Portman Ridge Finance Corporation Announces Fourth Quarter and Full Year 2024 Financial Results

Fourth Quarter 2024 Highlights

• Total investment income for the fourth quarter of 2024 was $14.4 million, as compared to $15.2 million for the third quarter of 2024, and $17.8 million for the fourth quarter of 2023.
• Core investment income¹, excluding the impact of purchase price accounting, for the fourth quarter of 2024 was $14.4 million, as compared to $15.2 million for the third quarter of 2024, and $17.7 million for the fourth quarter of 2023.
• Net investment income ("NII”) for the fourth quarter of 2024 was $5.5 million ($0.60 per share) as compared to $5.8 million ($0.63 per share) in the third quarter of 2024, and $11.2 million ($1.19 per share) for the fourth quarter of 2023. Of note, the year-over-year decrease in NII was largely due to a non-recurring expense reimbursement of $5.3 million from the Company's investment adviser seen in the fourth quarter of 2023.
• Net asset value ("NAV”), as of December 31, 2024, was $178.5 million ($19.41 per share), as compared to NAV of $188.0 million ($20.36 per share) as of September 30, 2024.
• Total shares repurchased in open market transactions under the Renewed Stock Repurchase Program during the quarter ended December 31, 2024, were 38,191 shares at an aggregate cost of approximately $0.7 million.

Full Year 2024 Milestones

• Total investment income was $62.4 million.
• Net investment income ("NII") was $24.0 million ($2.59 per share).
• Core investment income, excluding the impact of purchase price accounting, was $62.2 million.
• Total shares repurchased in open market transactions under the Renewed Stock Repurchase Program during the year ended December 31, 2024, were 202,357 at an aggregate cost of approximately $3.8 million, which was accretive to NAV by $0.07 per share. This compares to 224,933 shares repurchased during the year ended December 31, 2023 at an aggregate cost of approximately $4.4 million.
• Total stockholder distributions for 2024 amount to $2.76 per share.

Subsequent Events

• On January 29, 2025, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement”) with Logan Ridge Finance Corporation, a Maryland corporation ("LRFC”), Portman Ridge Merger Sub, Inc., a Maryland corporation and a direct wholly-owned subsidiary of the Company ("Merger Sub”); and solely for the limited purposes set forth therein, Mount Logan Management LLC, a Delaware limited liability company and the external investment adviser to LRFC ("Mount Logan”); and, solely for the limited purposes set forth therein, the Adviser. The Merger Agreement provides that, subject to the conditions set forth therein, (i) at the effective time of the First Merger (the "Effective Time”), Merger Sub will merge with and into LRFC (the "First Merger”), with LRFC continuing as the surviving company and as a wholly-owned subsidiary of the Company, and (ii) immediately after the Effective Time, LRFC will merge with and into the Company (the "Second Merger” and, together with the First Merger, the "Mergers”), with the Company continuing as the surviving company. Both the Board of Directors of the Company and LRFC's board of directors, including all of their respective independent directors who are not "interested persons” of either the Company or LRFC or the Adviser or Mount Logan, in each case, on the recommendation of special committees comprised solely of certain independent directors of the Company or LRFC, as applicable (each, a "Special Committee”), have approved, among other things, the Merger Agreement and the transactions contemplated thereby. Consummation of the Mergers is subject to certain closing conditions, including requisite approvals of the Company's and LRFC's stockholders. Subject to the terms and conditions of the Merger Agreement, at the Effective Time, each share of LRFC's common stock issued and outstanding immediately prior to the Effective Time (other than shares owned by the Company or any of its consolidated subsidiaries, including Merger Sub) will be converted into the right to receive 1.500 newly-issued shares of common stock of the Company with cash to be paid (without interest) in lieu of fractional shares. In addition, pursuant to a fee waiver letter executed on January 29, 2025, between the Company and the Adviser, the Adviser has agreed to waive up to $1.5 million of the incentive fees otherwise payable to it by Company over the eight consecutive quarters following the closing of the Mergers, subject to the closing of the Mergers.
• On March 12, 2025, the Board of Directors of the Company authorized once more a renewed stock repurchase program of up to $10 million (the "2025 Stock Repurchase Program”) for an approximately one-year period, effective March 12, 2025 and terminating on March 31, 2026. The terms and conditions of the 2025 Stock Repurchase Program are substantially similar to the prior Renewed Stock Repurchase Program. The 2025 Stock Repurchase Program may be suspended or discontinued at any time. Subject to these restrictions, we will selectively pursue opportunities to repurchase shares which are accretive to net asset value per share.
• On March 13, 2025, the Company declared a regular quarterly base distribution of $0.47 per share of common stock and a supplemental cash distribution of $0.07 per share of common stock. The distribution is payable on March 31, 2025 to stockholders of record at the close of business on March 24, 2025. The modification to the dividend policy introduces a stable base distribution, which is anticipated to be sustainable across market cycles, and a quarterly supplemental distribution, which will approximate 50% of net investment income in excess of the quarterly base distribution to account for fluctuations in rates and spreads.

Management Commentary

Ted Goldthorpe, Chief Executive Officer of Portman Ridge, stated, "While 2024 had several positive developments for Portman, including the potential for an accretive combination with Logan Ridge announced just after year end, the Company's financial results were impacted by certain idiosyncratic challenges within our investment portfolio. We will continue to focus on our underperforming credits and I remain confident in our ability to drive the best outcome for shareholders and, most importantly, in the credit quality of the portfolio overall. On that note, I am pleased to share that we were able to reduce the number non-accrual investments from nine investments as of September 30, 2024 to six investments as of December 31, 2024. As we enter the new year, we continue to believe we are well positioned for what we expect will be an active year for M&A and deployment. As always, we remain committed to our shareholders and continuing to grow our business.

Further, the Board of Directors approved a regular quarterly base distribution of $0.47 per share and a supplemental cash distribution of $0.07 per share. The modification to the dividend policy introduces a stable base distribution, which is anticipated to be sustainable across market cycles, and a quarterly supplemental distribution, which will approximate 50% of net investment income in excess of the quarterly base distribution to account for fluctuations in rates and spreads.

Looking ahead, we are excited about the opportunities that the proposed merger with LRFC will create. Most importantly, with our prudent investment strategy and experienced management team, we remain confident in our ability to generate strong, risk-adjusted returns and drive long-term value for our shareholders.”

Selected Financial Highlights for Full Year 2024

• Total investment income for the year ended December 31, 2024, was $62.4 million, of which $52.6 million was attributable to interest income, inclusive of payment-in-kind income, from the Debt Securities Portfolio. This compares to total investment income of $76.3 million for the year ended December 31, 2023, of which $63.5 million was attributable to interest income, inclusive of payment-in-kind income, from the Debt Securities Portfolio.
• Core investment income for the full year 2024, excluding the impact of purchase discount accretion, was $62.2 million, a decrease of $12.3 million as compared to core investment income of $74.5 million for full year 2023.
• Net investment income ("NII”) for the full year ended December 31, 2024 was $24.0 million ($2.59 per share) as compared to $34.8 million ($3.66 per share) for the full year ended December 31, 2023.
• Net asset value ("NAV”) as of December 31, 2024, was $178.5 million ($19.41 per share), a decrease of $0.95 per share as compared to $188.0 million ($20.36 per share) for the third quarter of 2024. This compares to $213.5 million ($22.76 per share) as of December 31, 2023.
• Investment portfolio at fair value as of December 31, 2024 was $405.0 million, spread across 28 different industries (when excluding CLO Funds and Joint Ventures) and comprised of 93 different portfolio companies. Our debt investment portfolio, excluding our investments in the CLO Funds, equities and Joint Ventures, totaled $320.7 million at fair value as of December 31, 2024 and was spread across 26 different industries with an average par balance per entity of approximately $2.5 million. This compares to a total investment portfolio at fair value as of December 31, 2023 of $467.9 million, spread across 27 different industries and comprised of 100 different portfolio companies. Our debt investment portfolio, excluding our investments in the CLO Funds, equities and Joint Ventures, totaled $379.1 million at fair value as of December 31, 2023 and was spread across 26 different industries, with an average par balance per entity of approximately $3.1 million.
• Non-accruals on debt investments, as of December 31, 2024, were six debt investments representing 1.7% and 3.4% of the Company's investment portfolio at fair value and amortized cost, respectively. This compares to nine debt investments representing 1.6% and 4.5% of the Company's investment portfolio at fair value and amortized cost, respectively, as of September 30, 2024, and seven debt investments representing 1.3% and 3.2% of the Company's investment portfolio at fair value and amortized cost, respectively, as of December 31, 2023.
• Weighted average contractual interest rate on our interest earning Debt Securities Portfolio as of December 31, 2024 was approximately 11.3%.
• Par value of outstanding borrowings, as of December 31, 2024, was $267.5 million, which was unchanged from September 30, 2024, with an asset coverage ratio of total assets to total borrowings of 167% and 170%, respectively. On a net basis, leverage as of December 31, 2024 was 1.3x² compared to net leverage of 1.3x² as of September 30, 2024.

Results of Operations

Operating results for the years ended December 31, 2024, and December 31, 2023, were as follows:

Investment Income

The composition of our investment income for the years ended December 31, 2024, and December 31, 2023, was as follows:

Fair Value of Investments

The composition of our investment portfolio as of December 31, 2024, and December 31, 2023, at cost and fair value was as follows:

^{(1) Represents the equity investment in the Asset Manager Affiliates.}

Liquidity and Capital Resources

As of December 31, 2024, the Company had $267.5 million (par value) of borrowings outstanding at a current weighted average interest rate of 6.2%, of which $108.0 million par value had a fixed rate and $159.5 million par value had a floating rate. This balance was comprised of $159.5 million of outstanding borrowings under the JPM Credit Facility, and $108.0 million of 4.875% Notes due 2026. On August 20, 2024, an optional redemption of the CLO occurred, and all rated notes were repaid in full. As of December 31, 2024, no 2018-2 Secured Notes were outstanding.

As of December 31, 2024, and December 31, 2023, the fair value of investments and cash were as follows:

As of December 31, 2024, the Company had unrestricted cash of $17.5 million and restricted cash of $22.4 million. This compares to unrestricted cash of $13.7 million and restricted cash of $13.0 million as of September 30, 2024. As of December 31, 2024, the Company had $40.5 million of available borrowing capacity under the JPM Credit Facility.

Interest Rate Risk

The Company's investment income is affected by fluctuations in various interest rates, including SOFR and prime rates.

As of December 31, 2024, approximately 90.1% of our Debt Securities Portfolio at par value were either floating rate with a spread to an interest rate index such as SOFR or the PRIME rate. 89.8% of these floating rate loans contain floors ranging between 0.50% and 5.25%. We generally expect that future portfolio investments will predominately be floating rate investments.

In periods of rising or lowering interest rates, the cost of the portion of debt associated with the 4.875% Notes Due 2026 would remain the same, given that this debt is at a fixed rate, while the interest rate on borrowings under the JPM Credit Facility would fluctuate with changes in interest rates.

Generally, the Company would expect that an increase in the base rate index for floating rate investment assets would increase gross investment income and a decrease in the base rate index for such assets would decrease gross investment income (in either case, such increase/decrease may be limited by interest rate floors/minimums for certain investment assets).