PNNT - Earnings call transcript Q3 2024 | PennantPark Investment Corporation

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Operator

Good afternoon, and welcome to the PennantPark Investment Corporation's Third 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 Third 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 disclosure 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

also that and you with Today's forward-looking factors important refer conference actual these materially projections. our from and that the most to include call recent filings results to could we for ask differ may statements cause SEC projections

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

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

Arthur Penn

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

investment was in and primarily per $X.XX and increases income share. in June due net partially $X.XX equity our for from on per per ended $X.XX investments. the valuation offset adjustments decreased the GAAP quarter by core to adjusted loans several was The to quarter X.X% nonaccrual NAV share decrease NAV investment the GAAP was $X.XX For our share. per share income net XX,

portfolio totaled our XX, June $X.X of As billion.

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

to continue the We an see vintage middle core market. in attractive

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

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

has market points. tightened the basis XXXX, During yield XX first term loans to lien XX on

and credit the higher of that is directly highlight we're upper continue the we excellent. JV equaled loans lower, market tighter are and is in market. just Despite market the upper the the still covenants spreads believe are in indicate, than leverage the As covenant covenant middle portfolio meaningful statistics At $XXX to core the protections. middle core core middle getting market, vintage In market, erosion middle June originated current XX, middle million.

invested million million, purchases of JV $XX the from quarter, PNNT. the During $XX including

and PNNT With of can indicator million was portfolio dividend the the the of the dividend base, a share was grow the of $X.X net income, undistributed distribution special billion. the is earnings quarter, current JV cumulative to dividend million. made the $X.X power During another investment of the capital JV. special JV The JV's its $X.X

JV. with potentially grow the our partner discussions having JV We're to

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

X.X% X.X% XX. earnings will cost that enhance the portfolio, the continued future as value. PNNT's JV of quality at growth We strong. the portfolio X investment Non-accruals We expect in non-accruals remained and quarters. June in momentum Credit JV had represented with market of

to turn market me environment. the current let Now

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

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

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

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

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

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

some believe With protect that the we market peers performance. more loans this an is This and those That companies core may risky. part middle with companies that environment. regard perception higher than originated virtually lower covenants, intuitive are loans, make of According have significant we're reason a the a is EBITDA important this with of positioned that sense, have to the who middle a our of believe on Many lien state focus the of the EBITDA. less to higher different. in at but been unlike capital. well rate $XX than our to bigger our and companies protections differentiated We less rate all covenants upper of diligence meaningful tighter monitoring why million S&P, market, covenant meaningful loans reality the default careful middle of recovery market with upper first erosion loans to is help

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

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

market to are outlook, With loans new the our regard on target attractive.

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

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

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

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

Richard Allorto

Art. you, Thank

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

periods. the income $X.X JV, quarter, investment prior net we $X.XX share a from cumulative which or of of dividend special million from the During per received undistributed consisted

Given investment we from nature this of dividend, the have it excluded our nonrecurring income. core net

million, million, follows: and million. management excise base expenses were and $X.X and as $X.X million were credit provision for was quarter $XX.X the expenses fees were for taxes interest facility were and incentive administrative general $X.X expenses Operating

loss $XX For debt, provision and the of for quarter was taxes, realized including ended million. change and a XX, unrealized net June on investments

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

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

X% to debt on portfolio portfolio XX% is had in X% average and other remains our other investments is X.X% XX% which nonaccruals, XX% highly XX% comprised coverage secured equity lien X.X% key debt, and value. to XX, X.Xx portfolio notes EBITDA follows: and with statistics June the PSLF at The and diversified at as companies on portfolio industries. rate. across first was of XX.X%. lien We yield ratio of The common portfolio X.Xx. cost subordinated interest X% portfolio represents debt in the secured weighted subordinated Debt PSLF, market second XX is of is were the X of As XXX debt, different floating our equity. debt, preferred our

let back Now call to turn me the Art.

Arthur Penn

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

Operator

Instructions] [Operator

our first Truist. Hughes from Mark question We'll with take

Mark Hughes

good, JV. the very in described invested The return return you capital potential, XX.X% the on

And discussing, that return the you what's that does change the -- return you're increase of how If profile? level sustainable? that is size of apparently as the

Arthur Penn

Mark, Good JV Look, environment. rate it's the of We've for the high question. -- we returns the high these are interest certainly, itself in BDC been vehicles, a Art. now.

Today, good the down, never the the we've as really yields we'll down we're as an a credit teens. So I come interest across will JV. well the There's that. had that pleased continue to say to very BDC rates But JV. in would upper extent that with that performance come platform start the assurance in

the modeling extent certainly can it which PNNT. can into to finalize should we in the PNNT want upsize you you JV, arrangement return that attractive to if to certainly it the on certainly upper the think I model accretive whatever you And in, puts model capital be an to teens. capital, be it,

Mark Hughes

had obviously, dividends. sorts the time, has what special usual how pacing a over you of dividend then been me quarter, those dividend that on has trended on And the trajectory, this refresh

Arthur Penn

wanted potentially to look amount, and is JV cushion We -- the share leave we undistributed time. we whatever a paid we income get majority Rick of We upsize the I we to JV. out a for pay the is. mean, historical about the accumulates over and it, Yes. usually, NII take $X.XX that as because the out the little to this going which all cushion mean, is pay you I out

a everyone in kind of with historically? of slate. fresh Rick, So kind come

Richard Allorto

Yes.

So kind the regular of million of core quarter. kind the the about Mark, $X.X I'll in -- the say, from JV is dividend

Mark Hughes

been favorable then kind something a recently the Yes, that does might that your about appetite And is co-invest, influence experience as the terms? equity or you either your basis? or increasing in of go-forward yes. decreasing less think historical more pacing, where on And

Arthur Penn

That's question. great a

us, of at trajectory $XX For in EBITDA. growth. the $XX starting us, The micro. mind. to and million for more company helping the growth the less fuel macro the We're investments, prototypical deals loan. looking out doing There's we're growth particular draw term million that's a has companies, parameters, usually multiples, We're a it's sponsor with entry delayed that

$XX to and capital million EBITDA $XX that company above take our to to with million is of goal million, that. $XX million, driver a million growth $XX the So $XX debt being

in side-by-side but be large of some relatively to the that us of intended some small many by the a in maybe time, portfolio. the to bets amount, sponsor. just makes to X% These of to So with for cases, XX% of sense equity be are participate XX% co-investing not intended kind it course equity over to

Operator

We'll James. Raymond take next our question from Dodd with Robert

Robert Dodd

have a this. may I of lot one, First color. been There's missed

On just that to of so existing on the out upside, it JV. number maybe to intent with I that, that of upsize in so kind just the there gets to there's you as in the mark intent it, maybe JV, the an the level, expand partner, paying are not the involved everybody you same read excess that can come partners are but is it into

Arthur Penn

existing of a kind our started with It's Yes, really partner. good working We with right JV been well that's simpatico. them great after It's COVID. question.

we're -- kind So X-years kind it's been X-, old. of -- of

different if we to just JV up partner more their start complex had make and around things, -- separate party, et it own cetera. I we more the just third table, has about JV deciders set think way a of each you probably another get thinking

see we the we're if it. we open partner to we the and see So another world time find credit right over the sees way I who it can that that sees way the JV think

think for that's PNNT. -- that's I the So something certainly potentially to on table

Robert Dodd

it. Got

do on market I market recent outlook, terms volatility in expect the Just you mean Art, the the right, pipeline short demand, term. very in of

not there's to area market, yes, in pulled in going So you're the how that's typically I the the to of it's in. demand BSLs very mean, add, affect knows market. your been area some large but who competing

all is it that any your picking -- is it persist And how the would expect do up. volatility you so sponsor affect activity that if on segment? thoughts does Or in

Arthur Penn

over the back it while years, market to market going shocks, a and you gets middle which the middle obviously, takes market the impact where market now to an the has for many you middle when When years of articulated PennantPark gets we've first, XX core loan little immediately, upper Yes. broadly core to we articulated sit. look impact fairly then been syndicated have at market which business, then

up What do meantime? takes starts it to We've are a months it a market in never to market. impacts typically, to we're So wait. before the invest. of -- -- our in got to We impact supposed choppy could we X rush

here, We've you in never years, a invest. should learned rush never lessons be to the you over been -- should

So we're never invest. rush to in a

what up situations great good scenario invest side, companies always time you we out the like to no companies, when end matter feel great other great a the find because On it's and stacks, working is. capital great

find continues, So what's at but we going I'm going this to that makes that to support companies what sense understand I choppiness certainly macro always, going can sponsors thinking to middle. if saying. excellent both and if and sides we're seeing the know trying to or on, against and try be, don't be that looking excellent the are the I micro we think as work also and you about back

Robert Dodd

Yes, the quarter, was but a non-accruals, back on the in the I non-accrual accrual X new I idea. last on quarter. get or non-accrual there Flock new restructured Again, been has debt think general

very similar short is another quick where kind and versus color had of you kind give non-accrual what term on going or restructuring last be I this can this it's a You to new a us you any timeline thing mean quarter. expect of quarter. this time the

Arthur Penn

to We debt money restructuring. Yes. We corporate Yes, called in the it. company the is provide They This technology training put now many it's We a equity. more Pragmatic. managers, nonaccrual Flock, and was product new solutions converted company. to that industries. cases, control other into

equity us. injected underneath sponsor The

the The different. is instrument. underneath a we valuation this in us, point. little this XXs, it's So and low are The control PIK equity not in bit sponsor a in, injected at came

So and came nonaccrual. it ourselves put XXs in valuation it's we given low decided on to the PIK, the

Operator

with question take Johnson next We'll KBW. Paul our from

Paul Johnson

Yes.

kind as that kind leverage you can the recycling expand just for You know market previous focus least guys seem about sheet to capacity should JV well. this kind and max -- kind on be capital potentially mentioned to a also point? of sort on on here of expecting to the obviously side, at balance approaching I talk discussions of of But on X.Xx investment at informal kind bit and BDC kind you see of of you're your we here little as think had the we I and in calls the sit of just at leverage, pullback JV.

Arthur Penn

a that's Paul, Yes. great question.

then use is rotation There which do. in expect and portfolio. going time, And positions over the is JV pick to leverage up some starting to to first think thing a on there. the do some We're we're get equity I deleverage. hope that's statement, interesting fair M&A we're to to equity again. are That's really the now. going full we

we're the hopeful we create can which of some So dry equity, to very securities. invest rotate in that cash-paying powder debt will

Paul Johnson

spread any then you the ton seeing But I portfolio at kind Are tempering overall compression. JVs. of within and mean, spread the return of mean should additional JV, have dividends hasn't of kind compressions I for mean, compression all? seen overall And spread be the you I on maybe these we a I special experienced expectations realize, there?

Arthur Penn

business, back, the In So companies track right? track and could that coming particularly when a have the general, really great Yes. a compression we've a rate to select you good if JV. primarily you in got I good be been mean, pay are in got and lending good floating time that look, really record. Obviously, record we've yields spread down. you assets start their it's

in the going are come to and yields returns sure, down For space.

I compression spread on side, also. What the you is tell seen liability we've can

just compression basis listened XX on got call earlier were a our liability in CLO securitization. in And of call we that points you securitization the side financing. or recently PFLT. recent If the into on did PFLT

you see see sometimes on to later. asset you're if in side, perform, the it sooner, sometimes some going it on side the So share liability way,

in Again, facility, we spread. credit tighter did a Our at also PFLT. we redid it

well. may a it if never little take But -- spreads matched. coming So spreads it you're are liability while coming are as for down to fully XXX% asset down,

Paul Johnson

you what level if if one any, then kind loans What more JV. any, within then JV, in JV. And the or, of, of on the the allows the percent is structure have and

Arthur Penn

I don't back, in date, don't X here. can to very in is We think in it small. certainly We've I we've JV. had have PIK Dynata we now. the have years, We very of -- but it had you -- X the level hand it's nearly call low the Yes, don't Research in our nonaccrual JV

I -- in but you been or very, number think very call it's we can can but terms I very it's later, back a So you back call PIK. clean, it's of low

Operator

next We'll JPMorgan. from take question Melissa with Wedel our

Melissa Wedel

know my the on long-term equity has least touched of first at You allocation that for I rotation been part one. there. pull, a

part it You that strategy. of mentioned now, the remains just

wondering general positioned the around as rotating modeling terms part and about you in is anything didn't for particularly you Is in and of timing of that? rates second of thinking that? any come and Given we earlier, be sort -- if that feel in a of activity well the of down, there the portfolio like expecting should part if it mention half there deal but pickup I'm are sort sentiment

Arthur Penn

the We on it than Melissa, for up. put underdeliver, We firm. private is that, of It's rates going We right? out riding last goal control. portfolio that ours. and continues going deal with in hope question. rotate. equity And to we're the of want or and interest is side-by-side is our look, not a to as you And believe and down. a Hard portion coming equity believe So do the and equity guidance of that other certainly particular, much want Much is us to with know, a pick right. of co-investments that are you're it activity amount to timing is overpromise great believe an we estimate to be the in thing

Melissa Wedel

Yes.

the quarter to and revisit I -- then And wanted a X ago. or decision a a just Understood. Okay. little dividend up that follow-up to the take question.

coverage? the of the are you power really right quarter, the And a about came rate a go thinking this tailwind of JV. from of sort expanding keep now, earnings quarterly as for How which about sort given feeling basis. environment dividend just about of earnings forward. you I portfolio the the Given sort generally mind power we said dividend given potential in the And the level portfolio of PSLF the lower on that dividend the from onetime met just everything

Arthur Penn

trying Yes. do Look, JV And potential it's a the balanced portfolio, a upsizing of rotation. earnings equity we $X the and great have question. the share JV, about of kind spillover. the to of power We're of

point. So fashion, of that in we fairly we're we and out levered out this a got fully knowing careful kind judiciously to over pay pay to and that at want time

of at the company interest, we're of So in or the all different different elements I terms and of interests all paying should looking in the different that. out power say, terms spillover the balancing of earnings these competing

spillover. to due our last different led the boost including the to dividend these part really in very decision quarter large all kind month, of $X.XX elements, of per large to to So that

Operator

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

Arthur Penn

appreciate A is Thank your today. that in quarter everybody, interest next participating for company. reminder XX-K. the our really you, We

to our and a release a will call mid-November little bit normal. of end the We're the In quarter. the quarterly for than quarterly quarterly going the call. targeting you So next everybody later and summer to be wishing fall. be meantime, Speak terrific earnings

Operator

We conclude conference. you today's participation. thank for does This your

PennantPark Investment (PNNT) 8 Aug 242024 Q3 Earnings call transcript