Item 1.01 Entry into Material Definitive Agreements.
On September 19, 2019 (the “Closing Date”), PennantPark Floating Rate Capital Ltd. (the “Company”) completed a $301.4 million term debt securitization transaction (the “CLO Transaction”), also known as a collateralized loan obligation transaction, which is a form of secured financing incurred by the Company. The secured notes and preferred shares issued in the CLO Transaction and the secured loan borrowed in the CLO Transaction were issued and incurred, as applicable, by the Company’s consolidated subsidiaries PennantPark CLO I, Ltd., an exempted company incorporated in the Cayman Islands with limited liability (the “Issuer”), and PennantPark CLO I, LLC, a Delaware limited liability company (the“Co-Issuer” and together with the Issuer, the “Issuers”) and are backed by a portfolio of collateral obligations consisting of middle market loans and participation interests in middle market loans as well as by other assets of the Issuer.
The CLO Transaction was executed by (A) the issuance of the following classes of notes pursuant to an indenture dated as of the Closing Date (the “Indenture”), by and among the Issuers and U.S. Bank National Association: (i) $78.5 million of AAA(sf)/AAAsfClass A-1 Notes, which bear interest at three-month LIBOR plus 1.80%, (ii) $15 million of AAA(sf)Class A-2 Notes, which bear interest at a fixed rate of 3.66%, (iii) $14 million of AA(sf)Class B-1 Notes, which bear interest at three-month LIBOR plus 2.90%, (iv) $16 million of AA(sf)Class B-2 Notes, which bear interest at a fixed rate of 4.266%, (v) $19 million of A(sf)Class C-1 Notes, which bear interest at three-month LIBOR plus 4.00%, (vi) $8 million of A(sf)Class C-2 Notes, which bear interest at a fixed rate of 5.379%, and $18 million ofBBB-(sf) Class D Notes, which bear interest at three-month LIBOR plus 4.75% (together, the “Secured Notes”) and (B) the borrowing by the Issuers of $77.5 million under AAA(sf)/AAAsfClass A-1 floating rate loans (the“Class A-1 Loans” and together with the Secured Notes, the “Debt”), which bear interest at three-month LIBOR plus 1.80%, under a credit agreement (the “Credit Agreement”), dated as of the Closing Date, by and among the Issuers, as borrowers, various financial institutions, as lenders, and U.S. Bank National Association, as collateral agent and as loan agent. The Debt is secured by the middle market loans, participation interests in middle market loans and other assets of the Issuer. The Debt is scheduled to mature on October 15, 2031. Certain of the Secured Notes were privately placed on behalf of the Issuers by GreensLedge Capital Markets LLC.
Concurrently with the issuance of the Secured Notes and the borrowing under theClass A-1 Loans, the Issuer issued 55.4 million preferred shares at a stated value of U.S.$1.00 per share (the “Preferred Shares”). The Preferred Shares were issued by the Issuer as part of its issued share capital and are not secured by the collateral securing the Debt. The Company purchased all of the Class D Notes and Preferred Shares. The Company acts as retention holder in connection with the CLO Transaction for the purposes of satisfying certain U.S. and European Union regulations requiring sponsors of securitization transactions to retain exposure to the performance of the securitized assets and as such has agreed to retain all of the Preferred Shares.
As part of the CLO Transaction, the Company entered into a master loan sale agreement with the Issuer dated as of the Closing Date, which provided for the sale and contribution of approximately $293.5 million par amount of middle market loans from the Company to the Issuer on the Closing Date and for future sales and contributions, as applicable, from the Company to the Issuer on an ongoing basis. Such loans constituted part of the initial portfolio of assets securing the Debt. The remainder of the initial portfolio assets securing the Debt consisted of approximately $279.5 million par amount of middle market loans purchased by the Issuer from PennantPark Floating Rate Funding I, LLC, a wholly-owned subsidiary of the Company, under a master participation agreement executed on the Closing Date between the Issuer and PennantPark Floating Rate Funding I, LLC. The Company and PennantPark Floating Rate Funding I, LLC each made customary representations, warranties, and covenants to the Issuer under the applicable agreement.
Through October 15, 2023, a portion of the proceeds received by the Issuer from the loans securing the Debt may be used by the Issuer to purchase additional middle market loans under the direction of PennantPark Investment Advisers LLC (“PennantPark”), the Company’s investment adviser, in its capacity as collateral manager for the Issuer and in accordance with the requirements of the Issuer’s indenture and collateral management agreement with PennantPark and the Company’s investing strategy and ability to originate eligible middle market loans.
The Debt is the secured obligation of the Issuers, and the Indenture and the Credit Agreement include customary covenants and events of default. The Secured Notes and the Preferred Shares have not been registered under the Securities Act of 1933, as amended, or any state securities (e.g., “blue sky”) laws, and may not be offered or sold in the United States absent registration with the Securities and Exchange Commission or pursuant to an applicable exemption from such registration. PennantPark will serve as collateral manager for the Issuer under a collateral management agreement dated as of the Closing Date. PennantPark is entitled to receive fees for providing these services. PennantPark has irrevocably waived its right to receive such fees for so long as it serves as collateral manager for the Issuer.
