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PFLT PennantPark Floating Rate Capital

Participants
Art Penn Chairman and Chief Executive Officer
Aviv Efrat Chief Financial Officer and Treasurer
Kevin Fultz JMP securities
Ryan Lynch KBW
Mickey Schleien Ladenburg
Call transcript
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Operator

Good morning and welcome to the PennantPark Floating Rate Capital First Fiscal Quarter 2021 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 and call you, Aviv start PennantPark forward-looking conference Thank off good about I'm include Efrat, Floating you to call. some Officer. statements. Rate a to our welcome by Chief discussion Capital's Aviv, today disclosing information first joined quarter Financial earnings everyone. XXXX by I'd please like conference general

Aviv Efrat

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

Art Penn

Aviv. Thanks,

Then is minutes a going hope families, are that discussing and our your I'm you spend quarters, past Q&A. work December economic capital financials. this healthy. upcoming are fared XXst. quarter for the in we our the to substantial the the with increase how We the performance by NAV another staying conditions the structure pleased achieved pandemic, few ended with during and it positioned portfolio the liquidity, quarter. Despite we up First, brought we challenging in open you, those How on quarter. for

NAV quarter. adjusted from the X.X% to our continued increased as portfolio Our $XX.XX to improve $XX.XX, during

recovery. our have grow the have help appreciated We from several we time companies solidifying debt into are and rotation bolstering NAV. and our benefiting which K in This shaped materially equity should co-investments debt as instruments is they portfolio valued, income. equity of PFLT's Over

We those will companies in minutes. a highlight few

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

long these equity of excellent term XXst, returns of Overall times. inception been multiple differentiation our million IRR from equity and Our co-investments clear an have equity on differentiator. middle to December investors want over our returns a may have generated where on capital of to time. market understand co-investments are X.X on platform for invested a XX% our among program In co-investment lenders, our world $XXX

among believe through term late low PFLT is we financing our JV of of very performance financing which are securitization type practiced with cost December, PSSL which been matched well finance lowest COVID. our CLO in late in senior CLO we pleased financing the Additionally, industry. stable is This and closed the in We've risk depositions, the a to January. long

more should COVID efficiently that Those can through from equity financed to a grow which growth and efficiently spillover time. this portfolio growing combination are a generate balance factors net larger grow from a optimized As sheet completion be rotation, steady keeping CLO this income venture, with as result performance additional a $X.XX income of PFLP combined company's of we financing relative of help will The more dividend we PFLP. the potential PSSL strong over us have the and income and conclude led dividends at our investment its of point. to the September XX PSSL

Since Although positioned time. we the have lowest we the portfolio you to risk had the that as for as been Prior lending was inception, the never portfolio crisis, for an recession global may preparing a as industry. proactively COVID-XX predicted pandemic, defensively know, we eventual the possible. in direct among we some

in by portfolio provides which was This the the are significant times in industry. XXst ratio, stable support to income cash interest income. December to direct average lending debt the As and exceed coverage was X.X times. statistics average These among cushion four first investment cash expense conservative the most EBITDA amount of the interest

and of non-accruals that and represents hurt different the XXX portfolio cost, of oil We PSSL. no retail, highly out XXX names to also some only and diversified X.X% largely in avoided value. have XX companies market the the most different at only two We've at as pandemic, been such exposure health airlines. PFLT X.X% of The apparel gas. clubs, the PFLT sectors has have and with and industries. by is restaurant, This portfolio

inception points include XX an points realized inception, ago unrealized companies, invested and non-accruals. ratio average is basis annualized since over of been Our and compares nine Out ratio at to loss XX billion the annualized yield has losses, XX X.X%. If credit loss over of has we annually. XXX This both realized excellent. only experienced basis annually. inception which only an we've quality Since $X.X PFLT we invested since have of years

business middle a the the have lenders during prior to crisis market financial few that and are of global who underwriting one record were direct track We strong in time.

organization back in that not was was PennantPark an investing PFLT Although at time. as existence then

decline high of the XX%. the recession, declined bottom by index compares underlying EBITDA of of companies North at This the EBITDA average X.X% America average of During that recession. down our weighted portfolio the Bloomberg the to yield

downside believe decline was EBITDA Based record prior companies recession. will track so of during underlying be the the in substantially are tracking our this case We financial than global for that it less EBITDA on far, crisis. our through COVID proud we

we health and net of we in significant investment can that substantially I beneficiaries pleased would and to position in needle and today, a that services, environment. in We large majority domain less consumer that forward highlight government services, Cano experiencing in companies portfolio an those to both equity analysis overtime, Looking which three Health perform these cost at national as to the our a coming in vast are believe meaningful And such primary quality companies to in industry We're to companies, strong the large on companies for expertise. Light. where way that Cano, have select a K-shape business our we defense, are industries Edison, who's portfolio the investments technology, transforming of population. healthcare a by have and healthcare, the software, impacted three reasonable are NAV like the By is where some COVID. are of income. leader companies recovery three care, of suggests our well XXXX, things companies. stand leading Many companies on Walker quarters. move the are provide high The care

Medicare revenues respectively. market position EBITDA tripling $XXXX.X rapid last is and program. been on growth believe the Cano equity ahead for for Cano than years the with quintupling We Our Advantage three grow as over more experiencing nearly to a cost a fair value has market years. that December [ph] massive and million there the XXst, in a opportunity

Jaws furniture a Cano During Acquisition the At that partnership sponsor, shares controlled earn and where quarter by $XXX,XXX at will we ended exit value be of cash due return illiquidity online valuation a more lockup, to almost times. on valued platform December the independent focused sponsor scheduled our proceeds. through e-commerce XXst, for sales e-commerce emerging that own EBITDA XX% traded leading XXXX, a in tripled The of in position is to close to will made a of receive limited up as shares time, Health perspective XXX,XXX the March up another end top months. early the a are the is a of four was on which companies, six selling Edison the capital, than and December with we investment cash the discount received exclusively will firm with or X% XXst. of XXX,XXX of of Walker financial April. locked From valuation

cost years a leading has a X.X of By doubled. simulation, networks. million and nearly million as security global and times than challenges sales made investment across cyber EBITDA initial ago, Since was engineering hardware our and more position national four focused gone value solutions up software has modeling Our on as is and market company a December fair of XX.X Light X.X XXst. and defense

directed communication Equity equipment Defense cushion Sigma first internal California We common We government and testing, lien will is primary primary the differentiated and million sponsor. for of Capital is instruments X.X loan through as Partners LightBay million making The partners lien increase and period. missile three purchased surveillance market as services mission-critical gaining a likely is value bolstered and Systems, since capital carriers, loans to of that rotate calibration Our loan a into loans attractive NAV is and levels lending focused roofing new and execute attractive. Hancock Services be a sponsor. term the these lower, million provider lending proceeds purchased in I'll the Capital We the first for equity, sponsor. Technical IT is on After we quarter XXXX of of million company that Partners solutions is to is this Investment and most non-destructive equity. purchased some first in provider residential term to loan. for first health purchased XXst. term refreshing co-invested a and million airborne value Over consulting the XXXX the is from higher, cost including services. We and the insurance and in a X equity, market is we vintage common who of Sagewind vintage defense, time we've of provider the raising Applied X new and $X.X fair of highlights, XX. in market investments are Systems XXX,XXX care. solidified engineering are programs. middle to services integrator the leading All package business. common focused this contractor satellite protections energy Southern a companies XXX,XXX We're lien of a of should The time, space PFLP. $X.X middle of loan higher, Defense substantial of the the financial based of risk of the is expect five upcoming Claims as behalf to The $X.X is $XX late care market leverage the our positions continues. Aegis and company and their million across on walk superiority, have environment. sponsor. Technologies years momentum And covenants co-invested yields systems term of position at seen Group. equity XXX,XXX be momentum about on Century lab is loans is are the is believe in offering million debt equity those income Financial providing outlook a attractive tighter. market available reward RC Consultants is of active purchased $X.X are the Sigma claims leading to us. million equity December during past our cycle a This sponsors. purchased

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

Aviv Efrat

Thank you, Art.

quarter ended per December income For was net share. the $X.XX XXst,

Active administrative some expense interest $X.X and categories, fees total and $XXX,XXX expenses million. million. management about at about Looking $X.X the expense totaled totaled of general and

facility of by Consequently, share. was per or was share. was went Net our from and During the up notes than was share. million per $X.XX unrealized per to losses liabilities on share. was $XX.XX unrealized $XX.XX depreciation million the about NAV share our per share. investment $X.XX Adjusted market X.X% dividend from December Net $XX per net appreciation per excluding per $XX.XX NAV XXst, $X.XX to of $XX.XX quarter the income or appreciation lower share. realized GAA ended on Net $X.X cents investment $X.XX mark

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

Our spill share. $X.XX per as XX was of over September

our prudently was X.X ample GAAP have to from times debt X.X liquidity last quarter. our times We ratio in equity delivered down

the net net from subtracting X.X And X.X debt times GAAP cash With ratio times down targeting our equity equity While to after times debt cash regard last down have after X.X from to a quarter. from down quarter. debt X.X times regulatory X.X X.X of to last ratio to to ratio we flows quarter. last X.X times. was been times debt subtracting equity Regulatory to equity was leverage, X.X times

net our of coverage the times ratio asset of regulatory below past lower cash board end quarter. of X.X Our the well or is range this

at we've December and liquidity to compliance fund our ample overdrawn all we're in We XX. facilities with have of

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

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

maturing We banks senior maturing revolving $XXX with party million asset XXX a of secured syndicate with XXXX. XX notes, XXX one no have million XXXX XXX and million credit December of debt third associated of in million do as with of backed XXXX XX facility, unsecured

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

average has as average is Our XX% use portfolio overall the liability yield weighted or the a for of their X.X% XX% a life of floating debt and X%. rates floor of portfolio portfolio

call the turn me to let Art. Now back

Art Penn

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

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

Operator

our with ahead securities. question you. [Operator Thank Instructions] take Fultz We from first go can and JMP Kevin

Kevin Fultz

question. you Good for And morning. thank taking my

second from amendments non-accrual, are on non-accrual then lien at looking First, in room quarter, can PRA the like? they events all you renewed What non-accrual? first stop some lien during at and provide color looked investments why for those

Art Penn

PRA, Sure. more Thanks, put sponsor in - Kevin. injected the equity.

restructuring, in So an we know, we formula non-accrual. full give lien did on - since equity is better through and to an the the with part sponsor lien more was nicely a company we them put years company moving to a where with to in liquidity forward a first agreed rebounding position. holders agreement The as be put original and room converted much lien that additional of rebound. the And, deal, of second agreed put we second back on have And done restructuring MailSouth nicely. to the the that second or a you has company to quite MSpark and quite player we where our other seems equity, couple to go lien.

Kevin Fultz

then the CLO completed that the can level now And the color. that in forward? appreciate we can JV expect you financing, moving discuss Okay, PSSL growth has of

Art Penn

Sure.

million or don't PSSL know, of so know, so. total with get I up leverage know, you with, to, assets You can, $XXX

carefully thoughtfully quarters. in to something know, that's coming the So we'll look you you and achieve, fulfilling know,

Kevin Fultz

have pre visibility just level do prepayment? you then just thank And lastly, the so of far? touching Okay, that quarter-to-date kind And of on payments pre-payments, then around what you.

Art Penn

Kevin, around it's a usually of good prepayment, had question. we What have transparency. level we transparency good pretty

we - financial in management, sponsor, have know, typically we to times. at getting know, are talking the statements. all enough You the typically you We're

quarter. could But back is, into going a which muted somewhat performing say, we most far so you ultimately to I'd potentially So to the remarks, portfolio, the prepayment.\ we more know, know, prepayments year normalized have the with have more important mean, for well, us, frankly, environment, we're so been a far, debt said this So portfolio you XX% and, the where we replace in and, it the on normalized for is XX% need as grow. and rotates environment us side, I thing, prepared

So I'd normalized environment. say we're back a to

Kevin Fultz

Okay, that's appreciate question. it from me, you and I taking my

Art Penn

Kevin. Thanks,

Operator

Ryan All our go right, Ryan, please Lynch we'll with take ahead. next go ahead question from and KBW.

Ryan Lynch

Thanks for questions. my morning. Hey. Good taking

are of the Art you as though, some of close, markets, the and for deals, a shrink to and just that level. First way the all, of to have sort And all of quality the been yields? have leverage seen of mentioned lower Certainly, return back higher levels, as you some if start new liquid seeing loans level? those wondering, the in far and and attractive of structures pretty pre-COVID higher protections terms we've to benefits those seeing, kind kind outlook pre-COVID being pretty not reverted

know, you're market still back to sort orders see, the of levels? to those that expect you be you know, you to are in those in long do levels? how you're know, deals - you So pre-COVID starting better And versus, seeing, revert if playing in, so

Art Penn

call very take which peers play of in do some Many is terrific is, billion basis the question, and where Ryan. it's of with we and fray with deal market, of And flow or to covenant-wide. in? core what It's lot space. of is million market, broadly the a writing know, middle have do million a they're the compete first, And definitional $XXs loan day decisions, syndicated kind that months. you a is quick, in syndicated And quick middle to there's very, and because with middle due the call And big That's covenants, do labor they getting three of covenant-light of the of velocity we business weeks And play we there's high in we we on the compete in of broadly loan out $XXs peers, a question, companies. space less focus a in? you where really day they're million statements, a We know, many core big every assets manage these on doing million, market, opportunity which deals do checks EBITDA, million diligence, diligence, due market, are to we or core our, play which $XX process. to and $XX negotiating more of $XX slower market you competing to we market. companies only the than financial many, make a million our large are where just for below $XX $XX we much a, it's know, yield longer market intensive what and multiple

nice times As equity also track on part we've record. MOIC these co-invests, with record we had get the of this, which track X.X a very

world, certainly bounced the pre-COVID. way the somewhat as know, all world level. COVID. for bottom where it's market, - move back We where, you basically different back In to has is a have back. bounce back. to it's of taking a loan longer it's that But a it world. that market, the competing to taken IO moving was since is no certainly - the So result, it's broadly with the slower And We were syndicated which our

we're core think can returns. adjusted of you like $XX really a like know, we attractive we kind risk $XX million this to get market, in and where we position, we middle So million,

co-invests of it's very think I proven return. had of a these which lot We've I you in COVID. a through through minimal And know, defaults we've had think COVID. come we've kind equity been

we for a for had private XX% And When at If that vehicle private of like net which credit looks a vehicle, private vehicle, PNNT, XXXX. about think net version XXXX, XX% you kind of, had return a - a is XX our return which our of you net ops a is kind look ridiculous. lot which happened COVID PFLT. PFLP know, a for had return an know, in senior you XXXX, we you – lot vehicle like that XX% a credit of looks

well So a COVID. equity during co-invest position really combination the of as low us defaults,

Ryan Lynch

though, that being down other in PFLT do And to well to now always general all in color focus do a to or market. appetite and lot coming about of as we're investment kind That’s And of direct late may any invested pandemic, scenario, you intend more or whether as downturn you of or on have Okay. of ran you structure exposure? kind or to higher PFLT that's course, we talked And of you taking is great target businesses. far prior targets more on helpful. as capital investing of capital COVID, markets, lenders just be the far as your I past, are the income be in risks? wondering in industry you where recessions are shift through as structure know, the cycle out at as in the steady that this since you know, as it and, know you kind a just you going a of where

Art Penn

what risk, your grandmother's structure. as PFLT open from a lower been one, Yeah, with think we been always so lower has positioned BDC what lower you expense has day know, reward,

yields the the So industry. are in our among lowest

is times in in lowest the four of are the the lowest industry, the our leverage Our industry. among expenses among

not for that. So PFLT to veer off know, we're we're you intending not

focuses developed kind you that's services where key though, forward among have sectors business room healthcare, going government the you in where software, in. I the really of technology digging digging, and deals think smartest and key and consumer. deeper our know, expertise, five of And meaningful defense, one people services, of come domain that's can and think these we be I know, we've kind we is where we're

to the those questions think deal You main to And know, play. going in the we know prepared. comes we're where a right when areas in, have where ask we really expertise, where we we're

Ryan Lynch

there just platform, then more is last And III. you similar is In Okay. Or PFLTs? a Fund to fund to investment on had curious, or platform PNNT as That PennantPark is one. as PFLT would co-invest PennantPark helpful Or I'm does PennantPark fund? speed sort Credit to that co-invest PNNT? [ph] any the to one And any better with of of across closed, have be similar impact ability January, strategy just ability Opportunities a to that that I the it

Art Penn

Yeah, senior a no, private well we that senior overall but two we equity we separate vehicles like have business, we debt. yielding PennantPark, It's a as a basically is - vehicle, of which have we senior debt private. is higher blend private first-lien, growing PFLT second-lien as have co-invest. a distressed And as have opportunistic, senior strategies, an have equity PLFT, are and look lot co-invest.

as looks our net had strategy, the vehicles excluding due is return the the I strong of equation that, other very XX% you equity then minimal PNNT, energy. a which non-accruals. XXXX, those And said side opportunistic that, you track know, know, lot a in the record. to So And like co-invest

our You which you again, which business, equity with to the there. very so ops looks we But PNNT, you without know, that's due know, for the closed that a PNNT as have co-invest has been energy, well. XX% been had a know, And know, you a defaults. in return doing these net and fund and XXXX, focus, that have minimal challenge lot which like PNNT. call Energy a credit we

two senior that. mimic our of and opportunistic debt BDCs kind So large, PennantPark and at strategies,

about energy forward. some out point I strength think we're and move And Although of talk good at get to - making that we'll going later. we're progress, and hoping PNNT, moving

Ryan Lynch

Okay, time all questions. and are - strategy Those got it. on really On fund helpful appreciate that. I the on private That’s my clarification [indiscernible] that for that.

Art Penn

you. Thank

Operator

take ahead and go ahead. please from we'll our next question Schleien Mickey, Ladenburg. with Okay, go Mickey

Mickey Schleien

Thank query you. hope the Good Aviv, little morning, I to well. wanted the about on of a pandemic. bit Art on ask and Art,

your we where obviously about looks me, and to through private is, partners mutations, willing longer one are those support to you and capital injected to specific of borrowers some the sort that additional continue companies hoped. continue of is pandemic to know, will to and get how stress, certainly it of equity in see do capital You significant vaccinations how industries, And situations the we inject that had event than the write the when My like question additional other need will viruses them borrowers. go your in think think excuse checks you and planning, like side? on some pace I the to these

Art Penn

Yes, that's question. It's all companies. have some about great liquidity, maintaining a of their grappled these feel first done a I really we've companies in think liquidity. position with we very and these in good mean, job good one they're all, of I a liquid and

underwriting not the back You a know, assume however, in case our long bounce the spring this takes, or summer. does

case underwriting Our assumes, later back you know, bounces XXXX. in XXXX and

in back encountered know, and do bounce we but sure we've very you liquid, summer have we are. bounce way. any in which we the they back not and or made on you of may that may we are And companies counting the kind summer, - not spring know, or So, any these weren't all we've underwrite spring

you which are, the we teams do right just have have we as any by COVID, they to in These teams. well And companies, which that. things, would elongated the whether called, good the be teams they're you with call really as management but we management know, feel deal schedule, vaccination done be be to may sponsors. can or hit good really So positioned what solid management happen which

Mickey Schleien

Art. Thank that, for you

senior strong fourth not was noticed portfolio calendar and the market the in the fourth Just market had discuss be just you opportunity particularly that portfolios I M&A. your And prepayments Could would were background sheet, company. But was balance expected? on income higher funds the both for loan terms high middle of, know, for in trend than and shrank you you that quarter and at Looking and quarter pipeline? on for the both fee backdrop some PFLP helpful? that

Art Penn

got busy it's done a big got back had question. and a Year's. bank. investment repaid by quarter, to a then Cana, the Cana, of earlier very And towards end repayments that busy. I we large a with in be great lot seem which and closing of we really think between the we’ve so a of New And and position deals including bunch Christmas a syndicated Yeah, had the out broadly we quarter, the And taken loan there were in

How risk So quarters, never careful deals in ramping. to And that if question the cases the is that what think it the strong deals? thoughtful, along while our had appropriate In a we history takes at a it, some look we put really judicious said, Again, And, motoring with making we and exactly and we're a busy a shouldn't We really rush the longer sometimes will middle get put with fashion take And you aren't problem takes attractive, at adjusted you It in rush. learned very timing? better. deals handcrafted, again. you these a is ramping. much. this look of these our longer shouldn't don't more ramp have. We this what portfolios. to by will we the BDCs we've just to mortality we many really that vehicles so core and really know, engines encouraging is we percentage market, is and like are the diligence, way, co-invest funds, do and sometimes always know, take of package they we think methodical return, are I negotiate. increase and private at large. about But believe this you and It's -- mean, But know, problem want nice we've you into deals. sure companies, going. I teams are of lot have these [ph] hard you a these in of, to be including

Mickey Schleien

Yeah, for Thank that, I understand. Art. you

results? Just that housekeeping restructuring questions. driver Was a couple the or loss, more realized causing of was the of else sort something the there main marketplace events of

Art Penn

when or were two restructuring. gains a Yeah, - now you when as that this In that - losses. MSpark, MailSouth, well realize realize you know, the case, as losses there's there's like the you

realize you completed, loss. is So a when this restructuring

Mickey Schleien

to Or decline. sort PFLT change agreement platform size Okay. in overall the else? continued And was expenses due to of administrative with or the it lastly, advisor? of the relative Was that to to some something the due

Art Penn

is driver fund growing private main the business. As our

and when G&A, allocated we a So fixed that rata platform. we we and team you around ops - and gets our have have pro do finance know,

our private growing, it which to So returns, the extend it funds G&A. to and business grow, the will it really and lowers is continue BDCs helps with is, future

Mickey Schleien

Thank Okay, size. care. so it for you it time. That's for the me. relative was Take your

Art Penn

Thank you.

Operator

back conference I'd appears are any speakers or right. remarks. there to further the turn All to It additional the no closing for questions. like

Art Penn

healthy. good look everybody, Thank for forward your and interested May, in a we early We Thanks, speaking safe the Stay you. review Have to March results. PFLT. in with you as day.

Operator

today your concludes participation. you This call. for Thank

disconnect. now may You