Welcome to Portman Ridge Finance Corporation's First Quarter March 31, 2025 Earnings Conference Call. An earnings press release was distributed yesterday, May 08, 2025, after the close of the market. A copy of the release along with an earnings presentation is available on the company's website at www.portmanridge.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. Portman Ridge Finance Corporation assumes no obligation to update any such forward looking statements unless required by law. Speaking on today's call will be Ted Goldthorpe, Chief Executive Officer, President and Director of Portman Ridge Finance Corporation; Brandon Satoren, Chief Financial Officer and Patrick Schafer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of Portman Ridge.

Good morning and welcome to our first quarter 2025 earnings call. I'm joined today by our Chief Financial Officer, Brandon Satoren and our Chief Investment Officer, Patrick Schafer. Following my opening remarks on the company's performance and activities during the first quarter, Patrick will provide commentary on our investment portfolio and our markets, and Brandon will discuss our operating results and financial condition in greater detail. During the first quarter, despite operating under an unpredictable macroeconomic environment, we continued to execute our disciplined investment strategy, deploying approximately $17.5 million into strong defensively positioned opportunities in our pipeline. We also had $15.7 million of repayments and sales during the quarter, resulting in our return to net suppliers of capital. Additionally, we are enthusiastic about the strategic benefits the combination with Logan Ridge will provide. This merger represents a meaningful step forward for the company with the potential to provide increased scale, improve liquidity and greater operational efficiency, all key drivers in enhancing long-term shareholder value. We encourage all shareholders to attend the meeting and vote for the proposed merger as recommended by the Board of Directors of both companies. We're excited about the road ahead and look forward to sharing more updates soon. For the first quarter, the Board of Directors approved the base distribution of $0.47 per share. Of note, earlier this year, we modified our dividend policy and introduced a stable base distribution of $0.47 per share, which is anticipated to be sustainable across market cycles. Looking ahead, the current macroeconomic backdrop shaped by shifting trade dynamics, inflation and ever-evolving monetary policy continues to drive uncertainty in the market. These dynamics highlight the importance of taking a long-term approach grounded in disciplined credit selection and prudent risk management, which we view this period as an opportunity to further differentiate through thoughtful deployment and rigorous underwriting. I remain confident in our ability to drive the best outcome for shareholders and most importantly the credit quality of the overall portfolio. Overall, we're excited about the opportunities ahead on the Portman side in addition to the new opportunities that should arise following the proposed merger with Logan Ridge due to scale, expected synergies and cost savings benefits. We anticipate being active in the market and with a healthy pipeline, fortified balance sheet, prudent investment strategy and experienced management team, we remain confident in our ability to generate strong risk-adjusted returns and derive long-term value for our shareholders. With that, I will turn the call over to Patrick Schafer, our Chief Investment Officer for a review of our investment activity.

Thanks Ted. Turning now to Slide 5 of our Presentation and sensitivity of our earnings to interest rates. As of March 31, 2025 approximately 88.5% of our debt securities portfolio was based on a floating rate with a spread pegged to an interest rate index such as SOFR or prime rate, with substantially all of these being linked to SOFR. As you can see from the chart, SOFR rates have slightly decreased over the last few quarters impacting the current quarter net investment income. Skipping down to Slide 10, originations for the quarter were higher than last quarter and above the current quarter repayment and sales levels resulting in net deployment of approximately $1.8 million. Overall yield on par value of new investors during the quarter was 10.6%, slightly below the yield of the overall portfolio at 11% on par value. Our investment portfolio at year end remained highly diversified. We ended the first quarter with a debt investment portfolio, excluding our investments in CLO funds, equities and joint ventures, spread across 24 different industries with an average par balance of $2.6 million. Turning to slide 11, in aggregate we had six investments on nonrecourse status at the end of the first quarter of 2025 representing 2.6% and 4.7% of the company's investment portfolio at fair and cost value respectively. This compares to six investments on non-accrual status as of December 31, 2024, representing 1.7% and 3.4% of the company's investment portfolio at fair value and cost respectively. On Slide 12, excluding our non-accrual investments, we have an aggregate debt investment portfolio of $314.1 million at fair value, which represents a blended price of 90.5% on par value and is 91.1% comprised of first lien loans at par value. So in a par recovery, our March 31, 2025 fair values reflect a potential of $32.8 million of incremental net value or an 18.3% increase to NAV. When applying an illustrative 10% default rate and 70% recovery rate, our debt portfolio would generate an incremental $2.43 per share of NAV or a 12.5% increase as it rotates. Finally, turning to slide 13, if you aggregate the last three portfolios we have purchased a combined $435 million investments and realized approximately 86% of these investments at combined realized and unrealized marks of 101% fair value at the time of closing the respective mergers. As of Q1 2025, we've fully exited the acquired Oak Hill portfolio down to a combined $22 million of the acquired HCAP and initial KCAP portfolios. And I'll turn the call over to Brandon to further discuss our financial results for this year.

Thanks, Patrick. For the quarter ended March 31, 2025, Portman Ridge generated $12.1 million in investment income, a decrease of $2.3 million or $0.25 per share compared to $14.4 million reported for the quarter ended December 31, 2024. The decrease in investment income from the prior quarter was primarily driven by: one, a decrease of $6 million or $0.07 per share as a result of lower non-recurring paydown and fee income. Two, a decrease of $6 million or $0.07 per share as a result of placing the company's first lien term loan to Sundance on non-accrual status, of which $0.05 is the non-recurring one-time impact to earnings as a result of writing off the prior quarter's interest receivable balance through current period income. Three, a decrease of $4 million or $0.04 per share as a result of lower base rates. Four, a decrease of $4 million or $0.04 per share as a result of the majority of the current quarter's deployment occurring in the second half of the quarter relative to the timing of repayments and sales and then five, lower income from CLOs of $1 million or $0.01 per share. For the quarter ended March 31, 2025, total expenses were $7.8 million, a $1.1 million decrease or $0.12 per share as compared to $8.9 million reported for the prior quarter. The decrease in expenses relative to the prior quarter was primarily driven by lower interest expense of $3 million or $0.03 per share, lower management and incentive fees of $3 million or $0.04 per share as well as lower general and administrative expenses of $4 million or $0.04 per share. The decrease in the general and administrative expenses was primarily driven by a lower than anticipated tax liability for the prior year. Accordingly, our net investment income for the first quarter of 2025 was $4.3 million or $0.47 per share, which constitutes a $1.2 million or $0.13 per share decrease from $5.5 million or $0.6 per share reported for the prior quarter. Our net asset value as of March 31, 2025 was $173.5 million representing a $5 million decrease as compared to the prior quarter net asset value of $178.5 million as of December 31, 2024. On a per share basis, net asset value was $18.85 per share as of March 31, 2025, representing a $0.56 per share decrease as compared to $19.41 per share as of December 31, 2024. The decline in net asset value was driven by unrealized depreciation on the portfolio as well as the company's March dividend exceeding the company's first quarter net investment income. As of March 31, 2025, our gross and net leverage ratios were flat to the prior quarter at 1.5x and 1.3x respectively. Specifically, as of March 31, 2025, we had a total of $255.4 million of borrowings outstanding with a weighted average contractual interest rate of 5.9%. This compares to $267.5 million of borrowings outstanding as of the prior quarter with a weighted average contractual interest rate of 6.2%. The company finished the quarter with $52.6 million of available borrowing capacity under the senior secured revolving credit facility. With that, I will turn the call back over to Ted.

Thank you, Brandon. Ahead of questions, I'd like to reemphasize how excited we are about the opportunities the proposed merger will create. Additionally, with a robust pipeline, prudent investment strategy and an experienced management team, we believe we are well positioned to take advantage of the current market environment and we'll be able to deliver strong returns to our shareholders through 2025. Thank you once again to all of our shareholders for your ongoing support. This concludes our prepared remarks, and I will turn the call over for any questions.

Thank you. Your first question comes from Erik Zwick with Lucid Capital Markets. Your line is now open. Please go ahead.

Thank you. Good morning, everyone. I just want to follow up to make sure I understood correctly. Brandon, in your comments, you mentioned that the reversal of interest for Sundance was $0.05 per share. Did you provide that figure on a dollar basis?

Yes. So the out of period impact is about $450 give or take. I could give you the exact numbers separately.

Okay. That's helpful. That's about what I was calculating as well. And I guess to my follow-up to that is, I was trying to look at the kind of what like a normalized level of investment income would have been for the period without the reversal. And I guess kind of one of the factors I'm looking at here, PIK income has continued to grow over the past quarter or two and it's without 24% or so of total income at this point. So just kind of curious what is this a trend that's developing here in some companies that you're working with and granting PIK? And what is the outlook for returning these companies back to Cash Pay?

So I think I'll let Patrick speak to the portfolio itself. But just as it relates to the percentages this quarter, I think you've got two things at play. One is a denominator effect, just inherently lower investment income with about a $6 million increase quarter-over-quarter in PIK. However, with that said, we do have the $0.05 reversal. The impact of the late deployment during the quarter, etc., that is artificially decreasing that total investment income number. Further in the PIK line item and we tried to highlight this in the financial statements. There's an amendment fee that's about $200,000 and then there's about another $150,000 of non-recurring items flowing through Pick this quarter that we would expect to normalize in the coming quarter.

Yes. On the portfolio in general, as we kind of said before, we don't have all that many names that sort of have converted to full PIK through underperformance. A good chunk of it is sort of I don't want to say preplanned, but sort of embedded in sort of the investment thesis from the timing of the investment. And having said that, we probably have three names that I can think of that are picking that we are that have been underperforming that we are working with the company on either sort of getting them to a place to reverse the cash and or exiting the positions. I think we're hopeful that we'll have some realizations on that front this year for a couple of names. But there's certainly a handful of names that sort of had challenges over the last sort of two years that at least we feel like we're seeing the other side of.

Got it. I appreciate the commentary there. And then Ted, in your prepared remarks, I think you used both the words healthy and robust to describe the pipeline today. So wondering if you could maybe just expand on that a little bit in terms of how it's composed in terms of new versus add-on opportunities as well as any industries where you're seeing particularly attractive opportunities to invest today?

Yes, good question. I mean, I think overall market activity is way down, particularly post-Liberation Day. So I think activity, broadly speaking, is pretty anemic. We have actually a decent pipeline, but a lot of it's stuff that we sourced kind of pre–Liberation Day and are working their way through the system. So I'd say like in terms of like new deals coming in, I would say it's down probably a lot. But we do have a decent pipeline of things we've been working on for a while that are closing. And so I would say we're very, very, very cautious. We feel like we're the economy is not going to get better, let's put it that way. And lots of things can happen in the next six months, but we feel a lot of demand has been pulled forward. So I think we're pretty cautious on the environment. So despite deal flow being down, I don't think we're that worried about it because we're not like overly bullish right now anyways.

Yes, that's a good point. And I guess, has the potential impacts of the tariffs and maybe reductions in government agencies, has that changed at all how, I guess, your underwriting or the type of companies you might look to add to the portfolio in the future?

Yes, that's a good question. We have very little direct consumer exposure. Brandon mentioned Sundance, which is one of the few companies with direct exposure, and that was inherited from an acquisition. There are a couple of other companies with direct tariff exposure, but they are under-levered, so we're not particularly concerned. Our main focus is on potential second and third-order effects. In the event of a recession, there could be indirect impacts on our business due to tariffs. Overall, our sector, not just Portman, has limited consumer exposure, with some BDCs having more than others, but we have very little. Regarding direct impacts, we don't have much to worry about. We're looking for businesses capable of passing on price increases and those with very high gross margins, like Qlik Think Software. We're planning for the worst while hoping for better outcomes, and that's our current modeling approach.

Yes. I think on the diligence and underwriting side, I mean the reality is if you're a private equity firm or a family office trying to buy a company, it's going to be really tough to sort of meet in the middle on a buyer and seller with companies that have direct tariff exposure. So just from a pipeline perspective of things that we're working on, they tend to be a lot more weighted toward service-related businesses, healthcare, software, things like that that are pretty obviously don't have the first order effect. And then as Ted said, we're really focused on kind of second and third order and how they perform during recessionary environments.

That's all very helpful. That's it for me. Thanks for taking my questions.

Your next question comes from the line of Christopher Nolan with Ladenburg. Please go ahead.

Hey, guys. First on the dividend, last quarter you guys were hinting that the $0.07 supplemental dividend would be quarterly. And I didn't see it this course. So am I correct that it's not in the first quarter earnings?

Yes. So Chris, I think what we laid out was a dividend policy where we would set the base at $0.47 and then we would pay approximately 50% of the incremental NII above the base each quarter. So this quarter, with the Sundance out of period impact being about $0.05 as well as some of the other items we laid out in our investment income, we didn't have incremental NII in excess of the base, so that's why there was no supplemental. However, if you run rate our earnings, you'll see we are very much should be paying supplementals going forward. And it would be consistent with that framework, 50% of the incremental NII above the base distribution of $0.47.

Okay. Thanks, Brandon. And I guess, I mean, given that you guys are sort of sensitive to the LBO market and private equity and so forth, what's the risk that your private equity sponsors will not step in with additional support for their companies in terms of more equity if this cycle sort of prolongs itself?

Yes, I mean, I think we always live with that risk. Again, our portfolio is predominantly first lien. What we've seen actually is in our market, which is more of the middle market, sponsors have been a little bit more supportive than the large cap market. And generally speaking, it's because middle market funds have less companies in that portfolio. And therefore, the risk of loss is much higher than a very, very large fund that we don't back. So we've really, I don't know. We've been really sponsor has been very constructive actually and have actually the negotiations on situations for the put in money have actually been relatively non-controversial, I would put it that way. Again, that might change if this prolongs. Obviously, it's a lot harder for these guys to sell their companies. So we've been in a very long, probably the longest of my career, prolonged period of no repayments because, A, I've just done a lot of velocity of capital, there's not a lot of businesses being sold. And number two, with higher rates, no one wants to refinance. We'll get some natural refinancing to our portfolio in the next 12 months to 18 months, but it probably means we're not going to get a whole bunch of sales done.

A final question and I missed it. Have you guys announced the date of the shareholder vote for Logan?

Yes. So you're very timely. So that should go out later today. It will be so record date will be May 6. June 6 will be the initial date for the shareholder meeting.

Our next question comes from the line of Steven Martin with Slater Capital. Your line is open.

Hi. Two questions and they're sort of related. Can you talk about the composition of non-accruals and what the prospect is of and you did deal with this a little, but what the prospect is of those, A, becoming accrual, a current pay and what the upside might be? And second, Patrick, you every quarter you talk about the embedded unrealized losses that could be recovered. But when you look through, there are a couple of big ones that are basically marked to zero, which I don't think would fall into your calculation of what is recoverable. So of the unrealized losses embedded in the portfolio, what is actually possible to recover?

Sure. I'll address your first question, Steve. Regarding non-accruals, we have two key positions to discuss: Naviga and Sundance. Recently, Sundance went on non-accrual this past quarter, making it difficult to estimate the path to recovery. In theory, Brandon indicated there is a potential ongoing income of about $0.02 per share from Sundance. However, since it just went on non-accrual, the timeline is uncertain. For Naviga, we've been actively engaged with the company, and it is similarly sized to Sundance, with a potential impact also estimated around $0.02 per share. The company is generating positive cash flow, and we've taken a conservative stance as a lending group while navigating this situation. There appears to be a good chance for cash interest to resume, although we need to differentiate between it contributing to income or being part of NAV or cost recovery based on the outlook for the investment. Overall, I believe there is potential for cash interest to be reinstated, but it may not immediately affect income.

Yes. So when we look at NAV upside, Steve, we break out for the Board and we break out for ourselves. Kind of like stress names and names that are performing and the performing names, there is a lot of embedded upside in just those names. So like I think you're making the right point. The right point is you can't take a lot of embedded upside on certain market zero. Like yes, again, we that's fair. So what we do is we break out two things. We have like a watch list and then we have our performing credits. And we have a pretty long list of performing credits with an average price in like low 90s or something that are covered. So I think we feel very good about that portion of the portfolio.

Yes. To be clear, we strip out and all those numbers that I give strip out all of our non-accruals, which again tend to be your lower priced in some zeroes like a ProAir or things like that in there. And then the second thing is, as Ted mentioned, I mean, just I'll give you just a simple example and it's relatively small, but probably about half-ish of those numbers that I give out maybe a little bit less than half are from liquid names and we feel good about them to varying degrees. But there was one name on the list I can see off the top of my head, LifeScan. It had been trading at like $0.25 to $0.30 for the better part of the last year and it's now back up to $0.62 to $0.63 where it's today. So I think if you would have that conversation a couple of quarters ago, you would have been asking the same question and we do see the recovery there. So again, we do try and strip out the very obvious names like our non-accruals and don't factor that into our NAV upside. But again, even with some level of conservatism if we're giving out a 12.5% which is the number obviously there's a lot of room there to be off on that number and still have some fairly meaningful NAV upside.

Well, for instance, and I'm just looking at the schedule of investments. You have KCAP Freedom marked from 25 to 11. I don't know what asset management company is, but it's marked from 18.

Yes, Steve, sorry, I don't want to clear up. We, and sorry, maybe it wasn't clear in the commentary. We're specifically only focusing on the debt securities of our portfolio. So not any of our joint ventures, not our equity positions, strictly the debt portfolio.

Got it. Okay. I'll come back to you offline with some questions.

Thank you.

And our last question comes from the line of Lee Crockett, private investor. Your line is open.

Thank you. Good morning. I had a couple of questions on KCAP Freedom III. It looks like you haven't received a dividend for the past six quarters. One, is that correct? And then could you go into any detail as to why you haven't received that dividend? And then a couple of follow-up questions would be, do you anticipate any dividend from that joint venture this year? And does that joint venture have an end date?

Yes. So, Lee, I'll take a couple of them and Brandon can follow up as necessary, but I think I'll cover it. The short answer is yes, we still receive dividends from it. But the little bit similar to the answer I gave Steve on Naviga, which is there's a different analysis when you receive the dividend from an accounting perspective whether you recognize that as income through our P&L or a recovery of cost. And so for the last, I don't know how many quarters, but a decently long period of time, we have been as we receive distributions from that joint venture, we are recognizing it as a recovery of costs as opposed to income. So the short answer is, yes, we still receive distributions on it, but from an accounting perspective, we recognize it as a return of capital as opposed to a return on capital. And then on the end date, there is not a stated end date. It is very far in the future. The reality is because of the way that's structured at some point, the liabilities, the liability costs will start to outweigh the income from the assets in which case we would likely look to monetize or exit that portfolio to your point on the dividends. But in the meantime, while we're still receiving dividends and repayments, in our opinion, it makes sense to kind of continue managing the vehicle.

I'll just add. We did receive a distribution in Q1. It was about $360,000 and then over the course of 2024, we got just shy of $2 million in distributions. Again though, given the unrealized loss position that you highlighted in your question, we've been reducing the cost basis to reduce the realized loss as opposed to recognizing that as an income distribution.

Okay. You said you got three hundred sixty thousand dollars of distribution. I see that coming down in the cost basis from year end, but you took down the fair market value by $1.6 million. Is there something going on there that other or is that just mark-to-market?

Yes, this is mark-to-market. The joint venture is funded via a CLO structure. So it's like a senior loan fund that's funded with the CLO. And so this particular quarter just given that it's kind of continued to be a smaller size deal from a valuation perspective, sort of the third-party valuation sort of moved it from a, I'll call it a traditional cash flow CLO valuation model to what would be more like a NAV liquidation analysis. So there's a little bit of that going on in the mark-to-market impact for the quarter.

Okay. And just any commentary you might have on the switching to the Great Lakes joint venture, that looks like it's performing historically better than the KCAP Freedom III. Is that a fair statement or any commentary you might want to add there?

I would say that's a fair statement. I would also just say they're differently structured. They're differently structured from a liability perspective and therefore the valuations are run a little bit differently. Great Lakes is sort of a, I'll call it, has like a traditional evergreen credit facility as opposed to a CLO liability structure. So from a valuation perspective, it's literally a NAV buildup of we value every single one of the underlying assets at fair value and then reduce the cost of debt. So reduce the amount of debt and that spits out what our value is on our balance sheet. So it's a little bit more straightforward to be honest. But that also is a continuous we generally have a continuous investment period on that. So it was that structured Great Lakes had an original three-year investment period. We rolled it all into a new three-year investment period. That investment period is coming up this summer. We would anticipate rolling into a new three-year investment period this summer. So unlike the HCAF Freedom III joint venture where it's effectively running down, the structure of Great Lakes is more of an evergreen fund structure that has a continuous investment period.

And Lee, I would just highlight, I think one important point here is the Great Lakes joint venture is a BC proprietary platform trade, whereas the KCAP Freedom III was a legacy position we inherited when we took over KCAP.

Okay. Thank you.

And that concludes the question-and-answer session. I would like to turn the call back over to Mr. Goldthorpe for closing remarks.

Thank you for attending our call. We will continue to provide our shareholders with updates about the proposed merger with Logan Ridge as those become available. As always, please reach out to us with any questions, which we're happy to discuss. We look forward to speaking to you again in August when we announce our second quarter 2025 results. Thank you very much.

Thank you for attending our call. We will continue to provide our shareholders with updates about the proposed merger with Logan Ridge as those become available. As always, please reach out to us with any questions, which we're happy to discuss. We look forward to speaking to you again in August when we announce our second quarter 2025 results. Thank you very much.