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DATE

Friday, May 8, 2026 at 10 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Ted Goldthorpe
  • Chief Financial Officer — Brandon Satoren
  • Chief Investment Officer — Patrick Schafer

TAKEAWAYS

  • Net Investment Income -- $6.9 million, or $0.55 per share, exceeding the base distribution, with share repurchase accretion of $0.07 per share.
  • Distribution -- Board declared a supplemental cash distribution of $0.03 per share and a third quarter base distribution of $0.27 per share, to be paid in monthly installments of $0.09.
  • Nonaccruals -- Declined to 6.2% of portfolio at amortized cost (from 7.1%) and to nine companies (from 10) quarter over quarter.
  • Net Asset Value (NAV) -- Ended at $193 million, down $16.2 million, or 7.7%, quarter over quarter; per share NAV dropped $1.08 to $15.60, or 6.5%.
  • Portfolio Markdowns -- Approximately 70% of unrealized markdowns were in software and software-exposed names, with 70% lacking any publicly quoted security, impacting all securities in the capital structure.
  • Debt Portfolio -- $371.8 million at fair value, 81.3% of which is first lien loans at par value; aggregate blended price at 90.3% of par.
  • Investment Activity -- Two new portfolio investments and one follow-on totaling $13.3 million in originations; $28.3 million in repayments and sales, resulting in net repayments of approximately $15 million.
  • Yield on New Investments -- 10.7% on par for the quarter, compared to an average 12.8% annualized yield (excluding nonaccruals and CLOs) at period end.
  • Leverage Ratios -- Quarter-end gross and net leverage at 1.8x and 1.5x, respectively, with management referencing a target net leverage range of 1.25x-1.4x.
  • Capital Structure Actions -- Issued $50 million of 7% notes due 2029 and used proceeds to redeem $40 million of 5.25% notes due 2026, lowering near-term refinancing risk and extending maturity profile.
  • Borrowing Costs and Capacity -- Ended the period with $342.2 million in borrowings at a 6.9% average interest rate, with $69.8 million in undrawn credit facility capacity subject to borrowing base limits.
  • Nonaccrual Portfolio Metrics -- Twelve investments on nonaccrual (nine companies), representing 2.6% and 60.2% of the portfolio at fair value and cost, respectively (compared to 13 investments, 10 companies, and 47.1% prior quarter).
  • Supplemental Distribution Structure -- Monthly dividend structure fully implemented, first paid in April, with flexibility to declare quarterly supplemental distributions as earnings permit.

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RISKS

  • Goldthorpe said, "The biggest problems we see are two things. One is access to credit—who is going to refinance all this? Most people have come out and are trying to reduce software exposure. Number two is no exits—it is going to be a very difficult exit environment for these companies, and so it is probably going to reduce the velocity of our book in that sector."
  • Satoren noted that NAV decline was "primarily driven by unrealized depreciation on the portfolio," with mark-to-market volatility impacting valuations rather than clear underlying credit deterioration.

SUMMARY

Management enacted capital structure changes by issuing $50 million in 7% notes due 2029 and redeeming $40 million of near-term debt, enhancing financial flexibility and reducing refinancing risk. Credit performance improved with a reduction in nonaccruals, yet NAV per share declined materially, largely attributed to unrealized markdowns in software and AI-exposed investments. New capital deployment was limited, and repayments outweighed originations, reflecting a continued selective investment approach amidst active M&A conditions. Spread widening of approximately 50 basis points was reported in middle-market private credit, widening the opportunity set.

  • Schafer outlined, "Assuming par recovery, our 03/31/2026 fair values imply approximately $40.1 million of incremental NAV value, or a 20.8% increase to NAV," highlighting upside potential if asset prices recover.
  • Nonaccrual fair value exposure remains contained at 2.6%, suggesting underlying credit stability despite sector volatility.
  • Rising leverages were indicated as temporary, with full refinancing expected to normalize balance sheet structure by Q2 as repayments proceed.
  • Goldthorpe directly stated, "we are seeing spreads wider in middle market credit. We have probably had about 50 basis points of spread widening," reflecting an environment that may support improved future returns.

INDUSTRY GLOSSARY

  • Nonaccrual: Loans or investments where interest is no longer being accrued due to the borrower's financial difficulty, often a leading indicator of credit stress.
  • First Lien Loan: Debt that holds first-priority claim on pledged collateral in the event of default.
  • Par Value: The face value of a security, used as the reference point for pricing and yield calculations on debt investments.

Full Conference Call Transcript

Ted Goldthorpe: Good morning. Welcome to our first quarter 2026 Earnings Call. I am joined today by our Chief Financial Officer, Brandon Satoren, and our Chief Investment Officer, Patrick Schafer. Following my opening remarks on the company's performance and activities during the first quarter, Patrick will provide commentary on our investment portfolio and our markets, and Brandon will discuss our operating results and financial condition in greater detail. 2025 was an important year of execution for us, and we entered 2026 on stronger footing.

The key strategic and shareholder-focused actions we outlined in connection with the Logan Ridge merger are now largely in place, including our rebranding, tender offer, share repurchase program, and transition to monthly dividends, while preserving flexibility for quarterly supplemental distributions. We also executed liability management actions that diversified our funding base and extended our maturity profile. Taken together, these actions have improved our financial flexibility, reduced near-term refinancing risk, and better positioned the company to support a more consistent shareholder return framework and long-term value creation. During the quarter, we continued to execute against our plan and delivered growth in both total investment income and core investment income relative to the prior quarter and 2025.

We generated net investment income of $6.9 million, or $0.55 per share, which exceeded our base distribution, and our share repurchase activity in 2026 was accretive to NAV by $0.07 per share. We also saw improvement in underlying credit performance with nonaccruals declining to 6.2% of the portfolio at amortized cost from 7.1% in the prior quarter, and the number of portfolio companies on nonaccrual declining to nine from 10. Reflecting that earnings profile, our Board declared a supplemental cash distribution of $0.03 per share for the second quarter, bringing total second quarter distributions to $0.30 per share.

In addition, our Board approved a third quarter 2026 base distribution of $0.27 per share payable in monthly installments of $0.09 per share in July, August, and September. With our monthly dividend structure now in place, and the first monthly distribution paid in April, we believe this framework provides shareholders with a more regular cadence of cash distributions while maintaining flexibility to declare supplemental distributions when supported by earnings. We also continued to enhance our capital structure through proactive liability management. During the first quarter, we issued $50 million of 7% notes due 2029, and in April, used a portion of the proceeds to redeem $40 million of the LRFC 5.25% notes due 2026.

These actions further diversified our funding base, extended our maturity profile, and enhanced our financial flexibility. Turning to net asset value, net asset value declined during the quarter, driven primarily by unrealized markdowns on our portfolio. Approximately 40% of the quarter's unrealized markdowns were attributable to investments classified as software in our consolidated schedule of investments, and approximately 70% when including software- or AI-exposed names. Furthermore, 70% of these markdowns are from portfolio investments without at least one publicly quoted security, which negatively impacted the valuation of all securities in the capital structure. We believe the majority of these markdowns reflect sector-specific valuation pressure and broader mid-market dislocation rather than fundamental credit deterioration.

Importantly, underlying credit performance remained relatively stable as most of our software exposure is in mission-critical, vertically specialized businesses that we believe are well positioned to weather the current AI-driven uncertainty. Despite continued macroeconomic uncertainty and volatility in portions of the software market, we remain disciplined in our deployment across the lower middle market, prioritizing credit quality, strong documentation, and downside protection. We continue to see more attractive opportunities in smaller and more complex transactions. Structure and selectivity are critical, and we are actively managing and repositioning the portfolio in response to evolving market conditions. Competition remains more pronounced in larger and more commoditized transactions, which reinforces our focus on selectivity over volume.

As we look ahead, we remain focused on active portfolio management, disciplined underwriting, and prudent capital allocation with the goal of driving long-term value for shareholders. As noted last quarter, we have begun to see increased M&A activity and expect to capitalize on opportunities in our pipeline throughout the remainder of 2026. 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. Before getting into the specifics of the quarter, I would like to make a few comments on our core market as a whole. Deal activity has remained fairly active and orderly over the course of 2026, despite public headlines around private credit, software, and AI. Excluding the software sector, the M&A markets and private credit markets remain wide open for business, and we continue to see attractive opportunities in both our sponsor and non-sponsor segments. With respect to software, we do continue to see certain high-quality software businesses being acquired and financed with minor lender concessions relative to 2025 transactions.

Regardless of industry, we continue to focus on our core markets of $15 million to $50 million of EBITDA in industries or business models where we have an edge, and ideally non-sponsored or non-traditionally sponsored transactions where competition is lower and we have the ability to drive pricing and structure. During 2026, our investment activity remained measured and selective. We completed two new portfolio investments and one follow-on investment during the period. At the same time, we experienced a higher level of repayments and sales, which we believe is consistent with a more active realization environment and the increased M&A activity that Ted and I mentioned earlier.

As a result, originations for the quarter were $13.3 million and repayments and sales were $28.3 million, resulting in net repayments and sales of approximately $15 million. Turning to Slide 11 of our presentation, the overall yield on par of new investments during the quarter was 10.7%. This compares to 12.8% weighted average annualized yield excluding income from nonaccruals and collateralized loan obligations as of 03/31/2026. Given the limited number of transactions completed during the quarter, we view the yield on new investments in the context of the specific mix of deals executed rather than as a broader indicator of the opportunity set. Our focus remains on credit quality, structure, and overall risk-adjusted return.

Our investment portfolio as of 03/31/2026 remained highly diversified. We ended the quarter with a debt investment portfolio, excluding our investments in CLO funds, equities, and joint ventures, spread across 72 different portfolio companies and 33 different industries, with an average par balance of $3.3 million per investment. Turning to Slide 11, we saw improvement in our nonaccrual profile during the quarter, reflecting improved underlying credit performance. At the end of the quarter, we had 12 investments on nonaccrual status attributable to nine portfolio companies, representing 2.6% and 60.2% of the portfolio at fair value and cost, respectively.

This compares to 13 investments attributable to 10 portfolio companies on nonaccrual status as of 12/31/2025, representing 47.1% of the portfolio at fair value and cost, respectively. On Slide 12, excluding our nonaccrual investments, we had an aggregate debt investment portfolio of $371.8 million at fair value, representing a blended price of 90.3% of par value, and 81.3% of that portfolio was comprised of first lien loans at par value. Assuming par recovery, our 03/31/2026 fair values imply approximately $40.1 million of incremental NAV value, or a 20.8% increase to NAV. Applying an illustrative 10% default rate and 70% recovery rate, the debt portfolio would imply approximately $2.24 per share of NAV, or a 14.4% increase as it rotates.

I will now turn the call over to Brandon to further discuss our financial results for the period.

Brandon Satoren: Thanks, Patrick. For the quarter ended 03/31/2026, the company generated $17.6 million in investment income, an increase of $100 thousand as compared to $17.5 million reported for the quarter ended 12/31/2025. For the same period, expenses were $10.7 million, a $600 thousand increase as compared to $10.1 million reported for the prior quarter. The increase in expenses was primarily due to the increase in incentive fees driven by higher investment income in the current quarter as well as elevated general and administrative expenses. Accordingly, our net investment income for 2026 was $6.9 million, or $0.55 per share, which constitutes a decrease of $500 thousand, or $0.02 per share, from $7.4 million, or $0.57 per share, reported for the prior quarter.

Core net investment income for the first quarter was $4.1 million, or $0.33 per share, compared to $4.1 million, or $0.32 per share, for 2025. As of 03/31/2026, our net asset value, or NAV, totaled $193 million, a decrease of $16.2 million, or 7.7%, from the prior quarter NAV of $209.2 million. On a per share basis, NAV was $15.60 as of 03/31/2026, representing a $1.08 decrease, or 6.5%, as compared to the prior quarter's NAV per share of $16.68. As Ted noted, the decline in NAV during the quarter was primarily driven by unrealized depreciation on the portfolio.

While those markdowns were meaningful, they were largely concentrated in the software and software-exposed portfolio and were driven by broader, indiscriminate market volatility in the sector. Management does not believe the majority of these markdowns reflect deterioration in underlying credit performance or fundamentals of such companies. As of 03/31/2026, our gross and net leverage ratios were 1.8x and 1.5x, respectively, compared to 1.5x and 1.4x in the prior quarter. The quarter-over-quarter increase primarily reflected the timing of our March issuance of $50 million of 7.5% notes due 2029 ahead of the April 27 partial redemption of the LRFC 2026 notes for $40 million, which temporarily elevated quarter-end borrowings.

Excluding the $40 million of 2026 notes we called in March and repaid in April, our gross and net leverage ratios were 1.6x and 1.5x, respectively. Importantly, this financing transaction largely de-risked our remaining 2026 maturities, further staggered our maturity ladder, diversified our funding base, and provided additional financial flexibility. Specifically, we ended the quarter with $342.2 million of borrowings outstanding at a weighted average interest rate of 6.9%, excluding the April $40 million partial redemption of the LRFC 2026 notes, compared to $312 million of borrowings outstanding at a weighted average contractual interest rate of 6.7% in the prior quarter.

We also finished the quarter with $69.8 million of available borrowing capacity under our senior secured revolving credit facilities, subject to borrowing base restrictions. With that, I will turn the call back over to Ted. Ahead of questions, I would like to reemphasize our commitment to our shareholders. Our focus remains on active portfolio management, disciplined underwriting, and diligent capital management, with the goal of delivering sustainable, long-term value creation for our shareholders. Thank you once again to all of our shareholders, employees, and partners for your ongoing support. This concludes our prepared remarks, and I will turn the call over for any questions.

Operator: Thank you. And if you would like to withdraw your question, press 1 again. Your first question comes from the line of Erik Zwick with Lucid Capital Markets. Please go ahead.

Analyst: Thank you. Good morning. I wanted to start with a question on the unrealized depreciation. You mentioned if you include software-exposed, about 70% of the unrealized depreciation was driven by software and software-exposed. Could you talk a little bit more in-depth about which particular inputs to your valuation models drove the valuation change? And if you look at what public equity markets have done in April and early May, we have seen a rebound there. If things stay that way, could we potentially see a little bit of unwinding of that depreciation that you experienced in 1Q?

Patrick Schafer: Yeah. Hey, Erik. Can you hear us? Okay, sorry, we are having some issues with our phone here. I can take your question a couple different steps. As an example, one of the names within that unrealized is a healthcare data analytics business. It is a third-party valuation that is done on it, but one of the inputs, because we own some amount of the overall exposure that we have in the company, is an equity security. The third-party valuation firm looked at comps in the space, and the comp set they use is healthcare IT-type comparables.

Between December 31 and March 31, the multiples for that sector and the multiples for the comp set declined, and the multiple compressed by, I want to say, about three-quarters of a turn. That drove some of the unrealized. To your point, assuming some of that rebounds or rebounds by the time we get to 06/30, you would expect some of that to return. I would say the biggest impact broadly within both software and software-exposed is where there is a public security in the capital structure.

We either own a first lien that is quoted and so we mark to market, and the DSL market has been very challenged for software in the quarter through March, and a lot of that movement is price on that security. Another example would be if we have a second lien nonquoted security or a private security, if there is a first lien in the capital structure that is also quoted, generally speaking our valuation firms use a relative value approach when valuing the rest of the capital structure.

So the markdown in the first lien, even though it is a quoted mark, also has an impact and pushes out our discount rate applied to other securities in the capital structure.

Analyst: Great, that is helpful. Thanks, Patrick. And then you noted a couple of the funding changes you made with some of the redemptions and the new issues. Could you refresh me on your targeted leverage range at this point, and if there are any other levers you have to pull to reach that target if you are not there today?

Patrick Schafer: Our target range remains 1.25x to 1.4x leverage on a net basis. We are at the high end of that, but as you saw in Q1, there is still a pretty ordinary-course M&A environment. We would expect to have a little bit of natural delevering as a couple of deals that we know are in the process of being refinanced out close, and we are comfortable getting taken out of those names and do not want to continue on with those portfolio companies as that naturally rotates in Q2. We do not think there are any real levers we need to pull on the liability side; it is just going to be natural portfolio rotation.

Brandon Satoren: That is right. And, Erik, it obviously spiked a little bit at quarter end as a result of the broader market volatility and some of the unrealized depreciation that we had to take because of the software.

Analyst: Yes, understood. Last one, I think it was Ted in your comments, you mentioned some optimism around the pipeline as you look at it today. Could you talk a little bit on two points: what you are seeing in terms of spreads today for new opportunities relative to the existing portfolio yield, and from an industry and sector perspective, if there are any particular areas of opportunity that you feel are more attractive today?

Ted Goldthorpe: Good question. I would say on the sector-specific side, we are as a firm very focused on sector specialization, but I would not say there is any broad theme. The market has definitely slowed the last couple of weeks given some of the volatility, and we are seeing spreads wider in middle market credit. We have probably had about 50 basis points of spread widening. That is not what you are seeing in the liquid markets; it is the opposite, with the high yield market tighter today than where it was pre-Iran. I think the bar for new investments has gone up in private credit, and people are thinking about capital optimization.

We are optimistic that spreads will either go wider or stay relatively where they are.

Analyst: Thanks for taking my questions today.

Ted Goldthorpe: Thanks.

Operator: Your next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Analyst: Hey, guys. On the software exposure, that is the BDC's second largest industry exposure, and I note that fair value is now 75% of cost for that sector, versus 82% last quarter. If you are using outside valuation firms for this, does this simply reflect M&A events happening in software where people are just trying to run for the exits on M&A?

Ted Goldthorpe: The way I would describe the software situation is there is a huge dichotomy for where private credit players are valued versus where private equity is valued. If you look at where private equity is carrying certain of these assets, it implies a very low—speaking purely valuation-wise—it shows a very big buffer in terms of downside protection. I would probably estimate a lot of valuations will have to come down. The reason you are seeing a dichotomy across private credit players and software and valuations is what Patrick mentioned earlier.

The liquid markets have been very punitive on software, and a lot of it has to do with risk around LME and things that do not really impact, that do not come into play, in a private credit situation. We had certain securities that are illiquid that we originated, but they happen to have a security in the capital structure that is liquid. When that happens, you see a huge dichotomy in valuations between capital structures that are 100% private versus those that have a little bit of liquid securities in them. Fundamentally, our software portfolio is performing very well—revenues are up and generating cash. I am not saying there are not going to be issues.

The biggest problems we see are two things. One is access to credit—who is going to refinance all this? Most people have come out and are trying to reduce software exposure. Number two is no exits—it is going to be a very difficult exit environment for these companies, and so it is probably going to reduce the velocity of our book in that sector. I just do not see a big wave of software sales over the next 12 months.

Analyst: If this is a potential—and I highlight potential—stress point in private credit, what does that mean for the private equity sector in general? Because if private credit gets a cold, private equity is getting pneumonia.

Ted Goldthorpe: Yeah.

Analyst: Alright. Catch up with you later. Thanks.

Ted Goldthorpe: Thanks, Chris.

Operator: There are no further questions at this time. I will now turn the call back over to Ted Goldthorpe for any closing comments.

Ted Goldthorpe: Thank you all for attending our call. As always, please feel free to reach out to us with any questions, which we are happy to discuss. We look forward to speaking to you again in August when we announce our second quarter 2026 results. Thank you so much, and have a great weekend.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.