PennantPark Investment (PNNT) 16 Nov 232023 Q4 Earnings call transcript

Good afternoon, and welcome to PennantPark Investment Corporation's Fourth Fiscal Quarter 2023 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. your begin may you conference. Penn,

Allorto, I'd Good a disclosing PennantPark I'm some welcome Officer. Rick, discussion Rick to general conference and forward-looking to Corporation's afternoon, joined start Fourth include by by Call. about everyone. Investment Conference Fiscal you Earnings statements. Financial information like Quarter off Chief our call today please XXXX

PennantPark that this Thank being recorded. is unauthorized that today's call the this any you, is call call Art. and I'd prohibited. form like to Investment property of broadcast is of note any remind that Corporation everyone in Please strictly

An will your website. attention our of release disclosure audio call customary I'd the press replay information. harbor safe the be available forward-looking to to in call also like our on regarding

may and undertake do for SEC to actual unless also required and to materially statements by these refer you law. differ call cause we We our that factors most forward-looking recent not with projections our from results to statements that update could include conference forward-looking filing ask important the Today's projections.

and call Art of to obtain I'd please at website like our this us SEC turn XXX-XXXX. or latest Penn. call to the To visit pennantpark.com at Chairman time, Officer, filings, our (XXX) our Chief copies Executive At back

We're financials is the current review for and detailed we to fared how the upcoming and market Thanks, in the provide XX, minutes Rick. summary for it the going portfolio how of then spend ended quarters, up environment on of credit, comment few a Q&A. a for private positioned quarter open a September

share. per GAAP $X.XX decreased from investment X.X% core $X.XX $X.XX per income share. from XX, to September ended Adjusted our share the For and GAAP slightly share per to net was increased per $X.XX NAV per share. NAV $X.XX quarter

the from benefit to environment. continues base current portfolio debt rate The

up which of last was our from last year. yield XX, is weighted to XX.X% As XX%, September and XX.X% average maturity quarter

$XX million and in originate companies to weighted XX.X%. XX existing investment portfolio a X we quarter, at the and attractive of During new invested opportunities continue yield average

the The new debt-to-EBITDA loan in the interest investments XX%. X.Xx. weighted average weighted coverage portfolio was was the value average For to companies, was X.Xx average and weighted

non-accruals Credit stable. ended quality quarter no XX. September new of portfolio the We in had is the

September average our security the months, weighted was weighted leverage steep XX, interest over September XX the the of past and average in As despite portfolio's through base at was debt coverage ratio X.Xx. Xx increase XX, ratio the rates portfolio's

OID loans the in that middle market, are in tighter excellent. believe covenants Despite of current the in are higher getting reports originated middle directly covenant upper Leverage meaningful market to still continue spreads than the lower, middle market middle We is protections. we are covenant core upper and and vintage core is erosion of the market.

half pipeline seeing to and growing of a interesting first are in opportunities. have compared and flow the of an deal attractive investment We increase XXXX

Since and be through September strong into to quarter into end, we year-end. investments continuing new flow active. going are deal existing XX million see From invested we November and have $XXX continued to XX,

invested PNNT. $XX $XXX the including million during the from million, portfolio purchases XX, million the JV September At and $XX equaled JV of quarter,

the JV During of JV closed billion assets. financing, on $X committed to from PNNT capital existing over the $XXX million the will with and together quarter, securitization. the This partner new junior allow grow portfolio the our to JV

XX.X% return on Over the the capital months, XX past JV. invested PNNT in a earned

the growth momentum JV in continued investment portfolio, earnings JV enhance the with that PNNT's future expect quarters. We in will

rates can capital well perspective, market and focused rising floating where on overall let our lender market United environment. rates From positioned economy, turn the to inflation. on inflation, protect risk and this of the loans a potentially interest in interest Now weakening environment against geopolitical current in are rising interest States me rates, an a the preservation as we

borrowers. believe to opportunities strategic our where middle to focus that provide we attractive our with the important the capital investment on continue provides We market company core

of We an right have government flow. substantial sectors. expertise, excellent have where technology. record care a and are track generate questions free record. middle health and we been market sectors by and and services They in defense, These services, track the tend companies domain generating long-term software sectors to business to know value strong successfully are have also growing resilient ask X key These have consumer, cash recession financing

million portfolio ARR is to middle tailwinds this is which our sector Approximately have core Defense, XX% any which we and geopolitical don't loan with syndicated a in with or peers in with EBITDA and companies middle Services software loans. market. our unlike In high-yield does vertical, upper threshold the below market, in The the is strong compete $XX of environment. exposure a markets, broadly of Government our is to million $XX not

market, receive is middle because of process core are lending that we terms we the attractive. In strategic and package partner, an important the

care. and to with thoughtfully sensible equity co-investment. We cushions credit diligence substantial and meaningful capital, our spreads We with upfront weeks many attractive transactions our OID have protect statistics, do equity covenants, structured to

Additionally, from help statements companies. top perspective, the to monitoring stay a on of financial we us receive monthly

are loans regard meaningful market, help protect we why reason if With capital, this in well there's covenants, to middle the first significant unlike positioned environment. erosion Virtually covenants all our the lien our of had in believe originated we upper a which

companies the than rate diligence the with of more peers that loans middle some sense, covenant to differentiated perception but make our to meaningful important performance. risky. of That a than with focus upper state a may the reality on this bigger recovery those rate higher of companies is the market the S&P, core higher protections have EBITDA. broadly default been part have to is where market monitoring of lower believe and there's We According and an syndicated tighter million middle intuitive EBITDA, less $XX and careful loans who are companies and that less different. Many the loan

in also participate fuels provider of portfolio capital a in of companies, cases, of we upside the equity an making that company As by strategic our the many the growth co-investment.

our returns XX, and been XX% co-investments of million IRR generated from Our Overall, through a of equity we've have an co-investments time. platform $XXX inception for multiple invested over equity in and over capital on X.Xx. these September on have invested excellent

debt at were track recently, invested to PNNT an yield XX.X% of basis has made inception, $X.X points the and investments, energy experienced which includes primarily of financial Since primarily XX billion crisis average approximately strong our prior the ratio and loss annually. has This pandemic. -- and subordinated investments a record

and vintage this attractive, With are our market regard should new the to and target loans particularly outlook, attractive. be

and is flow. funnel producing active team talented and wide origination experienced deal Our our

remains patient focus being and capital continued on preservation Our investors.

investment investments, to want form primarily through dividends in We have with that long-term generate free income, to preservation to our shareholders. reiterate in We our We goal contractual attractive market capital. cash to returns find debt of seek cash companies that pay flow high middle those growing cash out through and opportunities capture free of flow risk-adjusted the we coupled conversion. flows

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

Thank you, Art.

for $X were the Operating incentive $X.XX $X.X ended interest investment general credit $X.X share. follows: September and income XX, million; $X.X was per the million; For and and tax excise expenses core million. fees were and million; were quarter as was administrative were for facility GAAP expenses and net management provision expenses base quarter

XX, investments ended debt, loss $X.X change September quarter For taxes was provision including and million $X.XX realized for of net and per on unrealized or a share. the

XX, from share $X.XX September in quarter. was of which per As is our GAAP the per prior $X.XX share, NAV down X.X%

$X.XX, was is share which the per NAV adjusted Our X.X% up prior quarter. from

capital our As multiple across XX, X.XXx funding unsecured is September of our ratio and including secured structure debt. both was sources, debt-to-equity and diversified

XX% As our debt the and different of the and yield diversified industries; market X% remains the value; floating which X.X% on the comprised XXX weighted of other key was debt nonaccrual, debt, equity. we common statistics our portfolio debt, of to is portfolio PSLF, across with had XX% secured preferred portfolio lien XX September companies portfolio at PSLF cost at X% represents X% as first of in subordinated our secured equity and XX, lien portfolio debt, X% investments other highly subordinated one in notes XX% XX%; follows: second were XX% rate. average is

current Xx portfolio Xx, run Our and to XX%. a rate interest rates sensitivity regard rate. portfolio basis the for meaningful base debt go upon coverage overall EBITDA cushion and whole XXX to analysis decrease on to On basis points coverage decrease and as would up has need interest with need X.X% is is portfolio's EBITDA based is X.Xx. coverage The base a to interest a to a the interest assumes This coverage. to by would

call Now back let to the me turn Art.

continued commitment PNNT like and shareholders. I'd Thanks, talented of dedicated its team professionals their thank to Rick. our for closing, and In to

I and Thank confidence your your to today up like concludes remarks. and time this the for investment in That call us. you time, to would our open questions. for all continued At

[Operator We'll with first question from our Instructions] Raymond Dodd James. Robert take

Rick's actually right, mean, it remember Xx necessary quarter, to if I coverage. in I but about get decline last to the to be EBITDA response One in would that was I comment helpful think XX%.

it XX%. have quarter, would to This decline

it or the course now since quarter, sound that seems that EBITDA quite the deterioration does that we was mean quarter of year-over-year Hope the I lot a acquired over kind is EBITDA up meaningfully So just X%. a into the than makes more of last read can a quarter, growth, that, is that but trailing ago. sense. like

elaborate? If you could

Thanks Yes. general, question. In for right. I Thanks, mean that's Yes. the Robert.

revenues kind as different up have proposition, portfolio each numbers and on a we overall leverage general up. as is general have EBITDA different are Our EBITDA the the proposition continued fresh based different are deals kind at -- is they've portfolio time. right, we a positively. the of in portfolio and But bit, calculated to the Obviously, trend the amounts with you're quarter got a in and of

say, any the ones And of issues pipeline characteristics or stage aside, then change type and in you Got that now. the you entered in have it. that the deals are early months ones ago than others? looking seeing, any the X . different pipeline seeing X might Are the expect pipeline, you're versus closing at early-stage be timing

Not anything think we have if we of -- our trying -- mean box. difference. there's material to -- kind I'm any I

amount of generally, deleveraging is there's if we're Our really our is tolerate high due reason either leverage kind Xx. go usually to a We'll to do box which quick certain for flow Xx free to above cash or below growth. companies, good of so, occasionally willing our box

got has can of The handicap our reason time, from has their box. we've who to company us a beneath over moat we known sponsors, with, a there's equity if business kind of real That's we've and done of kind lots behavior. and be

of EBITDA. upper the the the in core Now little very in market that we companies viewed XX% bit upper of of XX% end the In certain say and competition end are a middle market, to sectors there. middle there's is certain as strong core

market in odds of dramatic or tightening think probably the rates in I a that the lower, in little better And a odds of be as B, spreads So bit lower economy of may A. are shape players is as interest recession are piece believe a increase the well.

market participants economy kind the have, a is of the better. of kind bit this So zone saying, of little we is are feeling rates interest

So on seeing seeing of of we're bit market, a a the core end that we're spread upper -- compression. middle little

comes Paul question KBW. Johnson from next of Our

Robert. terms answered to portfolio But you're that rate in question seeing guess... in of this You the and kind trends my just I year your in EBITDA growth answer of

line me? your able connected. is Mr. Are Johnson, hear still to you

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Yes.

hopefully Let's operator keep come he'll back. and going

Truist Max Fritscher Securities. with

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Going current what to investment, cetera? should portfolio percent you the stay it of mix lien be? do of we expect total the the as of et levels guidance forward, to have Should of first any like we around expect the a

Yes.

question. good So

do lower As it target should generally exposure. equity we be same, a general although proposition, the yes, to continue

lien those to We comes a performing a that back, time co-investments of as we over equity be a equity we we can which And hope lien yield deal few of instruments. first that instruments bunch those secured back rotate of or quite as into hope have well piece combination second into debt, are would put occasionally, comes a positions flow then yield mezz. would M&A cash,

very And good. then JVs the been have JVs, the

our We accretive very, been It's an have teens, is to XX-plus PSLF return. Capital there generating upper the in very JV. shareholders. percent

to in rotate, portfolio to it's equity joint XX% down preferred is over I that looking looking So common that in We're the and think not of that about venture. work time.

a you of that's figure the percent coverage? for interest And do the under have portfolio Xx

It's -- anything I don't under right interest think there's that's now. Xx coverage

repayments Is noteworthy far there thus sales in if one more. And and any may Great. material I or in sneak fiscal XQ?

subsequent flow. put repayments in been a quarter-to-date. about limited deal very We event recent Yes. development, our There's

with KBW. to Paul return Johnson We'll

ideal Sorry about obviously, my curious, of just JVs of I'm the end for the few last it's given the on the had in all -- what Pennant BDC the I'm platform? But the in both for I I that think other here. from hold JVs, platform over the not terms vehicles. are the Pennant what in of platform, the again, years. that. like growth, kind you've size, kind sure, guess, managed commitment of like the including, the funds is just

Yes.

So is there. out this information. public it We put

capital We BDCs, SMAs, platform, the variety the across CLOs. have the about JVs, of investable private including $X.X billion of a funds,

be in of terms you take. a about think kind proper So it position if position X% that we of would typical a diversification,

would a $XXX about million. So position. X% X% billion, it's times That $X.X be

of our kind $XXX $XX to we So kind can we zone. is million of million say

then housekeeping, but just wondering bit if the a we have distribution give of I it. the quarter. filings And one, last of don't for available, Got little this you a on since the kind just was could JV

Sure. Sure.

million, the from So from PTSF $X.X and PSLF distribution distribution was the $XXX,XXX. was

it but income doesn't, note the And probably JV as that well? membership piece, in include the sub sub-subordinated also the your then does -- from

It equity not. is That dividend. does just the

as that have you Did well or...

don't no. quantification of I have the that,

the It's in SOI.

of You coupon sub SOI and and on the the it. amount the can see the debt

get So in of to we that's filing. for the can the here, try of but part it's investments statement it you

to next Joseph go with We'll Jefferies. Kyle

competitive rumors pick of ton banks we've market. this the on other Art, hand, capital year. pulling gone I space, given even your just of the Obviously, back and on a on in in private headlines from want seen that's everything then raised. further that brain to industry dynamics there's the been And

I the kind 'XX. competitive for industry on into just So as to want of we get head dynamics your thoughts

hand, fire private regional reports those market. the and exit on upper you've been perpetual private of have press Most and middle crosscurrents. banks some the there. capital. to perpetual that's in about middle raising we're on middle -- on are other of seeing erosion folks the It's Currently and covenant upper one BDCs hand, or going Yes. market the the Kyle, the good highlighted, covenants banks the been protections there's on focused and market, adding And BDCs

we to a very say upper Maybe point. this earlier. little of competition EBITDA very Maybe our So popular. we that, not the that. seeing as we're really of go on from XX% bit upper said the end thinks of end or strong seeing on more XX% they're -- in I at are we're at deals industries that Everyone

world we're in there's radar market, players. very among the we're core this So seeing the the the seeing we're players. seeing And same same overlap our middle kind in under of little

of them we think time. research the part deals players of I we chart, actually the which does as middle middle S&P they CLO market kind X% players share an of do with maybe market their and the of run most, interesting kind into and

we So of powder. They there's market, middle-market the the our those ours, thoughtful do X,XXX be to equity dry rushed Yes, which and real do it's private diligence, due America. we capital careful proper very on particularly focused and core is a borrower. trying that of have over massive not where meaning middle many, where there's lots why we're and deals. think, has to market. firms not in can They're but There peers is,

taking remains defensive it deal is and one default this we're because Thankfully, So rate we we're have just that's of kind -- time. very a low, at our low, posture.

and thinking type potential curve the reductions looking how of just to the and dividend, then kind cushion for there? And forward the Board have rate the helpful. Very shift of you're next is the about the it. year in given Got

we've a -- until evolving It's question. quarters. an dividend raised We're Yes. question. I've for the quarter, it's good Obviously, -- many up this many,

rose income remain rate dividend a their couple limited. pivoted ago. of our As default to We very, months as monthly and a very

$X.XX. $X.XX, earned paying we're this quarter, we here, out So

now, to a for think $X.XX percolate share of I nice dividend. a to let the per monthly cushion keep just kind we're going

and air to watching something the and We'll hopefully, And trends this earnings months continue to will the of about really, things we're rates. in has earnings. This are we're been really JV, accretive PSLF to very a and and up be see how looking on. decisions, JV about see come for see no focused accretive but interest portfolio, in couple it's

Our question next comes from Wedel JPMorgan. with Melissa

to in first wanted disclosure I December you the thank levels for quarter to on date. activity the

or sheet? balance some JV? on activity for XX.X% that think with end yield clarify, average about -- that on up an we Just as that the qualify Or that of to sort sort of flow would should would of

it's a Yes, good question.

for would JV versus have peers different our that put put they some it in of know they types qualify So sheet the of on at both. BDC. assets what I balance their

available benefits -- peers there's get bit a the our leverage the exact of syndicated capital one really couple loans, of a they benefits sheet loans of do today. And both JV based JV. in of We can have broadly smart there Some optimize put the available the we capital our put maybe Two, partner. some benefit same we is allocate JVs. more. balance JV the One their of and -- the and on little investor BDC and we the a institutional of like

-- it's a more and first lien. it's So levered also do than vehicle we all

all that more on So first in gets of we're equity that senior then do we any a debt levered level. than kind lien little not secured any bit JV. putting BDC mezzanine It's and or the

the in market kind of BDC, if also it's an X than X, maybe it's balance than be regular in a to would it middle CLO. X.X to or in to So but is levered it which X optimized sheet lower up were let's case on say, higher it's

the investors there a with business gets have equity X. levered third-party middle X CLO to market and We

we little the CLO financing more and very a continue venture. book ROEs is keep do maybe levered strong, We of that to that's quality leverage range. seeing. than good So long-term the BDC, which that for if tool Xx joint the can bit technology in first be less can we're very as very loans, kind levered for we than And venture, this But to use financing, a lien financing of a matched CLOs. X.Xx what financing, have high on joint

a follow-up on just So that.

which Obviously, a question, down came is into portfolio. activity the You in my repayment bit. quarter, led next leverage some leverage September the in elevated right with

at see evolving where sheet thinking you'd You're on within all PNNT? balance like to on leverage

we're still a No, Yes. of as over September at targeting little X.XXx. We're PNNT about XX. Xx

So there is some capacity at PNNT. balance on sheet

we so we're some time, equity, still over Hopefully, targeting highly this of will be And can that X.XXx. rotate accretive. which

As comes been it. been which back, on slower. we than be rotate as an do to able some would hoped. remains deal to that, longer balance little that that a I that's sheet going market middle opportunity. mean is has M&A our we're sure, been -- It's flow we slower, of have means for But

holding, to closing with other the additional comments. Penn turn questions I'll or back any no Mr. And for conference

everybody just for participation thank I their to want today.

As gratitude we come to certainly all our Thanksgiving of next week, investors. lot a of have we for

And early for speaking with your February next our you forward to very us. release. much. everyone earnings in Thanksgiving of gratitude. We're spending wishing capital we thank So a next you Thank you to after and look time

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

disconnect. now may You