PNNT - Earnings call transcript Q4 2019 | PennantPark Investment Corporation

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Operator

Good morning and welcome to the PennantPark Investment Corporation's Fourth Fiscal Quarter 2019 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 of Chairman Investment Corporation. Mr. begin Penn, may your you conference.

Art Penn

you forward-looking Officer. call. conference include I'm good like today some by fourth Thank general everyone. our joined statements. start quarter to Chief a off Efrat, welcome disclosing Financial fiscal conference and and Corporation's please PennantPark discussion call earnings you, XXXX information Aviv about Investment Aviv, morning, to I'd by

Aviv Efrat

any to remind recorded. call, like any as be that our today's this provided Thank is in the being in I'd prohibited. using you, on of press of and replay call available of that everyone as release our call PIN is Corporation Please is call this Art. unauthorized earnings will website. broadcast and well that form, the note strictly Audio PennantPark by the telephone numbers property Investment

attention that from press Today's Harbor projections. call that Safe SEC to important you we to customary like ask call conference actual refer and conference regarding to also release forward-looking results projections, may also and factors our with recent your the I'd cause materially filings statements the for most include our could forward-looking to differ in disclosure information. these

visit do We our XXX-XXXX. please by our website not call law. pennantpark.com at unless SEC forward-looking (XXX) statements latest at update our To filings, undertake required to of obtain copies us or

to turn Officer, like call I'd Executive Art Chairman time, this Chief to At the back our Penn. and

Art Penn

the open for financials discussion of with up update portfolio, the market, starting a highlights, to Q&A. financial followed an provide Thanks, overall the it by and investment activity, going on Aviv. I'm then the business

net secured XX, $XX income ended primarily investment of quarter Core was debt X.X%. the million in XXXX first per invested $X.XX average an yield share. at lien September For we

diversified generally first secured As we in a and into more discussed, positions we capital portfolio. structure lien higher into have moving are the

we XX% was leverage. from first ago. target As a a lien year with of of to exposure Along XX% portfolio up higher the September XX, intend profile prudently portfolio risk lower

debt-to-equity X.X Over regulatory a time we are of targeting times. X.X ratio to

this overnight, carefully invest may increase and primarily to new to not reach target. and in we should target will careful A first the will quarters several leverage lead prudent We reach assets take lien higher to against it earnings. continue

Our than normal our credit investment was been lighter had guidelines. for activity facility leverage not the past during new the temporarily quarter updated BDC yet because

quarter of primarily As such, hand our right on the focus on sheet. balance was the side the

in flexibility facility early use amended enabling the the credit new to We we are September the that us incremental pleased provided by guidelines.

end also we at offering our completed number in of Additionally, received notes. million of we $XX unsecured three. early light In the X.X% SBIC the an October early green and September for October,

the our long-term the gratified with for relationship extremely We record that will are and company. result priced track SBA in attractively excellent financing long-term

since of actively We amendment can origination and September our to have also $XX loan XX, assessing joint-venture increase a Since also joint-venture new in are earnings time. credit new levels have PFLT approximately which the similar facility September, investments. originated over of early we successful million normalized senior

the of provide combination should for a venture solid unsecured amended potential a bonds, growth joint earnings The SBIC III, credit and the at pathway facility, company.

As cushion. per of taxable significant September XX, dividend $X.XX provides of which share, spillover

business robust. from with XXX foreign country We sponsors. equity Angeles, and of manage sponsors and Chicago almost we've and different business the our relationships York, market private across with sponsors financing Los offices Houston New in primary Our middle remained has

investments. continue funnel selective Due vehicles, deal that with receive our we flow size will extremely to our to relative wide of the of to be we

as that financial middle-market financing sponsors. was today, recall PNNT XXXX, will on You in just focused

in crisis portfolio we well. X% to the the financial investments the aggregated through underlying performance Prior initiated EBITDA The global fell Average at which and investments, recession crisis performed Our global recession. of of financial was XXXX, the companies solid. about of September $XXX the the ultimately onset million. bottom

average Index, North high-yield EBITDA company timeframe. Bloomberg's High that the XX% was to during According about down American Yield

had a and defaults recoveries they As The was though of portfolio. were prior that IRR underlying even few recession. result, X%, crisis financial the done to we attractive those investments on and

track are We downside case of this proud record.

those XX we since investments of years are companies Further, We've pleased XXX we've had been only that to ago. shareholders. when preserve able over capital going had XX out nonaccruals, inception we've even for nonaccrual

at This $X.X annually. XX, As including about average unrealized September to had PNNT realized XX XX.X%. of both yield annualized we assets an of approximately points XXXX, ratio, and an nonaccruals. losses billion compares no has basis invested of of Since inception, loss

U.S. strong portfolio indicates well a strong perform financial record to At energy well economy includes making investments our investments This focused and different prior primarily business underlying as extended time in can our of and subordinated no signs made that value investments will of crisis. point as an debt over track We cycles. a both on time, this in recession. period the remain withstand our long-term

middle-market are consistent and sponsors, We for teams capital. call financial management credible first a want intermediaries, who

well. provider of are or In conflicts independent affiliations, clients. free our a general, our portfolio we for overall partner is an trusted As financing performing

a of and on coverage have ratio times times a cash cash cost X.X flow loans. our debt-to-EBITDA ratio interest We at X.X of

been exposure, basis, Network offset PT energy were has to Hollander during declines material MidOcean and September was in and ETX. written no in value regard a movements our quarter. positive as generally of valuation by there JF On of off change. the Hollander XX, mark-to-market the With

in May. Hollander quarter, filed As discussed XX last Chapter

lender Our lenders the was a and company majority preferred control. get lender funded transaction reorganization a majority to party. not the could funded of third lenders Unfortunately, would take we was support to sold whereby the a strategy

$X.X Overall asset of appreciation share NAV generated gains. per

[indiscernible] [indiscernible] on while, technology investments, these modernization the We've ClearSky The strong lien government a or equity the known studied a sponsor. In and we've terms common a of companies U.S. Technologies. the particular communities. new industries first for is defense with the have contractor company intelligence of for is the relationship sponsor. focusing services purchased have revolver

Quantum loan Quantum detailed the a and its datasets, insights the of sponsor. generates We for is of lien customers. purchased mapping gathers is $XX and solutions Spatial. million company Capital Arlington provides geospatial the analyses, of term Spatial first provider

equity sponsor. data first offers of Global. lien market brands revolver is purchased both is Capital that the services. We company and The and agencies quantitative Gauge platform Schlesinger a qualitative global and research collection

will the strong outlook, be active sourcing are remainder that we of in Turning deal due client to and to flow. financings. active seeing our believe Due relationships, XXXX M&A-driven growth to we the network

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

Aviv Efrat

Art. Thank you,

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

We also net our due to of had the a one-time $X.XX per of facility. share renewal credit expense incentives,

management charge. the expense administrative totaled fees general $X.X totaled $X.X of a expenses Looking one-time million; and interest million; $X.X excluding and million at some $X.X million expense categories, totaled

mark-to-market gained on a investments share $X.XX per Our basis.

dividend by mark-to-market net investment to primarily exceeded facilities. the Our mark-to-market $X.XX of our due credit $X.XX GAAP share amended and on our share per a income loss our basis, per liability

Consequently, to NAV share went from $X.XX $X.XX share. per per

trading quarter, [ph]. of we the unsecured bonds ticker on have under During Nasdaq also $XX PNNTG issued million the

they as are has of We prefer bonds [ph] Chief regulatory marking these [indiscernible]. their to disposition indicated not for the market Staff

four million a costs of half amortizing years. and over $X.X are one-time We

bringing to total the $XX.X $XX.X Subsequent option was greenshoe bond end exercised million. amount quarter the for million to another

X.X ago. increased a to has regulatory times from Our X.X year times leverage

our evaluation credit notes each reminder, price and by quarter by senior firms, and ASC active As broker-dealer close are when portfolio, Board in a using are exchanges our XXX to exit entire independent firms investments. quotes broker-dealer the of under use mark-to-market the evaluation in markets or independent XXX. facility we are available the Directors provided value cases where secured a In inactive,

in XX, portfolio XX has X.X%. different was consisted of X% On rate. and in portfolio subordinated a a first yield lien common second debt; debt; lien XX% secured The invested September senior debt XX% overall XX% industries. our in equity. of had across XX average Our debt, and portfolio floating secured preferred in portfolio the of weighted companies XX%

back let turn call me Art. Now, the to

Art Penn

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

through less with middle-market income, preservation that coupled goal. generate Our is to that goal of risky to long-term capital. is risk-adjusted aligned We try we Everything find to attractive do companies returns We and cash flows free we the out contractual form our shareholders. cash capture conversion. instruments, flow, dividends those free in cash have pay in primarily to of that debt flow high

In for us. your for commitment extremely professionals closing, dedication. of you Thank their talented and in all for to team our I'd and like thank and confidence time today continued your investment

up That would to the call this time, like open to questions. remarks. concludes our At I

Operator

[Operator Instructions] James. We Robert a Thank will take you. question Dodd from Raymond with now

Robert Dodd

guys. Hi

NAV, basically is, you know I produce question mean I that timing. to JV, et can grow of a I can look the the Art, a SBIC, get the And sustainable steps number out ROE that et if you mean if The cetera dividend. the very over cetera, at between asset earnings. made Just just you I

So us fast can up? color to how ramp give you expect you various on any things

I'm the sheet, but various outlook going on can overcome yet, available you that, isn’t point earnings the did of the initiatives ballpark timing be yet, mean JV for you estimates to to I out isn’t kind will the are how you play growing dividend? expect remainder that the of be obviously XXXX active, you all considering SBIC say to launched balance the so of of the of those to give think us any

Art Penn

great a question. it's Yes,

things note, side, normalizing. indicated facility we with originations had redoing are greater a So pause credit the to first as to on were little We last new X:X deal with in than subsequent event leverage. the take a quarter as the we've there

normal this of deal origination liquidity for flow. quarter So normalized do range with have originations kind we of of of to back a and kind are plenty kind to

ago. just green To couple light the the green got a forth, the we the of go license, weeks SBIC,

have three here months to start is six it We III. probably from PennantPark. debate ramping at to starting an We away SBIC internal think

we So we model if probably wanted mid ramping start XXXX is you can try to kind of XXXX can, when kind we mid that. think of to

joint a XXXX. of the out venture, mid regard the Again to in formal with going weeks it assess start until of different we're partners. couple to to ramping With process be next doesn’t probably just going kind

two XXXX. So think of through the internal using then I the we've facility, see limelight moving late through between of bonds kind those capital already then are that the kind things we to through credit now start mid we raised to and and

Robert Dodd

JV terms the more JV bring also but elements can originations tailwind to are trying that reason expect both within that the upon to out the and to see to JV. of that but then, you that are a Oh when who Got be with for call. passive reviewing passive. JVs most a fairly sticking think, just there it, partner appreciate They your involve there you I mean will I I Canada, is they out that second, what's originating seek or capital be is the Would of in provide structure? table

Art Penn

look structure so, JV way are fantastically. to add Yes, now They of the about think value in things. been working Kemper and right real have has advice the lot and we terms terrific they with a and of

terrific are they value and add PFLT. partner So in

I new think at sometime of we should all We all the need options the add on as to can that's the investors. with partners and fiduciaries evaluate opportunity, I need table. to origination are different and who mix, our look there on flavors regard behalf the mean if to are into evaluate

Robert Dodd

Great, it, you. thank I appreciate

Operator

We take question KBW. next Lynch from will Ryan with now our

Ryan Lynch

familiar of million of with or Thanks that it their million. focus fairly on your about ETX. If did five $XXX energy equity million. obviously $XXX investments, today the investments large have very at morning. thing and Ram to are $XXX One I taking the good Hey, question. I'm portfolio, nice look Both want potentially Energy challenges for top my own they obviously, I exited. those the about is is and represent

about those And other do? They've been high so you outlook talk just of could three the what Wheel all what you up pretty, overview Pro, five, Network PT us the give level your potential a exiting is Look, MidOcean, can written for potentially maybe top meaningfully. and investments? maybe in those very businesses pretty

about So of those? are just thinking you how guys

Art Penn

they Clearlake through well, company a are Pro called the performing it. owned substantially has that through the it's well. Angeles, business it. since Automotive doing is equity the Wheel co-invest to only and in in sponsor driven company's run great and It's aftermarket question, grown obviously came we've no based Los invested Yes, the happy by Wheel one a

that company, equity you and markup to when this of a and continues it's well. when an really, hopefully perform much, question company how And sponsored like have it's

that $XX on million snapshot is, So that's EBITDA when $XXX of think kind got I that of transaction. we million, million. with involved it Company’s $XX north was

So been it ride. nice has a

to had been after and Both restructurings. both the the around, much distributes they The got you're products markups through PT have results company well, pretty services issues Network to and pumps had add-on gotten accretive performing are done that have JNF acquisitions turned stations. gas some have because we it equity the some seems to that earnings. and gas restructuring seeing of and JNF better, are

We and of majority the of the about a a control the the equity. third have And company's I sponsor owns been is think the company's MidOcean the recently. equity. roll shareholder on

a why significant significant but up. to mark the downs mark-up. to were footing in its found prior its seems you've on seen So some that's it have, way There seems have and life,

the sale been company than PT control and We It's attractive of for Network an better from There in there's We Mid-Atlantic. expected. missteps is of very multiples capital took from some in is EBITDA. has the the performance was The very where sponsor. physical industry prices a some company’s some therapy multiples. attractive company sold recently based The additional in. put sponsor. bunch

a well the company's company's answer question Does So as a trade. both at performance where of your that as there you've result mark-up seen this comparable point? as

Ryan Lynch

question Yes, the very different stages very those are JV. I of guys background Obviously, detail, to switch in a good. on early that's that. Good wanted the businesses. on all to over you helpful

guys I'm because - putting entity risk your JV leverage. think trying will has think balance So the you investment into sheet equity across [ph] about, then across to that just make guys PNNT, through look this kind that holistically and obviously, do structure of of how leverage you with it an on about, the

that extent meaningful you how target? balance as a of off portion a sheet of do about leverage your the of becomes the as So portion that growth portfolio, that the a guys portion to leverage think JV,

Art Penn

question. great a It's

PFLT very is about, are Something secured two we and this really primarily by the looked reasonably and driven JV the point, risk, have similar it, first-lien be can assets. what assets it visiting at debt-to-equity. to one it’s to and safely we lower that where are in think we At half underlying senior leveraged lower times it yield, a least

how firm, leverage get easily of market CLOs now three times kind can this or it, we've we're as done that's four know actually in middle about we times or So debt-to-equity. market the because think you as three you and a four

and point, the lower risk, more as we joint think asset at think overall going new and assets what's large be So blended are first-lien of leveraged about forma, any mix venture, to return this leverageable the PNNT with still we at and by pro even low reasonably safely leveraged.

second-lien We portfolio. in still have mezz a

equity there's mezz those, you it. equity in mentioned, said out in We doing or want team, new were That not if As we compelling we of an mezz. lien or see really monitoring said, we’re second-lien to co-invest second we've have to much the there, portfolio. terms

and the and right for a mission the think now, It's But are super facility, do an compelling got equity of first-lien cycle leverage to given in mezz, could ramp-up be or the work leverage the venture. the company at is large, I more SBIC the still from by this that's from joint and we point that. particular a than that, kind appropriate leverage But put potential co-invest little where side second-lien on and in or we our bit from economy. against credit leverage this down

Ryan Lynch

the all are Those helpful. that's questions. appreciate today. time my I Okay,

Art Penn

Thank you.

Operator

JPMorgan. with Shane comes Rick question next Our from

Richard Shane

Hey, two guys, quick questions.

make the new of cash quarter. additional are has with to there's debt we do First, of consider liquidity the just but obviously should the building any I'm that you issuance, that the I with requirements position to end not sure the at associated the facilities? that of assuming want that timing

Art Penn

did. was the that that bond we just no, Oh

right. You're

Richard Shane

second this and there we've that that which this question a that Are should second seen related of leads Great looking it’s quarter that upon to those of point the to that there And then the you're of into ran lot other question, in is, interesting based really are related it's some challenges. Hollander, to about? a that sort you're industries we in at you industry, that? is, disruption fear Are space in there areas things had company where think leads the sort disruption, avoiding bedding we've of portfolio which Okay. feedback outcomes? type to

Art Penn

think treacherous in and It's business, the and we all that most a right. investment of things environment question, coming there about that's if into time when, great investor is, committee, so disruption for investing about if you're something the any our is one investing traditional in this

an area, an certainly area. is So bedding retail,

you And the forces spent time obviously to there's a industries, disruptive taxi industry, of now. take and industry a number could for industries, about hotel talking any the lot been different number theme of this like the industry. that different back driverless does We've and industry, it that industry, the was for accomplished for one cars. may what mean instance, that point looked mean trucking have sooner At that coming what of

of we assessing? something we're be of it's investors So now all part, us, all as to of need us but kind

need was said, a that that. issues, pie up, mark-to-market it Walker trend. buying on It has and Internet can crushing had in you're industry, company and but increases of why an that Internet. buy something the my it's EBITDA has other Amazon, the it, co-invest company Internet, and sells mark-up. be thinking in one on the and piece see in Hollander advantage had is on age it's part to, furniture through of every have quite on of a furniture few That issues significant So it's we furniture need still of been portfolio small our Wayfair, Hollander the hand, There maybe would had people a right? in you someone deal why Edison, a it never today called we This our there's about. the is we Walker of we seeing a take Edison to the equity - through and on traditional But participating

you aware downside there's of, be and potentially in can to there's participate have So you that certainly a as well. that upside

So that's one just change. of one example in

you They the in another are an the they the in mark-up Services. where equity machine portfolio machine see Here's in called Dominion business. voting company voting business, are

what's today about of around voting elections on and machines. all issues with the So voting kind think and machines that just and the going

ATM a been machine they and voting machines. has make do not voting only, because of company they This paper make type that machines both the beneficiary kind

both there's a and feature So paper record. there's voting an the sheets ATM to

been you can that mark-up has a see of the portfolio. change. company in that the beneficiary And this equity in So

could So a we happy but day with minuses day I'm you there's if pluses to you'd fascinating question it's talk talk and to all of this. all like, about, Rick all offline

Richard Shane

Well, me business and running debt than And mattress Thank when challenging and you here. I that all to just better you it will are think does out you. sort and in part is are underscores do is one, that. point there comments there. to here two of challenges of the have about I my second, the talk business a hope to make highlight It things bad how really things Even sleepy sector my day. that

Art Penn

you. Thank

Operator

Our Ladenburg. next question with comes Mickey Schleien from

Mickey Schleien

Yes, good Aviv. and back level question. step to wanted morning, I Art a high and ask

of to BDC million, market, of mezzanine. more was the So as $XX the on million known historically secondly, sort PNNT meat obviously focused a and EBITDA $XX middle

are deal flow targeting what how As at? sort is now of has that looking of sheet levels the that your the you're changed structure EBITDA and you sourcing affecting as changed, capital balance the has and

Art Penn

XX it's on a Mickey. good XX EBITDA the still kind Yes, range. of question, We're focused to

And We senior the go substantial deals it's is leverage where and open to threshold mostly now, because threshold very we be lien our $XX the the do median the the that million syndicated by but still and second XX still we deals, So In good our to EBITDA are that getting the can XX higher that still or good off is market, lien zone. business our or folks the several due adjustments broadly are in the EBITDA covenant is substantially to of when we the a we're we're mezz, on the still find to diligence. the mean light on adjustments million ask $XX buy months for secondly really because bar high below that's way, mezz think and place be zone, and to have there's and adjustments. we where covenants, whether diligence.

make a to rush to decision. not are We

average debt-to-EBITDA kind debt on mid in the senior of fours. Our is

lenders, this of a that's then think loan true fine with they place against this adjustments diligence, kind where us alone moved still and and can where there really syndicated And space due move get the competing space. leaving broadly also we just very can covenants XX of So, very, XX that's of the be these middle direct still good in to we because to to - kind to the have they're EBITDA are. market we whatever large

Mickey Schleien

leverages, I credits more allows and versus you're higher rest? quality view higher risk the reduces building bucket extent the to Okay, are to, how there, just and those larger, club companies you deals their similar the they up somewhat in JVs, the understand that buying do are or perhaps companies, that

Art Penn

similar really syndicated to get Well, to versus do just our of for what really pluses adjustments, competing covenant be diligence, just take some because the XX rather in you We step know a diligence protection, reward. back, I decisions deal company it's minuses. risk quickly, competing don't we're do very that have there's this made have and would is certainly, you're understand market a don't one investors to where light. million the does question, safe down months where buying, versus with very broadly or very lock diligence, does covenant due with EBITDA due if and $XX your full a implied And

covenant, EBITDA if are wide. less The adjustments very very, be to larger and going there's set So it's a diligent.

for diligence wide that's well-structured diligence rather long, So loan bigger light a and company. in $XX all a EBITDA something or covenant well million finance to we'd less higher with chance covenant with day leverage,

focused and vehicles. that's our our where we're what So potatoes what's is. That's mean that's populating kind of

Mickey Schleien

universal the of lien One first on I no how this There's popular pieces? extent is you the there's you're today's in which definition what I'm What market first obviously to out tranche extent sell getting do and focused lien, no definition. unit deals, lien. actively very last is, break are include at question, first understand. to first

Art Penn

don't So, pieces, like the at the one first, out I'll first take we sell top. being we is the second which

The first part whatever about definition everyone of because, the excess definition I'm of question what a is unit your challenge Everyone's really smiling far of it, as value I tell, is tranches, or your capital kind of definition? and has as it of can different the beneath to making own is. got their loan

just are doing. about risk generally generating in those what firstly think an X% That's structure we're the fours I we're above capital known us, top - and are mid originating the through in to of today return. our cut and we doing, what is

clear tranche call unit can and around that not The what's classic it want. call is that as of call and in than stretching you first XXXX. is You unit what and tranche flops can unit defined as tranche in can was whatever lien, you definition different XXXX you definedX it certainly

XX-ish doing. So, million to average we're doing. yields, tell company everybody what what we're we're $XX $XX that's mid-force million EBITDA just going It's to debt-to-EBITDA percent

Mickey Schleien

first you do in it's And the a as you classify your extended follow or party, do cases not? bank revolver if a a lien but some year, the I and a investment which if know ahead just yourself, up, third has of still

Art Penn

of you good sometimes a ABLs. on the that get little just question, is It depends size

a are half multiple multiple classify as beneath. the if a or that half We'll ABLs what's lien. first So still beneath

is where as junior don't think debt. You tuning should That's know, gets we are be then or it we you you to don't lien. X.X that if it's two which classifying do, murkier, times, times first that, and

Mickey Schleien

I space. The I time. is it appreciate your consistent that's issue from Yes, I'm even But across the question. morning. me Thank that's asking this not agree. you. that why That's this

Art Penn

Mickey. Thanks

Operator

Compass comes next Point. Our with question Alexander from Casey

Casey Alexander

Ryan going, positions. XX%, Yes. A extension is morning. my portfolio direction an of on lot was a have but a good of the questions which close answered, little is, portfolio to lot that in and you this controlled your of been bit is XX% equity Hi, of the XX% have

that of positions say a not So it income you have in lot are have some producing. you where

So dividend being turning XXX% portfolio those of coverage. it your to into me paramount would to getting generating those little seem a aggressive NII are would and be of out positions more things that accretive because the interest and those

And how the which vehicle. about probably those more originally, about feel do to aggressive? you more marks relation investors So make more positions, care interested the in was in your comfortable they're in investing being coverage, think on dividend them don't what would on them improved cost

Art Penn

Amen.

Casey. to You down be know, I'd invested in I agree with love you, equity which get and can income. then

JNF, deals some control Pro. things the like we control, control you the don't know, of So some control don't don't of we we we Wheel names. We do some energy

a been dearth energy. in Now checked M&A there's last I of

companies suggestions when M&A in all like well, in know, to who now ears, a those in you So back with names. and M&A starts there's been but are M&A to energy have there position we're be energy. to that are we'd ears. the we got we suggestions, Casey comes to energy, in optimize or Once energy, so you trying Right exit no there we're anyone all deal if really

other where first there. right fair And six you we think And runway on course one, with very - that's are of it's take The But know, a an control sector in and regard operations can still in the months and ultimately. that's attractive. monetize. to the to gain, that, exit. for new That that to nice need it way something but may we a that multiples it's those still we get year primed been will consolidate a we value, some kind has or we're PT We best is there's attractive event. in our two, look wheelhouse. of names of there's good think the

to go happy names want. through I'm if you So, specific

some you color more If of the want on any specific names.

I energy. think I covered

covered think about to want Casey I'm specific other you totally any up and Pro, Wheel it. I I but and ask into if JNF names doing

Casey Alexander

the question. taking for Well, thank you

Art Penn

you. Thank

Operator

[Operator will David with Confluence We Management. Miyazaki Instructions] move now Investment to

David Miyazaki

have I a morning. questions. good couple of Hi, just

think kind on a touching may of focus more start you was know, asking little about, to definition came Mickey energy, of energy price opposed a profile, capital the bit secured to in, your from in be, you the that structure. sort senior of as the is from whatever what if You shifting and about where you your commodity are looking more observations outside that problems the one

think portfolio something energy do senior you existing the is a past future? that in that think and you M&A if position So your will into secured the back positions, and come

Art Penn

great question. before a had tuition, why by ones. good this pay doing and I energy me, it's asked one And call question the tuition that a you to you me Right? you It's question. monetize David, at That not I've and more back to a was point you debate think and

- happy more think you like, whenever least about I today, we and more can you discussion it. at talk have I'm to to

that popping portfolios we is to are stable we're might by because For point today granted, what from want which BDCs think to time stay want flows, energy retail commodity you are, there deals. shareholders, away this cash mostly And deliver high be at some owned in avoid I to going just risk.

maybe coming know, back thinks and Sam You is hope read and certainly estate bottom of it's he's Zeller because he at space article right, right. into the I reminiscent real an [ph] energy he's we

side with we sheet can is energy comes have M&A we've that control the when we which balance idea this have think I lot seen action an But of to can exposure, controlling can for back. as and being, made. while moves company. what and a PNNT PNNT if time at for for We've right things certainly of optimize we the hand have you've best it been the We positioned in we the least as the the we

On the the structure low the sheet to hand safer West of cannot the of WTIS balance the is Texas left off control securities. Intermediate. risk price side where moves capital we Unfortunately,

one that's we thing So can't control.

three mark our names been we seen have appropriately. of might down marked last You they've quarter, energy down did all

growth So assets. that, despite on the we NAV had underlying still

and got we've All and right. of for the So we optimize have best names it's we do kind question outcome got of to optimize this time, it but hand you're to it's equity just the - a how through and Casey's just with down, kind of how right, we percentage get those play the investors.

David Miyazaki

producing. little the art seem can the I'm with What that a along things mark, that your an And XX% is of that you a you was as mark fair to consistent moving the that could overall the actually agreement higher is sell any bit at does buy you value well. investment position could to and something then disturbing some if me use one real not your to and for to who comment or income coming off looking of than you're seems I piece. and your predictable with accretive at in a proceeds doing portfolio always or science. sheet thanks suggestions, question are open of to up the positions stock, on workout wind bring up risk as as credit income get sell an be construct? volatility open anything that are But balance the that back is know it that's mathematically It thoughts that to But or whether an your for much people that then in into that you Right, income. your equity something

Art Penn

a do. something some We which assessing equity ups means board we minuses. just the and do talked point we're talked to and JNF, PT It's we some exit our pluses our about always of we equity in portfolio. to Network, what prices, with starting and debt an is We're relatively excellent position. continually structure, our new What and get about the that's capital try that to and

concept this of some starting shoots names. just green of equity we're to and see these kind So

always capital the question hard it's again, of So an into assets, structure using sell I'll or how before - it harvest it's you here's equity. what let wish So the a to you there be I box keep grass these black algorithm when analogy, put an a high could magically I would right? do it say, should grow were that a here's you which magically should

them green right any you that's think but of the of something we really some think and come of The about. to and might they thing bit, shoots these be starting are grow learn little a and for of Some constantly talking so. we assessing I out can think to ground grow we are

David Miyazaki

past what grass when in worked to BDC it to answer outlook still on, have that's and haven't last the all that wanted of that when of whenever they do is, time happen on your kind move kind not your in to be same lending, future. the out is the to job if portfolio, market is I kind get you to I here mark is place the them the when to are asked of landing. that concept at talk there's do best Yes, think you that always figure wherever and out it a you, things of drag. middle maybe growth, but in And down to be manager the the move middle a the where lays –

to they write look about you big guys, the check closing balance $XXX are risk. better check at companies, plus, if and sheets credit million bigger certainly talk a So to big $XXX being that in million a able

And of the more are then stable. terms spectrum, where more at guys you're other the companies stable, end looking is the at the the pricing small

for above long. this your about EBITDA guys value I want you because to you so million when to sort stock And constrained million are not has in $XX some of to so, think win, the net asset extent $XX been where are

really as the get and want would in $XX to of So is million asset you in you now above the to with equity you move portfolio. the with you But you value, the time, target over a million theoretically a company larger million past do size think million optimal being the that change increase had bigger EBITDA ability neighborhood? the $XXX your problem grow or more able think base, doing to would back to you if net loans the are that the $XX leverage, be $XX to

Art Penn

Good question.

their Everyone absolutely hawks of everyone you're right. book, one, hawks course, number So their book.

In defaults done to versus have on direct statistics market loans terms broadly in there, loans. it's over higher cases are and that some of fewer syndicated recoveries out being bigger loans of the time, statistics, I syndicated companies loans, the middle now market than accessible. and by the clear lenders. which mean is It's broadly recoveries LCD defaults provide It larger middle S&P

can So to that those we are out send you them numbers there, if you'd like.

recession you verifiable, They are middle broadly syndicated and share the bigger crisis. see recoveries market PennantPark firm. is not they recycled, data versus of out many That's versus years, are of brethren our over they that many and are is defaults now syndicated. and It some financial other are taking broadly

you That's and can recoveries. of them verifiable terms question. ask So that defaults data in

we business side our and being of are you we of of and participate business, accounts non-BDC growing terms vehicles, that of by private are constraints several in have the our seen, our exempt deals done BDCs SEC in the managed that do may relief. have In our our under many

$XXX because leveraged allocate So our about capital that helped as if that what if the to is times, has of of when ticket, and and bite X.X relief you talking like EBITDA private XX vehicles across $XXX size think the we BDCs average is us our platform are well company million, million you it’s under it, as exempt grow

whole be we for like like you of kind PennantPark, our piece this and because to you whole bigger. We'd do If thing, the the thing, the do we'd bigger to deal. borrower sponsor be if what like our aiming are We'd you deal. whole clients that's to we wanted to a do to clients, saying we're hey could of us,

getting that. their accounts incremental with with we're to now progress private made vehicles, We've managed our grow and through substantial with with ability leverage. the BDCs So our

of sponsored bigger and want be getting to clients us share more there and taking bites. we're on and those those We're borrower more the precipice taking we’re deals because

We current million, the broadly very with of leverage, $XX of million have of with in terms million, a competing no covenants, EBITDA companies as covenants market we competing $XX muted with intention very at EBITDA you're adjustments. market high is a said, very syndicated either the $XX and with aggressive no that level or

if CCC, to lots have minus capital BXB those because for be the people who about of deploy, they would it's companies, to bless that, if size bubbly but against the time all want They or want. want that to do deploy to quickly. share they and they talk share market. to long company God can rated been competing can can of So have that taking a be the to They've books got they day

excellent control we X on We've annualized we adjustments years. covenants. what years. don’t control many, EBITDA it's we record control diligence, with over basis senior business many can over had shared take. track you, point take we where Again, or we many a can like are, the our an where we can We've the We loss about

be, I that. happy think long, nice place we're very we've with track our populate that all day good a record, it's vehicles had to a to and

David Miyazaki

I Right, insight. thank you for that

XX thing the pop-up it months started a it range the back XX So want covenants, is, and add I'd touch the to erosion call last and or seemingly somewhere. EBITDA of really frequency the to on ago create in that

at ago, just the in. and when not of the misses the you but the years projected not it years versus couple of covenants the backs had which is, about, you the you've the weak what in a brought that middle participate one is have ones particularly are lack credits EBITDA versus didn't and how that that’s seen or ones were market, bad bigger EBITDA been? done, having today if at of the quarters when I you today was it look upper which you about really bad you add the is were overall When How mean the versus first add those ago? in, couple for think have EBITDA any do the place I'm market. add backs now hazard, these and of So think EBITDA concepts actual several But happening sense sure look or one covenants. put a backs the the that you've

Art Penn

saying any go Great a tell mistakes reasonably about naked. economy. question. tell had out, reasonably when covered the see you on goes, had we've of that's Look, realized. and lot good can't you good each swimming and each any been of issues data and goes and they've I I at through whatever We've were the go can have I we point don't you through can our what a a economy that. the that made. who's for tide just and the adjustments the articles with We EBITDA

going is So not out. the tide

why to by So the leverage which work, enterprise sponsors record is things high high adjustments. value such are And you record high multiples, as see multiple paying. seem record way

of may and well and the logic easily that that adjusted XX these to is there may and can seven sometimes companies in be by seven continue that do got be – I've times, this be So whole company's the fine great just that well times, work is leveraged fantastic big way and so worth will loan-to-value may times.

that it didn't of goes time a So, when whole based we a the there he logic work, When it but tide work and the of around very from lot on worked, numbers, leverage We'll - what experience when you did very is high see it lot was the our them a recession of out, harsh. didn't crisis, and financial last are buying people some off will happens, see see. on. very,

bump, the sponsor – left big if the they're bag. the times bump, paying seven because a the of holding if times, is more money, sponsors when is little harsh XX the is big, it, leveraging likely there's fix lender there's very and was to still sponsor level severity a The the out but

So, back a companies severe from was lenders. a is a when lot looking those experiences the outcome a it ago of was you very for did decade know, bump, But our fine. just there

David Miyazaki

you. thank Okay,

of the So saying back because lack add if is poor, either covenants. of because you're of the underwriting basically, or that the EBITDA

been We haven’t general pretty the really in good. economy seen has consequences because the

Art Penn

Yes.

David Miyazaki

comments I your and everything thank this morning. the and methods you for

Art Penn

Thanks.

Operator

I there back conference time. would or appears over are like to the for any this turn no it And closing telephone at remarks. Penn to Mr. questions further additional

Art Penn

for for as February. Thanksgiving and we you holidays. be in here time everybody Thank Thanksgiving early and Thanksgiving grateful And year, wish the happy great we have will head we relationships head certainly we'll be analysts. you talking holidays to into are our with we investors Thank you into much. another our research next We as very

Operator

thank that conclude conference. once today your for does We again, you And participation. all

now may disconnect. You

PennantPark Investment (PNNT) 22 Nov 192019 Q4 Earnings call transcript