PFLT - Earnings call transcript Q3 2024 | PennantPark Floating Rate Capital Ltd.

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Operator

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

Arthur Penn

Rick and you to you, XXXX Conference today good Financial Third morning, welcome to Earnings by joined I'm like I'd Call. our PennantPark Quarter Chief Officer. everyone. Fiscal Thank Allorto, Floating Capital's Rate

start some general off include information conference disclosing forward-looking about discussion statements. by please call and Rick, a

Richard Allorto

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

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

Arthur Penn

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

per was the investment June share. and ended $X.XX XX, core For income quarter GAAP net

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

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

an see middle to core continue vintage attractive the in We market.

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

end, at average invested XX.X%. and active active. and we of quarter a volume to a and second we weighted is million Investment XXXX yield expect be $XXX half over Subsequent have to of robust pipeline the remained increasing,

During XXXX, yield the first-lien to loans market tightened points. XX has on XX basis

In vintage highlighted just believe leverage spreads is core statistics market, are continue indicate, middle upper the core tighter current and the higher middle that credit the is lower, are loans As of in to market. middle excellent. we market the than covenants

middle meaningful getting the middle Despite covenant covenant market, market, in erosion we the protections. upper core are in still

believe positioned X.X:X, attractive was of structure maturity. The prior XX-year plenty main junior weighted XX spread reinvestment in is of of liquidity average going environment end, forward. for of lower and financing we As spread target match which loan, The portion debt weighted capital of favorable contributor of an of average meaningful a The points final to a a AAA the X.XX%. was of refinancing X.X:X, debt-to-equity that be with a with transaction debt to to X.XX%. X.XX% assets. period external a ratio and June on of ratio growth decrease the was Securitization spread additional level at securitization net weighted Subsequent million continues the we in decrease first-lien a X.X:X, market are good term priced drive well to our term from which for creates of PFLT quarter the of XX, basis upside a risk investment closed company. the this X.XX%, ratio PFLT's average X-year income a $XXX our to

we During to million. the $XXX truest new added from million total upsized facility $XXX to commitments lenders X credit quarter, revolving and the

expect on week, and plus an In to a rate commitment of period to in to of from which increase extension close highlights -- XXX, we amendment an XXX revolving an in addition, $XXX down credit and the amendment extension total the million, are this XXXX. plus down the facility. to SOFR reduction plus truest The SOFR is revolving in

expect to due in joint We in part continued NII venture. the stability our investment in

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

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

valuation of primarily represent X.X% JV's quality both per debt believe Credit remained NAV investments mid-teens Nonaccruals value. the to PFLT's due and drive scale the The NAV share. only sheet $XX.XX the attractive that has momentum. equity enhanced investments. increase the X decrease from per portfolio to continue We of the GAAP capital share and added will returns portfolio cost and adjusted the balance decreased to market strong. in on in was on earnings invested X.X% $XX.XX and at status. for nonaccrual adjustments of new quarter to X.X% We

security in that average We most the conservatively the senior is is capital ratio ratio coverage believe market. the direct being on middle testament weighted portfolio's and weighted for the the like our portfolios United positioned on this XX, first-lien June interest core X.Xx lender a the a as of one We through portfolio's debt and leverage was focused of lending States. average structured preservation secured industry X.Xx. focus to was As our

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

resilient sectors. We have a you we market have ] are have domain question the of long-term financing generate These strong and services sectors track and health and companies expertise, services, successfully generating technology. and government value ask flow. record. There These care by substantial been middle excellent key record to to cash in X defense, consumer, software right have track growing tend where [ also free have an business are sectors

below to not syndicated million compete the peers or companies million our the in market, middle upper loan broadly is does unlike EBITDA $XX of $XX market. middle high-yield the with markets and core with threshold The

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

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

the our some focus That who but a intuitive regard of lower loans risky. our erosion well EBITDA of higher than reason sense, had According EBITDA. less the loans may million upper is and default environment. is meaningful from in significant a first-lien monitoring help Many with virtually companies in us most financial less statements to the higher the of top middle monthly on middle rate capital. market, than are positioned which covenants, originated $XX covenants, recovery market protect peers are all with our a S&P, to perspective, have we unlike believe received we make companies stay different. that to state bigger the companies. With Additionally, this to reality of the help of those companies we why on This upper rate

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

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

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

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

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

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

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

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

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

Richard Allorto

Thank you, Art.

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

million. investments, the change ended including realized XX, net For June of a provision unrealized loss and $X.X on for taxes was quarter

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

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

total rate. of debt The diversified as average X.X% interest PIK highly of XXX% We with the X.X% represented at of the which different XXX portfolio Our XX remains XX, As weighted companies June and our key XX.X% statistics portfolio on approximately our follows: were industries. across investments yield at value. cost only had equaled X portfolio market nonaccruals, debt and income income the floating portfolio for of is X.X% quarter. was

debt, secured debt, in coverage less XX% on X% of portfolio of X% X% second-lien was other X.Xx. PSSL comprised is subordinated equity the in debt and portfolio equity. senior than The X.Xx and and is first-lien EBITDA to The interest in

turn me Art. to let the Now call back

Arthur Penn

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

Operator

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

Brian Mckenna

actually It for quarter investment portfolio, year-to-date. now and increased that's the was XX% another of strong growth

over remain the and around somewhat elevated. the expectation next for portfolio what's side then couple also leverage cash still the of have So You the on quarters? capacity growth

ultimately, grow from actually of with you're into earnings just likely think to next what's position So I'm here. to trying year going rates. if a the in to lower the through even base trajectory portfolio be And

Arthur Penn

some of have I busy. busy. We're somewhat over differentiated it's where market. We've It's Yes. say our slower market severe are peers against been And be they right broadly middle a going we're in may than to competition too, either busy, been the loan question. quarter the who the last Thank upper or got syndicated the obviously, you.

smaller, the Here loans, the We're time. that's in We're a add-on equity with sponsor platform of core over we're active. a term seeing with from prototypical flow. little start substantial deal kind it doing and a acquisitions, lot of but middle market, their delayed-draw grow

in and pin built a So for in nice the a put capital the it that's hundred of Hard what war deployed. we're doing. dollar actual a couple the We upsize, of facility, upsized of you, securitization upsized lot Truist program. very million ATM between Brian, to terms a chest

So liquidity really, and to And that's certainly take from advantage of should take happen. should really able having the and capital markets opportunity. become of be a to that choppier to possibility, well the side capital positioned advantage that,

a good we're like in feel So grow. liquidity-wise position to really and capitalized

NII up, as to terms per bottom that should of the in Certainly, fall line. lever we share

and vintage, So share leverage balance of the drive of of and per up offer. to a opportunity of the to we're take trying lot take advantage to find the to powder keeping NII advantage dry also

Brian Mckenna

then And helpful. just leverage Super follow-up Okay. on specifically. a

and ATM, into leverage that's kind range. quarters the a clearly that several So been bit target leaned below a quite of of big you've being driver last

But So getting leverage raising X.Xx to the a then kind way capital, think leverage there start line shy about trading is of back from is to to will that stock today, just away you'll assuming -- where given higher. around equity target? the move time I'm

Arthur Penn

capital it NAV, that. good shares. not is -- the on time would facility would round be $XX.XX, We're built the feel last to not the to issue about raised be not we deploy that. it we're dilutive. Yes, Look, with it's going a that where -- the would very Today, that credit the on capital we've do and to the of We did it's We stock good around pleased that side, would we CLO relative question. ATM, side. we today so that

the right now use of think capital whatever, the or it's of I the and kind propitiously we advantage of opportunity. to take So and to now, timed it deploy time kind

Brian Mckenna

question Okay. for just Great. And Art, picture then, bigger more one you.

You've broader fluid. of number of cycles through today XXXX. clearly the into operating quite And the macro a kind around and business operated outlook economic environments. And remains uncertainty the just different of a there's very bit

we are where PFLT any on means to make leaning all for thoughts for to in broader your experiences then of remains your this sure evolving in are stakeholders. are you what the results curious, I'm positioned So past on business? what deliver macro your cycle, well strong And that

Arthur Penn

in Yes. going Thank our you. we're Look, we XXth business have year. been into --

to sensible low crisis, powder you lived downturn do -- of good you have maintaining pandemic we've the still leverage including covenants. of the macro. select in versus vehicle decade, the the industrial the liquidity offense, of So through takes to packages, structure, meaningful play usually the rest being at level, And it if last defend sure that, excellent an the comes down itself. global and to and financial and of while middle keep dry it micro micro The companies, making most care the

in many from lessons the So business. that's of kind years

recession always in underwriting good or deals package. Any a with Hard a to not. underwrites recession going whether case into underwriter say credit we're the

recession, to how Let's CapEx levers a working has are are has costs capital XXX the much managed? pull, can company what fixed, what names. assume much about or So are how PFLT happens be be the there's variable, managed,

you of we all We them, and If them. the in had all credit of cases. cases members downside recession to back go had

are generally, so our the and in you're low. right always fine we they're nonaccrual, and we of are -- it idiosyncratic even we some portfolio. Nonaccruals When the now. can pretty have a very usually packages, and just But names, performing solid in course, And consumer you surprised. get consumer have do seeing generally portfolio have

Operator

our Doug Harter take UBS. from next from question will We

Douglas Harter

both packages. Can you loans, covenant the little terms on bit spreads competition and talk you're new a in about of seeing

Arthur Penn

Sure, Doug. Thank you.

a So -- of That's year some environment a it cases, down absolute by points. driven spreads, basis the That's XXXX. said attractive still though the in our getting are been XX-plus by as that's some -- basis, X the even remarks, an course to what's on the in now XX stable months When than we of is driven prepared tightened the of over you're still in by obviously over We're course ago. high driven XX peers. that's August, percent investors, been sanguine base rates. on first-lien spread for was

So seen we have spread tightening.

kind of are prepared That statistics the we said, in we as reviewed packages. really getting the nice remarks,

in X.Xx. value and on in these of still we we an it's in loans one conversation. interest get And the middle new So they And to meet may maintenance quarterly to X.Xx market that tests debt loan average EBITDA think the the thing attractive XX%. you core have average market get them, coverage Average vintage. weighted even meaningful that are you is don't was upper if middle And rates are covenant are companies the that the meet. to covenants that not elevated a there's getting protection. meaningful, That's

much Additionally, the stronger overall are structures structures.

in [ the et ] assets So on shenanigans the it, property that getting had call the our light structure. core the just the allowed, not was are a to strong space. in broadly syndicated market, very they happens with went upper because to a from of in with cetera. I'll and around press and away some of a of moving middle it's on upper there's intellectual market, been of covenant lot some That compete lenders, market middle None market -- just the went and names market had that these absorb middle

portfolio date, down. feel and even very We though So light, nonaccruals the very about the the credits to good we performing be the well. good vintage feel continue and very yields are is about and generally to the spreads

Operator

Maxwell Fritscher We Truist Securities. will to from now move

Maxwell Fritscher

Hughes. on question. going for Kind the of off ] [ competition Mark I am

market. the any the seeing competitors middle those core and all values you Are market upper come mentioned operating in better the from of tap middle market benefits better these to the bit middle or covenants? downstream little You loan of a

Arthur Penn

great a It's question.

have evidence big We moving the lot a core. not the of of seen into players down

$XX prototypical a of in to There's our core and plan. There's a company. see guys million, $XX is Occasionally, to a $XX one come of down to $XX of is. to doing it's for $XX acquisitions million $XX the company growth a Now game It's take as big million deals goal We XX, are that's it EBITDA define in core. industry. and a to the can many hundred occasional. define And situation company EBITDA how million growth, check, fragmented of deploy EBITDA. or above. million couple million that's depends identified that million $XX and but They some $XX million million you to you'll XX XX,

that lender the be we'll that's strategic to borrower. So

to term get loan delayed a company and draw We that pathway will provide larger.

doing if terms is our in participate putting of multiple doing helping basis equity growing sponsor, capital in story few points. upside last those attractive, XX about companies, Xx we plan game $XXX years, about since in so aligned the [ capital on and actually can on we're like, various why some less are over some which companies, debt It's some XX% generate deployed And we're cases, many that million And is a side-by-side with the And over our to we're had much the vehicles for that the have invested those company. that, of we certainly, the the more the side. the the in of it's equity co-invest growing ] very in the we co-investment, those IRR. so of in equity

model. that's of So bonus our a nice

Maxwell Fritscher

previously they visibility with kind Fed assuming actions. normalized And seen companies resume CapEx rate you Have and acquisitions, these spending future investments? little and more add-on paused any trajectory that portfolio of a then bit the Yes. clarity into

Arthur Penn

we needed, I of kind as it. of most our of sticks of where to out sticks think a companies can my to that pulled don't someone out -- have back situation kind you comes one nothing proactively I ahead, kind have case. stick give who know plans case I of that them of just leaning someone's long-term game in ahead that just leaning unfortunately proactively It's running kind by and to there's into if mind where that they're is don't

Operator

now back additional the will to Art or remarks. for turn Penn I closing call any

Arthur Penn

for Thank Rick I today, team. entire Financial we Chief your call our Allorto, the and thank our being Officer, and want have everybody interest. for to you on

XX-K. the our that to mid-November, Looking speaking is quarter forward in reminder to you X/XX

our So be then. forward we later to interest, a you great typical summer. little than but earnings quarterly look our and speaking rest bit release timing, call the have of will to your out a for Thank you and

Operator

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

You may now disconnect.

PennantPark Floating Rate Capital (PFLT) 8 Aug 242024 Q3 Earnings call transcript