024[406] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2024, no shares were issued under the DRIP, while 51,015 shares were repurchased for approximately $1,000 thousand under a renewed $10,000 thousand stock repurchase program - No shares were issued under the DRIP during Q1 2024[408] Share Repurchases in Q1 2024 | Period | Total Shares Purchased | Average Price Per Share | | :--- | :--- | :--- | | Jan 1 - Mar 31, 2024 | 51,015 | $18.69 (calculated) | - A renewed $10,000 thousand stock repurchase program was authorized on March 11, 2024, and is effective until March 31, 2025[410] Defaults Upon Senior Securities There were no defaults upon senior securities during the period - None reported Mine Safety Disclosures This item is not applicable to the company - Not Applicable Other Information During the first quarter of 2024, no director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement in Q1 2024[413] Exhibits This section references the Exhibit List filed as part of the report, which includes certifications from the CEO and CFO, and XBRL data files - The report includes an exhibit list detailing documents filed with the report, such as officer certifications and XBRL data[414][416]