Earnings call transcript Q1 2023

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 First Fiscal Quarter 2023 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 first include Rick discussion disclosing morning, Rate Financial by today by conference our Capital's a

Rick Allorto

everyone is that note Thank property today's is is in replay to you, call be audio Art. Rate Please call I'd any of An being any of will Floating that PennantPark available remind this that unauthorized the like of recorded. form and our this on prohibited. the call Capital strictly broadcast call website.

attention in SEC with Harbor your you information. projections. ask cause these actual customary I'd refer forward-looking results regarding also forward-looking we our to to our filings factors conference release and most also differ disclosure the from call may that materially statements that to could for to Today's important include call Safe press and the projections like recent

do copies We SEC our update undertake us call please unless forward-looking pennantpark.com at filings, at our or of visit website latest To law. XXX-XXX-XXXX. not required by statements to obtain our

to our the Officer, to this Executive time, At I'd like and Chairman turn Chief call back Art Penn.

Art Penn

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

sheets PFLT us matched with and higher more and quality the and on a optimized NII for of the growing stable portfolio to positions excellent over coming our combination credit The JV visible pathway at quarters. balance yields

was share. solid. $X.XX the ended credit income of the net remains December XX, The portfolio quality per quarter investment For our

have placed loan quarter, last on one As we new guided we non-accrual.

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

the debt-to-EBITDA portfolio most that the investment as a well Our credit rate, average debt in base are to our our among underlying conservative continue floating XXX% net to grow with are industry income an we is statistics positioned of rates X.Xx. portfolio rise. With on

quarter stable the the XX, a yield increase this ended to X.X% the share portfolio, $X.XX the last was last and average and up December which maturity monthly of monthly in from For is per backdrop weighted our earnings of with quarter With in distribution approved year. consistent XX.X%, X.X% an increase distribution. beginning represents This Board distribution. Directors to has the March XX%

X.Xx, we thoughtfully We to to can $XX.XX continue or and the plan investment notes X.Xx as X.X%, grow and and due of due primarily income With target in investment target. JV. our our NAV debt-to-equity moving value of the leverage credit fair equity believe excess dividend. and both optimize of to and PFLT value was in increase towards net new fair adjustments our adjustments facility leverage sheets which to our partially PFLT X.Xx at net GAAP an related balance non-accrual, on GAAP portfolio offset our we by NAV, to on market income to decreased

originate attractive for JV portfolio. we PFLT as as quarter, the portfolio, the the well to During continued investment opportunities both

average $XX new and of repayments XX.X% existing For had a sales the companies of invested PFLT quarter, yield weighted portfolio and $XX at in million million. and

average X.Xx, new the weighted average and was weighted debt-to-EBITDA the new loan-to-value average companies, XX%. was For the portfolio weighted X.Xx, coverage interest and the was investments

to and execute assets. grow and billion portfolio our that scale We increase momentum. will plan we portfolio are earnings on to is We and At the the and of believe to PFLT's directly OID will JV in vintage ROE spreads fees covenants quarter excellent. originated lower, million be end, the JV believe Leverage was upfront the middle XXX continue enhance current the $X higher loans in that attractive market are should of also JV's tighter.

issued provides capital the risk, a rising which to we environment shares an believe rates, we grow are economy, million with weakening and inflation, this in in we raised order X.XX invest and excellent $XX January, that well-positioned. to NII. in perspective, potentially In overall million, additional of vintage interest From this company geopolitical market

first preservation rising lender floating against as where on capital focused inflation. We United on protect like being a rates our secured States us the lien positioned can for senior loans

on we are focus borrowers. that the capital investment our important to strategic provides company market to with continue attractive We an the core middle where believe opportunities our

and value We ask long-term know in generating where defense, market of not any resilient record. business technology. These been track strong important by to do healthcare track companies and sectors tend a have sectors have generate financing have also consumer, They have It excellent to middle cash growth and exposure software flow. in substantial our note investments. These free services, and record and five technology are expertise, we successfully services, the questions that are software key high crypto we sectors. right is an domain government to and have

a XX growth grow part fuel upside in to making loans $XX million, million helps typically strategic important EBITDA the more. institutional by In XX the co-investment. EBITDA we We XX many and first million cases, participate to are and of $XX typically that the the equity that into or million, we an company of provide million that capital are capital company

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

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

Additionally, received monthly financial of perspective, the from a monitoring companies. us to help stay top we statements on

lien in broadly virtually is our of The this our does high the so environment. with we is loans meaningful reason covenants, protect and first are why This COVID which is originated help sector all capital. of to yield EBITDA below million the strong performance with covenants, middle and market, to markets. loan and companies XX market. rate one million during we market compete or believe threshold core not regard With a syndicated of default well-positioned why was This our middle our XX the have core

who a market companies bigger with middle risky. are than have intuitive reality state that million make focus We higher careful sense, lower rate of loans, believe loans important core some of According Many companies less recovery than the has performance. default a That diligence the this of different. the tighter to upper more and differentiated an EBITDA. meaningful protections covenant our to middle to companies and those S&P, higher EBITDA is part rate less of peers that may $XX with loans on market been but monitoring

performing are investment our well. portfolio in generally borrowers The

the ratio, calculated interest as was weighted the X.Xx As of portfolio exceeds LTM cash X.Xx said average interest coverage the expense cash the in income earlier interest average amount and the was debt-to-EBITDA by upon which XX, December we expense.

SOFR to compares using current to] LIBOR market calculated coverage annualized The which International. X.Xx, rates interest is and Lincoln [according average favorably interest very base the the [ph] expense and X.Xx. expense when is This of the ratio

points only inception experienced XXX since excellent. non-accruals. XX quality companies have PFLT's ratio PFLT annually. has inception, ago Credit billion $X.X over and years was loss we X in XX basis been has only invested Since

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

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

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

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

Rick Allorto

Thank you, Art.

the follows: fees quarter provision operating for was X.X were performance For on XXX,XXX, were and debt net XX, were expenses $X.XX per administrative million, general ended and as management for were expenses the income X.X incentive XXX,XXX. based and quarter investment base December were expenses Interest million, taxes share and and

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

per $XX.XX, GAAP of which is down XX, our As X.X% share. was December from XX.XX NAV

share liabilities our NAV, Adjusted from per quarter. mark-to-market of excluding XX.XX down last was the XX.XX

multiple across including unsecured diversified is Our capital structure secured and sources, both debt. funding

ratio debt-to-equity X.Xx. was GAAP Our

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

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

Now, let to call Art. me back the turn

Art Penn

closing, today. talented PFLT us. investment to Thank confidence I'd you remarks. concludes in its And like In professionals for your our and your team for thank for our and dedicated time to commitment their Thanks all continued Rick. shareholders. and of That

questions. to I would time, the to call open this At like up

Operator

We'll Instructions] at first go line [Operator Schleien Ladenburg. to you. the Mickey go thank Please Gentlemen, ahead. of

Your line open. is

Mickey Schleien

which meanwhile, certain view January is possibility the the even I credit. number, below, than even outlook but we maybe landing for on are marked had obviously Art, the even real investments retrenching. jobs understand we to consumer There strong a quarter wanted and the some indicate but distress, is XXs ago, a the very in or more portfolio your soft a thought perhaps of in

about portfolio's quality think terms progresses? what terms that, year in all of trends you in the this we when as of So, see do of credit

Art Penn

good Mickey. a question. Thanks, really It's

put assuming you're just to are we these X-year X-year case our – X-year And need state soft a gate. doing a the you're a in to you underwrite to At we point period. business That's or when odds we're how out model. that, anyway, That's to downside assumption. today, new usually, recession X-year a going-in a the economy some of me when loan, when need our over underwrite. in Let deals,

a You're economic period going hit to weakness. of

is that most economy, scanning data portfolio doing. weak gate. the that one there's at we're seeing one our is that new that. underwriting said, right. you're a our recently deals, our Walker and that. of the focus extra Edison, of consumer Certainly, point. this non-accrual of how is the of in consumer We've least area that evidence clear consumer at assuming soft is given economy we're we're done light a – not That as of out it's there It's of really When not all much new the

always Consumer, we on portfolio. we than upfront the less rest did our of out-of-the-gates put leverage

the So, our have even the kind of this, inception though debt-to-EBITDA. rest consumer portfolio Xx, even handle underwrite we been underwritten typically at names, X.Xx, of before may on zone with would X a X.Xx of debt-to-EBITDA our at

done in about kind selected care We've consumer scrubbing, the care People a So, feel space of that We've have are real got we've that. that companies extra have we good we an real Their pretty customers on them. were be. to upfront, value. about sustainable. extra margins and They've them. Their brands scan that of external always cautious had the actually companies. reason

we there's that about the So, guarantee, never portfolio. fairly but piece decent of feel any

and government – conservative feel which or get services, about the comfort in industry The are care, pretty Those going health we a Again, been XX the in. names that good well, We software. out. seems of that. multiples] that's PFLT the of to working we're portfolio, to specifically We've and pretty we is, portfolio, wanted would now from rest technology, we get yield our key is of be business date that. risk as get for the underwrite services, And [below knowing That key lower performing the you is get-go. was [ph]. part years, lower

Mickey Schleien

really question. explanation. helpful. one in-depth just follow-up appreciate I That's And that

of is due right-hand the balance of principal the the the end XXXX on the balance at the year. notes the On sheet, of side

the credit common you of are of think just offering, Just facility How and proceeds use proceeds we financing or to should from of sales some that towards the or repayments? about the those you from go do equity use those notes? proceeds expect the of maturity targeting to

Rick Allorto

Mickey.

this year. is of So, the December maturity

have the So, right of refinancing. for to now, repay the specifically revolving earmarking some the that proceeds credit do today equity facility. bonds using not We we're capability those

today continuing to we we're options, at So, refinancing place could look revolving we knowing refinance to use debt. other that in that credit have the facility

Mickey Schleien

this questions you. my I Those your understand. I all morning. are appreciate time. Thank

Operator

Thank you.

Paul next comes at Our Johnson question from KBW.

Paul Johnson

questions. guys. my good Thanks Hi, morning taking for

the around if should wondering overlap affect nonaccrual, if Just the with or venture Edison, from the any the thoughts at just JV, Walker the ROE you have distribution joint given portfolio the that rate all?

Art Penn

No, Yes. relatively JV piece JV. a small relatively the PFLT. of Thanks, of piece it's small the It's Paul. – a

So, Edison, quality assets over I JV growth, Walker other XXX as about well the million to to given We're credit was X that anticipated get than targeting the at quarter-end. JV's high think of about billion. as the time

the So, we feel of out grow. the coming NII as of coming that though there should continue ROE, JV out to

Paul Johnson

just, had exactly there's Okay. particular investment any what if this And credit was any, question a quarter. Thanks. related, of one going I was sort I research was just is? curious sort mark-to-market just marked and of company description then one on, that on investment, credit if of that there now down

Art Penn

Yes.

and traded called BSL [private long-time. of the traded in the for. loan] one we've is It's [ph] financed a now Sampling we a market. predecessor companies research actively for company It's So did a Survey

So, over accrual thought it feel at we was there's research as point, solid with a pocket We risk the did now. followed hit little recently. credit. though a years. weakness don't the of It credit this We

be seem it, going our soft feel have good scenario. lien any liquidity. if – ample and slug is a We beneath have continued results, results loan-to-value shape lien to There's soft with they in beneath in with big even good first equity big of the chunk They even forward, second that that. money will a

Paul Johnson

helpful. That’s questions Thank the you. I all you. Okay. that are today. Those have Thank

Operator

you. Thank

at next Fultz question Securities. JMP Our comes from Kevin today

Kevin Fultz

deals selectivity good And sorry, level us – you volume. for taking that and platform average Hi, annual questions. second, review give deal total is rate my where of Could historical average morning idea recently? you value guys. and And how first you rate trended could your historical deal or deal is on an what me of an remind then on selectivity dollar question the thank has you a My your number X basis? your

Art Penn

organization our call in we mean, our incoming that don't rate amount kind publicly [deal once desk X% what can [SBIC a I even e-mails that amazing of typically which track. [ph] we kind It's into of get get. a you an deals that Yes. There's license] kills what lot are around logged BDC traded of system. or activity] of of is have the [ph], usually come an

activity] [ph]. very [deal So, high

news is what good really box. our team fits our The knows

can We want deal and not we look PennantPark sectors have of these kind you actually gray how get five a key to deal, vertical a whether figure it's the at to, where about what's quickly. and shades you What’s have domain always out commit expertise. PennantPark really We capital. of all then

year. kind XX, it's kind XX We or usually, of the a X,XXX So, about historical usually been deals hit and ratio. pick that's, of

the slowed slowdown to there's it's to deal – typical a be a, like quarter today, could a If couple anyone terms ended first of that: XX. past quarter down, could this a certainly, it and least where activity, it at typically, it December for get seasonal be quarter. reasons they'd done get wanted – before deal, of In that March,

they Are So, going part new in of multiples due ago to they ago? sellers paying a bit that to market. year that there's a sure thought now weren't we or a year get that than could that accept some less those to they multiples are Are little they the it are the paying the people slowdown are multiples pay less? equilibrium going

And we and We're that speak. their like right things. to buyers shifting, still need still We're We deploying equilibrium. still going of equilibrium sellers that, lots get as on – sense capital. we So, now, that's active. find market, the any in the

stated, it's coverage high, still As we excellent. good a low. is is is The interest loan-to-value is really vintage. – Leverage and

the loan think out value, stat I was really value. I there to XX% attractive. like It's loan drew to XX%

deal, you and answered answer. if it deal I needed that or as right that I question that comes, to had Kevin take the in anything your know question, pick an it don't we'll by So, deals. try else

Kevin Fultz

my points. Thank the all structuring And new you. is hit how on You originations. then follow-up you're

that doing? environment, rate deals interest you Now that higher are negotiating a you're rate in we're new higher the [indiscernible]

Art Penn

Well, the might side, coming call that give been we just new X.Xx LIBOR or you sense, ago, static debt-to-EBITDA. a LIBOR, the debt-to-EBITDA. like deals are have it you but a Xx did Xx XXX, to on in, debt-to-EBITDA, year [XXX] And [ph], maybe today, more XXX, we we're actual the under senior SOFR SOFR deals maybe the for know quota for was

rates more base less are higher. more because So, leverage, much obviously, spread, yield,

XX% the XX%, we're are is obviously to [ph] interest the loans stead] we at at are getting typically that's we interest statistic loans. coverage. is capital X%, coverage low look you coverage companies thing carefully services interest look and new stat that one versus credit all is finance to not need yielding businesses that XX% [good types now companies XX%, these So that X%, more high. CapEx, got in And make The with as working sure more of the are because

interest [X.Xx] pretty companies. So, coverage, [ph] our still about we feel with strong

Operator

line Hughes from We'll next question our Mark take at the Truist. of

Mark Hughes

trend last Art, EBITDA that over morning. growth, there good growth companies your of in the you, XX pace the any months? portfolio generating among Thank notable is

Art Penn

Yes. Look, I as said Mark. good – question,

ago, moment sector is weakness the we're seeing a a little said I As consumer. of only where bit

average. seeing other growth, The to revenue and on call we're it, X% still EBITDA sectors, year-over-year XX%

So, one been that's has flattish. the been consumer

Edison, and down. up, names consumer then Walker Some flat, of some are are the some, are like

a the mixed we're in sector. seeing where one only picture So, that that's more

Mark Hughes

existing how that much trended quarter, And then new you versus of in your that look when mix, lately? at the commitments, has borrowers? with was new the borrowers investments And how new

Art Penn

of we that new. middle these grow have that draws their are but that's – companies where where it's most to when arrangement EBITDA. market They there new, [indiscernible] delayed we of with portfolio it are have there's of the add-on I Yes. companies to has been mean, in do. the Most want acquisitions the part been these we growth

and will, term loan We acquisitions to term the structure cases, add-on an in then or finance add-on there's delayed many initial growth. do a where draw loan,

as of usually a part well. pipeline that's the substantial So,

Mark Hughes

thoughts you Yes. latest to depends what's the market on You probably timing? on – the want the And billion, this pace your of I grow JV to circumstances, that? thought terms any in but know can do X

Art Penn

you're on depends And right, deal Yes. activity. it

or there we're million, now, grow we're and to million [indiscernible] XX are million billion, at $XX X if X $XX kind $XXX to to So, deals. and trying of that's

So, a XX-month that's JV. probably of methodical growing that

Mark Hughes

Great. Thank you very much.

Operator

time, remarks. this at Penn, further we closing have Mr. audience. back sir, I our no additional any it you, will or turn to signals from for And

Art Penn

want just I participation we'll be their everybody is this call And to May. morning. the next for in doing thank early

support. we So, you all then, and appreciate speaking to look your forward we to

Operator

conference, today's conclude and does for you thank This participation. your

now disconnect. may You

PennantPark Floating Rate Capital (PFLT) 9 Feb 232023 Q1 Earnings call transcript