Portman Ridge(US:PTMN)2022-05-11 17:39Financial Data and Key Metrics Changes - The net asset value (NAV) for Q1 2022 remained relatively flat at $278 million or $28.76 per share, compared to $280 million or $28.88 per share in Q4 2021, with a decline of less than 0.3% when excluding a one-time tax impact [5][13] - Net investment income for Q1 2022 was reported at $7.9 million or $0.82 per share, while core net investment income was $6.1 million or $0.63 per share [5][13] - Total investment income for Q1 was $16.9 million, with $13 million attributed to interest income from the debt securities portfolio [13] Business Line Data and Key Metrics Changes - Approximately $43 million of investments were made during the quarter, with 50% occurring in the last two weeks of March, resulting in minimal impact on the income statement [9] - The weighted average spread on new investments was 811 basis points, with 67% of new investments being first lien securities and 26% being second lien or unsecured securities [9][10] - The debt securities portfolio was marked at 94.4% of par, yielding a stated spread to LIBOR of 727 basis points on accruing debt securities [10] Market Data and Key Metrics Changes - The first quarter of 2022 experienced low activity in originations and investments due to geopolitical disruptions and market volatility [9] - Investments on non-accrual status decreased to 0.21% and 1.9% of the company's investment portfolio at fair value and amortized costs, respectively, compared to 0.52% and 2.8% as of December 31, 2021 [11] Company Strategy and Development Direction - The company has shifted its revolving credit facility agreement from LIBOR to a three-month SOFR benchmark, reducing the applicable margin and extending the reinvestment period [8] - The company aims to maintain a leverage ratio between 1.25 to 1.4 times, with a current debt-to-equity ratio of 1.27 times on a gross basis and 0.97 times on a net basis [17] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding future investment income due to rising interest rates, indicating that a 1% increase in interest rates could lead to an annualized increase of approximately $1.5 million in net investment income [19] - The management noted that while trailing earnings are strong, they are preparing for potential economic slowdowns, particularly in consumer discretionary sectors [33][34] Other Important Information - The company repurchased 22,990 shares under its stock repurchase program at an aggregate cost of approximately $545,000 [6] - The company has a pipeline of an additional $20 to $30 million ready for deployment before the end of the second quarter [12] Q&A Session Summary Question: Interest rate sensitivity change - Management confirmed that the company has shifted from being liability sensitive to asset sensitive due to changes in LIBOR rates [21][23] Question: Dividend policy considerations - Management indicated that while they are over-earning their dividend, they are cautious about increasing it further due to market volatility [25][26] Question: Underwriting strategy in changing economic environment - Management stated they are being conservative in underwriting, particularly in sectors showing weakness, and are not expecting to reach the high end of their leverage range soon [34] Question: Spread compression and deal volume - Management noted that they have not seen spread compression in their area, despite a decrease in deal flow during the first quarter [36][39] Question: Co-investments across the broader BC Partners platform - Management confirmed that over 95% of new deals are co-investments across their various funds, targeting a position size of $10 to $15 million [45][49] Question: Legacy exposure to higher rates - Management expressed confidence that rising rates would not materially impact credit quality, as interest coverage is at all-time highs [55][56]