PNNT PennantPark Investment

Art Penn Chairman & Chief Executive Officer
Aviv Efrat Chief Financial Officer
Casey Alexander Compass Point
Robert Dodd Raymond James
Ryan Lynch KBW
Mickey Schleien Ladenburg
Kyle Joseph Jefferies
Melissa Wedel JPMorgan
Call transcript

Good afternoon and welcome to the PennantPark Investment Corporation's Second Fiscal Quarter 2021 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Art Penn, Chairman and Chief Executive Officer of PennantPark Investment Corporation. Mr. Penn, you may begin your conference.

Art Penn

Good morning, everyone. I would like to welcome you to PennantPark Investment Corporation's second fiscal quarter 2021 earnings conference call. I am joined today by Aviv Efrat, our Chief Financial Officer. Aviv, please start off by disclosing some general conference call information and include a discussion of our forward-looking statements.

Aviv Efrat

Thank you, Art. I would like to remind everyone that today's call is being recorded. Please note that this call is the property of PennantPark Investment Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using telephone numbers and PIN provided in our earnings press release as well as on our website. I would also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking information. Today's conference call may also include forward-looking statements and projections and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these projections. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at or call us at 212-905-1000. At this time, I would like to turn the call back to our Chairman and Chief Executive Officer, Art Penn.

Art Penn

Thank you, Aviv. I am going to spend a few minutes discussing how we fared in the quarter ended March 31, how the portfolio is positioned for the upcoming quarters, our capital structure and liquidity, the financials, and then open it up for Q&A.

We are pleased with our performance this past quarter, we achieved a 5.8% increase in adjusted NAV. Adjusted NAV went up $0.51 per share from $8.69 to $9.20 per share.

We are particularly pleased that our NAV today is up over 5% from what it was pre COVID December 31, 2019.

We have several portfolio companies in which our equity investments have materially appreciated in value as they're benefiting from the recovery. This is solidifying and bolstering our NAV, and we will highlight these companies in a few minutes.

As part of our business model, alongside the debt investments we make we selectively choose to co invest in the equity side by side with a financial sponsor.

Our returns on these equity investments have been excellent over time. Overall for our platform from inception through March, 31, our $226 million of equity investments have generated an IRR of 28% and a multiple on invested capital of 2.9 times. In a world where investors may want to understand differentiation among middle market lenders, our long term returns on our equity investment program are a clear differentiator. With regard to income generation, we have the opportunity to rotate out of our out of our equity investments over time and into yield instruments.

In addition, we have the ability to grow the P&L balance sheet, and that of our PSLF JV with Pantheon, which should also generate additional income for the company.

We are also pleased that in April, we diversified our financing sources with the issuance of $150 million or 4.5% five year senior notes to institutional investors.

Although we never predicted the global pandemic, as you know, we have been preparing for an eventual recession for some time. Prior to the COVID-19 crisis, we proactively positioned the portfolios defensively as possible. The overall portfolio is constructed to withstand market and economic volatility.

As of March 31st, average debt to EBITDA on the portfolio was 4.6 times and the average interest coverage ratio the amount by which cash income exceeds cash interest expense was 3.1 times.

We have no non-accruals on our book out of 93 different names in PNNT and PSLF.

We have largely avoided some of the sectors that have been hurt the most by the pandemic, such as retail restaurants, health clubs, apparel and airlines although PNNT does have exposure to oil and gas, which we'll discuss later. The portfolio is highly diversified with 83 companies in 29 different industries. Since inception, PNNT has invested $6 billion and an average yield of 12%. This compares to a loss ratio of about 19 basis points annually. The strong track record includes our linear energy investment Primarily subordinated debt investments made prior to the financial crisis and now the pandemic.

Our performance through the global financial crisis and recession was excellent.

During that recession, the weighted average EBITDA of the underlying portfolio companies declined by 7.2% at the bottom of the recession. This compares to the average EBITDA decline of the Bloomberg North American high yield index of 42%.

We are proud of this downside case track record in the prior recession based on tracking EBITDA or underlying companies through COVID.

So far, we believe that our EBITDA decline will be substantially less than it was during the global financial crisis. Many of our portfolio companies are in industries such as government services, defense, healthcare technology, software, business services, and select consumer companies that are less impacted by COVID and where we have meaningful domain expertise. We believe that we are experiencing a strong recovery with some companies and industries being beneficiaries of the environment.

We are pleased that we have significant equity investments in five of these companies, which can substantially move the needle of our NAV. I would like to highlight those five companies, they are Cano, Wheel Pros, Walker Edison, PT Network, and JF Petroleum. Cano health is a national leader in primary health care who is leading the way in transforming healthcare to provide high quality care at a reasonable cost to a large population.

Our equity position as a cost and fair market value on March 31, of $2.5 million and $73 million respectively. We believe that there's a massive market opportunity for Canada to grow in the years ahead with a Medicare Advantage program and merger with Jaws acquisition is scheduled to close in June. At that time, we will receive another $6.7 million in cash and 6,629,953 shares of Cano health and limited partnership controlled by a financial sponsor where the sponsor will earn 20% of the exit proceeds, the shares will be locked up for six months. From a valuation perspective due to the lockup, the independent valuation firm valued the position with a 6% illiquidity discount to traded value on March 31. Wheel Pros is the largest national distributor of aftermarket custom wheels.

Our equity position has a cost of 500,000 and a fair market value of $26.4 million as of March 31. At the end of March, the company announced a strategic transaction with the new sponsor investment vehicle, which will result in the full exit of our investment in Wheel Pros. The transaction is expected to close in the next couple of weeks. This will resolve in our equity investment in Wheel Pros, generating an IRR of 104% and a multiple on invested capital of seven times. Walker Edison is a leading e-commerce platform focused on selling furniture exclusively online through top ecommerce companies, our equity position as a cost of 1.9 million and a fair market value of $16.7 million as of March 31. Shortly after quarter and the company executed a refinancing and dividend recap, which resulted in shareholders receiving two times their costs while maintaining the same ownership in the company. This resulted in PNNT receiving a $3.8 million cash payment on his equity position. PT Network is the leading physical and occupational therapy provider in the Mid-Atlantic states.

Our equity investment in PT came through a restructuring which came about after the company made several operational mistakes. We've always had a positive view of the industry and the outlook to the industry tailwinds and demographics, which results in comparable companies trading at EBITDA multiples of 12 to 15 times. Under our ownership, we brought in an excellent management team who corrected those operational mistakes and has shepherded the company well through COVID.

Our equity position as a cost of $23 million, and the fair market value of $48 million as of March 31. Mid-ocean, JF Holdings or JF Petroleum is a leader in the distribution installation and servicing, a vehicle fueling and related equipment to retail fueling stations, retail fueling locations in the United States.

As a result of a restructuring several years ago, PNNT owns approximately 36% of the company's equity. After the restructuring, a new management team was recruited to stabilize the business and returned it to growth.

Additionally, several accretive acquisitions have been completed, and a stable long term senior financing package was put into place in 2019. The company performed well through COVID and is continuing to grow organically and through acquisitions.

As of March 31, PNNT owned equity securities, with a cost and fair market value of $40 million and $43 million, respectively. These companies are gaining financial moment in this environment, and our NAV should be solidified to bolster from these substantial equity investments as their momentum continues.

Additionally, we are pleased with a liquidity event that Wheel Pros and Walker Edison, which are a solid start to our equity rotation program. PNNT has among its lowest percentage of energy investments since 2013. Energy investments represent only 6.7% of the overall portfolio. RAM completed its last two wells in January. The results were strong and among the best in the Austin chalk [ph]. RAM is now on stable operational and financial footing and has benefited from higher prices and production. The company's free cash flow positive after debt service, and plans to use any cash flow to repay debt.

As of March 31, equity represented approximately 36% of the portfolio. Over 60% of this 36% has come from appreciation over the last 12 months driven by many of the companies previously mentioned.

Our long term goal continues to target that percentage down to about 10% of the portfolio.

As we monetize the equity portfolio, we're looking forward to investing the cash into yielding debt in investments to increase Net investment income. The outlook for new loans is attractive.

We are focused on the core middle market, which we generally defined as companies with between $10 million and $50 million of EBITDA. We like the core middle market because it is below the threshold and does not compete with a broadly syndicated loan or high yield markets.

As such, we do not compete with markets where leverage is higher equity cushion lower covenants are light wide or nonexistent. Information rights are fewer, EBITDA adjustments are higher and less diligence. And the timeframe for making an investment decision is compressed.

On the other hand, where we focus in the core middle market, because we're not competing with a broadly syndicated loan, or high yield markets, generally our capital is more important to the borrower.

As such, leverage is lower, equity cushion higher.

We have quarterly maintenance covenants, which are real, we receive monthly financial statements to be on top of these companies. If there are EBITDA adjustments, they are more diligence than achievable, and we typically have six to eight weeks to make thoughtful and careful investment decisions. According to S&P, loans to companies with less than $50 million of EBITDA have a lower default rate and higher recovery rate than those loans to companies with higher EBITDA.

We also believe that middle market lending is a vintage business. This upcoming vintage of loans is likely to be the most attractive we've seen since the 2009 to 2012 time period, which was the time period after the global financial crisis. This vintage is characterized by leverage levels that are lower, equity cushion is higher, yields are higher, and the packages of protections including covenants are tired. After during about five years of late cycle market for middle market lending, it's refreshing to have attractive risk reward available to us.

Let me now turn the call over to Aviv, our CFO to take us through the financial results.

Aviv Efrat

Thank you, Art.

For the quarter ended March 31 Net investment income totaled $0.13 per share.

Looking at some of the expense categories, base fees totaled $4.3 million taxes, general and administrative expenses totaled $1.3 million and interest expense total $5 million. Net unrealized gain on our investments was $33 million or $0.50 per share. Net unrealized depreciation on our core facilities was $0.06 per share. Net realized gains on investments were $0.01 per share.

Our Net investment income exceeded our dividend by $0.01 per share. Consequently, NAV per share went from $8.78 to $9.24 per share. Adjusted NAV, excluding their mark to market of our liabilities was $9.20 per share up 5.8% from a $8.69 per share.

As a reminder, our entire portfolio quite a facility and senior notes our mark to market by our board of directors each quarter using the exit price provided by independent valuation firms, security and exchanges or independent broker dealer quotes when active markets are available under ASC 820 and 825. In cases where broker dealer quotes are inactive, we use independent valuation firms do value the investments.

Our spillover is on September 30 was $0.33 per share.

Our GAAP debt to equity ratio, net of cash was 0.9 times. Regulatory debt to equity ratio net of cash which excludes FDIC that was 0.7 times. With regards to NAV, our GAAP NAV was $9.24 as of March 31, up approximately 5% from the prior quarter, which reflects both the markup of assets offset by the markup of certain liabilities.

Assuming liabilities were not marked to market adjusted NAV is $9.20 up approximately 5.8% from the prior quarter.

We have ample liquidity to fund revolver draws and we're in compliance with all of our facilities as of March 31.

We have readily available borrowing capacity and cash liquidity to support our commitments.

We have a strong capital structure with a diversified funding source and no near term maturities.

We have $435 million revolving credit facility maturing in 2024 with a syndicate of banks. $119 million of SBA debenture are maturing in 2026, $86 million of unsecured notes maturing in 2024 and the newly issued $150 million of unsecured notes maturing in 2026.

Our overall debt portfolio has a weighted average yield of 9.3%. On March 31, our portfolio consisted of 83 companies across 29 different industries, that portfolio was invested 38% in first lien senior secured debt 16% in second lien secured debt, 10% in subordinated debt, including 6% in PSLF, and 36% in preferred and common equity, including 3% in PSLF. 92% of their portfolio has a floating rate, all of which has a labor floor. The average labor floor is 1%.

We have concluded in consultation with our board to extend the incentive fee waiver through June 30 2021.

Now, let me turn the call back to Art.

Art Penn

Thanks, Aviv. To conclude we want to reiterate our mission.

Our goal to generate attractive risk adjusted returns through income coupled with long term preservation of capital. Everything we do is aligned to that goal. We try to find less risky middle market companies that have high free cash flow conversion, we capture that free cash flow primarily in debt instruments, we pay out those contractual cash flows in the form of dividends to our shareholders. In closing, I'd like to thank our extremely talented team of professionals for their commitment, and dedication. Thank you all for your time today and for your continued investment and confidence in us. That concludes our remarks. At this time, I would like to open up the call to questions.


[Operator Instructions] And we'll take our first question from Casey Alexander with Compass Point.

Casey Alexander

Hi, good afternoon. I want to first wanted to just make sure that I heard that correctly of the 36%. That's equity. Only 3% of that is represented by the JV and the other 33% is straight equity. Is that the right number?

Art Penn

Just take a look here. Maybe you may have it right in front of you.

Aviv Efrat

Yes, that that is the right number. About 3.4% is a PSLF. That is correct.

Casey Alexander

Okay, so is there I mean PSLF at 3% of the entire portfolio, is there room to grow that, you know, many BDC have JV that are twice that size in terms of their relative position in the portfolio? And could and is there any room to increase the dividends that come from the JV?

Art Penn

Yes, it's a good question. And we just to refer to the equity, we also have subordinated debt in PSLF too.

So, I'm going to say you know, our sub debt piece is roughly twice as big as our equity piece.

So call it Aviv 9%.

Aviv Efrat

Oh, yes. 6% or so.

Art Penn


So 9% in total, but yes, I mean, our goal is to, you know, fully extend the existing JV and we have a little bit of room to go there. And then you know, subject to pantheons approval of course, in partnership, we be totally open to expanding that JV optimizing it if you look at what's going on over PFLT.

Our sister company with camper. We've grown that JV, we're growing more, we've optimized the financing by doing a CLO transaction to get a higher ROI.

So, you know, we're not there quite yet, you know, pantheons, newer to the business. But that would be an aspirational goal, at least from PennantPark standpoint is to grow it and optimize it.

Casey Alexander

Okay. And then secondly, if you could just give us a flavor for how the outlook looks for originations over the next quarter to how your pipeline looks, how you would compare that pipeline to what your expected repayments are, and, you know, potential ability to grow the interest earning side of the portfolio?

Art Penn

We're busy.

Now busy is good. And also busy also sometimes means repayments.

So, you know, it's an active market, again, the market has fallen out, and it's kind of very, very active.

Now, we are getting some repayments, and we're also putting new money out. We've never had a real challenge, ramping our portfolio, subject to our quality control constraints, we obviously only want to do deals that were very comfortable.

So if you look at our history over 14 years, we've never had a problem originating assets that fit our box.

You know, the deals because they are more bespoke, they take time.

You know, they take a couple months to work and you're negotiating covenants and things like that. It's not like you're flipping a switch. But that said, we are active, we do hope and expect to grow both the JV PSLF as well as a P&L on balance sheet. And importantly, and we're starting to see the green shoots with Wheel Pros and Walker Edison, taking those equity proceeds and converting them to yield is obviously a key part of the strategy. And we're looking forward to doing that.

Casey Alexander

All right, great. I appreciate you taking my questions.


Our second question will come from Robert Dodd with Raymond James.

Robert Dodd

I got some semi housekeeping websites. On Walker Edison you mentioned that $3.8 million cash payment, what should we expect, say half of that to be recognized as dividends and maybe the other half to be returned to capital and take your cost basis down to zero or with the whole thing, the dividend?

Art Penn

It'll be based on what we could tell it'll be the first obviously the first part of its return on capital. And the second part of it looks like it's can be counted as a capital gain. Capital Gains will not be in good. It'll be a capital gain.

Robert Dodd

Then just on the debt side, I mean, obviously, the liability stack looks in good shape, would you? Is it currently anticipated that you'd call the $86 million when that becomes callable in October? Or are you going to let that stay?

Art Penn

The 86 million from?

Robert Dodd

The baby bond.

Art Penn

The baby bonds.

Okay, that's a good question.

I think we'll have to see what our cost of capital is then and, and do the math and the fees.

You know, obviously, we just did a deal that was much less expensive.

So yes, haven't made any any pre decisions, but that is certainly an opportunity.

Robert Dodd

Okay, great. Thank you. Then lastly, I mean, the long term goal, to get equity, obviously, non equity down to 10%. What's a realistic timeframe to achieve that goal? I mean, there's that three years out, is it going to take longer than and it's certainly not going to happen in 12 months? So I mean, three, five, shorter, maybe?

Art Penn

You're right. It's a great, it's an imponderable question, right. It's kind of guessing. Certainly not a year and, and hopefully not three years.

You know, you're right. I mean, I don't know if that's a tight enough band for you.

Some of these we control some of these we don't control we control RAM, to some extent, but we don't control where the oil and guess M&Amarket is, when the oil and gas M&Amarket starts to heat up.

We will meet in a hopefully more action RAM, we do control PT, pivot. And that that, you know, is more in our control in that market strong.

So that may be you know, sooner rather than later, does that mean 12 months or 18 months, it's kind of something in that zone. We don't control Cano. We don't control Walker Edison, etcetera.

So, you know Cano going through the dispatch process, hopefully in the next month or six weeks. We said well control it after it does the [indiscernible] back but at least it's more and more on its way to a liquidity event. That'll be a big milestone.

So yes, a year to three, year to three years just as a general you know, if you really want to say let's run the table, get it down to 10%.

I think that's probably right.

Robert Dodd

So, thank you.

So those were my question. and I really appreciate all the detail on the portfolio companies of that target market.

So thank you for that.


Our next question will come from Ryan Lynch with KBW.

Ryan Lynch

A Good afternoon, guys. Thanks for taking my questions.

First off, congrats on a really nice quarter. I just have one today. Can you talk about, has there been any so obviously, you guys historically making equity co investments has been a very successful part of your success story to generate some nice naps through this COVID downturn has been a part of your, your long term investment thesis of making some of these investments to offset some of the losses in your credit book and hopefully, generate some gains longer term. I'm just wondering now with such a large equity exposure and your desire to reduce that that position in your portfolio somewhat? Does that change the way you guys are working? When you guys are looking at new investments? Is that making you more hesitant to make equity call events? Is that adding more equity to your books? Or is that just as you know, keeping that investment philosophy unchanged as it's worked so well, for you in the past?

Art Penn

It's a good question. Most of these equity call investments are $1 million to $3 million bite, every once in a while, you know, we'll do one that's a $4 million bite.

So individually, they're not that big. And usually they're maybe 5%, or maybe 10% of the amount of debt that we're lending.

So as individual bytes, they're relatively small, they can have a nice asymmetric upside when they work, like some of the names we've talked about.

So I think we're going to continue to do that.

As long as we continue to make progress on exits, like Wheel Pro and like Walker Edison it's kind of just like a reloading, you know, we're reloading the next Walker Edison, we're reloading the next Wheel Pro. We're reloading the next Cano.

So, kind of Wheel Pro was a seven to one count has been whatever it's been ‘21, or whatever it is.

So I think it's important that we reload, actually, as we're exiting these bigger positions that have grown.

Ryan Lynch

Okay, that's it. That makes sense. That's all for me today. I appreciate time.


We'll take our next question from Mickey Schlein with Ladenburg.

Mickey Schlein

Yes, good morning Art and Aviv. Art I want to follow up on Ryan's question about portfolio strategy, given how strong the economy is, and how much support the federal government is providing to the economy. Are you more interested in investing in second lien and subordinated debt in this environment? You know, considering that administration for a while, and I imagine we can expect more support if needed? And if so, are the terms that you can get in those markets accepted to you on a risk adjusted basis?

Art Penn


So yes, great question Mickey. And we think about a lot of PNNT, utilizes and across the capital structure strategy, so what's our cross the capital structure strategy, it's exactly what it means. It means first lien some select second lien and mezzanine and equity column.

So we have done been doing a little second lien and as we will continue to do some of it, the bar is high.

You know, the economy and the tailwinds of the economy do are helpful fact. And where we can see quick the leveraging and de risking whether it be firstly and secondly, that certainly helps us get comfortable with the debt security and also making that equity co investment.

So Wheel Pro was a secondary deal.

You know, that wasn't that was a secondary deal. We did you know, a handful years ago we did a healthy co invest. And that's worked out. Well Walker Edison, on the other hand, was kind of a first lien where we stretch senior Cano was a first lien so it's been a mixture.

So but the point is, yes, we're open for business on the second lien mess side. I'm not saying it's a massive part of what we're doing because it's something where we've learned the hard way you need to be really, really careful. But the risk adjusted returns when you find the right ones like Wheel Pro where you can see a quick de leveraging and de risking can be very, very profitable.

So we will continue to be part of the mix.

Mickey Schlein

I appreciate that. And thanks for that Art.

You mentioned RAM a little bit in your comments, and I don't want to beat a dead horse. But, you know, the price of oil has remained in that sort of $60 plus level, which I think in the past, you've mentioned is where you expected M&Ain the oil patch to start to develop. Are you seeing any green shoots at all? Visa V, you know, that segment and outlook for RAM eventually be acquired by strategic buyer.

Art Penn

Yes, so a couple responses make the first in $60, the company's generating good cash flow and paying off debt, that's always helpful creates equity, if you create equity value when you pay off debt, and that's, that's certainly what's going on here.

So that's nice. With regard to M&A, you look, we seen green shoots or green shoots.

I think we're seeing the more green shoot as opposed to green shoots area, but inevitably and hopefully, as the market continues to be stable, you know, we'll see more shoots and therefore more M&A activity will come in, at some point, there'll be a robust market, hopefully, for RAM. In the meantime, hunker down, generating cash flow, paying off debt, the acreage of the RAM has now been proven out very nicely, it's often a matter of public information, it's on the RAM website.

So anybody who's looking for acreage, in productive acreage, in that Austin chalk area can see the numbers and they're very attractive, some of the best wells in that area.

So, we're doing everything we can, we can't control that environment, the ministry loan, we got really extends that option out nicely. Again, we want to sell and find the right buyer at the right price at the right time. But we do have a long tail option at this point, in the last 12 months have done a really good job extending that option. That said, I do also want to say that and I highlighted this with the lowest percentage of oil and guess in our portfolio in the last eight years. And we hope RAM does well. And we hope it we can get great value for RAM over time. But in the meantime, you know, we have some companies in industries that are kind of more of our forte, where we have domain expertise and healthcare and consumer and etcetera, where we see real secular growth and real nice tailwind.

So, whether RAM a year from now is out of our portfolio, still 6.7% of our portfolio, or a smaller percentage of our portfolio because the portfolio has grown and some of these other companies are growing, you know, time will tell, but we feel like we've got, we've got to manage as best we can at this point.

Mickey Schlein

As a follow up, given the uncertainty as to timing of a potential exit on RAM? Is there any room in their financials given the cash flow profile for them to eventually pay you a dividend?

Art Penn

As part of this good question, and we have thought about that you might imagine as part of the loan with the Fed Main Street program, which is a great loan, we are prohibited from paying dividends.

So at this point, so you know, look, let's see what happens.

Let's see, the company's results. Certainly, when we pay down debt, we by definition, increase equity value, and let's keep that option alive. And at this point, we think keeping the option alive as long as possible is probably the best thing to do of any option we have here.

Mickey Schlein

Understand, just a couple of housekeeping questions maybe for a Aviv. I apologize, but we're just swamped with earnings. Could you give me the main drivers of the unrealized gains this quarter and also the on distributed taxable income per share figure?

Aviv Efrat

If you want to go through the main drivers I know it's certainly the same names that Art has I mentioned before PT like positive $0.09 unrealized gain quarter over quarter, RAM energy, we just discussed about positive seven [ph] about positive $0.12 quarter over quarter. A bunch of wields pro positive, the larger movers quarter-to-quarter.

Mickey Schlein

And UTI per share?

Art Penn

I think we said it was $0.30.

Mickey Schlein



Sorry for that. I appreciate you taking my questions Art. That's it for me this morning.


We'll take our next question from Kyle Joseph with Jeffrey's.

Kyle Joseph

A good morning here, afternoon there. Thanks for taking my questions. Most of them asked and answered, but just wanted to follow up for kind of your sense of where you're thinking about portfolio yields, as we think about the market recovering rotation of equity assets, and then, the potential for higher repayments give us a sense for how you see yields trending throughout the remainder of the year?

Art Penn

Yes, that's a great question probably kind of relates to the earlier question about [indiscernible] second lien, right.

So prototypical first lien deals today are L525 to L650 prototypical second lien [ph] or L800 to L900.

All of these, I'm assuming are 1% floor.

So it's really a mixed question and how much secondly measures that we're going to see that we like, where stringent standards fit, I think last quarter, our yields on our new loans were a little higher, because we had a little slightly higher mix of secondary or mez.

This quarter, we didn't have quite as much, you know.

So that's kind of where we see the market today. It's still probably going to be mostly first lien probably still going to be most of what we're doing in terms of new but we will opportunistically and when the credits meet our threshold, do some secondly to mez.

Kyle Joseph

Got it, very helpful, Thanks for answering my question.


We'll take our next question from Melissa Waddell with JP Morgan.

Melissa Waddell

Morning, guys, thanks for taking my questions. And really appreciate all the detail on the equity positions, particularly around timing and the ones that you control versus the ones that you don't.

Specifically, I just want to make sure I heard you guys right. On keynote that's the only one I heard you guys talk about a lock up on in terms of Wheel Pros and Walker Edison. Those are things that are to queue events with that will be completed and done. No walk up that right.

Art Penn

Yes, so we'll probably we'll be out of entirely, you know, here in the next couple of weeks. Walker Edison, we've got two times our cost back already. And we still own the same percentage of the company that we owned prior.

So with Walker Edison have an event in the next year or two. We hope so we think so again, we're not in control of that, but company's doing amazingly well on by a sponsor.

So gravity should take hold and at some point, the sponsor should find a full exit. Cano is getting merged in with a spec.

So that's the one where you can look at a publicly traded stock price every day, it's Jaws acquisition JWS is the ticker. And, we are in a limited partnership controlled by a sponsor, that will end up owning a bunch of Jaw stock after the D spec.

So that's when you can look at every day. And the independent valuation firm took a 6% illiquidity discount from the publicly traded price. And then also, because we're locked up with a sponsor, there's a 20% exit, the sponsor getting 20% of the exit proceeds.

So that kind of works, its way down with the 6% discount with the 20% exit payment to the sponsor to the value you see. At 331 in the value you could ascertain today, if you want to it's a little bit less than what it was 331.

So, and then once that these back happens, there's a six month lockup now, because the sponsor, LPs, including us will own a majority of the company. It's not like you wave a magic one and you're totally liquid, you know, in six months in one day, it's something that like any sponsor deal that goes public, it's something that needs to happen over time, the liquidity events, it's got to be done judiciously. Certainly the company itself, you know, will probably want to raise equity for growth.

So it's kind of you probably think about it over a couple year time period.

Melissa Waddell

Alright, that's really helpful. Thanks so much.


And our final question today will be a follow up from Casey Alexander with Compass Point.

Casey Alexander

Yes, one of the things we always tried to track is industry concentration risk and looking at the portfolio. And looking at the 10-Q, I see 23% in health care, education and child care. Normally, that would be a number that would bother me, but I think that's such a broad category is probably capturing a lot of companies that that really aren't very comparable to each other. Does it make any sense to cut that into a couple of different baskets to better define it for investors.

Art Penn

It's a great idea.

You know, it is we do quite a bit in healthcare and healthcare itself has a number of different verticals. They're not all correlated. We've had the benefit of the Cano mark up. And yes, we do some education deals as well.

So that are not correlated to healthcare.

So I think it's a good suggestion. And maybe we'll start doing that or figure out some way to disclose that in a more granular basis. Good idea.

Casey Alexander

Okay. All right. Great. Thanks for taking my question.


And that will conclude today's question and answer session. I will now turn the call over to Mr. Art Penn for additional closing remarks.

Art Penn

Just want to thank everybody for being on the call today. I know it's a busy time in the BDC space.

So thank you for your attention and focus. We appreciate it. And we look forward to talking to you next in early August after next quarter. Thank you so much.


That will conclude today's conference. Thank you for your participation.

You may now disconnect.