Portman Ridge(PTMN) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - As of December 31, 2019, the company's NAV was $152.2 million or $3.40 per diluted share, down from $158 million or $4.23 per share at the end of 2018, representing a decline of approximately $5.8 million [13] - Net investment income (NII) for the full year 2019 was $3.1 million or $0.08 per share, compared to $10 million or $0.27 per share in the previous year, adversely impacted by approximately $4.8 million of non-recurring transaction costs [14] - The asset coverage ratio was 195% as of December 31, 2019, above the statutory requirement for BDCs of 150% but below the required 200% coverage ratio of existing notes [16] Business Line Data and Key Metrics Changes - During the quarter, excluding the OHAI merger, the company made investments totaling $7.1 million, with 76% in first lien securities [20] - The company exited 23 positions during the quarter, resulting in a loss of $118,000 relative to the carrying value [21] - The legacy CLO positions accounted for approximately 95% of the unrealized loss in the investment portfolio during the quarter [22] Market Data and Key Metrics Changes - The liquid credit markets were experiencing significant volatility, the most since the energy downturn in 2015 and 2016, exacerbated by COVID-19 headlines [9] - The company has not seen recent rate cuts trickle down to widening spreads, but deal activity has picked up due to the need for certainty [10] - The company anticipates that if volatility continues, widening spreads may occur as a response [10] Company Strategy and Development Direction - The company plans to continue reducing non-core and low-yielding assets from both the OHAI and legacy KCAP portfolios [28] - The company is looking at both traditional and non-traditional acquisition and merger candidates, considering these opportunistic rather than essential for generating stable returns [28] - The company aims to enhance earnings power through a combination of new asset origination, the OHAI merger, and improving spreads on existing portfolios [29] Management's Comments on Operating Environment and Future Outlook - Management is cautiously monitoring the impact of COVID-19 on the economy and supply chains, indicating a cautious approach to underwriting new loans [10] - The company feels good about its dividend and earnings power, despite recent LIBOR declines, which are expected to be offset by tailwinds from cheaper liabilities and higher spread asset origination [41] - Management does not foresee under-earning the dividend and is committed to maintaining it, with a focus on over-earning throughout the year [43] Other Important Information - The company announced a stock buyback program to repurchase up to $10 million of stock over the next year [8] - The company has reduced CLO equity positions from 19% to under 12% of the portfolio, indicating a strategic shift in asset allocation [26] Q&A Session Summary Question: Guidance on CLO portfolio percentage - Management expects the CLO portfolio to remain around the same level, with a slight decrease anticipated [32] Question: Clarification on OHAI payback - The payback is related to embedded transaction costs and earnings contribution, expected to be recouped over the next few quarters [33] Question: Status of share repurchase - Management intends to buy back stock, considering market conditions and existing restrictions [35] Question: Dividend outlook - Management feels good about the dividend, with expectations of earnings growth despite recent LIBOR declines [41] Question: Plans for portfolio management and debt refinancing - Management is considering refinancing options depending on market conditions and has flexibility within the current structure [45]