Investor Presentation
March 2024
Important Information
Cautionary Statement Regarding Forward-Looking Statements
This presentation contains forward-looking statements. The matters discussed in this presentation, as well as in future oral and written statements by management of Logan Ridge Finance Corporation ("LRFC", "Logan Ridge" or the "Company"), that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements.
Forward-looking statements relate to future events or our future financial performance and include, but are not limited to, projected financial performance, expected development of the business, plans and expectations about future investments, our contractual arrangements and relationships with third parties, the ability of our portfolio companies to achieve their objectives, the ability of the Company's investment adviser to attract and retain highly talented professionals, our ability to maintain our qualification as a regulated investment company and as a business development company, our compliance with covenants under our borrowing arrangements, and the future liquidity of the Company. We generally identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "outlook", "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar words. Forward-looking statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove to be incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements.
Forward-looking statements are subject to change at any time based upon economic, market or other conditions, including with respect to the impact of the COVID-19 pandemic and its effects on the Company and its portfolio companies' results of operations and financial condition. More information on these risks and other potential factors that could affect the Company's financial results, including important factors that could cause actual results to differ materially from plans, estimates or expectations included herein, is included in the Company's filings with the Securities and Exchange Commission (the "SEC"), including in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the Company's most recently filed quarterly report on Form 10-Q and annual report on Form 10-K, as well as in subsequent filings. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this presentation should not be regarded as a representation by us that our plans and objectives will be achieved. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required to be reported under the rules and regulations of the SEC.
NASDAQ:LRFC | 2
Stock and Trading Information
Portman Ridge Finance Corporation | |||
Exchange: | NASDAQ | ||
Ticker: | LRFC | ||
Investment Manager: | Sierra Crest Investment Management LLC | ||
Affiliation: | BC Partners / BCP Credit | ||
As of March 12, 2024 | |||
Market Cap | $60.2m | ||
Share Price | $22.65 | ||
52-week Range | $18.53 - $23.63 | ||
Common Shares Outstanding | 2.69m | ||
Total Dividend Payout TTM | $0.96 | ||
Latest Quarterly Dividend | $0.30 | ||
Analyst Coverage | Ladenburg Thalmann | ||
NASDAQ:LRFC | 3 |
About Logan Ridge
Logan Ridge
(NASDAQ: LRFC)
- Focus on direct origination of senior secured debt investments to the lower middle market
- Experienced, strategic management team with a track record of efficiently repositioning publicly listed vehicles to improve trading performance
- Strong shareholder alignment with top priority being to generate shareholder value
Affiliation with
BC Partners
- Externally managed by Mount Logan Management LLC ("Mount Logan"), a wholly-owned subsidiary of Mount Logan Capital Inc. (NEO: MLC)("MLC"); both entities are affiliates of BC Partners Advisors L.P. ("BC Partners") for U.S. regulatory purposes
- Part of BC Partners' $40bn1 platform in private equity, private credit and real estate strategies
- Exemptive relief allows for co-investments across the BC Partners platform
Investment Portfolio
(at 9/30/23)
- $196.9 million of total assets and $93.2 million of net asset value
- As of September 30, 2023, approximately 82.3% of our Debt Investment Portfolio at fair value was bearing interest at a floating rate
- 58 debt + equity portfolio investee companies
- Debt investments on non-accrual status were 5.7% and 8.3% of the investment portfolio at fair value and amortized cost, respectively
- As of September 30, 2023, approximately 55% of the Company's investment portfolio at fair value was invested in assets originated by the BC Partners Credit Platform
- AUM data as of 9/30/23
- Reflects commitments to commingled funds, IMAs, and commercially approved commitments. Figures are subject to completion of certain agreements.
3. CLO holdings and Joint Ventures are excluded from investment count. | NASDAQ:LRFC | 4 |
Investment Objectives and Strategy
Investment Objectives
Investment Strategy
and Philosophy
- Focus on direct origination of senior secured debt investments to the middle market; target portfolio company EBITDA size between $5-50 million
- Deliver sustainable risk-adjusted returns to stockholders; with a focus on capital preservation and downside protection
- Reduce non-income generating exposure over time and opportunistically to enhance NII generation
- Utilize entire BC Partners platform to directly originate loans and investments which allows for greater sourcing capabilities, ability to invest across the liquidity spectrum and participation in larger deals
- Invest in performing, well-established lower middle-market businesses that operate across a wide range of industries
- Management teams with demonstrated track records and aligned incentives
- Focus on identifiable and defensible market positions in industries with favorable dynamics
- Employ fundamental credit analysis, targeting investments in businesses with relatively low levels of cyclicality and operating risk
- Apply the same private equity style investment process employed for over 30 years at BC Partners with a long-term focused investment philosophy
- Investment structures: unitranche loans (including last out), first lien loans, second lien loans, subordinated debt, equity co-investment
- Industry focus: aerospace/defense, business services, consumer products, education, food & beverage, healthcare, industrial & environmental services, logistics & distribution, manufacturing, TMT
NASDAQ:LRFC | 5
Leverage Dynamics Shift From Banks to Private Credit
Decline in availability of capital
Private capital fills the void
Banks Consolidate
- Starting in the 1990s, banks begin consolidating
- Banks of scale remain (i.e. Bank of America, JP Morgan Chase, Wells Fargo)
- Regulators call for further regulation, with increased scrutiny on credit worthiness
Capital Shifts to
Larger Companies
- Decline in capital access creates opportunity for public companies
- Publicly listed companies achieve 5x higher average market value than 20 years ago
- The high yield market ($300mm or below) declined from 39% in 2004 to 5% in 2019
Private Equity
Rises
- Private equity AUM increases 4x since 2002
- Private equity deal volume surpasses public equity deal volume starting in 2015
- Fundraising and dry powder for private equity reaches record levels
Private Credit
Rises
- Investors begin increasing allocations to private credit
- Market volatility and inflation creates opportunities for private credit
- With traditional banks shuttered, private credit experiences a steep increase in deal flow
1990s | 2000s | 2010s | 2020s |
Source: CapIQ and Preqin
NASDAQ:LRFC | 6
Private Credit Increases Market Share
Private Credit Historical AUM since 2000
($bn)
$400 | $368 | ||||||||||||||||||||||||||||||||||||||||||||||||
$300 | $274 | ||||||||||||||||||||||||||||||||||||||||||||||||
$210 | |||||||||||||||||||||||||||||||||||||||||||||||||
$200 | $164 | ||||||||||||||||||||||||||||||||||||||||||||||||
$135 | |||||||||||||||||||||||||||||||||||||||||||||||||
$85 | $108 | ||||||||||||||||||||||||||||||||||||||||||||||||
$100 | $66 | $61 | $68 | ||||||||||||||||||||||||||||||||||||||||||||||
$29 | $30 | $35 | $39 | ||||||||||||||||||||||||||||||||||||||||||||||
$3 | $5 | $11 | $42 | ||||||||||||||||||||||||||||||||||||||||||||||
$0 | |||||||||||||||||||||||||||||||||||||||||||||||||
Dec-05 | Dec-06 | Dec-07Dec-08 | Dec-09 | Dec-10Dec-11 | Dec-12Dec-13 | Dec-14Dec-15Dec-16Dec-17Dec-18Dec-19Dec-20Dec-21Sep-22 | |||||||||||||||||||||||||||||||||||||||||||
Dry Powder | Unrealized Value | ||||||||||||||||||||||||||||||||||||||||||||||||
Historical Performance LTM Across Asset Classes | Private Credit Historical AUM since 2000 | |||||||||||||||||||||||||||||||||||||||||||||
105 | 103.1 | 100% | ||||||||||||||||||||||||||||||||||||||||||||
100 | 80% | |||||||||||||||||||||||||||||||||||||||||||||
95.5 | ||||||||||||||||||||||||||||||||||||||||||||||
95 | ||||||||||||||||||||||||||||||||||||||||||||||
90 | 60% | |||||||||||||||||||||||||||||||||||||||||||||
85 | 40% | |||||||||||||||||||||||||||||||||||||||||||||
80 | 81.9 | 52% | ||||||||||||||||||||||||||||||||||||||||||||
79.7 | 20% | |||||||||||||||||||||||||||||||||||||||||||||
30% | ||||||||||||||||||||||||||||||||||||||||||||||
75 | 16% | |||||||||||||||||||||||||||||||||||||||||||||
0% | ||||||||||||||||||||||||||||||||||||||||||||||
70 | ||||||||||||||||||||||||||||||||||||||||||||||
1999 | 2009 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||
Private Equity | Venture | S&P Total Return | Private Debt | Banks | Non-Banks (Institutional Investors & Finance Companies) | |||||||||||||||||||||||||||||||||||||||||
Source: CapIQ, Preqin, S&P LCD Quarterly.
NASDAQ:LRFC | 7
Why Private Credit
Privately
Negotiated
Terms and
Structure
- Private transactions have an extensive focus on due diligence and downside protection
- Credit deal flow remains robust:
- Borrowers seek certainty of terms
- Flexibility in structuring
Preservation of Capital
- Strong covenants:
o | Minimum EBITDA | o Max. Gross / Net Leverage | |
o | FCCR | o | Industry-Specific KPIs |
o | Maximum CapEx | o | Negative Covenants / |
o | Minimum Cash | Consent Rights | |
• Structural protections: | |||
o | Asset Liens | o | Call Protection |
o | Parent Guarantee | o | Structured Return |
o | Liquidation Preference | o Excess Cash flow Sweep | |
o | Change of Control | o | Scheduled Amortization |
Leverage by Company
7.0x | 5.7x | 5.8x | ||
6.0x | ||||
4.7x | 4.9x | |||
5.0x | ||||
4.0x | ||||
3.0x | ||||
2.0x | ||||
1.0x | ||||
0.0x | ||||
<$15m | $15 - $30m | $30m - $50m | >$50m |
Source: Proskauer 2021 Private Credit Insights
Cumulative Default Rate for Issuance Size
6.0% | 5.0% | 5.3% | ||
5.0% | ||||
4.0% | 3.7% | |||
3.0% | ||||
2.0% | 1.3% | |||
1.0% | ||||
0.0% | ||||
By count of defaults for loans closed between 1995 - 4Q 2022 | ||||
Less than $100m | $100-$249m | $250-$499m | $500m or greater |
Source: S&P Global Market Intelligence as of Q4 2022
Source: S&P Global Market Intelligence, FDIC.gov. Private Credit Insights, and Preqin.
NASDAQ:LRFC | 8
Why Private Credit (continued)
Floating Rate
Loans may
Benefit from
Rising Rates
- Rising rates cause fixed income investors to struggle
- Floating rates are highly attractive, as income can increase with rising interest rates
12.0% | |||||||||||||||
10.1% | |||||||||||||||
10.0% | 9.3% | ||||||||||||||
8.0% | |||||||||||||||
6.3% | 5.8% | ||||||||||||||
6.0% | |||||||||||||||
4.8% | |||||||||||||||
3.7% | 4.1% | ||||||||||||||
4.0% | |||||||||||||||
2.0% | |||||||||||||||
-0.1% | |||||||||||||||
0.0% | |||||||||||||||
Rising | Flat | Falling | |||||||||||||
-2.0% | -1.4% | ||||||||||||||
Floating-Rate Loans | US Aggregate | US Treasury | |||||||||||||
Source: Credit Suisse and Bloomberg Indices. "Rising" indicated by an increase of more than 50bps. "Falling" indicated by a decrease of more than 50bps. Data reflects rolling 12-month periods | |||||||||||||||
from 01/31/1993 through 12/21/2022. | NASDAQ:LRFC | 9 |
Portfolio Overview(1)
TOP TEN PORTFOLIO INDUSTRIES | TOTAL PORTFOLIO BY ASSET TYPE | DEBT PORTFOLIO BY ASSET TYPE | ||||||||||||||
Advertising & Marketing Services, | Joint Venture, | Subordinated, | ||||||||||||||
Other, 7.5% | Healthcare, | Equity, 16.6% | 0.2% | |||||||||||||
2.4% | 16.1% | |||||||||||||||
28.0% | ||||||||||||||||
Automobile Part Manufacturer, | ||||||||||||||||
2.7% | Collateralized Loan | |||||||||||||||
Textile Equipment Manufacturer, | Obligations, 1.2% | |||||||||||||||
2.7% | 2nd lien, 4.9% | |||||||||||||||
Healthcare Management, | ||||||||||||||||
5.0% | Subordinated, | |||||||||||||||
Consumer Discretionary, | 13.2% | 1st lien, | ||||||||||||||
64.8% | 1st lien, | |||||||||||||||
5.5% | ||||||||||||||||
79.0% | ||||||||||||||||
Industrials, 7.9% | ||||||||||||||||
Business Services, | 2nd lien, | |||||||||||||||
Information | 4.0% | |||||||||||||||
15.8% | ||||||||||||||||
Technology, 11.0% | ||||||||||||||||
Financials, | ||||||||||||||||
11.5% | ||||||||||||||||
~$187.1 million | ~$187.1 million | ~$153.5 million | ||||||||||||||
FIRST LIEN DEBT AS A PERCENTAGE OF TOTAL DEBT PORTFOLIO | ||||||||||||||||
81.1% | 81.0% | 80.9% | 81.4% | 81.3% | 79.0% | |||||||||||
73.6% |
69.2%
65.0%
51.0%
46.0%
Q4 2015 | Q4 2016 | Q4 2017 | Q4 2018 | Q4 2019 | Q4 2020 | Q4 2021 | Q4 2022 | Q1 2023 | Q2 2023 | Q3 2023 |
- Portfolio statistics represent fair value as of September 30, 2023
NASDAQ:LRFC | 10
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Logan Ridge Finance Corp. published this content on 13 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 13 March 2024 02:07:01 UTC.