PFLT - Earnings call transcript Q4 2020 | PennantPark Floating Rate Capital Ltd.

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Operator

Good morning and welcome to the PennantPark Floating Rate Capital Fourth Quarter 2020 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, Fiscal and call you, Aviv start PennantPark forward-looking Conference Thank off good about I'm include Efrat, Floating you to Call. some Officer. statements. Rate a to our welcome by Chief discussion Capital's Aviv, today disclosing information Fourth joined Quarter Financial Earnings everyone. XXXX by I'd please like conference general

Aviv Efrat

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

Art Penn

Aviv. Thanks

the is minutes a going hope families, are that discussing and our your I'm you spend our quarters, work achieved the challenging liquidity, with September NAV past by healthy. Q&A. Then economic quarter. upcoming performance fared pleased the for XX. continued and quarter conditions X.X% on quarter. for in we this as up structure pandemic, we to increase the how are the in to staying the We it financials. during few ended brought with positioned portfolio First, portfolio capital we a our you, improve those adjusted the Despite How open

solidifying benefiting in companies equity time debt rotation the portfolio Over should have which and bolstering help are debt who into K positions several have This of equity recovery. We from PFLT's substantial NAV. is we shaped income. grow instruments

those will highlight companies a in few minutes. We

our COVID. pleased finance stable in well the the industry. and perform matched been of financing to CLO positions, has among securitization lowest which we to our debt Debt we've believe are with financing is long-term Additionally, performance well through the continued senior risk

keeping help net us led combined spillover time. conclude to income should strong we PSSL with to point. over relative that performance $X.XX had COVID larger grow result, a of JV, from the more PFLT. financing type we efficiently are and should As for which exploring potential same generate income The the at investment will dividend PFLT's and dividend equity rotation, through finance Those portfolio be PSSL steady to of combination this growth additional efficiently income financed grow factors and using our

lowest the defensively risk lending portfolio direct possible. know, as have eventual we as we the an preparing among predicted practically to inception, that we've positioned crisis, in the global for time. for some a you had Although, as COVID-XX industry. we may been never was Since pandemic, a recession Prior portfolio the

This provides exceed our the average in amount interest by income. cash interest average was most to and in cushion among stable ratio, coverage portfolio XX, September the which industry. significant to X.Xx. EBITDA conservative support X.Xx are cash of As These the debt interest investment was statistics expense

XXX non-accruals pandemic, different been hurt industries. PFLT at three also the have apparel largely such at as avoided that restaurant, out XX companies PSSL. no portfolio market the and PFLT only to retail, most and portfolio clubs, have has diversified and airlines. names value. We some with X.X% gas. XXX This and We've The cost, by of in X.X% and of of sectors represents the the health exposure highly oil different is only

unrealized Out inception ago inception, $X.X years PFLT nine since XXX over have over inception XX of billion which non-accruals. yield since only invested quality X.X%. annualized both at only an is annually. excellent. an basis and points ratio has Since and annually. loss include companies, points realized of basis average if losses, compares has credit XX only invested This the Our been we've of ratio to realized we experienced And annualized XX we loss

the and have of one the that business during record underwriting few middle who financial global crisis are time. strong We a lenders were to prior market track direct in

Although then PFLT back PennantPark organization investing an that in was at not as was existence time.

declined compares During portfolio EBITDA the of the our by to that companies average EBITDA bottom average at XX%. decline the index of of down high the North recession, the X.X% America of underlying Bloomberg weighted yield recession. This

record EBITDA our that track are so substantially far, less for our be We than will crisis. global was this tracking companies decline of the proud COVID on underlying downside it during financial prior in EBITDA Based through the believe we case recession.

portfolio in positioned. coming and Now is how to ahead the outlook let's quarters the turn our

restaurants, apparel, rapidly such adjust with As has We've and cost, way been have from historical portfolio our on energy. health mentioned pleased as up areas gratified shoring to focused moved of hit and are it some us our the that protected the companies the worst airlines previously, liquidity. investment we clubs, retail, focus of economy,

businesses comprise substantial which analysis our of portion of as in quarter companies in forward and things that our in to beyond in portfolio ended companies the the well vast strong impacted company our our position government COVID. are Looking and majority by are services, are communications suggests to cybersecurity, software, portfolio December where care, stand the such the a portfolio quarters. collectively less health today, of a XX and perform Many

debt the investments in co-investor usually many sponsor. invest as in companies, alongside financial the we with equity, Additionally, the a make we

on September our an returns we from call equity beneficiaries been that our recovery of K-shape over XX.X% being with $XXX million for the some IRR XX, environment. experiencing generated of on through investments We industries inception have equity platform have X.Xx. and Overall, excellent the a these companies large multiple of time. Our are of believe and invested capital co-invest

move which is we care to net significant Cano reasonable Light. and and who have needle debt to three are The Cano, investments Walker of can in both NAV time the income. on I a three those high highlight that substantially We at would primary is companies cost equity large way three investment in over attractive the provide healthcare these pleased companies, a companies. and in leader Edison, population. a to national are quality transforming leading By Health like healthcare

in EBITDA market the We cost ahead position $XXX,XXX with market believe rapid years and Jaws tripling XX% value Cano a value there and equity of massive quintupling valued and opportunity on and experiencing last with of has the $X.X fair Our Jaws in where XX September program. growth, that at consummation position is before would Based grow three million. in early the and on than a revenues be cash, a respectively. About $X years. Advantage Jaws Cano over is has to rest more is recently Medicare for million And we trading, shares with then the deal of and approximately the Acquisition Acquisition. in announced will that is at receive transaction of XXXX. been

are at the a in the value. a Since valued than sponsor, limited Walker exclusively discount Our up on valuation e-commerce focused firm locked controlled is and partnership And companies. up likely to EBITDA Xx. financial XXXX, the more is have e-commerce will was shares be top selling our Edison tripled. through independent leading in a sales by made almost investment platform by online traded furniture

global By $X.X ago, software, nearly is was million solutions national and security of EBITDA simulation, up and has Our doubled. X.Xx, on defense a challenges Light Since modeling cost initial fair of leading a cyber the position $X.X company market as hardware of September million years value than XX. focused and gone made and have investment networks. more across four sales has and our engineering

million environment. fair value a cost million continues. and September of substantial XX. rotate at increase investments market equity NAV debt these position momentum companies Our momentum of of to PFLT. their expect time, proceeds as positions in should bolstered of three are and gaining exit $X.X we income solidified to these instruments And these our into as $X.X would has Over All financial be those and this from

lower matched performed has well financing financing earlier, think assets. risk discussed type well COVID. we our our of is this As securitization during We to

help a finance be As and well. exploring to extremely would same using the We to we grow proving to PFLT. PSSL so are gaming is result, of With and that increase at resilient of regard doing hope efficiently the would our to NII portfolio, type continues perform vehicle. financing

of X.X% We an since quarter September Pacific, now Peninsula our repayment as end, X.X% the With Colonial of with down gaming Downs XX% exited portfolio, Downs Pacific, XX. Colonial from Peninsula our of exposure is IRR.

as COVID. Downs performance and due after to periods properties strong regional of Kentucky such reopening, since Our experienced have Fantasy closure Springs

lending are covenants late reward enduring market financings We we've We After vintage to to a is for is tighter. believe XXXX business. be higher, upcoming outlook expect including levels attractive lower, of is middle middle Leverage XXXX are lending, the time years an likely new yields loans are seen risk us. the cushion period. the refreshing vintage strong have attractive about packages The higher, performance since is cycle that protections market five to most the available equity market continue. to to and it's of for attractive. This

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

Aviv Efrat

you, Thank Art.

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

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

NAV we was ended losses $XX quarter share. and unrealized were about excluding than million was to per up Net $XX.XX Net share. X.X% $X.X $X.XX appreciation income by per $X.XX quarter. $XX.XX last on the notes the our share. GAAP our realized share. $XX.XX mark-to-market share. $X.XX liabilities $XX.XX per on Consequently, lower Adjusted net $X.XX or unrealized During investment per September went investments; share dividend cents million about per NAV XX, per of credit or had from from facility depreciation Net share was to per the

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

as Our spillover per of September $X.XX was share. XX

ample have and prudently liquidity are We levered.

quarter, debt-to-equity ratio down was GAAP from quarter. cash from debt-to-equity Our Regulatory X.Xx And was cash down from regard regulatory X.Xx debt-to-equity X.Xx to leverage, was from last subtracting quarter. subtracting last while X.Xx after our mix we last X.Xx. X.Xx have X.Xx GAAP debt-to-equity X.Xx debt-to-equity last after X.Xx ratio With of down targeting ratio down ratio our quarter. a net to X.Xx been was

Our ratio cash in borrowers, primarily was mark-to-market past of asset down the was an and assets pay regulatory the net of end of low our this at from X.Xx due portfolio. increase quarter. our to sales of selected This range coverage

with draws revolver all ample September have fund We to and of compliance our of we're XX. facilities liquidity in as of

to available our our readily capacity have leverage carefully time. commitments. We're liquidity looking manage and to support cash We borrowing over

under credit stay covenants and with We expect regulatory both in facilities. our requirements to compliance

diversified funding and have sources with We maturities. near-term capital a no strong structure

notes million $XXX $XXX facility have syndicate unsecured We banks with and asset $XXX of million revolving CLO maturing debt backed drawn XXXX of XXXX, due associated million XX million September of $XXX with PennantPark senior in in with X a as XXXX. maturing credit of XX.

support. been have in and are thankful their for with consistent We dialogue our lenders

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

has Our of weighted portfolio the is is portfolio overall The a LIBOR debt the X%. X.X%. portfolio average yield floor. floating average has rate, LIBOR of and XX% of a XX% floor

back Now, turn to call the Art. let me

Art Penn

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

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

Operator

from We at first Instructions] question Paul take our Johnson [Operator KBW.

PaulJohnson

Are new for that, were then we of you that taking diminished? range the just morning, good Hey, originations the of today. Has of that my the investments any been on investments fairly few I curious be investments -- new kind covenants expect What active obviously over But, sort environment origination your here back is have understandably is acquisition. you were to the of leverage very Cano you're terms today? Can forward? sort any on Thanks And to you within before? that would guys. news fairly looking no obviously you I same commentary new few still just yesterday. investments Congratulations that have also that been at now It's question What maybe yes, more so. for quarters have seeing? outlook see extract so questions. that positive target? I'm Health you're helpful. going muted, for and sort on sort are very of kind of the able in But last

Art Penn

again. and our actively of Paul. there look, out starting Thanks, Yes, back been part for repayments, wheels of we deals. and economy -- we're are are quarters, getting indeed we actively last doing are course, and commerce PFLT for that and we've move also evaluating couple so the deals looking as portfolio, thanks. we Perfect, to originating the of both And PSSL,

among kind So in we think target our leverage the risk is is still we that say, X.Xx zone industry. portfolio in of debt-to-equity as lowest the

like You typically more lower the levered comfortably than and lien, it's first which and see first and lower our that lien capitalized because of very of terms the believe zone then be in risk can it of is industry. the yielding X.Xx lower in most could we means kind some that debt-to-equity feel prudently and taking the judicious feel ratio, others, yields first we safe of a is a classic and is than the in we're lien maybe

and In another very EBITDA to of again, where portfolio, away where are staying bounced in terms to reward of the risk and syndicated million companies this covenant kind or million adjustments seeing, the broadly has on like of all lie EBITDA fray market, where of between we're focus high. loan remember tend average, EBITDA from XX definitional are back thing. $XX with yields XX $XX we back dramatically, leverage the is which low, We it's

companies lower got bigger and always we we're checks covenants, We're more And getting yields, syndicated the and tighter market covenants and equity seeing from the sponsors, accepting loan up the yield. bigger accept covenants, We getting adjustments, adjustments, now. to brethren We're adjustments EBITDA fewer our lower have our with are us. who diligence, pre-COVID. we're thoroughly some EBITDA are et more seeing against cetera if bigger them even broadly write of competing more

where weren't authorities as Central this XXXX the X.Xx, good better, think be to return we middle to play adjusted like XXXX. this risk that I where again, is lot to but -- it is a our XXXX that think the we're three, say of going and market, similar look versus we to Bank it's that will that XXXX, and we whole pre-COVID the of this package like think don't or which next fiscal today So it's could in better, two was vintage. reassured is we we average the debt-to-EBITDA year to vintage much upcoming be we XXXX as repeat think vintage going We seeing XXXX. why

So we are about we're active. seeing we're and what excited

PaulJohnson

a around line aggressive guys on opportunity Do slightly do of to thoughts getting any first built top or enhance yield return? more you environment obviously, high in that conservative thoughts have a And the have said, that? that That's but second more hear. like ever do you where quality, of doing lien very aggressive see any you time see sort any good, about you more potentially portfolio, sort that's deals? described, Or very have or potentially to good traditional you you Do you portfolio talking lien? maybe more slightly

Art Penn

think cautious in brethren. we in low going little and portfolio. X.Xx us, see think I a higher, stay for would I PFLT we're your as maybe lien have some away our this from portfolio, to be senior stretch look, could lower leverage reward going we're Xx the Yes, prefer And to a have risk, to you about of second itself, bit and

think we may to unitranche. as think of second from I we [attract] that's think the way edge, this in senior to real have time will, away while, course, to particular So, real if or going from do about, specifically in a portfolio. think a a bit time special more But lien we stay every little we're we I once the we situation angle, or

PaulJohnson

and plans what goes? as have taking was maybe JV, we at Or Is at guys the return any that you noticed JV, where leverage return? the least I the as going do in other JV that the think out? of far terms Okay. leverage It's paid in on to And splitting this BDC the for JV of kind the quarter, relatively quarter, last you few was that slightly. out have can forward think what expect from on the is I return then the of I up down quarter-over-quarter, guys the been inside quarters stable past this actually

Art Penn

so Yes, this try the to and highlight highlighted in this, I script.

we thing x see one things last the did. It's And is portfolio it our $XXX again, explore out So let how number securitization, from PFLT, the how has $XXX did, nice economy to a CLO our of in style same great portfolio these with PFLT. way financing. be to And been of the all see PFLT well quarters, to going been going the so me over that total like clear, terrific. growing risk financing wanted of $XXX today same been waiting PSSL maybe this that is assets. we've about million a with finance type the million, explore where to using something we're And we're works utilizing lower to with million financing for us to PSSL; securitization of

terms in of we PFLT So be the itself, financing growth will growing of that. that big NII a using PSSL at can and hope part securitization and portfolio,

PaulJohnson

And commentary middle acquisition? a being, sort the could more But, guess, may the be that be of an this of obviously, portfolio? you. don't you driver acquisitions Or highly very I'm curious then, acquisition popular know, the Got And more a market company. if of as meaningful becoming any this it's have year, exits as you you around finally, in such I far, it just driver any on spec see potential Cano further middle very a as stock as of significantly. grown potentially Health? that have I than thoughts actually in market market, not that's prized Do like for as yes,

Art Penn

addressable a that of because the white it's they case so done sense stock sort done high were so do that what that growth the of go and the Yes. the Cano, a the IPO enormous, of the in really is Look, have anyway, IPOs made just of such wouldn't been and specs form have business the for to lot do an some and growth has it another of trajectory, for market wouldn't that IPO. it's like out view IPOs, is well its And it's I there. they -- space market an company, mean, that our well, well for or I stocks think, is

a $XX if a a you there's company, very medical billion also Cano at company. terrific lined that trades market in against which $XX And members, you and great So look Street Oak Street Cano an is loss billion cap. line which is favorably Health, ratio Oak to to there revenues, up Oak Health, Street, comparable out EBITDA, up

Cano than Street So Oak it's over Health. possible line time better could quite that in trade even

not So in us we we're experts makes, to that IPOs.

importantly, be both more importantly, upside as an there's deal of it it's there's -- where market it may Cano; the as comps. lot runway on for attractive but in or as as well experts, guys get from like more versus But this You trades go. the seems a not maybe

PaulJohnson

possibly Great. that your the may, I portfolio And actually, mentioned prepared one may Do have LIBOR you more your in but I if didn't this I know I has remarks, it. percentage think catch of floor?

Art Penn

our you in was is LIBOR of remarks. XX%. XX% it floor, It it's prepared want; Yes,

Aviv Efrat

That's That floor one is of prepared X% LIBOR about but is the correct. Yes. remarks. XX, yes.

Operator

take from We question of Mickey Ladenburg. next our Schleien

Mickey Schleien

morning account I follow of wanted just on with you level debt the quickly into a taking Or Good more satisfied little fund, sheet? that higher that are Are ROI leverage calculated something up blended and X%. north and of for with investments than you balance of that senior on looking equity to return? Aviv. the Art loan the

Art Penn

over to last see how again the finance wanted, which securitization larger looking the to again, the see Hey, to specifically a financing why we is obviously, Mickey, that. are potentially up economy back great grow and quarters, PSSL we've few portfolio question, using to did, went, it's our entity

over So on target I that XX%, think we're to going vehicle. time, XX%

Mickey Schleien

sort a of blended That's ROI.

Art Penn

piece Finding of on obviously yes. paper, the, yes,

Mickey Schleien

I'm But could what Okay. that? of to the the that fun? little be attracted like the credit about curious, no more that expert I'm advantages features versus securitization you And, the Art Because you facility in are specific a guys.

Art Penn

by to doing it's a we efficient, financing. what individuals cost. underwriting, kind box of permanent, we're box need And this are, there's like or that long-term permanent there's And comfortable portfolio, very night but it's the two, credit and it's box. sleepless our a not And in where guys, lower which it's we're have no for may triple risk, you low the kind looked at on I well, C's reward this very little with of equity we return through of that I like the that had got the -- this box. XX% deals run as this think, equity, we CLO equities amount time if think granted we something period in a low it's on transcend you if and PFLT, the looked the in at just and return It's case, financing, to, talk no very underlying underwriting you the the there's because the we just

Mickey Schleien

very That's solid to I'm what a relative number elsewhere. seeing

Art Penn

Yes, basket have up of to you the XX.X% market. in Triple kinds C middle

we're like I like something think that. X%

our us, So a for it's because good it's underwriting works, very box.

Mickey Schleien

capital So manage are perhaps it's and paraphrases perspective? you suggesting bucket easier of that just your the piece an from are to

Art Penn

that's of and to occasionally. PSSL, and as with the could grow and overall bonds of love Well, with PSSL part look at we'd it along mix facilities, an we overall mix of up PSSL, be part along PFLT credit

into And we're tools, hit well. just are kind of believe did performed of eight last nine It's I COVID over our COVID. financing PFLT, in March. we here guess, September, months then and kind diversified we we saying or in So very, very CLO

So use that technology as maybe data And we really that's points. for us; PSSL. that interesting we're taking should over a

Mickey Schleien

extract loan is funds, assets? those for the of the timing imagine mechanics, all borrowing Understand. of credit and senior do the in haven't you what I that? are base I the the math, And And the of facility, just of CLO in right? So form most the terms assets how done but

Art Penn

are a great who to securitization, a growing them credit talking PSSL that's We're the kind starting explore don't question. we're on partners, obviously going PSSL about a revised banks answer. But the to firm facility. our in have new are be partnering involved of including to including now, Yes, and

all next So two, the we're it's hopefully something going over finalize. in this play, and to is quarter or

Mickey Schleien

year Okay, put of together. sounds it's mid timing like next to it sort all of it sort so

Art Penn

your fine being mid expectations and assume a earlier, shot have we hoping I'm better. next but that's maybe year, for at

Mickey Schleien

more questions. And of just of sort housekeeping a couple

to Is is the on sheet notes balance next payment that make your on cash CLO principal month? built are up? the due Your

Art Penn

are Israeli We bonds coming have payment the month. amortization the an in next they on and up

what -- that's So

Mickey Schleien

paid so okay, on will CLO, Perfect cash. that be

Art Penn

Yes.

Mickey Schleien

the not if mistaken, was you out previous And you on And I the ballpark think there? XX I'm XX this but EBITDA maybe to where's said my Okay. for average portfolio quarter last to the numbers just said XX. XX quarter, wrong, portfolios

Art Penn

that is more what are XX The The Mickey, we're is We to mean you in I like quarter last that working, doing median XX. now. gave XX. piece

Operator

We'll take JMP our question from next Securities. at Devin Ryan

Devin Ryan

may Great. dialogue in be bit Few to I how on sponsor but about one think support. more we context whether with were just shutdown the little read and and just advance been non-accrual and of there curious some I questions a and lien the portfolio loans they of have to in know, adding ask broader any and COVID disruption to maybe asked you pressure the extent first marketplace the just quarter, our the here just guys am whether there's also credit. on another here. related

Art Penn

industry. with welcome and forward I you so you. meet on to look nice you you, Yes, take the the BDC into thank to you. time and Thank so David, spending as

event finalizing restructuring speak. we is marketplace as So its

next other When start particular today injecting Certainly the side. company one move I'm will control capital quarter, to able off start by coming as company coming the done as [Montco]. much about as through be against hopefully, are quarter, it's the clear inevitably to event to get next restructuring to back. that the pretty be name, So by and sure going taking will to of events now that the And be that company. probably will related. an event actually looks comes again, that that That planning that make next like investment injecting that is great right Again, think is off as back. happy in come and But that's in we company, equity in to help the really company we sponsors marketplace events to one restructuring non-accrual talks a equity more. events. We're back quarter speak. in and space PRA lenders

So those of space. the Both the are three them are two kind -- event of non-accruals. of in that's

abnormal. to going going non- relatively it's dealt we time identified that and But of been be to think portfolio. don't this had were from are there's COVID terms it's or anything it We In pie with, we there impacts been to light, particularly to think being that time think there's here. be the or as course, outlook, of the hit accruals I already the into of baked had extent kind

Operator

It are additional turn call Mr. closing for you further Penn, appears would or at to this questions I any there remarks. to time. like back no the

Art Penn

period suddenly today. quarter. And will being Just have thank to appreciate until quarter's our only And we because a next call we when We time everybody want it. short for we number. this relatively late the February a reporting on early had

to speaking everybody you Thank forward looking very then. much. So

Operator

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

may now disconnect. You

PennantPark Floating Rate Capital (PFLT) 19 Nov 202020 Q4 Earnings call transcript