PFX

PhenixFIN Corp. 10-Q Summary: Period Ended March 31, 2022

Business Context and Reporting Period

PhenixFIN Corporation (PFX) is an internally-managed, non-diversified closed-end management investment company regulated as a Business Development Company (BDC) under the Investment Company Act of 1940. The company transitioned to an internalized management structure effective January 1, 2021, eliminating external management fees. This report covers the quarterly period ended March 31, 2022, and the six-month period ended March 31, 2022.

Key Financial Metrics

Material Changes vs. Prior Period

• Investment Income Decline: Total investment income decreased significantly from $6.45 million in the prior year quarter to $3.66 million, primarily due to a drop in dividend income from $4.41 million to $0.91 million.
• Net Income Improvement (Six Months): Despite lower income, the net increase in net assets from operations for the six months ended March 31, 2022, was $7.78 million, compared to $1.35 million in the prior year period. This was driven by a $15.68 million net realized gain on investments in the current period versus a $46.55 million net realized loss in the prior year.
• Expense Reduction: Total expenses decreased to $2.51 million for the quarter (from $2.77 million) and $5.44 million for the six months (from $7.24 million). This reduction is largely attributed to the elimination of base management fees following the internalization of management in January 2021.
• Portfolio Composition: The portfolio fair value increased to $188.8 million from $151.6 million at the end of the prior fiscal year. Equity/Warrants now comprise 45.2% of the portfolio by fair value, up from 49.8% in the prior year, while Senior Secured First Lien Term Loans decreased to 47.5% from 40.9%.

Guidance, Outlook, and Risks

Management Commentary: The company continues to monetize positions and deploy capital. Since internalization, the company has monetized 20 positions totaling $126.4 million and deployed $155.5 million into 25 investments. The company maintains an active share repurchase program, having repurchased approximately 516,443 shares for $20.7 million through March 31, 2022, with approximately $4.3 million remaining authorized.

Risks and Contingencies:

• Credit Quality: As of March 31, 2022, investments in six portfolio companies were on non-accrual status with a combined fair value of approximately $12.8 million (6.8% of the portfolio).
• LIBOR Transition: The company faces risks associated with the phase-out of LIBOR, which may impact the pricing and valuation of floating-rate investments.
• Market Volatility: Ongoing economic uncertainty, including the impact of the Russia-Ukraine conflict and inflation, poses risks to portfolio company performance and asset valuations.
• Concentration Risk: The company has significant exposure to the Services: Business sector (22.9% of portfolio) and an asset-based lending business (13.4% of portfolio).

Investor Verification Checklist

• Non-Accrual Status: Verify the specific portfolio companies on non-accrual status and the likelihood of recovery given the $12.8 million exposure.
• Realized Gains Quality: Confirm the nature of the $15.7 million realized gains, noting they were driven by partial repayments and restructurings rather than outright sales.
• Share Repurchase Impact: Assess the remaining $4.3 million authorization under the repurchase program and its potential impact on NAV per share.
• Debt Maturity Profile: Review the maturity of the $22.5 million in 2023 Notes due March 2023 and the company's refinancing or repayment strategy.
• Unfunded Commitments: Note the $13.3 million in unfunded commitments to seven portfolio companies and the liquidity required to meet them.