Portman Ridge(US:PTMN)2019-05-10 17:28Financial Data and Key Metrics Changes - Net investment income (NII) for Q1 2019 was a loss of $2.2 million or $0.06 per share, compared to income of $2.4 million or $0.07 per share in Q1 2018 and $0.06 per share in Q4 2018 [8] - The reduction in net asset value (NAV) was from $4.23 per share at the end of 2018 to $3.85 per share due to one-time expenses and fair value declines [11] - Interest income on debt securities was $2.9 million or $0.08 per share, down from $3.8 million or $0.10 per share in the same period of 2018 [12] Business Line Data and Key Metrics Changes - Investment income from CLO fund securities remained flat at $1.8 million or $0.05 per share [13] - Income from the joint venture with FC3 increased to $950,000 or $0.03 per share from $700,000 or $0.02 per share in Q1 2018 [13] - Approximately $28 million was invested in interest-bearing securities during the quarter, with $13.2 million in senior secured first lien loans at a weighted yield of 7.96% and $12.5 million in second lien loans at a weighted yield of 9.68% [15] Market Data and Key Metrics Changes - The asset coverage ratio at the end of the quarter was 216%, with the potential to increase leverage to a new statutory ratio of 150% [14] - The unit tranche market has become more competitive, leading to caution and selectivity in investments [21] Company Strategy and Development Direction - The company aims to transition to a more stable and predictable vehicle for net investment income and net asset value [6] - Plans to reduce CLO equity exposure and replace it with investments in senior and unit tranche joint ventures, which are expected to provide attractive risk-adjusted returns [24] - Commitment to align with shareholders by supporting net investment income for one year and taking incentive fees and equity at net asset value for two years [25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in managing distressed credits and believes that the majority have been written down to minimal market values [19] - The company anticipates being fully invested and utilizing its revolving credit facility efficiently by the end of Q2 2019 [20] - Management noted that while CLO equity is a volatile asset class, it is still considered a good investment, but the intention is to gradually reduce exposure [40] Other Important Information - A special distribution of $0.67 per share was made to shareholders in connection with the externalization transaction [6] - The first quarter distribution of $0.10 per share was made on April 26, with future distributions aligned with the completion of financials [16][17] Q&A Session Summary Question: Are there covenants preventing leverage increase? - Yes, there are covenants that prevent increasing leverage above the one-to-one debt to equity ratio [28] Question: Is there a plan to renegotiate covenants? - There is no immediate need to renegotiate, but if leverage needs to be increased, action will be required regarding the outstanding public debt [29][30] Question: What is the trend in non-accruals? - All concerning credits have been written down, and the only significant market value remaining is from Roscoe Medical [33] Question: What EBITDA multiples are being invested in? - EBITDA multiples in the middle market have not increased significantly, but adjustments in calculations are becoming more common [35][36] Question: Is the intention to reduce CLO equity to zero? - While CLO equity is seen as a good asset class, it is too volatile for a BDC, and the reduction will be gradual [40][42] Question: How will capital markets fees be split? - All fees from commitments made by Portman Ridge will go to shareholders, lowering the overall cost of capital [56]