PFLT - Earnings call transcript Q3 2019 | PennantPark Floating Rate Capital Ltd.

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Operator

Good morning and welcome to the PennantPark Floating Rate Capital’s Third Fiscal Quarter 2019 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]

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

Art Penn

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

Aviv Efrat

telephone press Audio Art. as of strictly to call note, call this in website. will of like you, of is is being and release, call property on this any today's Thank provided our everyone the replay that form broadcast Capital in our and as I'd remind numbers a PIN using well earnings any be Rate recorded. that prohibited. PennantPark unauthorized the call that available by Please Floating is

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

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

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

Art Penn

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

Fund first secured PSSL ended continued million perform Loan in quarter at average X.X%. well. to Secured PennantPark lien invested $XXX an the June we of yield For or senior Senior assets XX, primarily

quarter. The has $XXX only June and XX. of last is number March names, down non-accruals today as yield portfolio. average on our X.X% The pool Credit million X.X%. quality owned X.X% of of value the non-accruals of diversified improved two As books of cost XX of PSSL a market two, XX, four of since an with from of the represent

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

Due that the share. our we maturation run Net our are dividend. and investment rate income PSSL, investment per was activity level covers income of to pleased $X.XX our current net

tailwind while a ratio, stream earnings nice still profile. debt in our debt based should Our to maintaining gradual increase have prudent a equity on

regard Credit share. $X.XX the coverage of With effective spillover XX, per Availability As board from our that was a the in September April included Business reminder law, to XXX% coverage Act, XXX% reducing and that asset the was asset modified our X, Small XXXX. to approved

debt targeting times. are to a to equity X.X we X.X time, ratio Over

overnight. We target not will this reach

may it quarters the and target. take new invest to carefully to us continue will We several reach

assets, in actively financing seniority the the the our we're to target. help Given utilizing of achieve considering CLO near-term

higher leverage increase against earnings. primarily A portfolio first a lead should in prudent lien careful and to

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

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

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

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

We capital. management continue consistent teams sponsors, intermediaries, and for market the credible be one a to first middle financial call

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

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

portfolio our debt-to-EBITDA core important EBITDA, X.X In the of risk. another ratio XX our generally times, million to million the of cost, borrowers to on overall prudent of with capital indication XX was is at sponsors. Additionally, of market the companies and

attractive seeing our receiving reward, we capital. still which are and protect covenants, are We risk help

quarter. we Today, books, portfolio quality market. on last only the X.X% have and improved X.X% since cost, representing two the end at non-accruals only Credit has of

non-accruals, As of cost portfolio had overall at our and June X.X% XX, of represented we three which about market. X.X%

are We the we with making on are pleased this front. progress

we has which billion in invested points an inception, been ratio, loss including PFLT only of experienced with Out inception, and ago investments $X made nine years Since eight about XXX inception totaling losses an annually. annualized of of X average since yield we've compares quality excellent. This basis credit have non-accruals. about only both has at since realized unrealized Our companies X.X%.

this in credit middle a we're strong have track strong one underwriting was standpoint, sign From our to to global U.S. cycle, who portfolio that the and financial direct regard recession. business a and market of time. point, experience crisis prior underlying an during a With the lenders no economy record the of and economy indicates at few

was, initiated in PennantPark and primarily the onset Although Prior as to million, debt. investments, in September time organization XXXX, PFLT mezzanine subordinated at financial of primarily in crisis the global focused and we aggregated debt. that ultimately investing on was $XXX existence not subordinated in then, which back again an

American companies, North High the Bloomberg to EBITDA of the recession, Yield the the X.X% decline average Index of This by During recession. those of of portfolio weighted at EBITDA trough XX%. the underlying declined the compares average

even prior to made were the was crisis though the underlying result, and they As financial a IRR of investments recession. X% those

We of record on primarily are debt. this case proud downside track subordinated

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

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

walk BXB million through company Capital of some provider million The of common XX Let's is X.X equity lien the purchased preferred of the the products. highlights. first X sponsor. We and a Mountaingate MeritDirect. revolver, is of database term-loan, and million of of

is veterinary, the medicine is markets. the million million it protection We X.X The River products. a Signature our lien We the first loan, is for and preferred Systems, the Arlington X.X Point purchased purchased of designer of million sponsor. XX of and company our and is Medical. future manufacturer dental first equity. sponsor. revolver sports lien term Capital X of loan common Center million of manufacturer million the and revolver Capital ground X of Rock term a of

We trades. purchased on XX.X and plus is sponsor. to the lien Acquisition Corp. a skill TWS the million carriers loan education Group secondary million for of of first TWS focused term X.X and revolver Halifax profit is technical our of provider of

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

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

Aviv Efrat

you, Thank Art.

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

some $X at administrative $X.X the fees million. of about totaled management Looking expense and about million. And interest expenses totaled expense categories, General totaled $X.X million. about

or $XX income was net June During our facility appreciation the ended losses dividends about $X.XX $X.XX about per $X.XX unrealized realized Net credit share. investments investment $XX Net was unrealized by the XX, million appreciation million and about per among Net exceeded share. notes share. share. $X.XX per quarter or per on was

from went NAV to Consequently, per $XX.XX share. $XX.XX

an and valuation Our the are portfolio, mark-to-market are directors our exit provided of quotations each and using entire firms, or board XXX when credit XXX. ASC under price active by broker-dealer facility by our exchanges markets notes independent available independent quarter

broker-dealer quotes inactive, In are independent investments. to firms we cases use value where the valuation

in and X% industries. PSSL. companies secured lien in X% in XX% highly is lien including XX invested X% XX% remains portfolio XX in including diversified PSSL, Our second in senior with debt, different equity, first across debt,

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

turn to back me call let Art. the Now,

Art Penn

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

capital. goal of do is goal. the Our steady aligned a that to with Everything stable and preservation we dividend stream protected coupled is

instruments free those and flow to to we try the free high secured out We find first form less middle-market that cash companies dividends have that pay conversion. capture flows senior shareholders. lien of our primarily in cash contractual in risky We cash

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

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

Operator

ahead. We Instructions] from take will Michael first Please Ramirez Thank our of go question [Operator you. SunTrust.

Your line open.

Michael Ramirez

for Thanks guys. questions. morning, good taking Hi, our

Art Penn

morning. Good

Michael Ramirez

other It in JV, if state you upside strong. but contribution Sorry. a of you that get do some where guess contribution has for the and the you steady or seems the think are with remaining? there PSSL you a growth has are prospects guess I remained at growth is to, Could us I sense NII with continued your the NII please slowed, the

Art Penn

Michael. repayments had great a some question It’s PSSL. in We just

temporary a it’s reduction. slight So,

over the ramp upsize Our continue it to goal to is it and coming quarter.

repayments get did. to hard complain again, and So, you we when

expectation a performing of is expect for and because almost temporarily it’s it how a it’s it little is And portfolio – nice fully PFLT. maturing So, dividend is our to is we of a generating lower than it. kind kind we of say and a ramped well ramp it

Michael Ramirez

of your a maybe seen space. compression Appreciate bit Okay, the would opportunity side that. we’ve helpful. prepared that’s remarks, mentioned you liability in guess little here, how on deeper already any ledger into cost? other CLO, your P&L? that In there one Is to spread the I maybe dive just I impact one reduce you can some either guess

Art Penn

financing. do Yes. of we’re get fixed. vast floating. The Look, There know, of pieces we some that as tranches know, said, you is actively that majority CLO CLO are, considering you

long-term way. and be options nice financing capital new fixed differentiated existing of but is very of dramatically that we which financing. as a different us, revolver, going You a know, along assess debt source, will a than is low-cost Cost set it not do for is to attractive versus revolver, we is investors our and this floating very the

CLO know long financing, credit know, a facility. nice You and longer than term has our you

think prudently actively increasing that future to CLO revolver as could growth. doing that we’re financing, fraying and we, and that assessing really element of key a then gradually assets finance that, option, be to of that, you and So, contributing know, leverage about up the doing

Michael Ramirez

it like on And improving the opportunity strategy, over picked with forward? really to quite job I That's Can you nice maybe any a know, done spell it enhance equity, return helpful. seems your out you prior this have detail guess just along like guys for has on going Okay. year you that up bit. a and, us

Art Penn

be as the side, coming more down nice our time so the we the portfolio, G&A down to, of a efficient Yes. of fixed, the combination the the very relatively the platform, then It’s actually G&A going G&A get we the leverage. have more costs hope on portfolio Really know, are costs obviously, gradually you the gradual know, and are ROE. and working to and up, increase we so in gradually of leverage working really G&A you growth growth, and costs as grow fixed, rest through are over as G&A

Michael Ramirez

non-accruals, remarks inception, per you the quarter Okay, just I companies dollar. perfect. And prepared recovery update said was spoke had housekeeping on rate? one the your you to us since it you about last last believe in had can compared $X.XX one, your

Aviv Efrat

last Yes. mark-to-market. into It’s down of the the XXs now as

know, some we was these couple equity of end you it due know non-accruals. of this but – as last which it’s have as we will up course, hope Of not these, pieces, high to you value, last getting

We’re we’re get to some going good hopeful recoveries. that

and also realized about year, We basis points a on at inception said, per only it what’s X look realized since unrealized and we points the basis it's annualized now. unrealized, lost, – as and

of so over know you our or ago; on know You $X capital. years eight billion

another both way at that unrealized. and realized So, that’s kind you we know, includes it. That of look

Michael Ramirez

Okay, great. questions. Thanks for taking our

Art Penn

you. Thank

Operator

We York of will next from Please now JMP go take ahead, Securities. our your is open. question Chris line

Chris York

questions. my drove taking help for the average ratio, coverage understand and quarter? in us weighted increase debt-to-EBITDA then, ratios the in what decline the thanks and guys, you debt service morning, the could Art, in the Good

Art Penn

– debt-to-EBITDA. the back we dragged It's between mid-Xs you of more little kind know, we’re think I kind of the end coming they’re this that’s of down at You the you of and is little on, putting and up, bit normalized over a up temporary. the debt-to-EDBITDA, as to work but times just, look If been think X bit know, we've we and that some through it originations kind new deals time a underperforming that to going into know, up to times range. we going X.X mid-Xs end a think

Chris York

helpful. Very

more a product of it's underperformers then So, new originations?

Art Penn

from said right. originations I nice the and relationships doing, now, Right as and here really I in deal as well out good the were Texas, Coast, comments offices New West of and as new we've opened in getting newer That’s we’ve the as I we’re have of some are you York. some folks The highly we’re senior mean we the of know lucks. getting highlighted some should selective. that in come hired regional and Chicago, some on that looks

our you from and investment very to people senior be about – more and know, we that some in team, highly into ago, made more getting allows So, we’re selective. us the years four looks

deals So, very new kind in market. are are of mid-Xs that blended in on this equity nice a the on cushions coming the basis,

know, be disciplined. You very, we’re trying to very,

So, and mid-Xs. the then, time we [X.X] down going phenomenon, temporary to back think get it’s into over a is

Chris York

talked a just know, little there, seeing LTVs XX%? maybe the detail cushion. Are equity bit then, maybe about today? And little LTVs more you you a Okay. Or, bit are where you

Art Penn

Yes.

of it’s we’re of you higher seeing the think the end days know cushion. XX% range equity You kind – is know XX%-ish a – I these where LTV

XX% later equity we’re a afternoon, know, looking equity you a it's we’re in evaluating at Sometimes it's one cushion where cushion. deals where, XX% and this

at take So, you I pick know, you XX, had kind know of a to if average. – I

know middle [indiscernible] hit be this You in might the of that market.

underwriters So, out a equity, equity there's to likely mean pull you skeptical, many of in so lot equity are, hand, a because we XX% large lots problem, have coming more to if by that sponsors know, and money comforting or now, and on play cases, prudent you when then, this to good you necessarily there's know it to of doesn't underneath one us know, just we solve us, that's and in loan. the and a they sometimes see be a XX% equity add problem. But, careful and beneath there’s it’s

these be the in So, and and we to to either not in companies, we have be to about may the recover long where capital. paying them worth we way know, you be spot need are very or may clear what our to careful run structure the are good sponsors capital

Chris York

on Makes remind basis, And lot appreciate basis? a in that of a severity your sense I like color. assumptions and what us it. then, a yearly could are just then, loss maybe peak you

Art Penn

are questions. These great

the going rate. you're for better people know to lien an to We do market to a recovery in you the XX% rate default think is. and have market would than the you’re – first say the know You X% That's market going that. going what we’re loans as that

We did in the could crisis PNNT. does crisis. financial at since obviously, eight what you include financial talk years We’re which ago, inception, know, not we

annualized basis we’ve know points had an loss. You X

had basis annualized global yielded ratio, points over including so XX crisis. loss has the time on a that that’s and a sub-debt on financial portfolio you XX%, or PNNT know,

– some on So mean that of track I sense historical senior debt, both gives our record you sub-debt.

there over know, [track as XX an You institution. are now years record]

to have know focused so You a as know, performance now. is but – never right past remain guarantee we future of they and vigilant you say, performance we very

Chris York

Okay.

so so so kind basis I just curious you and I compares know just going loss to in is XXX market wanted the that. very and me. So, rate, of just I a thinking you. about of with revisit for mean to from The re-examine That's it to – yes, expectation was I kind your were realized how helpful. then, X% models it of quote forward, color this unrealized that points, guys you

for thanks So, taking my questions.

Art Penn

Chris. Thanks,

Operator

next our Please Ladenburg. question your We is Schleien will Mickey line open. go of take from ahead,

Mickey Schleien

questions. gains a and I New Art. your scrub morning, chance, were drivers people main how looks couple the Trident thoroughly realized Good a drivers? pronounce entertaining what to Q, unrealized and of it always I It’s the have Regardless, of name. of one to the was other my losses, haven't frankly, like had hear

Art Penn

big certainly, know, driver. was a Trident New you

the [indiscernible] The do problem, very nicely, tend Country quarter. like going you equity course from I and nice know, have and non-accruals, and a By which Light, of the that are to Cano were focus should have Those here performing co-invest, been well, Light Health other restructured we time negative make By positive know, is on you know, driver theme Edison, which, of mistakes were DecoPac, time; to, which, Walker Fresh, to we [Hollander], our to in the want meant are and one know, have into do full, upside drivers. was A non-accruals; to equity know, or which calls fill we some you could, gaps. ones have non-accruals; these you remains on of some got these are co-invest you as to we some part those in going investments that co-invest the we but was

Trident New So, for a sure. outcome certainly was negative

Mickey Schleien

Art, do those of this you monetizing have any year? equity some visibility co-invests on

Art Penn

who say, turning see. the It's has can look, nice gain, you a wheels terms – when knows, to the wheels We’ll a next are but in Yes. months, that] next of in rest can you assure private-equity [is hard the in now but six right know, that are you the XX sponsor months turning.

Mickey Schleien

a about management process? Does know, cash that think relate like situation noticed be you a question, pick they on your, for One can know, would overall cumulative it more it’s and but large know for thoughts large I we your didn't [pick a position Unitech which booked BDC to to another preferred] its Fair do flow. stress it prefers understand portfolio and you as not income, you, cause interesting I I enough. exchange, dividend that.

Art Penn

Aviv?

Aviv Efrat

we’ve because, to looking are support income, company you So, underlying do that the and chosen have performance earnings enough profits and and to yes, answer Yes, the is do not you to certainly, say, of no. decided it know, they we

So, of as it regular might be does we we accrue did the I stayed aggressive, know, not for think convert. some regular to position, not which equity you us, as peers know convert. We income. – a did stayed but is; we

great income the have the they that dividends, do look the be It to also look to need at but company might to at you book and does underlying then, that enough – circumstances. know, earnings to declare end You declared, day, you it’s of facts need the that dividend. they and support

Art Penn

BDCs, makes what this so And you is know, market. the

Sometimes you’ll mark-to-market on calls basis, assets picking instrument point judgment in different convert to time. and, on these to are see, a this you know, our different you BDCs judgment know, not market, at Unitech was mark in a it but

Mickey Schleien

understand. I

dividends So, value, time the correct? investment and that booked the right, is to cumulative are fair realize you’ll of that, over eventually

Aviv Efrat

That is correct.

cumulative mark-to-market, not the but in but do we we which growing, market in preferred, compute is see you obviously So, income. should what the

Mickey Schleien

helpful. that's I Okay, really Thank much me. appreciate That’s you. your very it for time.

Aviv Efrat

Mickey. Thanks,

Operator

take your of Cheesman question from Capital. is our line go next open. Ray Anfield Please will We ahead,

Ray Cheesman

the minority all call to about from how assign the last mentioned up in that the at through Catskills, on last it possibly flows believe casino that and shareholders, announcement sponsor the the I’m you taking value your holding you holding? wondering days out over to the does I and the sponsor activity Montreign, in the with the few

Art Penn

an very company. New the topical, it. NYNY is million. has KT that the Lim company to sector. enterprise Ray, $XXX is course a gaming that XX% $XXX take values is owns Montreign He equity is value plus an large million private; the Lim, controls is of called controlled in public That is owned he's question. take – NYNY in York-New the KT he entrepreneur, of Genting, At of wants the made already great of million to $XXX It’s there you. private. is proposed the well-known a the announcement a it by debt. gaming ticker. to company York, around equity Montreign junior and it’s which He thank So, equity

today know, Obviously, that still if piece we’ll mid-XXs think the of is we is think Montreign we you thinks debt, this marked it entrepreneur – you par. so. beneath We the million behind Montreign the know, equity in valuing par, debt own is the the is which, is the a of see. the or $XXX debt, debt the he indicating is par, entrepreneur

what a going that not market we’re to fairly the buy for of piece we any broker lien think Montreign full and in more think You you add is in to debt very paper. end know, par position we quoted to think all dealer but up PFLT, we now attractive those piece the mid-XXs, so right a is is it's being we going debt, of want have paper, in first of who

Ray Cheesman

that’s Thanks, positive very and a story.

Art Penn

Thank you, Ray.

Operator

like to call for Art now to remarks. final would any over I turn the back

Art Penn

while to and thank call because the you I everybody August XX-K kind and very look our it takes get Reminder frame XX-Q, normally November. a the our next than have our little quarter get for mind-November so versus in call. of done call a will interest a be forward of being you slightly Thank while much everybody. and conference end is time great longer to XX-K, their – want after in PFLT, next it we to on and for means to is today, to which speaking November that later

Operator

This concludes today’s call. participation. Thank you for your

disconnect. You may now

PennantPark Floating Rate Capital (PFLT) 8 Aug 192019 Q3 Earnings call transcript