PFLT - Earnings call 4 2023 | PennantPark Floating Rate Capital Ltd.

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Operator

Good morning, and welcome to the PennantPark Floating Rate Capital's Fourth 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 Fourth include Rick discussion disclosing morning, Rate Financial by today by Conference our Capital's a

Richard Allorto

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

Arthur Penn

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

to income excluding Adjusted investment X.X%. equity share positive share share. was NAV or adjustments core September our share. on increase and GAAP GAAP $XX.XX debt due increased NAV liabilities ended mark-to-market For the the was on XX, increased in $XX.XX quarter NAV, both $X.XX X.X% the primarily and net investments. to per quarter valuation for per per adjustments $XX.XX to per from The

With debt continue environment. floating is portfolio benefit the that the current XXX% to rate rate, from base we

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

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

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

the believe and is excellent. OID are covenant covenants middle meaningful Despite current protections. market, higher We middle in reports market. of spreads that core tighter and are loans middle are directly lower, vintage market erosion still originated Leverage upper is we middle of the in in continue the getting to market, core than upfront upper covenant the

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

to Since have into going From investments million new through and we $XX be flow XX November are we've and XX, year-end. to quarter into active. end, September invested continuing existing strong continued see deal

of going ratio drive income investment ratio growth in positioned we our XX, debt-to-EBITDA strong As was with are X.X:X, that we September to believe X.XX:X, of a target forward. net

in joint venture. can be by Additional growth driven our NII

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

balance believe of quality and into ended invested Credit that the is assets million the including on the earnings capital of and weighted momentum. stable. enhance a portfolio average PFLT. will in at XX%, to $XX invested X September the XX. PFLT's JV returns the existing in million yield JV's new scale We continue of nonaccruals companies quarter, the quarter increase X of mid-teens $XX During attractive We new drive purchased sheet the portfolio had from no

United of market weighted leverage the XX interest floating interest security and protect like the of As inflation. over ratio positioned potentially interest debt us risk in and overall X.Xx. From weakening XX our the lender rising economy, where in secured focused was through geopolitical for coverage being portfolio's an first-lien rates, rising weighted our was on September preservation X.Xx September the the a XX, against rates the rates a senior average elevated at we capital environment last despite can rates increase perspective, ratio steep States this months, on average and base inflation as portfolio's loans

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

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

and have and of sector with tend in Approximately tailwinds These defense this domain and services, are are which record. substantial been generate expertise, right flow. technology. services to software resilient environment. to also business defense, strong XX% cash the our and and excellent and we questions ask portfolio where government sectors track an know in sectors government strong have consumer, is is These free They geopolitical have health services care a

package the our attractive. with strategic middle to important does partner, syndicated threshold we not EBITDA core markets, the an software we the high-yield process lending receive is $XX loan In middle of because don't of below with or core to market, ARR have compete million in loans. $XX upper middle the terms million and unlike In peers and is companies vertical, market exposure broadly our the are we market. The any

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

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

in an Virtually in believe market, differentiated originated meaningful We EBITDA. loans performance. higher careful middle peers positioned broadly make higher this erosion part some risky. a Many intuitive middle and of our sense, environment. protect syndicated meaningful on who well first-lien According companies different. core are covenants, market to why reason our the with we believe rate and but million and With state is all upper less That This and loan which to reality the default have less been covenants, upper than are capital. significant unlike a $XX loans lower companies EBITDA, S&P, loans our might help of diligence the of covenant than regard companies is market to focus have the rate those with loans that protections the have middle that recovery tighter important this monitoring more to of we

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

of provider of capital in the a companies, participate the fuels portfolio many co-investment. in an company we strategic our growth upside equity cases that by the As making of

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

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

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

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

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

Richard Allorto

Thank you, Art.

the per General provision ended For investment $X.X expenses XX, million. and $X.X expenses the follows: fees quarter and were performance-based income Base Operating and and were $X.XX were interest administrative was core expenses on $X.X taxes and were $XXX,XXX. incentive debt quarter as for million net million. management were share. September for GAAP

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

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

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

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

debt nonaccruals, across The investments rate. diversified XX value. were of key of market as follows: weighted our the yield at on new XX.X% average which XX, our portfolio represent X% XXX our As quarter. X fair approximately We put the portfolio with during and not debt We at statistics on any industries. the nonaccrual different did floating companies XXX% September is was remains and of highly portfolio portfolio investments X% had cost

basis overall assuming to based is interest comprised in The rates The to sensitivity to equity EBITDA would the in is portfolio second whole analysis decrease coverage. interest regard X% cushion equity. up portfolio the upon rate portfolio's XXX run X.Xx, would This XX% debt, X% rate. The in lien debt a other X.Xx. need base base a decrease on a has portfolio of to than with points XX% current a and is X.X% meaningful need EBITDA was by interest to interest go On basis for secured senior first-lien coverage and debt, coverage Xx, of less to XX%. and as PSSL coverage,

back Now call to let the turn Art. me

Arthur Penn

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

Operator

[Operator We take Ryan from Instructions] Lynch our question will from KBW. first

Ryan Lynch

level those of into on was the is has and your of been the about, desire have that's that is First kind been pretty those talk of marketplace that's repayments really drop the of the exit just been combination kind normal in quarters. some down you couple some Can high level you higher Or something of the driving I really had one just exits size of of it guys going repayments there a JV. repayments? of on and to just last

Arthur Penn

sure. Yes, and up for in say of some deals When activity. of credits, you is portfolio just well. ended the certainly, performed most solid they Ryan. Thanks, well and JV very And then our pick I'd performing those normal it's

off. You get paid

been has kind We've through we're since flow been be X/XX, to of X/XX. a busier beyond. busier I year-end origination coming into Our up think little until and lighter going

was this us. through, We if of the other of they None those up. deals than see we want picked has kind intentional been more the and flow manage to repayments when clearly deal JV. So fit attractive certainly recent weeks. in come we've select can't those, for then And of we seeing new

Ryan Lynch

Okay.

activity stats with Can the the last market, more. I'd deal about well yields touch more start certainly up pricing. love kind you just there's activity So spreads your as to sellers to a and going into seeing in with pretty to world? know translate deals pick upper would loans hear interest certainly middle private leverage, deal you your just core incredible the are as on Obviously, new you're bit are hope in a interest clarity the equity coverage mentioned just the point absolute you on meaningful the when of market? high. pretty rates insights I is and little of that the that, middle and talk love there's think I'd on pickup some guys kind doing, and and loan-to-value little that do deal environment. you in in the as get that what to a that buyers And

Arthur Penn

Yes.

adjust -- selling companies get have they up. development So environment, it to of press 'XX that activity no been we subsequent time picking have event needed added available it's generally which recent lifetime, could the multiples the seen disclosure sense longer are And that some -- to we've kind the our in end sellers is the the them. think to new to of We've is release. at why their been is

interest to a get to one if rates you're them taken you adjust their higher around a while it. of mind definition. to companies, it's buyer of have these Clearly, by absorb So

were So multiples down its to come they where have equilibrium. that's XXXX, and in some certainly find taken from time

we're going it a part is the that kind a So to down in it the general, little bit, while, biggest sense the rate and maybe base that's I trying kind zone or it we're of deals of much maybe X.XX% rates big in lower bit. And be for there's of general goes people they But much people interest the be the interest of this little been be up think goes made going or and to can aren't that part of whether a in can, decisions interest waking that rates, kind seeing of into it. accepted a rate X.XX%, mostly up other or the that price of have they're X.X% is therefore, do. kind higher to zone

Operator

And Schleien next, Mickey we'll from to go Ladenburg.

Mickey Schleien

going how credits what cyclical and some to and hotels considered could be that. leisure, you those like like describe Art, auto read cards has and credits things as generally with down the are portfolio rates and and out consumer exposure doing headlines tapped being and into sectors construction Can year the savings those that. for things prospects the in the next things like credit we've with going and

Arthur Penn

-- Yes. to we you, names. Mickey. No, cyclical We kind thank of specifically avoid try

So market is word typically business, service something next to that's cyclical. where the kind underlying will be if engineering some or less has it. services of the construction It architectural something

not. business, in been tied renovation, growth to tied it be It architectural if on to spending, has So goes whether not or an might capital of homebuilding. or services we're which area an really be have engineering or people which might won't tied infrastructure to a or be

the of consumer, Consumer we is do aware Clearly, when very environment. something we're we're watching.

leverage our our keep typically do have we have consumer that value meaning try deals, to in brands on specifically we find than lower and we So on companies their deals and marketplace. average that

an are a consumer it. that's is It's of example. a Scholl's, brand. People brand. the aware branded It's Leverage reasonable Dr. big So company. on

because our comparable. Yeti pretty it's a When doing this of in of kind So lower in well leverage is did cost very And the it's RTIC, which a we lower-cost Yeti. was version, version portfolio. kind It's It's deal, low. environment. of actually

of kind we that's So about how deeper, of That's think if we to like. how you consumer. happy I'm think kind dive about construction.

Mickey Schleien

in credits Well, the strikes? were auto impacted of sector, by materially just any those the

Arthur Penn

which specifically, names these... have on You specifically names sometimes

Mickey Schleien

industries No, I Q, just looked have... last don't the at the the breakdown so of in I

Arthur Penn

I kind to aftermarket. to auto of don't stuff hopefully related yes, that have a mean are auto OEM something it's it typically steady tied if if to strike, aftermarket, which auto is that We kind in it's exposure -- would exposure to was of the be it state. products or any the will be sold

We have wash else, know consumer that's or something that's car that. things that's whether don't forget like I whether whether or but I companies. auto

Mickey Schleien

Okay.

you for into the we've yet? starting know, up Have started about all at Just see In terms. to higher-quality borrowers. middle following spread Ryan's question middle upper on as market you particularly compression, some down trickle seen market, to that the

Arthur Penn

there's $XX the an if a it's a to people get seen much upper a a credit the middle piece competition. in may competitive if to spreads lot get little Yes, EBITDA -- excellent $XX in haven't perceived credit, $XX competitive. Again, there's an our really where to are of there. say excellent of of of be then I'd tightening little And the world certainly of end that as space end credit as we're the we million And a lower may million of you million is kind love really to and happy the less spread it of $XX core in bit. million a market tighten that,

Mickey Schleien

you things release. you this that about quarter, developments fund? tell Okay. to the transferring might recent loan us repayments anything the senior from I in language question. My apart last be Can for appreciate press the

Arthur Penn

been have light. repayments been The have light Repayments quarter-to-date.

Operator

we're going And next, to to Truist from Securities. go Maxwell Fritscher

Maxwell Fritscher

for I'm calling Mark Hughes. in

in So would the had the support of has you additional what amendments companies that capital received percent 'XX, have from sponsor? fiscal judge

Arthur Penn

that capital of maybe to all I'm we say to And do about ask guess put the capital X/X. these to minor Most going forthcoming. very so going has cases, that's in value in amendments. the sponsors, are far, In the additional up additional the relatively I'm are cases, loan minority. been and certain them about the rights problem. companies, we we small things one the covenants relative to check their to that have we sponsor sponsor have, these of where and we the initial a for with information nice have, can a solve certainly, investment

date. any So issues with to where certainly, minority the seen coming sponsors haven't investment, forward cash a we the there's

Maxwell Fritscher

in interest portfolio the And CapEx you ratio? to amount hiring or in order meaningful a coverage, companies, Okay. seen keep have regard to favorable forgo, a of

Arthur Penn

in certainly We the are less these anyway, majority equity that private sense companies cushion question. vast system. thoughtful owned firms. mean with by the very Great I

So return over equity. on their they the are always return looking capital at on

focus interest So are they're But think on. today, companies always on Xx our I average, something. even higher And there's an focused their today. covering or

the when certainly not a year it's interest So it of kind times Xx coverage. was lush ago of

Now to down Xx. you're

think awareness equity have But They're some we the equity to make They've heightened good. of they want a a bear. their safe. there's that of certainly still cost sure cushion. got reasonable that lot focused. there's beneath In they is and us, ways, that's So interest to

Operator

turn to closing back to remarks. speakers like our the for now I'd any conference over

Arthur Penn

next and early February for Thanksgiving, call a forward on We speaking we a today. look everybody wish the you Thanks, of at with very being you everybody, release. Thank happy to gratitude earnings Thanksgiving our in much.

Operator

gentlemen, participation. today's does Have a that conference. conclude Thank your wonderful appreciate Ladies day. and We you.

PennantPark Floating Rate Capital (PFLT) 16 Nov 232023 Q4 Earnings call transcript