Portman Ridge Finance Corporation [PTMN] Conference call transcript for 2022 q1
2022-05-11 13:39:06
Fiscal: 2022 q1
Operator: Good day and thank you for standing by. Welcome to the Portman Ridge first-quarter 2022, Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation there will be a question-and-answer session. Please be advised that today's conference is being recorded. And without further ado, I would now like to hand the conference over to one of your speakers today. Ms. Serena Liegey. Please go ahead.
Serena Liegey: Thank you. Good morning and welcome to Portman Ridge Finance Corporation First Quarter 2022 earnings conference call, an earnings press release was distributed yesterday, May 10th, after market close, 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-K new 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 like to now turn the call over to Ted Goldthorpe, Chief Executive Officer of Portman Ridge. Please go ahead, Ted.
Ted Goldthorpe: Good morning. And thanks everyone for joining our first-quarter 2022 earnings call. I'm joined today by our Chief Financial Officer, Jason Roos, and our Chief Investment Officer, Patrick Schafer. I'll provide brief highlights on the company's performance and activities for the quarter. Patrick will provide commentary on our investment portfolio and our markets, and Jason will discuss our operating results and financial condition in greater detail. Yesterday, Portman Ridge announced its first-quarter 2022 results, and we were pleased to report another solid quarter of financial performance. Our first-quarter earnings were in line with the internal expectations taken into consideration pervasive market volatilities -- volatility, and other macroeconomic and political factors that ultimately lead to a relatively quiet quarter on the new investment front. We're happy to report that are NAV for the first quarter of 2022 remained relatively flat at $278 million or $28.76 per share, as compared to $280 million or $28.88 per share in the fourth quarter of 2021. Excluding a one-time tax impact, NAV-per-share would've been $28.81, a decline of less than 0.3% as compared to December 31, 2021. For the first quarter of 2022, our net investment income was $7.9 million or $0.82 per share and our core net investment income was $6.1 million or $0.63 per share. Our Board of Directors declared a $0.63 per share quarterly distribution, which reflects the stable performance of the company's operations and investment activities, as well as the general economic outlook and related factors. Furthermore, during the quarter, we repurchased 22,990 shares under our renewed stock repurchase program at an aggregate cost of approximately $545,000 and we continue to be active under this program in the second quarter. Portman Ridge has refinanced a revolving credit facility agreement with JP Morgan Chase since the end of the first quarter. A milestone achievement for the business. This amended agreement shifts from LIBOR to a three-month so for benchmark, interest rate, reduces the applicable margin to two spot 8.0% per annum from 285 -- 2.85% per annum, and extended the reinvestment period and scheduled termination date to April 29, 2025, and April 29, 2026 respectively. This combination of a lower spread and the shift to SOFA is expected to reduce borrowing costs going forward. Additionally, we are very pleased to announce that we've added two new season members to our Board of Directors. Jennifer Kwan Chow and Tricia Hazelwood. Overall, we believe that we're well-positioned to further improve our portfolio performance and investment income in 2022. With that, I will turn the call over to Patrick Schafer, our Chief Investment Officer for a review of our investment activity.
Patrick Schafer: Thanks, Ted. The first quarter of 2022 was relatively low in terms of activity on the originations and investment side due to a great deal of activity at year-end, which was then followed by a global geopolitical disruption. Market volatility, inflation, and rising rates have been ongoing marketing additions. But the recent conflict in Ukraine had a meaningful impact on deal volumes for a period of time. Of the approximately $43 million of investments during the quarter, excluding short term holds, $21.5 million or 50% of these investments were made in the last 2 weeks of March and therefore had minimal impact on our income statement, excluding short term investments that were sold prior to the end of the quarter. 67% of the new investments were first and securities and 26% or second lien or unsecured securities. The weighted average spread on new investments was 811 basis points. Additionally, our Great Lakes joint venture funded in that $0.9 million during the quarter. Our debt securities portfolio at the end of the first quarter, remained highly diversified with investment spread across the 30 different industries and 116 different entities. All while maintaining an average par balanced per entity of approximately $3.3 million. In aggregate, our $483 million of debt securities was marked at 94.4% of par and yielding a stated spread to LIBOR of 727 basis points on accruing debt securities. As of March 31st, 2022 six of our debt investments were on non-accrual status compared to seven at December 31st, 2021. Investments on non-accrual status at March 31st, 2022 were 0.21% and 1.9% of the company's investment portfolio at fair value and amortized costs, respectively, compared to 0.52% and 2.8% as of December 31, 2021. During the quarter, Roscoe Medical, which was formerly a non-accrual and was a large second-lien position, was repaid in its entirety. And we also sold group Yakima in the beginning of the second quarter. In total, group Yakima represents 84% of our total nonaccrual portfolio as of March 31st, on a cost basis perspective, so the sale will materially clean up our nonaccrual portfolio. Although investment activity in originations were lower in the first quarter of 2022 as compared to the second half of 2021, which was a sector-wide trend. We have deployed approximately $35 million of our available cash in new investments subsequent to the first quarter end and have a pipeline of an additional $20 to $30 million. We're ready to deploy before the end of the second quarter. I'll now turn the call over to Jason to further discuss our financial results for the period.
Jason Roos: Thanks, Patrick. As both Ted and Patrick previously mentioned, similar to many other BDCs, our financial performance for the quarter was affected by market volatility and other macroeconomic and geopolitical factors. Nonetheless, we were able to maintain a relatively unchanged net asset value per share for the first quarter of 2022 at $28.76 per share, which includes a one-time tax provision of approximately $0.05 per share as compared to $28.88 per share at December 31, 2021. Total investment income for the first quarter was $16.9 million of which $13 million was attributable to interest income from our debt securities portfolio. Excluding the impact of purchase price accounting our core investment income for the first quarter of 2022 was $15.1 million. As has been the case in previous reporting periods, we continue to reduce expenses. Total expenses for the first-quarter 2022 were $9 million compared to $10.1 million in the first quarter of last year, this was predominantly driven by reduced professional fees and other general and administrative expenses. At quarter-end we had total investments of $568 million, which was up from the previous quarter by approximately $18 million as a result of purchases and originations outpacing paydowns and sales in the quarter. As we continue to see interest rates move up, we believe we are well positioned for increased investment income as those rates have already begun to extend beyond certain rate floors embedded in our asset portfolio. Our current portfolio is approximately 77% floating rate and we expect the majority of our future investments to predominantly be floating rate investments. Our unrestricted cash at the end of the quarter was $ 20.5 million and restricted cash was $63.1 million, which along with other liquid assets, places us in a good position to meet commitment obligations as they may occur and as market, market continue to fluctuate. On the liability side of the balance sheet. As of March 31, 2022, we had a total of $354.2 million par value of borrowings outstanding, comprised of $80.6 million in borrowings under our credit facility a $108 million of foreign 7, 8% notes due 2026 and 163.7 million in secured notes due 2029. This remains relatively unchanged quarter-over-quarter. At the end of the quarter, we had $34.4 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. Additionally, we have recently as we have recently announced that we were successful and refinancing our senior secured revolving credit facility shortly after quarter end, which reduces the rate of interest and extends the maturity of the facility. As of March 31, 2022 our debt-to-equity ratio was 1.27 times on a gross basis and 0.97 times on a net basis. Given that our stated objective has been the target overall leverage to a range of 1.25 to 1.4 times. We believe we remain solidly positioned to pursue growth opportunities. Lastly, and as announced yesterday, a quarterly distribution of $0.63 per share was approved by the board and declared payable on June 7th, 2022. Just talk where there's a record at the close of business on May 24, 2022. With that, I will turn the call back over to Ted Goldthorpe.
Ted Goldthorpe: Thank you, Jason. Ahead of questions, I would like to again address the impact of rising rates in relation to Portman Ridge. Portman Ridge investment income is affected by fluctuations in various interest rates, including LIBOR, SOFR and other benchmark rates. As of March 31st, 2022, approximately 87% of Portman Ridge debt securities portfolio was either floating rate with a spread to interest rate index such as LIBOR. 76.6% of these floating rate loans contain LIBOR flows ranging from 50 basis points to 200 basis points. In periods of raising or lowering interest rates, the cost of the portion of debt associated with the four and seven-eighths notes due 2026 would remain the same given that this debt is a fixed rate, while interest rates on borrowing and our revolver revolving credit facility would fluctuate with changes in interest rates. As we mentioned in the press release yesterday, assuming a 1% increase in interest rates our net investment income would increase by approximately $1.5 million on an annualized basis. The increase in rates was more significant such as 2% or 3%, the net effect on net investment income would be an increase of approximately $3.2 and $4.8 million respectively. I'll close by saying that we're very pleased with the progress. We have continued to make this quarter in terms of active repositioning. We're also pleased to be in a stable financial position to continue to generate high distributions per share for our shareholders. Thank you once again, to all our shareholders for your ongoing support. This concludes our prepared remarks and I'll now turn over the call to the Operator for any questions.
Operator: Your first question comes from the line of Christopher Nolan. Your line is open.
Christopher Nolan: Guys. A clarification. Your interest rate sensitivity seems to dramatically changed from year-end, where you're effectively liability sensitive. So, you're now asset sensitive, is that a fair characterization?
Jason Roos: Yeah, that's a function of where we are at quarter-end versus where LIBOR is, has shifted on a quarter-over-quarter. So as of period in Q4, we were probably looking at the trough of that analysis, meaning we're on our way down as of the rates were starting to hit that reflection point, given that our 80% of our assets are variable rate, I'd say 75% of it or so is subject to a rate floor predominantly around the 75 basis points to a 100 basis points. And our debt is just forward 0. So Q1 to Q2 were looking at that inflection point, which is what's driving that out.
Ted Goldthorpe: Yes, the rate increases on a go-forward basis. So as of Q4, one LIBOR was 30 basis points. Most of the 1% increase kind of hurt us in terms of having the LIBOR floors versus liabilities but where we sit today, we're kind of through those floors who generally speaking, for the most part, rate increases a positive for us.
Christopher Nolan: Great and then given that -- and also, given that solid EPS in accesses dividend, any consideration, or where should we think the dividend policy is going to go. A, consideration of dividend supplements and if you could tell me what the score level is, that'll that be great. And I'll get back in the queue.
Ted Goldthorpe: Yeah, good question. So, we obviously have increased our dividend the last 2 quarters I think given all the volatility and given where we are leverage-wise, we want to be a little bit cautious today. But I think it's something we're always looking at we're obviously over earning our dividend we feel very, very good about core earnings. And as Jason just outlined, given where LIBOR is today and so, looking at any -- we're not macro forecasters, but looking where on it, it would tell you it's going. We should have some pretty good earnings tailwinds. So, it's something that we revisit every quarter. We also look at our dividend yield at NAV, as well as at market. But at NAV, we still think we pay out a very competitive dividend vis -a - vis the sector. So, it's something we're always looking at and evaluating every quarter. We build -- I think our general policy is we prefer to pay a higher stated dividend rather use special dividends over time. And because of our previous mergers, it really helped our spillover income, meaning it mitigated it. So, we haven't had a -- we haven't been building material amounts of spillover income where we need to do a special.
Christopher Nolan: Thanks, Ted.
Ted Goldthorpe: Thank you.
Operator: Your next question comes from the line Ryan Lynch, your line is open.
Ryan Lynch: Hey, good morning and thanks for taking my questions. First one is just housekeeping question. When you guys say you, guys have a target luggage range of 1.25 to 1.4 times, is that a gross leverage range or is that a net range backing out cash?
Ted Goldthorpe: Yeah, we think of that as a net range, because we can always, particularly since we have the JPMorgan revolver, we can always use cash on our balance sheet to pay down that facility to extent we want, there's no prepayment penalties or anything like that. So, we would think of that as kind of a net range the 1.5 -- 1.25 to 1.4.
Ryan Lynch: Okay, got you. And you talked about the environment being slow in Q1 and then kind of picking up in the last few weeks and being more robust in the second quarter, which I think is a pretty common trend that we've had in the BDC sector this quarter. I'm curious, the environment is obviously changing pretty rapidly for the economic outlook and picture. There's obviously -- probably the biggest concern out there is inflation, whether that's labor inflation or input cost inflation, that's the key risk out there. So how are you guys looking at underwriting companies today, given that the economic environment is changing so rapidly and is so uncertain and those changes are occurring -- just really occurred recently it feels like. When you're underwriting a comp and you're probably looking at their financials from probably last year, maybe a couple of months this year, you don't really have updated stuff on how they're really navigating it. So has your investment process, philosophy, target strategy, change at all given this uncertain environment?
Ted Goldthorpe: Great question. So trailing earnings are very strong and so you haven't seen it in earnings yet. But I think we're pretty negative on the future. So, we don't see us go into recession anytime soon and again, like we get data from 600 of our portfolio companies and there's certain areas that are weak. So, like consumer discretionary is definitely slowing down. Like we're seeing the consume -- anything that the consumer has a choice to buy, where we're actually seeing slowdowns in those areas, we tend to be more B to B focused versus B to C and then you’re -- I mean the biggest issue we're seeing is supply chain and so inflation to date, people have been able to pass it on. Although companies are now making commentary that it's becoming harder to do that particularly in consumer discretionary. But we don't have a lot of exposure there, we are seeing weakness in industrial. So just costing people more money to make stuff, or they just can't make it fast enough. And so, we are seeing weakness generally speaking in certain discrete sectors. So, I think we're underwriting stuff, assuming we're going into recession, again, we're not macroeconomist, but again, we can only get payback at par. We can't do better than that. And so, we're being pretty conservative. So, you can see we're way below our target range for leverage. And we've invested some of the cash, but I think I'd be surprised if we're at the high end of our leverage range anytime soon.
Ryan Lynch: Okay. That makes sense. And then Ted Goldthorpe I'm going to ask you to get out your crystal ball on this next one. One of the things that we saw during those -- because you talked about rising interest rates, one of the things we saw during the last rate hike cycle was that there was a lot of spread compression. That LIBOR offset a large portion of the benefit from rising rates. It looks like this rate high cycle is going to be much different. 1, it's occurring way quicker. And then 2, there's much more of an uncertain economic environment that I think it's tied to. So, are you seeing any spread -- because as borrowers are looking at the forward LIBOR, they're getting the same thing you are? Have you started to see any pressure on spreads yet on new deals or heard about that in the market, or do you think they're going to hold up fine as rates continued to rise?
Ted Goldthorpe: Yeah, it's a great question. I mean, usually you have -- like into my career, you've had rising rates in response to strong economy. Now you're having rising rates due to inflation. So, you're right like -- the rates are going up for different reasons than we've had in the past, we have not seen spread compression at all in our general area and it feels like people are being more cautious, but that being said, there's less deals, right? So, I would say the competitive environment that we were hoping was going to -- the competitive environment is actually pretty robust right now, like we're losing a lot of deals and that's surprising given the volatility and quite frankly, the pond that we fish in tends to have people who have kind of just haven't been successful in the fundraising front. But deal flows picked up like dramatically. So, I'm sure you've heard that from other. So, our deal flow was down. Our traditional like sponsored deal flow was down dramatically in the first quarter. And it's picked up. It's normalized pretty aggressively over the last couple of weeks. So sorry, I was -- I'm giving you a long answer, but we don't see spread compression today. But if so, far it goes to 3.5%, which some people are predicting obviously spreads could come down.
Ryan Lynch: Just on that with the deal pipeline. Can you seen any change in purchase price multiples in the private markets yet obviously there's been a huge change in valuations in the public markets? Has that started to trickle down into the private markets I know that takes a while? That's not going to react as quickly as public markets. But have you seen purchase price multiples change at all or they pretty similar topic banner in 2021?
Ted Goldthorpe: I'd say I'll try give to answer that one is going back to your question earlier. We've actually tried to push on wider spreads on the people and have generally been on successful. I'd say and then in terms of purchase prices, generally, we've seen in the first quarter is if you've a great business, people just aren't putting them up for sale because they just don't think they're going to get maximum price and so we have not seen purchase prices come down. But the reason for that is counterintuitive it just because if you have a business that you want to sell today and you want top dollar, you're not going to put it up for sale of given everything that's happening. So, I think I wouldn't say purchase prices are coming down, but it's like artificial just because people aren't necessarily like listing great companies. So again, the quality not only is our deal brought down the first quarter, the quality of deals that we're seeing was down as well. We would turn out a lot of stuff over the last 3 months. Listen, over time, right over time as this continues to happen. Like what's happened in markets inevitably spreads will go wider. Documents will get better and purchase price will come down. Our market always lags, the general liquid markets for whatever reason. We're usually on a 3-month lag. It should be coming into our market at some point.
Ryan Lynch: That's a really interesting point. I would have thought the opposite that a little bit more of an uncertain economic environment, only the highest quality, and strong secular growing businesses would get down or come to market versus interesting.
Ted Goldthorpe: Not to belabor the point, but again, people are only coming to us for financing who need financing. So that'd be -- last year we were doing a lot of quick opportunistic refiles. You're not going to go out refinance your debt down unless you need to or unless there's a transaction or you're buying something or you're doing something. So that regular business has done a lot as well.
Ryan Lynch: Got it. And then just the last one that I had. Again, I just need a ballpark number. I'm just trying to get a sense of Portman Ridge where it said kind of an on the broader BC Partners platform. One of the new deals that you guys originated in the first quarter or you could even give you the last six or nine months of that's more reflective. How many of those deals that wanted the Portman Ridge were co-investments across the broader BC Partners platform and for those deals that were co-investments across the broader BC Partners platform. Like what percentage of the deal is Portman Ridge taking on the total deal sizes that stayed in your platform, just rough estimate, I'm just trying to get a sense here.
Patrick Schafer: Yeah. Good question, Ryan, this is Patrick so 2 different answers for -- I'll answer 2 different parts of question, which is unless there is a specifically legacy asset that we took over in Portman through different portfolio and therefore would not have the ability to co-invest across our platform for a lot of reasons. Every new deal that comes into Portman Ridge is being done as its co-investment across our other vehicles. Some have done onto the co-investment order in some have been done under mass mutual. But broadly speaking, unless it is an add on or some type of transaction from a legacy name that we took over. It's being done in connection with other BC funds
Ryan Lynch: Okay.
Patrick Schafer: I can give you the specific numbers, there's maybe a small handful of deals that if there's an upside to existing name or something like that, it'll be done only in Portman. But at a macro 95 plus percent of deals are being done across all of our significant amount of funds here at BC, so that's just Point 1. Point 2, is what percentage is Portman versus other funds. We don't necessarily look at it that way, we look at it more in the sense of our individual funds have a certain deal size that they try and target. So, for Portman, we try and have a -- run a very diversified fund, so they tend to be our top position size in Portman is something like $10 to $15 million in terms of our large position and that number might be different for other funds. So, depending on how much we get allocated, we try and -- the way our allocation work is we put in what kind of ROI, I'll call it max position size by individual fund is. And then they all just get allocated based on a percentage basis, what we ultimately received. If there happens to be a deal where a larger fund has a larger ticket size, Portman might get a smaller pro rata percentage but we always trying target Portman to be that $10 to $15 million ticket. And then it just gets allocated what it gets allocated once we get the amount. Again, that was a bit of a long-winded answer. But to say, yeah, we trying to target $10 to $15 million positions and if we aren't getting enough every fund could scale back in a pro rata manner.
Ryan Lynch: Got you. That's helpful, kind of context of where you guys stand and I got your allocation as well as it's also helped with basically every deal that you guys are going across the platform.
Patrick Schafer: The around number is symmetry, like 15%, 25% of a deal depending on the specific deal. So, the answer is a significant amount is across the platform and not just Portman.
Ryan Lynch: Got you. Well, I appreciate the time today and thank you for taking my questions.
Patrick Schafer: Thanks, Ryan.
Operator: Again, everyone Our next question comes from the line of David Miyazaki. Your line is open.
Unidentified Analyst: Hi, good morning
Ted Goldthorpe: Good morning, Dave.
Unidentified Analyst: I think you guys are in an interesting position to comment about some middle market loans, because in a lot ways, but what you're doing is cleaning up some of the underwriting histories of other teams and so one of the other things that I think about, or I worry about is rates going hires that for BDCs that have floating rate asset portfolios it puts anything Ted, you said a tailwind in your earnings, but it also would create a higher interest burden for a lot of the borrowers. So, when you look at the portfolio and I'm sure you consider this in your new originations. But how do you feel about the legacy exposure to higher rates as we're moving above the floors.
Ted Goldthorpe: Yes. So, there's an interesting -- I had the same view as you, but I actually went through a whole portfolio. If you actually look at the high yield index, which is not a great proxy for middle-market, but interest coverage today is at all-time highs. And leverage is actually -- most companies, including the middle market, have been deleveraging and usually that doesn't happen. So, despite the fact that rates are going up, even if you shock rates across our portfolio, we don't expect to have a material impact on credit today. Now again, if rates go really high and other things happen. I think the thing we're more worried about is the other stuff. So, things like supply chain, things like at what point will people push back against price increases. I think we're worried about more like some of the other risks versus interest coverage. So, we've done it for our portfolio and it doesn't have a -- you need any shock interest rates in a vacuum it doesn't necessarily lead to a deterioration in credit quality or material deterioration.
Unidentified Analyst: Okay. That's good to hear. And regarding that supply chain comment, it doesn't sound like it's starting to get better at all or if it is, it's only happening a small amount or it start getting worse I suppose. All the companies are telling us, 2,3,4 quarters ago that they thought it was temporary and they thought it'll be cleaned up by now. And they are not saying that today. I would say people are not -- people are not indicating is getting worse, but I don't think we have a lot of our company's is getting better. And when I say, I mean in a very discreet sectors, obviously our media exposure and healthcare exposure and other areas, software not affected by this, but for companies that do have supply chain issues, it doesn't sound it's getting better. That being said there's more shipping capacity, there's more factory capacity. A lot of our companies just couldn't get slots to make stuff and now they can. So, I think some of this -- I think some of the just like the economy slowing down a little bit is helping us supply chain and kind of a perverse way. And then obviously the other thing we're focused on is input pricing. So obviously oil, retail gasoline today is at an all-time high so they are not all-time highs, but near term . So, we're -- we've gone through a whole portfolio again, given where we focus, we don't think that will have a huge impact, but that's the other area we're focused on. Okay. Great. You've mentioned Grupo HIMA. Now sort of in the past recognizing that was something that you inherited, but that one alone is all over the place and the BDC world. Do you have any thoughts going through that process and looking to see what happened and what we're follow? Do you then get lessons learned from the industry?
Patrick Schafer: Yeah.
Ted Goldthorpe: How much time do we have?
Patrick Schafer: I think that Chris was in . It's driven by massive macro factors, which is the population of Puerto Rico is declining. And particularly for a hospital chain like the very good doctors in Puerto Rico are also leaving Puerto Rico. The combination of maybe this is grouping specific but they didn't really have -- unlike the kind of U.S. system more sort of doctors owned or have some percentage of the practice and our earnings some variable rate, if you will. They needed to pay doctors a fixed flat rate to keep them in the hospitals and so you had just massive margin pressure over time as you had slight declines in volume and operations and things like that. So, I'm not sure there's like huge industry-wide takeaway lessons other than be aware of very large macro trends that aren't working in your favor, such as demographics in Puerto Rico. But I'm not sure there are specific like takeaway lessons in terms of how various BDCs or people in our space sort of, I think played that one if you will.
Ted Goldthorpe: Yes I think the other lesson learned is, in my 25-years of doing this, when a hospital chain begins to struggle, it's -- I'm not sure I've ever seen the ability for them to successfully turn it around like -- and I've just seen it many times where if this specific industry begins to struggle, it's very, very, very hard to turn this around because you can't cut costs because it's labor and your revenues, it's hard to drive incremental revenue, right because you can't increase prices. It's a tough business. Once begins to struggle to pull the plane out of its tail spin.
Patrick Schafer: And then again, these guys. We're on the verge of turning around many times. When COVID happened and then it was hard to get. They make their money on optional surgeries and there's a lot of intervening factors that were related to the pandemic.
Unidentified Analyst: Great. Thank you. That's very helpful. Sorry to take up so much time, but I was curious when you talked about how the first quarter that some of the geopolitical issues and the volatility in the markets had really caused a slowdown in volume and then more recently, there was a take-up. So, through that short cycle you've been through, do you get the sense that the slowdown and the pickup is being driven more from sponsor apprehension and then engagement again? Or is it more from the lending side?
Ted Goldthorpe: A couple of comments everyone points to the Russian invasion as causing the weakness. But the actually look at the data and you actually look at the stats, there's a lot of weakness before that. And so, there's already -- coming out of the balloon on some of these valuations. I think what's happening is generally speaking, private equity is almost a victim of it's on success. Private equity funds have raised bigger and bigger funds faster and faster and faster, and performance has been very solid. The flip side is people are now getting their first-quarter numbers, endowments, foundations, and others. And treasuries are down, investment goes down, high yields are down, equities are down. So generally speaking, there is a big push by investors to private equity firms to get money back, to get what's called DPI. So, there's a lot of pressure on our clients to try and find some realizations or find ways to get cash back to LPs. Because generally speaking, and this is a broad macro comment. Generally speaking, people are over allocated to private equity vis -a - vis their top-down asset allocation frameworks. So, I think in a perfect world, I think some private equity firms would hold on to assets longer. But there is pressure coming from the LP community to return money.
Unidentified Analyst: That's very interesting. And so, some of the deal volume, when you see something getting shopped is the biggest is time to realize and then create liquidity so that the LP have that at their convenience. Satisfying?
Ted Goldthorpe: Yeah, I think the LP community is saying if you guys want to raise a new fund, you got to return some money back on your old fund first. So, people think there's this general view that private equity firms can just raise whatever LP capital they want. And I'm not sure that is actually the case. And just because there -- because there has been -- because realizations have slowed down, I think it's going to impact fundraising or they have to get realizations up. So, I think that's driving some of the pickup in activity.
Unidentified Analyst: Great. Thank you very much. That's a great overview of a lot of different topics. Appreciate your time.
Ted Goldthorpe: Yes, thank you.
Operator: Next question comes from the line of Steven Martin. Your line is open.
Steven Martin: Hi, guys can you hear me?
Ted Goldthorpe: Yes. Hey Steve. How are you?
Steven Martin: Good so a couple of questions on net leverage you admittedly or at the low end of the net leverage range ratio slightly less than one and your target much higher. And I know you said you were intending to run at the lower end. But is one really where you're intending to run or is it somewhere between one and one-and-a-quarter?
Ted Goldthorpe: No, I'd say it's certainly more in the one-and-a-quarter range.
Steven Martin: Okay. It's a very short answer.
Ted Goldthorpe: Again, we made some commentary to those, but we came into this quarter expecting to do a bunch of deals. And just given what's going on in the worlds, we've -- we pulled back a little bit. If you look at our balance sheet, we have excess cash, but we have deployed some of that cash subsequent to quarter-end.
Steven Martin: Okay. And given what you know --
Ted Goldthorpe: Point in time, if you did our leverage today it'll be higher.
Steven Martin: Okay. Given what you know about the second quarter already, where would you expect leverage ratio to be at the end of the second quarter?
Ted Goldthorpe: I think we've mentioned, we've deployed about $35 million subsequent to quarter-end and probably have another $20 million, $30 million so like very round numbers, I think you probably expect to see our cash balance again where we sit today, with our pipeline probably more in the $30 million range, something like that, that would be a drop of $50 million of cash. Obviously, that can fluctuate, but very round numbers, that's what we're thinking right now.
Steven Martin: Okay in the past, you've addressed some of the acquired portfolios and you have the slide in your presentation and obviously OHI and we sort of long, there's not much left. Can you talk about the gars in the HCAP and some of the other stuff you've acquired in the interim?
Ted Goldthorpe: Yeah. Well, yes, I mean, here's the quick answer is I think I think all the portfolios we bought are outperforming our underwriting case. And just given the speech yesterday, when we underwrite these portfolios, we only talk about we value them for things that could go bad. And thing we never take into account as things actually go well. And some of these portfolio companies. So, I think generally speaking all the portfolios we bought are marked or valued higher than what we paid for them. Each curve is going flat. Each curve is up a little bit, but it's around flat. So, I think from there we acquired the portfolios to where they are today. I think we've proven that we've been pretty good about underwriting the portfolio evaluations. Yes. I won't say there is anything materially different about any of the core and core portfolios in terms of evaluation. Generally speaking, they are a little a bit of a headwind from rate increases just in terms of valuations offset by company specific type items to the good or bad. But I wouldn't say there was a broad-brush X portfolio underperformed or Y portfolio massively outperformed.
Steven Martin: But given where you are in the evolution of those portfolios, are you just your sanguine with them where they are, are you act --
Ted Goldthorpe: Sorry, I didn't appreciate the question there. I'd say certainly for the OHI and Garrison portfolio, I think we're generally comfortable with where we are. The Garrison portfolio still has some liquid names in there that to the extent that we weren't as under invested as we are we would maybe look to monitors some of those and rotate from liquid to illiquid name. But obviously we don't really need to do that now, given where we are in cash, we're comfortable to names, but obviously we use that as a bit of additional leverage mechanism to extent that we need to for our regular way origination. And then on harvest portfolio, it's just a little bit more difficult to monetize those things. We're looking at them and there is maybe one chunky position in that portfolio, but the rest of them are all relatively small dollar positions. So, it's just tough to make a dent in that even if we're in a position still maybe $2 million bucks or a million bucks of a position but that doesn't really move the needle an aggregate. But we're obviously look at those like we do everything in our portfolio.
Jason Roos: And then thematically, we're very focused on reducing exposure to small EBITDA companies. We do have a couple of companies in the portfolio that we wouldn't have done if we underwrote them ourselves. And those are all the ones that we're trying to -- we're pretty aggressive about trying to get them to monetize.
Steven Martin: Okay. With respect to the share buyback, you adjusted the plan or initiated the plan at the end of the quarter and bought back a small amount of stock. Was the amount of stock you bought back a function of the time. And given your lower leverage and the discount to NAV what your thought on buyback and size?
Jason Roos: Sure. This is Jason. Yes, you're absolutely right. The dollar amount and the Sheridan's account that we've purchased in Q1 was a function of basically a blackout window that we were dealing with to issue the FK. And we had about what? Ten days of activity in Q1 that's reflected in the quarter results. We continue to do that at a clip at about the same pace every day as we've carried into Q2 here and continue -- don't anticipate changing that anytime soon.
Steven Martin: Okay. Thanks a lot, guys.
Ted Goldthorpe: Just from a cost of capital perspective, just makes sense for us to buy back our stock.
Steven Martin: Well, I've been on that page for a while and I'm glad you adjusted the plans so it allows you to be a little more aggressive in quiet periods and blackout period.
Ted Goldthorpe: Great.
Operator: There ain't no further questions. Let me turn the call over back to Mr. Ted Goldthorpe.
Ted Goldthorpe: Great well, thank you for joining us today. And we look forward to speaking you in early August when we'll be announcing our 2022 second quarter results. And I'd also like to just advise anybody to call any one of any members of management if you've any further questions or ideas. Thank you very much.
Operator: This concludes today's conference call. You may now disconnect.
