Good day and thank you for standing by and welcome to the Second Quarter 2021 Financial Results Conference Call. I will now hand today’s conference over to your speaker, Jeehae Linford. Please go ahead.

Thank you. Good morning and welcome to Portman Ridge Finance Corporation’s second quarter 2021 earnings conference call. An earnings press release was distributed yesterday, August 5, after market closed. 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. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of Portman Ridge. Please go ahead, Ted.

Good morning and thanks, everyone for joining our second quarter earnings call. I am joined today by our Chief Financial Officer, Jason Roos and our Chief Investment Officer, Patrick Schafer. I will provide brief highlights on the company’s performance and activities this quarter, Patrick will provide commentary on our investment portfolio and our markets, and Jason will discuss our operating results and financial conditions in greater detail. Yesterday afternoon, Portman Ridge announced its second quarter 2021 results. We had an active quarter highlighted by the strong financial results and a successful closing of the merger with Harvest Capital Corporation, which was completed on June 9, 2021. On the corporate front, we were pleased to reinstitute our share repurchase program following the closing of the Harvest transaction. During the quarter, we repurchased $380,000 of shares. And subsequent to quarter end, we have repurchased an additional $1.2 million of shares. We also announced yesterday the Board has approved a 1-for-10 reverse stock split that we expect to complete during the third quarter, with an effective date to be announced in the coming weeks. Beginning with our second quarter results, we generated net investment income per share of $0.15 and earnings per share of $0.14. Net asset value per share increased to $2.93 per share as of June 30, an improvement of $0.01 from the first quarter and marks the fifth straight quarter that we have increased NAV per share. The increase reflected continued favorable market conditions, including ongoing tightening of credit spreads and was offset partially by approximately $0.02 per share of one-time HCAP transaction costs. We also had an active quarter in terms of origination and repayment. We successfully invested a total of $62 million during the quarter that generated a weighted average spread of 691 basis points and fully exited…

Thanks Ted. Turning first to current market conditions, the second quarter continued where the first quarter left off with strong economic tailwinds and continued low interest rates. In terms of liquid loan benchmarks, spreads during Q2 continued to tighten on average compared to Q1. The middle-market benchmarks remained very slightly wider than Q4 2020 – sorry Q4 2019, but those also tightened in tandem with the broadly syndicated markets. Transaction volume remained strong in the quarter, including both new investment opportunities through M&A activity as well as refinancing activity. Repayments continued at an elevated level and were largely offset by new investment activity during the quarter, with some additional transactions slipping into early Q3. As before, we note that spreads remained wider in the direct loan origination market relative to the liquid credit market and our ability to use the breadth of our platform to lead and structure transactions should generate consistent attractive risk adjusted returns in excess of the broader market. Looking ahead to the second half of the year, our focus continues to be managing our pipeline activity against asset repayments now that we are comfortably within our target leverage range. Our new debt originations continue to generate yield in excess or in-place debt portfolio as a whole, excluding the impact of the acquired Harvest portfolio. So long-term, we believe the increased repayment activities will lead to increased returns for shareholders, as you further rotate out of legacy assets into assets originated by BC Partners. Even excluding the Harvest merger and associated assets, second quarter was very active in light of the elevated repayment activity across the portfolio. During the quarter, we made investments into 14 borrowers, 7 of which were existing borrowers, including both of our joint ventures and 7 of which were brand new borrowers. In…

Thanks, Patrick. GAAP net investment income for second quarter, 2021 was $11.7 million or $0.15 per share, which compares to net investment income of $8.2 million or $0.08 per share in the previous quarter. Total investment income was $21.5 million, an increase of $3.2 million or 17% due primarily to the increase in investments resulting from the HCAP merger, and income resulting from continued elevated repayment activity. We also generated additional income from CLO fund securities driven by repricing activity in a number of underlying CLOs and also from our joint ventures, driven by continued portfolio rotation and increased utilization of the JVs, as compared to prior quarter. Total expenses for Q2 decreased to $9.8 million from $10.1 million in the previous quarter and from $11 million in the fourth quarter of 2020. Over the past several quarters, we have grown assets significantly while maintaining a relatively stable level of operating expenses, and we expect this trend will remain consistent going forward. At quarter end, we had total investments, excluding derivatives of $520 million and net assets of $269 million or $2.93 per share, an increase of $0.01 from $2.92 per share in the previous quarter. NAV per share was impacted by approximately $0.02 per share of onetime HCAP transaction expenses. Despite this impact, as Ted mentioned, this marks the fifth straight quarter that we have increased NAV per share. The increase in NAV per share for the quarter was mainly attributable to net investment income of $11.7 million. During the quarter, several affiliates of the company’s adviser and an affiliate of LibreMax Intermediate Holdings LP, purchased 1.4 million shares of the company’s common stock for total consideration of approximately $4 million in a private placement. As a reminder, the externalization agreement entered into by the company in 2019 required…

Thank you, Jason. As you can hear, we’ve had a busy and productive quarter, highlighted by another quarter of solid earnings and also the successful closing of the HCAP merger. On the corporate side, we are pleased to resume our share repurchase activities, and we expect to continue to conduct buybacks subject to market conditions and other factors. Additionally, we are pleased to announce the Board’s approval for a 1-for-10 reverse stock split, and we expect to complete the split sometime in the third quarter. Looking ahead, we were in solid financial shape. And we have continued to position Portland Ridge for long-term success and earnings power. Our team has worked very hard to drive and execute on initiatives that we believe will create value for our shareholders. At the same time, we will remain vigilant as the potential for resurgence and COVID and Delta variant cases have unfortunately become a possibility to consider. Thank you all once again, to all of our shareholders and stakeholders for your ongoing support. This concludes our prepared remarks. And I will now turn over the call to the operator for any questions.

Your first question is from the line of Christopher Nolan with Ladenburg Thalmann.

Hi guys. Patrick, spreads on new investments were 691 basis points. What’s the spreads on the existing investments, please?

Yes. So, existing investments, including HCAP, the HCAP asset was 745 basis points. And excluding the HCAP, it is more or like 660 basis points.

Okay, great. And, Jason, I know you mentioned in the press release that there was $0.02 of deal costs impacting NAV and I thought I heard Ted say there was $0.01 affecting operating EPS, was – or I heard that wrong, is the operating EPS number actually 17 rather than 15?

No. I would say it’s like right on the cusp there and rounding probably gotten away there. I would say, it’s probably a safe number.

Okay. And then finally, on the non-accrual front, I mean, so you had two new non-accruals, one is ATP and the other one is ProAir, are those HCAP deals?

So this is Patrick. ATP should not be a new non-accrual. It was taken over in the OHAI transaction back in December 2019. And it’s – we have never accrued interest on it. So, it’s always been on non-accrual. So, perhaps that might have just been an outstanding issue. So, it’s never been non-accruing status, definitely we took it over. And ProAir is the one – is the increase in non-accrual, and that was on non-accrual under HCAP at the time we took it over.

Got it. Okay. That’s it for me. Thanks guys.

Yes. I mean just to note, that is, we have not seen a – our credit quality of our overall portfolio is very stable, to probably improving. So it’s just a – the increase in non-accruals is primarily attributed to the Harvest merger.

Okay. Thanks.

Your next question is from the line of Ryan Lynch with KBW.

Hi, good afternoon. Thanks for taking my questions. The first one, do you have dollar amount of the purchase discount accretion that came through the interest income side regarding the Garrison and Harvest mergers?

Yes. So first, I would point out the purchase discount of $3.8 million that we booked on the HCAP transaction in the current quarter. Part of that would have already converted itself into NII, just through pay-down activity and normal runoff. But I would point to some of our disclosure to the tax footnote related to approximately $0.08 for the quarter coming through the accretion line.

$0.08.

Yes. And that includes what can – that includes Garrison and HCAP.

Yes. That’s helpful. And then, as I look at your overall combined portfolio, today, you obviously have – these come out of Garrison assets, you guys have the new Harvest book, when you initially took on the Garrison assets, you sold off a decent amount, part of that was maybe just because you wanted to do whatever, maybe part of us, didn’t necessarily want those particular assets on your book at the time of the closing. As we sit here today, do you feel that there is going to be much kind of exits of the remaining Garrison book, or the HCAP asset that came on, or are those going to just kind of operate in your portfolio as normal course and run off kind of more organically?

Well, this is Patrick. I am happy to take that. I think the short answer is, it will probably be a little bit more of an organic course for the remainder with the caveat that the Garrison assets that we still own, a decent chunk of them still remain liquid in sellable. And so we tend to use that as kind of a lever to sell those more liquid loans when we are originating kind of our own transactions. So, depending on our pipeline and our origination activity, you might see slightly more exits on the Garrison name just because of that dynamic. But there would be nothing else to it other than that.

Okay, understood. And then the only last one is, was there – you guys are obviously building up the broader BC Partners’ credit platform, I was just curious with the Harvest merger or I guess even with the Garrison merger, did you guys on-board, any employees or investment professionals from those mergers or did you guys just keep the people in-house, just to kind of manage those portfolios, post-merger?

Yes. I will take that. I mean, I would say, generally speaking, each of these mergers we have not taken on the investment teams. But we do have some ongoing relationship with the existing firms to help us with anything we require on the investment side. So, we feel like we are getting the benefit of continuity on these deals. But we have actually, as opposed to taking on investment professionals, we have actually hired new ones on our side.

Okay, understood. That’s all for me. I appreciate the time today.

Your next question is from the line of Kelly Rushing with U.S. Capital.

Thank you. I have a somewhat complex question. It was my expectation that with the 1 for 10 reverse split, the stock will probably lose 10% of its value. And looking at the buyback for the prior quarter, the average price – purchase price of the stock, I think was $2.42, approximately 60 trading days. In those 60 trading days, there were only two days that the stock didn’t trade below $2.42. So, it looks to me like there should have been a buying on weakness as opposed to buying on strength, the average price during that period was about $2.35, roughly. I know there are legal restrictions in buying back stock, but it can also be used, somewhat tactically. And my question is, is there a process? Is there a strategy in terms of the buyback to alleviate the likely pressure on the stock from the reverse split?

So, let me answer you the question. Number one is, obviously, because of the Harvest transaction, we were blacked out until the very, very end of the quarter. So, I think the time period you are using on the stock price is not that relevant, because we were not buying stock for that period of time. We were only really started buying stock very close to quarter end. So, I think that’s number one. Number two is, we don’t I mean, obviously, we don’t try and market time our buyback program, like we are not buying one day out the next day. I think we want to be consistently in the market buying back stock, because again, we don’t know where our stocks are going to trade on any given day. And there were stocks, I mean, listen, historically, reverse stock splits have been done when a company is in a position of weakness and reverse splits for various reasons, including, like, maintain listing requirements. I mean, this is something that all of our big institutional shareholders and many of our retail shareholders have access to do. And, obviously, we think we are doing it from a position of strength. If we reverse stock split, it allows a broader group of institutions to buy our stock, people can actually margin the stock, and it opens up the number of buyers for it. So, I don’t know how you came up here, 10% decline, and you might be right, you might be wrong. But we actually – we are doing this from a position of strength versus weakness. We are not doing this because we need to maintain a listing requirement or there is some other nefarious reason. We are doing this at the direction of a lot of our – we are trying to listen to our shareholders and get their feedback. And this is something that we have obviously, foreshadowed to the market for the better part of the last eight months. And so this is not a surprise. This was people voted on – our shareholders voted on this in our Annual Meeting. So again, it’s not to never kind of like a railroad through. And so I think the market – if you believe the markets are efficient, we have pushed out of this for eight months, and people voted on it. So, this is not, this shouldn’t come as a big surprise to the market.

It will be a big surprise to me if it doesn’t go down after the reverse split. That’s been a long, long pattern, regardless of the company being weak or strong. So, I hope you are right. It does not do me any good. But I have seen it too many times to think that that won’t happen.

Yes. Listen, you could be right. Listen, our job – listen, at the end of the day, our job is to execute on earnings and book-value growth. And I have no idea where our stock is going to trade. But obviously, we have been given – we are not just doing this. We have gotten a lot of advisors, shareholders, analysts, bankers. And yes, it could be right. And to your point about the buyback program and the fact that we will be in the market buying back stock should – if you are right and the stock will face weakness because of a reverse stock split, the fact that we are in the market buying back stock should at least mute that impact if you turn out to be right.

Yes. Well, I would like to say, I hope I am not. But if the objective is to buy as much stock as possible with as little money as possible, I would think you would look to weak periods or potential weak periods to do that if it’s legally possible, so?

The way simplistically, we think about a buyback program, just so we are on the record of saying it is we are a cost of capital vehicle. So, we have a cost of debt, we have a cost of equity and our stock trades today, it just makes a lot of sense for us to buy back stock. And so to your point, like that changes, if our stock trades at 2x book, maybe it doesn’t make sense for us to keep buying back stock. But where our stock trades today versus where we are originating new assets, as a shareholder, we think it makes a lot of sense to buy back stock. It’s very accretive for our shareholders.

Your next question is from the line of Chris Nolan with Ladenburg Thalmann.

Ted, given your perspective of what the debt market is for BDCs, given the private placements, and given that you guys have done a wonderful job in terms of fixing up Portman Ridge, where is your thinking in terms of debt costs for other similarly dented BDCs? Do you think the market is now still at 4.875 for other dented BDCs?

We will – we are investment-grade rated. So, I would – here is what I would say. I would say we get the benefit of being part of a larger institution. So, the fact that we are a bigger platform, the fact that we pay lots of money to the Street, the fact that we are institutionalized, gives us a big advantage on the financing costs. And you can see it. We are financing ourselves 1.25% cheaper than Harvest was. And so I think from our perspective, being part of a large institution helps us. So, I wouldn’t compare it apples-to-apples. And then our financing, it was done very seamlessly. And I don’t think a comparable BDC would be able to finance themselves at the exact same rate as us just because we obviously are a little more institutionalized to our peers. But what we have been guided to by the market is a comparable BDC, should be able to finance themselves in the high-5s.

Great. Okay. Thank you.

Thank you. At this time, I will turn the call back to management for any closing remarks.

Thanks everyone for joining us today. We look forward to speaking to you in the next quarter. And in the meantime, if anybody has any questions, feel free to reach out to any member of management or anybody else affiliated with Portman Ridge. Thank you very much and have a wonderful weekend and a wonderful end to the summer.

Thank you. And this does conclude today’s conference call. You may now disconnect.