PFLT - Earnings call transcript Q4 2021 | PennantPark Floating Rate Capital Ltd.

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Operator

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

Richard Cheung

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

Art Penn

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

net a one-time expense credit to of investment per the Our in share, amendment income $X.XX our core grew of million with connection facility. $X.X which excludes

Our credit quality solid. remains generally

We a debt capital a additional to capital into we time the from with will generate to $XXX PFLT three, bring assets growing our to over two, number on portfolio instruments. we in program contributions year, about our strategy PFLT from target JV financing growing move assets million contributions completed the value JV, to balance sheet $XX targeted CLO equity includes: this co-investment The time. return. which over PFLT's NII grow the and one, through as equity from XX% cash-paying XX% in to approximately times; earlier Kemper strong three-pronged are grow JV significantly in PSSL to poised the to X.X from debt the leverage PSSL has well PFLT of that We investment regard another With X.X of Kemper, as from million. as to intend and equity are to invest of towards times $XXX our with rotating PSSL approximately $XXX million the million; come order ratio

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

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

strategy. We implementing the to way well on growth NII our are

million and new $XX had PFLT quarter, far originations the September activity. $XX million of the During PSSL -- outpacing originations had of net new repayment had

billion $X.XX investment portfolio $X.XX million As million $XX investment quarter from of to by million. a an of PSSL's the to million increase $XX increased $XXX portfolio billion. PFLT million, from also $XXX $XXX approximately from -- result grew this

be new September repayments Since PSSL XXth, sales million. We million. of continue has new PFLT busy. funded to net investments repayments had of investments net $XX had has funded $XX of and of and sales

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

higher, compete with do diligence we or wide is are less are is and rights and the an higher information lower, As covenants for frame markets leverage adjustments cushion decision fewer, investment compressed. where not equity making time such, nonexistent, are light EBITDA

other the important to hand the the in focus our we more On borrower. market middle generally capital where core is

leverage such cushion As is higher. lower, equity is

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

remains portfolio Our strong. performance

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

at in the XXX of at As PFLT of X.X% cost September and portfolio XXth, and market This we PSSL. non-accruals of value. X.X% had names only two out only represents different

to company a the in and largest impact quarter was somewhat be offset of of This have driver is $X.XX business. liquidation Since and lash decided the recovery, share. DBI pursue has no valuations events the point sale underperform worst-case in out. the of per how of NAV SFP decline marketplace and if this at XX has Holding. be NAV XXX play negative and DBI quarter this September From OpCo, will of to and share. impacted per It by increases partial $X.XX the to NII by quarter. portfolio negatively end ended For PSSL continued PFLT the perspective, diversified with the $X.XX In in of Holding different per would was a in the The value decline XXth, companies the impact industries. the per scenario share NII DBI to highly is an is unclear represented expected

inception, which over an $X.X since annually. ratio we non-accruals. to quality loss average a of been has X%. have has billion invested credit excellent. companies This of points ago over have PFLT inception yield inception invested Our only X at basis XXX years only XX in Since we since XX of Out compares experienced

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

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

global of the portfolio our less that High companies it During of of compares Yield during American substantially at financial recession the tracking Based weighted to recession. North by the crisis. bottom the Bloomberg companies decline through EBITDA EBITDA the that declined of This underlying our average the of average portfolio our X.X% EBITDA underlying than of was decline Index COVID, was EBITDA XX%. on

the High decline loans our XXXX decline X.X%. new Index. was Our portfolio Suisse in meaningful healthcare, to services the median COVID X% Many of is during EBITDA in The and business This the for compares select are expertise. outlook attractive. where industries we COVID Crédit technology as a of in EBITDA at June bottom services, consumer favorably Yield companies such domain software government of companies, and have

busy growing selective funnel in in can that flow producing as then team, ends and up in deals. our thoughtfully and wide we what we XX is analyze, are active We and ever deal portfolio. and have new as we so been to doing business, talented experienced our as our that be With can years carefully reviewing

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

Richard Cheung

you, Thank Art.

$X.XX XX, in the connection facility. the income ended a $X.X quarter to net with one-time the of amendment million For share, investment which core excludes expense September was per credit

of and totaled about administrative million. Looking which amendment categories. about million, $X.X facility Management totaled at and $X.X some fee $XXX,XXX totaled credit expenses general fees expense. expense expense incentive the and about interest includes performance-based the Taxes,

September share, per $X.XX per $X.XX During or the from NAV, GAAP was was per $XX.XX than by $X.XX mark-to-market per by share. lower XX, $X.X down to decreased unrealized in NAV share went gains share. $XX.XX ended share. Consequently, and value net facility a change excluding liabilities share. on share. notes Adjusted the per GAAP quarter loss about $XX.XX income per from investment Net and million of appreciation our $XX.XX $X.X of NAV dividend changes the realized of were $X.XX investments credit a per was our in or million

times. we quarter, use ratio our value was our exit the portfolio, corps X.X broker-dealer valuation been In to debt-to-equity independent broker-dealer provided to up cases and With while X.X after GAAP marked-to-market GAAP to valuation have times ratio inactive, and are Regulatory times. X.X net firm, markets equity Board liquidity Directors facility are times, debt net XXX debt-to-equity and credit entire are independent where active levered, was was of each quotations, times. Our ratio using available subtracting notes independent subtracting debt-to-equity exchanges debt-to-equity X.X a by on to when ASC under and our of ample prudently our the XXX. regard leverage, by price X.X regulatory after ratio was targeting an firms are we cash cash With investments.

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

asset-backed facility XX. of were The have drawn XXXX $XXX debt of note PFLT million of issued resulting of investments. additional credit notes $XX Subsequent X.XX% senior maturing principal $XXX million unsecured $XXX issued million an of XX, proceeds $XXX notes total unsecured with this for to to $XXX The from We a million. bringing due associated notes and provide senior XXXX, XXXX yield issuance September million million with for as in a premium in September million unsecured XXXX. revolving in the XXXX in X.XXX%. CLX, additional maturing add-on notes a at of $XXX capital PennantPark maturing

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

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

the me call to let turn Art. Now back

Art Penn

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

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

Operator

Johnson you. Thank KBW, today comes Paul first I'm And of sorry. Instructions] question KWB [Operator – our from

Paul Johnson

for my taking questions. Good Thanks morning, guys.

terms at, you some activity you leverage like you would you at fourth that getting is wondering, given Are Sounds be quarter. leverage do you're guys mean, to idea close the strong, be have quarter-to-date are your just given, the pipeline pretty what range compelled high pretty – in I'm on mind investment is got of in the here looking operating to up looking growth range. the an versus are low-end opportunities you you're like to at strong where the I you calendar end? the

Art Penn

good morning. Yeah. and Paul, Thanks, Yeah.

I targeting for X.X X.X zone the of think – of kind PFLT. where we're we're That's kind times of targeting.

boost joint while and from a be million think over little we million, over back, is we that which to can kind And $XXX we'll of that right we're hope we platform. continue the X.X. PSSL $XXX you're there a got yes, CLO course, venture, grow did grow financing vehicle vehicle, and time at Of to a side-by-side, and

of kind we zone, X.X think PFLT. out top I

Paul Johnson

least equity change that. on what's at there's was there, sort basis, if Appreciate particular anything or investments? equity any on I thing quite the And then on bit like restructuring going sort of there there? looks new they a pretty – cost investments. in going but of, guess, one on a wondering, Great. It was I'm quarter-over-quarter, went-up your wondering, just if I quarter-over-quarter the

Art Penn

of part than these no good probably that. continue the do that's Other no, think opportunity growth driver we that, think deals and -- to participate is I main to PSSL PSSL Yes, I that we mean look there's of probably there's very and of the where the upside. in a on

gradually yes to ones equity yes have them. which these we are declined very We well say do attractive. all We them. the of thoughtfully that worked for But doing We are we don't over to many XX us co-invests think and out say years. of

And the I'd imagine change making that PSSL we so investment the biggest vehicle. growing is keep in that

Paul Johnson

with Got curious it. And is during in on sort on business the in and investment touched any Thanks but the that JV was exactly well? of any question there -- that my overlap also and bit you your what color for get just I'm last as if can DBI a that. you -- call, little the it give maybe

Art Penn

Yes.

are And their nature. them over one when read DBI -- on a -- and issue mean when labor. for PFLT for of them -- you're JV. transcript, going that and you of, of Think have between portfolio least states. consolidated vegetation, in company challenges. it a is labor of of there's inevitably basis you're about a This company get lawns, municipalities most about at -- unskilled of cutting and names, some PFLT and labor, we have to things kind going PSSL. there services what the laboratories, So, managing one that And managing may The about is to employees work XXX -- both does both the talked is the unskilled would newspapers on you and

So, get one it's price it's the hand, with been on hard when and unskilled states and hand. on the to get enter unskilled expensive labor into you other cities. it's labor And contracts they more fixed

hire. and got cities mismatched contracts the this fixed and have the labor they to with unfortunately, they states market company where the unskilled So, price between the need

basically reason So, underperformed. it's key the that's

gave a at And wide look and a looking liquidation. what had A. not equity worst case to zero, if that be partial scenario We It is B, they're said, statistics the may the a the or which we that I on to of some have the it's know like. co-invest the scenario going would range portfolio obviously, we As yet don't partial as may throughout have lift. in out. sale how transcript worst-case play

the impact marketplace look of some of September quarter you if So, the other share, but XXth, a and at DBI this that negative lash, like had last offset a $X.XX quarter, SFP. ended was to events, some extent co-invests by

a So, co-invests. we have book of these diversified

hopefully some majority their Some of performed costs. the margins going customers a are is to XX% example economy. one-off is names underperform. really endemic their increase portfolio. example an than more vast, of of their of vast, EBITDA pricing an We our this are have well. XX%, This some is where think Over And vast able an to the they to time, our not this cover in DBI they've well, of that on an underperformer. is the things performed

Paul Johnson

it. color. Those questions. were Got the all Very it. my Thanks for helpful detail. Appreciate

Art Penn

Thanks.

Operator

of Our question comes Ladenburg. next from Schleien Mickey

Mickey Schleien

morning debt unrationaly? that you available. And private the erratically competition middle trickling your question and behaving everyone. up you prepared remarks, the the certainly advantages private Are how much mentioned in in lower market good and market? so middle is the of any in idiosyncratically lower middle you market investing a seeing Yes, lot market signs seeing middle perhaps is My of intense with the competitors and equity the of agree. I into higher given or are capital Art, down

Art Penn

we'll -- middle the the good a question. see core call don't It's market. we what thankfully And into seeping down much Yes. of

deploying much kind see light to into million a We of have million covenant Some that. is way processes middle money yield so and and core they're they falls and $XX low are folks these raised company aggressively you'll Occasionally, and the below. diligence of say $XX kind EBITDA it, bringing market and of market. shorter

of seeing but million, and below value $XX One will pick below and look of that down god million change vigilant that added not track record, the big guys and we're but one could not bless, we'll kind call. of where we're it, it. say, seeing swoop And it. kind and we're has into go the at our We our $XX PNNT been. you And about like it if really we'll in off,

to doing sponsor feel million the cushion, injected $XX lot Over of our it's EBITDA. where equity $XX years, there's take $XX debt start attractive company And last million six or we companies that growth lot $XX with are The and $XX grow million can million capital can very $XX so equity, of these a can our million, to plan really million capital. has a safe deploy to higher, we EBITDA company that about $XX out with a we up preservation. capital real the million where

seat. we're co-invest of there's the equity in the have by participate helping Obviously, And and our upside to the We the debt. drive. less is that we'll competition on in definition front course, then, debt the occasionally and incumbent row

those get are get seat is add we for where of long-term where where front capital deals can today, we when can some not our then most and kind So the can row upside. value a commoditized, we the

kind of prototypical us So for the that's across deal platform. our

to grow Some of $XXX terrific. million, of million those that's EBITDA $XX $XX companies do million, and

is debt hold sometimes, lot sometimes equity worth side, leave a and they we money. the us And equity the and on of that

today. see of kind we value-add where our highest So that's

Mickey Schleien

deal of benefit for average does may to they're Thanks size interesting, funds, time. even entry for lot you given where middle just that And those the to something be the of barrier the you? Right. do put going of think just it's a size not effectively into private doesn't there's follow-up, that terms that, Art. the market And move And the though a them? needle lower

Art Penn

Yeah.

in a think was would amount certain make you're sense at the size doesn't to much When you. put AUM a just deploy of for AUM the a with fair. time you I and know model. sometimes And that's labor about at growth looking against big and it's deal agree bite how how ago, growth it I the can versus below you think I I long capital need the you're they business firm. intensity,

Mickey Schleien

next we've been prepayments. maybe I there's and from might lot particular can't understand. what of and of year They've might year start just growth go tailwinds thinking about to in the any defaults in been This Certainly little a high last election. question repayments the years. a and apart My we levels last relative year But lower. the Art decelerate historically very philosophical couple is low of next probably an more economic have sector raising Fed rates. had

do So all below table how your keep -- take be funds you things it you how messy. both considering sheet of the guess of of want funds your right-hand and balance see could those off When of at think you out? your both or side are perhaps issues, at targets in leverage your work the some and year next terms of long-term to money I

Art Penn

Yeah.

in chain, labor, supply got right. potential XXXX, an as economy. any different in number You're of challenges we've Obviously inflation

to companies as that? prices about they that Well, light think in can for you up. costs leverage so them, relatively can do instance easily have that how of raise cushion their that enough So that underwrite we deal with go first in have

environment. X.X in well-positioned. very underwrite carefully we we're portfolio. or We three So EBITDA times in think roughly this interest to is times to this have

rates, think the with portfolio cushion deal something we it of to interest that plenty rising So about. but generally is in

can robust PFLT four global cetera. to CLO weathered has know walk terms or for We over same called particular we're and the financial you department In in could department, the and and and et safely very S&P and to them weathered times in it's these leverage times. you targets crisis, at I take mean debt at equity that get another pandemics box assets saying safe three of that's know a and you X.X vehicles,

among are X.X we're times So in very put which for comfortable lowest we think that BDC space, PFLT, the risk assets at knowing that the assets in we the that.

you those these Another Pennant move the we we leverage talk more structures. feel over could related. And about right option take to then and But safe still assets at we get have to capital again, if about underlying look wanted assets. can

there ratio assets. underlying are have kind of We assets because a lower the target different

that us always for and unsecured something you've done seen bonds. to to diversified it's -- do So, risk tool will financing manage bonds continue We've interesting an recently. sources. be important have we That and us

Mickey Schleien

Thank today. helpful. Thanks. you later for you talking to Art. And very forward look That's that, to

Art Penn

Thanks.

Operator

The comes Securities. Devin JMP next of question from Ryan

Kevin Fultz

Hi. Good Devin. for This morning. is Fultz Kevin on

approach quarters clearly, in First talked question, to about the over you've this growing operating earnings. three-pronged continue And made the year past progress growing few you've NII.

shy NII core talk expect of you dividend about to income just covering Thanks. was the This cover net investment dividend. forward? you when going quarter Could the

Art Penn

kind as Kevin continue Xrd, it's XXXX, It's on this Yeah. repayments. of it's on execute on sometime dependent on ramp Look of quickly would this me dependent we it's on cover we deal flow. to that of equity. dividend. hope how the on rotation we could We can February we future, in in the that dependent say PSSL. hard safely It's dependent It's for believe outlined plan so near to -- very we that kind

Kevin Fultz

And income? the amount current then Okay. you update sense. could Makes on of an provide spillover

Art Penn

that want you one? Richard, Yes. do to handle

Richard Cheung

be spillover The remains to be next should over $X.XX to Sure. quarters. same cover current the cover per And that we able that the should distribution we assuming able over share. is -- three the

Kevin Fultz

XXth, Okay. of September And that's as XXXX?

Richard Cheung

Yes, correct. Yes.

Kevin Fultz

That's and it my thank you for for me, taking Great. questions. you. Thank

Art Penn

Appreciate Kevin, thank you. it.

Operator

questions, further hand like I no call to for any are the to remarks. back would or there Art additional closing As

Art Penn

and your us giving attention. listening time Thanks everybody for in and

early season soon. health. fill wishing a call in season the you a In Our to everybody next Speak Thanksgiving, meantime, terrific holiday will of terrific be February. quarterly and

Operator

participation. conference Ladies and for thank call. you today's that your concludes We gentlemen,

now may You disconnect.

PennantPark Floating Rate Capital (PFLT) 18 Nov 212021 Q4 Earnings call transcript