- Earnings call transcript Q4 2022

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 Fourth Fiscal Quarter 2022 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Art Penn, Chairman and Chief Executive of PennantPark Floating Rate Capital. Mr. your begin may you conference. Penn,

Art Penn

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

Richard Allorto

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

Art Penn

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

was costs not upfront XX, our facility. income portfolio $X.XX did investments. investment September and million $X.XX onetime $X.XX in $XX our The per share the core excludes ended includes any income quality financing of other from net solid we new credit which remains credit of nonaccrual have of the and quarter the revolving increase For share per

XX, As at nonaccruals in X.X% PFLT. different September we and had of of market cost of XXX value. X.XX% X represents out portfolio only This at names the only

statistics of interest underlying credit the our and among conservative industry an X.Xx portfolio remain the with Xx. Our coverage most average debt-to-EBITDA of in on

on mark-to-market adjustments tied Our value decrease fair market market-related the in and notes. due credit decreased The adjustments NAV decreased from due was X.X% overall fundamental GAAP remainder fair of primarily factors. adjustments. credit value to and of not the prior due to by to to unrealized to was due facility NAV primarily quarter, which NAV X.X%, the GAAP our

covenants and We basis should loans translates directly this excellent. point of quarter rates and XXXX is increase be late higher about tighter. in Leverage XXXX are market originated of NII. OID believe base lower. per middle portfolio, $X.XX fees every vintage With portfolio, maturity last rise. XX% XXX% net our rate, in investment are XXX to the our to income rates yield else that's to quarter. we the grow from constant base everything weighted debt average floating The increased Holding substantially X.X% well portfolio as on into and Spreads and are that upfront positioned

in added, more is adding is environment. Our value this even we capital always value which believe

From and JV to $X At on the JV believe increase our investment During in as portfolio. portfolio well the We to the quarter attractive PFLT momentum. billion $XXX quarter, both the we protect weakening like overall to JV to earnings States, originate our we scale rising for economy, well positioned assets. an portfolio that the are market we on believe being interest was and the positioned. grow ROE risk JV's in against loans continue lender lien the end, focused secured on capital floating we execute attractive as will United potentially of where of the for plan will this million rising continued rates portfolio of perspective rates, PFLT's and inflation, senior opportunities as a first We geopolitical inflation. environment enhance preservation can

our in on We where continue investment to the we believe on company with are middle focuses capital the times attractive an market market lending strategic strategy volatility, of markets. creating opportunities from our the that to core dislocation our borrowers. focus In important direct provides value

market first sponsor. lien active used been we believe direct expertise knowledge. the a we a secondary that institutional to finance we company differentiated team in or Specifically, companies sector a loans the be discounts domain It have or financial in buying at where and we've management with relationship have where we could

buying to par loans been as similar low a returns. employed years. where we excellent generate the financial loans the return global have strategy X We in crisis can generated double-digit IRRs teens during think and We we or

million high-growth free sectors first have government We successfully generate substantial that in and In generating we value investments. are middle note where exposure have we crypto financing track $XX of $XX X a more. have founder, or EBITDA companies track through participate market grow in We part that services care provide strong the excellent record. capital $XX a They million, In domain cases, many plan that defined typically support company to an an upside situations, million to resilient middle health of acquisitions by making to we is help the equity business substantial selling know firm. and grow expertise, company in with of growth services, cash software and EBITDA these fuel It's to capital have technology. game key million an into to or a private loans and right software to significantly important family sectors technology the typically These equity typically there's firm record their sectors. a or The not co-investment. market company questions have equity entrepreneur been and by the $XX private we're long-term add-on tend flow. place consumer, equity ask and do growth. are institutional These strategic the important organic and where $XX million, any are the to company from defense, that a are

million of equity inception generated co-investments these on from been and Overall returns an equity our time. capital on have IRR of for a platform of Our X.Xx. co-investments September excellent over have through $XXX invested XX, XX% our multiple

equity to private the market, tap credit loan in volatility syndicated more we markets. current the With broadly private have seen sponsors

at and the believe returns. these lending for attractive. will terms selectively receive looking is these new an the We process Because loans are and opportunities strategic we partner, packaging are we important vintage compelling yield

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

core our monthly protect top of market to loans not EBITDA, are make help million syndicated market, below the our X.Xx their Xx. help EBITDA, or This rate ratio, was interest most and our threshold weighted with Additionally, stay monitoring covenants, of portfolio average some companies as regard of debt-to-EBITDA which market. the that so borrowers the than the compete reason may well market, million to differentiated portfolio The those With a strong meaningful our rate point is was and middle flat sector rates cushion, $XX $XX is on markets. the covenant the significant coverage provides rise. interest said substantial $XX monitoring are higher exceeds originated companies core and income cover with our this middle are we interest earlier protections and performing stats first why the financial bigger average. middle companies is and will loan environment. have middle COVID the amount that to was intuitive on in during performance. According core a said default recovery statements state the stable who This September to loans among perspective, The expense, high-yield that the from the risky, but default believe cash of by lien We our on we less we have believe as upper million positioned the investment XXX the more careful These and companies. the the portfolio average this generally S&P, been EBITDA. different. a important why even industry. with to a Based capital. covenants with that EBITDA part received in peers, lending companies direct reality support on does loans conservative of -- this which companies is one as of loans, to cushion performance base virtually, cash We lower broadly have tighter well. higher sense in market Many meaningful of us we an to focus all with rate interest on of of even income This less than XX, and rise in diligence are earlier rates basis investment X.Xx

loss years we've points Our XXX excellent. $X ratio XX basis nonaccruals. since experienced invested has and annually. XX X credit only ago only inception has been PFLT's companies inception, in billion quality over PFLT is Since

funnel is deal talented producing and experienced Our and origination flow. active wide our team

Our patient continued focus remains and on being investors. preservation capital

to Our middle the do of high We we to in stable capture We that seek senior dividends capital. companies form mission first a cash out stream, contractual protected opportunities the and market and those pay have in in find that Everything free coupled secured to flows growing dividend preservation free flow, with is goal investment lien our cash aligned of cash flow steady, and we conversion. goal. primarily that shareholders. instruments are

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

Richard Allorto

Art. Thank you,

financing $X were revolving million share for provision million, expenses per increase $XXX,XXX. fees $X.XX onetime and in $XX facility For million, were per investment and administrative the were which performance-based including our upfront taxes other Core $X.XX share, the and were income income. ended per quarter XX, $X.X the management incentive September from expenses follows: for costs net $XXX,XXX facility. expenses of income fees investment share $X.XX was general $X.XX share as credit per net Operating was quarter interest credit of excludes were and

For taxes, a share. realized including loss per $X.XX or $X.X change million the net million our unrealized $XX.X was on for $X.XX per appreciation unrealized credit The XX, and quarter or and notes on share. of provision investments, the quarter ended September was for facility

down liabilities, our last was the of As per $XX.XX GAAP Adjusted share. $XX.XX mark-to-market share, quarter. of was excluding from from X.X% $XX.XX is per our $XX.XX NAV September which XX, down NAV,

quarter. the for GAAP debt-to-equity X.XXx ratio, of Our net cash, was

is and capital sources across have near-term any Our diversified multiple do structure maturities. funding not we

the revolving increased at the ended existing September $XX million we by quarter During XX, our credit facility spread.

follows: September X% in portfolio debt companies PSSL, of second different portfolio XXX statistics less highly As including was X% key and lien first than our senior debt, with XX% as in in our diversified remains in PSSL. industries. secured portfolio were invested equity, The across XX, XX% XX lien XX% in including

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

As had spill per Art. the call I'll to approximately of of September income. XX, taxable the XXXX, over company back now over share turn $X.XX

Art Penn

your time Thanks, Rick. and PFLT to your this to concludes like of Thank shareholders. their I today and remarks. and our like its and time, open professionals would team the to At us. for all questions. to continued dedicated you up would commitment our for thank call confidence for in That In I investment closing, talented

Operator

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

Paul Johnson

investments could And the if date. some, Walker just JV kind as talk you could JV. address the the -- I you quarter of as in was There's exposure to just well in just you post also obviously, the the could of if just developments about the wondering of well. Edison as wondering as company portfolio any was been in with one that well I the developments as there if called portfolio the

you guess, I exposure, there? much guys how have wondering Just

Art Penn

and morning. good Yes. Thanks, Paul

of and amount same million as the marked on was of We X/XX. Edison did at as us have the in X/XX. X/XX of interest about It in million $X about pay PFLT They $X.XX $XX about or Walker on joint cash $XX venture. the

was kept for accrual discussions that There restructuring going on. So we it are quarter. -- on

of as could XX/XX of and comes. speak, we the not it and going early see the happens as time as we'll time nonaccrual have more by hope on color is the restructuring As quarterly We'll in to to earnings a be or XX, next share it what little on bit but we February when be. that the December going discussions a may

Paul Johnson

degree flow to, just the the there? there then guess, the deal differentiation? And attention of and guess the objective Or the the I guess, an me, portfolio? JV intention JV PFLT of PFLT's the remind it. just and overlap essentially portfolios can in and to the overlap kind -- I of And have you of, is mirror with is speak in a is JV I of PFLT? I'm overlap wondering of high between what X I'm more there degree the just percentage Got

Art Penn

in use That's good our people their ways a industry. question. in And JVs different

For sizes. an bigger to be just extension able PFLT, really write bite us, it's PFLT in of to

first secured of kind lien very similar So portfolio. rate senior floating

equity that deals cross the So JV. BDC both co-invest. see take JV you'll and the The not does many

-- BDC. has over XX near know, in stays years. co-invest been as we good. equity MOIC the been you in It's as It's the been co-investment -- the X.Xx So the

the co-invest. retains the So BDC

Paul Johnson

the And some XXXX. current you liabilities. market, if to been amortizing of that just looking up just as the rates case borrowing question the any that's guess, possible I have at refinancing the the in preference and even unsecured just securitization, as curious, in then down if I'm there, versus well I I'm I between big be not be I if have understand. it. gradually -- that is any cost Or market? But be should closed at in moment, kind securitization guys this Got any between, the were you on one differential maturing for there's -- X? still in market may the if been moving the curious bonds that and know guess,

Art Penn

Yes.

some that of have at unsecured the do due end bonds we are So 'XX.

So structure we bit time a figure options. out have of capital to

substantial diversified diversified Over think should a having stack. be term, We pieces. unsecured liability the of we a bonds long like piece

securitization Now some year better certain do bonds. We'll XXXX or of the at to did course very that were figure it's something. next or said, PFLT over options times, a out the do regular try in attractive. to which evaluate credit facility bonds the and

the more options. could of long-term of kind be options Some

could more are short-term on down here nature Some road where kind the markets get depending months. of of the the options X, in be we X as

So Securitizations, They're in it I -- yield. X for real everything expensive is or They're we think, which expensive, now. are months ago. are bonds at more available. just cheaper don't than expensive. X, was, you things be a equal, Bonds more a have long-term All locking answer just available today. high-fixed obviously, least securitization is today than you'd

look the facility, to some it we year. upsized we'll credit million today, We and the potential probably of we this the on are today, put We facility securitization credit course just were just So we quarter. did. facility markets the upsize I think the $XX credit a upsized next table last shelf or over at -- monitor options all if but

Paul Johnson

on Walker if I Dunlop's, or X But credit that. appreciate the so, little & And for mentioned may. That's the marked more, know One, quarter. marks a I more lower. related. $XX bit it. the you million I driving unrealized Got adjustments. or that? obviously just obviously, -- could onetime excluding the that issues mark-to-market of of of much issues I was of any any might if that be idea give wondering liability sort any credit other how is general versus just other sort being you

Art Penn

the outlier loss. mean, I I think is of Walker unrealized one look, Edison mark-to-market terms in

I the But was are rest small, items about $X.XX think it share. the very a thankfully. of

portfolio Overall, us certainly, and say kind it's -- having and are the in market really underlying from case coverages that's and does weather even of we're market of -- tend are the just higher But industry than covered some We good of credit the a companies industries. feel debt-to-EBITDA the credit Walkers by rates about it's other issues kind nice actual coverage a of in give be portfolio. and very and the not positioned we of we deterioration rates. interest just So cushion. case coverage. is mid-Xs the all And going of interest our down getting for recession-resilient as portfolio in if floating the large, interest by structure, down. severe our standpoint going kind capital you of as to definition, of benefit large, stats recession-resistant well the we're industries to in, Interest took both just storm, by going well more would up,

Paul Johnson

to I'm inflation sort your borrowers, for trends as getting Got financial your curious and it. for been that, you're growth? to where borrowers. that in has statements just question And alongside on just I forecast any of ability for continue that EBITDA company's And then down? sort from me forecast Is updated inflation, on. last that that or pass EBITDA of trended guess, to of just Has stable? come fairly continue terms

has that's to economy pretty case to been in long much as I that? the think you see been limits the inflation any as but on have started going

Art Penn

Yes. increases on ability any to point. at the pass companies for on price haven't this limits No, we seen

good is shipping or On the think Asia going down coming other hand, news is like container from significantly. I the cost, over elsewhere items

So we're maybe less -- XXXX, need the hopeful 'XX their push along that for companies they to into as issues chain that start supply kind diminishing, rounds costs have increases are ultimate price of customers. the the of end

Certainly, In you post-COVID. kind way terms EBITDA, you're up were into not right of a seeing of it currents. of seeing bunch cross the the it

of flattish kind more up environment to a it's or in. right slight of So we're the

what of it's large, opposed into is of, up post-COVID. slightly others. as more into way are of from standpoint, which saw the than and kind I'd impacted say, right you up kind But to right by Some the companies a kind portfolio

Operator

from will [Operator from Thalmann. Ladenburg question our now next take Instructions] Mickey Schleien We

Mickey Schleien

Is -- attractiveness you're mean, of see portfolio you terms. slightly. the mean wanted folks given can more vintage. declined not rest? about SLF Or Art, this to But grew to we better the are I at on-balance that we're the there was deal hearing only other sheet portfolio and didn't quite maybe generally, some current it reason there as quarter PFLT? spreads on the I I excited interpret excited that as about growth your that ask and wider view portfolio your

Art Penn

Yes.

because X sold. kind actually JV Crash in $XX both then -- of the terms the deals big the the to adding repayments got a And $XX X came X repayments million old get company we good commercial in. the company of was was up to between and around entities. BDC. the that were banks one the very between some able called a was about got -- go to was low, we So portfolio, of bank That about was attractive Xx they and financing. That commercial so million companies These levered were leverage and Champions,

we So candidate. they about it's complain were knew The and a to hard good were credits that. potential-refinancing

kind So are credit -- the of events, enthusiastic environment. good news, good we what about

say, return. have the growth time we well, be probably The and We deals nice $X.XX are seeing shaping our of market and opportunity X- can the And know hopeful that both ends vintage. to higher buy quarter in is significant reasons the we secondary $X.XX we where quarters cetera. being verticals, spreads, between vintage we and new the one new kind the us up lower the thereafter the given there a tighter as a for to will a covenants. equity BDC and company X-year we've the up we $X perhaps of it's cushion leverage, in all JV. more that more opportunity can to in in yields for industry of nice the higher finance used et said, a We're -- in that we OID, really here par kind if this the be market secondary where The and a teens in period that in market okay, of has mentioned,

JV taking that and of the BDC. in see of pivoting a bit both of we of doing the in softness And elsewhere. just some and we're that's advantage the that So kind

Mickey Schleien

of from math dividend understand and senior the the I GAAP differences the in A to for for outlook SLF that? there's helpful. right, couple tax some me. really of it fund? understand. from like fourth But declined obviously doing reason cash And last the the the I bookkeeping. there the That's versus is looks If questions more meaningfully between quarter the from quarters. BDC couple was pretty I'm loan what underlying that and the dividend

Art Penn

income investment fact, There's -- a we up, or rate, debt income floating is JV, Yes. the stable the spread healthy no note But flows is into JV over if which the the JV, including in up. coming overall has have the very at you LIBOR look at obviously. in have we the gone which because from the LIBOR,

the we're has absorbed getting from it's not piece. And So more all. in of of the diminished just overall it's the overall income JV being income, that at debt

there's therefore, piece. the equity income for less at the So But look ahead. go -- you if

Mickey Schleien

I return -- yes, So know on don't capital you're a on looking, invested basis.

Art Penn

Right. Right.

into the have I So that LIBOR. pretty to it's but a pretty healthy spread over known as don't -- JV [indiscernible]

Mickey Schleien

Yes. I exit above first expecting something of quarters. soon? advance got last think well My And that marketplace marked there? cost. investment is been a like Or I that for you're Does couple imply is relatively to that else that question, it's lien it.

Art Penn

time marketplace trade business It's The it focused on now. is very the That's company hope certainly or don't term is actually particular time give strong sell that opportunity industry. home we to more to they've because when a weather, for right a the think events It's exit consolidator to now ramp. company I we is it's in is some a rebounded near its to think we Well, grow performing the the right. in appropriate reflected goods; time nicely. mark show well.

we popular. always but People not think They're to it's it's options. trade right of strong kind term, don't like are item to of these kind is over short-term given the now value a in PFLT the build of But portfolio the tailwinds build -- is People coming that interaction. seeing. we're very therefore, to shows. and the evaluating this long pretty company in-person we So -- the think intermediate company opportunity back the

through. So for and a us, while it we're thinking playing holding onto for

Mickey Schleien

just so exit, near-term sure make understand. to related than is the I The is So of correct? that rather expectations above restructuring of mark I cost

Art Penn

so Yes. Yes, in the we control there's equity, are of company.

and the control valuation So the other company. lead the lenders the due of X so in We're to are lender -- company We there's of equity and is and associated. the increasing. markup

Operator

Mr. to conference Penn, like I'd closing remarks. any the you turn for to back

Art Penn

thank to everybody the February everybody want this terrific you season just being a holiday call forward for speaking on and we I early morning. in Thanksgiving our look We Wishing to appreciate it. call. great a next with at earnings and

Operator

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

now disconnect. may You

PennantPark Floating Rate Capital (PFLT) 17 Nov 222022 Q4 Earnings call transcript