PFLT - Earnings call transcript Q2 2018 | PennantPark Floating Rate Capital Ltd.

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Operator

Good morning and welcome to the PennantPark Floating Rate Capital’s Second Fiscal Quarter 2018 Earnings Conference Call. Today’s conference is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be open for a question-and-answer session following the speakers’ remarks. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Chief of and Capital. Floating Chairman Penn, Executive PennantPark Officer Rate Art Mr. you conference. begin Penn, your may

Art Penn

and morning second call general you today Aviv, to discussion earnings Thank please good a call. information by PennantPark welcome like conference forward-looking by Chief about Floating and you Aviv to start Efrat, include Rate Financial am off conference Capital’s I fiscal our XXXX everyone. quarter statements. joined I Officer. would some disclosing

Aviv Efrat

Officer, To numbers of Today’s today’s like well property actual would www.pennantpark.com and latest our the press Harbor in our I that Art refer would unauthorized being factors press Executive to from Rate I our conference law. and recent to forward-looking call customary copies Art. Audio and include forward-looking back that turn this SEC PIN visit a the obtain this is disclosure do this update on required any for most Please us SEC, with these call our or be everyone at call is by results cause as call at not Capital our the to information. you, Penn. our Chairman you prohibited. call please to strictly of forward-looking would website replay statements XXX-XXX-XXXX. that note will filings Chief We provided call the Thank differ unless like to that release is time, filings, to At projections. your we broadcast of earnings and any could call telephone important available recorded. also as remind Safe also to our of projections, may ask website. statements in materially undertake Floating the by I form our and call that to like regarding attention PennantPark in release using

Art Penn

by Q&A. followed a the investment few a then for to activity, portfolio, highlights, minutes and Thanks, the discussing financial am spend going up financials, discussion Aviv. I of it open

March lien of senior secured invested For million quarter-end million, continued to April additional an Loan X.X%. Fund $XX PennantPark quarter average Secured we purchased Since primarily Senior ended through $XXX have the investments. XX, XXth, assets an grow. of we or yield at PSSL in first

XXst, pool As of of a yield with XX X.X%. average April of March million Since XXth, million through quarter-end owned in PSSL invested $XXX diversified an PSSL additional of $XX investments. an names,

New evidence raised platform. regional several are substantially adding deal platform we well as have have the as the this years, additional people in additional portfolios and and combined offices offices, we’ve our grown York. us to by professionals our flow. investment in both senior PFLT active and Over in This The and a in resulted last PSSL mid-level debt equity and significantly selective. enhanced position growth The capital puts enhanced be of with

We are pleased that Insurance. doubled Kemper joint with venture have our announce PSSL to we

PSSL Capital of doubled One a credit the has well. facility syndicate addition, In lenders as in

facility loan PSSL $XXX private the XXst Net investment PSSL sponsor power us in and a ROE were ended clients equity $X.XX The enabled investments PSSL million generate equity. during of consisting even has the PFLT’s of late has as well a quarter be help result, of an to made grow vast in March share. the as made attractive responsive $XXX income. majority per quarter. income and and of was As $XXX buying PFLT middle-market, our more million to million, notes to

of LIBOR in and the a capacity made stream tailwind increases PSSL. should earnings Our additional have based on since quarter-end, that we’ve nice activity, investments doubling in

Board XXX%, risk, into share. from to reducing The rate years appropriate We was March Credit XXrd, approved Xth, a assets XXXX. senior Company lower seven our Act on X, secured under the investors. profile lien asset Small was over the coverage risk spillover prudently our an In signed has the provide statutes modified returns April XXth, such that first law assets. can generated to September the XXX% believe attractive Availability excellent new was a included that the track floating effective Business in be On leveraged move represent of in $X.XX asset As per surprise the investing revised for record an that last coverage April law.

Our of successful strategy. this operation is evidenced of PSSL

the we our roadmap closely the lenders, look our stockholders bondholders, discuss agencies future. working year, next with forward into to Over rating to and

of robust. financing business remained primary sponsors middle-market has financial Our

equity We Chicago, have New Angeles, Houston XXX from and and we our manage that with elsewhere about in country Los London. York, private relationships sponsors the across offices

business and business have value wide remain done XXX the focused sponsors be that vehicles, different will years the on about that relative date. to ultimately withstand well Due perform primarily we with deal We of flow about invest making what we We size in. can we cycles. long-term over selective our can funnel to to investments several of extremely and receive

companies focus leverage, high and more structures be returns. on are covenants continues and that strong Our to low defensive, have

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

we’ve As our for conflicts financing a free clients. an trusted become independent affiliations, provider, of or partner

make We’ve This investments of drive been important the last more us capital build PSSL. be drive Being relevant relevance and follow-on deal means increased across equity order we geographies, to the that doubling launching to can approaching several this even offering two transactions more to increasingly who in we’ve capital taken significantly that of more few can PSSL, steps our over self-originated flow deal our market well this clients. and that substantially pleased recent investing and looks in an resources offerings, mid-level has more with relevant flow. enhanced can different ability terms. borrower about enhanced be the including senior in as and the now be to addition as meant we get we MCG order are which lender professionals We of giving selective bond years the merger,

and the structure, and exceeds is coverage floating interest This flow cash high-quality volatility. support capital rate result expense, the to withstand provides or our our healthy economic The market seniority to a companies, amount As assets continued continuing constructed ratio, interest cash investment of times. EBITDA X.X by cash be focus diversification, income. in stable portfolio which on cushion significant to a

times, of of debt EBITDA cost, the indication overall was another Additionally, risk. to portfolio prudent X.XX at the ratio on

we we’ve March basis. over the At recovered Our one five only years nonaccrual excellent. on five $X.XX on been on we invested, so XX, since goes in of we On basis market credit those far. quality non-accruals, value experienced portfolio Out inception companies X.X% XXX has which cost have have seven of had books, our a X.X% $X a and representing on the nonaccruals.

in In terms risk-adjusted investing of returns. new quarter we active attractive had another investments,

growth a or driven M&A of and while, virtually the deals, the these relationship by have was studied And activity mixture all have sponsor. known a Our strong industries, companies we’ve with financings, investments, refinancings. particular for these

to Sentinel bankruptcy purchased and Let’s company lien Packaging. of sponsor. Industry existing a Products We sponsor. of walk chemicals Products is Industry first Infonet $XX.X first first invested sponsor. and Group. Capital through lien our million million of lent hair some manufacturer of of lien is and a is provides first Capital is sanitary Douglas million for highlights. Beauty We the $XX management, Partners. loan the Credit leading specialty term focused controlled to had Capital a the thermal products. market. $XX.X the extension cosmetics and Gauge cosmetic debt Morphe. sewer applications. Morphe We million the a software Douglas company term Summit loan pest to on Altamont Group distributor loan. We Beauty fluids is lien in by $XX.X is

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

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

Aviv Efrat

you, Thank Art.

$X.XX XX, income ended quarter net the For share. investment XXXX, March was per

and expenses expense totaled $X.X Looking $X.X of and Management million, about expense fees totaled million, interest general million. administrative at the totaled some $X.X categories.

investment notes per dividend $X.X and realized share. quarter $X.XX the unrealized unrealized per share. credit NAV Net was And March $XXX,XXX share. per net per $X.XX During was $X.XX $X.XX from in or our depreciation Net was million of or per $X.X $X.X on share about share. ended million gain million Consequently, per appreciation $XX.XX XXst, or was share. excess facility $XX.XX of went income to or

quotes investments. XXX credit are are by quotations value broker our our available firm under independent by Directors to when each cases facility mark and independent use Our to price portfolio In provided broker the using dealer market valuation are firms where dealer independent ASC or exit valuation the and quarter XXX. Board inactive, markets an we active entire of

portfolio industries. XX% diversified relatively in lien X% PSSL. different is It with is subordinated companies debt, second low X% XX in debt senior invested debt, is and in first secured Our risk. X% including equity [ph] lien in highly across XX

a portfolio portfolio debt rate. overall XXX% weighted of yield is has floating average Our A the X.X%. of

Now, back Art. call let to me turn the

Art Penn

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

floating the would of capital. our stream Our In have like the free and questions. today find cash your in steady, preservation concludes open our us. up flow that lien, less shareholders. try pay At goal. and to We and rate instruments, that that and team we do dividends our senior coupled talented is time, you your protected cash I That primarily capture goal call the thank commitment risky with for for like Everything high debt time dividend their would flows contractual all We stable secured out closing, extremely to this Thank middle-market in of first to aligned confidence cash of in companies is I conversion. a to dedication. free form flow to and those we professionals to remarks. for investment

Operator

our from with first Instructions] Mewhirter we Doug SunTrust. ahead. And go will question [Operator Please take

Doug Mewhirter

it [ph] I morning. just first same that’s be because more growth about the had this company you lack I quarter have to current growth more of through that could that lot PFLT. the where quarter of the attractive wondering risky overall funnel question. next easily the less or you more lot draw Comparing loans rolled says the seem Good way sister would state your just inflows, PNNT just Hi. seemed organization. lien have market if this reverse the a it And the is realize just quarter at I a more the underwriting goes dates or PNNT, anything your and whatever? one with itself and there or of was growth just to portfolio

Art Penn

In a PNNT. stack, albeit threshold capital Thank the pieces good you. as vehicles It’s Dough. than both PFLT in yield prioritizing higher question, we’re lower

there So, is it business. was a lumpy --

quarter. any revert could So, number trends one, those

On of hand, the to safe marketplace. in investments lower relatively easier course yielding this other it’s originate

we platform in like One what’s our senior cover see middle big in a like these or see other. we other the lower opened But market many PNNT and hurdle mean, a the any financial continuing grown growth is happened middle XXX as points many, quarter in touch terms well So, of and could we’ve I quarter market as quarter, being next again have PFLT. financial than vehicles. we both with vehicle we’ve people, in as added as up more has sponsors. to we offices sponsors; budgets

firm, of know every the XXX. getting our which of size we team to And made infrastructure, we’re looks As the and a say being, more potential capital, And a to with which and we’ve and seeing our benefit in we’ve day of relatively give find business the medium-sized in good to and done And we’re relative meeting investment as is us as more of more environment selective. us clients for getting of firm. I result, a because the we’re these active our deals. said,

Operator

take our KBW. go Paul next with Johnson we’ll from ahead. And question Instructions] [Operator Please

Paul Johnson

your question approach you asset Good any date year? have as and how do question. have manage you guys. of morning, for given the coverage my to and that that I’m just passed go forward Yes. plans plan different for you you. curious, sort I Thanks taking leverage modification, you’ve one just next

Art Penn

Yes.

So, down two has whole joint law one it’s Paul. -- a good and our road up surprise was PSSL gone of obviously of which to question, upsizing in us. had venture already leverage. to We the itself this We

One. and So, commitment well the facility we PFLT as as from Kemper commitment had credit doubled our Capital doubled doubling their from equity

that had that got basically we changed. word So, when we structure law inked this

approval said us. of upsizing And a months got PSSL Board we’ve over than extra we the the for -- -- the to the evaluated. is the be in talk using going was So, six then, more leveraged to last year-end, us going for next to law to capacity certainly, be one smooth. return as to it what judiciously priority exactly one our give do. is key our risk-adjusted that very runway to this obviously bondholders, the we assess and to all our lenders we’re shareholders. operate evaluate the as so and different is we at our the for But to XX shareholders, PSSL just still prudent by assets said talk and operation far talk months. been -- as We years PFLT would has Hence being our for options, And think nine could

one, senior I the record And PSSL. number collateral last that’s over and have had lenders that asset We we’ve the an our also We had oversubscription; lenders with relationships loans, floating Our because good. that cut facility they this credit see, we the the of back. in we secured to class. been think lien lenders seven the first had rate investing in quality track have, see years doubled that

we we we think two get one to So, leverage, months as coming could prudently we been and in up at, more to decide firm could overall it fulsome, to we’ve be the operating capital. to go an done, do think should

decision. firmly make haven’t We

want So, of we’ll our from along We the appraised all way. stakeholders to the keep do everybody along way. hear

no has could disagreed to not XX one said the leveraged people, been we’ve and with a a law than hey, years, this has be agency, Difficulty] bondholder, As that, [Technical one think a last these one, more rating not we assets shareholder. prudently not to

should So, the support, about we it. feel do to good we decide

Paul Johnson

am are as we the sort about you. And that on just covenants restrictions leverage been I that far for recently know the any very you a market, given there PSSL Israeli source has growth nice bonds in curious, issued of limitation? should of as the

Art Penn

we biggest downgrade, The grid, XX. ratings such rating. the another X-notch if thereafter restriction is XX a biggest up each and picks that coupon points the The is restriction basis there a get notch

have affiliate Israeli S&P confirmed the had Israel Maalot, We with is conversations S&P rating. who the has in which

up is firmed the Israeli the down rating. Israeli they in notch So, There rating.

good that. about very feel we So,

Operator

with And we’ll take ahead. Schleien Ladenburg. next our Please go question from Mickey

Mickey Schleien

is got Good flow and PFLT spreads that’s it’s at morning, a I good your Art this quarter. that’s and capital, a that your I that looking guess secret lot the Art, But, able appreciate comments capability. and testament are I find a of Aviv. deals big picture, loose was certainly origination terms no this to appreciate market relatively compressing. and have been to

So, the given background deep cycles this such recession ago, rebounding because before. market, tenure we’re a seen and be your seems there’s to of a from different lot years your But, and in market. the you’ve capital in XX

more market anything, any that lender it equilibrium near-term So, in bring more help see friendly? you and make do catalysts the the could into

Operator

I [Operator on Schleien, repeat your mute, are if you believe you Hello. answering function? mute question. be Mr. Mr. Instructions] might check Penn. question? Mr. live. you And the please mute. Penn, you’re Can can you you Hello, might on your please be

Mickey Schleien

Can Art. you me? Hey, hear

Art Penn

Yes.

Sorry had that. about some We difficulty. technical

we it got I basically feels about, like credit at it, could which and of question, we’re how what your the was that the peak you’re end question? cycle, is thinking think,

Mickey Schleien

Yes, essentially.

You’ve before. seen cycles

PFLT the bring all but notwithstanding -- could market managed deals we at would seems and has fact risk-adjusted as would the frothy. I thinking the to originate overall, market we help what So, equilibrium, into appreciate attractive your pretty think insight to more returns, that

that. your in very be interested views I’d So, about

Art Penn

peak said, good said it XXXX cycle a and of thought credit publicly. we It’s question. the the We we that Yes. in was

Mickey Schleien

Exactly.

Art Penn

-- of XX%. of times average, is. in downside turn environment where cushions could average, hits any could as X.X%. X.XX On are more underwrite last it the recession for So, PFLT sense peak memos that like at any few yields credit sponsors number cases what you debt last reasons. average to On cycle. for is financial next if It’s a our the assuming case XX%, it -- years, moment our kind we around We are EBITDA. know. gives could investment the This equity year. a do from We the of the We on the

small. if seeing So, which of And compared flow, we’re States invested we’re our we’re to the peak to a robust the team, we’ve deal relative of as credit at relatively market underwriting senior nice the size due PFLT in, cycle. vehicles. -- is United to our our in debt

firm We’ve teams in have nine people Our the over deal years got XX are senior. of really experience. who

comments, actually at which very both same So, turn underwrite opportunity and subordinated active were we strong capital and the But, if around be yesterday crisis. as Mickey, very the an financial selective us ‘XX. we and we’ve our there our and in was as and during day brand track point, time. been awareness record portfolio mostly than that And and crisis PNNT, global financial debt to at in in any our could this is through ‘XX we market gives said global in that have our and our greater we it certainly done the

Mickey Schleien

a follow-up stay that given -- certain around in be there you offered that mindset you? things just are other terms to that recession if you in the but absolutely sectors a restaurants less get going Are of with and the know regards could to and you’re away Art, to terms industries, tend then, sitting involved industries corner. not I you’re what with as underwriting said, of from like fashion, just in

Art Penn

we’re difficulty] growing. with that match can energy to stable forward. hopefully Look, and stable of companies stay We steady, to steady, from really that is streams. hoping tend as generate cash flows we’re match industries which earnings underlying going want stream, and dividend PNNT in the PFLT, to we’re staying well away away We [technical from in going PFLT energy want and to

we’re at of difficulty] where think So, and flow or conversion distribution we cash the would that number stable. services different a of be other are looking different free business industries [technical software, steady flows number industries, or cash

Mickey Schleien

That’s Thank really your morning. helpful. That’s me. you. it I this time appreciate for

Art Penn

to and question. that. technical difficulty doesn’t do thanks there’s the Thank And for apologize you. I look staying to want through with the everybody like, any it for that, on call

for So, your call. today’s thank everybody you in participation

filing early will Thank talk very you the our much. in to Q. you after August next We next of

Operator

Once for again, today’s conference. your conclude that you Thank does participation.

disconnect. now may You

PennantPark Floating Rate Capital (PFLT) 11 May 182018 Q2 Earnings call transcript