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PFLT PennantPark Floating Rate Capital

Participants
Art Penn Chairman and CEO
Aviv Efrat CFO
Paul Johnson KBW
Call transcript
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Operator

Good morning and welcome to the PennantPark Floating Rate Capital's Third Fiscal Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be open for a question-and-answer session following the speakers' remarks. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Chief of and Capital. Floating Chairman Penn, Executive PennantPark Officer Rate Art Mr. you conference. begin Penn, your may

Art Penn

And morning, fiscal information conference you. by please PennantPark about conference Thank start good discussion I and Aviv Floating you to call. statements. disclosing Financial forward-looking Rate include to Efrat, welcome off our a Capital's Officer. joined by call third am quarter Chief earnings everyone. XXXX today I'd Aviv, like general some

Aviv Efrat

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

Art Penn

Thanks, Aviv.

staying with your we and First, work hope those family healthy. you are that you,

going of increase we and the the to continues during financials, goals XXth, discussing Despite accomplished and we for portfolio market report stabilized the key proposition challenging working quarter. is value brought few the by quarters, we are for open in the upcoming behalf economic committed and that to on We as NAV several stock, are structure operate spend June PennantPark diligently fared quarter remains I'm liquidity, We Q&A. the effectively capital minutes adjusted smoothly to our the ended then how pleased conditions that pleased to investors. a and pandemic, the this our a in quarter. the positioned on how X% achieved past the of up

of achieved challenges reducing and we process and the goals believe us disciplined that increasing to this rigorous positioned manage Additionally, environment. leverage of through our approach also underwriting successfully We has liquidity. our

and of market. have to We cycles best many professionals, economic of dedicated multiple experience type with possible excellent team help the in an this decades through outcome of talented managing ensure

crisis, we've we Although the pandemic, and as may it we COVID-XX to never for been eventual some know, preparing Prior proactively you portfolio defensively the has predicted that we've industry. as global recession by the proven time. for statistics in positioned among as the the lowest credit the inception, the that lending a industry, in Since possible. as risk had portfolio was strongest direct portfolio among

at the X.X stable to non-accruals X and interest income. was provides portfolio amount cash exceeds representing support the debt which our cash ratio, in interest the significant X.X% during average X.X% June a by most of total only to was PFLT on X.X coverage only times, average and market the XXth, direct statistics the PSSL, We are industry. investment to bringing conservative non-accruals among and the names XXX These value. lending cushion EBITDA had times. in of of As the new out portfolio the different at expense quarter, This cost income X

largely have to avoided health oil PFLT sectors such that apparel also been and and has club, of gas. XXX pandemic, the no industries. retail, is We airlines. most diversified have and The some as restaurants, hurt companies portfolio by XX the different with the exposure highly

billion and From an Our Since quality realized inception, to which to the include an XX of ratio of a excellent. years and annualized average prior has are track X.X%. inception since time. credit invested companies of This at loss only basis X who both, PFLT standpoint, one we over nine loss since basis is annualized been points during lenders inception that few only ago yield the If direct over only XX annually. business middle-market non-accruals. crisis experienced experience had financial unrealized losses, global was in have the invested XXX underwriting record we've Out has $X.X annually. realized ratio compares strong an we we in points of

not organization back was PennantPark million, as of was, in PFLT primarily onset mezzanine XXXX, initiated aggregated we Prior crisis in on and existence which debt. the primarily to the September again subordinated in of ultimately an was investments time that in subordinated financial and Although $XXX debt. at investing then, focused global

more portfolio primarily raising new our highly existing similar focused the even is then on now. bar playbook to and on becoming preserve playbook to investments. selective while the Our capital, We

by average EBITDA North High compares Yield Bloomberg weighted the recession, This at recession. EBITDA the of of of trough that decline Index those to the the down underlying American portfolio During X.X% the of average XX%. companies declined

were even recession. As made IRR and the a prior the result, to investments X%, of they underlying those was crisis financial though

this of subordinated record on debt. track primarily case downside proud are We

our equity ahead frequent outlook portfolio positioned. a coming and portfolio is communicating in been the the on to turn We've quarters with companies. let's teams sponsor and the our management of Now, basis owners how private

and the rapidly portfolio adjust clubs, historical and have We've we protected our worst our restaurants, the mentioned energy. airlines on economy, moved has shoring from pleased retail, investment of are to us apparel, the with the costs As areas previously, as companies focus some have focused ratified been up of such health liquidity. way

about meaningful Nevertheless, our to their contracting, interest uncertainty in portfolio majority by economy vast liquidity where the should suggests Looking September come beyond, impact due the have cyber quarter the less analysis which a they COVID. payments that today, such remains as portfolio. companies of comprise Many its be portion the the forward communications companies and collectively quarters. government to portfolio our businesses, stand things and defense impacted of pay the portfolio in sufficient substantial there and ended on coming security, and in are our our services, of as software XXth

negotiated, covenant critical is enhancing protect the borrowers. and of we've including support assist covenant capital protections credit strong to covenants see much Due Additionally, the portfolio. proactively both companies been no enable loans borrowers. These be in sooner positioned economics the to than to larger and challenges the be low our before with table to our at transactions, to to able protections and become are typical potential which we've structuring they covenant portfolio the of us quickly

more broader have there two. including enhanced or As stack we economics, a as may Inevitably, and including restructuring certain result, yield. fees increased be need well cases, from sponsors, as a amendment to equity a in increase of negotiated capital protections,

financials, time XX some and are value regard go in have in to detail. dealing situations. highlights our give in business, over proven Aviv summary With I'll and years As over these at more we adept we you over will with maximizing

was Our $X.XX per of NII dividend, share. as intend we share. At point spillover current this $X.XX was our maintain time, XXth September a per that the in to reminder

the We digesting made will continue earnings leverage relative to including and progress liquidity of as based past as coupons portfolio, amendments investments. We've stream certain increasing on fees on this our over time evaluate non-accruals, strength dividend the and well substantial quarter. increased the to

to debt to cash last while last ratio was from equity quarter. times, to regulatory X.X debt X.X X.X debt after X.X times And last times, debt subtracting from down net ratio X.X was GAAP X.X was was from quarter. down times, X.X subtracting cash down down equity times to last Our times, our X.X Regulatory equity net equity from ratio times GAAP quarter. quarter, times after

guided that us asset do asset liabilities time that our prefer the ensuing SEC many facilities for NAV we regulatory liabilities, marking of the Last we The decade which market, the and of we and we As the you better have asset reduces align in GFC, at know, was have many the volatility started such the to for market by of leverage they today. for credit calculated to cost market additional in This the our mark XXXX, test. at year, times not now volatility of of bonds in values. to response test. would and that purposes, coverage coverage as liability reduced our as benefit early to volatility, regulatory

material and of leverage assets As as both, when GAAP a $X.XX $XX.XX NAV, With GAAP as in times highlighting NAV result, the up is our be coverage from both, certain the we which XXth, leverage a mark-up prior regard was reflects asset difference. such and to June will of these liabilities. regulatory quarter, there

to NAV were equity targeting of $XX.XX, to prior debt X.X been leverage, been from have liabilities to we've Assuming X.X adjusted not would X% the ratio quarter. mark-to-market, regard up times. With

had sales, X.X primarily Our of range mark-to-market to liquidity ample coverage and our and pay-downs from cash fund due draws of comfortably past facilities was portfolio. net of increase all the times quarter. to ratio our June was compliance asset of were We This at selected regulatory of with asset our this XXth. within an revolver in in borrowers

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

to compliance credit with carefully to expect requirements We leverage under are and looking in covenants over we both, stay facilities. time, manage regulatory our our and

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

of We million XXXX, as a of banks facility revolving with $XXX syndicate maturing June in drawn XXth. have million credit with of $XXX XX

associated CLO due senior $XXX XXXX notes, in million PennantPark have million of We backed debt and with XXXX. unsecured of maturing asset $XXX I

accurately and value does We stock dialogue of the with With PFLT share our consistent in price thankful been our support. price, Company. their for lenders believe reflect of are long-term the to the that not we regard have

portfolio every the to the June multiple. flow. of if cash should price the own times if PFLT language of XXth defaulted this cash able of we value or Company attractive As multiple well stated portfolio the below Translating low a into every defaulted, flow, -- in appreciate X.X our flow in X times a earlier, potential the be was with cash average that declines to X stock debt EBITDA underlying investors, of of debt company times. NAV, a value Even at of would as even to recession at about today, companies investors shareholders

make also look review to new investments. selectively will and We to continue

market to lending returns. financings the seen covenant protections for it’s on leverage, continues Our reasonable vintage have likely we've is a attractive attractive defensive, that be higher, middle new XXXX five business. market is companies it's the market believe levels and to equity late attractive. We After is are to loans, risk outlook and be focus of and vintage that structures upcoming protections With The XXXX of since enjoying lower, packages to attractive Leverage time lending, yields the available higher, are to including for are reward about covenants period. a have us. are tighter. middle refreshing of years cycle most cushion

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

Aviv Efrat

Thank Art. you,

net the investment share. quarter was income XXth, per June For $X.XX ended

management of expense general taxes, about and totaled administrative Looking million, $X.X million. totaled interest fees million; about and categories, expense $X.X $X.X totaled at some expenses the around

$X.XX NAV investment was were was or $XX.XX went credit by than to During X% up income share, million dividend depreciation $XX.XX realized the NAV quarter the investment Consequently, on Net $XX.XX of Adjusted or from notes $X.XX lower $XX excluding about GAAP XXth, and per share. unrealized ended $X.XX liability share. per appreciation per $X.X was share. Net $X.XX losses was facility million mark-to-market June our on from per share. $XX.XX our share. unrealized and about per per net per Net share.

are the valuation broker Our available price independent under where are In investments. valuation firm, dealer XXX. broker facility our cases or the Directors active entire firms our when and ASC provided by by are notes independent XXX dealer exchanges quotes inactive, credit each mark-to-market exit portfolio, using markets we to value independent use and quarter quotes Board of the

diversified PSSL, in X% in XX% debt, highly XX across industries. and XX% remains debt in PSSL. secured invested lien companies in X% first in Our including senior portfolio different is lien X% equity including XXX second with

XX% The weighted nearly portfolio of rate, is is Our overall net the a XX% X.X%. floor portfolio has X%. of floating of portfolio yield average a has LIBOR average LIBOR the and floor.

call Now, let back me to turn Art. the

Art Penn

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

in thank professionals and stream, of us. try to dividends dividends conversion. I'd middle cash with is to remarks. high Thank up free and our find investment first today in is aligned free call less confidence like pay I would and those and stable and have We market We the their companies for for for Everything out time, form cash our our commitment in contractual open flows we instruments all the like this of talented your secured coupled lien goal to At In time a preservation primarily steady, protected That that Our the that risky closing, team that capital. cash to questions. shareholders. dedication. your concludes extremely do to to you of capture flow we goal. flow senior

Operator

with Johnson ahead, And [Operator KBW. take Instructions] will sir. from go Please you. our Thank first Paul question Mr. we

Paul Johnson

closer I dividend going the to sense to Board dividend? my to taking value mean, Thanks quarter. stable get so, wanted if morning. if see I if portfolio question the look environment back And be I at get for quarter, pathway and I believe there, Hey. a is the at ask, $X.XX about of coverage secondly of I for Good that's a X.X%. higher, want the maybe just this to I possibly for book point around -- to dropped the you just this the think this forward? how or earnings wanted dividend earnings morning, the this yield X.X% is kind evaluating sense guys. about today, you get to yield

Art Penn

five yield. That's Thanks, excellent over you been assets question. sheet storm. in and the an capital for balance question. preservation a as a terms robust to last can We've -- focused your weather Thank years of wanted for prioritizing Paul. We a that build of

this come We companies of a X points, was done due challenging XXX XXX LIBOR it’s have income good ago, But, quarter. almost that. do we've now about basis very has points. pretty non-accruals floors kind LIBOR on no come of have X% down LIBOR down long today, basis portfolio. quite after the entire has job been to dramatically. only XXX of LIBOR. think of I has The too And about kind at kind --

certainly has and the the that So, yield portfolio. impacted

kind addition, In brought in tune down bit preservation. capital tune we a with leverage in of obviously, little with have times and

brought we down a Over little bit. the last quarter, leverage our

impacted that have those earnings So, are the factors to date.

ahead, the to portfolio, that look higher have deals the deals the there portfolio higher new of are we're remain to we’re Certainly, where the have As be strength to we over amendments. yields and company. that evaluate we to some come Certainly, strong, of time going evaluate the are getting should going the in we we due earning yields. stream

no could kind up that real and LIBOR the So, said, stream. of help there's outlook income of should That going again.

substantial evaluate do all over a we're to spillover. We So, going of kind these time. things

couple of of the two, even quarters thee the portfolio, on quarters long call few road no the next one; earnings kind we decisions terms to have see there's the the in think term So, a number portfolio, go, yields in of going of number kind and a kind we're where quick as of stream. make I down terms

this the has and from preservation, asset we're But down. income NAV value capital of very I So, standpoint very, come robust. that is very think portfolio pleased the and

Paul Johnson

quarter. repayments about any do on million curious, the how of that. Thank repayments. repayments sales And $XXX sort I'm much just in was for versus that just for have of then Okay. you the of breakdown quarter, during you

Art Penn

top the I don't have off my of head. it

quarter bit came as the over-levered, was it It Thankfully, quarter fairly clearly the I we we on prices. able March were balance call. the get into delever conference last a sheet. mean, to to wanting of was said the after certainly sales. Some we nice some

new that in vintage. this repayments We seeing, we're it's will about even though kind the the thing. the very have return with kind to as about market risk-adjusted seeing into starting more come excited excited is and that repayments, are today. the days, repopulate a get portfolio see of natural the healthy we early portfolio, seen We're we're we're of which of vintage we And kind those

expect and over of sales There were a where get we de-risk had majority very to came last some quarter probably asset very time, nice can quarter we attractive we balance assets natural sheet, clearly the on slightly what of price those over-levered. because deleverage the we kind kind some of deleveraging. the and into were sales the repayments So, that asset or sales or

Paul Johnson

Okay. for quarter, you’re that. for expect to you mentioned still such granting times requests you those? and continue your Are you then, labors, curious, during Thanks I was And getting labors several I of just modifications know providing borrowers loans. the

Art Penn

Yes.

So, prepared and have gotten our certainly -- real very real comment this make and been remarks. industry, covenant. over the the the have most Unlike, against time focused look, that covenants we have competing covenant or course I syndicated in broadly in to of market, protection, people been wide we have light some tried that structural

time period there and quarter through are its slowed has for the amendments down. We a down. amendments or get at really and can of So, our some amendments and thing support capital, real. be we covenants preserve can us economics and process interesting kind and today, are get quickly, to then asks those where pace momentum some or But, and kind the few sponsor we still the slowed can we has of get yields. way fees from sure. good quite table the higher worked That saw some said, amendment of early They which in a here the April capital as of are pacing May,

has what's with with sponsors that's the by economy sure companies pay underlying -- interest the going and the there actions that going what's the or some been really to make and kind on on probably portfolio, and with strong where So principal. their they been in of been line

amendments. the for could it's kind or of be this interesting And So, slowed it portfolio way, some either there's down, still we incremental get credit do economics. by when support

Paul Johnson

last And was appreciate I on just Great. question that. JV. my

a didn't of quarter-over-quarter. Just commentary, close. in think the almost too bit performing, little on remark curious to JV equity investment a maybe I getting how flat was that's made I look you

JV helpful. are on So, sheet, not what's same that's how But, of if would on quarter-over-quarter [indiscernible] be I'm if balance sort the liabilities the as at play. familiar any marked commentary

Art Penn

Yes.

So, the of PFLT. JV is really a microcosm overall

NAV we had same non-accruals, amount, the in was non-accruals are the non-accruals, similar up about couple X%; So, JV.

similar, So, of we’ve PFLT. PFLT, deleveraged pretty a image Like mirror that vehicle.

the So, a little are NAV well. down earnings that as in vehicle up. bit was

So, kind of same theme.

giving Asset performing well, much a earnings is we'd good and book about little very the hurting in preservation down, values rather coming think little are strong, of income. position I things deleveraging, the versus we bit. where But, income, be all slight equal, up bit book the about attributes a feel portfolio LIBOR being capital a

that of it PFLT. much to over portfolio should portfolio, see see of we'll be and that mirror happens what a the is, So, see well, earnings that as pretty image time, portfolio stream how robust

Paul Johnson

for taking questions my Thanks Great. today.

Art Penn

Paul. you, Thank

Operator

appears It any no back Instructions] for the there to closing conference Mr. are turn like remarks, [Operator sir. this Penn, additional further to or questions I'd at time. you

Art Penn

the The I you fiscal September appreciate time all XX-K quarter, quarter. to for that’s quarter, year like quarter our I’d today. our our is thank next Company. interest which is your your in

PFLT. conference free of later call kind call for a report the but questions, So, will than has In meantime, any mid-November bit our feel us. if anybody please next little be to we probably quarterly normal

Operator

for today's participation. Thank call. you concludes This your

disconnect. You may now