PNNT - Earnings call transcript Q1 2020 | PennantPark Investment Corporation

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Operator

Good morning and welcome to the PennantPark Investment Corporation's First Fiscal Quarter 2020 Earnings Conference. Today's call 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 first 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 could these press Today's Harbor call you Safe for to factors refer ask to customary like that may call results to projections, conference regarding differ also release statements to and also include we that most the filings your SEC I'd actual from with and the important recent forward-looking our cause forward-looking our materially in disclosure information. projections.

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

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

Art Penn

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

in invested lien ended XXXX. We primarily debt an of X.X%. in December the at quarter $XXX We yield were average first active secured XX, million

to typically to quarter. all income share. share. which $X.XX income Our is had $X.XX NAV investment income. $X.XX was share, $X.XX recurring Other from other in per Net the was per income per We share $X.XX increased no per

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

As of leverage. ago. lower Along was XX% of are targeting higher portfolio, XX% December a XX, first risk up lien portfolio, a prudently from exposure we year with the

leverage time, targeting As debt times times. to XX, we ratio X.XX times. was are of Over equity a regulatory of X.X regulatory December X.X

overnight; may We to it take will first this lead reach careful continue leverage not a primarily new should A and in reach target. will carefully target us to lien time invest prudent portfolio higher earnings. the increase against to and we

received SBIC also light III. our we green October, a for early In

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

joint also new over a our also time. actively loan of to PFLT, similar can joint venture We assessing the earnings venture are senior increase successful which

III, of facility, the earnings venture last credit potential unsecured recently issuance Our fall, pathway for provide joint should amended and growth. SBIC bonds a solid

proceeds in of as our dividend earnings prudent and performing reinvest a increase loans. we leverage. result coverage leverage, and exit equity of those Solid Above the should in as beyond in prudent increase grow should investments come this

$X.XX which of year, fiscal dividend share, spillover provides As taxable the last of had we significant cushion. per

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

worlds, choosing existing finance competition staying with in credits XX% opt the These XX to had solid we we of existing best to out. the borrower To invested or with this were to of generally were an last an the continue or us, reduced could or about months, encompasses companies Over option borrowers. exit. cases both

borrowers of are where In incumbency our in lenders, platform, value market overall incumbency. middle benefits driving of With the differentiation XXX substantial among investors direct are we overstated. about asking market can't a be

selective. incumbency are team, be and capital a put X% position and active both growing to are opportunities resources only in we of investing shown. the Today, us we Our an approximately

funnel will wide our that continue flows deal extremely of selective with receive, be we we to to investments. Due

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

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

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

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

are of track this case record. We proud downside

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

no had non-accruals. December of XXXX, As we XX,

yield has at and approximately basis as about our as primarily XX%. the compares average investments, PNNT loss investments track annually. realized of inception, annualized both points about strong of This prior includes well to crisis. an including record $X.X energy billion losses our ratio, invested financial an subordinated Since to XX debt made unrealized This both

economy investments and our in an of extended cycles. over will time, on focused making indicates signs business portfolio of recession. withstand At that this can a remain well no perform a U.S. different point and in We period value long-term underlying strong time

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

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

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

Chalk. XX,XXX XX, outside we discussed, area surrounded its gross all by including focusing in the in ranked wells Number RAM’s focus. have RAM is in of Top Austin the first on four seven the received Giddings active in terms strategic wells Top X to is of and Number companies. gas XX wells Energy, contiguous initial X regard acreage have Austin with has With production oil well-known and and project in core of acres, This the Chalk an Texas. RAM these as Houston, RAM’s renewed field

That, Today, potential XXX this which outstanding funded about to in the company's of locations industry. million additional and of comparable in less outstanding. on represents the We a companies we than convert $XX consistent addition $XX RAM debt-to-equity of million portion funded in XXXX leverage portion revolver EBITDA, have to times with the has three today Macquarie project. estimated loan RAM’s is decided over

growth common due performance to MidOcean DecoPac, long-term to of strong X% of of performance a target portfolio few equity the in XX% than of our investments. equity Rumba, PT is XX%. our in quite higher is as Wheel positive Pros, ITC December of substantial was portion the This preferred XX. portfolio Edison, the JF, of The half million over Walker markups equity a envision of as of our About next where or Dominion positions the increased XX over Network, can quarters. in the those XX in others few XX to value months nearly result an past the exit $XXX and over has equity last months. we months A

goal prices. and positions XX progress Our months over next attractive to XX months the make at exiting equity substantial is to

to To cash we should NII instruments, million As give were of exit core income $XXX we NII per million, debt in if increase only those quarter. increase about our recent we X.XXX $X.XX and to bank per would were our share loans proceeds you $XX reinvest consistent that If grow. quarter. all per with million, reinvest share our a by sense, into our $XXX would exit yields, per

$X.XX PT JF quarter, and On ETX. in the Network value share were per of gain. past a mark-to-market appreciation MidOcean NAV movements evaluation generated in declines asset of positive basis, offset by this Overall

known strong with In terms new industries for sponsor. particular of have these the a investments, companies studied have the or we’ve a relationship while

leading highlights. care Dr. Holdings, some brand including North in Dr. Wood the sponsor. of million first We walk skin is common Yellow Scholl's and $XX.X term is DRS and loan in through the foot Scholl's treatments orthotics, America, equity. the with purchased category insoles, Let’s lien revolver of a

equity. and We’ve electrical range environment consumables and lien is ECM is highly first under the Partners harsh a for Capital of with provider sponsor. and term Industries brands. purchased revolver long broad Sentinel million tools of regarded $X.X of common applications ECM

first We play lien residential the term manufacturer and loan. Capital The Guam. & for for ATM is of of term TeleGuam locks high-end purchase safes, in Greenleaf a the first is loan & OpenGate Greenleaf end-markets. $X.X sponsor. million Holdings. million global government of quad Huntsman is lien Sargent Investments $X.X a sponsor. Sargent of is Family telecom purchased We company operator

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

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

Aviv Efrat

Thank you, Art.

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

million. million; administrative of million; interest management Looking fees totaled expenses categories, totaled at totaled and some the $X.X $X.X general $X.X expense and taxes expenses

share $X.XX business. Our mark-to-market per investment on gained our

Our net on per dividend went reduced Consequently, $X.XX per from exceeded and per investment mark-to-market our income by to per share share per GAAP our our NAV share, share $X.XX NAV liabilities basis. $X.XX $X.XX share.

the [indiscernible] exercised The of amount our unsecured $XX.X and $XX.X bond we trading under NASDAQ quarter, million. on additional of the PNNTG greenshoe the During full an issued bond ticker is million.

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

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

Art. the to turn me let call back Now,

Art Penn

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

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

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

this the I At to would call time, up for open questions. like

Operator

Joseph Jeffries. Instructions] from Thank you. first And we’ll of hear [Operator Kyle

Kyle Joseph

morning for guys, my questions. thanks taking good Hi, and

about cadence sort just talk question, the during quarter. pace to or the First of wanted the deployment of

weighted You know the a Just for little to get the bit the in a yield quarter? was sense quarter? in dynamics back it wanted

Art Penn

year-end deals or you of of large XX, right Yes, know, big around a the thereafter. number as close the chunk shortly year-end at Kyle. flow came Thanks, had December usual, a around we so

general. So, very in active quarter

We’re pleased with returns loaded. the activity risk-adjusted it getting, was but back-end very we’re like the

Kyle Joseph

then, Got subject to, of as it. the control is ultimately in to rotate, you allocation. for, and know, portfolio. much can much portfolio are And those the just to investments obviously a know enhanced at of into been equity know, only you we’ve how the rates, I actually you portfolio made, know, terms for how yield you lastly, which sense yields sense have on base would give are assets? on seeing a there more you’ve subject in pressure of aspects of you that and allocation, are – rotating guys least the one yield Obviously progress portfolio movements yields, market

made a and you us if sense much will? the you on give left you’ve check have progress just how to So, would

Art Penn

a and it's question – a look, saying the as goes, good it’s know You it’s process.

of leverage cautious we and mezz second going given know, environment, this look, ratios we about space. while be available BDC were – in said, we’re where pivot do more You to higher much more take we’re lien advantage and where to going lien leverage and the are first in ago a and the

So, we’re transition that midst in today. the of

about is we’re First we’ll Occasionally, to lien to leverage forward which be going in everything from exposure be compelling X% up but doing XX%, lean XX%. to portfolio, is the first from be of up more. was XX% have for Almost able very, that to we’ll lien it’s going XX% going year, – a a second very where us. do it bit last space,

investments with So, made yields, and the the of time, we’re same transition exiting in portfolio, equity lower as working up instruments. at cash of safer debt on of we can a lien, best leverage, with first this middle paying kind those but and higher leverage more replacing our

know, a performing It over You the exit, know, sets that rising bunch of fact nice the investments good sign. the valuations and a is the a very for are coming foundation you are well quarters.

investments, that, this leverage, Again, beyond coverage; you really see with where the these control equity know, it well we time, to some should up over don’t but exit most ability see should with increased we growth of dividend sets dynamic solid we that.

the game plan. So, that’s

You lights know, we take be some time. to on, flipping a it’s knew was switch we it and going knew not to going turning

We’re much committed think in in We're for our better middle to labor-intensive. stream the company, that and it's NAV be end, shareholders. in it and very better the a flow much will cash we

Kyle Joseph

helpful Got it. and answering questions. That’s very very for thanks much my

Art Penn

Thank you.

Operator

Instructions] We’ll James. next hear Raymond from [Operator Dodd of Robert

Robert Dodd

Hi, guys.

fitting of On any, went process, that but it’s and which any currently in what on] know is all in you – can us other a to active know, [you the you there exit? discussion? only or this equity it but, things, do give – obviously Or, you you obviously you the any discussions just active know proportion it all [indiscernible] it’s if out is is book, book, of quarter it because up is color of know

Art Penn

It’s you it we question, sometimes in a the where we’re room when room the happens happens. know, you good know in it we not we’re because when and are room – in the sometimes

Robert, – like and I you [Broadway]. know, So

it say, there point. we’re at and XX% where you the know, of realized. don't we that a months know, happens two perform that well a XX the just is XX% discussions this it, not be think in it as be but matter companies it room might might as until would a book, should $XXX and years, we’re know, room have it market year, six you of you to of rest primarily and million, middle the portion time, So, in of going I’m The you the and, to happens, sponsors, is matter of enhance where and of it’s time it or it just be value there might hope be months, that

Robert Dodd

you. Thank it. Got

I accessing, so you stage? color you might which give mean would Broadway On again. act to JV, something actively you is speak, you know, on mean, said bring so us go that I early the can be on in you when you’re where front? that live play – any to into

Art Penn

more from May, Yes, so in hopeful from concrete the we’re talk we’ll have – actively parties now, assessing proposals, to so potential by time right you about. that, early potential know, partners, speak we something

Robert Dodd

Or one either so, or you just this say, to is You from drilling [Macquarie] know, be have? just one you require you permit, RAM, doing Got it. on Thank you. I from And think, a know, that – restructured couple Will then, debt there program little to they that just will it pretty mean drill to needed more bit, going you obviously debt which, incremental well, funded fund I of guys more already days looks got the as permitted, from capital? is you wells? year you a ago. another be and just to capital got through

Art Penn

in is come at this of you kind of XX project, to a two of one-day time. where times be is that of three we with in point, so from the know, Again, kind wells, did the comparables we kind zone wells at were, to we’re would EBITDA. more wanted reason about which so will of we this recap potential kind this there’s see, Yes, Macquarie, done debt-to-EBITDAs

two felt other could zone. wells, the it with we within the keep forward go only would we So, if we

tape in our set. we back last of number have this – been planning over more put of terms and has rolling Any this in. quarters. point, you everybody thought In And really we mission at with know capital some capital, field acreage any we idea, getting the we're it the not to We're think, I thought this area, good good to shared had out. we really as, prove there we the

the company So, best long-term – moving that the can as position into right possible we best hands. as for

who four our are not three hands big long-term or surrounding acreage. for strategists are We the these there's assets. And active in right

out in potential the way. the idea So, best the the company been for position proved exit has strongest

the are wells in The area. XX seven all have have been in results our wells, So, the we top where very good. that

exit. of in and in finished from this we're decided But we point, our do. to a we're it's for what up energy, the capital we setting as – So, wells out can potential we two we market as for do at terms go would those best But volatile come in all and know, can think as with ourselves we commitment, there we additional wells. can additional Macquarie,

Robert Dodd

you. more, Thank then it. Got And if can. one I

at XX%], you the sitting need time to the being the be, now. how On to leverage What indication of XX% where go, be in in – regulatory And the you it portfolio equity to remains that pretty to you're a the would if – Obviously, for be, it's – to target would willing to XX% range obviously, portfolio? range. wide [XX% would where right willing at equity of for go your X.X%?

Art Penn

on – It's it good the underlying Yes. a for it's question. depends Really, assets. really us,

doing first-lien CLO we X. have it were senior otherwise, whether or know, towards of credit what senior you first-lien X assuming that, leveraged its secured and suggesting kind what to not collateral, of more market know, X%. the to range, X.X it getting, take That middle originated depending loans. are large As go into upper-end more most we that what's that, we the We're would and facility what but have SBIC, that, be senior suggesting we as on financing potentially by be collateral is X secured. The in a to a times, dramatic again, of as world we're X% in debt-to-EBITDA today basis senior we to

Robert Dodd

Okay. Thank it. Got you.

Art Penn

Thank you.

Operator

Schleien of hear Thalmann. Next, from Ladenburg we Mickey

Mickey Schleien

about to morning, follow-up leverage. I on want good Robert’s question Art. Yes,

total clarify, or announced target? the target regulatory a a to you is target, debt-to-equity Just

Art Penn

clear, to financing. regulatory, SBIC say be excludes I’d which, Yes, just

Mickey Schleien

And Okay, you down today's III is winding I I and market SBIC SBIC through proportion and your of flow deal into SBIC of us the understand. can in putting place, dynamics walk what compliant?

Art Penn

Yes.

So, once need just a XX-year is midpoint paid us fully years, end out Once gain the “Hey, by you getting SBIC for year – says, a of we the really in five kind you to of the get financing financing. get the see SBA plan XX.

years, increase much. five don't really after you it that So,

it to the SBIC towards of really down. You start back-end And winding we're II. have getting

bit last And so, debt of it back a SBA And kind of down. we've the started paid winding we quarter.

part As letter. been got of just usually Again, to Light we’ve leads Light a we’re our and Green letter as and clear, I is, of want getting that relationship, we a pleased part be very Green to license. good

We are no are still It's in get the financing. license, the think we'll guarantees. a there process. We licensing but attractive. very like We

of of there's the form has about XX% today, and arching manufacturing Usually, company terms around it doesn't. in if portfolio fits. thumb. And of In a United of of rules as as general fits, portfolio kind so lot a or rule what our at look what usually, a some fits, you what fits the States, of

fits SBIC potential tools. adjunct the size actually and it a nicely III of it's with nice our to So,

Mickey Schleien

In of economic fits. this manufacturing, words, where deal in are XX% are Art, your the other given And the to businesses in flow oriented are you towards willing cycle? we invest that

Art Penn

it's say do usually question. is, what when a That's manufacturing. good like manufacturing, And we we

XX% avoid way, in of fits. the a is lighter the big So, going by is economy, CapEx, manufacturing, chemicals. heavy which, what's in a usually pulp lot cyclical but about CapEx, and it paper, on we steel, It's generally

of kind There's net employees and of some it's is. amount. at about as a your fit. lots what number the look of flow the income course rules non-manufacturing of In companies over And we cases, reasonable time,

different United general of what of a form fits. does as manufacturing the that about but proposition, lots something States in there's So, rules fits, some

Mickey Schleien

a event, typically but parts, there's your that long Art, XXXX the mind? question, in a know environment, be letter I year of license? how last my then a lot a current And to Green Light from moving would calendar in

Art Penn

you since the license I – think kind a get we the got Yes. don’t license I we of we even… process mean, there's think six-month why in –

Aviv Efrat

in Just six-month know, process. never safe around October the is but mid-year, obviously very say, we’re of assumption, we

Mickey Schleien

how you would SBIC capitalize III, And Art?

Art Penn

it’s equity of up $X provide over you of – how time debt. deals many been We’ve with you need new to and to $X get

So, the of portion we SBIC. would borrow equity the to finance

Mickey Schleien

of facility credit that correct? large is And the that. Is the

Art Penn

some Well, they allow bonds. unsecured live for. don't could They give or you do for you credit

quarter So, did we that last and could financing unsecured some bonds well. help as

Mickey Schleien

me this I for all morning. you. your That's Thank appreciate time. Okay.

Art Penn

you. Thank

Operator

from Ryan KBW. hear we'll of Next, Lynch

Ryan Lynch

Thanks good for my Hi, taking questions. morning.

thinking that as wanted how of but RAM, investment in to about talk First bit to from a pretty higher-level. favor making do Art, a be a out about one an balance good just some very performing RAM and little well progress, pretty seems exiting you industry? like

the think a balance So, sell but is the your guys out investors clearly, sector, RAM that I think, sheet today. very equity that particularly like you're see to because of would into you is that investment component on I sector an favor exit, trying of to and

a get wanting that, that today? So, how of really up do also of favor significant in of you out investment to out weigh to see luck, value out but trying of want probably that’s get not you to that investors sector amount give

Art Penn

Yes. with particularly want all this well we're not are strategic right? question, some somebody geography. options great I say best It’s there's and threat grapple the extremely on active the performing all as to for the know long-term time, wells asset, the We and holder around are the table, a

we'd know sell we're holder the weakness into rather and we long-term not not either. So, best

So, cash us. want important for that's it time. is do conundrum. the over We an investment It to to convert

out. in website [indiscernible] comparables active it results Anyone shares very you the versus peers and We're the to now like gives So, we peers wells and and of play to can the who RAM. the have are. geography on go sense the in the

take to of can the people suggestions value asset. So, we who – that minded we maximize from how open happy are and

obsess more don’t than on energy. strong that of RAM’s in other based and favor that good industries investments I equity may take just some to it, have exit are on want in it time. a we we because hope performance value growing So, really important, those are lot but in to

got in RAM, played out. just I So, we think

good we options a couple long on results. the the put wells, potentially be And up the more drill, to In to maximize value going best have table. try can. are then as the We run, all

Ryan Lynch

yes. I a regarding That's leverage. Okay, question your helpful. had

So, of the X.X additional you your that guys debentures wondering, just to obviously, if not X.X. about is count that. points on, have you leverage SBIC the against leverage target leverage. SBIC I'm to total That's regulatory XX include do your

license guys get SBIC can become larger you If a even another that component.

guys I'm do think your is just to wondering, So, operating, as you all, guys leverage are you at on total be that or target? about main focus just going leverage regulatory

Art Penn

We obviously And appropriate leverage about particular as well. against overall asset. we think the what's leverage the think about

aggressive So, regulatory clearly, than BDC are finance we we're secured GAAP, regulatory X today, as X doing primarily ways there to more senior the to loans to X X. to even is limit. first-lien that much which, said, leverage

time theory, take I point guess, at X would an there to book. going in that time. to that in senior against We're SBICs, could And Again, a not overall have get if X we you to some yet. mostly the be on basis. It's leverage

So, give in in other lot get safe kind senior dry assets a words, point time, it does that at there we're of to going likely of us even a generate powder, earnings but way. particularly in to

Ryan Lynch

drawdown are where Do one current SBIC where in those roughly? you last to you Green some then all-in another license. rates if on take the would And the be, today today, SBIC an to were adventures, your guys costs Light and obviously, all-in you know license – Okay. hoping are get

Art Penn

indicative in to are zone. general Those like X.X% Yes. X.X%,

Ryan Lynch

all are questions. my appreciate Those time Okay. I the today.

Art Penn

Ryan. Thanks,

Operator

Shane Rick from of JPMorgan. hear we'll Next,

Rick Shane

Hi, question morning. guys, taking for thanks this my

the from percentage of little an What What – can now inventory you government I equity capital the you seats. two have about believe do us ownership guys you bit perspective, represent? just on First ownership curious tell board a have? structure? of from a your perspective, more capital does I'm percentage

Art Penn

Yes.

potential a So, participate said, participate a and all equity. we management the have to exit. own program upside for in That in we

think them, will management's So, really here, think And some talented we highly – have management by for and operators. we and in great Larry we've where upside. us, we in they wanted team, have a Lee led arrangements key we place, participate to

So – XXX% at we do this the of equity but point.

Rick Shane

it. Got

in this have Okay, equity at significant traded obviously [BVT] concentrations a related Historically, higher great. And NAV. discounts of way. is didn’t then, investments tangential to and

aware highly terms you're addressing of outlook. obviously in that your that You're

last the been weighed the the repurchasing given given giving curious, several shares quarters, and opportunity. that important discount particularly I’m on as forward? the against you haven't move you that discount capital? investment and How deploying active but opportunity, is You buyback

Art Penn

It's question, buybacks, of very quarters good be been something happen nice and – of investments. them couple And that us, it you talk regularly Like something on table be and these It's one – evaluate. you of and all et Board different the exit some thing to happens. a front then we'll options which we'll The It's a the we evaluate ended time. it's whether good we want Management as will We've Rick. And in when regularly, the to, do And said, – we’ll the buybacks. we cetera. about allocation. investments, it to want all we can equity new two capital continue pass the done is now last we has buying ago. stock so. to –

Rick Shane

the and understand shares of – NAV, company shares Got importantly with looks to to different management locations it. of associated in not potential market, that's signaling the I investment that? in return because that important moving signaling the certainly, more buying that. only buying impact the investment your is the But discount because

Art Penn

it's and Difficulty]. [Technical in the and agree, few buybacks we've that's two why years done last I always why

Rick Shane

you Art, you. lost Can me? I hear

Art Penn

Yes.

As – something we it's two of buybacks. I lot it that's done that continue And already a to sense, said, makes discuss which is we've why regularly.

Rick Shane

guys. Thank appreciate you, I Terrific. that.

Art Penn

you. Thank

Operator

of Alexander from Compass Next, hear Casey Research. we’ll Point

Casey Alexander

just valuation X/XX you one the RAM, the valuation? Yes. RAM of equity equity Hi, the that was the done or have that XX/XX reclassification at put loan good question. additional morning. into into I and The

Art Penn

$XXX it, of about as new XX/XX, millions. at which million, bringing of of million put to Casey, money worth as of market million. We the that in RAM of value look that you million. X/XX, $XXX of $XX if is $XXX value the X/XX at fair $XXX So, And was bundle was

because markup converted there had time of a valuation overall the performance. in the excellent discussed, bundle, during debt So, was to the of that period. we that some equity, we wells as And

Casey Alexander

But that X/XX also – valuation? at to was debt equity conversion it – of the was the the

Aviv Efrat

that X/XX It at converted we we It was was and done the always as valuation, debt at X/XX. that marked at valuation.

Casey Alexander

for Alright. only That's question I you Thank the questions. my have. taking

Art Penn

Thank you, Casey.

Operator

Next, we'll Management. David Investment Miyazaki from Confluence hear of

David Miyazaki

morning. Good Hi.

Art Penn

Good morning.

David Miyazaki

And only from So, we just wondering what talked towards what trends getting you shift about with X% and entire a more when bit Is Art, you it it of a broad with your little moving stable? target perspective, trends you kind deal you're the of the Is talk doing better? secured underwriting EBITDA overall little senior I'm for revenue balance your are have the across sheet. opportunity a to about that regarding seeing on market? flow,

Art Penn

Yes. that's in is proposition, growing, are general proposition, I we're as seeing solid EBITDA areas mean, portfolio. much There least that No, and hadn't had of tariffs good weak. mid the to our and certain really has been the economy, been been economy. at We as Auto-related in shape. general revenue single-digit weakness. little a a across related the is with XXX our been a from at Max, little a muted portfolios Manufacturing week. least

We issue. our lane. because stay to have for can one good. virus far proposition, wide in low-Xs good okay, of, economy's has a the the a early. in this kind – funnel, outcome so debt-to-EBITDA. our so gentle we And So, good. in mid-X lane that know And yet don't we been first-lien But of It's

the saying, like So, think debt-to-EBITDA, the did is then to put which a and on against kind do? the place return put seems are X% really appropriate it in in leverage good risk-adjusted market, money what of get game high, where multiples ROE, asset plan. X.X% and to a us, really a gee, is X% – solid that it's we long are to tooth solid we a you and X, you can very cycle it's first-lien, and people

David Miyazaki

not it's is underwrite conditions leverage are be helpful. right your also along your where rate that secured, toward you what where and and of get the your how more very being where of we that seems sense credit change is senior of That's are balance to that can shift on And and But now the in you lines, as advance opinion you cycle. sheet. I Okay. part more the it those the

to So, of probably senior say driving secured? that that is it's to is the parts both equal decision fair it underline more

Art Penn

Alright. It's a really good question.

I first-lien that's think, a as strategy be think we’ll PNNT, and at say, like we structure. best, if think across we times. – of about the the certain being capital whenever top When to we

attractive. really mezz attractive. Secondly, been is they’re elevated there, levels of We'll the second-lien driver biggest subordinated. measure go in on when the that's has and leverage The really obviously

we clears not market love we So, or to in we we like the whatever leverage Periodically, structure capital PNNT, do to in on those reasonable see deep that the a times leverage, really just levels. mezz. that that bar because we in the that – In at leverage high elevated want don't bar in really we're seems basis. the really it's do now, general company will Occasionally, is general, second-lien and see going X.X be. that

we a get nose much But start once times five get little above in to security, proposition, bleed. as we general any a

and become start allergic. above little deleveraging, bit to go growth proposition, we'll above a we but times, a put see As generally, very a once little you or general five strong a sometimes get we

the thing. So, primary that's

than same leverage at rule roughly, has fortuitously, BDC Now, and X. now changed to can the X their assets BDCs time, more

position you in it say, a attractive and structure in BDCs have can us all a ROE.’ higher puts you and comes and more leveraging that position out very for a safer when in the wash, the ‘Okay, in So, lot capital of be to a move

we is for happened – or down at the for all the appropriate that and was same deal has to those. debt-to-EBITDA say, X.X really geez, going XX% XX% of is X roughly two or times at is we more think We're times this attractive. PNNT. road now, second-lien when time. time do And that be or a that may year So, There a

that's about So, think how kind of it we

David Miyazaki

it very credit of helpful. the that you I thought And about cycle. the coming know That's that's way out

you you're if with great license your on on congratulations making fund. the loans it's making, then, you're that So SBIC that and contrast progress that that

with SBIC to going the you're it's to loans think I doing be fair say that underwriting. if floating However, not senior that rate secured probably

to So, can to SBIC where on working and is against up you're ability about go talking down structure high support little going about you that dynamic, the more bit underwrite in a balance]? [maybe in the of the talk how the how backdrop the limited you're and capital that the leverage you're

Art Penn

true. between not is It mezz, so does that's discriminate Yes. and first-lien that the second-lien true SBIC

vehicle leverage, said, accurate. the in secret that's deals, SBIC That have good a And it there's and second-lien if – investors. that one exchange makes debt borrow from with to senior or totally very So, well. good mezz put sense, just can foremost, X%, we be anyone into and into as first else or X% we to the

So, us loans. is, for to good make importantly have most we

we the advanced bucket same the us to We to us in circumstances. to SBIC we're the give will have now rate. SBIC second-lien the The depend to be and in going match financing. then XX-year And It optionality on make financing do have what gives necessarily a that But time, with doing. facts good At facility. investments. is not and the mezz it's

over You're ramping five years.

a who happen to to We're hoping knows next get here going the license over what's the course. few months. in So,

ramp got then, we'll and risk-adjusted they importantly, to You have good returns sheet. of investment good five the balance Most on years investors from be see. put

David Miyazaki

as loans is the subordinated you likely time a in know but I probably long the environment, you you ramp would the years get much that leverage? more it, say five because ones, previous as about, that quickly are – assuming that is current license, it's Would so you think this carrying to won't this –

Art Penn

a first-lien, ROE s there. is if in end license, up reality up to shareholders. money. the up first-lien, and our we we we second-lien the filing It's filling it's end long-term And still once and think, I solid or get mean, if first-lien it a going if the I or put otherwise deal it SBIC to we're but accretive financing the with attractive up it’s

David Miyazaki

help. Okay, appreciate I it. great. Thanks for your

Operator

And back to it for turn no or this any at there time. further comments. closing are I'll call Art over appears, additional questions the

Art Penn

everybody quarterly just which call and for the call. will speak you very Yes. thank we in We being Thanks, – much. will to today. appreciate on everybody. want is Thank I it early I appreciate be next May, our you to

Operator

today's That Thank for does participation. conclude all conference. you your

disconnect. now may You

PennantPark Investment (PNNT) 7 Feb 202020 Q1 Earnings call transcript