PFLT - Earnings call transcript Q2 2022 | PennantPark Floating Rate Capital Ltd.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, and welcome to the PennantPark Floating Rate Capital's Second Fiscal Quarter 2022 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 speaker's 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 second 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 the you Rate to this will PennantPark visit at like that releases 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

inflation, for upcoming a quarter the quarters, ended is positioned discussing fared March few geopolitical the Thanks, United to how rates and secured protect for portfolio rates positioned and perspective, and the this then From structure Richard. where minutes liquidity, lender we we loans how the on on it the an as of that era XX, overall I'm our are in floating financials spend Q&A. against rising believe up our rising well focused a States, senior going first capital we interest lien in the open risk, inflation. can

strategic are be We pleased into capital our where the to and not borrowers middle important we core lending market commoditized. are are to

March per of quarter the income other $X.XX For ended share, $X.XX XX, non-recurring net our income. which includes was investment

to regard targeted to capital Our year, are credit to additional XX% a The well completed remains quality Kemper, and contributions from as commitments the JV will this we PFLT CLO the continue solid. return. with grow. to With from as PFLT XX% capital the JV, earlier PSSL financing generate

was overall in of our enhance by excluding During We total and per down resilience million. the $X GAAP and JV to share the the which down $XX over the the choppy, only having earnings grew a share. quarter, increase adjusted assets attractive a market relatively size puts increased time. grew announced approximately of it path will with billion to $X.XX JV our momentum. million, market overall modestly the was we pleased per of of the PFLT's a origination the though to the NAV, only are quarter, $X.XX XX% JV of Even PFLT believe an commitment growing $XXX volume we mark-to-market the NAV. liabilities and NAV scale was to ROE in that on light the Despite

and questions substantial excellent and generating of software to have domain sectors. ask have where companies generate and financing These consumer, been the They are track middle five These key flow. in technology. a We by care have sectors right high-growth track resilient free successfully record long-term we health and to have sectors business also value expertise, market know and are record. services an tend government defense, strong services, cash

a $XX to we grow provide is from the government acquisitions aside, and should of The equity strategic In XX% million of the $XX the of are typically or and an growth EBITDA a million, add-on the $XX $XX game private PSSL, through the EBITDA a million $XX or services support in capital typically to co-investment. approximately company private institutional participate of grow making million, family organic equity plan middle to situations, fuels that in to market by As helps million We more. firm. and substantially into growth. company is is selling the inclusive capital part or geopolitical In important are defense first an upside equity we be where substantial a the sector portfolio, with environment. a of cases, that firm company defined founder, place company many their these beneficiary entrepreneur this typically there equity ones that

equity inception of Because are our an been is package of important attractive. million equity $XXX capital over and March receive our partner, time. co-investments have we through a multiple strategic on lending we these invested excellent of of process X.X for co-investments and an the XX, on returns Our XX% generated Overall, have terms times. platform IRR from

We covenants, care. and and an capital, fees have to to many do our upfront co-investment. transactions cushions We our equity protect thoughtfully substantial with equity spreads attractive credit weeks sensible with structured diligence

stay the had meaningful of performance of market. all $XX with on is COVID Additionally, from virtually This regard reason first With monthly monitoring financial the our rate covenants, core to million so This originated lien a we loans during of our to help why covenants, EBITDA companies received is protect which help perspective, companies. one middle capital. default and to of our market sector $XX statements million were strong. the top us

where the strongest return range. middle the million think risk add most of core within highlighted, we just value can get market, capital is million in our we $XX to can we of package the $XX As and EBITDA the

it has threshold excellent improved XX starting middle for or market step took markets. increased PennantPark focus The but years, and track and broadly record on in market our market is below up the not does been the XXXX. at loan of syndicated as we with core Our portion this a compete a high-yield

typically they million EBITDA. there our Those on loan to many you has of which an syndicated capital the forced upper as of broadly focus $XX with can raised efficiently upper access the market middle are some are market. middle know, As of peers. of enormous amount been large such, over And market, by also companies companies

results made in compressed need compete result, transactions is peers with the a broadly need and market among are our middle syndicated As large covenants high, market, themselves. light be leverage fees upper non-existent, This decisions to and the were are to quickly. spreads upfront where in aggressively and loan

Additionally, core companies [Technical risky. from to loans only has differentiated reality perception loans, performance. is been we but companies and a covenant a with EBITDA may that meaningful of the make $XX and monitoring of is careful rate a important sense, S&P, less market this loans lower diligence protections Difficulty] perspective, believe higher companies intuitive recovery you an part We and are some argument The rate default higher According less different. received with to of is will to than That middle tighter million bigger hear quite the more monitoring than a that EBITDA. and

Our portfolio remained strong. performance

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

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

experienced, of deal X ratio points This loans funnel inception of is years non-accruals. Out average a over the since with new has annually. ago origination at our basis XXX inception, for only has and since XX site PFLT yield active Since XX billion X%. In quality invested only outlook is have talented attractive credit Our target we've which our been to an companies compares over $X.X in experienced flow. we market, inception, invested excellent. producing loss of growing

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

Richard Cheung

Thank you, Art.

the net of quarter December share investment $X.XX For XX, ended income $X.XX per was other - income.

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

$X.X an share. NAV, was XXX, Consequently, credit mark-to-market we share. by Changes of our dealer program, quarter excluding to valuation notes $XX.XX $X.X a the our would tax million ASC are In quarter ended by and a exchanges per of $X.X where share the each Adjusted net $XX.XX unrealized X.X loss this per valuation gain broker independent million quotes million. the independent of went in share. of of our broker-dealer and Net loss Difficulty] value XXX have when was on by realized a exit we investments. associated our the provided another that a dividend. to which our change cases credibility $XX.XX quarter [Technical per investment and net shares share. $X.XX $X.XX firm, program liabilities provision, per markets to or use Due the provision provision. tax $X.XX price GAAP $X.XX equity aftermarket Above million $X through mark-to-market successful income NAV independent net added investments above quotations NAV notes or NAV, firms co-investment Board of of facility decreased value XX, During of per from our under December active an are available. equaled We been sold Directors positive our using million had inactive,

net equity was while was ratio debt X.X debt-to-equity after X.X cash times, subtracting time. Our to

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

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

portfolio back has Difficulty] of Art. to average debt [Technical a overall Our Go weighted yield X.X%.

Art Penn

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

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

Operator

you. Instructions] question take with first Mickey We'll our from Thank [Operator Schleien Ladenberg.

Mickey Schleien

Art morning, a Art, haven't you're And a in we Good market. macro and you experiencing experience of that well. we're obviously, headwinds long Yes. Richard, credit had seen the time. hope for lot

So defaults see year couple I'd you heading of the ask you perhaps next where this years? like to and

Art Penn

Thank Mickey. for participating. morning. Thanks, Good you

You're recently terrific environment know. asking loan a question, hard really in great We've to obviously really defaults. it's with been extraordinarily which a

very one or as sector rates the crisis, industry issues industry, I we experience or tribute direct overall go than the default to the X% experience, going end overall the normalized or being At had back to which at lending something we've probably potentially X%, knowing most year. of can not a the challenging including market, an litany global is recently, the world a a to and the years, the So normalized up to expect heading say to would where more industrial normalized, I and ourselves which more be more us energy high-yield PennantPark different avoid to the we and be we the through I'd economy environment. mid-teens it's companies, alone downturn over avoid. the - financial default limited like what But to to think think lower had have either are and and XX all PennantPark, that defaults We GFC, hopefully as in pandemic. a leverage industry and much

in I talented some going be think better is got managers than industry sector. I we've because probably to our very think our that

Mickey Schleien

defend more we their of helpful, That's ahead you And their go margins signs are revenues inflation to they defaults, ability it running warning is, only any where in borrowers' mentioned, can and what you from perhaps as which, their Art. trends seeing high as and pricing And really of importantly, in With their debt? terms your power? up are. as service

Art Penn

Yeah.

on their stated we as so. our look, few kind or So a are three ago, companies times comments interest of in covering average, minutes the

a lot XX%, their environment. cares our What potential does floating does on if in a there margin are So on that anybody of mean the and to companies from it really our potential companies for We lot peers mean it their their interest does to if do, there's so, They that average margins? about in raise and customers rates. this think margins like control of focused manage really EBITDA have portfolio question expense high investment reasonable it away, ability rising control rates these They've We're value-added goes indicates rising to And cushion companies to large, really which this many what committee, of high got of relatively are ability raise value. have easily. asking the company costs. are to mean this company? adding something care, I the What costs? indicate by really in prices which who chains their EBITDA is always can to their So prices? in their supply their and of tend does

where course, you going be Of portfolio here. outliers to there's we which over names, any XXX in have have

names. XXX have We

are by there's so on performers and we've having performing well weaker Of who going are very the seen, companies challenges. based far. some course, But large, the be to some numbers

Mickey Schleien

the we is you returns begin on at be will is My about interest the then at to for back climb When forward we've an do risk-adjusted the push in looking market we how they this more to terms climbing risk-free I their think borrowers rates maintain just really are adequate implying rates, and got Or spreads? basis? be That's Art. lenders terms that able curve Do borrowers to give look interesting private thinking very to going question to lending pull when steep consider push and IRR going of investments may and will are or are spreads back? helpful, meaningfully. and of coupons. last mean And in you that. think add some things market

Art Penn

Yeah. It's hard to say.

unusual sold for bigger would multiple, things be It or here a of company I think EBITDA multiples at one a historical enterprise been very value. many companies. the used times that value high in to to happen may of enterprise near have XX be kind EBITDA that highs used get double-digit

Now for I a getting in long to pedestrian to a some that's What mean is question. kind and There to would mean, earth gravity some debt-to-EBITDA up sold. of of XX bit. [ph] one multiples good been these up, think we've us mid-fours hold times, take rate of little end a kind higher know, coming PFLT, XX does down and would that XX bought – the as many It's for kind a to lender? are And time. take of risk-free times, companies would It's goes start that you times. the that start would as

haven't when five a times. We constitutionally We debt-to-EBITDA chased skittish. little become it bit just goes above more really

We we're real have to above going have if go five to times. conviction

managed So our focus keep cash on cash preservation, on we've focusing capital flow flow. in and to free

million is it We cash date, it's been the you that, are to where still ARR commoditized, lenders. we a where a capital part game strategic company flow take not debt capital, our of software Part market we're do in million been companies, we're to where strategic lending plan first the active successful it sponsor in grow the that but of part where equity a our institutional of haven't where $XX is world EBITDA along that. to and and or can really and with capital growing real to staying these private is partner $XX the there's we're

become and multiples, partner of are, And part keep where strategic reasonable the is we there's by deal. not market covenants. we capital we these it where can real doing the that, where competition the commoditised in So get we place can where is less our in a

monthly diligence. statements. get due time The remains financial package very to We attractive. have do We our

Mickey Schleien

understand. it Thanks explanation, me next quarter. morning. That's this to Talk Art. that I for you for Bye.

Art Penn

Thank you, Mickey.

Operator

our question with from next Lynch KBW. Ryan We'll take

Ryan Lynch

Hey. Richard. Art Good morning, and

First kind like deal at a formation Or environment today does portfolio what just question pretty in than was uncertainties create curious, calendar has I'm are far market of lot the to capital looking far so they QX you? still sponsors seen like QX? that activity before Obviously, the just look transact. seeing do for past. Obviously, of as they it those you're which are middle they're bit in to what it does uncertainties we've able out with like over - activity is market. as looks that or then core opportunities marketplace look there's deployment, QX curious get lighter the and in would and in light, little just - it a

Art Penn

Ryan. QX QX up. light. picking is very right, was That's

- XXXX XXXX, busy, are so that's for probably of the was a about XXXX it normalized was had coming the still that's we the of that more rough mellow that Is We we ridiculously have still case activity. back by all We're probably XXXX. our we I'd I of busier. estimate levels? exhausted catch be we're kind an levels end pre-COVID, I'd levels, [ph] of some XXXX going that in kind that to not I'd bit. activity breath base say everyone in kind of was to getting terms say think anomaly a think little we of XXXX ways can and think say

in the here is, busy. our operates capital thing of And are always first we're interesting part it again, institutional about the generation economy the growth There's always ecosystem not it So the next in to where plans, great we're next need busy. there's come we but of and to in companies given companies interesting there's are how and being kind take of that with We're of ownership, busy, the America the extraordinarily where created. management level.

So there's always industrial logic.

platform for a on Now targeted for XX but something is this or times higher what's equity, we're will we and front going learn or that companies with we're capital question There's industries that see to in sell that [ph] company to what risk-free to fuel going rates kinds an opportunity there's on. have we be a that provider ROC always IRR company, times and the - or and EBITDA day, every economy to value-added privileged have That's we're eight a - always seeing dynamic in the EBITDA. of economy a the on new growth. what's their help

on something So there's always going down.

most of of it of to are, We XX XX kind - EBITDA. is

So origination and seeing things always actually kind back of question, we're your that of that flow. in what learning there's and mean terms new does to

think I of levels. think you as kind about got type to XXXX it

Ryan Lynch

That's It it. sense. Got makes helpful. Okay.

The I spreads sort is today the and you on rates those have guys other a those more deals little spreads [ph] bit for a are? any where and question, those had you SOFR is pressure negotiating directly. on forward a seeing are maybe follow-up started Are that yet? deals question on yet getting seeing pressure any where LIBOR, of kind just you today Mickey's And of

Art Penn

specifically, of and syndicated Kind [ph] movement get see we're where to over equity the it of while the its lot a the go, pressure. couple seeing high-yield queue broadly answer middle a to last take we'll market and does Big markets more months. get of return Well, middle quality for the and not safety liquid the may take grabbing is risk the the In company, is, us the for upside the of equity over the the thing we're the quality, end we're to important Most always yield, we've for happy borrower, the that getting. co-invest. extra valued PFLT of of package market.

market, we seen core So much in middle change market. haven't so the far middle

Ryan Lynch

think some successful under gave trajectory that curious, last or economic broader some And to that in the a guy’s good program? specific comments, or equity years. potential the co-investment of your that, then environment, platform you has willingness just very looking be individual had, whether good to Understood. impressive program, be not? that the rising like that on your the part in that's historical equity on impact over equity your the co-investment whether purely I that economic been based in does Or statistics are a Does uncertainties Okay. I'm prepared to how rates be just want you valuations. a which at affect there you a deploy in has company out things outlook is you of bottoms-up question of capital and and that or that business

Art Penn

the we're and Yeah. say company. multiple growth potential I'd entry of more on focused

is, of times? So do we trajectory - apt more – co-invest easier do co-invest. would think time that to lending it's of we depend to are company may X.X the at equity at want but an eight growth be right? over creating are company fine equity a what time. may the make Maybe an debt-to-EBITDA, on That's to co-investment be you Sure. any at not, we Or times the times? we equity It easier we that equity XX

platform because So lower. but be your multiple the buying might multiple, higher are you the at multiples, lower acquisitions might add-on a be overall initial

few in our down, underwriting ago that and exit initial with look, as right? with multiples a have in Exit inevitably, value We model multiples meshed come I rate may get IRR. we a rising the that and bottoms-up meets to we're are investors old threshold, just lower a just value. assume may we exit good what's risk-free being going think it XX% i.e., And for down, if to and of multiples. said our kind come we approach. And So the minutes

do a catch every money relaxed to ourselves never put pressured investment position feel we're want on okay, fashion out two to one. we'll stand it there. that's kind We feet the forced put and trying doesn't, if to on But deploy. to we feel of - to a want the in be next its co-invest. not own in happy it where we don't So the to We

one strong a time. the of that's So - think such I and period reasons our performance has over long of been

Ryan Lynch

Okay. That's morning. helpful color. I appreciate the time this

Art Penn

you. Thank

Operator

next [Operator we'll Instructions] go Kevin our Securities. from question with Fultz to JMP And

Kevin Fultz

morning, Good Richard. and Hi. Art

question, income dividend dividend controlled out break $X.X PSSL. income reoccurring that from the for in or majority from I other Thanks. know the there dividend of But of million and income whether First source you the nature? those quarter. was was investments can are onetime

Art Penn

you Richard, do one? PSSL? that to Was want Was anything that? else that handle all in there

Richard Cheung

It's hold No, from $X.X million. that's right. PSSL that all

Kevin Fultz

Okay.

Art Penn

that guys So recurring you and leaves hopefully growing.

Kevin Fultz

is? Okay. grow That's portfolio good to of hear. And about of as the portfolio And just long-term quarter to target the portfolio. remind that then X.X% is my for timing your follow-up And market changed your the then rotation. or at the question, Can it - that of if all volatility? increased general strategies expectations end, equity has was that bucket as one for NII And you where equity total also rotation. what of us

Art Penn

Yeah.

this in we to the up to be on target a basis. XX% of I kind portfolio equity think of cost portfolio So

a be. that, should Do that's kind us you defense in bit, little do mature in a within that's it sectors. a And That's now? wait Or strong you these exit a bit. obviously, predict some a There little to exit. not hot a now, and mark-to-market sector And of services So government basis. well there. we're is for on ever hard it's question

probably of overall XX% across So one is kind direct the our have. lenders we It's we of that platform various in highly vehicles few are that of the involved space.

for in let deals. might in the upward And of you did little control a mark-to-market - lift the you positive continued the cases, question sell trend do sponsor, see we're for those the or So while. sponsors now go kind some then or this not in most is, in you

to So hard say.

winners clear some see in that portfolio. can You

exits in can is that's going so just that know we're XX% little Do So you of for well that just the really X% we of you versus want owners You sponsors Do a were to you cost these using kind a of the when real to obviously have co-invest. really within are giving portfolio well. but mark-to-market. doing don't today not that while? And to sell? it at happen, look company ride company equity answer, the let of range a kind I'm challenge

Kevin Fultz

Okay. you my makes taking questions. Thank That sense. for

Art Penn

Thank you.

Operator

the This at any I'll question-and-answer Mr. this closing or today's remarks. Penn, turn back additional conference you concludes time, session. for to

Art Penn

want next quarterly interest PFLT, and being you great just I line in the and in on after everybody talk earnings. we early next to and very August day. you for today Thank have to will our thank a your much,

Operator

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

You disconnect. may now

PennantPark Floating Rate Capital (PFLT) 5 May 222022 Q2 Earnings call transcript