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PFLT PennantPark Floating Rate Capital

Participants
Arthur Penn Chairman and CEO
Richard Cheung CFO
Mickey Schleien Ladenburg Thalmann
Ryan Lynch KBW
Devin Ryan JMP Securities
Call transcript
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Operator

Good morning and welcome to the PennantPark Floating Rate Capital's Third 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]. pleasure the my Mr. over now is to call turn to It Penn, Officer Executive and PennantPark Art Chief Capital. of Chairman Floating Rate Mr. may conference. begin you Penn, your

Arthur Penn

for welcome Alternative new Rate from E&Y. he And years. to Guggenheim I'm XXXX in many joined you. good June Richard everyone. Guggenheim Investment Officer. call. like Thank was he Cheung, Richard by our us morning, earnings conference where PennantPark Financial to Head third Capital's at to Floating Accounting today fiscal Chief of quarter Partners Prior I'd was you joined

We confident his PennantPark We disclosing all are strategic off thrilled discussion since that please thank a start general Richard, some Richard will about company. focusing on and inception has grateful for joined Efrat forward-looking contributions us continuing and to are include by that and extensive tremendous are Aviv initiatives. the PFLT his call that conference information he asset to a statements. be with experience is

Richard Cheung

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

Arthur Penn

then a for Thanks, positioned few liquidity, is ended our and we going Q&A. minutes up in how quarters, and structure upcoming spend for fared Richard. to it the XXth, discussing I'm capital how open the the June quarter financials, the portfolio

We performance with past are our this quarter. pleased

grew NAV income while investment net credit and our Our to solid. remained share $X.XX per performance quality

grow are XX% CLO paying with targeted additional debt return. contributions completed from portfolio With from capital to and equity of three, are ratio PFLT year, through co-investment balance our XXX poised PSSL equity on JV number three JV, JV leverage instruments. about has significantly includes to move sheet number pronged from PSSL the a of into towards cash as debt PFLT million. assets in value X.X times. growing well financing XXX capital the strong this Kemper two, approximately to regard come equity we our XX% as with million to time. a the that to times Kemper, from a NII from the X.X target one, at program earlier rotating The And the grow contributions will assets we to as over which PFLT, Number strategy, We growing generate

approximately to into $XXX June of the XX million PSSL bring investment time quarter, we over to XX intend and to invested During million. invest capital order PFLT million another in PFLT’s

have these with the equity model, we co-investments choose the through returns on selectively make, the to excellent from XXth, IRR equity platform and Overall equity equity we may XXX lenders, sponsor. returns business inception our differentiation a among long-term generated multiple program co-invest want our a in in In been co-investment co-investments where alongside of to June for million middle clear of on of have investments over XX% understand world market investors side-by-side of differentiator. time. part X.X The on As our our debt invested times. financial our are capital

origination growth to implementing million. new million on PSSL well of are had $XXX of originations PFLT We June Since our has has strategy. way the had NII new and XXth $XX

the repayment accelerated. repayments have so exceeded September far, quarter new quarter June loans and and has in originations Although activity new the abated

performance remains portfolio strong. Our

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

and of non-accruals in represents different portfolio cost We PSSL. out XXX names only X.X% value. have market the at only two of PFLT X.X% of and This

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

we've XXX yield inception, invested since invested an $X.X inception Since XX been only credit inception only companies years at X Our of since over ratio loss non-accruals. in with a of average quality ago points have excellent. over this which annually. experienced of billion basis has XX has PFLT X%, Out we compares

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

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

it weighted the our recession. than less X.X% Yield our of during by was This EBITDA Based EBITDA was the our the tracking to global EBITDA of of decline companies of financial through During at the COVID, declined underlying underlying bottom Index the average decline average Bloomberg that High portfolio American recession, the North compares on companies XX%. substantially EBITDA in crisis.

X.X%. COVID was such software, to industries X% of consumer as new XXXX Yield services, at have government companies of and in business attractive. in favorably are the of Our companies portfolio where meaningful Many loans the High the and This for during we Suisse EBITDA outlook median technology, decline Credit Index. EBITDA compares COVID decline in is June healthcare, The a services, select expertise. domain bottom our

flow are funnel so With then in We wide business, doing and in selective to we we've growing carefully producing deals. ends in as as experienced, busy team, and active up what ever XX thoughtfully been new talented, can can that years as reviewing our and we be deal portfolio. analyze that is our our

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

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

capital hand, middle the focus other the On more our where core borrower. we is in market, to important the generally

diligent rate According S&P, and is of have are achievable, than higher, of monthly financial default on million quarterly cushion leverage with with received a covenants, less the lower, to top is real we more eight to than EBITDA such loans to statements weeks to be XX companies to higher typically investment six to higher loans and make we a we careful have EBITDA decisions. As recovery thoughtful companies EBITDA. those lower and equity have and rate company's, maintenance adjustments

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

Richard Cheung

Thank you, Art.

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

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

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

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

liquidity are ample have We prudently levered. and

equity to up leverage, equity and X.X of after was debt to been to times, debt was to times. was our we to X ratio debt after have times. cash a regard ratio GAAP net equity to while times GAAP cash subtracting X.X range X.X debt-to-equity net targeting With times. X.X regulatory The debt regulatory subtracting equity was Our ratio

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

of maturing PennantPark senior XXXX unsecured in with unsecured in We notes of $XXX revolving maturing million have $XXX credit of debt and XXXX XXXX. of $XXX backed senior notes XX. million with million million drawn due June maturing in associated asset $XXX $XXX as XXXX, CLO facility million I

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

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

Now, let call turn Art. to back me the

Arthur Penn

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

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

Operator

Schleien take from Thank ahead. Please you. comes Mickey Ladenburg. go from It first we'll And now [Operator Instructions]. question. our

Mickey Schleien

equity and which high PFLT mixed appreciate seen and lot welcome Good debt we've tightening, as and your private of can Art the year-to-date. and seeing market it are the in a spreads of Richard. repayments Clearly, results result private this a insight. quarter powder of Art, in morning, terms level have opportunity, dry markets I'd I'm

I solutions. On the seem of can and debt going M&A of the to borrowers you is very the understand economy is year speaking, moving and I'd call be develop repayments and other hand, broadly sharply that also protection, growing the a vintage think understand second like as you function toward be active know, Pennant this into portfolios I and platform half maybe to across but your in how private next? expect to

Arthur Penn

Mickey, and light have good Quarter-to-date, newer been and heavy. have repayments originations Thanks, morning. been

a last So of repayments. were quarter, there lot

so companies far repayment. come quarter a in. We're new lighter seen of we've This lot seeing

there's Sometimes same from one equity go firm lender they more the one and private companies to another, recycled to another. that private get

million kind cases, seeing In space quarter, to have that the into focused about. we founder time many that first the owned sponsor family as private and first a institutional on $XX million or there's doing, equity company equity, EBITDA in capital, and buying companies we're business the the the we're many we're first come $XX of owned deals is again system. and at more at This debt. new talked we're institutional institutional institutional first Usually it’s the business entrepreneur capital or a of

sponsor The industry behind where is willing So, XX companies when to and we're But out we're of opportunity. to end time, a big are front a going They're kind play XX and off getting or of or new system. of returns companies bringing Cat to starting lines And they best of broadly XX XX market of may we they of which sees those on XX syndicated growth into cushion great EBITDA. it, off is sponsors. the us. fragmented lot organic an our up grow going plough the for where equity from over or growing the to the EBITDA to

in Our participate debt that equity being growth, and the that up cannot win-win. can growth, ends nice of upside fuel it co-invest our a

answer into to just seeing companies. many quarter, the come we're more some very this versus So your companies system recycling the good question, of new older

lender, off It's For when instance, an another with It PNNT we but bigger sponsor great than we went direct company. and over it. and the started company had to now exit DecoPac. another a has

Mickey Schleien

in my you us you that next what the in kind how balance those of market. that portfolio size sheet PSSL compare Can opportunities is the the into of two Art. portfolio leads target in question average Thanks own of your to and the the And terms segments? for remind borrower compared would investment

Arthur Penn

Well gives bring to our PSSL PSSL some solve Kemper like a smart bigger for check offer us PFLT. also capital is roughly an similar write into to ecosystem, ability a a borrower PFLT shareholders. problem, and higher ROE and institutional

So, roughly same portfolio shareholders. and size, PFLT the the wing for the just very span, increases accretive bite it's

average XX in to EBITDA XX is vehicles. So, both

and XX those out of started companies some Now have or XX at were where we they grown.

XX XX. at Some started of companies those or have out

we so a company company does that at XX and ones fuel it the for a are XX hoping and tends a where that those willing blend two it's opportunity. co-invest a the equity can be of of be opportunity sees up portfolio the and is equity that plough to sponsor out bigger substantial So the valuable behind of to growth start growth chunk or to but real entire when where doesn't the to

still to blended million. So XX is XX it million

from up. companies smaller get bigger are some companies grown have are go, the Some that

Mickey Schleien

are And us Art, how two the portfolios those that how -- allocate similar? you between borrowers can you given remind then

Arthur Penn

Yeah.

So, its proper on it's has two diversification. each to portfolio feet own have and stand

highly diversified senior And capital. deal It's done, book want so It at capital mathematical capital. both have that There's available a to want calculation. when and that's done way mathematical portfolio, loan names So a to increasingly gets based be which run is smart a fifty diversified. we they're available on we on an we each in available a portfolios. there's least calculation based that's

Mickey Schleien

Okay.

Arthur Penn

the PFLT And owns XX.X% joint again, in venture.

pretty ownership. a substantial it's So,

Mickey Schleien

economics. the of terms in Right,

if driver but for a Lastly, the you was don't realized know what Richard, I housekeeping it's your for question, quarter? or this of main loss

Arthur Penn

main a the we had is non-accrual now which went Country we -- a The did Fresh, which is was that American called unrealized of have the non-accrual driver additional through -- balance not had was It's which teleconferencing bankruptcy loss Yeah. and non-accrual Premier sheet was on Global -- loss. we realized anymore.

Mickey Schleien

I understand.

Arthur Penn

the main the was of realized that And driver loss.

Mickey Schleien

I welcome Thanks That's for your understand. time. for again it And Richard. me.

Richard Cheung

Mickey. Thanks

Operator

KBW. We'll now take our ahead. go next Ryan of question. Please It comes from Lynch

Ryan Lynch

taking for Hey, good morning. Thanks questions. my

goals they're in well, regarding a one in. the those question kind platforms you mentioned follow-up two leverage, kind earnings, increasing is operating size flow kind the bringing previous same the first The for of of to the PSSL. that on Because the balance increasing several of feeding goals, portfolio is the off both sheet deal increasing PSSL of first

more other, each the a go ramp is be those with leverage goal preference do, as I deals add it far they is assuming conflict which which grow of strategies, of that is versus one with meaning other, kind there fund, that other fit like preference any a they're originations kind the the the So, as both PSSL, they any one can versus sounds to try but know leverage balance higher to versus within where entity, sheet they yielding it's of placed? there both up

Arthur Penn

to Yes. Ryan. X.X about there. is credit great say I necessarily complementary And say won’t and have It's where a ratings time times, question, itself leverage worked PFLT up conflict, target to nuanced over in our fashion. they but I think we a they would

think We have some about unsecured funds to there.

we're run. where outside BDCs in in both assets CLOs that is. market we of the PFLT These have PSSL, also and We we convention that putting put

we yield, assets risk they're lowest PFLT among you have you BDC the the assets if in and these industry. lowest these at look put could the So, in that PSSL, -- underlying again,

load Our is low. expense commensurately

have we a As safely can these same three them four we times also and debt-to-equity we the result assets we've COVID. through to run safely format and run think in CLO than

in the higher because fashion to target that X.X So, a can probably it bit and leverage target is leveraged it PFLT so in would outside we again for BDCs, than do more X.X in debt JVs accretive fashion. running equity, we the running them is more times. the them PSSL, than why times run leverage why we can’t In a be a

our total we've me, million, publicly today size capital So, over here the is XXX stated time million bite if JVs excuse XXX XXX junior you of higher. definition, by total for is target said, is the and million leverage

Ryan Lynch

better XXXX credit upswing of from credit cycle. these that then of a sort when guys any given in competition are in as had risk, the has And bottoms backdrop kind guys inform you on versus is that are just a pre-COVID today underwriting increased, a guys has a we back XXXX, look economy XX to last due curious, loan, willingness case to each Understood. market, I'm use do ultimately guys guys levels. capital are going use cycle up looking better do same that guys XXXX Obviously, XXXX, you guys from activity obviously out you are of be be certainly, overall Does as the an how years up as of to proposition, terms aggressive today's kind that kind maybe base do you'll today deploy alone inform for diligence but knowing it's credit, resumed market macroeconomic a capital a but your microeconomic to just deploy that loan in at market? a you on you to with loans. going kind in to obviously backdrop today's of you bottoms approach the but a environment,

Arthur Penn

that public of very and in we softness, a getting just it's back there time would concerned XXXX of we the too, look do. period, if at course, cycle were And sort some tooth. getting be was good that XXXX and never question think long the the about the others Today, we COVID. you were mean, companies, and we I operating get Yeah, have the were economies we in were But, we therefore numbers, strengthening us in could posture. a see late getting the in predicted it lot of thought in of we portfolio monthly I cycle our public position. defensive we're that more and a it a and

dramatically. Sometimes quite

comfortable through So XXXX today today it's as did industry fashion. we're That than industry very macro XXXX. companies for strong said, right, you're financing to a offense bottoms up The general all more by feel a came we say sure, playing that we specific. COVID in matter

cases, So, benefited COVID. they from in many

playing And more a companies that offensively companies think more to are little bit quality we're are we bit a we prepared little So that offensive very posture. these are high back.

One of to got the lessons our big in companies. all of find years you us the for business, right over

pick got to a You companies. leverage. of bit you the And right little can stretch

able to bit be might little a to yield. You on stretch be willing

If companies, it of rest care itself, of the the that's you in. business right find takes the we're and

Ryan Lynch

I or that makes is equity equity know ability cash That proceeds. some like outlook then than Yes. your far on any exits dividends, goals is one recapture PFLT dividend XX or of did know outlook max is that your to this your have the the what actually the either and over that's PNNT meaningful curious, anything proceeds months as one quarter rotation, And or like so? and equity your exits was, obviously of I have smaller as level what had was cash sense. I from PFLTs last had of portfolio I PNNT

Arthur Penn

question. good a That's Yes.

PFLT PNNT investment size roughly Walker the Edison. So are in and same

by two a about was times dividend on got we later, talk I events then where times there were little two One there investment. two where got money back a we'll it times an in mean, the our we another was and recap quarter Blackstone Edison for quarter. our Walker and two past last capital this equity investment So

Edison nice that So realization that direction came Walker a equity. our on was on cash

one. at about by in big about offset Just gain mean, quarter, point looking was that It million Fresh. was the realized the It a Country X.X four -- I was the was quarter. that of

equity. million Fresh a $XXX,XXX of on Country X.X So had on WBB offset gain the realized the And gain we realization equity. had that, we loss DecoPac about about

the names, order of some in same magnitude different of PFLT. So

a X.X equity, and million value itself Buy well Going to talked on still there's see of of of We've excuse got company a PFLT we the that the another Right about co-invest of $X X.X million, there, a about you that's very could million million Infosoft million that over There's million GCOM are some about [Indiscernible] there. market in about Walker performing equity marks. me, equity. lot, equity. is the X.X X.X is based book Edison. called equity of value X one

still or be two. So year bites coming over rotated equity potentially to and exited some nice the

Ryan Lynch

Okay, detail. appreciate today. that’s time helpful I the

Arthur Penn

Ryan. you, Thank

Operator

Please We'll Securities. now next Devin comes Ryan ahead. JMP take our go question. from It of

Devin Ryan

Art morning, Richard. and Good Great.

the I the that's Just characterized a I quarters vintage you I'm any the us. suspect share from but today, decade couple and that? recently past evolving, first current I there that is past can curious, the in pipeline guess, guess case follow-ups the I posture, I speaks so. is an couple strong still most the to of attractiveness or around believe you of loans and originations attractive perspective And if the color one, from just other guess how had the its of being more

Richard Cheung

COVID we're and COVID. it's in good Yes, vintage in about today shape The some through cases really companies is, that thing the best came good question, the financing strengthened again through a Devin.

in the credit selection we're So, business.

pick We credits. good have to

avoid to We have mistakes.

co-invest. of equity of company with So and value our thing years the the the confidence be some and through these the is capital that posture, last companies the uncertainty through cases we're is chaos paramount most the will gives couple co-invest with we attractive of preserved be equity and us strong will seeing quality beginning which come in increasing that's have that

And hold little most was the put There half, deal the machinery for that's deals or deals. on right. and year So, no very attractive look, really thing. were

that's of all deal fruition today, demand So driving this the of up it. kind and to pent is of coming one things

gain future capture in sellers capital a and by gains some potential piece that's a focused around there's sometime it We before the gain a a increase. the to also increase potential of capital think desire potentially

increase it pent from and the that's half capital playing think bit, to lot of both gains demand kind little deals. I year a of working So into bring together on are potential the a a up horizon the a and

Devin Ryan

sense. repayment I lot And That recent follow-up it's great. just but shifting? slowing. about that makes okay you you around comments just of activity you. see factors Yes, and Thank any there know the one your of on episodic, there of do then are any see that prior trend

Richard Cheung

over equity an starts it's built lenders it mean, getting the private of just with entrepreneur, ecosystem, I and may the in names making supposition, and million. middle family a that things has companies this company's time the in with are million is capital somewhere it's EBITDA brings Devin companies and into where $XX or taking and $XX is start repayments new to And they've I'm owner, middle a a our financial is more market of policies or of XX been in all kinds first that else a Today, could XX XX million, of all we seeing names sold as it the when new whoever again, an to out or and be that their And market are to see or and family, that goes and And out a that direct refis Yes, it's goal company there already and private big up be. three it baby companies market, that institutional to to more there maybe or an names lending like financial are with XX, it private EBITDA focused XX, ecosystem, this whatever. And years, or the $XX seeing equity I mega that selling you're or there's ecosystem. It's the ecosystem. where that XX said $XX equity credit, getting of are XX selling we're the with firm. ecosystem. The bringing XX or earlier, new our and to shops. we $XX in It's million million, it or they're it's new it we're the statements opportunistic does refi are capital. XX institutional EBITDA first firm the many years, XX XX, procedures who controls a we done

debt lenders in the that company. We are private of first kind

million fuel has debt helping from that million -- capital. upside helping worked, $XX participating our equity this growth are are cases Our and $XX with co-invested we in to to certain in helps we've we we're create that and debt the and

I'd quarter this names more the supposition that we're was say, just we where many I'm old making refinancing last So quarter new a seeing it into than ecosystem were same the name.

same the are the names, names. names old but of very same good Some old

Devin Ryan

Yes.

Okay, it. terrific. Yeah. I color. great that's a appreciate A little of crystal ball question, but

Thank there. it you. leave I'll So

Operator

call Mr. remarks. I'd any back Art or for question-and-answer This session. like now the Penn hand to additional to concludes comments closing our

Arthur Penn

and later so their just next in our will today for to everybody It's our conference Qs, be have in next timeframe has a In call. wanted hope quarterly kind our I call normal of the it participation will summer. everybody great than you thank meantime I mid-November safe call, much. XX-K very our we in will the slightly and but quarter the November. be Thank

Operator

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

disconnect. You now may