PFLT - Earnings call transcript Q2 2021 | PennantPark Floating Rate Capital Ltd.

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Operator

Good morning and welcome to the PennantPark Floating Rate Capital's Second Fiscal Quarter 2021 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 question-and-answer session, following the speakers' remarks. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Chief at 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 second joined quarter Financial earnings everyone. XXXX by I'd please like conference general

Aviv Efrat

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

Art Penn

is it for positioned to structure the fared ended our quarters, XXst. for we portfolio capital going then in few the minutes and Aviv. March up Thanks, open How Q&A. spend quarter the the upcoming I'm a liquidity, discussing how financials,

this another continue We from Adjusted achieved are with improve. $XX.XX increase portfolio our NAV performance NAV our We the pleased in past quarter. as increased to X.X% $XX.XX during quarter. to substantial

have portfolio materially have in appreciated equity instruments We recovery. value income. bolstering benefiting Over economic our they time, which debt is are rotation equity the companies that several solidifying from co-investments of our should as in This NAV. into grow help PFLT's and

few will highlight in a We those minutes. companies

by co-invest alongside our of equity the debt investments side a financial the sponsor. in selectively we part side business choose As model, with to make, we

to these on co-invests Our million over excellent returns of through XX% equity generated XXst, $XXX March an equity our co-investments have from inception time. have IRR our been and a for Overall platform of investors want understand a multiple differentiator. world times. among capital returns our In market equity a X.X invested where may lenders, on differentiation program long-term clear are our middle on of co-investment

us September will performance point. And This we strong XX. income for our that combined through have of as of As Those income additional million a $XXX of over our assets keeping dividend over growing steady help approximately net more at be growth we million a grow relative assets balance more additional PFLT. the of investment spillover to for conclude led the factors to quarter, time. the growth as XXth March completion optimized rotation, venture, company's financed and should from equity larger and dividend joint PSSL's quarter during combination $X.XX potential time. driver capacity grew with result COVID this generate which and financing a PFLT PSSL, be efficiently portfolio sheet of PSSL efficiently can last grow at income CLO the by the substantial ended the The NII. a an of can $XXX

pleased also five-year we investors the senior financing late are notes to issuance a March. this million, institutional our that in X.XX% quarter past of sources diversified $XXX with We

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

times. As income debt portfolio significant to average cushion times This coverage income. EBITDA support stable exceeds on was amount cash investment of cash average in These industry. lending X.X March statistics XXst, the direct which interest the by conservative most among the interest to was the ratio, expense and X are the provides

have of X.X% only different at PFLT and at cost, value. market a X PSSL. We XXX non-accruals X.X% of the portfolio represents in names only out This and

of avoided different hurt oil industries. retail, and sectors gas. the airlines. largely The XX the companies as pandemic, most clubs, been to apparel have has by some have and is also We the XXX health restaurants, that no PFLT with and highly diversified such exposure portfolio

has business has to of only financial crisis, X a yield middle nine excellent. which prior have since to $X.X billion strong companies record during we've loss ratio of ago, basis few quality the a track points direct of over who market credit time. non-accruals. over X.X%. one XX an lenders invested invested of inception, been inception in Since Out compares and the that at have was annually. This PFLT We're since only Our underwriting XXX in inception, we years global experienced average

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

in domain this prior the EBITDA to far, EBITDA XX%. high EBITDA portfolio tracking by And of services decline that COVID. services, are as meaningful healthcare, by so beneficiaries the some was through an the believe During such we substantially case be of the of Based environment. our it at are on believe average have EBITDA the COVID of of companies record financial being that X.X% of impacted during our expertise. declined the software, recovery companies industries less we the American economic underlying companies Many government proud will This defense, that companies and of We're business track the experiencing We North bottom of our recession, with recession. than our we weighted less where downside index an global are consumer average select companies portfolio Bloomberg yield that decline technology, industry underlying crisis. and recession. compares

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

exclusively XXst, Our is of years fair there's a of program. a proceeds. and locked equity respectively. sponsor where in a up financial ahead position of for position selling We online e-commerce leading value months. valuation the illiquidity platform to Jaws with by valued believe scheduled cash in on Cano $XXX,XXX independent Acquisition market and massive has XXX,XXX March through $X.X From is At furniture a will The top and million, Advantage perspective with exit grow own market the the the close with opportunity to a Medicare a cost to merger June. firm Edison on the sponsor value focused XX% Cano controlled we traded Health a lockup, e-commerce discount in March shares on shares another be time, due the Walker companies. X% The currently that to receive earn $XXX,XXX the for will partnership valuation XXst. will six limited

cost of recap, its $X.X simulation, costs, shareholders fair As company. same payment engineering after a approximately of in and March market ownership receiving on a resulted modeling leading equity challenges in the PFLT $X.X had cyber maintaining executed defense national cash XXst, dividend million company a two and position a and receiving is and percentage position. company global software, refinancing networks. in Light million. of security hardware resulted the million times quarter a focused across solutions which By their on $XX.X the This our value equity while end, and Shortly

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

broadly syndicated threshold focused on core define like is market, between or below $XX yield are middle not high the of and million million We which does and with as the it We the EBITDA. a $XX generally with companies compete it we because core markets. market, loan middle

equity fewer, EBITDA where wide is do with are are higher, we compete not making timeframe or decision compressed. an light, such, cushion are lower, markets As for is diligence. rates non-existence, covenants less investment information leverage And and the higher adjustments

On more yield competing the generally not with or a core market, loan we're other we markets, broadly where borrower. is in the hand, because capital the middle focus high syndicated important our to

As lower, cushion higher. such, equity leverage is

maintenance of achievable financial If weeks have companies. loans EBITDA to According adjustments, to companies covenants, to there eight to are and a with which lower have and quarterly be make more typically there diligence higher statements default thoughtful million on real, with and we we less companies a than decisions. recovery monthly receive than are careful the top We $XX are of S&P, have EBITDA. EBITDA six rate than higher those loans investment rate to to

protections cushion lending, late period higher of vintage the that vintage five of global to covenants package is reward about attractive characterized market that yields be a are lending since years likely time to XXXX a an equity available risk XXXX time We was to are of levels market we've for business. crisis. which the After it and also have market during is us. vintage the This middle attractive leverage by the middle including period, and lower, believe This cycle is higher, is financial the most upcoming loans after to are refreshing seen tighter.

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

Aviv Efrat

Thank you, Art.

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

total of about is expense totaled Looking $X.X fee and taxes, Management categories. interest $XXX,XXX the expense about general administrative and $X.X at expenses million, million. about totaled some

net than the $XX.XX per was dividend was share, excluding $XX.XX share. to per NAV per Net the to $XX.XX Adjusted Consequently, about share. X.X% our by share. $X.XX up During on per depreciation ended income or $X.XX per unrealized $XXX,XXX $XX Net facility Net per credit per on realized gains at million was or was investments $X.XX share. appreciation our XXst, quarter share. March liabilities about the $XX.XX from NAV, investment GAAP $X.XX unrealized went of lower were share. mark-to-market notes from

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

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

We have ample levered. liquidity are and prudently

we're equity been cash after debt and X.X ratio had in was was was ample subtracting GAAP range of to March to we have to with leverage, times, to equity The debt of liquidity all cash regard With after subtracting up times. GAAP We net debt-to-equity our X.X our a equity times. compliance equity to X.X Our revolver regulatory X.X ratio times to fund debt to X.X ratio was XXst. facilities times. and at while net draws targeting regulatory debt

and our to available We liquidity support have cash commitments. readily capacity borrowing

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

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

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

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

Now, let Art. to back me the turn call

Art Penn

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

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

Operator

question [Operator you. Thank Schleien comes ahead. Please with Our Instructions] Mickey go first from Ladenburg. -

line Your is open.

Mickey Schleien

Good morning, Aviv. Hope and Art you're well.

Art Penn

morning. Good

Mickey Schleien

is into market Are broader market? the affecting market. deals? Art completely is close loan to middle market seeing you And that obviously to versus the know of frothy advantages agree. how loan middle the I mentioned frothiness that trickle ability broader And in down the structures the at starting the moment. your very And you

Art Penn

over related question, terms of and the market, pre-COVID it's to not best in remarkable point broadly has it's market back. market low economy know, back and structures we to how is was you high it's a to were the quite future, we continues at in, upper been and with it Look the rebound, very as XXXX. a advantage EBITDA. know, the yield pre-COVID. taking in know, what about to we've levels we should you the of know, EBITDA $XX always know, to and strongly where good the million we be thing call above some the one, PFLT's Which, defensive the the need some positioned $XX preservation the and with It's if continues capturing number a middle PFLT extent, been the us reasonable, and look But over it's, lower invest and PFLT, of you bounced diligent investors to we know, capital it you has good, back seen know, strong back in million careful great companies, attributes. kept you yield, lowest reward. But prioritize been syndicated future, know, know, to of, upper and how to Certainly very Mickey. had you not, be mark we're to which To recover, good about continue yet in think extent, want zone. is preservation loan We're we among be to for shareholders is vintage, risk not-too-distant so which feel market where willing you where PFLT quality the a vintage BDCs, can, the very right accept we've we'll be to mindset, the below we our you you certainly, of you leverage know, to having kind - high now we time the middle the willing capital

have get the return, those investment extent co-invests these One us want those is, know, of we know, things over them, of and, separate tell you of losses, million but below co-invests the equity decisions, filling we get space for the EBITDA know, in the you very creating nice been $XX we are helping you cetera. gaps some et helpful, terms in time, additional equity to

equity these So, you that loss we an of to, X the know, basis power due ratio, co-invests. only part have is of you annualized point know,

what may XX-year know, So up continue yet. opportunity we you XX we're know, let's anniversary and a you while now you track we're have coming here. you were not know, has been years, the today, execute let's inevitably, back then the If on good know, our to, be, continue to nearly we things where have, opportunity we record capture

don't Mickey, I your I if - but answered please question, keep know So

Mickey Schleien

on you just That's fine you congrats portfolio. how prepayment said, Art, XX-year and risk the anniversary. would then, the characterize the given what in

again, just frothiness markets' get you know, your much protection deals? the You broader do call and that typically considering in how

Art Penn

right. news out. market's quality bad when credits get The you Yeah, and high that's so good and know, active the news, news is, bad look active, market's taken the

bad can't the - That's off, companies The you deal get paid is, syndicated access market getting do sometimes Sometimes flow is heavy. we are a thank good and when yield. the sold, are at we they we loan news. lower paid broadly say the news

you over time game investments. the because times those we debt up much X.X the equity, and grow can the course, another is $XXX that that's equity plan then tune know and know here. activity replace portfolio, balance time PSSL so So rotate about PFLT you to over certainly the to Grow million. there and of Grow sheet to on of

ramping our quality never robust. medium-sized good to our relative very have we've fit call you capital and around high that been still know, deals capital. difficult I'll had relationships know, to you such to box. because us flow relative finding so origination is we So have a relative The we're calls time and long It's our usually

we've These negotiate processes, So diligent, and ramping But ramp switch it's over had these the a never see overnight. on negotiated an and deals so do can a fully take know, to we we grow longer covenants turn fully flip like are not are and do where we time. six-to-eight-week around active portfolio. very opportunity you challenged

when, the upfront those as know, can And out. know, which good $X the these debt which we know $X.XX you co-invests call couple of protection value, you continue or part is original first really you $X.XX we issue that is have even years. a know, the In deals account original we're life to the the equity get issue best in you - little the called of in or protection $X.XX Typically best know, for the we'll generate terms over discount, of fee. typically not do on discount We loans for buying is loan. amortized call you $X.XX

these broadly were we with we of seen some market co-invest. have very valuable that's the out but By this Edison, a valuable debt anymore, loan debt have the and like Walker Light have we've a Cano. So not wins the co-invest. we that of company in the co-invest. syndicated Cano in equity valuable refinanced

we tail that's and continue way you the have a way on So deals. know, that's the upside, these we have to

Mickey Schleien

understand. of for sort Aviv. investments? on the housekeeping you just drivers you highlight were what of or main And just I question one depreciation the unrealized Okay, Could last

Aviv Efrat

- Certainly

Art Penn

ahead, Go head. Go please. Aviv,

Aviv Efrat

DBI per a Yeah, it's so. first because certainly negative $X.XX JV, Holding if portfolio you have Country about about mark-to-market, quarter-over-quarter. and the know, look Fresh, robust of the you you about some or side The improved its $X.XX there large went quarter-over-quarter PSSL movers down lien $X.XX its quarter-over-quarter. mark-to-market at was is, And share on

that kind large you of see net-net So movers. the

Mickey Schleien

that. you my are Thank your Appreciate for all time. Those questions.

Art Penn

Thanks, Mickey.

Operator

next take go Paul with We from Johnson will now our ahead. question KBW. Please

Paul Johnson

any Thanks to morning, Kind Mickey's the I'm little lines question market. mean, seen taking guys. of you on middle market my know, sort talked vintage Good the pre-COVID you of this or the know, from you of recovers? guys have covenants and any for compared questions. guess, in as competition but I just, competition bit, curious on floors, to pressure you sort a I the LIBOR along with

Art Penn

Yeah.

So on that covenants we're tighter getting side, pre-COVID. did - we've the covenants we

What again, part and these million Paul? So financial we for $XX of now. your know the second we and Covenants monthly are that's below maintenance a was and of which quarterly statements, of differentiator good EBITDA you world. question, the kind get test are - And get

Paul Johnson

The LIBOR floors.

Art Penn

floors, yeah. LIBOR

of down little in from is points. there basis a you know, points it pressure, to So certain push XX you pressure basis you XXX well get to cases, bit know,

recent you sooner if of cases, we've lot lower more guess stays know, the good LIBOR, in inevitably, at if went I and or about higher. be it all depends, news we'll upside deal was So had depends XXX. well, you the start XXX. a going than LIBOR LIBOR your that it floors bad on good LIBOR It news. floor is where up, floor yield the news a capturing goes had that, floor the certain that spread. your In could We

the So particular - it's you negotiate. the a And dynamic situation just deal deal-by-deals, depends on it's is. what on of it kind it's

go directions, it know, X%. both floor in XX% plus cases of still LIBOR So you the we've seen is

Paul Johnson

do good difference guess, sheet the guess, know, you in view short But so any mean, you kind same EBITDA. yet. strong see Okay, that, between, thanks. for then any I growing an you million maybe do balance That's know, just see I versus, guys of investments would along know, color. And make know, And reasons, you not you the you're at you $XX below on pressure lines. loans all of competition core market JV? I you similar those opportunity difference set middle the

Art Penn

of world, mean, And our know, hole new still the not like kind day in just There's that's, the we're it's compete day money with characters, we you No, it's in them, risk no cash people the competing same reward their of some, I one burning there's in next group with same same people, a new competitors. changing them. It's pocket. we're spectrum. with like has the club a

usual suspects. So - I it the it's a - it's call the

So relatively generally, behaving. suspects they're how rational those usual in are

not know, So of kind movement. exogamous we're any, you seeing

Paul Johnson

kind to Okay, more I portfolio was know case-by-case any know, sponsors, question, all ability Have guess just getting terms that. I I changed around at again, Has just of in from of less mean, to the receive equity just markets seen you of competitive. you is basis? last companies? your really of you no thanks your co-investments. the give co-investments, equity this And change at obviously, for you the change curious. willing I'm or and kind all any equity it as know, guess,

Art Penn

Yeah, it's We automatically the doing with always case-by-case it we're want when and don't the us, case-by-case too. equity say debt. we is more

decision. investment it's us For separate a

debt co-invest, if like it's the fight cases, we graciously other we'll decline do offered. more may cases even the and co-invest. to In some we'll So hard

XX those part really could of could By Canos good Obviously, you some bad the co-invest, ones the part some XX and, add-ons with good for multiple know, the over be deal we're the well bad the as investment think $XXX you as should look we co-investment the some these, has but us that as you not it's of own of to are And idiosyncratic most two It's to the way, you way they're, opportunity the equity a know, difference there's it's needs who of The in through these you portfolio. you it's investment companies above decision. over $XX on EBITDA something million your, the on do case-by-case no, powerful, stand deal. sponsor portfolios. something of - on based those co-invest mix. do now the its dynamics generally know, X.X or financial for very global on you the Edisons feet so or really million again, direct doing our out equity through equity the is in you separate ones you EBITDA worked decision, or a know, based of folks be we So and an don't by by have And the of get that's capital, business, crisis last whatever COVID outperformed the that for general, years can years now, and or invested by set lending get to large says times the looking know, or that at Lights Walker behavior. large

we in. a traffic you kind world of the So know, that below is of $XX get EBITDA that in benefit million you

Paul Johnson

Yeah.

that. Thanks And anniversary. XX-year congratulations the on for Okay. public

Art Penn

Thanks, Paul.

Operator

Securities. go next take Ryan ahead. JMP with question We'll Please from Devin - from our now

Devin Ryan

great. morning, Good Hey, everyone.

on So one, are just And first conversation. just a follow-up guess the I last a couple follow-ups. of these

and lean the decade. it's know now a a co-invests given your than So there. record you of over history, idiosyncratic. kind appreciate I of time But on you high. momentum, and same back the experienced and equity you Is portfolio know track as to more time in you've in markets kind now over the right lot clearly valuations of are a looked opportunistic are you've your is strong

that, So know, the I'm a get general in on about are but curious you love to you of color risk I'd how of bit reward kind a comment, thinking I know kind guys more and just there.

Art Penn

the a great are to know the And, a that economy, of decisions think is you bottoms isn't we're up, to the peers A, of to co-invest what's two at our obviously recovering is course, quite either it's flow nicely. to we aggressive typically we're the kind the valuation attractive you the What say, is, economy do approach, and not going question. more have look or enterprise low the type economy deal-by-deal that's know Fact generated. bit Yeah, and it's very you where know, time on know, value in we cash either relative that facts. drives the a little to relative EBITDA the or equity be attractive, you to comps going the

investing. value So, classic know, you

think can that cake and a it prototypical It's we us, growth So and they they doing to it, high. identifies going EBITDA a sponsor to trajectory, maybe either deals right. is pattern fuel acquisitions million add capital to of by secular a that And, acquisitions or million, $XX generally, to buy industry, the fact $XX $XX of that EBITDA organic way where they to and sector, if know, be you we're our on days attractive, that, going and these eat debt our be is you our win they very an $XX do million, and their adjunct, a through behind fragmented are know, is growth. million this growth attractive want the too, platform be - when very is, know, $XXX grow can you value million, typical where very will that having strong that or on see something million, we'll prioritize a conversely just million or $XX or with as $XX

And making where row front - So million seat And to the a we're commitment the with the more that's And prototypical therefore, with box kind that $XX that days, co-invest of on debt, Walker kind they're that's that's our you million our move $XX By to going the that's Light, to that's they million have $XXX equity or than growth. over happy of is deal million. that's we're PNNT, from EBITDA Pros. fueling seeing capital Cano, know, Edison, to $XX our That's fuel we us. perfectly. fits growth we're therefore know share generally of these Wheel

the that a it's of be, where expertise, kind look bread days, high our know, PennantPark going smartest that's that where these and know kind room that's the you want we can look if we at industry flow You and free you industries people in deal to domain know, butter. be of cash like an and prototypical at with to among are a

take $XX you took $XX they co-invest a EBITDA, we debt with co-invest. or out, nice have it equity example $XX syndicated million but co-invest very greater, can Cano, the million they that it the ride know, from debt fuel equity attractive million took the of So a or $XX broadly or million upside, still out the loan, And be as us we're to the have riding.

know, dividend have recap. Edison Walker You just equity did a We there. the still

you nice, records. you know look where deal-by-deal-by-deal strong very know had you we've the can at track So as

kind So at how we how business. know that at of look we our really doing I on But equity look that's light shed these what days. we're the and co-invest

Devin Ryan

appreciate I context. great it's it, no, Yeah, Art.

the JV PSSL for follow-up growth shareholders. on compelling Just great obviously, and there here a

about how of get is could be reasonable or you quarters think capacity, ahead know, think about, helpful. two As give you next or timing, million to we other of you any that or you over and you it there look know, kind would the context $XXX and incremental that yeah one us think so should

Art Penn

Yeah. two optimizing say quarters PSSL. I'd on to three probably

Devin Ryan

Thank terrific. much. you Okay, very

Art Penn

Thanks, Devin.

Operator

there to for the back the remarks. Art Penn are any I Thank call questions like to no in you. queue, would closing over additional or as And hand further

Art Penn

your Thanks good continued you out Thank your We appreciate quarterly We speaking next hopefully August everybody. today. we of wish to you, you for early on come really And interest. much. time our earnings in COVID. health, very forward all Thank call. as looking you to

Operator

for Thank participation, and Thank concludes you. ladies today's your This call. conference you gentlemen.

You may disconnect. now

PennantPark Floating Rate Capital (PFLT) 6 May 212021 Q2 Earnings call transcript