PNNT - Earnings call transcript Q2 2024 | PennantPark Investment Corporation

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Operator

Good afternoon, and welcome to the PennantPark Investment Corporation's Second Fiscal Quarter 2024 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Art Penn, Chairman and Chief Executive Officer of PennantPark Investment Corporation. Mr. your begin may you conference. Penn,

Arthur Penn

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

Richard Allorto

form note Corporation information. the harbor property I'd website. to safe is available broadcast call attention strictly call I'd prohibited. will that recorded. our customary forward-looking Please today's An of unauthorized the disclosures audio in remind your is replay the on is call to Investment that Thank call that everyone like of our also of call press you, to in and like Art. any regarding any be release PennantPark this being this

call also that and you with Today's forward-looking factors important refer We update conference visit actual unless To materially at our our from law. and that the by our forward-looking copies projections. pennantpark.com do most to XXX-XXXX. to include call recent of required at or SEC filings website results to could we (XXX) obtain filings, for not our ask latest please statements differ may these us undertake statements cause SEC projections,

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

Arthur Penn

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

income March and For XX, was our investment GAAP the per share. quarter $X.XX net core ended

Directors an July XX% payable dividend, XX. dividend. the The shareholders per increase in X We effective approved of are monthly record in the will will represents dividend monthly June be $X.XX on as increase which the announce with a June has increase monthly share. the to of Board of be to that pleased beginning to This

to $X.XX. GAAP X.X% increased and adjusted per NAV share $X.XX from

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

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

portfolio the weighted We For nonaccrual was XX%. average The in X.Xx at the status portfolio loan debt-to-EBITDA the average represent investments on X.Xx. new Nonaccruals investments new cost weighted weighted the X interest at value. and to of investment. companies, coverage and X.X% was value and X% to average was added removed market

investment income is the the BDC only ended which For among X.X% sector. at believe PIK of quarter March the lowest total income, low XX, in remained we

and interest on security a testament our X.Xx, As well of as March portfolio's XX, the focus conservative leverage our coverage the orientation weighted ratio through These average market. to X.Xx. credit selectivity core as portfolio's attractive was weighted was average our debt the middle statistics are and

over have we first tightening X of On a average, point last seen lien basis spreads the XX months.

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

billion. from million $XXX of quarter, And purchases million, portfolio At to March PNNT. including $XXX JV current the XX, the can the capital base, invested grow JV its With JV $XXX the million. portfolio equaled during $X.X

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

quarters. with JV will momentum investment the in enhance in that PNNT's We earnings continued JV portfolio, future expect growth the

to turn me market let Now the current environment.

focused lender on a well United are in capital as the preservation We States. positioned

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

have to below in and we long-term to services, substantial to the and the We recession record broadly and key do a resilient financing are have and They technology. successfully companies syndicated $XXX not we $XX Those and companies X compete markets track services million are market. ask or market million track our know the where upper sectors have an sectors strong These domain sectors. expertise, are of peers free in These of also generate unlike by government right with record. the been excellent growing threshold, software and flow middle cash EBITDA. generating questions consumer, have with business loan value high-yield defense tend companies

core the partner, middle important an of market, strategic In receive are is we we package the attractive. terms because process and lending

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

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

make less is with of companies are million is those higher loans higher companies in a perception less middle the than intuitive risky. With help recovery to of the capital. some or This rate our believe environment. our lower we erosion covenants, significant market, loans the with focused a protect we the According upper regard companies Many different. our who covenants, that had originated EBITDA. of may reason to upper which all to EBITDA why meaningful on have market first virtually but peers $XX bigger are rate state than are sense default well in this unlike lien S&P, middle that reality is to That loans positioned a

covenant careful of of meaningful diligence middle loans, and been monitoring core an the more that tighter have believe this protections market We performance. part differentiated important

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

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

yield invested our invested inception, IRR over years an of PNNT for XX, an co-investments XX.X% experienced and points ago, Overall, investments invested made billion in inception has million ratio This track to equity at and $X.X debt recently capital generated XX March on basis the global annually. multiple a XX% includes financial have and has of on nearly and primarily average platform strong subordinated the loss $XXX of our investments energy prior from of X.Xx. we've a through XX invested Since approximately record and legacy crisis, pandemic. capital

outlook, the flow. in active our new talented target market deal our are is experienced With and our regard producing to origination funnel team and attractive, loans wide

capital goal to through to our generate coupled being focus continued capital. and remains risk-adjusted with returns preservation attractive want Our on investors. preservation income, of patient long-term We reiterate

We that have to growing seek through middle market cash flow cash to shareholders. of We and capture the find companies instruments, that form debt pay investment primarily in those dividends flow conversion. free free contractual our out flows opportunities in cash high

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

Richard Allorto

Thank you, Art.

the for expenses and GAAP base were income share. were were quarter per and the and $X.X For net $X.XX provision and excise XX, fees $X.X administrative Operating incentive million, million, and expenses quarter management for million. core March ended general were as expenses was credit were interest $XX.X $X.X investment taxes million facility follows:

and of $X.X change per and net XX, a provision March or realized investments ended quarter million $X.XX the our on share. gain unrealized including debt, for For was taxes,

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

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

industries, investment nonaccruals, were portfolio had as which portfolio statistics As on equaled XX, total X.X% X.X% XXX of of weighted only was cost the with PIK we our diversified highly follows: investments represent XX key different our X across debt of March value. XX.X%, at portfolio yield and market remains X% income, the at average our income companies

second interest about PSLF, equity. X.Xx notes The secured of in X.Xx. first floating X% debt, portfolio PSLF common debt in is other comprised and XX% X% rate. is EBITDA secured the other and XX% the lien portfolio to lien on preferred subordinated equity is coverage XX% portfolio XX% is to X% debt, Debt subordinated and debt,

Now to let call the me back Art. turn

Arthur Penn

talented shareholders. in closing, PNNT Thanks, to today investment their for commitment time continued your Rick. our team thank professionals In its all us. your like dedicated and confidence and you of for continued I'd Thank and and for to

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

Operator

And we will Brian from take go Instructions] ahead our [Operator first question JMP. and with Citizens Mckenna

Brian Mckenna

had I All on just one right. coverage. dividend and question the

$X.XX the in great monthly on a XX% that So to to equates basis. quarterly see distribution, but the increase

probably looking at in period And NII the so that at came $X.XX. in

on dividend the ultimately, quarters? you earnings why the So over dividend Does some next moving do the set healthy rate? new imply And expect I'm shake that run think you'll down NII XQ where above growth core in you forward? several coverage curious,

Arthur Penn

good Brian. Thanks, question. Yes. a It's

know of to First, have it's significant be everyone spillover, share probably we're to anyway. to need spillover we that to that of portion going a about a pay important out of lot $X for a

you performance the $X.XX a portfolio of Now that the continued joint anyway. on of based basis the on recurring to ongoing NII. that, then believe what's that on our And we turn is growth recurring based venture achievable

to factors X the are us that factors to us key -- those increase. So the that dividend led led

Operator

will question James. from Raymond with Robert next our come And Dodd

Robert Dodd

plans a that's to mean, Can that, and business you your lending at point portfolio as rundown specialty just of what I as there the does -- it is lease keep finance on the business like what Flock, a a and business a for obviously, nonaccrual, it a sense on there give it us your operate situation company, what make it run yourself? are.

Arthur Penn

Yes.

Flock growth It's Financial, as vintage think you, company the finance as we a put it's recapitalized vintage in on equity, company where company. converted to company. space So that area -- the and a assets and be focus We that Robert, busted that growing capital on it's think to a we the debt the involved purchasing for receivables. very fuel good it's consumer is some of in name We financing BDCs. company's adding it's involved well and some we to and more interesting an really specialty because

to added the management So we're company. going excellent to grow team. that We've

it once get attractive that that And kind yield. a a could very company it's a sell. hold, you're could company good we of generates certainly in a right, that you It's we company position,

ex managers to can put some That added first, they attractive was capital first the back into track. the things the So some the in oversight into so this brought nonaccural. get company, right management, and some company deploy board the biggest We've into we reconstituted that company market. got on

down also proactively nonaccrual We been as put on a a for of that put which marked well. that's number Walker much smaller is position quarters. Edison, We

Robert Dodd

Understood.

think point do -- could could that what is, at Flock, income path the producing? whatever way Flock, on capital what other, do you think the one Just point or you become

Arthur Penn

our goal. of want a horizon think with a that's to year, right we We one-year to added of Certainly, next We it's also in clicking and think building get in we've kind the yield within start the -- growth. direction just then things we're stabilized kind Again, again. the to moving management.

Robert Dodd

Got it. that. I appreciate

On the assets are the obviously, of same sheet. on JV, balance kind

want to that. an you you from through us like how on obviously, to but -- a want now? extremely want -- still You market would that year say, large give is it still the be, return structure. Can attractive you an to -- update depends capital on environment, grow that It how on

Arthur Penn

Yes.

we're good that with March XX, billion. assets. growing it structure we increasing in are can our for like. teens And joint terrific to base shareholders. that on venture, PNNT. very we -- We're we a the Based of return an it's PFLT. JVs. When $X.X about $XXX capital, good a discussions you're upper get fees. to more and as It's It's for generating that structure doing other potentially It's something not We're million. managing So been open current been for was consistently,

a So yield shareholders returns it's on and attractive for cost-efficient basis.

look to knows, we'll JV potentially other who JVs and to this do going time. over upsize we're So maybe

Operator

to on moving Ladenburg. Mickey with Schleien And

Mickey Schleien

follow up Art, JV. the just on to

commitment? And has Pantheon You've from $X.X target already unfunded commitment funded your still funding of finishes that of this what's assume JV. does stopping Pantheon the billion, that capital some their occurring? commitments structure to the

Arthur Penn

know top. the Yes. and good It's Rick may off a question

all and all haven't shortly. funding we Right we've think between to I PNNT funded. funded, we're now, If it's going a Pantheon. be split XX/XX

a So is quarter like question then we we're quarters do terrific Do that max upside? of So JV? table. stand And we is, on by way. do capping we can or where that billion. optimistic Clearly, And the to away X options a the or we the structure. all $X.X we Pantheon's that another more are we're the over do time. partner, out

Mickey Schleien

which bucket, you are how grows, nonqualified already is the JV manage that going as Art, to at So asset XX%?

Arthur Penn

Yes.

So we're XX% bucket. the constantly watching

XX% which quarter can balance sheet purchasing PNNT, help may bills is assets, at You the been on expand of that the see end, qualifying we've which T bucket.

Mickey Schleien

that appreciate is be? want to Okay. about as the you And to the it that That's that. the around of Is to members JV the Is I running it? where Xx. notes where want leverage counting see you debt.

Arthur Penn

Notes of part to the the members, -- junior all we it's capital.

kind would the and of $X include to that at external Pantheon which $X own equity. we're capital, looking along notes of of we junior So X:X, with the subordinated debt

to So capital and X junior or X: us, leverage that we that's so.

Operator

question come the with And Truist. next Hughes will Mark from

Mark Hughes

Yes. Thank you.

of think the just I a sustainability ask this. about I lot the JV. in to you've going of was addressed returns

Is assuming the teens that structure, kind here returns the of investments? high in about that's just talked recently. reasonable You that something with sustainable underlying

Arthur Penn

come yields rates is. if course, finance will yields the These financing. come Obviously, rate come will. and liabilities, down. of rates down, JV floating assets, credit floating rate when it either facilities believe We rate or Yes. We with CLO do securitization down, floating are if

have albeit strong matched, it's a performance. continue can about it's rates credit of to credit we very And are So then, higher, performance. ROE. when course, And you higher get

we've as and I debt-to-EBITDA the interest here do portfolio last loan think loans portfolio about are we a that X.Xx been The was XX%. doing is to well we're underwritten coverage conservatively that can. think today of X.Xx we you constructed of senior sharing value -- quarter, with senior I

floating that rate then of rate with joint kind facilities securitization. the what's we that credit that's and venture So floating the populating leverage and

course, well optimistic, if although credit down, to rates got And we're keep it be underwriting the nonaccruals. to of hard retain may come we try that. to So and minimize

Operator

Point. And we'll take Compass with a question from Casey Alexander

Casey Alexander

investments, in as the of is a just Flock position. listed I'm curious, sub-debt schedule

So put it of -- you why to would I'm management is just you? And in? making ahead decision who why you kind is guys who of guys the be curious

Arthur Penn

Yes.

question. great So

is this lender. So specialty finance the senior Regions company. a Bank is

lender, mezzanine debt. are subordinated We

Regions we're converting the mezzanine part to which debt to mezzanine the As additional equity, Bank. doing debt, restructuring, of we're and some junior of some is

nonsponsored this So was deal. a

provided, debt So it the liquidity the ones company. in we're extra was And equity, majority the the the equity position. liquidity, we're a you founder and between liquidity. running when a needed that the who of And to was provide company conversion

Casey Alexander

excellent Okay. color. Great. That's

Walker the Just Edison as matter is a also Flock in of that any course, there or JV? is

Arthur Penn

the There's -- in actually, no no, Edison think I no. Walker JV or Flock.

Casey Alexander

you What think the was it, I it. think that came lastly, nonaccrual company wished but And Great. I Okay. quarter? the off mentioned I in

Arthur Penn

quarters. marked Yes. The company historically X last was called MailSouth. Its name it's changed the and to X, for Mspark. at few SOIBs, It's got the off that we company got But now sold, sold. been It realized the unfortunately.

Operator

to on Jefferies. with Joseph moving And Kyle

Kyle Joseph

yields just missed were for I looks a sense competition this, apologies I but if spreads. your quarter like to fairly wanted It and the stable. for get

kind of you're and Just about yields space of versus just like banks entering just us lower. terms been either of exiting and give what little sense investments were hearing a rates or But kind the a kind the it mixed what seeing of looks in base competition. on of spreads there messages new

Arthur Penn

over been. good The we what did million have contracted question, are coverage focus is Spreads a EBITDA, over can about along just XX%. comes average of rate in of last points attractive our X the the what has XX of been we and X X.Xx M&A and that companies, cover It's new our to have X.Xx, debt-to-EBITDA, as months in spreads busy, space, you a lot core to market Kyle, like that loan-to-value been a bit but basis we with We've has $XX think statistics existing Yes. that's under the interest credit not tightened risk-free light. and middle market, both tell, platforms flow from where of which business a little the earlier. XXX

So and happens rate between Unclear along attractive, stats over what we very risk-free it, now think still is with, XXX credit reward. those average call risk attractive year-end. very

widens there's there scenario now activity of either is no is of a again, guarantees, a be We are deal the widen most spreads of can lot a between We underwritten. may And little credit-oriented. supply are think which and believe us year-end, certainly again. hits for market, on lower lot -- we're focused demand that but going optimistic. a if we But supply a taking the we way, be well see may spreads important where lot okay we're if yield is credit, possibility, a flow. you to We're and credit

Operator

And session. Mr. that question-and-answer turn does over back I'll Art the the now conclude Penn. conference to

Arthur Penn

it. participating. for everybody, Thanks, really appreciate We

the terrific the be XX we'll early In soon. meantime, the summer. time Next June call Speak a in wishing for August and quarter. everybody spring doing

Operator

conclude excellent day. today's conference. does participation. thank for We you your That do Have an

PennantPark Investment (PNNT) 9 May 242024 Q2 Earnings call transcript