Portman Ridge(US:PTMN)2023-05-11 17:15Financial Data and Key Metrics Changes - Core investment income for Q1 2023 was $19.3 million, an increase of $1.6 million from $17.7 million in Q4 2022 and an increase of $4.2 million from $15.1 million in Q1 2022 [5][24] - Total investment income increased by $1.7 million to $20.3 million in Q1 2023 compared to $18.6 million in Q4 2022, reflecting the impact of rising rates [23] - Net investment income for Q1 2023 was $8.5 million or $0.89 per share, up from $7.1 million or $0.74 per share in Q4 2022 and $7.9 million or $0.82 per share in Q1 2022 [24][61] Business Line Data and Key Metrics Changes - Net deployment consisted of new fundings of approximately $11.8 million, offset by approximately $44.4 million of repayments and sales [9] - The investment securities portfolio remained highly diversified with investments across 28 different industries and 106 different entities, maintaining an average par balance per entity of approximately $3.3 million [10] - The company had one incremental investment on nonaccrual status compared to December 31, 2022, which is a subordinated note in Lucky Bucks Holdings, valued at 24.75% of par [10] Market Data and Key Metrics Changes - Approximately 89.2% of the debt securities portfolio were floating rate as of March 31, 2023, with 52% linked to LIBOR [8] - The company noted that spreads remain approximately 150 basis points wide compared to the beginning of 2022, with upfront fees increasing by 100 to 200 basis points [6] Company Strategy and Development Direction - The company remains bullish on new investment opportunities and the ability to rotate its portfolio at reduced risk and incremental returns, especially in light of recent bank failures that have increased market volatility [16] - The portfolio is largely in first lien debt and is valued at a meaningful discount to par, indicating potential net asset value upside [17] - The company plans to continue repurchasing shares under its stock purchase program, having repurchased 35,613 shares in Q1 2023 [27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to take advantage of opportunities arising from the current market environment by being selective in investment decisions [64] - The company anticipates a net positive benefit of approximately $0.06 per share if all assets and liabilities are utilized in the same 3-month benchmark rates for an entire quarter [19] - Management noted that the quality of deal flow has improved, with a focus on add-on acquisitions rather than new leveraged buyouts [49] Other Important Information - The net asset value for Q1 2023 was $225.1 million or $23.56 per share, down from $232.1 million or $24.23 per share in Q4 2022, primarily due to paydown activity and mark-to-market movements [61] - The company raised its dividend for the third consecutive quarter to $0.69 per share, marking the fifth increase over the past seven quarters [26][63] Q&A Session Summary Question: What was the reason for the unrealized depreciation? - Management indicated that a significant markdown was related to one specific asset, Lucky Bucks Holdings, which was credit-specific [72] Question: How does the company view its leverage moving forward? - Management stated that they intend to bring down gross leverage and are comfortable with the current net leverage, planning to take advantage of the deal environment without increasing leverage [73][86] Question: What is the company's philosophy regarding dividends? - The company prefers to pay a higher core dividend that investors can rely on, and they are prepared to pay special dividends if conditions allow [90] Question: What is the outlook on deal flow and pricing? - Management noted that while deal flow is down significantly, the quality of deals has improved, with companies seeking less leverage despite stable purchase prices [111]