PennantPark Floating Rate Capital (PFLT) 26 Nov 242024 Q4 Earnings call transcript

Good morning, and welcome to PennantPark Floating Rate Capital's Fourth Fiscal Quarter 2024 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions]. This is -- 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 Fourth include Rick discussion disclosing morning, Rate Financial by today by Conference our Capital's a

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

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

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

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

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

see We attractive the market. core middle to continue in an vintage

pipeline, $XXX portfolio weighted interest remained million average at debt-to-EBITDA XXXX weighted remainder weighted in coverage the increasing, of average active was expect of and companies, the average is was to we the loan yield weighted be to volume over X.Xx, the to robust quarter new X.Xx invested XX.X%. was investments For XX%. Subsequent end, and value a and average we have Investment we a active.

the XXXX, term loans During market yield to on has points. basis first-lien XX tightened XX

middle and the leverage tighter statistics the continue highlighted credit to higher the market, are in still lower, core spreads upper the current we directly middle market than we market, covenant believe is covenants in vintage originated middle core erosion just indicate, upper market. Despite the getting of in the are In covenant core As loans that protections. excellent. market, is middle meaningful are middle

of ratio risk ratio be to September financing to drive that good are to X Securitization we we our for going a net was income in our match positioned of lien continues target growth a to X.Xx As X.XXx debt-to-equity investment XX, X, assets. lower forward. with believe additional first

XX plenty was decrease a at a and of a an $XXX quarter, and a X.Xx X.XX%, to securitization million external which X-year ratio PFLT period decrease junior creates reinvestment average the the spread for PFLT's meaningful average of the priced prior of XX-year of from term AAA the debt weighted X.XX%. favorable of The market upsize this points structure, company. X.XX%. The is which spread in liquidity with the of main contributor a weighted capital of weighted was average level of attractive portion refinancing of to to X.XX% maturity. X, The final spread basis the During debt closed transaction environment

Additionally, facility. increase during in SOFR total million, in closed and highlights the quarter, amendment rate is we credit an The XXX and down the truest period on to $XXX an in SOFR are the commitments of to the revolving an XXX a which plus extension the amendment of reduction plus to from revolving extension XXXX.

stability We due part the venture. NII in in in joint expect investment to our continued

during invested investments only decreased the and in represent of due X associated portfolio million at and to to primarily The write-off share. from $XX.XX the and XX, strong. assets portfolio any We million expenses X.X% NAV was totaled purchased of in revolving $XX PFLT. GAAP quarter value. $XX.XX JV to $XX X average JV portfolio the cost fees at new September yield didn't million for portfolio active of existing remained nonaccruals companies and Credit quality and status the of X.X% and refinancing the the previously $XXX noted the and facility including with securitization a XX.X%, nonaccrual As of from X.X% per decrease per weighted remained add new market NAV the quarter extension. and at adjusted of has and share amendment

portfolios was was coverage average As most structured one is weighted through the of We X.Xx, average is like focused XX, interest a conservatively as lender to States. and United market. We this and secured September senior leverage direct lending weighted positioned capital the our being focus portfolio's testament the our preservation on X.Xx. security the the believe a on ratio first-lien of debt in middle portfolio's industry for the core

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

and our also to track to ask are defense, companies sectors have of value the record. middle X financing tend sectors generating cash by compete syndicated broadly resilient companies software successfully market flow. The $XX excellent free These loan growing below markets and million questions where a track or $XX in have consumer, services, services because lending market. process sectors. right We receive with are middle been high-yield the and and strategic package market partner, are In terms substantial middle of the the is and health business They peers technology. core government and is key attractive. to in know These market, we EBITDA we with million expertise, middle long-term have unlike an core record domain upper of does generate an the we care and threshold strong have the not important

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

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

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

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

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

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

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

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

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

Thank you, Gap]. [Audio Art.

General investment investment income the For that of expensed was onetime share the per $X.XX were debt XX, the per during share. for follows: incentive investment [indiscernible] on and income and was $X.X quarter [indiscernible] fees and ended fees. as administrative net net includes million. $X.XX quarter, $XX.X were core were management on expense $X.XX expenses the costs impact interest financing the expenses and Core core incentive million. were of GAAP $X.X million. quarter share net add-back performance-based of and were Base taxes June were net per income Operating

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

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

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

in quarter. comprised income equity the XXX debt, at value. follows. ] X% The PSSL statistics is which the the portfolio X.X% nonaccruals, investments during As companies XX.X%, is across cost senior rate. the industries. of debt XX% first-lien X.X% of X% weighted other XX We portfolio September less [ floating and remains The XX, highly had in debt, was lien X The PIK on of at the and than XXX% of portfolio average represent our with secured as income interest approximately in different diversified and our only total debt key of X% yield of market equaled X.X% portfolio equity. were second portfolio

on EBITDA was the Our and X.Xx. X.Xx portfolio debt to interest is coverage

to let Art. me the call Now turn back

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

[Operator first Instructions] from question We'll KBW. Paul take with Johnson our

of that's administration in also, the vintage for are currently guess, the know I rate you very year on what firm. thoughts of kind in what the And kind upcoming vintage the very over declining be quarter. But with deployment a It's active would year change I question, the a only see do my you and next kind Congrats about environment. find that of of your big current attractive. terms

a X.Xx., good originate debt-to-EBITDA of average over get you Look, and XXX loan-to-value Paul, of rate XX% an morning. and when of X.Xx of risk-free have can the Thanks, on interest average kind average. that loans coverage

view Our all doing is you're to day long. be that supposed

at and as So you yield opt we safety security know, PFLT. for over

So year. very high in some there's models $XX to quality be big plateaued But have yield these the seems where I less doesn't core a even over been last that it company. EBITDA has we and very, competition. It for million, All just the to lending it for players we've credit get compression to $XX now. market had business the make lot credit sense million, $XX middle move -- million up think here the have their

opportunity. taking been we really we've So of good think one. -- it's that a And advantage

in busy as terms that record now. these of we rotate very of standpoint market positions. think a over the we've from some can Xx XX I it's a MOIC years been these as co-invests, an core with equity hopefully, M&A had We've means in you tell, can said, track equity the outlook, good middle

curve that because again we And outlined, will with hopefully, be some capital the these very paying would would spreads supply. Even that more we're just the liquid they but middle our widen if So hope with then get widen. with perhaps the credit in of pleased with core we activity, can can cash I That be the spread supply vintage market supply/demand don't, hope. rotate the the yield. that the of on into question given

much? rate, of grade. Paul? it's above So way the going your to risk-free that's answer pay In down. the that how go The did question, market terms Certainly, be question believes our will

spread you're year the environment. Yes, meaningful current color definitely and been year, kind But tighter talking this it's of yes. say the about you covenants, mean, I current there. Good still but vintage, getting in a

on is So pricing I occurred little a Are covenants kind versus resin of bit has pressure little just you co-investments, where held would year the guess would you're kind you getting. pressure, say, last equity or of spread getting getting I just deterioration or of has, the that where of or Or terms terms same or were any, how the less less deterioration ask occurred. bit in of you terms if Has that fees you've been documentation [indiscernible] the has up? it the it a that seen? on

that's or [indiscernible] today, That's interest Yes, covenant were bad closer even the days negotiate a The $XXX question. of you where good were cushions fear, or to Certainly, and XX%. base rates cushion the to in and or getting the over. XX%. $XXX we $XXX your case XX% to they're rising

getting were had maintenance So companies really the and phenomenon live just go were to but if brought the to want table to example, statements the And discuss quarter-to-quarterly that figure we together. It's to go and and to they're of we to were, fact past well the really that there way. problems they're as due solve still were lot you -- to to back out they we've they're going mean fact to rate that as along problem, you seeing wider up that certainly to how these cases, the to monthly capital takes dramatic and these COVID. there, test the here that, same well seen a than if COVID still of much that equity people low problem. any a quickly back the loan a us protective. I generally private in of put they're a have capital a here, solve But for we're thankful that. by bit beneath really they've nonaccrual very to more has kind if they're and is of we're covenant with little one willing we're that problem, that. a got the so willing or problem And remained reasons equity in because debt, value liquidity and vast to solve capital protective more large the there's it our beneath to of so majority do much the sponsors financial

for Was the guess in driver restructure us quarter? And off you that this walk then of could the quarter, through there for [indiscernible] Art. in any the Thanks I written nonaccruals decline just that?

Yes.

Pragmatic So X Dynata, are Dynata and we had nonaccruals Pragmatic on Edison. Walker still last and Edison quarter, nonaccrual. Walker restructured.

same So X out of X.

there impact value What from -- then you basis could us this just book if of on share ATM was last And a Rick. tell issuance the the any? Okay. question, per the quarter,

No NAV issuing or impact on ATM, NAV. the immaterial. under We're at either above impact has been

take from Truist. next Mark question We'll with our Hughes

dog on in be Art, offing that and on the that? portfolio potential impacted Anything by anything the that you eyes have your with spending. the government pressure your could in

will and those a wish all great we question, mean Mark, an from knew It's what we impact.

-- those not where walk of intelligence, have steady and nice of technology, and bullets. know, piece you businesses and Most do As building it's people really guns government defense, into are some and of been form stable. services are this service offices bombs a cybersecurity portfolio, businesses

this And messy want So taxpayers, is world the And currency to we and or used we geopolitical standpoint right from course, our a efficiently. be dollars So a but of stable. want it's efficient little tax been cross now. as maybe an -- right? government, steady all don't certainly

record, do. and our very We've see plays we all in terms what a how peers big stumbled health we'll had some of peers. our better track through We the services piece of much care it is good care care. have know government defense. Health than of health So in a

course, leverage it's basis, on Xx, get risky just leveraging or -- peers senior than a you're we you're Xx maybe lot reasonable that you Xx X.Xx of if like the could pretty but it's low, hurt, some a less care done. health our think and I of company if have keep our

the our taxpayers, been right the an track record selected we in has system. right care like health So all sectors. health good. And companies efficient one We've care

if be it to lot stick going to you being low, keep we're won't to solve and a but seen, going be can conservative impacts Not leverage for to say of kind ills. that. So just we're we'll to -- of see keep there

Yes.

Okay. How I looking the strong. are net a on quarter about appreciate activity How your that. quite far -- you basis? so origination fourth repayments? has been the How in about

Yes.

repayments. happens. people we We When getting good. us you. say that's And It back, are pay thank

Sometimes, as know, don't. they you

more, getting and we're is environment, that's repayments fine. turn repayments. and to We'll That's conservatively. large, active for and a So should capital get a cash. M&A sensibly us. co-invest due The churn bit to little more which, hopefully deploy by We'll good equity those

recently, That's estimate, new estimate. probably I'll to making repaid. that it's flow. $X and investments at we've out So But an probably given $X been the off-the-cuff ebb opportunity will least -- just getting

you new And a appetite going the similar in co-invest? of then your the seeing opportunity both that to originations, in strategy relatively equity kind then co-invest be your Is are or those opportunity? to part stable of approach these of terms and

it's good That XX years It's opportunity. that question, elsewhere. that always opportunity and done at take before a haven't this Yes, is we question. PennantPark a I now there. do

We've Sometimes we and had a -- But big that's invested million over kind will the losers. the invested because the depending over we'll opportunity of many there's $XXX equity out, multiple equity of and that's MOIC, to Xx hard years. the that's situation, XX% invest a XX period some work we co-invest a in winners kind worked IRR by on time sometimes decline like of business. some And the capital. large, and the deals long graciously more

certainly some certainly more worked. there. in Xx. had lot a zeros generally some been have than that had We it's So We

We'll take with our Doug Harter from next UBS. question

as thoughts takes and on and to the some earnings of updated dividend us the coming power kind you're maybe about puts in Can year? of thinking you the give how

as about question. imagine. great might think a time, you it the It's all We Sure.

because -- the we will Interest quality is credit remain down. going strong. Let's to downside rate Downside going ports first. interest quality. And we're right? or rates, We That's the to credit what's of how think downside? we're guys, come continue think hit then the credit to

of will Of rate the title cue to course, rise vehicle this its guarantee. imply any Capital, And PennantPark as and Rate rates some from extent. that this there's that portfolio never would floating fall, interest is which take Floating

it's certainly and just highlighting floating that rate So lowering potentially credit of this title rates, vehicle quality the capital.

downside. the that's So

target several is different at have the equity X.XXx, leverage We're X.Xx, you target rotation. On AB, co-investor X.Xx. kind at elements. our leverage We're not upside, of yet.

see wind. some You'll

go hope you reputation We marked up that opportunity, As been you'll comes of this Those us environment. right. -- which are leading Those equity mid-teens have see through very decent are are sold. get kind always here a JV this we to historically a our going robust in be on to portfolio, then are some nice return companies indicators that of M&A some equity more And gives capital. substantially.

looking more JV? a management should more senior balance entity. nice So assets upper bit at for saying, of teens generating we're managing PFLT mid- capital. and management little leveraging And the than lower-risk It's charging on do we are shareholder, would not still successful we're on is that to been to capital a fee up BDC JV, and the for on that. way our PN though, company the sheet return the safely upsize JV both should existing a we take we and has new very

into bottom those So returns PFLT. the of line go pure

go. I hopefully, where we answered question. So that's takes. and your puts We'll got And see some

back or no would any the like questions to Mr. additional call to With in remarks. Penn for additional queue, closing turn I over

you grateful being the let and in certainly know this the for to and on want investing can the with thank company. Thanksgiving thankful call Just show in everyone and for PFLT interest today, are we everybody

February. season, So talk in a and wishing we'll great to everybody holiday you

will call. We appreciate That your today's participation. conclude