PennantPark Floating Rate Capital (PFLT) 8 Feb 242024 Q1 Earnings call transcript

Good morning, and welcome to the PennantPark Floating Rate Capital's Fiscal Quarter 2024 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 Floating Rate Capital. Mr. your begin may you conference. Penn,

joined good Thank conference statements. Rick, welcome XXXX please I'd Allorto, call I'm to start forward-looking off some and everyone. to you, Earnings Chief PennantPark general Officer. Call. Quarter information and about you Fiscal Floating like First include Rick discussion disclosing morning, Rate Financial by today by Conference our Capital's a

to safe like for the statements forward-looking everyone is that refer note Thank that property today's is is actual from in our replay results to you, call your information. be audio to Art. customary Rate Please to call I'd any of recent An forward-looking regarding differ being our any of materially call ask will disclosure with Floating that PennantPark that release available projections, conference remind this harbor call that projections. SEC unauthorized the also those to Today's most also like of recorded. you important cause form and and our factors this we on press prohibited. the call attention could may in and include Capital strictly broadcast the filings call website. I'd

us back forward-looking the Officer, Executive XXX-XXX-XXXX. At We SEC turn copies call Chairman by of at this Penn. do filings, website to statements our time, our like call please update not at undertake law. and to or Art our pennantpark.com latest required I'd unless To obtain to visit Chief our

quarter financials, it positioned detailed upcoming the how we a market review the few ended discussing Q&A. the current lending, for up spend quarters, of environment middle a to going in how for market open the portfolio December XX, We're then for minutes Rick. Thanks, is fared the

quarter in to investments. was core $XX.XX the increase and was share. per For the to positive NAV X.X% The per due on increased and investment valuation both GAAP income quarter ended December equity NAV per $X.XX and $XX.XX share share. adjustments XX, GAAP net for adjusted the primarily from debt

our the prior quarter. to December billion of grew or XX, $X.X As portfolio XX% from

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

investments lien the was The On XX%. we weighted companies, weighted X.Xx, in seen loan point was new was the value spreads. interest have the For coverage portfolio debt-to-EBITDA weighted basis on X.Xx. a average first average and tightening XX to average average,

However, directly current that middle to we excellent. core of the vintage believe continue loans is market originated

are spreads we are market, than getting in lower, in covenants in the and middle meaningful covenant Despite still market. are the OID middle upfront tighter higher, the middle upper Leverage core erosion is upper market protections. covenant

to new investments. continues invested very existing be end, flow deal million and active. since Our quarter we into $XXX And

As of With positioned drive debt-to-equity December of in target ratio that XX, forward. additional X.X:X, a X.XX:X. ratio we are believe net well to was income our going investment growth we

investment venture. growth in the part NII be expect in our additional by driven We joint to in

JV partner, grow we approximately XX, $XXX to on December of together to continue totaled plan of JV our JV As And portfolio the billion execute million. assets. the portfolio the with $X to

accrual the nonaccruals nonaccrual increase had no resulting enhance drive was new status. stable. invested attractive in yield PFLT. continue We and JV the to balance and weighted from the and new mid-teens momentum. Credit that JV's ended purchased including were in million capital sheet a During returns X earnings December assets of of $XX of portfolio XX, of companies to quarter, X existing return will scale million that at invested quarter the in the X on We quality $XX average in investments believe we the the XX.X%, on portfolio restructured PFLT's

ratio at security XXXX, leverage XX coverage average rates As ratio was the portfolio's interest of was increase And the despite X.Xx. our average during debt portfolio's steep December December weighted base the weighted X.Xx. through in XX,

lender In senior an the uncertain lien a market United on environment, we like focused being preservation capital positioned States. first secured for as

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

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

million vertical, in Our software market. The high-yield million loans. companies a of threshold peers below is compete our ARR market, upper to core our is not and vertical any and exposure loan middle don't $XX with $XX in software unlike we the EBITDA with broadly does or syndicated have the which markets, to middle

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

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

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

than That covenants, who those all of that companies loans, and why loans a reality recovery middle some companies this more focus capital. sense, are with to state million careful are we the rate This part to originated S&P, less performance. market, core diligence is bigger default the had higher to virtually differentiated which erosion the the EBITDA. been we of meaningful on EBITDA, a of has than market may monitoring protect our upper believe of of less the loans higher is We help this and middle Many intuitive first significant make regard to risky. in upper lien well our unlike covenant have covenants, $XX reason believe but meaningful peers in With tighter different. an important loans positioned environment. that companies lower market middle our a protections with rate According

since we XX companies, basis over quality billion in experienced been invested XXX only XX XX ratio years have capital and $X.X PFLT inception Since has PFLT's invested ago credit on is excellent. has only Our loss points annually. nonaccruals. inception,

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

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

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

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

free of high free our flow in goal. and is mission are and have Everything primarily that aligned dividends steady, secured to capture We flow first preservation find the capital. instruments, in flows Our seek those stable of companies investment with senior the cash shareholders. we cash to a that and we in form market lien opportunities growing do goal to conversion. contractual dividend out that protected cash pay stream, We coupled middle

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

Art. you, Thank

debt million, as $X.XX the share. per management million, income $X.X follows: the fees for For GAAP and were $XXX,XXX. $X.X were taxes expenses incentive were and on and and administrative XX, Operating million, ended general core quarter expenses interest were performance-based quarter were December and net was $X.X base for provision investment expenses

$X.X realized million. million and share. XX, taxes December net the on including for credit unrealized ended unrealized facility $X.XX For $X.X or and notes quarter per for provision on gain investments, was a The quarter of appreciation change the our was

share, XX, liabilities share, up which GAAP per $XX.XX last mark-to-market per last $XX.XX NAV of As the quarter. per was $XX.XX is Adjusted share X.X% was quarter. up X.X% our our $XX.XX of from from NAV, excluding share per December

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

facility we on December quarter, million that revolving our XX. liquidity of used notes matured the repay the During from unsecured $XX credit to

for key at cost on XX, portfolio of debt equaled new was income investments our the floating We were total We X% PIK with only the is represents XX.X%, remains diversified debt value. across did the any XXX% X% industries, market of December income approximately and XX quarter. as different portfolio statistics of our As XXX had the portfolio the at one investments investment companies yield average rate. and of portfolio nonaccrual, our on follows: highly during X.X% weighted quarter. put not nonaccrual which

interest debt coverage lien equity to X.Xx, is in the X.Xx. of less X% in first other is and portfolio portfolio secured EBITDA lien equity. and X% PSSL comprised on senior XX% than The in debt, X% The second debt, was of

let Art. me call turn the to Now back

and questions. and to all That closing, Rick. up talented would investment shareholders. open for like continued team of call to today dedicated us. concludes In like professionals Thanks, time to in time, PFLT Thank and for remarks. At their its our your and your I for I'd this confidence you our thank commitment the to

We from Brian our [Operator with take McKenna will Instructions] first JMP. question

Great.

it So it's this carried good to momentum activity seems during into new in has quarter. And the like the year. origination calendar see then the pickup

sit do you've over base recently, when from sector a expectation quarters? of invested at the perspective? for you the investment these And few what's case look majority next the more then investments companies out portfolio So where looking activity the new to

Thanks, Brian.

like Just services The one running health bit doing an we've active services of first. quite And we kind sector. which, I'll of government care gamut that the that sectors bit imagine, in are business remain of then you sectors doing quite cash health in is care, are same. and to We're a defense, just a have in free We're answer most might second and been that the recently. performing. where strong as active the flow

of a terms it's question. great In expectations,

it's do QX. XXXX standpoint been don't We active we us believe really in of first been course, Usually, Certainly, the the will the calendar in has is calendar quarter activity normal. year 'XX, moderate an activity of active light. know. be for first a From overall. Of than level, more of quarter more that this

we kind will now, quarters don't believe the bring. as here what -- So a ensuing of year in from sitting we're do know be with active if XXXX, we'll

Helpful. follow-up just Got on leverage. it. then maybe And a

in quarter, the So quarter. that pretty base prior low a that's in meaningfully the increased pretty from but

sitting the So kind today, Xx of still it's range. of that lower at about at end

here? So what then notably here? leverage or leverage, scenario again, how about I think higher ultimately drive would environment trajectory I should deployment the And guess, of guess, we from from

Yes.

leverage our lower target it risk long-term this which first for area comes. it -- portfolio. take portfolio, Look, lien is about So as we X.Xx is still a

of some chest likely a and getting this you that great in to We believe and value the have we're We loan We low stats this now. is to a nice high credit be vintage. vintage -- good leverage that continue interest in right shared vintage. essence, war and to with coverage

try we So selective we're fits highly when deals. to high-quality still to find can We're our active going about box. be what

can in kind over results box be you time, and better over refined seeing of we've the credit rate better gotten and tell, that which stat. been As to we've nonaccrual good and time, our we've low

advantage take there's less our and we So earn where get can origination around goes ROEs, are, leverage? shareholders an to if as judiciously these And we that But expectations NIIs cetera. of to time. when Again, X.Xx able for nice chest, do back really this some being of upside vintage. feel night et kinds the good to deploy we hopefully, levered, war having over markets we excellent kind of

question will KBW. our take Paul from Johnson next with We

what of but you the sort timing, higher drove curious as I'm originations. the on I of -- sort just fourth attractive it's I just really -- it was recent high in the the your to activity, loans all kind et that here, for to drove saw? it question just given quarter mean, there, answered You my mean anything cetera? the activity due things pending, quarter? was on Or Yes, of what outlook

investment platform Yes. sponsor many in is providing to business particular a typically cases, private initial that's who where industry -- a model one in acquisitions we're good that add-on it's our question. for company And opportunity equity sees or growth sector. a And a loan

then of So add-on market. growth what of lot was of platform deals in a and refinancing see or these to middle this not opportunistic sectors. this the the upper is which fuel much financing, majority you of Vast the investments is probably

of million platform for of goal And So and bit incremental with and time. their add-on higher of will our you alone. that's that's And typical investment EBITDA, $XX $XX then do, a company kind part it out of initial get start million partner. $XX a what us or saw big to we strategic it does million is remains. the quite but or We that become to make of kind a delayed we draw activity, -- over

in certainly, trends so sectors partners this overall finding are by around are where important -- sponsor opportunities. M&A many opportunity driven So in areas our private fundamental here. cases, is particular But equity of

QX, were active, -- of not active We're moderately in active we active not we -- kind calendar So speak. we we're as fine. to not remain we're force that learned always in selective not as just as and and investment, but But active be a backfire. as I'd capital. active QX. that -- judicious say we've calendar deploy want a to careful We're QX, that's and if rush lesson We you

So one we're taking a time. a at deal

that And hold expect I Or at the these are very investments some That's that. you way on to? are mean, find on into detail would their JV the for Thanks going probably point? these helpful. to Yes. then to

Yes.

So kind hundred a couple The it's to of it JV deals pro liquidity. extent of has JV takes rata of a million has rata good the of question. that we a liquidity does, The typically originate. piece the piece it pro and

much and into way will PFLT certainly So we And JV, continues vehicle which the shareholders, our its it what's portfolio. find a of hope diversified is accretive a over so. for time, to been new certainly, be nicely highly it's

in question was in that you increase a investments the that just function was quarter, of the last made of drove equity was in of investments I'm my kind quarter on during activity then And that? that that just curious you large if received the guys significant Or higher just there more any this the quarter? co-investments

the to just in function many will successful where and is was we high hope be which MOIC. starting just equity. really some exits repayments activity. there see, we of co-invest the one are Xx And a to actual many those other the thankfully, In co-investments a there's as say, repayments that No, we of we've closed and Yes. are that rotating equity made cases, we day,

So we're of get So that equity existing to they on, or holding a go the back hold deal activity, exit exit it again, be are time is new what's deal as which expect activity, been kind starting this overall to and busier, to sponsors see the win? we'll going rotation, kind But of nice. is will some good who've to into are to I'd to able take from on? names Or they rotate things going names. portfolio

our next Mickey Ladenburg. from We will question take Schleien with

was a amount? there the this Art, in fees activity the this income of else or Were could in caused quarter's highest what it's years. prepayment couple quarter that have outsized fee been any

bit quite activity. a we new which bigger has overall. of the an just of It active but lot. bit driver, was been it, or so a was or Look, that of quarter -- amendments activity it There a just there quarter quite X not activity. wasn't was it lot There's of pieces active had -- a was X just main loan

of it commitments discretion Okay. proportion your Q, says unfunded the companies? about $XXX portfolio terms at of What And that million. the of in the it's is in

why they delayed So thresholds. XX-XX -- and it's So the are meet have they company's draws performance revolver add-on typically, And they about covenants industry. to that's delayed discretion. find of a revolvers draws they kind consolidate is -- right? particular Typically, delayed have or some draw, the as Delayed deals. to at want because draw and to do

will from go there's even turmoil, draw And delayed as back then. delayed of a less like borrow were many but revolver or in the because borrowers although times it times COVID X GFC, part the of the of activity as to we turmoil, acquisitions. In will in the or no draws found add-on

maybe it's to look couple half revolvers kind not of If COVID be go you delayed drawn, activity have, any million drawn, fully at scenario, -- be would not there if least would the but half or half. were the hundred So but we draw that at of to type and about emergency X.

Art, in the taking that at Talking position rates. credit X/X the now of enough. of of capacity you the the looking at liabilities from Fair where are floating are sheet, facility a Okay. issuing debt you side potentially your balance in you're right about about it of year? rates some unsecured advantage more leaving Or later way comfortable declining unlocking and debt this the revolver? some and Are

Yes.

really before first loans. good for liability tool, particularly unsecured think I lower-risk is these a securitization the CLO technology lien debt, management

So middle kind a market, track a CLO, as becoming And record well market are have Mickey. in -- middle-market third-party very CLOs investors. BDCs this. CLOs as know know our I may of a darling our we for of as you kind and CLO the cover you and JVs manager good of in

create on to unsecured liquidity a markets. for securitization. step of always is And probably the looking So revolver the we're course, at

We doesn't have unsecured paper a handle. big mature until slug XXXX. X That's that a of

unsecured. coming tool be So particularly get we part need chest, no now, really can right It rush financing. certainly with it don't the we're down. We can opportunistic we yields when efficient is for about of in securitization but

And through be of CLO structure, market? do a that Art, securitization were any priced sense new in you would if today's where to a

be $XXX-ish I , million. low $XXXs mean, would it Yes. million probably

We from will our Mark with question next Truist. take Hughes

any there, XX credit anything be about Art, X.Xx, the you you I will sense below? what how over on trend think good described or Can a to Xx pretty -- X, the may think, months? proportion portfolio. closer you coverage interest for say And next

Yes.

interest it Look, the a of deals. fingertips, lower our So at there's don't handful have coverage.

of handful loans to over have that loans. XXX are I a deal, always XXX We underperforming. there's mean, going be

me major you'll that on a kind are. X X I'm We it, value, of a call going up, at to ones look there mark-to-market you able And ascertain they watch. to the it's are have means be fair to handful, around too. to and show only to if which that, which the X

large, continue seems of start been, But to for us stay with it's at the some either the benign market. this certainly Is point. really starts things Unclear. are environment, fray Certainly, to we the Is tighter going it and going costs this in of will Fed has tighter, when way, kind benign term? clean interest away the maybe down, as that going been coming to coverage. very be that I long assume Or it's rates if to and going that easing by portfolio economy that not benign are for of to a interest should quite it's here this a and And as persist? a of very possibly. the mean, high but grinding certainly, as some are kind kind cushion strong. little capital create for structures

So right a pretty now, we're position. good in

were are You've severe risk, of Again, the lower in seen the deals of overall handful really nonaccruals. are of kind that even scheme. attractive watch as the a we of and And underperforming that on the less low very we're great portfolio doing, with become return list, names gets staying investments. shared will watchful you and new And this we're more handful credit -- populated but with only stats some cautious. finding on that some we're and the that significant vintage, grows deals the certainly,

that the still perhaps of at normal how you market, end going pre-COVID, you even the seeing compare do business, erosion seen pretty holding Are to you of erosion what you think those say, then have within mentioned packages? rich. you're upper you're course the might some see covenants, pretty firm they And with understood. Yes, covenants your but

that levels say back kind we get protect pre-COVID that reasonable do us I'd the statements. and Yes. to -- -- kind Yes, cushions financial with monthly of we're of

XX%. I'd look have was back of it to we spreads pre-COVID. and tighter. could So tighter. that Certainly, we're -- We at you said get kind if come XXXX of say 'XX, early down I kind

are to normalizing line of I the that, with think kind covenants pre-COVID. in

and going maintenance at to did with So between tests, -- information, point liquidity across table we proactive platform. companies get which were us a needed. the COVID was that obligated had that during because the knew to to we Because the scenario figure the we test quarterly really and and have had maintenance we problems what share and and that had to loans COVID with of make out XXX to early many figure that going financial and monthly out to to financial across the during were And the monthly they of book, be sponsors how get early. about quarterly that table if really the you could COVID, to solve got statements remember, our shared they be and us help our us, not

our to core back very So us And information capital when had cash well just about of we're COVID. hit. put to the to and for COVID get through solve really portfolio, the across out pre-COVID to needed that refresh, XXX which to cases, of those middle XX XX% the out covenants problem. deals -- offer rights, are sponsors in of And market the we those -- in in liquidity was worked the actually loans the all

market the and we covenants. minuses table where really the kind like of rights rights, that's the and the pluses quick. information So us and middle get monthly protections really upper about middle market maintenance When to market -- the these this the core middle we and of talk quarterly benefit versus core information

take UBS. our Vilas with will We next question from Abraham

you of I an well? strong, a you that goals. repay kind about any be share your and sight a prepayments to in if of pick should of up first continues impediment getting question of presumably, had repayments, year? talk to just Can as And if leverage And that kind would activity the repayments. bit of be the line for that on origination half just have

bit. indicate near not to are we are to certainly -- They're starting that originations. wave. maybe equal to -- a starting But not little there Look, repayments nowhere is see M&A It's a repayments. percolate Yes. being our is

thank much So repaying we for when they very don't. repaid, get say -- minuses, sometimes us because and we pluses you we

get also bringing register appreciative the very when in we're many And So cash from cases, we're we side. co-investment repaid. the means that equity

to happen, we're of some happy which that is with. So starting

is And X.Xx -- we their rigorous got in don't "Gee, its each because research say, where we as community in We're what happen has speak a in X X to go feet. -- deals. that there new on the and X deal underlevered -- our also see to here sense Again, process it make model We'll own the environment we fully quarters. we're get get is through. It's We to in do sit there. to and even healthily I very an as said, originating when beating we're dividend also next we we're we we and deployed. environment JV or to not wants get try

of great -- a chest select the a gives cushion the the of war dividend. the us what on good in of We sheet earning kind vintage. be healthy this, be whether are JV to balance we're rest should balance think what hopefully, So deals to it think really remains leverage or what sheet we

deal XXXX an we We're in rush will well. XX will we'll do we there So that when if you're work rush, get out be flow it will think And a We we usually a year. think there. get because come. active doesn't not in know -- be the

But The like than I portfolio weighted QX question, yields higher for you're And and it were yield average just Okay. XX.X%. yield. deals that. -- is Great. then new quarter-to-date, just around my It spread on average average looked on saw XX% looks then deals, think I other dynamics. like

term? of expect kind there to in kind of -- what So looks and about there talk can like you little just trend-wise choppiness it near of the bit a

a to XX% Closer Yes. quarter-to-date. is for Yes. That's a typo. typo. XX%

that's So doing. what we've been in very line with much

have Penn in not queue. do to now We turn any the call closing for Art further back Mr. remarks. will the questions I

I for to look to want you. everybody their May. early forward speaking to Thank thank you in next We participation.

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

You now may disconnect.