Executive Summary / Key Takeaways

• Transformative Merger & Rebranding: Portman Ridge Finance Corporation's recent merger with Logan Ridge Finance Corporation, creating a combined entity with over $600 million in assets, marks a pivotal step towards achieving significant scale and operational efficiencies. The upcoming rebranding to BCP Investment Corporation underscores its strategic alignment with BC Partners and a renewed focus on industry leadership.
• Disciplined Middle-Market Focus: The company maintains a core strategy of investing in secured debt and equity of middle-market companies, prioritizing disciplined credit selection and prudent risk management. This approach aims to generate stable current income and capital appreciation, particularly in less competitive non-sponsor segments.
• Enhanced Financial Flexibility & Shareholder Returns: Strategic capital management, including the successful refinancing of debt facilities at lower spreads and a modified dividend policy featuring a stable base distribution of $0.47 per share plus performance-based supplementals, positions the company for improved financial health and consistent shareholder distributions.
• NAV Upside Potential: Despite recent NAV declines driven by realized and unrealized losses, the debt portfolio holds substantial embedded value. Management identifies a potential $24 million, or a 14.6% increase to NAV, assuming par recovery of non-accrual debt, with a natural rotation timeframe of 2.5 to 3 years.
• Cautious Outlook, Robust Pipeline: While management expresses a cautious macroeconomic outlook, planning for potential headwinds, a robust M&A and investment pipeline, coupled with an intent to be net deployers of capital and aggressive stock repurchasers, signals proactive strategies to drive future growth and value.

A New Era of Scale and Strategic Focus

Portman Ridge Finance Corporation, soon to be BCP Investment Corporation (NASDAQ: PTMN), stands at a pivotal juncture, having recently completed a transformative merger with Logan Ridge Finance Corporation. This strategic combination, which closed on July 15, 2025, has created a formidable entity boasting over $600 million in total assets as of July 11, 2025. This move is not merely an expansion but a fundamental re-alignment, designed to unlock significant operational efficiencies, enhance financial flexibility, and drive long-term shareholder value under the strengthened affiliation with BC Partners.

The company's core business as a Business Development Company (BDC) centers on originating, structuring, and investing in secured term loans, mezzanine debt, and equity co-investments within the privately-held middle market. This segment typically comprises companies with EBITDA ranging from $10 million to $50 million and/or total debt between $25 million and $150 million. The BDC industry itself is increasingly valuing scale, as larger platforms can achieve materially lower financing costs and spread administrative overheads more effectively, directly impacting the bottom line.

A key differentiator for Portman Ridge lies in its sophisticated investment platform and rigorous analytical capabilities, which serve as its "technology" in the financial services landscape. This platform, managed by Sierra Crest Investment Management LLC, an affiliate of BC Partners, underpins a disciplined investment strategy. It facilitates meticulous credit selection, prudent risk management, and efficient capital allocation. The team's expertise in sourcing, diligence, structuring, and ongoing monitoring of portfolio companies is crucial for generating current income and capital appreciation. This robust operational infrastructure, combined with co-investment exemptive relief, allows the company to participate in a broader range of deals and foster deeper relationships with private equity partners, providing a competitive edge in a nuanced market.

Strategic Evolution and Competitive Dynamics

Portman Ridge's journey has been one of continuous strategic evolution. From its origins as KCAP Financial, Inc., the company transitioned to external management by BC Partners in 2019, followed by a series of accretive acquisitions including OHA Investment Corporation, Garrison Capital Inc., and Harvest Capital Credit Corporation. These mergers were instrumental in building the foundation for the current scale, with management noting a "significant positive impact on earnings as a result of amortization of purchase discount." The recent Logan Ridge merger is the latest, and perhaps most impactful, step in this strategic trajectory.

In the competitive landscape, Portman Ridge operates alongside prominent BDCs such as Ares Capital Corporation (ARCC), Golub Capital BDC (GBDC), and Hercules Capital (HTGC). While ARCC, a larger player, boasts broader diversification and market penetration, Portman Ridge's strategy emphasizes targeted investments and deeper relationships through minority or control equity positions alongside private equity partners. This approach, particularly in less competitive non-sponsor segments, can yield better pricing and structure for deals, providing insulation from the "white hot" syndicated markets where deals are pricing with very tight spreads.

Compared to GBDC, which is known for its conservative, credit-focused strategy and operational efficiency, Portman Ridge offers broader sector coverage and greater flexibility in equity co-investments. This allows it to capitalize on emerging opportunities, such as those in the utilities sector driven by increasing power demands. While HTGC excels in tech-oriented, high-growth financing, Portman Ridge's diversified portfolio across traditional sectors like manufacturing and healthcare offers a different kind of stability, balancing growth potential with a focus on EBITDA-generating companies. The company's ability to engage in acquisitions complementary to its business further enhances its strategic adaptability.

Financial Performance and Portfolio Strength

Portman Ridge's financial performance in the second quarter of 2025 reflected both strategic adjustments and market dynamics. Net investment income (NII) for Q2 2025 was $4.6 million, or $0.50 per share, an increase from $4.3 million, or $0.47 per share, in the prior quarter. This improvement was primarily driven by the reversal of previously accrued but unpaid income from an investment in Sundance and a 20% quarter-over-quarter decline in PIK (Payment-in-Kind) income, indicating a normalization of non-cash income. Total investment income for the quarter stood at $12.63 million.

The company's debt securities portfolio, representing 81.8% of the total portfolio's fair value, maintained a weighted average annualized yield of approximately 10.7% as of June 30, 2025. A significant 86.9% of this portfolio is floating rate, predominantly linked to SOFR, with 86.5% of these loans incorporating interest rate floors, providing some protection in a declining rate environment.

Despite these positive income trends, the net asset value (NAV) experienced a decline, reaching $17.89 per share as of June 30, 2025, down from $18.85 per share in the prior quarter. This decrease was primarily attributable to $9.1 million in net realized and unrealized losses. However, management highlights a substantial embedded NAV upside, estimating a potential $24 million, or a 14.6% increase to NAV, assuming par recovery of the debt portfolio excluding non-accruals. With a natural maturity duration of 2.5 to 3 years, this suggests a tangible path to value realization.

Credit quality remains a key focus. As of June 30, 2025, six debt investments were on non-accrual status, representing 2.1% of the portfolio at fair value. For a subset of these, the company has prudently begun recognizing interest income on a cash basis. Management actively works with underperforming companies, aiming for restructuring or exiting positions, as evidenced by the successful resolution of acquired portfolios where 88% of investments were realized at 100% of fair value at the time of closing.

Capital Management and Future Outlook

Portman Ridge's capital structure is robust, with gross and net leverage ratios of 1.6x and 1.4x, respectively, as of June 30, 2025. Its asset coverage ratio of 165% remains well within the 150% minimum required for a BDC. The company has proactively optimized its debt capital structure, notably through the July 2024 amendment and extension of its JPMorgan Chase (JPM) Revolving Credit Facility, which increased commitments to $200 million and reduced the applicable margin to 2.50%. This facility was instrumental in refinancing the 2018-2 secured notes, yielding approximately 28 basis points in net spread savings.

The company's dividend policy has been recalibrated to a stable base distribution of $0.47 per share, designed for sustainability across market cycles, complemented by quarterly supplemental distributions of approximately 50% of net investment income exceeding the base. Management anticipates resuming supplemental payments in the near future, supported by strong spillover income.

Furthermore, management views the company's stock as undervalued and intends to "pretty aggressively buy back stock" when eligible later in 2025, seeing it as a compelling use of capital.

Looking ahead, management expresses a cautious macroeconomic outlook, "planning for the worst" amidst an "unpredictable macroeconomic environment" characterized by shifting trade dynamics, inflation, and evolving monetary policy. Despite this, a "robust pipeline" of investment opportunities, including a healthy mix of new LBO sale processes and refinancings, positions the company to be a net deployer of capital in the second half of 2025. The focus will remain on "defensively positioned opportunities" in sectors like healthcare and software, and incremental investments in existing portfolio companies for "stickier pricing."

Conclusion

Portman Ridge Finance Corporation is undergoing a significant transformation, strategically leveraging M&A to achieve greater scale and operational efficiency. The merger with Logan Ridge, coupled with the upcoming rebranding to BCP Investment Corporation, solidifies its position as a disciplined middle-market lender backed by the robust platform of BC Partners. While macroeconomic uncertainties persist, the company's proactive capital management, optimized debt structure, and a refined dividend policy underscore a commitment to shareholder value.

The inherent NAV upside within its debt portfolio, combined with a strategic focus on high-quality, defensively positioned investments and an intent to aggressively repurchase shares, presents a compelling investment thesis. As the company integrates its recent acquisitions and capitalizes on its enhanced scale and operational rigor, it is well-positioned to deliver compelling risk-adjusted returns and drive long-term value for its shareholders, even in a challenging market environment.