Earnings call transcript Q3 2023

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Operator

Good morning, and welcome to the PennantPark Floating Rate Capital's Third 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 Officer of PennantPark Floating Rate Capital. Mr. your begin may you conference. Penn,

Arthur 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 third include Rick discussion disclosing morning, Rate Financial by today by conference our Capital's a

Richard 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.

could attention in SEC with harbor your you information. ask customary I'd refer forward-looking regarding also forward-looking we us our to required to our filings We unless do filings, our pennantpark.com important factors to latest projections. from conference obtain release and of most statements also disclosure the undertake forward-looking call call may our website statements cause materially that for differ to Today's include that visit copies our or SEC update call safe law. not press and the at these To by XXX-XXX-XXXX. projections, please like recent to results at actual

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

Arthur Penn

open for for the minutes ended upcoming positioned a up review how to few going current lending, the we We're Rick. Q&A. and the Thanks, how financials, detailed the portfolio June market quarter the for in then of market spend it discussing quarters, environment XX, fared is middle

per adjustments NII equity $X.XX NAV, share a for investment adjustments a excluding in mark-to-market certain dividend per co-investments $X.XX the June $XX.XX X.X%. dividend. investment on of related quarter decreased slightly the or Dominion valuation to X.X%. or the share. GAAP share income to income per one-time was per Voting. partially net our investment on that and Core $XX and $X.XX share nonaccrual XX, investment ended excess For excludes and to Adjusted to liabilities, decreased income was our This share primarily by net was NAV our offset equity per due

debt the rate, XXX% a in With portfolio floating continue we benefit that's rates. to from base increase

average As yield year. XX.X% XX.X%, XX, to is was weighted which of our up quarter maturity June and X.X% last from last

XX.X%. million we average quarter, new opportunities weighted attractive continue invested $XX at and a the yield and During of to investment in portfolio companies originate existing

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

OID originated that directly spreads We tighter. higher, and vintage continue is current to the are loans upfront of believe are fees market is excellent. lower, and covenants and Leverage middle

an seeing deal growing are and compared we increase interesting and We to first attractive have a flow pipeline opportunities. the in investment XXXX, half of of

Additional environment. capitalize capital platform and attractive the will lending to PFLT across the JV PennantPark are on allow we raising the

JV partner, our As continue JV the to the with portfolio plan we assets. $X and of approximately grow XXth, of to JV execute $XXX the million, to billion equaled June together on portfolio

yield PFLT. invested During weighted from and purchased including XX a existing JV assets new of million of companies the six in million at $XX quarter, the $XX average portfolio XX.X%,

to of its drive sheet allow financing capital on the its increase mid-teens the sheet, to invested for earnings provides and diversify and platform. grow will return to capital the quarter, the This and for JV will new further the financing JV sixth million closed PennantPark the new its and CLO its believe the low scale of PFLT's balance enhance the continue momentum. assets, on attractive increase return balance We that capital. JV's with investments $XXX over during Also JV CLO second in

As new to capacity, our leverage $XXX as investments under additional with have investments ATM detailed release, we the and an million well additional ATM where over program, earning in $XX earnings together capital attractive JV into return, for raised we equity we will portfolio of of at million the capital fund are proceeds into be as The new used PFLT. investments available investments.

expect deploy balance the drive in new growth We the we into and quarters as to optimize NII ahead in sheet. capital investments

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

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

have long-term key five growth value of in middle market record successfully track generating sectors. companies high by We a financing

to These In our defence, don't healthcare and cash are software exposure record. free ARR domain excellent are questions software generate and substantial know to an right also have and have and flow. consumer, expertise, resilient the have There strong to services, sectors where any ask, we These vertical, government tend loans. have business track services we been sectors technology.

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

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

process strategic important is Because receive terms the partner, of we an attractive. are and we lending package

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

covenants, This we're significant we the why help in all well stay receive meaningful us a to of With which have we first financial monthly our top In originated believe this lien loans addition, capital. from of positioned regard environment. to covenants, monitoring reason statements a on perspective, companies. protect help virtually our is

core sector $XX yield market high syndicated less who middle bigger companies to million the threshold This on risky. below does market. focus loan broadly market of Many the or that intuitive our is compete middle is million is the market, EBITDA not sense, The the may middle with with markets. $XX upper and those That the some make companies different. the state are peers of core but reality

lower more where due have companies careful with covenant tighter part core an performance. the and the with protections than S&P, to million rate meaningful higher of have been believe default According this and recovery less EBITDA differentiated rate that higher monitoring, a than to of diligence companies loans loans We to EBITDA. there's important middle market, $XX of

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

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

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

a Our protected mission preservation is and the we steady, are with stream of goal. do Everything stable, coupled and aligned capital. dividend that goal to

We cash our pay free the capture in lien and flows flow growing secured seek first cash opportunities to primarily out market free flow of form we high that companies have middle instruments, senior to in that dividends conversion. contractual We shareholders. in those find cash investment

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

Richard Allorto

Art. you, Thank

net the was Voting was investment per net investment Core equity $X.XX investment and from quarter dividend $X.XX of ended our fees. of one-time share. per investment For $X.XX income Dominion income in per net share, net XX, excludes core June received share income income incentive

$XX Operating $XXX,XXX. for Base follows. million. incentive expenses quarter were were million. fees management were General Interest provision and million, as debt and $X.X performance-based and for the expenses on were administrative $X.X taxes expenses were and

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

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

funding As was XX, debt. times, capital unsecured our diversified and and is X.XX of including secured across our sources, June debt-to-equity multiple ratio structure both

million credit sufficient have unsecured revolving repay to the in notes December. of in our maturing $XX We liquidity facility

XX, portfolio June were key of statistics our follows. as As

diversified, was XX.X% cost new highly on investments companies on across XXX% three not the remains at quarter. nonaccruals and companies, X% of during We and with did portfolio portfolio XXX investments different Our any XX at portfolio debt the yield average is industries. XXX the market out debt which weighted We X% of nonaccrual had put The represent value. of rate. floating

other lien meaningful than X.X interest regard a equity. debt, cushion in coverage. first lien The portfolio secured X.X XX% the portfolio and in XX% on PSSL, a was in as portfolio equity invested interest times, X% times. in has of to whole second X% debt, was The Debt-to-EBITDA and coverage with is less senior

On to need rate. run upon for a based need X.X decrease XX%. interest a the rates rate XXX to would go coverage, interest decrease sensitivity would by coverage base analysis times, EBITDA to basis, base points, This to basis is X.X% and overall assuming up current

call the Now let to Art. me back turn

Arthur Penn

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

Operator

our Johnson [Operator from Paul first KBW. go instructions] with We'll question to

Paul Johnson

for you and in of of of manage? Good of PFLT on funds morning, that Art. guys kind morning, good you other Hey, What guys. broadly, activity? trend also Could just been amendment speak questions. just has the about my to kind the kind the terms portfolio, across maybe taking Thanks

Richard Allorto

companies we've thanks, paying because so amendments to the interest due quickly. Yeah, or interest debt of question. coverage, Good they're not Paul. not gradually are either coverage -- as Look, higher down increasing higher seen

step debt to EBITDA have which covenants, down. We

very news, cash of out. So XX% in attractive, rates interest some are chunk and the a taking getting that that's companies, plus these bad good their cases, flow news, we're

I say a spike, gradual I take interest it's but it's activity rates say a So I increased. the amendment say the has over not higher dramatic. would time increase it's not would as would hold.

Paul Johnson

quite activity. of And you same it's as in obviously kind been that's we've through of it. then the seeing, have or are anything or larger interesting are the getting whether middle equity seeing much going at the in you the not so part in you terms terms better guys guys But the a sure equity lull that of in market. of in side, investments have? the core co-investment that gone are you of sort seeing than that Got anything if you're market historically, middle upper new on Thanks. in it on I'm there deal set higher with valuations Is guys deals interesting more the just co-investments? be you the like,

Arthur Penn

It's a good question.

anything and seen haven't co-invest a the tale people We are They've where M&A high, stable, There's this strongly two are about. of growth The city paying They're bit that is in and very materially opportunities. market, fairly buyers different sellers got cities. that and both very one companies rate leverage even steady that's fairly good environment. of high the parameters. multiples number feel in interest growing a little market's high

And the a tougher about, there's companies get growth other line. volatility of to or deals those not bit the kind consensus across where city, which the you then concern of a finish are is have little and there's economic there, is that

were their brain buyers getting interest And reasons, in have valuations there variety about Sellers they for a of year a quite sugarplum ago. the rates. or higher that including may aren't two still

basis, So the debt. equity We nothing equity on of side. the at these one each the materially on co-invest investments versus standalone a look different

have cases, to kind certain the cases, We co-invest. fight graciously co-invest vehicles, In similar. get will fairly among PFLT, more equity co-invest we them. in will of and our portfolios do In well-embedded hard other equity equity decline we that's

equity a then There's At As lesser we into can we're less. of, been those confident stated, will track X.X At activity. times, had time But times, reinvest. MOIC XX-year greater which we good recently. over activity we've cash, times those. co-invest very record a turn there's there's again, on

different, terms of materially in nothing opportunity. So short, the equity in co-invest

Paul Johnson

repayments, $X.XX quarter, guys Got helpful of That's I the but which I that is we're some, quarter? what driving kind for one-time ATM the looking is the for little so a it. around dividend know if I color I bit back would that that's after lastly, any you kind had maybe of of part of issuance. Appreciate quarter? obviously, of one-time this then, anything know of you Is there in outside sort that's that, and NII you with item of share, we kind But guys the where just comments than got, quarter I'm to kind for the the noise, there's on that. expect, lower of net with kind curious, stuff out on were. at do NII down of guess, the along deleveraging NII per

Arthur Penn

it way long-term run long-term. create obviously value. having aware the we're at fortress powder earnings you both the purposes Paul. are to because think, to Yeah, this and time, we ATM of the it's dry and you We shareholder to were a good hit right, to company it's and defensive in kind important balance for intermediate the for quarterly our of is having deleveraging us, and probably important and a drivers. it's offensive of intermediate and two the primary And long-run, we the it's although investors, and a It's thinking, out for important think sheet lot

to So, in very selection. be long run, about we the continue Again, selective. credit it's

So about credit. very we be continue to selective

Some to of grow. our have good JV off paid credits and continues certainly gotten the

assets to return excellent an we're capital. selling The JV's on from generating PFLT the So JV. over

kind we So achieve a combination remains loans. Over able think being good target these time, vehicle things, X.X in sheet times the this still of target. fill 'XX end vintage, of high-quality and all That vintage, leverage we'll our in fortress with our the 'XX this debt-to-equity. and of time, to feel balance be JV we about over vintage our of very to, able but

Paul Johnson

Appreciate Got Art. for That's it, me. all it.

Operator

We'll go UBS. with Vilas to Abraham next

Vilas Abraham

just Hi, Maybe everybody. ATM little quarter-to-date bit a Thanks on that for the more question. taking color issuance.

So, kind that the you of strong as that are haul? just relatively very into now, very, deploy quickly, issue mentioned, last it just want below just opportunities end guys is wondering the quarter, need preparing signal you you quarter-to-date. a leverage, for lower much just one, to the Is on more or of near-term seeing to that really longer

Arthur Penn

Yeah.

-- a it's closes that issuance June here, issue a they as the window The those of June logged good we ATM mechanical closed done did executed the XXX. post-quarter -- at settle on, trades it, it So, July. and end until, XX, is the little there's XX, our let's of and were which not end quarter at call early

trades kind XX, were million $XX of of post-quarter So, that's XX. why kind end, the extra the June done June

that for that of those the saw window. -- we're So, June. we elected some and kind interesting of to demand incoming wrapped it block stock up We take in days last couple

Vilas Abraham

X.X now so, it. you we That given the target thinking are that still at you're right Got leverage? makes of And target a longer-term with -- this what where mentioned as point, sense. should you times think

Arthur Penn

would be within Yeah. Yeah. goal certainly the XX Look, next our months.

going want selection the never to force thing certainly, know we never credit it, of we You is the what most are do. you be. kind flows -- want again, important And to to

we're seeing in quarters the force believe, think we So, four that case, achieve several the be over flow certainly to should we're the or we able to flow at that we target. it at quarters, that next to but, going outside not the

Vilas Abraham

jumped lastly, and It's of Okay. sales And bit on about here. couple should just over next then the you. the any a up cadence we on this half quarters? of Thank of quarter, thoughts the year that little about think how repayments,

Arthur Penn

Yeah.

to sales sales the the JV. of repayments were most So,

financing. been securitization So, an of on owns to solid really The we're we given selecting again, to balance the XX.X% us, are And then credits. return capital CLO has JV that's JV sheet the -- grow ability generating The okay. hopefully has JV. PFLT with there. the because good

been solid have credits. We selecting

repayments time. from get time You to

to predict. hard lumpy, So,

see We've and you'll on large, balance and deals new come you'll by hard repayments both had activity pick sheet. a As really never general. see levels time the in up, ramping

incumbent We have portfolio network some origination great XXX platform. really good names and existing across a and the of relationships

good dividends So, one NII of and credit things to generate hardest solid shareholders. a do the we with again, select our desire is for balancing,

So, the come that, the to a they repayments part sheet take of as vintage of credit be quality position in strong and keep when come. first, advantage balance

Vilas Abraham

everyone. you, Thank it. Got

Operator

with Truist. to Hughes next go Mark We'll

Mark Hughes

With CLOs, you investors the financing, What Yeah, you. appetite steady, improved? see? change to thank do finding in among the for any respect CLO

Arthur Penn

went market the CLOs, are trying as you Yeah, phrase so they're some not, broadly choppier CLOs, are CLOs, syndicated. assets They're lending syndicated in to it's to but yields on whatever broadly want the Certainly, terms not of loans. call started it, post liabilities the the rebrand people direct well middle the as these getting spreads Fed as increases, market of up, went up. cost and not

choppier XX month you on during a gap this imagine, few Valley the as back have a to been the banking time levels had the the the gone year, but market the to spreads were earlier weeks and turmoil as Silicon We that cost might a of side. they last in seemed same at in yields over pre. uncertainty has there asset increased two or in where So only of settled the and months, liabilities, market last up CLO

So the XX as there's been. third-party in economic of CLOs, in for third-party CLOs capital they've well of months junior the in the as make for return our and institutional liability our have levels tranches. We've JVs, where terms where several on printed lot invested middle they investors sense still last who a own market, been

books So a it's portfolio senior-secured loans. a it's of liability, lower-risk ours, where such good been of as very solid, source particularly for floating-rate

Mark Hughes

that. for you Thank Understood.

think times the will the on up? up, or to EBITDA, while, originations sense around will this those deal pretty some active as might in loan-to-value. how the that your described the for If you adjust X.X change of start a good the of picking XX% picks flow market? You profile what's a deal terms origination, begins Do flow stick more

Arthur Penn

times, debt-to-EBITDA at sure, good, want with the we start will your markets rates of going bit? And becomes to abnormally would to the coverage you If bit, to for I all it, of things whole a is X.X it's this coverage the interest are soft-landing got we the can. normalize, as is, to leverage down agree loan-to-value statistics that's of implication question say particularly and is, When little come that's you a other loan-to-value and is the and your the X.X question, which And times down. with interest stretch and higher implication while little a base terrific, settle grab perception going of up, to, go that XX%. of normalize. reality, kind answer look

sheet The question normalize? is, again, start and M&A much middle there reasons will be to how one of process? if we fortress high-quality normalization flow, lot long and core if to take lots of a to of How deals, solid start to the will we want see to have to balance it powder a So dry in flow want normalizing, prepared things is that and market be come. start ready we access that

if know kind view. that's nuanced, don't answered I think little your a I of I but question but So there, our

Mark Hughes

think my question we'll but see. did, I than I proposed you better

much. Thank you Okay. very

Operator

no other this at questions There are time.

Arthur Penn

Terrific. targeting you mid-November very conference to summer. a Thank earnings next XX-K so that call, the days I is versus later XX-Q, and we're wishing us much. enjoyable a for just want of their September healthy quarterly we're the quarter due to few usually rest and reminder everybody thank and so the everybody XX-K, for A today. XX participation for the our our

Operator

your you call. participation. Thank conference for This does conclude today's

may disconnect. now You

PennantPark Floating Rate Capital (PFLT) 10 Aug 232023 Q3 Earnings call transcript