Good day, and thank you for standing by. Welcome to the Logan Ridge First Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today Serena Liegey. Please go ahead. .

Thank you. Good morning, and welcome to Logan Ridge Finance Corporation's first quarter 2022 earnings conference call. An earnings press release was distributed on yesterday May 12th after market closed.

A copy of the release along with an earnings presentation is available on the company's website at www.loganridgefinance.com in the Investor Relations section and should be reviewed in conjunction with the company's Form 10-Q filed yesterday with the SEC. As a reminder, this conference call is being recorded for replay purposes.

Please note that today's conference call may contain forward-looking statements which are not guarantees of future performance or results and involve a number of risks and uncertainties.

Actual results may differ materially from those in the forward-looking statements as a result of a number of factors including those described in the company's filings with the SEC. Logan Ridge Finance Corporation assumes no obligation to update any such forward-looking statements unless required by law.

With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of Logan Ridge Finance Corporation. Please go ahead, Ted..

Good morning. Welcome to our first quarter 2022 earnings call. I am joined today by our Chief Financial Officer, Jason Roos, and our Chief Investment Officer, Patrick Schafer. Following my opening remarks, Patrick will provide additional detail on our investment activity to-date and Jason will walk through the financials.

This marks our third completed quarter as a new advisor to Logan Ridge and I'm pleased to say that we've made significant progress since we began managing the company. Although, we have been operating an environment where there is market volatility, political uncertainty and rising interest rates.

The fair value of our investment portfolio grew to approximately $207 million, driven primarily by unrealized depreciation on the portfolio and the judicious deployment of proceeds generated from exiting the legacy portfolio into interest earning investments originated by the BC Partners Credit platform.

Additionally, we are pleased to report that subsequent to quarter end, we successfully refinanced the remainder of Logan Ridge’s legacy capital structure, which is a testament to the benefits shareholders received from our ability to leverage the size and scale of our platform and the strong relationships we have with our lenders and financing partners.

Specifically, on April 1, we issued a $15 million convertible note and on May 10, we amended our existing senior secured revolving credit agreement with KeyBank to increase the commitment, reduced the interest rate and extend its maturity date.

The proceeds will be used to repay the $52.1 million of 5.75% convertible notes outstanding as well as $22.8 million of 6% notes outstanding, both of which are scheduled to mature on May 31, 2022.

These transactions materially lower the cost of debt to capital which will be transformative for the company and an important milestone during our early stewardship. Investors will begin to benefit from a lower cost of debt capital during the third quarter of 2022.

With that being said, I'll turn the call over to Patrick Schafer, our Chief Investment Officer. .

Thanks, Ted. The fair value of our investment portfolio as of March 31, 2022 grew by $8.7 million to $206.9 million, as of March 31, 2022 from $198.2 million as of the prior quarter due to unrealized depreciation on the portfolio and net deployment. As of March 31, 2022, our portfolio consisted of investments in 42 different portfolio companies.

We continue to judiciously redeploy capital generated from exiting the legacy portfolio. During the quarter, we made approximately $16.4 million of investments, which outpaced the $8.4 million in repayments and sales, resulting in net deployment of approximately $8 million for the period.

Our debt investment portfolio, which represented 68.1% of our total portfolio at fair value had a weighted average annualized yield of approximately 8.3%, excluding non-accruals and collateralized loan obligations.

Regarding non-accruals, as of March 31, 2022, we had debt investments in two portfolio companies on non-accrual status with an aggregate cost of $12.7 million in fair value of $7.0 million, which represented 6.4% and 3.4% of the investment portfolio, respectively.

This remains fairly unchanged from the prior period, which we reported non-accrual debt investments in two portfolio companies with an aggregate amortized cost of $12.7 million and an aggregate fair value of $7.6 million. As of March 31, the first-lien debt as a percentage of the portfolio at fair value was 47 – 48.7%. Second lien debt was 16.1%.

Subordinated debt was 3.4%. Collateralized loan obligations were 3.7% and our equity portfolio was 28.4%. I'll now turn the call over to Jason..

Thanks, Patrick. Turning to our financial results for the quarter. Total investment income was $3.3 million for the first quarter of 2022, compared to $4.9 million for the first quarter of 2021. The decline in interest income was due primarily to lower average debt investments as a result of our efforts to derisk and delever the company.

Total expenses for the first quarter of 2022 were $4.4 million compared to $5.7 million for the first quarter of 2021. The decrease in expenses was driven primarily by lower interest and financing expenses, which declined by $800,000 and lower base management fees, which declined by $400,000.

Interest and financing costs as well as base management fees declined as a result of managing a smaller portfolio due to our intentional deleveraging of the company.

Outside of net investment income for the quarters ended March 31, 2022 and 2021, we reported $200,000 and $27.2 million of net change in unrealized appreciation and investments respectively. Additionally, the company reported net realized losses of less than $100,000 and $14 million respectively for the same periods.

Accordingly, we reported a net decrease in net assets resulting from operations of $900,000 or $0.32 per share during the first quarter of 2022. This compares to a net increase in net assets from operations of $12.4 million or $4.56 per share and $4.04 per share on a diluted basis for the first quarter of 2021.

Net asset value as of quarter end declined slightly to $106.2 million or $39.16 per share compared to $107.1 million or $39.48 per share as of December 31, 2021, despite the general uncertainty in the market and environmental conditions.

As of March 31, 2022 we had $15.8 million in cash and cash equivalents, and our total debt to equity ratio was 1.18 times. As of March 31, 2022, we had no outstanding draws on the KeyBank credit facility. Regarding our capital structure, as Ted mentioned, on April 1, we issued $15 million of convertible notes.

The convertible notes mature in April 2032 and bear interest at a fixed rate of 5.75%.

The amendment to the KeyBank credit facility increased the initial commitment from $25 million to $75 million, extended the maturity date to 2027 from 2023, and decreased the interest rate to one month term so far plus 290 basis points with a 40 basis point floor during the revolving period from one month LIBOR and 350 basis points subject to a 75 basis point forward (ph).

The amended credit facility also provides an uncommitted accordion feature that would allow the company to borrow up to an additional $125 million, which will afford us the flexibility to grow the balance sheet.

The proceeds will be used to pay off the $52.1 million of 5.75% convertible notes outstanding as well as the remaining $22.8 million of 6% notes outstanding, both of which mature May 31, 2022.

We continue to closely monitor the increase in Fed -- federal interest rates and the affect it could have on our net income for the rest of the year and going forward. Although, the effect of these geopolitical and macroeconomic factors including inflation are outside of our control.

Our team is focused on prudent risk and portfolio management, while pursuing growth. With that, I will turn the call back over to Ted Goldthorpe. .

Thank you, Jason. We achieved another solid quarter and are confident that we will continue to grow our portfolio, despite the increased turbulence in the economy, driven by inflation, supply chain and the ongoing envision. We are prudent with our investments and are hopeful for the future. Thank you for all your support.

This concludes our prepared remarks. And I will now turn over the call to the operator for any questions. .

Our first question comes from Christopher Nolan of Ladenburg Thalmann. Please proceed. .

Hey, guys. The new... .

Hi, Chris. .

Hi, guys. The new capital structure.

Jason, any guidance or ideas, how much of a per-share savings that could represent?.

I can give you. Yeah. Just roughly, I would say life to date including the finance restructuring that we did last year $10. I would say it's roughly 600 grand a quarter..

Chris, if you -- this is Patrick. If you look at our Q4 earnings deck, we show a little bit of a -- we show a bridge around NII. And one of those borrowers is the refinancing of the cap structure. The pricing of everything came in kind of exactly as expected. So you could use that chart as a pretty decent proxy to the quarterly impact..

Great. And then related to that, were there any non-accruing or excuse me, non-recurring items -- expense items or income items in the quarter. .

Yeah. The expenses is, which should give you a pretty good run rate going forward. There was one item in there around $70,000 expense. We took to write off some of the capitalized expenses for the shelf registration that we had to write off this quarter. Outside of that $70,000. It's pretty close to run rate..

Got you. And then I guess, being able to -- for revenues to cover the dividend, excuse me, revenues to cover expenses. I mean that seems like to be a key goal I would think, at this point.

Any thoughts as to when we might see a crossover when you guys might be profitable?.

Yeah. I think from a profitability perspective, the two big focus is or the main focus has been this new facility, which allows us to do a couple of different things, which is one, lower the cost side of the equation, but two, provides us the ability to kind of increase the asset side.

So we have about $75 million facility and if, we fully drew that facility that would put us at about 1.3 times leverage as compared to the 1.18, where we sit today. So between those two things, those two things should get us in the positive here.

And the question is, how quickly we would deploy that KeyBank facility proceeds plus the cash depending on market conditions. What kind of be the driver of getting from where we are today to something positive.

But again, if you kind of think back to the bridge, we have outlined, I don't think that that gap from where we are today to positive is relying upon any significant change in the equity stakes or kind of a rotation of those to get us into the positive..

Great. Final question, decrease in equity as a percentage of total investments at cost.

It decreased quarter-over-quarter, any color around that?.

No. Honestly, I forgot it, my suspicion is, it is because we increased the asset cost of our other positions as opposed to the equity decreasing, if that makes sense. .

Got it. That's it for me. I'll get back in the queue. Thanks guys. .

Thank you. .

Thank you. Our next question comes from Steven Martin of Slater. Please proceed with your question. .

Hi, guys. You guys have been pretty busy redoing the capital structure and you got a couple of new investments in the first quarter.

Can you comment on, what's going on quarter-to-date in the second quarter?.

Yeah. I'll take a high level and then Patrick can jump in. I would say activity levels have picked up dramatically post quarter end. It feels like a lot of demand for particularly our sponsor verticals as pulled forward into last year and it feels like that's beginning to normalize.

So I think we continue to be very cautious about everything going on clearly, but I'd say activity levels are definitely picked up. But Patrick, do you want to speak more specifically..

No, that's all right. I think the only thing I would specifically add is in Logan, specifically, we had a bit of a unique dynamic where we're obviously closing the credit facility and we kind of needed to have a relatively static asset lift in order to, in order to kind of close out a borrowing base and kind of do all that and get it done and closed.

So we had a little bit of a period of time where we kind of needed to be relatively quiet from a trading perspective. So that we could have a static pool. But generally, as Ted said, our pipeline generally continues to be pretty strong.

So we're being relatively cautious in the environment, but we certainly have, or we believe we have plenty of opportunities to deploy the cash and credit facility going forward..

More specifically, between now and recognizing that you had to be quiet for sort of the debt reasons. Should we expect that between now and the end of the quarter, you will actually fund some transactions. .

I think that should be the expectation. Yes, with the caveat that it's a little bit more unpredictable on the repayment front.

So we might again where we sit today, there's probably a couple of things that were open are going to happen in the quarter, but you might get to the end of the quarter and still have a net negative deployment, just if we happen to have a couple of large repayments during the quarter, but I think from a pure deployment perspective, yes, you could expect to see us deploy capital from here to the end of the quarter.

.

Well, speaking of specific large repayments.

Can you update us on esports (ph), if you can?.

Unfortunately, I don't think we're able to provide an update on esports at this time. .

Okay.

Given the new refinancing giving, given your -- I'm sure you are expecting this question, given your discount to NAV, is there anything in the new credit agreements that restrict your ability to repurchase shares at a 50% discount to NAV?.

No, there is nothing in our facility that would restrict our ability to repurchase shares. .

Okay. And I don't recall, so if I'm asking this in era.

Do you ever, you don't have a repurchase plan in place, do you?.

No, not right now, Steve, it's something that we're thinking through and it's a good question. I think it's something that Mike, we put in place here in the near future. Okay..

With respect to the convertible note, was there a specific reason for the convertible note?.

Yeah, I think the reason is, I think we’re pretty focused on diversity of financing. We don't want to be too reliant on one source of financing. And honestly, this greatly reduces the amount of convertible debt in our capital structure.

So really, what we're doing is, instead of just a one-for-one re-fi of a convert I think the decision was made, it's cheaper cost of capital under the bank facilities we have. But we think it's important to maintain access to that market. In case, we need to use in the future. We had a very small deal. .

Yeah. That's why I was questioning it, You had a very big one obviously the portfolio is a lot smaller.

So I was wondering if there was a more specific requirement or just the desire for diversification?.

Yeah. And we're constantly thinking about fixed versus floating liabilities. So obviously, the converts are fixed, which provides some benefit to us. But floating is the lower, lower spreads. So it's something we're always kind of like balancing and thinking about and trying to diversify our liability side..

Okay. Any general comment on the portfolio, I mean you've put on a whole bunch of new positions and you inherited a whole bunch of old position. You've got a legacy portfolio.

Any comment on the legacy portfolio vis-a-vis what you expected or underwrote when you got there?.

Yes. I think I would say generally speaking, it's kind of performed in line as you kind of talk before in other forms mostly the important rate reform, we normally underwrite based on only negative things happening and you always have positive end.

So we've had a couple of strong performers in the portfolio that offset maybe some weakness, particularly with Chief Fire being the biggest one, but we kind of knew that going in to the transactions.

I'd say that was kind of expected that one was struggling, but outside of that, I'd say, kind of, generally speaking in aggregate the portfolio has performed relatively, relatively in line with our expectations. .

Okay. I'll turn it over to someone else. .

Thank you. Our next question comes from David at Management..

Hi. Good morning.

And I apologize if this is something that you guys have covered in the past, but I'm just kind of wondering with regard to your legacy positions and thinking about where you'd like to be with the new underwriting? When you look at positions that you've inherited that are equity like and they're more volatile and they're not generating any current income, but maybe you look at it and think this has a pretty nice IRR.

It's just going to take three or four years to get there, but it's probably got I don't know, pick a number 14% or 15% IRR.

How do you prioritize getting out of that and giving up what you see is might be potential upside for, it's just getting it out of the portfolio and moving on, and having the portfolio positioned as you want it?.

That's a great question, Very good question. I don't -- I don't think we've actually had this conversation. When we took over the vehicle 2:1 (ph) and so I think our biggest priority, particularly with this equity book was to get leverage down, which we've kind of done, which gives us now more flexibility on what to do on a go-forward, I would say.

And the second big priority for us was refinancing a whole capital structure. We had two big maturities coming due in May, which we just refinanced as we talked about. And then, obviously there's a big laser-focused on getting into NII positive which given everything we've said in this call. We're on it.

We're on track for we're adding more interest earning assets for portfolio. We've cut expenses and we've cut liability costs. So to your question, I think we have more time and flexibility to somebody really like something, but we do think equity as a percentage of the book is still too high.

And if there's an equity position, we think is undervalued or we think we can make a bunch of money on it. Obviously, we want sell it, but I would say generally speaking if we can get fair value of close to something we think its fair value. I think the bias is towards monetizing and put it into interest earning assets..

Right. I think that makes sense given that I have, I guess, I can understand when managers really want to hold on to equity and especially one is worth a lot.

But I think in BDC vehicles, the equity just can create so much mark-to-market volatility that it's just not a great vehicle to hold it in, and so I was just kind of curious to see how you're balancing out maintaining or improving your net asset value and the equity base versus kind of getting to where you want to be?.

Yeah, I agree. And also we're also very focused on really diversified portfolio. So if you compare this to the other BDCs we manage, any large equity position regardless of how much we like it, it just doesn't make sense that a concentrated positions in BDC. So I think we get focus from our perspective, we're getting increased diversity..

And would you say that the destination that you're moving toward is going to be, you're going to have a very similar profile to what you have with the other BDC in the long run?.

Yeah, I mean one of the advantages that Logan Ridge shareholders got when we took the silver (ph) is access to our platform, and if you look at our investment activity most everything we do now is deals that we’re leading across the platform and Logan Ridge benefits from that.

So our focus is to make this portfolio a lot more buoyant, get diversified, getting them debt and driving NII in terms of. .

And you wouldn't see some managers have sort of sister BDCs that are out there, where one takes focus more broadly on the capital structure and another one is more senior focused.

Do you not see that or do you see them being really very comparable to one another?.

Yeah, I don't think we're going to have, I don't think we're going to go the route of like senior BDC and a junior PTC and often that's where we're going. I think over time our BDC should look more and more similar investment wise, just because that's our franchise.

And that's we're always exploring strategic opportunities as everybody knows and maybe if there is some interesting angle for us to maximize value for shareholders. We will go down that road. But I think generally -- the base cases which for us to make this vehicle look more and more like other vehicles. .

Great. Well thank you very much for your time and congratulations on the progress..

Thank you. .

Thank you. At this time, I would like to turn the conference back to Ted Goldthorpe for closing remarks. .

Great. Well, thank you everyone for joining us this morning and we look forward to speaking to you in mid-August when we announce our 2022 second quarter results. And of course, if anybody has any further questions or any further follow-ups, please feel free to reach out to any member of the management team.

Thank you very much and have a great weekend. .

This concludes today's conference call. Thank you for participating and you may now disconnect..