PFLT - Earnings call transcript Q2 2024 | PennantPark Floating Rate Capital Ltd.

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Operator

Good morning, and welcome to the PennantPark Floating Rate Capital's Second Fiscal Quarter 2024 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 Second include . Rick discussion disclosing morning, Rate Financial by today by Conference our Capital's a

Richard Allorto

safe remind call Thank Please everyone the I'd you, to that recorded. Floating form this prohibited. like press release is disclosure forward-looking strictly of also call website. in this PennantPark that information. of the note regarding call of call I'd that and in any will customary be is broadcast like today's to is property attention harbor being audio Capital on your any Art. Rate our unauthorized An our available call replay the to

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

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

Arthur Penn

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

debt X.X% was positive NAV due XX, The $XX.XX core both March in to and increase share. adjustments adjusted ended $X.XX per for increased NAV GAAP valuation income was primarily the and quarter share. to from equity share per GAAP investments. the $XX.XX and per on investment net For quarter

March XX% our $X.X grew or prior portfolio XX, of to billion up As quarter. from the

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

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

On spreads basis average, a the we have XX tightening point first seen months. X on lien last over

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

debt-to-equity was to are that As investment additional in X.X:X positioned of net our we to a March growth ratio XX, well target with good be X.X:X Securitization we believe match first assets. of lien going income lower risk forward. ratio our continues a for drive financing

maturity. a weighted debt at The of originations facility, used of PFLT reborrow creates quarter, proceeds structure of the average X.X:X X-year reinvestment final and new and a to a The PFLT's X.XX%, be X.X%. which of transaction senior continue to to our will company. to plenty ratio portfolio. PFLT term average as which secured revolving invest was the period liquidity a million AAA grow of capital weighted the with priced securitization we in of closed During junior $XXX were external spread portion spread The for a XX-year repay debt a portion available the

the venture. joint expect our We NII driven part additional in by growth in in investment

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

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

increase capital Credit has and of the cost value. mid-teens and added at PFLT's represent to sheet of removed attractive the X.X% remained market enhance earnings that drive invested believe portfolio X.X% in quality JV's nonaccrual the We scale strong. the new status X investment. balance will and momentum. on to We only X return at investment continue portfolio an Nonaccruals of

is only among For of the PIK XX, which we at quarter income, in remained low BDC investment sector. the X.X% the ended income March lowest total believe

was weighted As average the structured of and through direct is We weighted our security a on in is and interest of middle portfolios believe testament XX, coverage to X.Xx. that leverage ratio this the our conservatively the March lending market. average portfolio's the debt one focus X.Xx, the core industry portfolio's was most

We for the capital a positioned like secured on States. preservation lien as being focused first senior United lender

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

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

Approximately with a and of to is business right high-yield market broadly and defense, sectors services million upper an where $XX consumer, EBITDA, in with are and below middle ask and software know or services, sector ARR software market. $XX expertise. domain does companies services million syndicated substantial have which sectors These that is excellent government resilient also as strong which geopolitical we the core tailwinds and in market, define and health defense, in threshold loan track have questions and have the our of the vertical, environment. cash record. We technology. is care a to have middle we the peers the loans. unlike tend any In They with we markets, to are our to this These exposure strong flow. government generate XX% free our don't been compete portfolio In not

is middle partner, attractive. we receive package because we In and market, core strategic terms an lending are process the important the of

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

help statements stay erosion help have of to our the all we to this we covenants, meaningful virtually a of loans companies. our monthly environment. reason are which significant capital. is originated well from in the top we received market, regard us Additionally, unlike lien first upper With why covenants, protect middle a monitoring financial on perspective, This in the positioned believe

companies have of lower higher the a EBITDA. the to and loans than rate higher less risky. S&P, focus companies Many of sense, upper less loans reality state those recovery According are on companies rate may our that with make to That a bigger some peers with default but intuitive market different. middle is EBITDA than $XX million who to

careful loans, market an We believe meaningful covenant that have been of diligence performance. core monitoring tighter part and protections the of this important middle more differentiated

invested companies been Our credit PFLT and ago experienced years has we over $X.X quality billion XXX has excellent. only since have XX nonaccruals. and inception XX

Since loss PFLT's inception, points only ratio basis on is capital XX annually. invested

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

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

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

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

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

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

Richard Allorto

Art. you, Thank

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

quarter per or net ended on and for unrealized a taxes, including was realized the For $X.XX change gain provision million $XX March share. XX, investments, of

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

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

highly were follows: as our of remains XX portfolio across with Our March different As XXX diversified industries. companies portfolio key statistics XX,

first X% subordinated XX% less The of X% to senior value. X.X% on had X.X% in of portfolio investment portfolio only average was in in portfolio PSSL of debt, yield debt coverage of at X% floating X X.X% lien is rate. our XXX% debt is the and equity EBITDA secured total The comprised approximately X.Xx the Debt debt, other second equity. XX.X% We and interest cost at and income. on was investments which and market PIK nonaccrual, income X.Xx. represents equaled portfolio of is and lien weighted than the

Now let me turn the . Art. call back to

Arthur Penn

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

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

Operator

from Brian Citizens [Operator McKenna Instructions] our We question JMP. from will first take

Brian Mckenna

So the the you X it's X.Xx great nearly to growth as past below still see quarters. over your in portfolio investment up the it's all Leverage, XX% year-to-date, mentioned, target.

does growth next ultimately of should how trajectory we quarters? about the over And here? how growth NII this think impact all few portfolio So then the from the of

Arthur Penn

a XXXX belief good is of our to that is going half be the It's Brian. active. Thanks, Look, back question.

going able vintage to we're good these at really think good with deploy be we to So be this very capital credit to active statistics.

the XXXX kind we're a at into or leverage. of to close in of target pretty our year the that turn kind be turning pretty of close hoping So come will

Brian Mckenna

it. Got Yes.

new XX And weighted Makes quarter, XX Okay. sense. at existing XX.X%. companies, In portfolio average now invested is just an the you companies, of portfolio in a then yield follow-up.

on much of mentioned come about weeks couple questions of moving versus investments points. kind deployment, just yields average the kind quarters any differently XX of you existing of And of over mix here. did how several company kind So on a color we spreads give basis tightening then forward, new new yields? should the know in portfolio to for couple of that last I the Can of think investments. relative trended you or Has here. investments. quarter-to-date last How just

Arthur Penn

have Yes. over Yes, in average come X months on the X spreads to about last XX%.

of a We low. will do of it's SOFR is believe lot will end a now. coming there's -- think We big we which into again, may 'XX, shot more a meeting a a there's particularly if SOFR widen was believe the supply of activity be there's there that there's if kind demand, what right supply, of kind plus given that there's like spreads XXX lot a widen. XXX a of think we So spreads shot that's

underwrite don't We that.

certainly this kind shouldn't that's that, We You a underwrite think minimum. of point, but they've their at reached possibility.

existing, thing companies need to additional that to proposition to are lender those new grow that's is growth. a capital. we of portfolio, fuel that most kind we and over of the Part and we in of what those the capital the sponsors terms additional provide of add is help equity that growing there platforms companies private that In have borrowers about versus that we're I to value strategic XXX are nice mean, have which them

in platforms is busy we believe as with even year-end, we you're there's of going hearing from where existing the financing in platform names that between what mixture are guess very portfolio. of there's still me greater the newer part that the portfolio mix. activity and now us, our to and portfolio So a existing quarters I new be fewer for in

We like the names. platform new

vintage. kind are names this platform of New of part

As see, covenants, to kind Xs EBITDA it's of very low to very value. debt you good loan meaningful can

newer and year-end that So be year-end, we're we're optimistic calendar busy between vintage. this now with going to

Operator

from our take Truist. Mark Hughes next question will We from

Mark Hughes

lot risk will supply the it's an benefit of to And all? opportunities Your to widen, you outlook later may Or it to there the a in Is additional take that bank, see to you and you be will How do say, coming coming do because you there's year? some market. idea. think potentially that demand? but you that? Is that think that for as don't be spreads

Arthur Penn

of demand Yes. a comments it's mean good deal supply more My question. were I on flow. focused

the doesn't So from. we in It 'XX. be back our there's where projection view think deal flow world of comes that lot going a to any a is That's where about come health from in of half that economy. the of the

you a early scenarios is in know, our environment the Mark, underwrite on soft always economic As deal. lenders there we as assuming

idea. It really generally loans not, equity does, one that, have whether good assume conservative rights but have to No kind no a at And don't is any point, bump. believing we there's structure sooner, leverage, as structure these but we sooner, could of deals is high need we or covenants, information that. very about bump be may these good be and some we there low why prognostication we cushion, which if one is there a

Mark Hughes

And then valuation detail. detail market that to or you would I helped is Understood. provide movements if equity the influencing breakout marks Any just that. any performance, the in broader be up positive quarter can NAV. drive capital curious

Arthur Penn

little Yes, of a -- bit a it's bit little both.

a a two as company two of value kind of in securities. well, performed then of larger company markups it well the called were the And Marketplace move a equity Some is [indiscernible] broad as in on portfolio Those the equity. debt called the Comvest Events. the particular,

the we increases said, months, on debt bps kind see what and we've spreads that's or in in you general of have As valuations X tightened the the think securities. X last the about over XX

Mark Hughes

from on probably then outlook views general broader heading? through where but as a touched your of think on you this, particular be going kind Any And XXXX. macro we -- might things about perspective credit

Arthur Penn

We're really. Not macroeconomists. not

are credit We micro underwriters.

just road loan. appropriately. assuming fine will the underwritten it's underwrite We of be flat, in you've lenders For a if bump credit in life some the early there

expertise any not our don't any we have in environment. some really others sure calls, macro So But we're positioned I'm for has -- well and we do, Truist think that's strength.

Operator

now will UBS. Vilas to move We from Abraham

Vilas Abraham

actions the in just talk QX? Can took you QX? of we should cost think of liability timing into the And about a little trend debt average bit the about PFLT how

Arthur Penn

positive talking been are We've spread question. direction. great and a a tightening moving things It's about in

kind early happened in of securitization Our February.

to then. early of on have CLOs kind So Spreads mid-quarter. since down come

for over said on the and priced on priced with just were we securitization securitization. we a XXX. XXX JV. owns priced the PFLT the about we just the JV of think just We AAAs I we like the AAA, XX.X% and PFLT Kemper, the AAA

here tightening benefit some that to going early are we early the we're May. So in between get of and happened February

time. So risk first It's be very We financing. we our we're to money. know enough Again, that it's never the officer The like XX-year It's bad just matching self-correcting. the matched a securitization of good structure we smart having assets. a from going a a to pick such for lower to optimal corner worry securitizations they're fixed that the hair have are standpoint. of very never in about a day, kind office lien credit

market wonderfully are that operating worked through we It a during COVID. So middle period. CLO

structure. So securitization we really the like

kind a our matched very we this And portfolio. of but sleep like helps for and our like also It's and night. us securitization we bonds, at is the also good revolvers, tool very

Vilas Abraham

what you're Okay. bit about All then comment you activity, there. amendment seeing on little And a the right. can just

little So in again QX. other elevated income bit was a

forward. that look thinking how just at should So moving we about

Arthur Penn

amendments tend They are. of that handful material point. Yes. not business. always amend part every Look, of a are to quarter. names There's our this It's at that the

Some are bigger, are some lower.

they additional and I private we've to inject think thing with we part equity many the the seen And In equity what we'll cases, so loan us. amendment, how attractive. do. an is nice many cases, ask of the about sponsor to in as land value though beneath

For put instance, case, COVID and rolling back almost to tape COVID in in the solve the to equity to problem. every sponsors

which to us and covenants what we that's In say, middle the on that get going see in what let's covenants, get versus, for more they the core spread. market. have as have do does to create whether for upper well-structured that middle ask you opportunity fees, happens That's market, which the conversation you economics, be we meaning, to what's equity when or to to that those ask be table, additional or increased whether said

quarterly quarterly capital. for importantly, So good protecting and covenants over test, most having maintenance and monthly the time, statements the been a financial has us the preserving thing

try do, course, structures, we minimize of but we We Of of them. our really mistakes. make kind all -- to through kind it's

Operator

We will question take ] Joe our [indiscernible] [ from Martin from next Columbus.

Unknown Analyst

just can, off? on came new can nonaccrual nonaccrual you some X you . give background that the If the and

Arthur Penn

in Sure. already was down or is X prior marked came company to quarters. schedule MailSouth The that been name It -- Good such, Thank different the MSpark. might originally off off MailSouth a you. came our have MSpark, question. We few to called names. in nonaccrual X investments as that change that listed the

that So -- sold. was the just was company

And fact, X. recovered in we

one while our Walker the to think the think off did a we taking And called perform a optimistic a moved We're heal, Edison. is investments. Edison It not company it's that Walker but So a though. time that continues well. will on that moved scheduled while. sector back. over We restructuring

we nonaccrual. put on company proactively So that

Unknown Analyst

And a the a companies smaller follow-up. were, I more affected report Moody's with rates. guess, came higher out with yesterday middle-market CLOs,

Just if comment that, you Art. wondering on could

Arthur Penn

environment. higher people a Yes. two rate is. where that's one originally right? Look, risk-free it covering no the And -- companies still that anticipated when in there deals, shock times rates, we're in higher are these no going average, and On rate -- just it's our did

So over Xx.

was we activity. nonaccruals how these very So did the interest more amendment a light deals most prior now seen Xx, conservatively and the it's deals which still kind makes the testament Again, we've of over to when over that's increases, rate really of Xx. we interest structure coverage sense. But light upfront to very

middle upper to think on follow leverage is our kind focus may don't market. of bigger I middle lower. peers And core where of know a market, some you testament that's who the I really the with

higher of we so, sense where is Xx. underwrite is kind Our X.Xx debt-to-EBITDA which than is

demand there. the market in money the of And market interest tighter. "competing" to is frankly, loan middle of work. lot is just, Wall and Street. Our They've because They're capital to that's broadly with upper coverage got a syndicated put supply a sense of

a dollars chasing So upper lot of those there's market middle opportunities.

kind in resulted the orphaned What's core of middle company. its market

few the playing EBITDA, active So the We statements. those covenants. borrowers. is We financial can a get meaningful XX still competition we get to meaningful is of where below there's who us our have are a capital field less of monthly very

And So the overall these reward of very of think risk the size for attractive. appropriate is companies. package we

Unknown Analyst

you Moody's And lastly, to to thought and good. Have talking S&P another metrics fund is get the the or about rating? doing very Fitch well are or

Arthur Penn

so interesting. does does ratings CLOs S&P I us our to in mean, -- all be for it's just that the CLOs. rate estimates go Yes. our and give loans of

basically, of So rate side senior when to XX% all of the into of walk get AAA our S&P, ratings "Gee, we stack, loans and they we're say, right? securitization the going estimates top the

we AAA, a "Well, that on those day the S&P can says name you that in at an it's when which can than AAA that issue when issued the at door so XXX door leverage JV We says, BDC, AAA. in leverage you other you CLOs more and X:X And getting and the then the BBB thinks unsecured at on leverage other S&P can S&P, of S&P, basis. walk the Xx and portal that into essentially, -- through door in you're be just assets X.XXx

S&P. bit at going a an there's So of on inconsistency

at -- entry way either at by a or them. We to way, versus the us credits, happy where a a to same and of AAA which would in to BDC it credits portal us we're appear But to called that, BDC one or can leverage securitization highlight them. perhaps through the room are, exact talk the of have is much giving efficient a to doing level to securitization it going you try view X:X talk BDC to JV. it very that's We're if into they're different the something whether unsecured the the much they do them

this So skill, happy but you it's at very to about convenience to talk interesting. your

Operator

to the closing you for any additional to or remarks. like I'd Art, back turn conference

Arthur Penn

today. want just I being you. for the Thank thank call to everybody on

summer. the be talking, will early in our earnings, everybody we'll a time good be Next quarterly June August. a Have after In great meantime, day. it will spring wishing and be which

Operator

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

You may disconnect. now

PennantPark Floating Rate Capital (PFLT) 9 May 242024 Q2 Earnings call transcript