Earnings call transcript Q3 2023

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Operator

Good afternoon, and welcome to the PennantPark Investment Corporation's Third Fiscal Quarter 2023 Earnings Conference Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. [Operator Instructions]

It is now my pleasure to turn the call over to Mr. Chief of and Investment Chairman Penn, Executive PennantPark Officer Corporation. Art Mr. may begin you your Penn, conference.

Art Penn

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

Richard Allorto

remind call Thank Please everyone the I'd you, to that recorded. Investment this be like is this call PennantPark any note call of is in that that any replay audio available call unauthorized is of An of today's property will being our and on form Art. Corporation prohibited. the strictly broadcast website.

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

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

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

Art Penn

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

Voting. the of stable was excludes per NAV our share. increased to $X.XX dividend by XX, June $X.XX NII per dividend largely our in related per $X.XX X.X% ended $X.XX valuations to $X.XX was income per Dominion. Dominion portfolio driven from investment Core share equity The and quarter net share investment share. GAAP was increase the income and from onetime For

increased the X.X% $X.XX share to from benefit debt per in from $X.XX. rates. increase NAV The to Adjusted base portfolio continues

weighted As and X.X% XX, was maturity XX.X%, XX.X% our year. of to June average which last up is quarter last yield

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

investments the portfolio average weighted in debt X.X times EBITDA interest was weighted was The new X.X to weighted For times. average the companies, value loan coverage the XX%. and to was average

current are are excellent. lower, vintage We loans the tighter. market covenants is is of directly continue higher Leverage and to fees upfront and believe originated that middle spreads

to investment We in an of flow are and interesting increase deal a compared opportunities. seeing and of pipeline attractive XXXX the have first growing half

the we capital attractive PennantPark Additional to raising capitalize PNNT the allow JV environment. the platform will are across and lending on

grow the $XX and And to to $XXX end, JV June during JV junior portfolio the million. Pantheon, over million, At from with JV closed equaled $XX the million billion the portfolio XX, capital $XXX invested million of This existing committed assets. together allow including the new After of the $X securitization. a financing, quarter purchases from will JV PNNT quarter, PNNT.

earned a invested XX last XX% PNNT JV. the on Over the in months, capital return

growth Credit investment earnings well. that perform will future enhance JV JV in to momentum the continues expect the the in with portfolio quarters. We of portfolio, continued PNNT's the quality

names had we XX, at June of out different one nonaccrual As of PNNT. XXX

cost market and X% the represents value. at X.X% portfolio This at of

quarterly dividend from in cumulative X% dividend a of stable a the a approved the quarterly another increase represents investment debt to of to Directors increase result share. and prior growing the a from consecutive January As XX% This increase net increase quarter per the increase $X.XX XXXX. of Board is the and income, seventh has portfolio the and

XX. to X October of September on paid be will dividend of as The shareholders record

rising portion with by rates the We the core that that and continued investment net investment increased a fully be confident income. or covered believe credit of are monthly strong dividend stable base community will performance, We a dividend. values

the frequency the to quarterly from a the to of Board also monthly. change decided dividend As result, has

be This will implemented change in October.

an protect to turn me interest the in let rates and where capital current a floating rates, market on and economy, interest inflation, loans environment Now environment. of focused rates market in preservation well geopolitical positioned perspective, overall interest States as United the inflation. against From lender risk rising potentially our weakening a can rising on are this we

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

record financing successfully a excellent These companies have we no sectors. expertise, ask market are middle track and questions domain an X substantial where by track We sectors right long-term high-growth of in have have generating the to key record. value

free we $XX and and into and we the $XX They software million more. cases, to and of government are: to that strong Business grow part the million a institutional and help consumer, $XX typically also first These ARR In services, EBITDA provide been cash the loans. that are or our EBITDA growth vertical, that of company fuel important loans million, health $XX In tend any company million don't capital exposure flow. strategic many to capital services million, $XX technology. are to care software generate recession have resilient and defense, we have sectors

the upside We in by making typically an equity co-investment. participate

been Our over returns on time. these equity co-investments excellent have

are have partner, Our of coinvests returns package IRR million over and strategic attractive. is and XX, X.X from of generated multiple we of have process through June important in on receive overall an we Because invested $XXX capital and the equity a XX% lending platform invested inception we an times.

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

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

which meaningful to $XX this core and the help market, with of covenants, compete protect and default middle not and of why in during had our million well is strong broadly our regard markets. we sector believe performance so positioned of reason COVID originated middle was threshold rate one covenants, is loans With does capital. we below are first virtually, $XX million core This why EBITDA our all to syndicated market. with is market a The high-yield loan This the environment. the or companies lien

According rate rate that loans different. to perception. $XX Many higher than million the with less sense, who a at companies companies upper with a EBITDA. that S&P, higher a to of intuitive focus and peers recovery may fall is than our lower loans EBITDA reality of risky, some to on state middle market but the are is bigger make less companies It those

an the middle protections average yield part tighter there's has more loss differentiated market believe careful of ratio approximately performance. PNNT of XX.X% has basis We that covenant and meaningful XX experienced points and inception, a have the been diligence at monitoring of this important Since invested core of $X.X an where billion annually.

primarily new should This market strong track prior target regard crisis includes financial pandemic. our estimates loans the this subordinated be investments, are our With the and debt record in to particularly vintage energy recently and to attractive. loans -- our attractive, outlook, made the

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

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

that with of investment shareholders. out opportunities We returns market attractive and to form free have goal our to of through our growing generate conversion. coupled primarily contractual cash reiterate cash to in capture dividends middle the cash want we income, through high companies to flows find flow risk-adjusted flow debt preservation long-term pay capital. We free instruments, that seek those We in

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

Richard Allorto

Art. you, Thank

fees. investment XX, income investment net received onetime $X.XX Voting, share Core taxes Dominion per of in from June income $X.XX and For core and net share the increase investment per income our per equity dividend ended excise accrued an net quarter $X.XX was in excludes was share. of income investment net incentive

and including unrealized a for the expenses were million for million; facility of investments follows: excise net per expenses the incentive million; June and as provision $X.X $X.X quarter Operating were for and provision was general expenses Interest taxes, taxes ended was or realized administrative base and on loss million. $X.X and management for million; fees were change and quarter share. were debt, $XX.X credit $X.XX XX, $X

per quarter. was June per which of share our prior NAV As from is $X.XX in X.X% the share, up $X.XX GAAP XX,

Our was quarter. per $X.XX, share from the NAV which adjusted prior is up X.X%

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

across As and debt, equity different XX Our portfolio highly common X% XX.X%. X% debt, floating secured debt, XX% of in weighted rate. was and companies subordinated average The first in were other of investments XX% in June industries. X% preferred other as lien statistics XX, with was our second key yield XX% debt portfolio diversified XXX notes in the secured PSLF on portfolio in subordinated is in The equity to PSLF, invested lien follows: portfolio remains

Net to whole current would and base is XX%. X.X% EBITDA on as regard upon to The need sensitivity a rate. This to basis is run X.X has by portfolio points cushion decrease XXX assuming rates portfolio need a analysis decrease a interest to the overall to a X.X times. interest for base X.X up the coverage LTM meaningful to interest basis and based on times, coverage would coverage go rate coverage, EBITDA the times, with interest is

Art. turn me to let Now the call back

Art Penn

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

Operator

take caller come Raymond Robert [Operator from from queue, Instructions] your the We'll will that Dodd James. in first

Robert Dodd

lot refinancing There prepared out more of in that just up a actually active manifest? your to the there? pipeline kind on met market And in has us any remarks, kind color market. going that then Is what's to question those was of are Or lot the coming ramp things could it the on type bowing anyway? -- of color Going the confidence on the last, more add-ons? Any your that? like earnings of upper been you give a drivers of a

Art Penn

Thanks, lumpy. of Robert. The be M&A disclaimer, can is course,

that M&A deal lots key of drives flow. things of market can So go. what is driver Middle a

bit, an So predicting being weather. like of it's kind or a the economist little

We are busy.

to not like of going had There's land what's though, of deals. a X/XX, lot city cities is value on hard deal fancy have are very some in land are leverage. And flow of companies very terms even We what's to to that that hand, a attracting two city. of at sensitive multiples growth quite have may market. It's kind good other robust the or companies -- on a the companies side of looking very kind to in growth viewed characteristics. going are parameters of still they those a of tale And X/XX. predict. to high-quality of side as of more deals the types one this other going Those What's well enterprise hard say. economically be are It's that bit the other and that's land you where lot as little do on as

in sellers. still, could be There's gaps come buyers They significant and between some could cases, together.

those But have platform certain Who lease moderate at all in our a now a of deal teams is We knows And So the of pipeline has. nice working to year-end. lot at between get are it inquiry. to we're a and pipeline? or close robust this going very, that we've a working our here of PNNT both pipeline JV hard. very, bunch execute it's And very fairly got capital deals to around point. we're nice We're categories.

capital very, JV. hopeful has we're and JV very continue do some nice said, and can well, we to that doing ramp availability that has well and been As then we JV

Robert Dodd

sponsor the this stepping you Or support up is at getting telling The the that might the that companies a you -- environment. them? do harder you that are color look providing second for that? struggling in one, they bit would I be more to mean, getting How from think or you it and on margin at side? any portfolio that little is cartelize decision

Art Penn

Yes.

was as people like off environment and let's that The was you That sponsored So behavior think to a seen just system. in back go a might reaction, there, terms pandemic. it's of there expected. the higher write kind in where thankfully shock companies interest wash lot grinding our deals sponsor a would have of and I of rates the of to And -- the invest the is what basically absorbing bad invested the willing It's company. a thankfully, good a to be their less This and sponsors the they hands environment of and slow supported more deals, from mean. in of scenario, shock. kind in turmoil

the going forced much and less flow, movement to because support. less they're movement not decisions cash they're make not going and they're about companies there's there's their to to cash volatile quick of volatile support which flow So of as companies which

are being slower fashion generally fashion. decisions thoughtful these made So a a they're being in in made

large, and capital. continued their support companies we've by to sponsors And see with really additional

So easier some it they're additional for when in in obviously, us. concessions money them capital easier they're when it putting give for to makes us, putting makes us junior to some

On the have careful little And of not protect be it the harder and those to, more around areas interest challenging, that. occasion our we obviously, are might be be complications investors. and a

in. slow-moving scenario. and still at And dramatic we're by sponsors money this put seeing nothing So point. It's more of large, slow a kind moving

Operator

Research. your next C.J. move Alexander Point Compass We'll Instructions] [Operator question, to

C.J. Alex

one question, Art. have I just

the you the which something of portfolio XX companies of new X/X the What When in companies? were those existing Your portfolio. common. seeing quarter, that be time. invested There and portfolio are XX thing at you million from is existing kind X in deployments must $XX companies, same trends

Art Penn

Yes.

is existing environment, most they're draws, have our So a your least Casey. delayed -- good your of question, activity activity M&A most doing in where combination slower add-on them at of -- a is of and these acquisitions. where DDTLs, of this That's companies. Many with

it. So we commitments. of that's then have a as portion you know, revolver And also,

higher spread than that the limit have So some priced cases, have, loan. the and same we the we revolvers usually to revolvers we spread in term do try at them are do

So kind the key companies. delayed existing revolvers draws, of the were to

Operator

from next from Johnson We'll hear Paul KBW.

Paul Johnson

of guess, In today? it there, what do as be grow to your much could of more is it I guess, capacity, is I is in for than portfolio? you JV, Or both the envision -- much of like it how percentage you terms it kind you I any growth -- pretty mean,

Art Penn

Yes.

with us $X billion. So today, the a junior We as a the NII. coming the million as $XXX contributor is capital JV about over from to total Pantheon CLO. in to get bit well assets can and It's our little big

is we our It So it. bucket. really XX% in like

So bucket. it of part XX% is the

So if it ain't it. broke, fix of don't kind

we our we'd been to win bucket. for XX% use to for speak like So XX% JVs PNNT, have speaking very We assuming our good These Pantheon. I continue could grow it, for BDCs. the can't bucket.

Kemper. in you have one as We PFLT, with know,

have for BDCs. one in We the the been NII good have PNNT of with These very Pantheon.

there's no than, obviously, other the additional management obviously, on And capital. fee junior

from it's So very efficient the standpoint of our shareholders.

can look to including structures finance secured securitization continue in number them. first risk, you to senior lien going we're look, to which Obviously, So of potentially grow it's a very safely down We'll We'll robust. of we road. lower CLO the debt, create be technology kind JV. can continue to all secure, return low The ways, which different JVs We what's locked-in may this long-term to of that other even and generally that's on cost financing, talk at capital very been do attractive. to kind Pantheon. grow very continue

Paul Johnson

soften half been, for picking very today? guys. up you starting you up how the guess, kind in we've terms first kind are to discipline mean, the way? lenders successful been obviously, activity has it summer, observe do that the in just of Or of mean And holding like line to the those market. very, on year? then seen seems I is this turning I of, kind over that terms of And have any of in just I

Art Penn

upper competing fall is not, the where The the will create space. we takes loan As broadly space the create syndicated of broadly end, which broadly that the syndicated going direct -- in market there's -- folks. takes lending -- market know, end the it cron you upper the are be those deal flow, loan syndicated to with to is will starting and loan

XX into kind upper $XX pressure end the of to we're the market some $XX EBITDA put market, upper of on of So $XX to XX, kind vigilant. of is companies, capacity can balance important company advantage XX. of solid guys but of on is million We're EBITDA to say median $XX play, We're we pressure create is yet, we're the come about kind Most XX mean and our seeing do not million vigilant. any pick solid credits sheet a where we we our that starting which credits. bit of zone see it's million, and that million, to take thing

vintage, got be So watch but we we -- get be always still be 'XX, think are. good got to as to if out -- the 'XX we we is to of space, the to careful and things we hand going got vintage

we're our in middle-market nothing report to So but noncore yet, space watching.

Operator

We'll move Hughes Mark Truist. from to next

Mark Hughes

sight is Any in repayments that trending of How on quarter. the far? line September so

Art Penn

different, materially on Mark, Nothing repayments.

we're in are you us to them get we during it have off, we happy say off. down are us people thank the when Even paying underwrite -- when loans, they and we pay certain pandemic, We even happens markets.

So a that solid seen. the seeing continued different deals where in we than the repayments. drip assets underwriting, PNNT but course, kind new We're the materially seeing of JV. we've JV of what sell nothing means of We're growth from and,

So meaningfully same, nothing but different. of more the

Mark Hughes

quarters. a equity you have the When the stable? been terms the for terms been Does they tend on get the favorable when that the or equity time in Or is think you and you about challenging manifest like in into be have conditions market turnover that better last co-invest? co-invest, to also few

Art Penn

nuanced sponsor. we that's invest of side-by-side because question like with Well, kind the a it's

are with the investment sponsor. there's So the no real in difference making we

not more going last that's lot we've few say, a of can terms So is it's equity evaluate equity makes call what's quarters So I cash it the as and because Is cushion. there's or for That's multimile negotiation question. been environment it with over the economy. the is flow the picker type to quickly? might invest Or And the they're sense? not to a making -- of say loan Xx X the been gee, thing grow us paying we the a company challenging over so one beneath Xx it to downside? of quickly a XXx is safe, feel company, be so really sponsor

which us, be question type The in co-invest -- of the should XXx. question, for is you at a equity it do is, total second

in invest a us So it's equity. of higher course, to for bar the

have greater have course, it. to Of to we conviction do

a And on so coinvest. would I we've selective say that bit equity think little just more I been

Operator

[Operator from from hear next Instructions] We'll Kyle Joseph Jefferies.

Kyle Joseph

Yes. of revenue kind I doing? to, portfolio want us we industry your kind of just starting get terms starting in your given a how want size inflation to abate. are Anything provide reprieve you and EBITDA to trends of little around if economy that's in, this really exposure to the sense at frankly, and from point and can growth is companies change see

Art Penn

based the soft XXX getting, look the But Look, areas areas the certain numbers it are over economy, any very it stress. companies we're landing. when areas seeing soft scenario. across would our support are soft at Kyle. strong. Yes that support Certain not soft. landing, Thanks, would great you platform on landing it support are the the There of We're would

areas and the a it very as is reverted across to large, because the a areas a Walker Edison and theory. did well credit are underwrite when generally about It's assume We've revenues EBITDA So the We past, generally there's But up. nonaccrual. underwriters, platform. credit, supports recession. that's such are furniture post-go kind language, soft we company talked certain Walker COVID. say to of is consumer. the during up theory of landing of in Edison by have weakness There as we mean as been

in we have recession. that's because should there's environment, our even model of today, we normal if comfortable in feeling year. we be year We And recession kind we during a reality recession a sometime say in a to a recessionary The loan, environments. X-year would our model about In should in is loans how underwriting even credit. next be X

amendment really about base large interest think we companies about just point went that -- it. we're now rates to so how to to higher earlier the But the that's amendments then up and much be seeing bear the do coming that cost or the seem these by up and substantially. that not need So to

or your the have When it's lien of second flow. first if lien you're XX-plus cash lien have of mezzanine debt, debt, you you paying on the XX% first or sucking a if up and percent lot debt, all leverage

that's So where come in. typically amendments would the

Kyle Joseph

focus then, smaller is on market of increases you would requirement that talked the And kind companies, kind opportunity in you capital have headlines with for banks there. a but mean, funnel I How about that and area of guys? of will potential the all your your big

Art Penn

the Kyle, question sorry, again? I'm

Kyle Joseph

I Sure of... with regional going on on guys with banks. everything know focus you kind

Art Penn

bank. Regional

Kyle Joseph

but yes, -- -- Yes, would and an be you about sort yes, for there any middle and that that guys? thinking of lower companies, reverberations are opportunity is smaller as you

Art Penn

it mean say hard be. to I It's should this at Yes. what meant point. is exactly

would direct I Certainly, any prior too we such or to finance companies did we other the Xx, ourselves Xx of would tell. as at suffer who X than those lower capital Bank lenders. to got early much refinance turmoil to they that many think at someone Silicon see down under banks structures spread regional or once it's Valley the to

source a exit the of would be banks us. for So regional

XXX but to we of We're hold that regional the bad do that happy news, isn't credits we're have those perhaps longer. early tell, to some the a We're I loan. on of perhaps very you're to too -- and XXX with think down and it's these we good and debt-to-EBITDA, loan. under When little there. the clipping where Xx bit bank you're news some with can happy

So more direct be that that's may us. kind of for something

Operator

JPMorgan. from from We'll move next Melissa Wedel

Melissa Wedel

portfolio got you higher loftier something quality like with it's the the more see I sort And you and BDC, sounds of sensitive do then construction about for bifurcated it those? segments just that in call sort think and pipeline think about you of it optimal between of of in companies Or BDC? on portfolio some the touch companies. sort you is where both think the sort to that what about mentioned for also you've wanted all or split suitable they're lands When pipeline earlier valuations the I mentioned management economically there. between

Art Penn

That's out a wash. higher others to maybe coming a of think I companies, ability quality, level the mean growing Obviously, that level willing environment. weather choppier that economic in are bit great a company's question. up put little more leverage on that and to the on I the the higher growth ends in we because company's confidence in confidence

the the growth say, On comfortable would which other more an economic equity in. or where where ability there's that there substantial not were that handle cushion you really deal is what hand, protect sensible than the or to the or covenants and less let's you if that majority equity say we so the beneath a confident are you're safe, is put bump sponsor structure less road, if you're environment, the the low, us feel a of confident either about times is time the we more company's us about no, vast leverage say in

that's of companies do so deal-by-deal lofty high-quality are can credit learned, credit we've that quality that's that care And companies There's a of course, take world of made individual in well to usually in. underwriting. So kind not whole of you themselves.

your need keep tight. look covenants downside really just comfortable You to at cases, and leverage really, be reasonable to need need and to

the ask you invest. equity that maybe co even So in the in graciously latter, assertive And decline the for you don't the you're little co-invest. former, getting maybe comes, about more a bit

of So play. there generally that's how again, We've from you're where a portfolio whatever. super and portfolio tended high-quality majority we to is percentage or about the vast talking have the underwrite And companies. we a construction in

Melissa Wedel

dividend Second we maybe straight to rate at of rate a X and But wanted rate think in the with dividend looking dividend about in policy. been starting of the and ride to to half a of quarter. year. I start the go NII sort stabilize going to second mentioned question, quarter sort increases. run Should look that to income a previous forward? the I there's bit change base policy for of you out this we peak lot any when having the know in in environment Obviously, to onetime just this

Art Penn

It's can't yes, I me shouldn't It X of every the discussion a great portfolio. I We'll from a pound that the quarter, do going Board rates. in it's it's table its cue to take question. who take from from hard will the its our that. healthy the another say for there's It generated the from JV. Directors. And and it's and cue knows. really of with increases to And the take dividend. will do cue earnings be quality base

our tweaking monthly are numbers We in BDC because we've the PFC. frequency October to we're other no hard we there's really -- believe seen but seeing starting in it, on

We portion that believe there's a of the community investment does value monthly. the

the of in quarter-by-quarter. of still to the but equity portfolio rotated it at rotation much We growth of more talking some there's about point. be something preferred continued common there's we're on didn't XX% equity. to be the will believe JV upside rotation, take spend with going We So time hopefully still that and like equity

'XX. you with it's feel substantial feel got really firmly like above we beyond and for hard runway really We can that. this at But comment to we've comfortable appreciate So point. me that. Hopefully,

Operator

And of to additional any conference that like back or comments. turn closing host the call today. for to our does I'd our over conclude Q&A the portion

Art Penn

Thanks, to went quarter is Rick next the and XX-K. everybody. -- Allorto On participating today, behalf our myself are we of

kind be mid-November. than to be the better So a little able bit we'll we're of --

then of forward look you wishing rest all healthy I everybody to the and a So happy you. summer. Thank

Operator

for We does your thank participation. you That all today's conclude teleconference.

disconnect. now may You

PennantPark Investment (PNNT) 10 Aug 232023 Q3 Earnings call transcript