10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2021

 

 

¨

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission
File Number

 

Exact name of registrant as specified in its charter,
address of principal executive office, telephone number, and
state or other jurisdiction of incorporation or organization

 

I.R.S. Employer
Identification Number

814-01022

 

Logan Ridge

Finance Corporation

650 Madison Avenue, 23rd Floor

New York, New York 10022

State of Incorporation: Maryland

Telephone: (212) 891-2880

 

90-0945675

 

Capitala Finance Corp.

4201 Congress St., Suite 360, Charlotte, North Carolina 28209

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading symbol(s)

 

Name of Each Exchange on Which
Registered

Common Stock, par value $0.01 per share

5.75% Convertible Notes due 2022

6.00% Notes due 2022

 

LRFC

CPTAG

CPTAL

 

NASDAQ Global Select Market

NASDAQ Capital Market

NASDAQ Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

 

 

Yes x

No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

 

 

Yes ¨

No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer

¨

Accelerated filer

¨

 

 

 

 

 

 

Non-accelerated filer

x

Smaller reporting company

¨

 

 

 

 

 

 

 

 

Emerging growth company

¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

 

Yes ¨

No x

 

The number of shares of Logan Ridge Finance Corporation’s common stock, $0.01 par value, outstanding as of November 10, 2021 was 2,711,068.

 

 


 

TABLE OF CONTENTS

 

 

 

Page

PART I.

FINANCIAL INFORMATION

3

 

 

 

Item 1.

Consolidated Financial Statements

3

 

 

 

 

Consolidated Statements of Assets and Liabilities as of September 30, 2021 (unaudited) and December 31, 2020

3

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited)

4

 

 

 

 

Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2021 and 2020 (unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)

6

 

 

 

 

Consolidated Schedules of Investments as of September 30, 2021 (unaudited) and December 31, 2020

7

 

 

 

 

Notes to Consolidated Financial Statements as of and for the period ended September 30, 2021 (unaudited)

17

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

43

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

60

 

 

 

Item 4.

Controls and Procedures

61

 

 

 

PART II.

OTHER INFORMATION

61

 

 

 

Item 1.

Legal Proceedings

61

 

 

 

Item 1A.

Risk Factors

61

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

 

 

 

Item 3.

Defaults Upon Senior Securities

62

 

 

 

Item 4.

Mine Safety Disclosures

62

 

 

 

Item 5.

Other Information

62

 

 

 

Item 6.

Exhibits

64

 

 

Signatures

65

 


 

PART I. FINANCIAL INFORMATION

 

Logan Ridge Finance Corporation

 

Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share data)

 

 

 

As of

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

 (unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Investments at fair value:

 

 

 

 

 

 

Non-control/non-affiliate investments (amortized cost of $122,180 and $187,744, respectively)

 

$

111,553

 

 

$

172,848

 

Affiliate investments (amortized cost of $63,325 and $80,961, respectively)

 

 

76,979

 

 

 

93,425

 

Control investments (amortized cost of $8,801 and $8,947, respectively)

 

 

6,853

 

 

 

8,419

 

Total investments at fair value (amortized cost of $194,306 and $277,652, respectively)

 

 

195,385

 

 

 

274,692

 

Cash and cash equivalents

 

 

37,386

 

 

 

49,942

 

Interest and dividend receivable

 

 

1,008

 

 

 

2,286

 

Prepaid expenses

 

 

3,588

 

 

 

1,077

 

Receivable for unsettled trades

 

 

3,101

 

 

 

 

Other assets

 

 

106

 

 

 

 

Total assets

 

$

240,574

 

 

$

327,997

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

SBA-guaranteed debentures (net of deferred financing costs of $0 and $485, respectively)

 

$

 

 

$

90,515

 

2022 Notes (net of deferred financing costs of $407 and $846, respectively)

 

 

72,426

 

 

 

71,987

 

2022 Convertible Notes (net of deferred financing costs of $265 and $552, respectively)

 

 

51,823

 

 

 

51,536

 

KeyBank Credit Facility (net of deferred financing costs of $402 and $546, respectively)

 

 

(402

)

 

 

(546

)

Management and incentive fees payable

 

 

1,181

 

 

 

3,842

 

Interest and financing fees payable

 

 

768

 

 

 

1,688

 

Accounts payable and accrued expenses

 

 

4,517

 

 

 

28

 

Total liabilities

 

$

130,313

 

 

$

219,050

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

 

Common stock, par value $0.01, 100,000,000 common shares authorized, 2,711,068 and 2,711,068 common shares issued and outstanding, respectively

 

$

27

 

 

$

27

 

Additional paid in capital

 

 

229,481

 

 

 

229,481

 

Total distributable loss

 

 

(119,247

)

 

 

(120,561

)

Total net assets

 

$

110,261

 

 

$

108,947

 

Total liabilities and net assets

 

$

240,574

 

 

$

327,997

 

 

 

 

 

 

 

 

Net asset value per share

 

$

40.67

 

 

$

40.19

 

 

See accompanying notes to consolidated financial statements

3


 

Logan Ridge Finance Corporation

 

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

 

 

For the Three Months Ended
September 30,

 

 

For the Nine Months Ended
September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

INVESTMENT INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fee income:

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/non-affiliate investments

 

$

2,078

 

 

$

4,407

 

 

$

8,349

 

 

$

13,807

 

Affiliate investments

 

 

1,072

 

 

 

1,721

 

 

 

3,565

 

 

 

5,032

 

Control investments

 

 

98

 

 

 

103

 

 

 

293

 

 

 

309

 

Total interest and fee income

 

 

3,248

 

 

 

6,231

 

 

 

12,207

 

 

 

19,148

 

Payment-in-kind interest and dividend income:

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/non-affiliate investments

 

 

 

 

 

220

 

 

 

95

 

 

 

934

 

Affiliate investments

 

 

100

 

 

 

242

 

 

 

298

 

 

 

610

 

Total payment-in-kind interest and dividend income

 

 

100

 

 

 

462

 

 

 

393

 

 

 

1,544

 

Dividend income:

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/non-affiliate investments

 

 

 

 

 

 

 

 

560

 

 

 

 

Affiliate investments

 

 

24

 

 

 

 

 

 

179

 

 

 

25

 

Total dividend income

 

 

24

 

 

 

 

 

 

739

 

 

 

25

 

Interest income from cash and cash equivalents

 

 

1

 

 

 

1

 

 

 

3

 

 

 

50

 

Total investment income

 

 

3,373

 

 

 

6,694

 

 

 

13,342

 

 

 

20,767

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Interest and financing expenses

 

 

2,296

 

 

 

3,423

 

 

 

8,061

 

 

 

12,134

 

Base management fee

 

 

1,111

 

 

 

1,565

 

 

 

3,781

 

 

 

4,988

 

Administrative service fees

 

 

200

 

 

 

350

 

 

 

900

 

 

 

1,050

 

General and administrative expenses

 

 

1,276

 

 

 

614

 

 

 

2,859

 

 

 

2,475

 

Total expenses

 

 

4,883

 

 

 

5,952

 

 

 

15,601

 

 

 

20,647

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT (LOSS) INCOME

 

 

(1,510

)

 

 

742

 

 

 

(2,259

)

 

 

120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REALIZED AND UNREALIZED LOSS (GAIN) ON INVESTMENTS

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gain (loss) on investments:

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/non-affiliate investments

 

 

7,426

 

 

 

(12,344

)

 

 

(1,866

)

 

 

(25,518

)

Affiliate investments

 

 

 

 

 

 

 

 

2,215

 

 

 

1,341

 

Control investments

 

 

 

 

 

 

 

 

 

 

 

(484

)

Net realized gain (loss) on investments

 

 

7,426

 

 

 

(12,344

)

 

 

349

 

 

 

(24,661

)

Net unrealized (depreciation) appreciation investments:

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/non-affiliate investments

 

 

(6,150

)

 

 

15,218

 

 

 

4,269

 

 

 

3,686

 

Affiliate investments

 

 

(2,861

)

 

 

(156

)

 

 

1,190

 

 

 

(14,887

)

Control investments

 

 

(391

)

 

 

(260

)

 

 

(1,420

)

 

 

(398

)

Net unrealized (depreciation) appreciation on investments

 

 

(9,402

)

 

 

14,802

 

 

 

4,039

 

 

 

(11,599

)

Total net realized and unrealized (loss) gain on investments

 

 

(1,976

)

 

 

2,458

 

 

 

4,388

 

 

 

(36,260

)

Net realized gain (loss) on extinguishment of debt

 

 

 

 

 

155

 

 

 

(815

)

 

 

155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

 

$

(3,486

)

 

$

3,355

 

 

$

1,314

 

 

$

(35,985

)

 

 

 

 

 

 

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED (1)

 

$

(1.29

)

 

$

1.24

 

 

$

0.48

 

 

$

(13.29

)

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING – BASIC AND DILUTED (1)

 

 

2,711,068

 

 

 

2,711,068

 

 

 

2,711,068

 

 

 

2,708,532

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISTRIBUTIONS PAID PER SHARE (2)

 

$

 

 

$

 

 

$

 

 

$

1.50

 

 

(1)
Basic and diluted shares of Logan Ridge Finance Corporation's (the "Company") common stock have been adjusted for the three and nine months ended September 30, 2020 to reflect the one-for-six reverse stock split effected on August 21, 2020 on a retroactive basis, as described in Note 1.
(2)
Dividends paid per share of the Company's common stock have been adjusted for the three and nine months ended September 30, 2020 to reflect the one-for-six reverse stock split effected on August 21, 2020 on a retroactive basis, as described in Note 1.

 

See accompanying notes to consolidated financial statements.

4


 

Logan Ridge Finance Corporation

 

Consolidated Statements of Changes in Net Assets

(in thousands, except share data)

(unaudited)

 

 

 

Common Stock (1)

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 2021 and 2020

 

Number of Shares

 

 

 Par Value

 

 

Additional Paid in Capital (1)

 

 

Total Distributable Loss

 

 

Total

 

BALANCE, June 30, 2021

 

 

2,711,068

 

 

$

27

 

 

$

229,481

 

 

$

(115,761

)

 

$

113,747

 

Net investment loss

 

 

 

 

 

 

 

 

 

 

 

(1,510

)

 

 

(1,510

)

Net realized gain on investments

 

 

 

 

 

 

 

 

 

 

 

7,426

 

 

 

7,426

 

Net unrealized depreciation on investments

 

 

 

 

 

 

 

 

 

 

 

(9,402

)

 

 

(9,402

)

BALANCE, September 30, 2021

 

 

2,711,068

 

 

$

27

 

 

$

229,481

 

 

$

(119,247

)

 

$

110,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, June 30, 2020

 

 

2,711,081

 

 

$

27

 

 

$

238,355

 

 

$

(133,328

)

 

$

105,054

 

Net investment income

 

 

 

 

 

 

 

 

 

 

 

742

 

 

 

742

 

Net realized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(12,344

)

 

 

(12,344

)

Net unrealized appreciation on investments

 

 

 

 

 

 

 

 

 

 

 

14,802

 

 

 

14,802

 

Net realized gain on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

155

 

 

 

155

 

Fractional shares settled in cash as part of one-for-six reverse stock split

 

 

(13

)

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, September 30, 2020

 

 

2,711,068

 

 

$

27

 

 

$

238,355

 

 

$

(129,973

)

 

$

108,409

 

 

 

 

Common Stock (1)

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2021 and 2020

 

Number of Shares

 

 

 Par Value

 

 

Additional Paid in Capital (1)

 

 

Total Distributable Loss

 

 

Total

 

BALANCE, December 31, 2020

 

 

2,711,068

 

 

$

27

 

 

$

229,481

 

 

$

(120,561

)

 

$

108,947

 

Net investment loss

 

 

 

 

 

 

 

 

 

 

 

(2,259

)

 

 

(2,259

)

Net realized gain on investments

 

 

 

 

 

 

 

 

 

 

 

349

 

 

 

349

 

Net unrealized appreciation on investments

 

 

 

 

 

 

 

 

 

 

 

4,039

 

 

 

4,039

 

Net realized loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

(815

)

 

 

(815

)

BALANCE, September 30, 2021

 

 

2,711,068

 

 

$

27

 

 

$

229,481

 

 

$

(119,247

)

 

$

110,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2019

 

 

2,700,628

 

 

$

27

 

 

$

238,021

 

 

$

(89,935

)

 

$

148,113

 

Net investment income

 

 

 

 

 

 

 

 

 

 

 

120

 

 

 

120

 

Net realized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(24,661

)

 

 

(24,661

)

Net unrealized depreciation on investments

 

 

 

 

 

 

 

 

 

 

 

(11,599

)

 

 

(11,599

)

Net realized gain on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

155

 

 

 

155

 

Fractional shares settled in cash as part of one-for-six reverse stock split

 

 

(13

)

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to Shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued under dividend reinvestment plan

 

 

10,453

 

 

 

 

 

 

334

 

 

 

 

 

 

334

 

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

(4,053

)

 

 

(4,053

)

BALANCE, September 30, 2020

 

 

2,711,068

 

 

$

27

 

 

$

238,355

 

 

$

(129,973

)

 

$

108,409

 

 

(1)
Shares of the Company's common stock have been adjusted for the three and nine months ended September 30, 2020 to reflect the one-for-six reverse stock split effected on August 21, 2020 on a retroactive basis, as described in Note 1.

 

See accompanying notes to consolidated financial statements.

 

5


 

 

Logan Ridge Finance Corporation

 

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

For the Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

 

$

1,314

 

 

$

(35,985

)

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities:

 

 

 

 

 

 

Purchase of investments

 

 

(43,275

)

 

 

(21,070

)

Repayments and sales of investments

 

 

127,519

 

 

 

69,157

 

Net realized (gain) loss on investments

 

 

(349

)

 

 

24,661

 

Net realized loss (gain) on extinguishment of debt

 

 

815

 

 

 

(155

)

Net unrealized (appreciation) depreciation on investments

 

 

(4,039

)

 

 

11,599

 

Payment-in-kind interest and dividends

 

 

(393

)

 

 

(1,544

)

Accretion of original issue discount on investments

 

 

(156

)

 

 

(520

)

Amortization of deferred financing fees

 

 

1,059

 

 

 

2,512

 

Changes in assets and liabilities:

 

 

 

 

 

 

Interest and dividend receivable

 

 

1,278

 

 

 

(427

)

Prepaid expenses

 

 

(2,511

)

 

 

154

 

Receivable for unsettled trades

 

 

(3,101

)

 

 

 

Other assets

 

 

(106

)

 

 

90

 

Management and incentive fees payable

 

 

(2,661

)

 

 

(111

)

Interest and financing fees payable

 

 

(920

)

 

 

(1,564

)

Accounts payable and accrued expenses

 

 

4,489

 

 

 

(518

)

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

78,963

 

 

 

46,279

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Paydowns on SBA-guaranteed debentures

 

 

(91,000

)

 

 

(59,000

)

Prepayment penalty on SBA- guaranteed debentures

 

 

(519

)

 

 

 

Repurchase of 2022 Notes

 

 

 

 

 

(1,980

)

Proceeds from KeyBank Credit Facility

 

 

25,000

 

 

 

 

Paydowns on KeyBank Credit Facility

 

 

(25,000

)

 

 

 

Distributions paid to shareholders

 

 

 

 

 

(3,719

)

Deferred financing fees paid

 

 

 

 

 

(214

)

NET CASH USED IN FINANCING ACTIVITIES

 

 

(91,519

)

 

 

(64,913

)

 

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(12,556

)

 

 

(18,634

)

CASH AND CASH EQUIVALENTS, beginning of period

 

 

49,942

 

 

 

62,321

 

CASH AND CASH EQUIVALENTS, end of period

 

$

37,386

 

 

$

43,687

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid for interest

 

$

7,621

 

 

$

10,964

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS

 

 

 

 

 

 

Distributions paid through dividend reinvestment plan share issuances

 

$

 

 

$

334

 

 

See accompanying notes to consolidated financial statements

6


 

Logan Ridge Finance Corporation

 

Consolidated Schedule of Investments

(in thousands, except for units/shares)

September 30, 2021

(unaudited)

 

Portfolio Company, Country (1), (2), (3), (4), (5)

Industry

 

Type of Investment

 

Acquisition Date

 

Principal Amount

 

 

Cost

 

 

Fair Value

 

 

% of
Net Assets

 

Non-control/non-affiliated investments - 101.0%

 

Non-control/non-affiliated investments - United States

 

Accordion Partners LLC

Industrials

 

First Lien Debt (6.5% Cash (3 month LIBOR + 5.5%), 1.0% Floor), Due 9/24/27)

 

9/24/2021

 

$

14,000

 

 

$

13,791

 

 

$

13,790

 

 

 

12.5

%

Accordion Partners LLC

Industrials

 

First Lien Debt (6.5% Cash (3 month LIBOR + 5.5%), 1.0% Floor), Due 9/24/27)(12)

 

9/24/2021

 

 

 

 

 

(30

)

 

 

(30

)

 

 

0.0

%

Accordion Partners LLC

Industrials

 

First Lien Debt (6.5% Cash (3 month LIBOR + 5.5%), 1.0% Floor), Due 9/30/26)(14)

 

9/24/2021

 

 

 

 

 

(75

)

 

 

(75

)

 

 

-0.1

%

 

 

 

 

 

 

 

 

 

 

 

13,686

 

 

 

13,685

 

 

 

12.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alternative Biomedical Solutions, LLC

Healthcare

 

First Lien Debt (8.0% Cash, Due 12/18/22)

 

6/25/2020

 

 

7,119

 

 

 

7,119

 

 

 

6,753

 

 

 

6.1

%

Alternative Biomedical Solutions, LLC

Healthcare

 

Series A Preferred Units (13,811 units)

 

6/25/2020

 

 

 

 

 

1,275

 

 

 

786

 

 

 

0.7

%

Alternative Biomedical Solutions, LLC

Healthcare

 

Series B Preferred Units (48,025 units)

 

6/25/2020

 

 

 

 

 

3,943