Portman Ridge Finance Corporation announced its financial results for the fourth quarter and full year ended December 31, 2020.
Recent Developments
Fourth Quarter and Full Year 2020 Highlights
Management Commentary
Ted Goldthorpe, Chief Executive Officer of Portman Ridge, stated, “We are very pleased with the progress we made at Portman Ridge this year in terms of managing the business while growing in size and scale. On October 28, we completed the merger with Garrison Capital and quickly began strategic repositioning of the acquired assets through opportunistic sales and debt repayment to reduce leverage of the portfolio. Shortly before year-end, we announced our plans to acquire Harvest Capital Credit Corporation, and we are working toward an expected closing of this transaction in the second quarter of 2021. Overall, our investment portfolio benefited from the economy’s strong rebound and recovery that began mid-2020 and accelerated through the year. We are also pleased to have delivered consistent quarterly dividends each quarter this year. We look forward to making continued progress in 2021 as we continue to focus on all aspects of our business to deliver both sustainable earnings and earnings growth for Portman Ridge shareholders.”
Fourth Quarter 2020 – Selected Financial Highlights
Three Months Ended |
Three Months Ended |
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(in $ millions, except per share data) | December 31, 2020 |
September 30, 2020 |
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Investment Income: | ||||||||
Interest from investments in debt securities | $ | 16.4 | $ | 4.9 | ||||
Investment income on CLO Fund Securities | 0.9 | 0.6 | ||||||
Investment income – Joint Ventures | 2.2 | 2.2 | ||||||
Capital structuring service fees | 0.6 | – | ||||||
Total investment income | 19.9 | 7.8 | ||||||
Net Investment Income | $ | 8.9 | $ | 2.7 | ||||
Impact from GARS purchase accounting | 3.7 | – | ||||||
Net investment income less GARS purchase accounting impact (1) | $ | 5.2 | $ | 2.7 | ||||
Net realized and unrealized gains | $ | 40.0 | $ | 5.6 | ||||
Net increase in net assets resulting from operations | $ | 49.0 | $ | 8.3 | ||||
Net increase in net assets resulting from operations per share (basic and diluted) | $ | 0.74 | $ | 0.19 | ||||
Net investment income per share (basic and diluted) | $ | 0.14 | $ | 0.06 | ||||
Impact from GARS purchase accounting | $ | 0.06 | $ | – | ||||
Net investment income less GARS purchase accounting impact (1) | $ | 0.08 | $ | 0.06 | ||||
Weighted average shares outstanding (in millions) | 66.0 | 44.4 | ||||||
Distribution per share | $ | 0.06 | $ | 0.06 |
Total investment income for the three months ended December 31, 2020 and September 30, 2020, was $19.9 million and $7.8 million, respectively. The increase in investment income was primarily driven by the impact of the Garrison merger and the debt investments acquired by the Company as a result. Investment income from debt securities in the quarter was $16.4 million, compared with $4.9 million in the third quarter. The quarter-to-quarter increase in investment income from debt securities included $2.5 million of income from purchase discount accretion, and $1.9 million in income from paydowns on assets acquired in the Garrison merger that occurred during the fourth quarter. Investment income on CLO fund securities in the quarter was $0.8 million compared with $0.6 million in the third quarter of 2020. Investment income from Joint Ventures in the fourth quarter of 2020 was $2.2 million, which was relatively unchanged from the third quarter.
Total expenses for the three months ended December 31, 2020 and September 30, 2020, were $11.0 million and $5.1 million, respectively. The components of the quarter-to-quarter increase were higher Management fees and Performance-based income incentive fees, which in aggregate increased by $3.6 million due primarily to higher than typical prepayment activity during the quarter. Additionally, interest expense and amortization of debt issuance costs for the fourth quarter of 2020 were $3.3 million, compared to $2.2 million in the third quarter of 2020, driven primarily by the impact of the Garrison merger. Professional fees were also higher quarter-to-quarter at $1.0 million in fourth quarter of 2020 compared to $0.4 million in the third quarter of 2020, partially as a result of activities related to the Garrison merger.
Net investment income for the three months ended December 31, 2020 and September 30, 2020 was $8.9 million, or $0.14 per basic share, and $2.7 million or $0.06 per basic share, respectively. Excluding the impact of purchase accounting in connection with the Garrison merger, net investment income for the fourth quarter of 2020 was $5.2 million, or $0.08 per basic share.(1)
Net realized and unrealized appreciation on investments for the three months ended December 31, 2020 was $40.1 million, as compared to net realized and unrealized appreciation of $5.6 million in the prior quarter. The substantial difference in net realized and unrealized appreciation was due to the impact of a $40.4 million purchase discount recorded in connection with the Garrison merger. This day-one purchase accounting-related discount was a one-time gain and a noncash event.
Portfolio and Investment Activity
The fair value of our portfolio was $487 million as of December 31, 2020. The composition of our investment portfolio at December 31, 2020 and 2019 at cost and fair value was as follows:
December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||
Security Type | Cost/Amortized Cost |
Fair Value | %¹ | Cost/Amortized Cost |
Fair Value | %¹ | ||||||||||||||||||
Short-term investments | $ | — | $ | — | — | $ | 4,207,107 | $ | 4,207,107 | 2 | ||||||||||||||
Senior Secured Loan | 304,539,184 | 328,845,612 | 68 | 91,245,574 | 88,788,639 | 32 | ||||||||||||||||||
Junior Secured Loan | 87,977,057 | 75,807,477 | 16 | 100,655,341 | 95,188,373 | 34 | ||||||||||||||||||
Senior Unsecured Bond | 416,170 | 207,766 | 0 | 620,145 | 403,615 | — | ||||||||||||||||||
Subordinated Note | — | — | — | 2,165,304 | 2,422,281 | 1 | ||||||||||||||||||
CLO Fund Securities | 45,727,813 | 19,582,555 | 4 | 46,618,717 | 31,968,202 | 12 | ||||||||||||||||||
Equity Securities | 24,593,639 | 13,944,876 | 3 | 22,160,993 | 9,864,419 | 4 | ||||||||||||||||||
Asset Manager Affiliates2 | 17,791,230 | — | — | 17,791,230 | — | — | ||||||||||||||||||
Joint Ventures | 54,932,458 | 49,349,163 | 10 | 48,594,539 | 45,087,967 | 16 | ||||||||||||||||||
Derivatives | 30,609 | (1,108,618 | ) | — | 30,609 | (33,437 | ) | — | ||||||||||||||||
Total | $ | 536,008,160 | $ | 486,628,831 | 100 | % | $ | 334,089,559 | $ | 277,897,166 | 100 | % |
¹ Represents percentage of total portfolio at fair value.
² Represents the equity investment in the Asset Manager Affiliates.
Liquidity and Capital Resources
As of December 31, 2020, we had $378 million (par value) of borrowings outstanding ($373 million net of capitalized costs) with a combined weighted average interest rate of 3.0%. This balance was comprised of $49.3 million of outstanding borrowings under the Senior Secured Revolving Credit Facility, $76.7 million of 6.125% unsecured Notes due 2022, and $252 million of 2018-2 Secured Notes due 2029. On February 22, 2021, the Company repaid $88.0 million of the 2018-2 Secured Notes due 2029.
At December 31, 2020, the Company had unrestricted cash of $7.0 million, restricted cash of $75.9 million, $65.7 million of available borrowing capacity under the Senior Secured Revolving Credit Facility, and $25 million of borrowing capacity under the 2018-2 Revolving Credit Facility. Total assets and stockholders’ equity at year-end 2020 were $600 million and $216 million, respectively. Aggregate unfunded commitments stood at $32.9 million at December 31, 2020.
The Company’s asset coverage ratio stood 156% as of December 31, 2020, above the 150% asset coverage statutory limit.
Stock Repurchase Program
On March 5, 2020, the Board approved a $10 million stock repurchase program. During the year ended December 31, 2020, the Company repurchased 734,403 shares, under the Stock Repurchase Program in open market transactions at an aggregate cost of $863 thousand. On March 5, 2021, the Stock Repurchase Program expired pursuant to its terms. On March 11, 2021, the Board approved a $10 million stock repurchase program with substantially the same terms as the prior program.
Conference Call and Webcast
We will hold a conference call on Friday March 12, 2021 at 9:00 am Eastern Time to discuss our fourth quarter and full year 2020 financial results. Stockholders, prospective stockholders and analysts are welcome to listen to the call or attend the webcast.
To access the call please dial (866) 757-5630 approximately 10 minutes prior to the start of the conference call. A replay of the conference call will be available from March 12, 2021 until March 19, 2021. The dial in number for the replay is (855) 859-2056 and the conference ID is 1237528.
A live audio webcast of the conference call can be accessed via the Internet, on a listen-only basis on our Company’s website www.portmanridge.com in the Investor Relations section under Events and Presentations. The webcast can also be accessed by clicking the following link: Portman Ridge Fourth Quarter and Full Year 2020 Conference Call. The online archive of the webcast will be available on the Company’s website shortly after the call.
About Portman Ridge Finance Corporation
Portman Ridge Finance Corporation (Nasdaq: PTMN) is a publicly traded, externally managed investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940. Portman Ridge’s middle market investment business originates, structures, finances and manages a portfolio of term loans, mezzanine investments and selected equity securities in middle market companies. Portman Ridge’s investment activities are managed by its investment adviser, Sierra Crest Investment Management LLC, an affiliate of BC Partners Advisors, LP.
Portman Ridge’s filings with the Securities and Exchange Commission (the “SEC”), earnings releases, press releases and other financial, operational and governance information are available on the Company’s website at www.portmanridge.com.
About BC Partners Advisors L.P. and BC Partners Credit
BC Partners is a leading international investment firm with over $40 billion of assets under management in private equity, private credit and real estate strategies. Established in 1986, BC Partners has played an active role in developing the European buyout market for three decades. Today, BC Partners executives operate across markets as an integrated team through the firm’s offices in North America and Europe. Since inception, BC Partners has completed 117 private equity investments in companies with a total enterprise value of €149 billion and is currently investing its eleventh private equity fund. For more information, please visit www.bcpartners.com.
BC Partners Credit was launched in February 2017 and has pursued a strategy focused on identifying attractive credit opportunities in any market environment and across sectors, leveraging the deal sourcing and infrastructure made available from BC Partners.