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, 2022

 

 

¨

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

 

 

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

 

LRFC

 

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 x

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 8, 2022 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, 2022 (unaudited) and December 31, 2021

3

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)

4

 

 

 

 

Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2022 and 2021 (unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)

6

 

 

 

 

Consolidated Schedules of Investments as of September 30, 2022 (unaudited) and December 31, 2021

7

 

 

 

 

Notes to Consolidated Financial Statements as of and for the period ended September 30, 2022 (unaudited)

13

 

 

 

Item 2.

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

31

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

 

 

 

Item 4.

Controls and Procedures

42

 

 

 

PART II.

OTHER INFORMATION

42

 

 

 

Item 1.

Legal Proceedings

42

 

 

 

Item 1A.

Risk Factors

42

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

 

 

 

Item 3.

Defaults Upon Senior Securities

42

 

 

 

Item 4.

Mine Safety Disclosures

42

 

 

 

Item 5.

Other Information

42

 

 

 

Item 6.

Exhibits

43

 

 

Signatures

44

 

 


 

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,

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Investments at fair value:

 

 

 

 

 

 

Non-control/non-affiliate investments (amortized cost of $172,131 and $131,829, respectively)

 

$

166,404

 

 

$

129,991

 

Affiliate investments (amortized cost of $30,612 and $49,803, respectively)

 

 

26,716

 

 

 

61,359

 

Control investments (amortized cost of $0 and $8,850, respectively)

 

 

 

 

 

6,839

 

Total investments at fair value (amortized cost of $202,743 and $190,482, respectively)

 

 

193,120

 

 

 

198,189

 

Cash and cash equivalents

 

 

11,263

 

 

 

39,056

 

Interest and dividend receivable

 

 

1,162

 

 

 

929

 

Prepaid expenses

 

 

2,908

 

 

 

3,358

 

Receivable for unsettled trades

 

 

 

 

 

685

 

Other assets

 

 

30

 

 

 

 

Total assets

 

$

208,483

 

 

$

242,217

 

LIABILITIES

 

 

 

 

 

 

2022 Notes (net of deferred financing costs of zero and $46, respectively)

 

$

 

 

$

22,787

 

2022 Convertible Notes (net of deferred financing costs of zero and $167, respectively)

 

 

 

 

 

51,921

 

2026 Notes (net of deferred financing costs and original issue discount of $1,509 and $1,552, respectively)

 

 

48,491

 

 

 

48,448

 

2032 Convertible Notes (net of deferred financing costs and original issue discount of $1,146 and zero, respectively)

 

 

13,854

 

 

 

 

KeyBank Credit Facility (net of deferred financing costs of $1,391 and $353, respectively)

 

 

44,385

 

 

 

(353

)

Management and incentive fees payable

 

 

927

 

 

 

1,065

 

Interest and financing fees payable

 

 

1,289

 

 

 

911

 

Payable for unsettled trades

 

 

381

 

 

 

9,265

 

Accounts payable and accrued expenses

 

 

980

 

 

 

1,144

 

Total liabilities

 

$

110,307

 

 

$

135,188

 

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

 

 

188,846

 

 

 

188,846

 

Total distributable loss

 

 

(90,697

)

 

 

(81,844

)

Total net assets

 

$

98,176

 

 

$

107,029

 

Total liabilities and net assets

 

$

208,483

 

 

$

242,217

 

Net asset value per share

 

$

36.21

 

 

$

39.48

 

 

 

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

INVESTMENT INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/non-affiliate investments

 

$

3,162

 

 

$

2,079

 

 

$

8,817

 

 

$

8,177

 

Affiliate investments

 

 

176

 

 

 

1,072

 

 

 

521

 

 

 

3,499

 

Control investments

 

 

35

 

 

 

97

 

 

 

228

 

 

 

293

 

Total interest and fee income

 

 

3,373

 

 

 

3,248

 

 

 

9,566

 

 

 

11,969

 

Payment-in-kind interest and dividend income:

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/non-affiliate investments

 

 

250

 

 

 

 

 

 

597

 

 

 

95

 

Affiliate investments

 

 

47

 

 

 

100

 

 

 

140

 

 

 

298

 

Total payment-in-kind interest and dividend income

 

 

297

 

 

 

100

 

 

 

737

 

 

 

393

 

Dividend income:

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/non-affiliate investments

 

 

 

 

 

 

 

 

 

 

 

560

 

Affiliate investments

 

 

 

 

 

24

 

 

 

 

 

 

179

 

Total dividend income

 

 

 

 

 

24

 

 

 

 

 

 

739

 

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/non-affiliate investments

 

 

78

 

 

 

 

 

 

86

 

 

 

174

 

Affiliate investments

 

 

 

 

 

 

 

 

 

 

 

67

 

Total other income

 

 

78

 

 

 

 

 

 

86

 

 

 

241

 

Total investment income

 

 

3,748

 

 

 

3,372

 

 

 

10,389

 

 

 

13,342

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Interest and financing expenses

 

 

1,558

 

 

 

2,296

 

 

 

5,877

 

 

 

8,061

 

Base management fee

 

 

927

 

 

 

1,111

 

 

 

2,928

 

 

 

3,781

 

Directors expense

 

 

135

 

 

 

103

 

 

 

358

 

 

 

309

 

Administrative service fees

 

 

175

 

 

 

200

 

 

 

426

 

 

 

900

 

General and administrative expenses

 

 

771

 

 

 

1,172

 

 

 

2,597

 

 

 

2,550

 

Total expenses

 

 

3,566

 

 

 

4,882

 

 

 

12,186

 

 

 

15,601

 

NET INVESTMENT INCOME (LOSS)

 

 

182

 

 

 

(1,510

)

 

 

(1,797

)

 

 

(2,259

)

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

 

 

 

 

 

 

 

 

 

 

 

 

Net realized (loss) gain on investments:

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/non-affiliate investments

 

 

23

 

 

 

7,425

 

 

 

15,489

 

 

 

(1,866

)

Affiliate investments

 

 

 

 

 

 

 

 

 

 

 

2,215

 

Control investments

 

 

(5,215

)

 

 

 

 

 

(5,215

)

 

 

 

Net realized (loss) gain on investments

 

 

(5,192

)

 

 

7,425

 

 

 

10,274

 

 

 

349

 

Net change in unrealized appreciation (depreciation) on investments:

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/non-affiliate investments

 

 

652

 

 

 

(6,169

)

 

 

(16,993

)

 

 

4,269

 

Affiliate investments

 

 

(3,825

)

 

 

(2,842

)

 

 

(2,348

)

 

 

1,190

 

Control investments

 

 

5,222

 

 

 

(390

)

 

 

2,011

 

 

 

(1,420

)

Net change in unrealized appreciation (depreciation) on investments

 

 

2,049

 

 

 

(9,401

)

 

 

(17,330

)

 

 

4,039

 

Total net realized and change in unrealized (loss) gain on investments

 

 

(3,143

)

 

 

(1,976

)

 

 

(7,056

)

 

 

4,388

 

Net realized loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

(815

)

NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

 

$

(2,961

)

 

$

(3,486

)

 

$

(8,853

)

 

$

1,314

 

NET (DECREASE) INCREASE IN NET ASSETS PER SHARE RESULTING
   FROM OPERATIONS – BASIC & DILUTED (SEE NOTE 10)

 

$

(1.09

)

 

$

(1.29

)

 

$

(3.27

)

 

$

0.48

 

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING
   – BASIC & DILUTED (SEE NOTE 10)

 

 

2,711,068

 

 

 

2,711,068

 

 

 

2,711,068

 

 

 

2,711,068

 

DISTRIBUTIONS PAID PER SHARE

 

$

 

 

$

 

 

$

 

 

$

 

 

 

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

 

 

Additional

 

 

Total

 

 

 

 

 

Number of

 

 

 

 

 

Paid in

 

 

Distributable

 

 

 

 

For the Three Months Ended September 30, 2022 and 2021

Shares

 

 

Par Value

 

 

Capital (1)

 

 

Loss

 

 

Total

 

BALANCE, June 30, 2022

 

2,711,068

 

 

$

27

 

 

$

188,846

 

 

$

(87,736

)

 

$

101,137

 

Net investment income

 

 

 

 

 

 

 

 

 

 

182

 

 

 

182

 

Net realized loss on investments

 

 

 

 

 

 

 

 

 

 

(5,192

)

 

 

(5,192

)

Net change in unrealized appreciation on investments

 

 

 

 

 

 

 

 

 

 

2,049

 

 

 

2,049

 

BALANCE, September 30, 2022

 

2,711,068

 

 

$

27

 

 

$

188,846

 

 

$

(90,697

)

 

$

98,176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

7,425

 

 

 

7,425

 

Net change in unrealized depreciation on investments

 

 

 

 

 

 

 

 

 

 

(9,401

)

 

 

(9,401

)

BALANCE, September 30, 2021

 

2,711,068

 

 

$

27

 

 

$

229,481

 

 

$

(119,247

)

 

$

110,261

 

 

 

Common Stock

 

 

Additional

 

 

Total

 

 

 

 

 

Number of

 

 

 

 

 

Paid in

 

 

Distributable

 

 

 

 

For the Nine Months Ended September 30, 2022 and 2021

Shares

 

 

Par Value

 

 

Capital (1)

 

 

Loss

 

 

Total

 

BALANCE, December 31, 2021

 

2,711,068

 

 

$

27

 

 

$

188,846

 

 

$

(81,844

)

 

$

107,029

 

Net investment loss

 

 

 

 

 

 

 

 

 

 

(1,797

)

 

 

(1,797

)

Net realized gain on investments

 

 

 

 

 

 

 

 

 

 

10,274

 

 

 

10,274

 

Net change in unrealized depreciation on investments

 

 

 

 

 

 

 

 

 

 

(17,330

)

 

 

(17,330

)

BALANCE, September 30, 2022

 

2,711,068

 

 

$

27

 

 

$

188,846

 

 

$

(90,697

)

 

$

98,176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 change in 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

 

 

 

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,

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net (decrease) increase in net assets resulting from operations

 

$

(8,853

)

 

$

1,314

 

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

 

 

 

 

 

 

Purchase of investments

 

 

(83,795

)

 

 

(43,275

)

Repayments and sales of investments

 

 

83,800

 

 

 

127,519

 

Net realized gain on investments

 

 

(10,274

)

 

 

(349

)

Net change in unrealized depreciation (appreciation) on investments

 

 

17,330

 

 

 

(4,039

)

Net realized loss on extinguishment of debt

 

 

 

 

 

815

 

Payment-in-kind interest and dividends

 

 

(737

)

 

 

(393

)

Accretion of original issue discount on investments

 

 

(1,255

)

 

 

(156

)

Amortization of deferred financing fees and original issue discount

 

 

729

 

 

 

1,059

 

Changes in assets and liabilities:

 

 

 

 

 

 

Interest and dividend receivable

 

 

(233

)

 

 

1,278

 

Prepaid expenses

 

 

450

 

 

 

(2,511

)

Receivable for unsettled trades

 

 

685

 

 

 

(3,101

)

Other assets

 

 

(30

)

 

 

(106

)

Management and incentive fees payable

 

 

(138

)

 

 

(2,661

)

Interest and financing fees payable

 

 

378

 

 

 

(920

)

Payable for unsettled trades

 

 

(8,884

)

 

 

 

Accounts payable and accrued expenses

 

 

(164

)

 

 

4,489

 

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

 

 

(10,991

)

 

 

78,963

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Repayment of SBA-guaranteed debentures

 

 

 

 

 

(91,000

)

Prepayment penalty on SBA-guaranteed debentures

 

 

 

 

 

(519

)

Proceeds from issuance of 2032 Convertible Notes

 

 

13,950

 

 

 

 

Repayment of 2022 Notes

 

 

(22,833

)

 

 

 

Repayment of 2022 Convertible Notes

 

 

(52,088

)

 

 

 

Borrowings under KeyBank Credit Facility

 

 

71,776

 

 

 

25,000

 

Repayments under KeyBank Credit Facility

 

 

(26,000

)

 

 

(25,000

)

Deferred financing fees paid

 

 

(1,607

)

 

 

 

NET CASH USED IN FINANCING ACTIVITIES

 

 

(16,802

)

 

 

(91,519

)

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(27,793

)

 

 

(12,556

)

CASH AND CASH EQUIVALENTS, beginning of period

 

 

39,056

 

 

 

49,942

 

CASH AND CASH EQUIVALENTS, end of period

 

$

11,263

 

 

$

37,386

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid for interest

 

$

4,401

 

 

$

7,621

 

 

See accompanying notes to consolidated financial statements.

6


 

Logan Ridge Finance Corporation

Consolidated Schedule of Investments

(in thousands, except for units/shares)

September 30, 2022

(unaudited)

 

Investment (1), (2), (3), (4), (5)

 

Industry

 

Interest Rate (+)

 

Reference Rate
and Spread (+)

 

Floor (+)

 

Maturity

 

Par/Shares (++)

 

 

Cost

 

 

Fair Value

 

 

Footnotes

Investments in Non-Control, Non-Affiliate Portfolio Companies - 169.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

First Lien/Senior Secured Debt - 115.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accordion Partners LLC

 

Industrials

 

9.80%

 

SOFR + 6.25%

 

0.75%

 

08/29/2029

 

$

4,565